inflation rate

Rates Spark: Treasuries need better than the consensus CPI outcome

Markets are awaiting Tuesday’s US CPI release which should give confirmation that the disinflation trend continues. But that's not enough, as a consensus month-on-month outcome would still be a tad too hot for comfort. Looking further ahead, foreign buyers aren't absorbing large UST supply, putting upward pressure on term premium.

 

US CPI inflation will fall, but Treasury yields are still at risk of rising

We're a bit troubled about Tuesday’s CPI report. On the one hand, year-on-year rates will fall, with practical certainty. That's because of a base effect. For January 2023 there was a 0.5% increase on the month, so anything less than this will bring the year-on-year inflation rate down, for both headline and core.

So why are we troubled? It's the size of the month-on-month increases. Headline is expected at 0.2% and core at 0.3% MoM. The 0.2% reading is just about okay, especially if it is rounded up to 0.2

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UK REITs Proving Themselves As A Successful Hedge Amidst Rise In UK Inflation

UK REITs Proving Themselves As A Successful Hedge Amidst Rise In UK Inflation

Rebecca Duthie Rebecca Duthie 13.04.2022 15:55
There is no sign of inflation slowing down, there are still major issues with the supply chains, money supply is still rising and the war in the Ukraine affecting investor sentiment are all aspects driving the rise in inflation worldwide. UK Inflation: The increase has deepened the cost of living crisis in the UK The UKs inflation hit an all time 30 year high in March and the April reading is expected to further increase. As a result over the last month, investments in REITs have increased, as investors are looking to REITs as a potential hedge against inflation, REITs are also a useful tool to diversify an investment portfolio. The graph shows one of the top REITs (Residential Secure Income Plc ) in the UK and its performance over the past week amidst the announcements of housing inflation increasing. Related article: ECB To Shock Markets In The Following Week!? US Dollar Rate Under Pressure As Well! Price Chart of Residential Secure Income Plc
ECB April Preview: Quicker end to QE to help euro recover

ECB April Preview: Quicker end to QE to help euro recover

FXStreet News FXStreet News 13.04.2022 16:55
Euro has been struggling to find demand since the beginning of April. ECB is widely expected to leave key rates unchanged. A hawkish shift in ECB's policy outlook could trigger a steady rebound in EUR/USD. EUR/USD is already down more than 2% in April amid the apparent policy divergence between the Federal Reserve and the European Central Bank (ECB). The European economy is widely expected to suffer heavier damage from a protracted conflict between Russia and Ukraine than the US economy, and the Fed remains on track to hike its policy rate by 50 basis points in May. The shared currency needs the ECB to adopt a hawkish policy stance in order to stay resilient against the greenback. In March, the ECB left interest rates on the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.50% respectively. The bank further announced that monthly net purchases under the Asset Purchase Programme (APP), which were initially planned to end in the fourth quarter, will amount to €40 billion in April, €30 billion in May and €20 billion in June before ending in the third quarter. Related article: ECB Interest Rate Decision Is Coming! European Indices (DAX, CAC40) To Plunge Or Rise? What About Forex Pairs? The accounts of the ECB’s March meeting revealed earlier in the month that a large number of the governing council members held the view that the current high level of inflation and its persistence called for immediate further steps towards monetary policy normalization. Hawkish scenario The ECB could decide to adjust the monthly purchases to open the door for a rate hike in the second half of the year if needed. The bank might keep the purchases under APP unchanged at €40 billion in April but bring them down to €20 billion in May to conclude the program by June. Even if the policy statement refrains from offering hints on the timing of the first rate increase, such an action could be seen as a sign pointing to a June hike. In a less-hawkish stance, the bank may choose to leave the APP as it is but change the wording on the QE to say that it will be completed in June rather than in Q3. ECB President Christine Lagarde’s language on the timing of the rate hike will be key if the bank decides not to touch the APP. During the press conference in March, Lagarde noted that the rate hike would come “some time” after the end of QE. If Lagarde confirms that they will raise the policy rate right after they end the APP, this could also be seen as a hawkish change in forward guidance. Dovish scenario The ECB might downplay inflation concerns and choose to shift its focus to supporting the economy in the face of heightened uncertainty by leaving the policy settings and the language on the outlook unchanged. The euro is likely to come under heavy selling pressure if the bank reiterates that the APP will end in the third quarter as planned. That would push the timing of the first rate hike toward September and put the ECB way behind the curve in comparison to other major central banks. According to the CME Group FedWatch, markets are pricing in a more-than-60% probability of back-to-back 50 bps hikes in May and June. Conclusion The ECB is likely to respond to the euro’s weakness, aggressive tightening prospects of major central banks and hot inflation in the euro area by turning hawkish in April. For EUR/USD to stage a steady rebound, however, the bank may have to convince markets that they are preparing to hike the policy rate by June. On the other hand, there will be no reason to stop betting against the euro if the bank chooses to leave its policy settings and forward guidance unchanged. EUR/USD technical outlook EUR/USD closed the previous seven trading days below the 20-day SMA and the Relative Strength Index (RSI) indicator stays below 40, suggesting that bears continue to dominate the pair’s action. On the downside, 1.0800 (psychological level, March low) aligns as first support. With a daily close below that level on a dovish ECB, EUR/USD could target 1.0700 (psychological level) and 1.0630 (March 2020 low). Key resistance seems to have formed at 1.0900 (psychological level, static level). In case this level turns into support, a steady rebound toward 1.1000 (psychological level, 20-day SMA) and 1.1100 (static level, psychological level) could be witnessed.
Eurozone PMI Shows Limited Improvement Amid Lingering Contraction Concerns in September

Tightening Alert! How Have Exchange Rates Of Singapore Dollar (SGD), NZD, Canadian Dollar And Korean Won (KRW) Changed?

Marc Chandler Marc Chandler 14.04.2022 13:47
April 14, 2022  $USD, Australia, BOC, China, Currency Movement, ECB, Japan, Turkey, UK Overview: What appears to be a powerful short-covering rally in the US debt market has helped steady equities and weighed on the dollar.  Singapore and South Korea joined New Zealand and Canada in tightening monetary policy.  Attention turns to the ECB now on the eve of a long-holiday weekend for many members.  The tech-sector led the US equity recovery yesterday, snapping a three-day decline.  Most of the major markets in Asia Pacific advanced but Taiwan and India.  Europe's Stoxx 600 is posting small gains for the second day, and US futures are little changed.  The 10-year Treasury yield is a little softer at 2.69%.  It peaked on April 12 near 2.83%.  The two-year yield is almost one basis point lower to about 2.34%.  It peaked on April 6 around 2.60%.  The drop in US yields yesterday and softer than expected jobs data conspired to a 10 bp drop in Australia's 10-year yield.  European yields are 3-4 bp higher, with the periphery leading, perhaps on ideas that the ECB will signal the end of its bond-buying.  The dollar is mostly heavier against the major currencies, with the Swedish krona and New Zealand dollar the strongest.  Among emerging market currencies, those from central Europe have been helped by the euro's bounce.  The high-flying South African rand and Mexican peso have come back a bit lower.  Gold is softer but consolidating inside yesterday's range.  June WTI is pulling back a little after testing the $104 area.  US natgas prices are higher for the fourth session and have risen by around 58% since mid-March.  Europe's benchmark is off about 3% and is near its lowest level since March 25.  Iron ore rose 1.6% after yesterday's 2.5% decline as the sawtooth pattern of alternating gains/declines this week continues.  July copper is edging higher for the third session.  July wheat is struggling after four days of gains.   Asia Pacific Australia's March employment report fell shy of expectations.  Overall, employment rose by 18k, not the 30k the median forecast (Bloomberg survey) anticipated.  Full-time positions rose by 20.5k after increasing by nearly 122k in February.  The unemployment rate was steady at 4.0% rather than slipping as expected.  The participation rate was steady at 66.4%.  It had been expected to increase slightly.  Separately, the Melbourne Institute's measure of inflation expectations rose to a new high of 5.2% from 4.9%.  The central bank is waiting for stronger signs of wage pressures to build before lifting rates, but this risks putting it further behind the curve.  A rate hike is expected after next month's election.   How are Japanese investors responding to the slide in the yen?   For the 10th week of the past 11, Japanese investors have been selling foreign bonds.  US Treasuries are their largest holding, so the divestment hit them hardest.  Given the developments in the foreign exchange market, the repatriation of unhedged proceeds buys more yen.  Sometimes in the past, it appears that the weakness of the yen encouraged Japanese investors to export more savings.   The market will be disappointed if China's benchmark one-year medium-term lending facility rate is not cut tomorrow.   It was last cut by 10 bp to 2.85% in January.  This was the first cut since the pandemic struck in early 2020.  The MLF rate was cut by 20 bp in April 2020 after a 10 bp cut in February.  Covid and the associated lockdowns are hitting an economy that already appeared to be struggling.  More than a token 10 bp cut is necessary.  There are heightened expectations for a cut in reserve requirements as soon as next week.  Prime loan rates may also be reduced next week.  China reports Q1 GDP early next week.  It has expected to have slowed to 0.7% quarter-over-quarter after growing 1.6% in Q4 21.   The pullback in US yields has helped the yen stabilize after sliding for the past nine consecutive sessions.   Still, the greenback has found support ahead of JPY125.00.  A break of the JPY124.80 area is needed to signal anything important technically.  On the upside, the JPY125.60-JPY125.70 area may offer an immediate cap.  Support at $0.7400 for the Australian dollar frayed yesterday but it recovered to almost $0.7470 today before new offers proved too much.  It is finding support in the European morning near $0.7440.  The Chinese yuan has not drawn much benefit from the heavier US dollar.  The greenback did make a new low for the week near CNY6.3625 but recovered and resurfaced above CNY6.3700. The PBOC set the dollar's references rate slightly lower than expected at CNY6.3540 (vs. median forecast in Bloomberg's survey for CNY6.3547).  Europe The ECB meets amid claims by its first chief economist Issing that its approach to inflation has been misguided.   The preliminary estimate of last month's CPI was 7.5% (3% core) year-over-year.  At the same time, growth forecasts are being cut. There has also been a serious blow to consumer and business confidence.  Monetary policy, as is well appreciated, has impact with variable lags.  That is partly why simply subtracting inflation from the bond yield may not be the most robust way to think about real interest rates.  Nominal rates should be adjusted for inflation expectations.  In any event, the takeaway from the ECB meeting will be about the forward guidance on its asset purchases. Does it pullback from last month's decision in which it indicated its monthly bond purchases here in Q2 or does it commit to suspending the Asset Purchases Program at the end of the quarter?  What about the other policy tool discussed in the press that would give the ECB a way to counter a surge in yields that could lead to diverging rates?  It seems like it is not imminent, but more importantly this may be an effort to modify the Outright Monetary Transactions facility that Draghi launched.  Note that there were conditions attached and although the facility has not been used, it seemed to have helped ease the crisis mentality. It reveals something about the power of the communication channel.   Turkey's central bank sets the one-week repo rate today and it is likely to remain at 14%.   What may prove more interesting are the weekly portfolio flows.  In the week ending April 1, foreign investors were net buyers of Turkish bonds for the first time in six weeks. The $104 mln was slightly more than the cumulative total of the last three weeks that they were net buyers (late Jan-mid-Feb). The Turkish lira has stabilized.  Consider that actual volatility (historic) over the past month is about 7.1%.  A month ago, it was around 13%. At the end of last year, it was almost 100%.   The Johnson government lost its junior Justice Minister Wolfson over the "repeated rule-breaking."   Meanwhile, reports suggest the prime minister will likely be fined a second time.  However, sterling is unperturbed by these developments.  It is extending yesterday's dramatic recovery. Sterling posted a key reversal yesterday by falling to new lows before rallying and settling above the previous day's high.  There has been follow-through buying that has lifted sterling to almost $1.3150 today.  Yesterday, it recorded a low near $1.2975.  The $1.3175-$1.3200 area may offer stronger resistance.  The euro is also extending its recovery.  Buying emerged yesterday ahead of $1.08.  It reached a three-day high slightly below $1.0925.  There is a 600-euro option at $1.0920 that expires today.  Nearby resistance is seen around $1.0950.   America US retail sales look to have strengthened, but the devil is in the details.   The median forecast (Bloomberg survey) sees retail sales rising 0.6% after a 0.3% gain in February.  However, high price gasoline can again skew the data. Recall that the CPI figures showed an 18% rise in gasoline prices last month (which accounted for more than half of the 1.2% monthly gain). What Bloomberg calls the control measure, which excludes food services, gasoline, autos, and building materials, is used by some economic models of GDP, which pick up those items through a different time series than the retail sales report.  After being crushed in February, falling 1.2%, the median in Bloomberg's survey calls for a 0.1% gain.  The risk is that rising gasoline prices slams discretionary purchases.  Separately, import and export prices are expected to have continued to accelerate last month.   Although export prices are rising faster than import prices, the US trade deficit has deteriorated. The US reports weekly jobless claims.  Revisions to the seasonal adjustment may be exaggerating the recent decline, but the labor market remains tight in any event.  Business inventories are expected to have risen in February (~1.3%) after a 1.1% gain in January.  While it would be strong, for GDP purposes the key is the change in the change, as it were.  In Q1 business inventories grew by an average of about 1.7% a month.  The slower inventory growth is part of the slowing we anticipate in Q1.  Lastly, the University of Michigan's consumer confidence measures is likely to have deteriorated, but it may be the inflation gauges that draw the most attention.  Many economists suspect US CPI, especially the core measure, may have peaked.   The Bank of Canada delivered the much anticipated 50 bp hike yesterday.   The market has fully priced in a 25 bp hike at the next meeting in early June.  The risk seems to be for another 50 bp hike. The central bank lifted the neutral rate to 2.50% from 2.25% and suggests that is where it was headed.  It lifted its inflation forecasts.  It now expects CPI to average 5.3% this year, up from the 4.2% forecast in January.  Next year's forecast was lifted to 2.8% from 2.3%.  Also, as anticipated, the Bank of Canada will stop recycling maturing proceeds and allow its balance sheet to shrink.  Over the next 12-months about a quarter of the bonds bought on net basis during the pandemic (C$350 bln) will roll-off.   The US dollar posted a key downside reversal against the Canadian dollar yesterday and follow-through selling has been seen.   Initially the greenback made new highs for the move to around CAD1.2675 yesterday before turning around and settled below the previous session's low (~CAD1.2580).  It has been sold to around CAD1.2540 today, which is the (50%) retracement of the greenback's rally off the April 4 low for the year near CAD1.2400.  The next retracement (61.8%) is closer to CAD1.2500.  The Mexican peso's run is getting stretched.  It managed to extend the most recent streak to its fifth consecutive advance yesterday, but the upticks are getting harder to secure. The peso is better offered today, with the dollar near MXN19.80.  Initial resistance may be in the MXN19.88-MXN19.92 area.       Disclaimer
UK Labor Market Shows Signs of Loosening as Unemployment Rises: ONS Report

DAX, EUR/GBP And EUR/USD Recovered Thanks To ECB Interest Rate Decision!? European Central Bank Makes European Indices Gain

Mikołaj Marcinowski Mikołaj Marcinowski 14.04.2022 16:23
It’s not easy time for Europe’s residents and European Central Bank’s decision makers. Ongoing war in the Ukraine with foreseen, intensified warfare and consequences of COVID-19 pandemic influenced economics of many countries. Naturally, the charts show that DAX and CAC40 trade higher than before the outbreak of the virus. To me, it only supports the thesis all mentioned events stopped European indices, companies and countries from growing much, much further. Emphatic European Central Bank (ECB) Let Economies Recover And Stay Strong? Since 2016 the ECB interest rate has amounted to 0%. Having in mind all the events which took place throughout last six years it seems to had been a correct decision. Coronavirus crisis influenced countries despite their economic status so tighter monetary policy would have weaken the euro and equities even further. But… Related article: ECB Interest Rate Decision Is Coming! European Indices (DAX, CAC40) To Plunge Or Rise? What About Forex Pairs? Inflation Is Taking Its Toll! Although the Russia-Ukraine warfare is still there and negotiations don’t seem to be working and stimulus for markets is highly demanded, the inflation is gaining momentum around the world. ECB is trapped in. These two contradictory factors may make decision makers confused, but let’s have a look how have markets reacted to today’s monetary policy statement of ECB. Forex: EUR/GBP Chart Shows Consequent Move Of The Price Strengthening of euro or weakening of British pound is driven by i.a. inflation data coming from the United Kingdom. The news coming from the UK in past months weren’t so optimistic as the inflation hit 30-year-high. EUR/GBP Chart Forex: EUR/USD influenced by both – ECB interest rate decision, war and Fed’s rhetoric As the week is coming to the end we see how many factors shaped the rates of certain currencies. This week’s inflation data of USA and the release of crude oil inventories make the asset quite volatile. Yeah… The right hand side… That’s a drop! EUR/USD Chart DAX Regained After Trading Lower Yesterday’s Morning Significant, ca. 2% decrease is almost compensated. DAX (GER40) Chart CAC40 Is Heading To A 1% Gain French index has been more aggressive until now. Today’s opening gain brought some optimism to investors. CAC40 Chart Source/Data: Investing.com, TradingView.com Charts: Courtesy Of TradingView.com
FX Daily: Low Volatility Persists Amidst US Jobs Data Ripples

Beating Inflation: Are The Fed’s Dreams Gold’s Worst Nightmare?

Przemysław Radomski Przemysław Radomski 14.04.2022 16:28
While investors remain happy-go-lucky, fundamental data for gold and silver is now worse than in 2021. Is this the last chance to come back to earth? As another week comes to a close, the winds of change are blowing across the financial markets. However, while many investors and analysts can see only sunny days ahead, fundamental storm clouds should rain on their parade over the medium term, and it’s quite possible that it’s going to happen shortly. To explain, this week culminated with the USD Index soaring above 100, the U.S. 10-Year real yield hitting a new 2022 high, and Goldman Sachs’ Financial Conditions Index (FCI) hitting its highest level since the global financial crisis (GFC). However, the PMs paid no mind yet. In fact, investors across many asset classes continue to ignore the implications of these developments. So far. With sentiment poised to shift when the economic scars begin to show, the “this time is different” crowd may regret not heeding the early warning signs. For example, the Bank of Canada (BoC) announced a 50 basis point rate hike on Apr. 13., and with the Fed likely to follow suit in May, the domestic fundamental environment confronting the PMs couldn’t be more bearish. Please see below: Source: BoC Moreover, BoC Governor Tiff Macklem (Canada's Jerome Powell) said: "We are committed to using our policy interest rate to return inflation to target and will do so forcefully if needed." Furthermore, while he added that the BoC could "pause our tightening" if inflation subsides, he cautioned that "we may need to take rates modestly above neutral for a period to bring demand and supply back into balance and inflation back to target." However, with the latter much more likely than the former, the BoC's decision is likely a preview of what the Fed should deliver in the months ahead. Please see below: Source: Reuters To that point, while investors continue to drown out officials’ hawkish cries, I warned on Apr. 13 that the Fed knows full well about the difficulty of the task ahead. I wrote: Fed Governor Lael Brainard said on Apr. 12: “Inflation is too high, and getting inflation down is going to be our most important task.” She added: “I think there’s quite a bit of capacity for labor demand to moderate among businesses by actually reducing job openings without necessitating high levels of layoffs.” As a result, she’s telling you that Fed officials will make it their mission to slow down the U.S. economy.  With phrases like “capacity for labor demand to moderate” and “reducing job openings” code for what has to happen to calm wage inflation, the prospect of a dovish 180 is slim to none. As such, this is bullish for real yields and bearish for the PMs. More importantly, notice her use of that all-important buzzword? Source: Reuters And: Source: Reuters Moreover, where do you think she got it? Source: Reuters Echoing that sentiment, Chicago Fed President Charles Evans (a relative dove) said on Apr. 11 that more than one 50 basis point rate hike could be on the horizon. "Fifty is obviously worthy of consideration; perhaps it's highly likely even if you want to get to neutral by December." As a result, with the USD Index and the U.S. 10-Year real yield already soaring, what do you think will happen if the Fed pushes the U.S. federal funds rate "to neutral by December?" Please see below: Source: Reuters Even more hawkish, Fed Governor Christopher Waller said on Apr. 13: “I think we’re going to deal with inflation. We’ve laid out our plans. We’re in a position where the economy’s strong, so this is a good time to do aggressive actions because the economy can take it.” He added: “I think we want to get above neutral certainly by the latter half of the year, and we need to get closer to neutral as soon as possible.” As a result: Source: CNBC Now, if we presented these quotes to the permabulls, they would say: "So what? We already know that the Fed is going to raise interest rates."  However, while a higher U.S. federal funds rate is now the worst-kept secret, the impact on U.S. economic growth is far from priced in. With investors assuming the Fed will normalize inflation without hurting the U.S. economy, they are positioned for an unrealistic outcome. Stagflation, anyone? Moreover, with the gold and silver prices ignoring everything the Fed throws at them, they're attempting to re-write the history books. However, with Brainard and Waller telling you that their goal is to create a bullish environment for the USD Index and the U.S. 10-Year real yield, the PMs have fought this battle before and lost this battle before. To explain, I wrote on Apr. 6: Please remember that the Fed needs to slow the U.S. economy to calm inflation, and rising asset prices are mutually exclusive to this goal. Therefore, officials should keep hammering the financial markets until investors finally get the message. Moreover, with the Fed in inflation-fighting mode and reformed doves warning that the U.S. economy “could teeter” as the drama unfolds, the reality is that there is no easy solution to the Fed’s problem. To calm inflation, it has to kill demand. As that occurs, investors should suffer a severe crisis of confidence. To that point, Fed officials aren’t even pretending anymore. Waller said on Apr 13: “All we can do is kind of push down demand for these products and take some pressure off the prices that people have to pay for these products. We can’t produce more wheat, we can’t produce more semiconductors, but we can affect the demand for these products in a way that puts downward pressure and takes some pressure off of inflation.” Likewise, Waller was even more realistic when he spoke on Apr. 11: He said: “With housing, can we cool off demand for housing without tanking the construction industry? Can we cool down the labor demand without causing employment to fall? That’s the tricky road that we’re on.” As a result, while Fed officials understand how difficult it will be to normalize inflation, investors remain in la-la land. However, when the “collateral damage” eventually unfolds, the shift in sentiment should result in the profound re-pricing of several financial assets. Please see below: Source: Bloomberg Thus, investors’ uninformed state of denial will likely seem obvious in the months ahead. (Yes, I know, it’s difficult to remain rational while surrounded what’s irrational, and that’s the very thing that makes investing “simple, but not easy”). Moreover, while Macklem cautioned that the BoC could “pause our tightening” if inflation subsides, the same rule applies to the Fed. However, with inflation still raging, the Fed and the BoC are unlikely to change their hawkish tones anytime soon. Case in point. The U.S. Bureau of Labor Statistics (BLS) released the Producer Price Index (PPI) on Apr. 13.,and with outperformance across the board, green lights were present for all of the wrong reasons. For context, the gray figures in the middle column were economists’ consensus estimates. Please see below: Source: Investing.com Likewise, the NFIB released its Small Business Optimism Index on Apr. 12. The report revealed: “The NFIB Small Business Optimism Index decreased in March by 2.4 points to 93.2, the third consecutive month below the 48-year average of 98. Thirty-one percent of owners reported that inflation was the single most important problem in their business, up five points from February and the highest reading since the first quarter of 1981. Inflation has now replaced ‘labor quality’ as the number one problem.” How about this divergence? “Owners expecting better business conditions over the next six months decreased 14 points to a net negative 49%, the lowest level recorded in the 48-year-old survey.” “The net percent of owners raising average selling prices increased four points to a net 72% (seasonally adjusted), the highest reading recorded in the series.” Moreover, “a net 50 percent plan price hikes (up 4 points).” Please see below: Source: NFIB On top of that, “a net 49 percent reported raising compensation, down 1 point from January’s 48-year record high reading. A net 28 percent plan to raise compensation in the next three months, up 2 points from February.” Please see below: Source: NFIB Thus, while the Fed hopes to rein in inflation, U.S. small businesses plan more price hikes and wage increases than in February. Therefore, officials’ hawkish intentions are not nearly hawkish enough. As a result, the medium-term outlook for the U.S. federal funds rate, the USD Index and the U.S. 10-Year real yield couldn’t be more bullish. As mentioned, let’s not forget how optimism often turns to pessimism when the drama unfolds. The bottom line? Investors lack the foresight to see how the Fed’s rate hike cycle will likely unfold. Moreover, with Fed officials warning of the “collateral damage” that occurs when they curb demand to reduce inflation, the permabulls have simply closed their eyes and covered their ears. However, when sentiment is built on a foundation of sand, it often collapses when reality re-emerges. In conclusion, the PMs rallied on Apr 13 as momentum remains the name of the game. However, while sentiment remains robust, gold, silver, and mining stocks’ fundamentals are worse now than at any point in 2021. As a result, history shows that not only are the current prices unsustainable, but profound drawdowns are required for the PMs to reflect their intrusive values.   What to Watch for Next Week With more U.S. economic data to be released next week, the most important ones are as follows: Apr. 21: Philadelphia Fed manufacturing index With the regional data providing early insight into April’s inflation dynamics, continued price increases will put more pressure on the FOMC. Apr. 22: S&P Global’s U.S. manufacturing and services PMIs Unlike the Philadelphia Fed’s index, S&P Global’s data covers the entire U.S. As a result, the performance of growth, employment, and inflation will be of immense importance. All in all, economic data releases impact the PMs because they impact monetary policy. Moreover, if we continue to see higher employment and inflation, the Fed should keep its foot on the hawkish accelerator. And if that occurs, the outcome is profoundly bearish for the PMs. Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today. Przemyslaw Radomski, CFAFounder, Editor-in-chiefSunshine Profits: Effective Investment through Diligence & Care * * * * * All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
For What It Is Worthy To Pay Attention Next Week 23.01-29.01

(USOIL) Crude Oil Price Crisis!? Fed To Boost (USD) US Dollar? UK Inflation Rate Surprised Many This Week, What About The Following One? Economic Calendar by FXMAG.COM

Mikołaj Marcinowski Mikołaj Marcinowski 16.04.2022 17:59
Today, tomorrow and on Monday many countries around the world celebrate Easter. Friday was a day free for many stock markets and banks too. As we wrote yesterday forex market was live so we may say it had some time to stock (sic!) up. The following week is going bring many news and next proves of hawkish rhetoric of Fed, ECB and BoE. Monday – Going East – Chinese GDP On Monday many, many countries – Germany, Italy Spain, Australia and more has a day free. Only in China, very early in the morning GDP and Industrial Production are printed. Previously Gross Domestic Product amounted to 4%. Another indicator released at 3 a.m. – Industrial Production hit 7.5% previously. Related article: Deutsche Bank Shook DAX! French Election, Inflation And ECB Are Factors Which Shaped DAX (GER 40), CAC40, FTSE 100 And IBEX35 - Top Gainers, Top Losers Tuesday – RBA Meeting Minutes – NZD/USD To Plunge Again!? It’s good to have a look at RBA Meeting Minutes in the morning. The document will be released at 2:30 a.m. and may let us prepare NZD rate prediction. At 1:30 p.m. we focus on the data coming from the USA. Building Permits release previously amounted to 1.865M. This indicator let us diagnose the real estate market in the United States. Wednesday - Crude Oil Price To Skyrocket!? CAD/USD And NZD/USD May Fluctuate! First release of the day is Chinese PBoC Loan Prime Rate which takes place at 2:15 a.m. Previously this indicator amounted to 3.7%. At 1:30 p.m. you better follow CAD/USD and other pairs with Canadian dollar as Core CPI may shake the rate. Indicator amounted to 0.8% previous time. Later in the afternoon investors should follow the release of Existing Home Sales (6.02M) and, what’s most important – Crude Oil Inventories. ON April 13th Crude Oil Inventories hit 9.382M! Very late in the afternoon we focus on New Zealand where CPI (Q1) is released. Let’s follow NZD forex pairs then. Thursday – Huge Gain Of US Dollar Index (DXY) Amid Hawkish Fed!? Follow Euro To US Dollar (EUR/USD) and GBP/USD Fluctuations! What Will BoE And ECB Do? Naturally next Fed decision is made in May, but before it happens we all stay updated with the current Fed rhetoric expressed by i.a. Jerome Powell who speaks at 6 p.m. on Thursday. What’s more it’s going to be a really, really market moving day as alongside Powell, BoE’s Bailey and ECB’s Lagarde speaks as well! Additionally, at 10 a.m. the EU CPI is released. After the recent interest rate decision ECB’s rhetoric is definitely worth a follow! Article on Crypto: Hot Topic - NEAR Protocol! Terra (LUNA) has been seeing a consistent downward price trend, DAI Should Stay Close To $1 Friday – GBP/USD To Plunge!? UK Manufacturing PMI Release And BoE’s Lagarde Speaks Again The following week ends with some important releases. We begin with UK Retail sales, Manufacturing PMI, Services PMI and German Manufacturing PMI. In the afternoon Canadian Core Retail Sales (2.5%) is released. The day ends with ECB’s and BoE’s representatives’ testimonies. Source/Data: Investing.com Economic Calendar
The Witchy Trio: Commodities Supercycle, Inflation, and… Recession?

The Witchy Trio: Commodities Supercycle, Inflation, and… Recession?

Sebastian Bischeri Sebastian Bischeri 18.04.2022 15:59
  If the current market phenomena were to star in a Shakespeare drama, they would be ideal candidates for the Three Witches. Can you guess who would play who? Have you ever heard of Shakespeare’s mythological characters, the Three Witches? They are depicted as prophets who represent evil, darkness, chaos, and conflict. If you look at the market today, you will find ideal candidates for these dark roles. However, while rising commodity prices and inflation have a casting win in their pocket, there is no certain actor to play the third witch. Would the recession stand a chance?   Related article: Deutsche Bank Shook DAX! French Election, Inflation And ECB Are Factors Which Shaped DAX (GER 40), CAC40, FTSE 100 And IBEX35 - Top Gainers, Top Losers     No Easter eggs today – instead, here is a story that may provide food for thought. (Credit: Macbeth meets the three witches; scene from Shakespeare's 'Macbeth'. Wood engraving, 19th century. Wellcome Collection. Public Domain Mark) Let’s start by representing an economic cycle with its different phases: Global commodity prices – in particular energy prices – surged at a fast pace following the COVID crisis. Notably, as major central banks responded to the economic slowdown by printing money, rising levels of inflation were observed as a result of accommodating monetary policy combined with accelerating oil and gas demand. The context was tight supply and high volatility triggered by (geo-)political unrest around the world (crises, wars, etc.). In fact, those inflationary periods of surged prices (foremost, fuel prices are often those pulling the trigger) are usually followed by a sudden drop in consumer confidence and, therefore, a sudden fall in demand, which may lead to a recession phase.   Article on Crypto: Hot Topic - NEAR Protocol! Terra (LUNA) has been seeing a consistent downward price trend, DAI Should Stay Close To $1   To predict those phases, some analysts tend to spot the inverted bond yield curves. In one of its articles, Investopedia explains The Impact of an Inverted Yield Curve as the following: “The term yield curve refers to the relationship between the short- and long-term interest rates of fixed-income securities issued by the U.S. Treasury. An inverted yield curve occurs when short-term interest rates exceed long-term rates. Under normal circumstances, the yield curve is not inverted since debt with longer maturities typically carry higher interest rates than nearer-term ones. From an economic perspective, an inverted yield curve is a noteworthy and uncommon event because it suggests that the near-term is riskier than the long term.” Now let’s have a look at the mystic US government yield curves over the past 30+ years: US 10 YR in Orange versus US 2 YR in Blue US 30 YR in Red versus US 5 YR in Indigo (Source: TradingView) The inversion of yield curves – typically with a two-year rate higher than the ten-year rate or even a five-year rate higher than the thirty-year rate – has occurred prior to each of the last US recessions. This phenomenon also briefly happened last week and lasted for almost two trading days. (Credits: Small Exchange, Inc. Newsletter Apr 11, 2022) As you can see, the above charts demonstrate that US treasury yield curve inversions may sometimes be followed by a sudden drop in equity prices. Alternatively, David Linton was also showing how big falls in bonds were preceding big falls in stocks in a recent tweet: (Source: Twitter) Okay, now let’s ask ourselves a few questions. Do you think that the Federal Reserve (Fed) will be able to tighten its monetary policy as planned? Will stocks collapse? Will this trigger a recession? If so, when? In what phase of the economic cycle do you think we are? 3, 4 or in between, maybe? The first speculative scenario Growth will continue for now, and so will demand... However, as soon as the Fed begins to tighten as planned, the S&P will plummet. So, the Fed will either be forced to stop to prevent a crashing stock market and falling risk sentiment from hitting growth, or just go ahead with tightening to keep inflation at bay and face the consequences. In the latter case, Powell loses his job... The second speculative scenario Following ongoing inflation, there could be a recession with a collapse in demand in about 6 months or so. On the energy side, despite the drop in demand, prices shouldn't drop too much as they might still be supported by limited supplies. Any ideas about a projected time horizon? Regarding the Fed, I don't believe much in rate hikes. If they do so, they will plunge off their looming debt cliff. Maybe the Fed could keep communicating about future hikes if the markets are crashing. However, if they do any actual hikes, I bet they would probably be tiny ones, just to show some signals, but in the end, the actual rates wouldn't be much changed. J. Powell seems to be pretty much stuck. (Source: Giphy) Anyway, it is a moment of truth for central banks. Let me know what you think in the comment section. That’s all, folks, for today. I hope you’ve had a great Easter weekend! Like what you’ve read? Subscribe for our daily newsletter today, and you'll get 7 days of FREE access to our premium daily Oil Trading Alerts as well as our other Alerts. Sign up for the free newsletter today! Thank you. Sebastien BischeriOil & Gas Trading Strategist * * * * * The information above represents analyses and opinions of Sebastien Bischeri, & Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Sebastien Bischeri and his associates cannot guarantee the reported data's accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Bischeri is not a Registered Securities Advisor. By reading Sebastien Bischeri’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Sebastien Bischeri, Sunshine Profits' employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Tepid BoJ Stance Despite Inflation Surge: Future Policy Outlook

British Pound (GBP) Power! Will GBPUSD Go Down Anymore!? (Australian Dollar To US Dollar) AUD/USD Is Volatile, GER 40 (DAX) To Pause Longer?

Jing Ren Jing Ren 19.04.2022 08:42
Summary: GBPUSD tests critical floor AUDUSD breaks support GER 40 seeks support GBPUSD tests critical floor The RSI’s oversold situation may cause a temporary bounce towards 1.3060. The US dollar continues upward as markets wager a 50 bp Fed hike next month. The pound’s latest rally came to a halt in the supply zone around 1.3150 which coincides with the 30-day moving average.   Read next: (UKOIL) Brent Crude Oil Spikes to Highest Price For April, (NGAS) Natural Gas Hitting Pre-2008 Prices, Cotton Planting Has Begun   As the pair gives up its recent gains, the bears still retain control of the direction and seem to be ready to double down at rebounds. A drop below 1.3000 would attract momentum selling and push the pair to November 2020’s lows near 1.2860. The RSI’s oversold situation may cause a temporary bounce towards 1.3060. AUDUSD breaks support As the RSI recovers into the neutral area, the pair may face stiff selling pressure around the support-turned-resistance at 0.7400. The Australian dollar remains under pressure after dovish RBA minutes. A fall below the demand zone between 0.7380 and 0.7400, which sits on the 30-day moving average, has put the bulls further on the defensive.   For you: Forex Rates: British Pound (GBP) Strengthening? Weak (EUR) Euro? GBP, NZD And AUD Supported By Monetary Policy?   As the short-term prospect turns bearish, depressed offers compound the lack of bids, driving the Aussie even lower. 0.7300 would be the next target. As the RSI recovers into the neutral area, the pair may face stiff selling pressure around the support-turned-resistance at 0.7400. GER 40 seeks support The bulls need to push above 14320 in order to turn the cautious mood around. The Dax 40 retreats as risk appetite remains subdued across equity markets. The index is still under pressure after it struggled to hold above the psychological level of 14000. The current pennant may turn out to be another distribution phase. Additionally, a break below 13900 would make the index vulnerable to a new round of sell-off. 13600 would be the next support. The bulls need to push above 14320 in order to turn the cautious mood around. Then 14600 will be the final hurdle before an extended recovery could materialize.
EUR/USD: US Dollar (USD) Supported By A 75bp Rate Hike!? EUR Influenced By Last Week's Activities, Price Of Gold (XAUUSD) May Not Stop Below $1980

EUR/USD: US Dollar (USD) Supported By A 75bp Rate Hike!? EUR Influenced By Last Week's Activities, Price Of Gold (XAUUSD) May Not Stop Below $1980

Jing Ren Jing Ren 20.04.2022 08:12
EURUSD consolidates post-sell-off The US dollar rallies as a 75bp rate hike by the Fed could be on the table. The single currency remains under pressure after last week’s sell-off. 1.0920 has become an important supply area after buyers’ failed attempts to push higher. Further above, the psychological level of 1.1000 is another support-turned-resistance, suggesting that the path of least resistance is down. Bearish trend followers could be waiting to fade the next rebound. The pair is treading water above 1.0760 as the RSI rises back to the neutrality area. Article on Crypto: Altcoins Showing Promising Growth - Take a Look at Solana (SOL), POLKADOT (DOT) and SHIBA INU (SHIB-USD)| FXMAG.COM XAUUSD keeps high ground Gold slipped as the greenback rallied across the board amid the Fed’s increasingly hawkish stance. The previous rally cleared the resistance at 1990 but struggled to grind to the psychological level of 2000. A drop below 1961 revealed underlying weakness and caused a liquidation of leveraged buyers. 1940 at the base of a previous breakout is the next stop to gauge the bulls’ commitment. An oversold RSI may trigger a buy-the-dips behavior and lead to a limited rebound. 1980 is now the closest resistance. Read next: (UKOIL) Brent Crude Oil Spikes to Highest Price For April, (NGAS) Natural Gas Hitting Pre-2008 Prices, Cotton Planting Has Begun SPX 500 breaks channel The S&P 500 recoups losses as the quarterly earnings season heats up. The index has been sliding down in a bearish channel, which indicates a cautious mood in the short term. The latest rally above the upper band (4420) and resistance at 4460 could prompt sellers to cover their positions, paving the way for a potential reversal towards 4590. 4360 is a fresh support. In fact, a series of higher lows would show buying interest and convince followers to jump in with both feet. Otherwise, 4300 would be the next support.
USD/JPY: Japanese Authorities Signal Intervention Amid Rapid Currency Appreciation

$2000 Level Of Gold Price (XAUUSD) Noted But Not Yet Present! Awaiting Fed Vs. Gold Battle!

Alex Kuptsikevich Alex Kuptsikevich 20.04.2022 10:27
Gold is falling fast, having lost about 3% to $1940 from Monday's peak. On Monday, the bulls are locally capitulating after an unsuccessful attempt to push the price above $2000. It would be a mistake to attribute gold's fall to an expensive dollar. Since the start of the year, the dollar index and gold have had a more than 80% correlation versus -0.34% in 2021, reflecting that investors see gold and the dollar as defensive assets amid the Russia-Ukraine conflict. Yesterday the dollar index slowed its rise towards the end of the day. It reversed to a decline on Wednesday morning, while gold has been actively declining since the beginning of the week, reinforcing their close correlation. Read next: Monetary Policy Drives EUR/USD, The Future of the EUR/GBP Awaits the Bank Of England's Speech - Good Morning Forex| FXMAG.COM With EURUSD near 1.08, GBPUSD near 1.30 and USDJPY one step away from 130, the dollar is near historical extremes Gold's recent retreat could be a sign of hope for a détente in the European conflict and a desire to lock in profits from the powerful movement of recent days. As it is difficult to find signs of de-escalation in the news, we are leaning towards the second option. With EURUSD near 1.08, GBPUSD near 1.30 and USDJPY one step away from 130, the dollar is near historical extremes. The same can be seen in the Dollar Index, which since last week has been trading above 100, a psychologically crucial round level. Read next: Altcoins' Rally: Solana (SOL) Soars Even More, DOT and SHIBA INU Do The Same! | FXMAG.COM Since the beginning of February, gold has found support on the declines toward its 50-day moving average in the last rally. If a test of this level in the coming days also confirms the resilience of this support, we could see a new high soon. On the long-term gold chart, the pullback from the highs in 2020 and the subsequent smooth recovery is a handle in a "cup-and-handle" pattern, whereby a cup has formed over eight years since 2012. This pattern will gain strength should gold consolidate above $2000 with a final target near $3000.
What Direction Could Be Defined By US Data? (ECB) Christine Lagarde Speaks Today. Important Days Ahead Of Us

Euro To US Dollar (EUR To USD): That's An Amazing USD Performance, Will USDCAD (Canadian Dollar) Stay Close? USDJPY (Japanese Yen) Beats Records!

Jason Sen Jason Sen 20.04.2022 10:39
EURUSD retests 37 YEAR TREND LINE SUPPORT AT 1.0760/20. Longs need stops below 1.0670. Obviously there is nothing more important than this level this week. Longs at 1.0760/20 initially target 1.0820/50. Above here is more positive targeting 1.0900/20 then 1.0960/70. USDCAD strong resistance at 1.2650/70. Shorts need stops above 1.2690. A break higher is a medium term buy signal. Related article: Monetary Policy Drives EUR/USD, The Future of the EUR/GBP Awaits the Bank Of England's Speech - Good Morning Forex| FXMAG.COM Very minor support at 1.2610/1.2590 & again at 1.2525/05 today. If we continue lower look for 1.2480/70. We have another buying opportunity at 1.2440/10. Longs need stops below 1.2370. A break lower is an important medium term sell signal. USDJPY beat 14 year trend line resistance at 127.10/50 & rocketed another 200 pips!! The pair has 13 blue bodied daily & 7 weekly candles in a row. So sell signal yet despite severely overbought conditions. Above 129.50 look for 129.90/95 then 130.25/35, perhaps as far as 130.75/85. First support at 128.45/25. Further losses can target 127.80/70. Unlikely but if we continue lower look for strong support at 127.10/126.90. Read next: Gold Price Falls, Volatility in Wheat Futures and The Price Of Palladium| FXMAG.COM EURJPY higher as expected reaching 139.67 & no sell signal yet as we become overbought. Further gains can target 139.95/99 then 140.40/50 & 140.85/95. GBP To USD GBPUSD retests last week's low at 1.2990/70 after the bullish engulfing candle so now we just have to see if we get a double bottom buy signal or if the pair break lower for a sell signal. So far the bulls are winning as we bounce from 1.2977. A break below 1.2955 should be a medium term sell signal. Our longs target 1.3060/70 & 1.3100/10, perhaps as far as first resistance at 1.3150/70. Please email me if you need this report updated or Whatsapp: +66971910019 – To subscribe to this report please visit daytradeideas.co.uk or email jason@daytradeideas.co.uk
Market Update: UK Inflation Softens, US Stocks Rally, Bank Earnings, and AI Dominate Headlines

Monetary Policy Drives EUR/USD, The Future of the EUR/GBP Awaits the Bank Of England's Speech - Good Morning Forex

Rebecca Duthie Rebecca Duthie 20.04.2022 10:17
Summary: EUR/USD and Monetary Policy. Bank Of England's Speech on Thursday effect on the GBP related currency pairs. AUD/CHF as a reflection of investor risk sentiment. Related article: Japanese Yen (JPY) Weakens Against The Dollar, USD/CAD Stable And The Inevitable Strengthening Of The USD, IMF/World Bank Events Monetary Policy driving the EUR/USD price action. Since the market opened this morning, the EUR has strengthened against the USD and the market sentiment is bullish, the rise in price is small but significant given the current economic conditions. With the differing monetary policy of the European Central Bank (ECB) and the US Federal Reserve (Fed) the EUR/USD currency pair price is low. In the coming weeks it is likely to see the dollar strengthening thanks to the expectations of the Fed to tighten monetary policy. Whereas, there is no certainty on when the ECB will begin rising interest rates. EUR/USD Price Chart Value of the GBP Awaits BOEs Speech Since the market opened this morning the price of the currency pair has increased, however, market sentiment for the EUR/GBP has changed from bullish yesterday to a mixed today. The strengthening EUR against GBP comes in light of the Bank of Englands (BOE) announcements tomorrow regarding the future monetary policy of the country, investors are expecting more hawkish actions. EUR/GBP Price Chart  Read next: Altcoins' Rally: Solana (SOL) Soars Even More, DOT and SHIBA INU Do The Same! | FXMAG.COM AUD/CHF Since the market opened this morning, the value of the AUD/CHF has increased, and has a bullish market sentiment. This currency pair can be used as a good reflection of risk sentiment, this is because the AUD is risk-on and the Swiss Franc is considered as a safe-haven currency. AUD/CHF Price Chart GBP loses some ground on the JPY The price of the GBP/JPY currency pair has (in general) been on the rise as a result of the rapidly depreciating value of the Yen. However, since the market opened this morning the price has decreased despite the bullish market sentiment, possibly due to the uncertainty regarding the future of the GBP and the upcoming BOE’s announcements. GBP/JPY Price Chart Sources: Finance.yahoo.com, teletrade.eu, dailyfx.com
Elon Musk Sells 8 Millions Tesla Stocks? Here Is Why!

Unexpectedly Gold Price (XAUUSD) Falls, Canada And Chicago - Weather Makes Wheat Futures Fluctuate. The Price Of Palladium - Industrial Activity Is Taking Strain

Rebecca Duthie Rebecca Duthie 20.04.2022 11:23
Summary: The price of gold fell to the lowest price in almost 2 weeks. Volatility in U.S Wheat futures due to the Weather. Palladium Prices driven down by the rising dollar index. Gold Prices Hit Lows - elevated U.S treasury yield affecting the demand of the commodity The price of gold hit its lowest value in almost 2 weeks as a result of the elevated U.S treasury yield affecting the demand of the commodity. The increase in the yields also increases the opportunity cost for investors who hold gold because the commodity is not yielding. Investor expectations of the Fed's hawkish outlook could be the reason for the price fall, especially inlight of the expected Fed Speech this week. Price Chart of Gold Read next: Altcoins' Rally: Solana (SOL) Soars Even More, DOT and SHIBA INU Do The Same! | FXMAG.COM Chicago SRW Wheat Futures - terrible weather conditions in the US and Canada are causing supply fears The price of Wheat has been volatile over the past week, the terrible weather conditions in the US and Canada are causing supply fears, however market sentiment for this commodity has struggled to shake its bearish tone. Chicago SRW Wheat Futures Price Chart Read next: (UKOIL) Brent Crude Oil Spikes to Highest Price For April, (NGAS) Natural Gas Hitting Pre-2008 Prices, Cotton Planting Has Begun Palladium Price - the war continues, the industrial activity is taking strain The price of Palladium saw an increase in price as an initial market reaction to the start of the Russia-Ukraine war, and as the war continues, the industrial activity is taking strain. However, on Tuesday, the price of palladium fell as a result of the rising dollar index. Palladium Futures Price Chart Sources: Finance.yahoo.com, economies.com
EUR/CHF: Features and recommendations Read more: https://www.instaforex.eu/forex_analysis/313786

Euro To Swiss Franc Chart May Surprise! EUR/CHF – Top-Down Analysis!

Richard Nasr Richard Nasr 20.04.2022 12:08
DAILY: Left Chart. EURCHF is overall bearish and now approaching a resistance so we will be looking for sell setups on lower timeframes. H1: Right Chart EURCHF is forming a channel in red but the lower trendline is not valid yet, so we are waiting for a new swing low to form around it to consider it our trigger swing. Read next: Altcoins' Rally: Solana (SOL) Soars Even More, DOT and SHIBA INU Do The Same! | FXMAG.COM Trigger => Waiting for that swing low to form and then sell after a momentum candle close below it (gray zone) Meanwhile, until the sell is activated, EURCHF can still trade higher. Read next: (UKOIL) Brent Crude Oil Spikes to Highest Price For April, (NGAS) Natural Gas Hitting Pre-2008 Prices, Cotton Planting Has Begun Good luck! All Strategies Are Good; If Managed Properly! ~Rich
Investors In Crisis!? Inflation, Rates Hikes And Geopolitics. Where Are Investors Putting Their Money - Now Vs. Then?

Investors In Crisis!? Inflation, Rates Hikes And Geopolitics. Where Are Investors Putting Their Money - Now Vs. Then?

Chris Vermeulen Chris Vermeulen 20.04.2022 16:55
Investors have been processing high inflation reports, rising interest rates, surging energy, commodity, and real estate prices. So, what is the market saying about which markets investors have favored the last couple of years vs where are they putting their money right now? A way to determine this is to simply plot the indices and then see how they stack up against each other. Price data should also be viewed and analyzed in a multi-timeframe environment: short-term, medium-term, and long-term. Additionally, we want to know how the market we’re trading is performing compared to its peers. As a trader or investor, we know it’s important to determine if a market is in a bull, bear, accumulation, or distribution phase. Additionally, we want to know how the market we’re trading is performing compared to its peers. Related article: Japanese Yen (JPY) Weakens Against The Dollar, USD/CAD Stable And The Inevitable Strengthening Of The USD, IMF/World Bank Events The following charts provide snapshots of how the SPY ETF (US S&P 500) is doing compared to the other US and global stock indices. The year-to-date chart is showing us a maximum volatility spread of 15.73%. This is simply the difference between the highest stock index, Australia 200 +1.18% vs the lowest stock index US Nasdaq 100 -14.55%. Australia’s market has recently done well due to its strong energy and commodity interests which in turn has contributed to the strengthening Australian dollar. SPY YEAR-TO-DATE DAILY: MAX VOLATILITY 15.73%      www.TheTechnicalTraders.com – TradingView The Hong Kong and China stock markets have been plagued with numerous Covid issues in 2020, 2021, and now recently again in 2022. The volatility spread at first doesn’t seem that significant but over time it can be substantial. This is one of the reasons why our team continually tracks global money flow according to each country's stock index but additionally other types of markets and asset classes. Our quantitative trading research is crucial in determining which markets to trade and how to efficiently employ trading capital. Read next: Altcoins' Rally: Solana (SOL) Soars Even More, DOT and SHIBA INU Do The Same! | FXMAG.COM This maximum volatility spread during 2021-2022 is 44.42%. The highest stock index, India 50 +23.75% vs the lowest stock index Hong Kong 33 -20.67%. The Hong Kong and China stock markets have been plagued with numerous Covid issues in 2020, 2021, and now recently again in 2022. SPY 2021-2022 DAILY: MAX VOLATILITY 44.42%      www.TheTechnicalTraders.com – TradingView Now we can take a longer-term view of the past 2+ years covering Covid before and after. We notice that the Nasdaq 100 is the overall leader despite its recent negative performance in 2022. This maximum volatility for 2020-2022 is 89.70%. The highest stock index, US Nasdaq 100 +69.70% vs the lowest stock index Hong Kong 33 -20.00%. SPY 2020-2022 DAILY: MAX VOLATILITY 89.70%      www.TheTechnicalTraders.com – TradingView KNOWLEDGE, WISDOM, AND APPLICATION ARE NEEDED It is important to understand that we are not saying the market has topped and is headed lower. This article is to shed light on some interesting analyses of which you should be aware. As technical traders, we follow price only, and when a new trend has been confirmed, we will change our positions accordingly. We provide our ETF trades to our subscribers, and in the last six trades we entered in March, all have now been closed at a profit! Our models continually track price action in a multitude of markets, asset classes, and global money flow. As our models generate new information about trends or a change in trends, we will communicate these signals expeditiously to our subscribers and to those on our trading newsletter email list. Sign up for my free trading newsletter so you don’t miss the next opportunity! Successful trading is not limited to when to buy or sell stocks or commodities. Money and risk management play a critical role in becoming a consistently profitable trader. Correct position sizing utilizing stop-loss orders helps preserve your investment capital and allows traders to manage their portfolios according to their desired risk parameters. Additionally, scaling out of positions by taking profits and moving stop-loss orders to breakeven can complement ones’ success. WHAT STRATEGIES CAN HELP YOU NAVIGATE The CURRENT MARKET TRENDS? Learn how we use specific tools to help us understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, we expect very large price swings in the US stock market and other asset classes across the globe. We believe the markets have begun to transition away from the continued central bank support rally phase and have started a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern begin to drive traders/investors into Metals and other safe-havens. Historically, bonds have served as one of these safe-havens, but that is not proving to be the case this time around. So if bonds are off the table, what bond alternatives are there and how can they be deployed in a bond replacement strategy? We invite you to join our group of active traders and investors to learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com
GBP: Dovish Wage Developments Lead to Lower Sterling Prices

Netflix Crashing!? Netflix Stock Price (NFLX) Falls More Than 35%? Subscribers Fled!

Rebecca Duthie Rebecca Duthie 20.04.2022 21:27
Since the market opened this morning Netflix stock price has fallen by more than 35%, the price fall came shortly after the company announced it had lost more than 200 000 subscribers in the first quarter of 2022 and are forecasting losing a further 2 000 000 subscribers in the coming quarter. The drop in value comes hand-in-hand with investor sentiment and the post-covid world. In addition, subscribers are seeming to be rethinking their subscription commitments to the streaming service. Related article: Japanese Yen (JPY) Weakens Against The Dollar, USD/CAD Stable And The Inevitable Strengthening Of The USD, IMF/World Bank Events The current market sentiment, Elon Musk and other factors causing Netflix stock price to dive. The price of Netflix’s stock has also been affected by more competitors entering the market, the loss of 700 000 Russian subscribers as a result of the Russia-Ukraine conflict, consumer budget tightening as a result of the current market conditions and Elon Musk’s opinion on Netflix’s shares being affected by the ‘woke mind virus’. Related article: Monetary Policy Drives EUR/USD, The Future of the EUR/GBP Awaits the Bank Of England's Speech - Good Morning Forex| FXMAG.COM Given the forecast for the next quarter, the stock price of streaming service is unlikely to see any large increases anytime soon. Netflix Price Chart Sources: Finance.yahoo.com, Theguardian.com, nypost.com
The Forex Market Is Under Strong Pressure From Geopolitical Events And Statistics

How To Hedge Against Inflation? Crypto? Is Bitcoin (BTC) The Answer?

Conotoxia Comments Conotoxia Comments 20.04.2022 21:46
Last year alone, the number of investors in the cryptocurrency market may have increased by nearly 70 percent. - This is according to the "2022 Global State of Crypto Report" published by Gemini Exchange. The report was created after surveying 29,293 adults in 20 countries. The age of the respondents ranged from 18-75, and the survey was limited to those earning more than $14,000 per year. The report helps understand the global adoption of cryptocurrencies among retail investors. It shows that 41 percent of those surveyed made their first investment in cryptocurrencies in the past year, and overall, the total number of investors has increased by about 70 percent in 2021 alone. Key excerpts from the report: More than half of cryptocurrency owners in Brazil (51 percent), Hong Kong (51 percent) and India (54 percent) started in 2021. Among high-income respondents in developed countries, cryptocurrency ownership is trending upward, with 40 percent or more in the United Kingdom, Germany and France reporting cryptocurrency ownership. Regulation is causing concern around the world. Among those who do not own cryptocurrencies, 39 percent in Asia Pacific, 37 percent in Latin America and 36 percent in Europe say there is regulatory uncertainty surrounding cryptocurrencies. Inflation drives adoption Another important finding is that inflation appears to be a key driver of investor adoption. One reason to pay attention to the Gemini survey is that it asked questions about inflation. The report highlights that countries that have recently experienced hyperinflation tend to agree with the statement "cryptocurrencies are the future of money." Respondents from countries that experienced a 50 percent or higher devaluation of their currency against the U.S. dollar over the past 10 years were more than 5 times more likely to say they plan to purchase cryptocurrencies in the coming year than respondents from countries that experienced currency devaluations of less than 50 percent, including South Africa, Mexico, India and Brazil. In the latter country, where the local currency has been devalued by more than 200 percent against the U.S. dollar, 41 percent of respondents own cryptocurrencies. In the U.S., 40 percent of cryptocurrency holders see them as a hedge against inflation. If inflation continues to be an issue around the world, it seems likely that this trend could increase In general, the higher a country's inflation rate, the higher the adoption rate of cryptocurrencies can be. If inflation continues to be an issue around the world, it seems likely that this trend could increase. Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex 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. 80.77% 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.
For What It Is Worthy To Pay Attention Next Week 23.01-29.01

Rising Inflation And Strong Dollar (USD), Stable Gold (XAUUSD) And Rising Yields... Crude Oil...

Ole Hansen Ole Hansen 20.04.2022 21:55
Commodities 2022-04-20 14:00 Summary:  Gold, currently up around 7% so far this year, continues to perform strongly despite persistent headwinds from rising real yields and a stronger dollar. Instead the yellow metal has increasingly been focusing on multiple uncertainties, some of which were already present before Russia invaded Ukraine. Inflation and growth concerns have both been turbocharged by war and sanctions, and together with elevated volatility in stocks and not least bonds, these developments have seen investors increasingly look for safe havens in tangible assets such as investment metals. Impressive, is the word best describing gold’s performance so far this year. Currently up around 7% during a time where normal drivers such as US real yields and the dollar have risen, normally a development that would see gold struggle. The prospect of aggressive tightening by the US Federal Reserve has driven ten-year real yields higher by more than 1% while supporting a near 4% rise in the dollar against a broad index of currencies. Last year’s relatively weak performance, especially against the dollar, despite emerging inflationary concerns was driven by portfolio managers cutting back on the holdings they accumulated during 2020 as stock markets rallied and bond yields held relatively steady, thereby reducing the need for diversification. Fast forward to 2022 and we are now dealing with multiple uncertainties, some of which were already present before Russia invaded Ukraine. Inflation and growth concerns have both been turbocharged by war and sanctions, and together with elevated volatility in bonds and not least stocks, investors have sought safe havens in tangible assets such as investment metals. During the past year, gold and ten-year real yields have struggled to follow their usual inverse paths, and the dislocation accelerated further during Q1 when gold increasingly managed to ignore rising yields. At current levels gold is theoretically overvalued by around 300 dollars, and highlights a major shift in focus. The net reduction in bullion-backed ETFs that was seen throughout last year came to halt in late December, and since then total holdings have risen by 282 tons to 3325 tons. During the same time leveraged funds, primarily operating in the futures market, given the ability to trade lots valued at $195,000 for a margin of less than $8,000, have been much more dependent on the directional movements in the market. Following the March 8 failed attempt to reach a fresh record high they spent the following weeks scaling back exposure. An exercise that was not completed until the week of April 12 when they returned as net buyers, thereby aligning them with the mentioned ongoing demand for ETFs. Source: Saxo Group While inflation was something we talked about last year, the actual impact of sharply higher prices of everything is now increasingly being felt across the world. In response to this investors are increasingly waking up to the fact that the good years which delivered strong equity returns and stable yields are over. Instead the need to become more defensive has set in and these changes together with the risk of what Russia, a pariah nation to much of the world now, may do next if the war fails to yield the desired result. Instead of real yields, we have increasingly seen gold take some its directional input from crude oil, a development that makes perfect sense. The ebb and flow of the oil price impacts inflation through refined products such as diesel and gasoline while its strength or weakness also tell us something about the level of geopolitical risks in the system. In our recently published Quarterly Outlook we highlight the reasons why we see gold move higher and reach a fresh record high later this year. Source: Saxo Group
Still Going Up The Price Of Crude Oil (WTI/BRENT) When Energy Stocks Will Start To Soar?

Still Going Up The Price Of Crude Oil (WTI/BRENT) When Energy Stocks Will Start To Soar?

Alex Kuptsikevich Alex Kuptsikevich 21.04.2022 11:10
Oil gained 1.5% on Thursday morning to $103.75 per barrel for WTI and $108.2 for Brent, continuing to cling to the uptrend since December. Over the past six weeks, oil price movements are no longer unidirectional, but the market remains in 'crisis mode'. In April, oil is supported on the declines towards the 50-day moving average, as we saw yesterday. The uptrend is not only supported by the abrupt withdrawal of oil from Russia and the accompanying decline in production there. There are also shipment problems in Libya and prolonged pipeline repairs in Kazakhstan. Oil producers in the US seem to be stepping up. Last week saw production increase to 11.9M barrels per day - a new high since May 2020 - from 11.8M. Fluctuations could prove to be a manifestation of the supply shifting to Europe Related article: Japanese Yen (JPY) Weakens Against The Dollar, USD/CAD Stable And The Inevitable Strengthening Of The USD, IMF/World Bank Events Meanwhile, US oil stocks and production data remain volatile. Commercial inventories collapsed by 8M barrels after jumping by 9.4M last week. Such fluctuations could prove to be a manifestation of the supply shifting to Europe. Strategic stocks showed a net decline of 4.7M after 3.9m the previous week. The volume of oil in strategic storage fell to the lows in the last 20 years. However, it is not yet enough to turn around commercial inventories. Related article: Monetary Policy Drives EUR/USD, The Future of the EUR/GBP Awaits the Bank Of England's Speech - Good Morning Forex| FXMAG.COM Another potential area of pressure on the oil price - a strengthening dollar Oil supply constraints continue to put together a relatively bullish picture for oil, preventing a price reversal to the downside. A real bearish victory requires either a sharp increase in production in the US or OPEC countries or a dramatic fall in demand. We see no clear signals for either direction. Another potential area of pressure on the oil price - a strengthening dollar - is also failing for the second day in a row, temporarily working on the bulls' side.
Follow EUR/USD, EUR To GBP And The Rest Of EUR Pairs - Inflation In Euro Area Continues To Worry Investors After Reaching New High

Follow EUR/USD, EUR To GBP And The Rest Of EUR Pairs - Inflation In Euro Area Continues To Worry Investors After Reaching New High

Walid Koudmani Walid Koudmani 21.04.2022 12:02
Today's Euro area inflation report continued to show the alarming rate of increase in prices mainly driven from energy prices and services. The euro area annual inflation rate was 7.4% in March 2022, up from 5.9% in February and noticeably higher than when compared to a year earlier (1.3%). Stagflation scenario? While we have already seen a slight change in tone from some members of the ECB, hinting at rate hikes sooner than previously expected, today's report could further incentivize the bank to act in an attempt to avoid the increasingly likely stagflation scenario. It will be important to keep an eye on today’s speech from the ECB head Lagarde after another member of the ECB , Kazaks, stated they believe asset purchases may be terminated before Q3 2022 - much earlier than it was expected. Gold price returns to key support area ahead of central banker speeches The price of gold has seen a noticeable pullback after reaching a high of $1958 yesterday while stock markets started the day trading higher following better than expected earnings from Tesla. The precious metal has once again returned to a previous support area of and could continue to see an increase in volatility as investors await today's comments from the heads of BoE and ECB. While the ECB appears to be changing its opinion slightly on the possibility of adjusting its fiscal and monetary policy to contend with record inflation, it remains to be seen how and if Lagarde will downplay the situation in order to calm the markets. In any case, gold might see a reaction to the $1945 area once again after the price managed to rebound several times in the past.  
USD/JPY: Japanese Authorities Signal Intervention Amid Rapid Currency Appreciation

Markets in 2 minutes (22 Apr) IMF & Central Banks move the markets - Pepperstone's Chris Weston

Chris Weston Chris Weston 22.04.2022 16:16
Summary: Chris breaks down current market moves off the back off IMF and Central Bank announcements   Read next (by Chris Weston): Safe Haven Currencies!? ECB Interest Rate To Be Raised!?| FXMAG.COM  
U.S Yields Expecting Further Increases!?, Announcement Of PMIs Prelims For The Private Sector - FOREX Today

U.S Yields Expecting Further Increases!?, Announcement Of PMIs Prelims For The Private Sector - FOREX Today

Rebecca Duthie Rebecca Duthie 22.04.2022 19:00
Summary: Market sentiment for the EUR/USD currency pair showing bearish signals. Bullish outlook for the EUR/GBP as the EUR strengthens against the GBP. UK retail sales saw a large decrease, causing investor confidence for the currency to fall. USD gains ground on the EUR in light of further expected increases in yields in May The Dollar has strengthened against the EUR since the market opened this morning, in general the dollar is strengthening against all currencies at the moment. After the prelims on private sector PMIs this morning, the EUR originally gained some ground against the USD but has since fallen again, possibly as a result of the new expected increases in U.S yields in May, causing more investor confidence in the USD. EUR/USD Price Chart EUR gains on the GBP as expectations arise for ECB to increase yields. Since the market opened this morning, market sentiment for this currency pair is bullish. The Euro has gained ground on the GBP inlight of the Private sectors PMIs announcements this morning as well as the expectations that the European Central Bank could increase yields in July. EUR/GBP Price Chart GBP Weakens against the USD Since the market opened this morning, market sentiment for this currency pair is bearish. The GBP has weakened against the USD inlight of the announcement of the Feds intentions to increase the U.S yields by a further 50bps, at the same time, UK retail sales saw a large decrease. This fall counteracted the strengthening seen after the increased expectations of the BoE’s interest rates. GBP/USD Price Chart   Related article: https://www.fxmag.com/forex/ecb-announcements-to-possibly-tighten-monetary-policy-strengthens-the-euro-eur-usd-eur-gbp-aud-nzd-and-eur-chf-all-increased The Japanese Yen strengthened against the AUD today. Market sentiment for this currency pair is showing as mixed. In general the JPY has been weakening in the past days. This weakening had pushed the value of this currency pair higher, however, since the market opened this morning, the AUD has weakened against the JPY. AUD/JPY Price Chart Sources: finance.yahoo.com, dailyfx.com
Bitcoin Stagnates at $30,000 Level, Awaits US Bitcoin ETF Update and Fed Meeting

Can (XAUUSD) Gold Price Plunge To $1800!? Silver Price (XAGUSD) To Decrease As Well?

Jason Sen Jason Sen 25.04.2022 09:59
Gold first support at 1927/24 but longs need stops below 1920. A break lower targets 1915/12. Below 1910 look for 1900, perhaps as far as 1890. Strong resistance at 1940/45. Shorts need stops above 1950. Read next (By Jason Sen): British Pound To Canadian Dollar (GBP/CAD) Bounces To Ease Severely Oversold Conditions As Predicted, EUR/USD again holds important 5 year trend line support at 1.0850/20 | FXMAG.COM Silver best support for this week at 2390/80. Longs need stops below 2365. A break lower is a medium term sell signal. Minor resistance at 24.50/60. Strong resistance at 2485/95. Shorts need stops above 2505. WTI Crude JUNE first support at 102.00/101.50. Longs need stops below 101.00 (a low for the day here again on Friday). A break lower however targets 9900/9850 & 9750/9700. We could fall as far as very strong support at 94.50/9400. Longs need stops below 9350. Read next: Euro To US Dollar (EUR To USD): That's An Amazing USD Performance, Will USDCAD (Canadian Dollar) Stay Close? USDJPY (Japanese Yen) Beats Records! | FXMAG.COM Holding support at 102.00/101.50 allows a recovery to minor resistance at 104.50/105.00. Above 105.50 however look for 106, perhaps as far as 107.30/70. Shorts need stops above 108.50. Please email me if you need this report updated or Whatsapp: +66971910019 – To subscribe to this report please visit daytradeideas.co.uk or email jason@daytradeideas.co.uk
(NVDA) Nvidia Stock Price Plunged! Meme Stocks' Performance Seems To Be Surprisingly Good

US Yields Have Declined! Gold Price (XAUUSD) Is Back In The Game! Gold Trades Near $1900, COVID In China Leave Investors Unsure

Conotoxia Comments Conotoxia Comments 26.04.2022 10:25
The price of gold appears to be back above $1,900 per ounce on Tuesday, after a 3-day decline. The rise seems to have taken place with a slight weakening of the US dollar and a drop in US Treasury bond yields, which may have made bullion more attractive. Investors may be monitoring the deteriorating Covid virus situation in China after authorities in Beijing expanded testing to a larger part of the city The U.S. dollar appears to have retreated today from a two-year high reached during the previous session, while the 10-year bond yield may have fallen from a three-year high, retreating to around 2.8 percent. Given the growing uncertainty about the outlook for global economic growth, the market may be gauging the Federal Reserve's willingness to tighten monetary policy quickly. Additionally, investors may be monitoring the deteriorating Covid virus situation in China after authorities in Beijing expanded testing to a larger part of the city, raising fears of a shutdown of the capital. In addition, Russia told the world not to underestimate the significant risk of nuclear war, which it says it wants to reduce, and warned that conventional Western weapons are a target in Ukraine. Gold can be seen as a store of value during economic and political crises. Read next: Conotoxia - Who's Gonna Stop Dollar (USD)!? EUR/USD Plunging Below 1.00? What A Surprise! Crude Oil Price Goes Down!| FXMAG.COM European buyers have refused to buy millions of barrels of Urals crude from Rosneft PJSC Meanwhile, in the oil market, WTI crude futures appear to have risen to around $99.5 a barrel on Tuesday, after a two-day decline that took prices below $100. However, the supply situation appears to remain tight. There is still a risk that the EU could join the U.S. and U.K. in banning Russian oil imports as the war in Ukraine continues. European buyers have refused to buy millions of barrels of Urals crude from Rosneft PJSC, while Asian refiners have given up on Russian oil because of sanctions imposed on the company that carries the cargoes. As a result, the world on the one hand may be reducing oil demand by the prospect of weaker economic growth and lower demand from China due to the epidemic. On the other hand, there are still chances of reduced oil supply in Europe due to war and sanctions, which may put upward pressure on production. Thus, the price of WTI crude oil, due to the opposing factors, may remain in a consolidation of $92-114. Read next: Conotoxia - (USD) Dollar Index - Fed Floors It! Hawkish Rhetoric And Interest Rate Hike? British Pound In Crisis? GBP/USD Affected By Weak Retail Sales Data!| FXMAG.COM   Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex 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. 80.77% 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.
Only Ugly US Data Could Reverse Sentiment | Gilt Yields In UK Were Steady To Lower

ING Economics: "Rates and FX are waking up to a less hawkish Bank of England reality"

ING Economics ING Economics 28.04.2022 15:36
Markets are expecting too much tightening from the Bank of England and are slowly waking up to a less hawkish reality. This means gilts will struggle to follow Treasury and Bund yields higher, and the curve should price out hikes. Sterling has started to react to the weaker consumer data and, barring a very hawkish surprise, risks look skewed to the downside In this article The gilt canary in the coal mine Click to scroll down FX: Waiting for the penny to drop We're expecting the Bank of England to hike in May and June, but the tone is turning more cautious. The BoE's voting pattern and lower growth forecast should be hints that hike expectations at the front-end of the curve are excessive. As the central bank hits the pause button in the summer, we expect markets to wake up to the less hawkish reality. The gilt canary in the coal mine After months of being at the forefront of the core rates market sell-off, with a clear underperformance in the second half of 2021 relative to US Treasuries and German Bund when the BoE ramped up its hawkish message, gilts are now warning that the sell-off is running out of steam. A string of weak sentiment data had the market re-rate recession probabilities and gave weight to the comparatively cautious tone adopted by the BoE.Breaking 2% to the upside remains a possibility for 10Y gilts but we expect them to continue to lag Bund and USTs if bond selling resumes. We foresee yields ending 2022 at 1.8% and the rally should accelerate next year. We also caution that impaired liquidity conditions in the gilt market make outright selling by the BoE less likely in the near term. Source: Refinitiv, ING The UK is far from being the only economy with a worrying growth trajectory, and we should eventually see German Bund and US Treasuries catch up to the gilt rally. Our best guess is that will happen in the third quarter this year once the Federal Reserve has a few hikes under its belt and once inflation has stabilised. It is however noteworthy that, after being ahead of the pack when it came to tightening, it now looks as if the BoE has the luxury to adopt a more prudent approach when inflicting more policy tightening on its domestic economy. Source: Refinitiv, ING We have been warning for months that the policy rate path implied by GBP swaps looked too aggressive, but that a turnaround was only likely once the BoE tightening cycle is well underway. "The gilt curve should re-steepen helped by deflating rate hike expectations" Hike expectations have now started to come off, but we think this is only the beginning of the adjustment lower. This has started a race between front and back end rates. We think curve dynamics will depend on when global yields peak. If we’re right in seeing a few more months of global bond sell-off, then the gilt curve should re-steepen during the same period, also helped by deflating rate hike expectations. Our four scenarios for the May BoE meeting and expected market reactions   FX: Waiting for the penny to drop Sterling has had a bad week at the office. The Bank of England's broad trade-weighted measure of the pound has sold off 2% over the last week due to a combination of weak UK consumer data and a much tougher risk environment on the pincer movement of higher US real rates and weaker Chinese growth prospects. Incidentally, GBP/USD has had one of the highest G10 FX correlations with global equities over the last few months. "Sterling has had a bad week at the office" In looking at the various EUR/GBP reactions to the four BoE scenarios outlined above, we have used our Financial Fair Value (FFV) model as a guide. This identifies key drivers of EUR/GBP pricing such as yield differentials, the shape of the UK yield curve, and the equity environment as inputs. The problem is those yield differentials have lost some of their explanatory power recently. In fact, one has to go back to earlier in 2021 when say a 5bp move in the GBP/EUR yield two-year differential was worth about a 1% move in EUR/GBP. A repricing lower of hike expectations means GBP could take a leg lower Source: Refinitiv, ING Assuming that the beta on the yield differential driver is lower, we present more conservative EUR/GBP levels in our scenario analysis above. Our baseline scenario sees some modest GBP weakness, for example, EUR/GBP to 0.8450 on the BoE event risk. But James Smith has been making his case that the BoE Bank Rate will end the year at 1.25% as opposed to the 2.15% currently priced by the market. If and when that penny drops, GBP could take another large leg lower and GBP/USD may end up far closer to the 1.20 level than we had originally forecast. TagsSterling | Interest Rates | Fx | Bank Of England DisclaimerThis publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more (link to: https://think.ing.com/about/content-disclaimer/)
Challenges Loom Over Eurozone's Economic Outlook: Inflation, Interest Rates, and Uncertainty Ahead

The Consequences Of FOMC (USD Index), US CPI Release And European Sentiment | Oanda: "Week Ahead – Volatile Markets"

Ed Moya Ed Moya 09.05.2022 06:48
Every asset class has been on a rollercoaster ride as investors are watching central bankers all around globe tighten monetary policy to fight inflation.  Financial conditions are starting to tighten and the risks of slower growth are accelerating.   The focus for the upcoming week will naturally be a wrath of Fed speak and the latest US CPI data which is expected to show inflation decelerated sharply last month. A sharper decline with prices could vindicate Fed Chair Powell’s decision to remove a 75 basis-point rate increase at the next couple policy meetings. A close eye will also stay on energy markets which has shown traders remain convinced that the market will remain tight given OPEC+ will stick to their gradual output increase strategy and as US production struggles to ramp up despite rising rig counts.  Energy traders will continue to watch for developments with the EU nearing a Russian energy ban.   US Market volatility following the FOMC decision won’t ease up anytime soon as traders will look to the next inflation report to see if policymakers made a mistake in removing even more aggressive rate hikes off the table over the next couple of meetings.  The April CPI report is expected to show further signs that peak inflation is in place.  The month-over-month reading is expected to decline from 1.2% to 0.2%, while the year-over-year data is forecasted to decrease from 8.5% to 8.1%. The producer prices report comes out the next day and is also expected to show pricing pressure are moderating.  On Friday, the University of Michigan Consumer Sentiment report for the month of May should show continued weakness. The upcoming week is filled with Fed speak that could show a divide from where Fed Chair Powell stands with tightening at the June and July meetings.  On Tuesday, Fed’s Williams, Barkin, Waller, Kashkari, Mester, and Bostic speak.  Wednesday will have another appearance by Bostic. Thursday contains a speech from the Fed’s Daly.  On Friday, Fed’s Kashkari and Mester speak.   EU The Russia/Ukraine war and the sanctions against Russia have dampened economic activity in the eurozone. Germany, the largest economy in the bloc has been posting weak numbers as the war goes on. With the EU announcing it will end Russian energy imports by the end of the year, there are concerns that the German economy could tip into a recession. On Tuesday Germany releases ZEW Survey Expectations, which surveys financial professionals. Economic Sentiment is expected to decline to -42.5 in May, down from -41.0 in April. On Friday, the Eurozone releases Industrial Production for March. The Ukraine conflict has exacerbated supply line disruptions, which is weighing on industrial production. The sharp drop in German Industrial Production (-3.9%), suggests that the Eurozone release will also show a contraction. The March estimate is -1.8%, following a gain of 0.7% in February. 
USD/JPY Technical Analysis: Awaiting Breakout from Consolidation Range

Bitcoin Price (BTC/USD) Plunges, Is Crude Oil Endangered!? Awaiting Disney, AMC And Rivian Earnings | Soft US inflation could reverse risk appetite this week! | MarketTalk: What’s up today? | Swissquote

Swissquote Bank Swissquote Bank 09.05.2022 11:05
Last week closed on a negative note, as US NFP data came in stronger-than-expected, revived Federal Reserve (Fed) hawks, and sent the major US indices lower. And the new week starts on a negative note, as well, after the Chinese Li Keqiang warned that the jobs situation in China is getting ‘complicated and grave’ as the government’s zero Covid policy is taking a heavy toll on the country’s economy, and impacts the rest of the world negatively, as well. But US inflation print due Wednesday could help improving investor sentiment this week, if the data confirms a slow down in US inflation from multi-decade high levels. The next natural target for Bitcoin bears is the $30K psychological support Oil is up this Monday on G7 commitment to ban Russian oil, but Saudis cut the price of their oil due to the Chinee slow down. The US 10-year yield gains field above 3% mark, and US dollar consolidates near two-decade highs. Bitcoin dived to the lowest levels since January over the weekend. The next natural target for Bitcoin bears is the $30K psychological support. The only thing that could reverse the dollar appreciation against majors, and Bitcoin is a soft inflation read on Wednesday! Watch the full episode to find out more! 0:00 Intro 0:33 Week starts moody 1:12 Oil up 3:00 Strong jobs revive Fed hawks, but soft CPI could calm them down! 5:06 Macro events of the week 6:46 Bitcoin hits lowest since January 8:03 Earnings calendar: Lordstown, AMC, Disney, Occidental Petroleum & Rivian 8:51 End of Rivian’s lockup period, beginning of new challenge 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.
A Bright Spot Amidst Economic Challenges

Commodities Prices And Problems With Supplies Are Still In Charge Considering US Inflation | US corporate pricing power set to delay inflation’s decline | ING Economics

ING Economics ING Economics 11.05.2022 09:23
US small business optimism held steady in April after three consecutive falls. Nonetheless, businesses retain the ability to pass higher costs onto their customers and this will keep inflation sticky. Ongoing supply chain issues and rising fuel costs mean 2% inflation is a distant prospect Business sentiment holds steady, but firms still want to hire The recent US data has been mixed and that has helped to fuel fears that the economy could experience a marked slowdown, especially with the Federal Reserve firmly focused on inflation and hiking interest rates. Dollar strength is acting as a further headwind to growth by making US exports less price competitive in what is already a challenging external demand environment for companies. In this regard this morning’s National Federation of Independent Business survey for April was marginally better than expected at the headline level with optimism holding steady versus expectations of a fourth consecutive monthly drop. Nonetheless it is still the weakest level since April 2020 in the immediate aftermath of the pandemic striking. The details show a slight improvement in the proportion of small businesses expecting higher sales, but there was a little more pessimism on the outlook for the economy and whether it was a good time to expand. Set against this softer environment, firms are still struggling with worker shortages and are desperate to hire. The NFIB released the labour components last Thursday, which a net 46% having raised worker compensation during the past 3 months and 27% expecting to do so further. Inflation pressures show no sign of moderating Looking to tomorrow's inflation data the NFIB report shows a net 70% of companies raised their selling prices in the past 3 month - down from last month's 72% balance, but this is still the second highest reading in the survey's 47-year history. Moreover, a net 46% of firms plan to raise their prices further over the next three months (down from 50%, but this is still the 6th highest reading in the survey's history). This reinforces the message the despite concerns about where the economy is heading, businesses continue to have pricing power and highlights the breadth of inflation pressures in the economy. The ability to raise prices is seen across all sectors and all sizes of businesses NFIB price indicators show no sign of a turn in inflation Source: Macrobond, ING Inflation may be peaking, but 2% is a long way away Tomorrow's CPI report will probably show that inflation has passed the peak, due largely to lower used car prices, but in the absence of major improvements in supply chains and geopolitical tensions, the descent to the 2% target will be very slow and may not be achieved until the very end of 2023. However, with national gasoline prices hitting a new all-time high yesterday that will come as little comfort to most households. TagsUS Inflation Federal Reserve Business optimism   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
Hungarian Forint (HUF) May Be Rising! ING Economics Expects Bank Of Hungary To Hike The Rate By 100bp!

Worsening (HUF) Hungarian Forint? Inflation - Can Hungarian Situation Get Any Worse? | Double-digit inflation arrives in Hungary | ING Economics

ING Economics ING Economics 11.05.2022 09:18
The pro-inflationary impact of the war in Ukraine is finally filtering through into the data. Monetary policy might shift to a higher gear Food inflation came in at 15.6% year-on-year, showing a significant acceleration 10.3% Core inflation (YoY) ING forecast 9.7% / Previous 9.1% The impact of the war is finally appearing in inflation data April's inflation data is finally showing the impact of the Ukraine war. While the March release was a relatively pleasant surprise, with only a moderate acceleration in price pressure, inflation in April was the total opposite. There has been a sharp rise in prices: on a monthly basis, it reached a 1.6% rate. The last time we had such a strong dynamic was in 2012 after a VAT increase. The bad news is that the current tide in prices is not the result of a single measure. Roughly 50% of the consumer basket items showed double-digit year-on-year inflation in April. Against this backdrop, the 9.5% year-on-year headline inflation print is hardly surprising. Main drivers of the change in headline CPI (%) Source: HCSO, ING The details Food inflation came in at 15.6% year-on-year, showing a significant acceleration. Both unprocessed and processed items are contributing to the elevated price pressure. Despite prices of some basic food being capped, there is strong repricing everywhere: the monthly food inflation is three to four times higher than usual. This is a result of several supply-side shocks (transportation, agricultural commodities, energy, wages, etc.) and probably the weak forint. The second-most important contributor behind the sharp acceleration is the other goods and motor fuel category, which covers household goods, toiletries and pharma products and goods for recreation and education. Durables are also showing a remarkable 11.1% yearly price increase, a major contributor to inflation pressure. Rising industrial producer prices are showing up in consumer prices as demand-supply mismatch prevails. Services inflation accelerated by only 0.3ppt reaching 6.3% year-on-year in April, but monthly inflation has remained much stronger than usual, pointing toward a significant repricing pattern. Only clothing, alcoholic beverages and tobacco hold back the year-on-year inflation print. The latter is only a base effect due to an excise duty hike in tobacco products carried out in April 2021. The composition of headline inflation (ppt) Source: HCSO, ING Underlying inflation reaches double-digit territory The last point also means that, as alcoholic beverages and tobacco are not part of the core inflation basket, this base effect didn’t have a beneficial effect on core inflation. While headline inflation accelerated by 1ppt, the core reading rose by 1.2ppt. With that, double-digit underlying inflation has arrived in Hungary: the Statistical Office registered a 10.3% year-on-year core indicator. The central bank’s underlying inflation indicators, which are good predictors of medium-term developments in price changes, have also moved into the double-digit category. Headline and underlying inflation measures (% YoY) Source: HCSO, NBH, ING Further acceleration ahead Inflation in Hungary is expected to rise further in the coming months, as the economy continues to show a significant demand-supply mismatch. Labour shortage, rising wages and other supply-side shocks are increasingly spilling over into consumer prices, with companies enduring significant pricing power. Recent surveys are showing that roughly 60-80% of companies (depending on their respective sectors) are planning further price rises. In light of today’s upside surprise, headline inflation will soon reach double-digits as well. The extent and timing of the peak in price pressure highly depend on the fate of price caps, but as of now, we see the peak well above 11% in the third quarter. On average, we forecast a 10% headline reading in 2022. The central bank might raise the pace As far as monetary policy is concerned, as underlying inflation is also strengthening to an extraordinary extent (1.8% month-on-month), the National Bank of Hungary will hardly have an opportunity to think about stopping the interest rate hike cycle anytime soon. In our view, the recent data will urge the central bank to rethink its tightening path both from the perspective of its length and its peak. We see a possibility that the central bank will speed up its effective rate hiking from the recent 30bp tempo to 50bp or even 75bp in May. Against this backdrop, our 8.25% terminal rate call seems outdated and we now see the peak in base and 1-week deposit rates at above 9%. TagsNational Bank of Hungary Monetary policy Inflation Hungary CPI   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
Canadian Dollar Falters as USD/CAD Tests Key Support Amidst Rising Oil Prices and Economic Data

Some May Even Not Imagine How US Inflation (CPI Data) Can Affect Asian - Chinese Market And Forex Pairs With US Dollar Like USD/JPY And USD/CNH

ING Economics ING Economics 11.05.2022 13:54
All quiet in Asia ahead of US inflation In this article Macro outlook What to look out for: China and US inflation Source: shutterstock Macro outlook Global: The big story today is going to be the April US CPI release, and markets may be quite muted ahead of this. Our Chief US Economist has written about this in the context of the latest NFIB business survey, so please check out this link for more details. But to summarise, whatever happens tonight, he isn’t looking for US inflation to fall quickly. That may bring back concern about potentially more aggressive FOMC behaviour. In this vein, Loretta Mester yesterday suggested that if inflation wasn’t falling by the second half of the year, the FOMC may need to increase the pace of its tightening. US stocks managed to eke out some small gains yesterday after the big falls earlier this week. But trading was choppy, and it could have gone either way. We don’t read too much directional steer into this for Asia’s open today. G-10 FX continued to show USD support, but movements were not large. EURUSD drifted down to about 1.0530 from about 1.0560 yesterday. The AUD still looks pressured lower and is about 0.6937 as of writing. Other Asian FX was fairly muted, though note there is a BNM meeting today, so a “no-change” which is on the cards, could see the MYR softening further. Bond markets were also fairly muted. 2-year US Treasury yields edged up slightly, but the 10Y US Treasury bond yield drifted back under 3.0%. 10Y JGBs have been drifting higher – challenging the 0.25% level, and breaching it intraday, so we may be due an official response of sorts imminently.    China: April CPI and PPI inflation rates are expected to slow from March due to lower metal and coal prices and weak demand for consumer goods. We will probably see higher prices for pork and fertilizer. This set of data reflects slower economic growth resulting from the Covid-19 social distancing measures. Korea: The Jobless rate remained unchanged in April at 2.7% (vs the market consensus of 2.8%) for the third straight month, while the labour participation rate improved to 63.8% (vs 63.5% in March), indicating that the labour market continued on a recovery track. Reopening is supporting employment growth in service sectors such as retail sales, recreation, and transportation. Despite a gloomier outlook for manufacturing, employment in that sector posted a solid gain for the eighth straight month. However, one potential caveat to this month’s report was that the majority of the employment growth came from the older age group (60+) while the 30’s (supposedly the most productive group) lost the most jobs. President Yoon Seok Yeol’s party has proposed a supplementary budget plan to the government this morning. Although the size was in line with the market expectation of about KRW33tr, it is noted that the extra budget would not require additional bond issuance. More details will be released tomorrow. 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 What to look out for: China and US inflation Korea unemployment (11 May) China CPI and PPI inflation (11 May) US CPI inflation (11 May) Philippines 1Q GDP (12 May) US PPI inflation and initial jobless claims (12 May) Malaysia GDP (13 May) Hong Kong GDP (13 May) US Michigan sentiment (13 May) 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
Nasdaq Slips as Tech Stocks Falter, US Inflation Data Awaits

Rising Inflation In The US Means Rising US Dollar (USD), Chinese COVID Policy Seems To Be Almost Impossible | US inflation, a make-or-break moment for investors! | MarketTalk: What’s up today? | Swissquote

Swissquote Bank Swissquote Bank 11.05.2022 11:12
It’s D-day of the week: we will see whether inflation in the US started easing in April after hitting a four-decade high in March, and if yes, by how much. A soft inflation read will come as a relief that the Federal Reserve’s (Fed) efforts to tame inflation start paying off, but any disappointment could send another shock wave to the market. In the FX, the US dollar extended gains, despite the easing yields yesterday, as the risk-off flows continued supporting the greenback For now, activity on Fed funds futures give almost 90% chance for a 50-bp hike in FOMC’s June meeting; there is a lot left to be priced for a 75bp hike, if the data doesn’t please. To avoid pricing in a 75bp hike at next FOMC meeting, we must see an encouraging cooldown in inflation. In the FX, the US dollar extended gains, despite the easing yields yesterday, as the risk-off flows continued supporting the greenback.   The barrel of US crude tipped a toe below the $100 level on news that the Europeans softened their sanctions proposal against the Russian oil The levels against the majors like euro, yen and sterling remained flat, but the positive pressure in the dollar, combined with Turkey’s unconventional monetary policy start giving signs of exhaustion. The dollar-try advanced past the 15 mark, and the government asked institutions to make their FX operations within the most liquid trading hours. Two weeks ago, the bank had revised its regulations on banks' reserve requirements, applying them to the asset side of balance sheets in order to strengthen its macroprudential policy toolkit. The latter required reserves now pressure the overnight rates to the upside – suggesting that the unconventional policy is near limits. Energy are up and down… but mostly up. The barrel of US crude tipped a toe below the $100 level on news that the Europeans softened their sanctions proposal against the Russian oil, but oil is already above the $100 this morning. The upside potential is fading due to slower global growth prospects, and the Chinese lockdown. 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 Watch the full episode to find out more! 0:00 Intro 0:24 All eyes on US inflation data! 2:30 Market update 3:50 Strong US dollar threatens lira stability 5:50 Risks in energy markets remain tilted to the upside 6.35 Why Chinese zero Covid policy won’t work 8.07 Coinbase hit hard by crypto meltdown 8:39 Energy, still the best option for investors 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.  
Agriculture: Russia's Exit from Black Sea Grain Deal Impacts Grain Prices

Here Is Why US Inflation Data (CPI) Is That Important Not Only For US Dollar (USD) Its Index (DXY), But Also For Stocks, Bonds And Other Assets | Conotoxia

Conotoxia Comments Conotoxia Comments 11.05.2022 15:28
Today at 14:30 important macroeconomic data for the US economy will be published, which may also affect asset valuations outside the United States - we are talking about inflation data. In March 2022, inflation in the United States rose to 8.5 percent, which was the highest reading in 40 years. The rise in prices, in turn, may have affected several market measures. First, it forced the Fed to act, as the Federal Reserve is supposed to care about price stability and should raise interest rates if prices rise. This in turn could have influenced expectations of higher USD interest rates in the future and a strengthening of the dollar to levels last seen 20 years ago. Further expectations of rising rates could lead to an increase in bond yields, where for 10-year bonds they are in the region of 3%. The increase in bond yields, expectations of further tightening of monetary policy, and shrinking of the Fed's balance sheet, in turn, are information that could adversely affect the stock market, which in the case of the Nasdaq 100 index found itself in bear market territory. This spiral seen in many markets may continue until investors fully discount inflation, rising yields, and expectations of interest rate hikes. Interestingly, the latter had already begun to fall earlier in the week as recession fears increased. Currently, based on the federal funds rate contracts, the market is assuming a peak for hikes in mid-2023 at 3.00-3.25 percent. That's lower than the 3.5-.375 percent assumed as recently as the beginning of the month. The determinant, in turn, of whether there is a chance of full pricing for U.S. rate hikes may be where inflation will be. If this one peaks this six months and starts to fall, the market may stop assuming very aggressive Fed action. This, in turn, could bring relief to the bond market, the stock market, and also lead to the US dollar being close to its cyclical peak. Hence, today's and subsequent data on price growth in the U.S. economy could be so important. Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex 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. 80.77% 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.
Forex: GBP/USD. The Support Has Been Rejected 3 Times. Uptrend!

Inflation (US CPI) Rises, So Does US Dollar (USD)! (SPX) S&P 500 And Nasdaq Have Decreased! Is Hawkish Fed Going To Hunt Again? | FxPro |

Alex Kuptsikevich Alex Kuptsikevich 11.05.2022 15:36
The dollar got a fresh boost, with stocks coming under renewed pressure after a new batch of US inflation data. The annual inflation rate slowed from 8.5% to 8.3% The US consumer price index rose 0.3% in April after 1.2% a month earlier. The annual inflation rate slowed from 8.5% to 8.3% but was higher than the expected 8.1% y/y. Particularly worrying for markets is the development of core inflation. The corresponding index added 0.6% m/m and 6.2% y/y last month, higher than the expected 0.4% and 6.0%, continuing the sprawl of inflation. Higher-than-expected inflation is now positive for the dollar and weighs on equities as it suggests a more robust Fed response While the annual rate of core and core inflation seems to have peaked, higher-than-expected inflation is now positive for the dollar and weighs on equities as it suggests a more robust Fed response. With inflation far from the 2% target, the Fed will be inclined to act faster (raise rates more than 50 points at a time) or stop hiking at a higher level. A significant risk demand indicator, bitcoin, has already moved out of the range with a lower boundary in January 2021 Locally, we see a tug-of-war around the dollar against the euro and yen near the lows of the past two weeks and swings against the pound and the franc near this week’s extremes. However, a significant risk demand indicator, bitcoin, has already moved out of the range with a lower boundary in January 2021. The S&P500 and Nasdaq futures were also pushed back to this week’s lows, indicating continued bearish pressure.
The Forex Market Is Under Strong Pressure From Geopolitical Events And Statistics

Gold $1200 Scenario? After Higher US CPI Release, Fed Is Expected To Tackle Inflation, So Gold Price (XAUUSD) May Plunge Again | FxPro

Alex Kuptsikevich Alex Kuptsikevich 11.05.2022 15:38
Gold dipped to $1832 on Wednesday morning, pulling back to a critical support line in the form of the 200-day moving average, losing more than 11% from the peak levels reached in early March. Gold has been losing buyers amid a jump in US government bond yields Gold has been under systematic pressure for the past month and a half amid a rally in the dollar. In addition to this increase in the underlying price, gold has been losing buyers amid a jump in US government bond yields. However, it is too early to talk about a break in the uptrend in gold, but only a retreat into deep defences ahead of essential data. Most of the time, the correlation between inflation expectations and long-term bond yields governs the dynamics in gold. Weak real bond yields lead to a pull in the precious metal as investors look to protect the purchasing value of capital.  A significant event for the gold outlook is today’s US inflation release With high interest rates and inflation control, investors prefer to earn yields in bonds by selling off gold. A significant event for the gold outlook is today’s US inflation release. The market reaction to this event could be decisive for gold in the coming days or weeks. If gold manages to develop a pullback from current levels, we could see a sharp increase in buying over the next few days Consolidation below $1830 on the day would be an essential bearish signal that could rapidly decline towards $1800. Moreover, there would be an immediate question of double-top formation through 2020 and 2022 peaks as an early signal of a long-term downward trend with a potential of $1200. If gold manages to develop a pullback from current levels, we could see a sharp increase in buying over the next few days, as we did in early February and late November. But unlike those episodes, this time, the bears might not wait for a quick reversal, and a further rally would be an important signal that gold continues to claw its way out of the prolonged correction. In this case, the nearest stops might be the levels near $1900, and further, the market might quickly target a renewal of the historic highs above $2075 before the end of the year. 
Forex: Could Incoming ECB Decision Support Euro?

Although US Bonds Yields May Be Higher, Current Circumstances Are Not Clear As US CPI Release And Correlated Fed Interest Rate Decision In June Are To Shape Markets | ING Economics

ING Economics ING Economics 11.05.2022 17:15
The inflation concerns are easing ahead of today’s US CPI reading. We doubt central bankers will back down so soon, however. Markets are coming around to our view that a peak is near in yields, but we think it might still be a couple of months away In this article US 10yr edges back below 3% on remarkable easing in inflation expectations The inflation scare is easing but beware of circular reasonings Global growth gloom means holding psychologically important levels will be more difficult Today’s events and market views The peak in yields may be near US 10yr edges back below 3% on remarkable easing in inflation expectations The juxtaposition between rising real rates and falling inflation expectations remains, and over the past 24 hours the fall in inflation expectations has been dominant. And that’s why the US 10yr yield has dipped back below 3%. Right now, US 10yr inflation expectations are in the region of 2.65%. They were in excess of 3%, albeit briefly, a few weeks back, at which point talk of a 75bp hike in June were sounding like a solid call. Now that inflation expectations are well down, the 50bp promised looks fine. "10yr real rate in the area of 1% would not look out of whack" Meanwhile the 10yr real yield is now above 30bp. Add that to the inflation expectation and we get the sub-3% 10yr Treasury yield. The move higher in the real yield has been spectacular. Back in March it was deeper than -100bp. The move to 30bp is a sign that the economy has morphed away from the need for ultra-loose policy. And a continued move higher takes it towards a more normal footing. In fact a 10yr real rate in the area of 1% would not look out of whack. If we got there, inflation expectations would fall far more. The adjustment higher in real yields is a threat to risk asset valuations Source: Refinitiv, ING   Today’s US CPI number will be important, but not determinative. In other words it should not have a material impact on the 10yr inflation expectation. That said, if it’s an outsized / surprise number, it’s then more likely to have an impact out the curve. Our central view is in line with the market view, where we do see a fall in contemporaneous inflation, consistent with the recent tendency for inflation expectations to ease lower. We’ve been surprised by this though, and think it’s too early to call it a trend. The inflation scare is easing but beware of circular reasonings The ‘peak inflation’ narrative should receive a boost from slowing US annual headline and core inflation readings today but we would be cautious about chasing the move lower in rates. As always, forward-looking markets could apply a heavy discount to central bank rhetoric but an acceleration in monthly core CPI means Fed officials are unlikely to change tack just yet. One should also remember that the decline from the inflation peak will be very slow indeed, keeping pressure on the Fed to act. Swaps show inflation is no longer the market's only concern Source: Refinitiv, ING   US CPI and Eurozone HICP swaps have dropped significantly this month Further afield, inflation compensation offered by US CPI and Eurozone HICP swaps has dropped significantly this month. Should markets conclude that central banks can now afford to be less hawkish? Only up to a point. To some extent, the drop in inflation swaps is owing to a deteriorating global macro environment, but the post-FOMC timing of this drop also suggests that it has at least as much to do with expectations that central banks will deliver on expected tightening. We would be careful with such circular reasonings. Global growth gloom means holding psychologically important levels will be more difficult For an example of the doubt setting in investors’ mind about central banks’ ability to tighten policy, look no further than yesterday’s better-than-expected German (Zew) and US (National Federation of Independent Business) sentiment indicators. None of the readings was enough to alleviate global growth gloom but the NFIB details in particular could have brought inflation fears back to the fore. We suspect it is too early to call the end of the hawkish re-pricing, with central bankers still very much on their front-foot when it comes to delivering monetary tightening. Bonds risk failing a psychologically important test Source: Refinitiv, ING   We have sympathy with the growing view that there is a short time limit to this tightening cycle We think a better candidate for a peak in yields in this cycle is during the third quarter of this year, after the ECB’s expected first hike and after the couple of additional 50bp hikes the Fed has committed to. This being said, turning points are notoriously difficult to pick and we have sympathy with the growing view that there is a short time limit to this tightening cycle. Should 10Y bonds fail to hold on to their recent jump above the psychologically important levels of 3% for Treasuries and 1% for Bunds, it may take a lot of good news to test these levels again. Today’s events and market views Germany (10Y) and Portugal (8Y) make up today’s Euro sovereign supply slate. This will come on top of a dual tranche NGeu syndicated deal in the 3Y (new issue) and 30Y (tap) sectors. In the US session, the Treasury will auction 10Y notes. The main release of note in the afternoon will be the April CPI report. Consensus is for the annual readings to cool down from the previous month but a monthly acceleration in core could muddy the picture for rates. There is also an extensive list of ECB speakers on the schedule, culminating with interventions from Christine Lagarde and Isabel Schnabel. TagsRates Daily   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
Cautious optimism

ECB's Lagarde Teases Rate Hike, Bitcoin Price (BTC/USD) Defends From Deep Plunge

Craig Erlam Craig Erlam 11.05.2022 17:06
Stock markets are pushing cautiously higher again on Wednesday as investors await a huge inflation report from the US ahead of the open on Wall Street. The report is expected to be the first that will indicate inflation has peaked and a sharp decline is underway. That doesn’t mean inflation is expected to return to target any time soon but it will come as a massive relief to investors, households and businesses alike after months of watching price pressures accelerate higher. The fear is that the data today doesn’t tell us what we want to hear. A slower deceleration or worse, none at all, would be an enormous blow and I expect equity markets would feel the full effects of it. The extent to which that would be the case would obviously depend on how bad the data is. On the flip side, considering the shock to equity markets recently, a low reading that marks the end of the ascent and falls in line with the view that price pressures will ease considerably in the months ahead could be very positive for stock markets. Investors will be hoping the inflation data can provide a tailwind for equity markets for the rest of the year and perhaps even allow for interest rate expectations to be pared back. There may be some scarring from the last six months which may stop investors from getting too excited initially but indices are at a steep discount now after recent moves and a low inflation reading could tempt some back in. Lagarde drops subtle rate hike hint After months of pushback, it seems the ECB is forming a consensus around raising interest rates in the coming months. Noises from policymakers in recent weeks have alluded to that and Christine Lagarde today ever so slightly deviated from her policy of ambiguity to hint at the possibility of a July hike. That would align with where markets stand on the lift-off and make the ECB the latest central bank to abandon its transitory argument and belatedly start tightening. Whether Europe will pay the price for their hesitation, as may be the case in the UK, US, New Zealand and many other countries, isn’t clear. It may well depend on how swiftly it agrees to raise rates and how entrenched inflation becomes. There’s no doubt they don’t quite have the problem the UK and US have, for example. Bitcoin stays above crucial support as Terra plunges Bitcoin survived a brief dip below USD 30,000 on Tuesday and is making small gains so far today, easing pressure on the critical support in the process. It could have been much worse for bitcoin if it got caught up in the Terra debacle, which is down more than 50% on the day despite being a stablecoin by definition. That it hasn’t sent shockwaves throughout the broader crypto space will come as a relief to bitcoin HODLers for now. But that could change and a break below USD 30,000 could make them very uncomfortable. 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 US Has Again Benefited From Military Conflicts In Other Parts Of The World, The Capital From Europe And Other Regions Goes To The US

Fast rising U.S. CPI data adds to equity market woes | Saxo Bank

Saxo Bank Saxo Bank 12.05.2022 16:22
Summary:  The larger than expected April U.S. CPI and core CPI reversed the attempt of the equity market to rebound and brought major U.S. equity indices firmly back onto their down trends. The surprising strength in services is particularly worrying and the money market is pricing in 143 bp hikes (i.e. almost three 50 bp hikes) in the next three FOMC meetings. What’s happening in markets? What spooked markets overnight was US inflation rose more than expected, which gives the Fed more ammunition to rise rates (more than they mapped out). Rising rates will cause further carnage, as when rates rise, bond yields tend to rise, which may trigger the US 10-year bond yield, to rise back over 3%,  (which is a better yield than the Nasdaq and S&P500 combined – just think about that for a second). As such the Nasdaq (with an average dividend yield of 0.9%) continued to fall and lost 3.2%. The Tech heavy index is down 28% from its high, and the technical indicators suggest it will likely continue to fall on a weekly and monthly basis, which supports our bearish fundamental view. The S&P500 lost 1.7% on Wednesday, (it has an average dividend yield of 1.66%). The U.S. treasury yield curve flattened 13 bps since yesterday’s CPI release.  The 10-year yield fell 10 bps to 2.89% while the 2-year yield rose 3 bps to 2.64%. It is worthwhile to note that the 10-year yield has fallen 30 bps in just three days from its May 9 high of 3.20%.  The treasury market is sending signals of investors being worried about a sharper slow-down in the U.S. economy.  In Australia, the Aussie share market fell 1% and hit a support level 6,991 points, but energy companies hit new highs. If the ASX200 falls further bellow this level, it could fall 2.2% to the next support (at 6,837 points). The technical indicators, suggest this could occur, with the MACD and RSI suggesting a weekly and monthly could pull back. We ideally need to see better than expected news to break the cycle. All in all though, it’s worthwhile continuing to back those stocks that are outperforming and are likely to outperform this trajectory, with rising cashflow and earnings growth. Just take a look at today’s best performing stocks as an example. In Energy there is Ampol (ALD) up 3.5% with its shares hitting a 2-year high, and Viva Energy (VEA) up 3% to its highest level since 2019. China and Hong Kong equity markets rebounded from their lows. After a weak opening, stocks traded in Hong Kong, Shanghai and Shenzhen rebounded from their lows.  Hang Seng Index (HSI.I) was down  1% and CSI300 (000300.I) recouped all its early loss to close the morning session flat.  Infrastructure related A share, in particular county seat modernization names rallied.  Sunac China, China’s 4th largest property developer, failed to make a coupon payment of a dollar bond.  The news pushed down the shares of other Chinese developers traded in Hong Kong. Asia stocks follow Wall Street down. Japan’s Nikkei (NI225.I) was down 1% in the Asian morning following US CPI release overnight and the slide in US indices overnight. Steel makers like Japan Steel (5631) and Kobe Steel (5406) surged in a big way after earnings results and profit outlook was better than expected. Singapore’s STI Index (ES3) was also in the red. Singtel (Z74) was up over 1% leading on the index as it broadened its 5G network to underground metro line. Chinese electric car maker Nio (NIO) is going to start trading on the Singapore stock exchange form May 20. FX range trading continues. The USD had a hard time reacting to the US inflation print, suggesting range trading patterns may continue for now. While USDJPY slipped below 130 on lower real yields, EUR was still unable to overcome inflation and growth worries even with Lagarde hinting at a rate hike for July on stickier inflation, it dipped slightly to remain above 1.05 support. AUDUSD’s move above 0.7000 was not sustained and NZDUSD returned to sub-0.6300. GBPUSD is making a steadier move below 1.2300 ahead of UK GDP release. What to consider? US inflation may have peaked but the descent will be slow and painful. April U.S. CPI came at 8.3% YoY.  Core CPI, which excludes food & energy,  was 6.2% higher from a year ago.  Reiterating what we said in this piece, while headline inflation may be showing signs of peaking as base effects turn, it is likely to stay at these elevated levels. It was important to note that the 0.6% monthly increase of Core CPI  has brought inflation back to the uncomfortably high 0.5%-0.6% range from October 2021 to February 2022, after a temporary moderation in March.  Another worrying sign was the +0.7% core service price, which was the highest since 1990. Regular rents and owner-equivalent rents rose faster than expected and prices of reopening related spending, such as airfares and hotel lodging rose sharply. The US consumer remains very strong, which gives pricing power to companies. Services inflation will also broaden further, suggesting we are in for a higher-for-longer mode. Take into the mix, a prolonged war, sustained disruptions from China and still-tight labor market. This means Fed’s hawkish rhetoric is set to stay. The money market has moved towards pricing in a 50bp hike in the Sept FOMC on top of the two 50bp moves anticipated for June and July. Oil bulls pin their ears back: Both the Saudi oil Chief and UAE have warned that all energy sectors are running out of capacity, which supports our view that the oil price will hit higher levels over the longer term and also once China is out of lockdown. That being said, Saudi Aramco (ARAMCO) has strengthened regardless, along with many other oil companies, as their cashflows are rising at record paces. ARAMCO has now overtaken Apple as the world’s most valuable company. As we have been saying for some time now, it’s wise to consider revisiting oil stocks and oil ETFs. For instance, the ETF OOO that tracks the oil price, looks like it could break above a key trigger level and re-enter another uptrend, so that’s worth consideration. Also have a look at your favorite large oil stocks with rising earnings growth. Malaysia’s rate hike will be a signal for the region. Bank Negara Malaysia started the rate hike cycle yesterday as we had expected, turning away from its patient stance in April. This comes on the back of a similar rate increase decision from the Reserve Bank of India last week in an out-of-cycle meeting. Ringgit interest rate swaps are now pricing in over 75-basis points of rate hikes over the next 6 months. This similar surge in hawkish pricing is being seen across emerging Asia, suggesting more pain for EM bonds. Potential trading ides that could be worth your consideration? US dollar and US dollar ETFs move higher. As mentioned last week the USD dollar is supported higher along with US dollar ETFS. The Invesco USD Index Bullish Fund ETF closed at a brand new record high overnight. BetaShares USD ETF is also hitting higher levels and looks like. As previously mentioned, also as our head of FX Strategy also said, we are bullish on the USD, as higher volatility and bond yield are expected. This supports the USD and USD ETFs. BTC s in a bearish long term downtrend pressured by long term yield rising. For investors it could be worth considering shorting Bitcoin given rates are likely to continue to rise for now. Buy USDHKD 12-month forward. HKD interest rates are set to rise towards or even go above those of the USD as the Hong Kong Monetary Authority (HKMA) withdraw HKD liquidity in its move to buy HKD against USD.  As the USDHKD spot rate touches 7.85, which is the weak-side convertibility undertaking of the HKMA, the HKMA intervened by buying HKD versus the dollar this morning.  Given the strength of the US dollar and the weak economic sentiment in Hong Kong and the mainland, it is likely that the HKMA will have to continue to intervene and withdraw HKD liquidity further.  Given the ample ammunition that the HKMA has in defending HKD’s Linked-exchange Rate Regime, investors who are interested in betting on persistent weakness in the HKD would be better off to take a long position of USDHKD 12-month forward (currently at around 7.83) which can go up as HKD interest rate rise even when the spot being capped at 7.85.  Key economic releases this week: Thursday: India April CPI, US April PPI Friday: US Univ of Michigan sentiment, US import price index   Key earnings release this week: Thursday: Verbund, KBC Group, Brookfield, Fortum, Siemens, Allianz, Merck, Hapag-Lloyd, RWE, Atlantia, Snam, NTT, SoftBank Group, Aegon, Naturgy Energy, Motorola Solutions Friday: Deutsche Telekom, KDDI, Honda Motor, Alibaba   For a global look at markets – tune into our Podcast.  Source: Saxo Bank
Record-breaking but near-peak inflation in Britain

Record-breaking but near-peak inflation in Britain

Alex Kuptsikevich Alex Kuptsikevich 19.05.2022 08:40
UK consumer prices rose by 2.5% in April, the second-biggest monthly gain in the indicator’s history since 1988. Annual inflation jumped from 7% to 9%, unseen in the indicator’s history. Metals, meanwhile, have withdrawn from the highs The longer-established retail price index last saw a high annual growth rate (11.1% y/y in April) in 1982, while such a big monthly jump (3.4% m/m) was last observed in 1980. However, despite the horror that these figures represent, there are still indications that the UK’s peak annual rate of inflation will be much lower than in the 1980s (22%) or 1970s (27%). While Output Producer Prices are showing an acceleration in the annual growth rate, rising to 14%, Input PPI has slowed from 19.2% to 18.6%. Although remaining volatile in recent weeks, oil and gas have regularly retreated from highs, limiting upward pressure on prices. Metals, meanwhile, have withdrawn from the highs. Read next: Altcoins: What Is Monero? Explaining XMR. Untraceable Cryptocurrency!? | FXMAG.COM Early hints that UK inflation may be slowing in the coming months may allow the Bank of England to raise the rate by 25 points At the same time, there are growing questions about final global demand, which will constrain producers in shifting costs to consumers. Early hints that UK inflation may be slowing in the coming months may allow the Bank of England to raise the rate by 25 points at its next meeting in mid-June and not copy the Fed’s 50-point move. This is moderately negative news for the British currency, which started to retreat from the $1.25 area on the data after a 2.9% rally from last Friday’s lows. Short-term traders should pay particular attention to the 1.2350 area. Read next: Altcoins: What Is Litecoin (LTC)? A Deeper Look Into The Litecoin Platform| FXMAG.COM Already, a dip lower this week would suggest that the brief period of recharging dollar bulls has ended. In this case, GBPUSD could quickly fall below 1.2000, making the 1.1500 area a potential ultimate target for this attack Follow FXMAG.COM on Google News
Australian CPI Expected to Rise to 5.2%: Impact on AUD/USD and RBA's Rate Hike Dilemma

Rates Spark: The rates upside remains real | ING Economics

ING Economics ING Economics 20.05.2022 08:41
Completing the shift of the market narrative towards growth concerns, bonds are reasserting their role as safe havens. The European Central Bank minutes confirmed the Council's desire to act faster, also with an eye on still ultra low real yields  Risks remain to the upside for rates Bonds' negative correlations with risk assets consolidates amid growth concerns As markets continue to trade in a risk-off fashion, bonds have managed to reassert their role as safe havens. The pattern of bond curves consistently rallying flatter as risk assets sell off has only reestablished itself over the past few sessions. In a way this dynamic completes the transition of the market narrative toward growth concerns, away from being dominated by central banks' prospective tightening lifting market rates out the entire curves. bonds have managed to reassert their role as safe havens This does not mean that data releases couldn't shift the focus again. Next week will offer some opportunities with the release of the flash PMI surveys for instance. And if the Fed deems inflation (expectations) are not coming down fast enough, it may well use the FOMC minutes next week to signal more hawkish moves. The 75bp-hike discussion is not entirely off the table. Unlike the ECB, the Fed has used its meeting minutes as a more active communications tool, such as outlining its plans for the balance sheet run-off. We will also watch the PCE deflator, the Fed's preferred inflation gauge at the end of next week. Risk-off drives curves flatter Source: Refinitiv, ING ECB minutes, outdated but also highlighting the upside in rates The ECB minutes have been overtaken by the quick evolution of ECB communication since the last meeting. The indication now is that a majority of the Council is backing ending net asset purchases in June and hiking for a first time in July is already common place. And markets are attaching some probability to hikes larger than 25bp. The ECB has to increasingly grapple with potential de-anchoring of inflation expectations That does not mean that the known objections of the Council’s doves are invalid: too fast tightening being counterproductive, weighing on growth without being able to do anything about inflation driven by supply shocks. The line of reasoning still holds and explains market concerns reflected in current curve flattening. But the ECB has to increasingly grapple with potential de-anchoring of inflation expectations with some of the related measures already displaying notable shifts. This shift in some inflation expectation measures had been outlined by Isabel Schnabel in one of her more recent speeches. She had also highlighted the still very low level of real yields. This hawkish argument was also found in yesterday’s minutes, with real yields remaining low while the rise in nominal yields was not enough to dampen aggregate demand and bring down inflation in the medium term. Read next: Altcoins: What Is Litecoin (LTC)? A Deeper Look Into The Litecoin Platform| FXMAG.COM EUR real rates have a long way to go Source: Refinitiv, ING   It is worth noting that back around the April ECB meeting the 10Y swap rate was just below 1.6% versus a current level of 1.65%, although following a decent rally after a brief excursion above 2% earlier this month. Real rates remain deeply negative regardless of the maturity, and if this is a measure considered instrumental at reining in inflation over the medium term, then we may have to reckon with more upside to rates. The important question is whether the ECB will have enough time to realize its goals.   The ECB's "separation principle" is still lacking detail The "separation principle" referenced in the ECB accounts states the idea that monetary policy could be set independently from any measures designed to avoid disruptions triggered by any such policy tightening. More specifically to the current situation, Eurozone sovereign bond spreads could be managed while the ECB starts hiking. However, as of now the ECB has still not provided any details on how such a tool could look in practice. Beyond stating the need to keep flexibility and pointing to the potential use of pandemic emergency purchase programme reinvestments, it appears there is no desire to have a broader discussion on the topic just yet. With ECB plans still vague, Italian bonds especially remain vulnerable With ECB plans still vague, Italian government bonds especially remain vulnerable. In the current risk-off environment Italian bonds are still positively correlated with Bunds, ie, they do not trade as risk assets, but the spreads have started to rewiden towards 195bp in 10-year maturities. We still think the market could test out widening this spread towards 250bp before the ECB steps in. ECB plans remain vague, leaving Italian bond spreads vulnerable to further widening Source: Refinitiv, ING Today's events and market views In terms of data and events it will be a quieter session today. The main focus will be on central bank speakers with the ECB's Muller, Kazaks Lane, and Centeno all scheduled for the day. In the UK we will hear from the Bank of England's Chief Economist Huw Pill. Main data of note is the Eurozone consumer confidence. In this shaky risk environment, we expect bonds to retain their poise. It would take a lot of good news for yield upside to resume at the long-end, but central bankers should keep the heat on shorter rates. Read next: Altcoins: What Is Monero? Explaining XMR. Untraceable Cryptocurrency!? | FXMAG.COM Read this article on THINK TagsRates Daily 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 Follow FXMAG.COM on Google News
Hungarian Labour Markey Data And Turkish Monetary Policy Are Going To Arouse Our Interest | Key events in EMEA next week - 19/05/22 | ING Economics

Hungarian Labour Markey Data And Turkish Monetary Policy Are Going To Arouse Our Interest | Key events in EMEA next week - 19/05/22 | ING Economics

ING Economics ING Economics 19.05.2022 23:47
Labour market figures in Hungary and Turkish policy rates are the key releases to look out for next week The Central Bank of Turkey Content Hungary: Double-digit wage growth expected in March Turkey: Policy rate to remain on hold Hungary: Double-digit wage growth expected in March Next week we will see the latest set of labour market data in Hungary. After a significant jump in wages in February due to a six-month bonus payment to the armed forces, we expect a more moderate growth rate in March. However, due to the labour shortage and the minimum wage increase, this moderate rise will still be well into double-digit territory, around 14% year-onyear. We don’t see any significant change in the unemployment rate as the latest surveys show that companies are still complaining about a lack of labour and are ready to hire new workers. Read next: Altcoins: What Is Litecoin (LTC)? A Deeper Look Into The Litecoin Platform| FXMAG.COM Turkey: Policy rate to remain on hold Recent Central Bank of Turkey moves that 1) tightened reserve requirements to curb TRY commercial loan growth and 2) aimed to encourage a higher take-up of FX-protected deposits on the retail side and strengthen its FX reserves moves, signal that there is no reason to expect the bank to change its stance and policy rate in the near term. This is despite ongoing challenges to external balances and the inflation outlook. Given this backdrop, we expect that the policy rate will be kept unchanged at 14%. Read next: Altcoins: What Is PancakeSwap (CAKE)? A Deeper Look Into The PancakeSwap Platform| FXMAG.COM EMEA Economic Calendar Source: Refinitiv, ING, *GMT TagsTurkey Hungary EMEA 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
Rates Reversal: US Long Yields on the Rise as Curve Dis-Inverts

Inflation - Poland: Consumption boom and upward price pressures continue | ING Economics

ING Economics ING Economics 23.05.2022 16:30
April retail sales growth was supported by low base effects, “consumption smoothing” by domestic consumers as well as purchases by and for refugees from Ukraine. Construction output growth eased and has serious headwinds ahead. In June, the MPC may hike the main policy rate by 100bp in order to curb inflationary pressure A tight labour market should keep CPI inflation elevated in Poland Strong retail sales from a low reference base The consumer boom continues. In April, retail sales jumped by 19.0% year-on-year (ING: 16.7% YoY; consensus: 16.1% YoY). Such a strong annual growth was facilitated by a low reference base from April 2021, but that is not the only explanation for the strong reading. Retail sales, %YoY Source: GUS.   Buoyant consumer spending is supported by solid domestic demand. Soaring prices have not significantly reduced purchases as consumers continue to spend despite higher price levels. The monthly seasonally-adjusted real data for different sales categories looks robust. This is all happening despite high inflation, very poor consumer sentiment, and uncertainty caused by war. Demand for goods is fuelled by rising wages and fiscal expansion, including tax cuts.   The inflow of refugees from Ukraine is an additional boost to consumption, particularly in sales of clothing and footwear (up by 121.4% YoY). The high volatility of sales in this category is also linked to the lifting of Covid-19 restrictions.   Implied retail sales deflator increased to 12.1% YoY in April from 11.3% YoY in March. Consumer demand remains robust and high price pressures persist. Construction activity slows amid declining home sales Signs from construction are clearly less optimistic as activity softened visibly last month. Construction output rose by 9.3% YoY vs. an increase of 27.6% YoY in March (ING: 16.6%YoY; consensus: 18.7%YoY). Seasonally-adjusted data points to a 5.1% MoM decline. The decline in activity was broad-based, however, the smallest monthly drop was reported in civil engineering, due to ongoing spending of local and EU funds on infrastructure. The coming months will be tough for residential construction due to: (1) the hit to housing demand from higher interest rates and more restrictive regulations, (2) the sharp upswing in prices of materials, (3) mounting shortages of labour, including outflows of Ukrainian workers and (4) elevated uncertainty linked to the war in Ukraine. Construction output, 2015=100 (S.A.) Source: GUS. Bottom line The beginning of 2Q22 brings buoyant consumer demand and persistently high price pressures. Retail sales data, although somewhat distorted by a low reference base, points to strong consumer demand. This could fuel second-round effects (producers passing higher costs onto output prices). The scale of upward pressure on producers’ costs is reflected in the PPI index, which jumped by 23% YoY in April, so companies have higher costs, which should drive up inflation in coming months.   Data on retail sales, PPI and wages provide strong arguments for further interest rate hikes. The MPC should take further policy action in order to prevent inflation from spiralling. In June, the MPC may hike the main policy rate by 100bp. We still see the NBP reference rate at 7.5% this year and the terminal rate at 8.5%, with upside risk. 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
SEK: Riksbank's Impact on the Krona

Indonesia’s central bank keeps rates unchanged, citing global growth concerns | ING Economics

ING Economics ING Economics 24.05.2022 10:16
Bank Indonesia opted to hold out on rate hikes for now, keeping rates untouched to bolster the economic recovery Bank Indonesia Governor Perry Warjiyo has hinted that he will consider tightening policy if inflation becomes a problem 3.5% BI policy rate   As expected Central bank remains unfazed by simmering inflation pressures Bank Indonesia (BI) kept policy rates unchanged at 3.5%, matching the market consensus. BI Governor Perry Warjiyo cited concerns about the pace of global growth suggesting that Indonesia’s ongoing economic recovery would need support from monetary authorities. BI retained both growth and current account projections from the previous meeting but recognised the threat of rising price pressures.  Warjiyo indicated that inflation would remain under control although he admitted that inflation expectations warranted monitoring. BI may have felt less pressure to hike policy rates today after fiscal authorities rolled out a subsidy package to help contain the recent increase in food and energy prices.  Inflation remains on the uptrend but BI appears confident that fiscal measures can contain price pressures Source: Badan Pusat Statistik Bank Indonesia enacts dovish pause We had expected BI to keep policy rates unchanged at today’s meeting, however we believed that Governor Warjiyo would at least set the table for a June rate hike. Warjiyo did the exact opposite by pledging sustained support for the economic recovery and citing Indonesian rupiah (IDR) stability.  It appears the central bank remains confident that inflation can be contained by subsidies rolled out by fiscal authorities and that IDR would remain supported by a healthy trade surplus in the near term. As such, it appears BI is in no hurry to hike policy rates in the near term unless we see a substantial pickup in core inflation in the coming months and or heightened weakness from IDR. With BI enacting a dovish pause, expect IDR to come under some pressure as BI opts not to join the rate hike camp for now.      Read this article on THINK TagsInflation IDR 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
The Grains Sector Saw Continued Demand| Acceleration In The Sale Of Gold

Crude Oil And Price Of Gold (XAU/USD) Head Higher | Oanda

Jeffrey Halley Jeffrey Halley 25.05.2022 14:24
White House unnerves oil markets Oil prices continued to range trade overnight, finishing almost unchanged in New York. Asia, though, has seen both Brent crude and WTI rise. A couple of items seem to be behind the move. A sharp 4.20 million drop in gasoline inventories late in New York from the API Inventory data is likely supportive, with gasoline prices becoming a major issue in the US. Following on from that, White House officials explicitly refusing to say possible crude export restrictions were off the table appears to have spooked Asian suppliers. The last thing the world needs right now is US crude oil export restrictions with global supplies already tight. That saw both Brent crude and WTI spike 1.0% higher in early Asian trade, although those gains have eased as the session has gone on. Brent crude is 0.90% higher at USD 114.70 a barrel, and WTI is 0.65% higher at USD 110.90 a barrel. The White House likely needs to “clarify” its stance, least it creates unintended consequences by pushing crude prices higher. Brent crude, notably, is testing multi-week resistance today. Brent crude is testing resistance at USD 114.70 today, which is followed by USD 116.00, with support at USD 112.00. Failure of USD 116.00 could set up a retest test of my medium-term resistance at 120.00. ​ WTI is taking comfort from the White House stance and is sitting in a USD 108.00 to USD 112.00 a barrel range. Nevertheless, a topside breakout by Brent crude will almost certainly drag WTI higher as well, precisely what President Biden doesn’t want. Gold rises once again Gold had another decent overnight session, buoyed by lower US yields and a still-weakening US Dollar. Gold finished 0.69% higher at USD 1866.50 an ounce. In Asia, some US dollar strength has seen it weaken slightly by 0.40% to USD 1859.00 an ounce. Overall, although I acknowledge gold’s upward momentum, I remain sceptical of its longevity until it manages to hold on to material gains in the face of US dollar strength. Read next: (TRX) TRON USD Decentralised Blockchain Platform That Focuses On Entertainment And Content Sharing. Altcoins: A Deep Look Into The TRON Network | FXMAG.COM The technical picture continues to remain supportive, and it seems only a marked US dollar recovery will cap gold’s rally. Gold took out resistance at the double top at USD 1865.00 an ounce which becomes intraday support, followed by USD 1845.00 and USD 1840.00 an ounce. It should now target USD 1886.00, its 100-day moving average. That would open up a test of USD 1900.00, although I suspect there will be plenty of option-related selling ahead of that level. 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. Follow FXMAG.COM on Google News
Eurozone Bank Lending Under Strain as Higher Rates Bite

What's The Future Of British Pound (GBP)? Stocks: Snap Has Fallen! How Far Will New Zealand Dollar Go!? | Least worst choices | Oanda

Jeffrey Halley Jeffrey Halley 25.05.2022 11:05
RBNZ hikes by 50-bps The Reserve Bank of New Zealand has raised policy rates by 0.50% to 2.0% this morning, with Governor Orr setting a hawkish tone in the press conference afterwards. In the statement itself, the RBNZ’s “least worst choices” policy seemed to imply that although external risks remained, the domestic economy was strong and could tolerate tighter monetary conditions. Mr Orr seemed to be saying much the same, suggesting that terminal rates could go above 3.0% and would get there sooner, rather than later. We’ll see just how strong the New Zealand economy is in due course, but a hawkish RBNZ has seen the New Zealand dollar rally by 0.70% to 0.6505 today, making it the biggest currency gainer in Asia today. Elsewhere, Singapore’s GDP growth came in tight on expectations, rising by 3.70% YoY for Q1. With inflation data yesterday also less worse than expected, expectations for another unscheduled tightening by the Monetary Authority of Singapore have receded for now. That may bring some relief to the Malaysian ringgit, which has fallen to 3.20 against the Singapore dollar. Snap Has Fallen In Malaysia itself, Inflation data for April continues to remain benign as domestic demand stays subdued. Inflation YoY rose by just 2.30% and will leave Bank Negara, like Bank Indonesia yesterday, in no hurry to tighten monetary policy. Ominously though, the Malaysian ringgit has shown no strength versus the US dollar. USD/MYR remains at recent highs at 4.4000 even as the greenback is experiencing an extended bull market correction versus the G-10 and EMFX elsewhere. If the US dollar turns higher once again, and the MYR resumes its sell-off, Bank Negara’s hand might be forced. Overnight, the recession word weighed on stock markets once again. European PMI data was a mixed bag. Manufacturing PMIs held steady, while Services PMIs fell as consumer demand takes a hit from the rise in the cost of living. That wasn’t enough to stop the euro rally, powered by suddenly hawkish ECB heavyweights. Bank of England, has already signalled a white flag on bringing down inflation The picture was rather grimmer in the United Kingdom where the most honest central bank in the world, the Bank of England, has already signalled a white flag on bringing down inflation and pencilled in a recession next year. UK Manufacturing PMI held steady at 54.6, but Services PMIs plummeted to 51.8. The UK is facing a winter of discontent as the cost of living soars, with the railways RMT union voting to strike over pay negotiations. Expect more of this going forward. Additionally, the Chancellor is apparently preparing to widen the scope of the windfall tax on energy companies, probably to help pay for his cost of living mini-budget. UK stock markets didn’t like that. Finally, the “party gate” report on those lockdown wine frenzies in the No 10 garden is due for release today, potentially putting more pressure on PM Johnson’s leadership. ​ Little surprise that the sterling slumped versus the euro and the US dollar overnight. In the United States, the recession world hit particularly hard after the Snap Inc. induced meltdown by Nasdaq stocks overnight. US New Home Sales plummeted to 591,000 in April, while Richmond Fed Manufacturing slumped to -9 in May. The S&P Global Services Flash PMI for May fell to 53.5, with Flash Manufacturing easing to 57.5. It was the new home sales that really frightened the street, though, as house building, and its ancillary services and suppliers are a good chunk of US domestic GDP. Soaring mortgage interest rates and petrol prices appear to be doing a lot of the Fed’s work for it before it even gets started. Read next: (TRX) TRON USD Decentralised Blockchain Platform That Focuses On Entertainment And Content Sharing. Altcoins: A Deep Look Into The TRON Network | FXMAG.COM If there is one takeout from all of this for me, it is that rising inflation and borrowing rates are already crimping the demand side of the equation. Unfortunately, we are seeing very little sign of price pressures reducing due to a combination of factors, all of which have been thrashed to death here and in research everywhere. The uncomfortable reality is that central banks are going to be forced to continue the tightening path, even as growth slows around the world, because inflation has proven sticky and not transitory. That is the least worst choice central banks need to make in a stagflationary environment. I am asked every day if we have seen the low in the equity market sell-off. Hopefully, I have answered the question. US President Joe Biden’s trip around Asia continues Finally, US President Joe Biden’s trip around Asia continues. Unfortunately, with its emphasis on containing China and hawking a trade agreement empty of potential access to the US domestic market (Congress needs to approve that), the trip is not going to make much headway in re-establishing US leadership in the region. Asia really needs to see the colour of America’s money. Furthermore, the reliability of the US as a partner has taken a further hit today, with White House officials explicitly refusing to rule out the possibility that the US could enact crude oil export restrictions to help cap energy prices domestically. The US doesn’t have a crude oil problem, it has a refining and transportation problem, but let’s not let facts get in the way. I have warned about food nationalism previously, but if President Biden prioritises November’s mid-term elections over the economic war with Russia, and supporting Europe, it really is every man for himself globally. I can’t see that being positive for equities anywhere, or European asset markets full stop, or for Ukraine. Only the Kremlin is likely to be popping champagne as the US does Russia’s divide and conquer for them. 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. Follow FXMAG.COM on Google News
Fed And US Dollar (USD) Are All About Mixed Feelings, Christine Lagarde And ECB In General May Support Euro Even In July. BoE's Bailey Also Teases A Rate Hike. XAU, XAG And Crude Oil Went Higher As USD Weakened | OneRoyal

Fed And US Dollar (USD) Are All About Mixed Feelings, Christine Lagarde And ECB In General May Support Euro Even In July. BoE's Bailey Also Teases A Rate Hike. XAU, XAG And Crude Oil Went Higher As USD Weakened | OneRoyal

OneRoyal Market Updates OneRoyal Market Updates 30.05.2022 10:14
Weekly Recap It was another bearish week for the US Dollar as the greenback continued to sell off from YTD highs. The FOMC meeting minutes, released mid-week, did little to inspire a fresh rally in the Dollar. While the minutes confirmed the Fed’s hawkish stance and reinforced expectations for further 50bps hikes in June and July, there was little in the way of exciting details to get bulls reinvigorated. Additionally, with the Fed having seemingly turned more hawkish since that meeting, the minutes felt a little outdated. Christine Lagarde, ECB And Rate Hikes On the data front, a string of weaker-than-expected indicators out of the eurozone heightened growth concerns. With ECB’s Lagarde essentially confirming a July rate-hike, recession fears weighed on European asset markets though EUR itself remained well bid. Elsewhere, equities markets generally saw a choppy week though most indices ended the week in the green, benefitting from the weaker US Dollar. Read next: Altcoins: What Is Polkadot (DOT)? Cross-Chain Transfers Of Any Type Of Asset Or Data. A Deeper Look Into Polkadot Protocol | FXMAG.COM BOE’s Bailey warned that further rate hikes will likely be necessary in the face of rising inflation. The new fiscal package announced by the UK government this week, aimed at helping households fight rising energy bills, has further increased the likelihood of BOE rate hikes in the near-term. Weaker Dollar, Stronger Crude, Gold And Silver Commodities prices were higher over the week also. Gold, silver and oil all rallied on the back of a weaker US Dollar. With monetary policy divergence between the Fed and other central banks drying up, USD pressure has helped commodities stay afloat recently. Coming Up This Week Australian GDP Australian GDP will be closely watched this week on the back of the recent RBA rate hike. With the bank lifting rates and sounding firmly hawkish in its outlook and assessment, this week’s data might further support growing RBA rate hike expectations. With the country having emerged from one of the longest lockdowns of the pandemic, the economy has been on the bounce-back. However, as we have seen elsewhere, the economy has still been rocked by rising inflation and supply constraints. Traders will be keen to see the extent to which these factors weighed on the economy over the last quarter. BOC Rate Decision The BOC is widely expected to raise rates when it convenes for this month’s meeting mid-week. All 30 economists polled by Reuters ahead of the event are looking for a .5% hike. With this in mind, the focus will be on the bank’s forward guidance. If the BOC gives a clear signal that further hikes are coming in the near future, this should drive CAD higher near-term. However, if there is any indication that the BOC might look to hold off on any further rate hikes near-term, this will likely see cad dragged lower. Read next: Altcoins: Cardano (ADA) What Is It? - A Deeper Look Into Cardano (ADA) | FXMAG.COM US Non-Farm Payrolls The latest set of US labour market indicators this week will be closely watched as we head to the June meeting. Recent Fed commentary has been decidedly hawkish and it would likely take a major downside shock to change this narrative. Even then, it certainly wouldn’t impact the June rate hike and would likely only factor in forward guidance issued by the Fed. Still, with slowdown fears building, any weakness would no doubt act as a headwind to risk sentiment in the short-term. Forex Heat Map Technical Analysis Our favourite chart this week is the Dollar Index (DXY) The DYX has pulled back from recent multi-year highs and is now sitting on a make-or-break level at 101.94. This level was the 2020 closing high price. While the level holds as support, DXY is likely to recover and continue the longer-term bull trend. Below here, however, there is room for the correction to develop further towards next support at 100.37 Economic Calendar Plenty of key data releases to keep an eye on this week including Australian GDP, BOC rate decision and US Non-Farm Payrolls to name a few. Please see full calendar below for the complete schedule . Follow FXMAG.COM on Google News
Tepid BoJ Stance Despite Inflation Surge: Future Policy Outlook

We Could Say High Prices Of Crude Oil, Metals And Other Commodities Are About Not Only Negative Effects, But Also About A Profit For Some People | Saxo Bank

Saxo Bank Saxo Bank 30.05.2022 12:42
Summary:  Commodities have seen hefty prices increases in the past two years, which is bad for inflation and for life in general but is one of very few asset classes where a profit can be made in very depressed markets.​ It’s hardly news that the cost of living – or inflation – is going up at a rate which the world hasn’t seen for decades. Food is getting more expensive, electricity is going up, it is more costly to buy and build stuff. In short, everything you want to do and consume costs (a lot) more than it did a year ago.There is one area – or in finance lingo, asset class – which is the root cause of this situation, and it has politicians and economists scratching their heads to find solutions: commodities. Commodities are the basic input to everything we do. It covers energy production, raw materials, metals, food, etc.When you look at commodities from a societal point of view, there isn't a lot of good news:“In short, what happens in the commodity sector is troubling. The Bloomberg Commodity Index is up 24% on the first quarter and if you look at average annual returns it has almost doubled since 2020,” says Ole Hansen, Head of commodity strategy at Saxo. In this quote, Hansen points to something interesting when dealing with an asset class like commodities, because it affects both the financial markets, and day-to-day life. When investing in an index, which is up that much in such a short time, you would usually be celebrating, but it isn’t always a good thing for commodities to climb so high, so fast.“Commodities are the basic input for everything we do, which means that when they get more expensive, so does everything else. Commodities need to find a more stable level for consumers and companies alike to feel comfortable, which no one is now,” says Hansen.As Hansen describes, surging commodity prices can have grave effects on society at large especially in less wealthy parts of the world, and its solution can be a self-fulfilling prophecy. “Most people will have to wind back on their spending. This will cause an economic slowdown, which hurts, but unfortunately seems to be the only cure right now against high inflation,” he says.The other edge While commodities need to become more stable for its societal impact, the asset class remains an enticing investment opportunity in a market where it seems like it is almost the only one you can look for a profit, even if there’s an economic slowdown. This is due to the supply and demand dynamics we are experiencing right now.Central banks are hiking rates to kill – or slow – the demand side, which is yet another reason why companies and thus equities are struggling. This should, in theory, also push the prices of commodities down, but then let’s turn our heads towards the supply side.Here, especially the Russian invasion of Ukraine, and the strict COVID-19 lockdowns in China, suppress the supply of many key commodities. This creates a dramatic imbalance between supply and demand, which means that even a global economic slowdown most likely wouldn’t bring it back to an equal footing.“If I had to pick one area to look for inspiration, it would be the metal industry. There’s a lot of amped up construction in China due to the lockdowns, which means that once they are lifted, the metal space could see a substantial increase in demand from them,” says Hansen.Queued up construction in China can push metal prices, which also could be a long play on the mining sector within equities."The equity market is probably the most difficult since the 2007-2009 financial crisis years due to a combined factor of persistently high inflation and equity valuation compression from higher interest rates. We believe that the world will be in a commodity super cycle and thus should be exposed to this through mining companies both short and long term. China's slowdown is just short-term noise. It changes nothing regarding mining companies over the coming years," says Peter Garnry, Head of Equity strategy.
Energy and Metals Decline, Wheat Rallies Amid Disappointing Chinese Growth

Supporting EUR, USD And Others - What Is Interest Rate? What Is A Negative Interest Rate | Binance Academy

Binance Academy Binance Academy 01.06.2022 16:55
TL;DR It doesn’t make much sense to lend money for free. If Alice wants to borrow $10,000 from Bob, Bob will need a financial incentive to loan it to her. That incentive comes in the form of interest – a kind of fee that gets added on top of the amount Alice borrows. Interest rates profoundly impact the broader economy, as raising or lowering them greatly affects people’s behavior. Broadly speaking: Higher interest rates make it attractive to save money because banks pay you more for storing your money with them. It’s less attractive to borrow money because you need to pay higher amounts on the credit you take out. Lower interest rates make it attractive to borrow and spend money – your money doesn’t make much by sitting idle. What’s more, you don’t need to pay huge amounts on top of what you borrow. Learn more on Binance.com Introduction As we’ve seen in How Does the Economy Work?, credit plays a vital role in the global economy. In essence, it’s a lubricant for financial transactions – individuals can leverage capital that they don’t have available and repay it at a later date. Businesses can use credit to purchase resources, use those resources to turn a profit, then pay the lender. A consumer can take out a loan to purchase goods, then return the loan in smaller increments over time. Of course, there needs to be a financial incentive for a lender to offer credit in the first place. Often, they’ll charge interest. In this article, we’ll take a dive into interest rates and how they work.   What is an interest rate? Interest is a payment owed to a lender by a borrower. If Alice borrows money from Bob, Bob might say you can have this $10,000, but it comes with 5% interest. What that means is that Alice will need to pay back the original $10,000 (the principal) plus 5% of that sum by the end of the period. Her total repayment to Bob is, therefore, $10,500. So, an interest rate is a percentage of interest owed per period. If it’s 5% per year, then Alice would owe $10,500 in the first year. From there, you might have: a simple interest rate – subsequent years incur 5% of the principal or  a compounded interest rate – 5% of the $10,500 in the first year, then 5% of $10,500 + $525 = $11,025 in the second year, and so on.   Why are interest rates important? Unless you transact exclusively in cryptocurrencies, cash, and gold coins, interest rates affect you, like most others. Even if you somehow found a way to pay for everything in Dogecoin, you’d still feel their effects because of their significance within the economy. Take a commercial bank – their whole business model (fractional reserve banking) revolves around borrowing and lending money. When you deposit money, you’re acting as a lender. You receive interest from the bank because they lend your funds to other people. In contrast, when you borrow money, you pay interest to the bank. Commercial banks don’t have much flexibility when it comes to setting the interest rates – that’s up to entities called central banks. Think of the US Federal Reserve, the People’s Bank of China, or the Bank of England. Their job is to tinker with the economy to keep it healthy. One function they perform to these ends is raising or lowering interest rates. Think about it: if interest rates are high, then you’ll receive more interest for loaning your money. On the flip side, it’ll be more expensive for you to borrow, since you’ll owe more. Conversely, it isn’t very profitable to lend when interest rates are low, but it becomes attractive to borrow. Ultimately, these measures control the behavior of consumers. Lowering interest rates is generally done to stimulate spending in times when it has slowed, as it encourages individuals and businesses to borrow. Then, with more credit available, they’ll hopefully go and spend it. Lowering interest rates might be a good short-term move to rejuvenate the economy, but it also causes inflation. There’s more credit available, but the amount of resources remains the same. In other words, the demand for goods increases, but the supply doesn’t. Naturally, prices begin to rise until an equilibrium is reached. At that point, high interest rates can serve as a countermeasure. Setting them high cuts the amount of circulating credit, since everyone begins to repay their debts. Because banks offer generous rates at this stage, individuals will instead save their money to earn interest. With less demand for goods, inflation decreases – but economic growth slows.   ➟ Looking to get started with cryptocurrency? Buy Bitcoin on Binance!   What is a negative interest rate? Often, economists and pundits speak of negative interest rates. As you can imagine, these are sub-zero rates that require you to pay to lend money – or even to store it at a bank. By extension, it makes it costly for banks to lend. Indeed, it even makes it costly to save. This may seem like an insane concept. After all, the lender is the one assuming the risk that the borrower may not repay the loan. Why should they pay?  This is perhaps why negative interest rates are something of a last resort to fix struggling economies. The idea comes from a fear that individuals may prefer to hold onto their money during an economic downturn, preferring to wait until it recovers to engage in any economic activity.  When rates are negative, this behavior doesn’t make sense – borrowing and spending appear to be the most sensible choices. This is why negative interest rates are considered to be a valid measure by some, under extraordinary economic conditions.   Closing thoughts On the surface, interest rates appear to be a relatively straightforward concept to grasp.  Nevertheless, they’re an integral part of modern economies – as we’ve seen, adjusting them can fundamentally alter the behavior of individuals and businesses. This is why central banks take such a proactive role in using them to keep nations’ economies on track. Do you have more questions about interest rates and the economy? Check out our Q&A platform, Ask Academy, where the Binance community will answer your questions.
Diesel Supply Concerns Grow as Russia Bans Exports: Impact on Middle Distillate Markets

Can Apple Stock Plunge Today!? Fed Decision May Affect US Dollar (USD), S&P 500, Gold (XAUUSD) And Crypto (e.g. Bitcoin Price & ETHUSD) | Swissquote

Swissquote Bank Swissquote Bank 15.06.2022 10:28
The Federal Reserve (Fed) will announce its latest rate decision today, but most of the wild ride is certainly done by now; the market fully prices in a 75bp hike at today’s decision. The aggressive rise in hawkish Fed expectations pushed the US 2-year yield to 3.45% on Tuesday. The 10-year yield flirted with 3.50%. The S&P500 lost another 0.38%, while Nasdaq eked out a small 0.20% gain, but after hitting a fresh low since November 2020. The US futures are in the positive this morning, but the market will likely remain tense until the Fed breaks the news that it hikes by 75bp. The updated economic projections and the dot plot have an important weight for future expectations. Bigger rate hikes from the Fed, and the soaring US dollar are certainly not a gift for other central banks. The US dollar is a base currency, and the rapid appreciation in the greenback increases the cost of the goods that the other countries negotiate in terms of US dollars on international markets, starting from oil and commodities. As a result, a stronger US dollar is a bigger inflation threat for the world. This is why, the hawkish Fed expectations have a bigger domino effect power on the rest of the world. The German 10-year yield continues pushing higher, and the EURUSD sees a decent support near the 1.04 threshold after the European Central Bank (ECB) announced an unscheduled meeting to discuss the market turmoil. Cable slipped below the 1.20 mark, and a 25bp hike from the Bank of England (BoE) may not suffice to compensate the hawkish Fed, and the renewed Brexit fears.   Watch the full episode to find out more! 0:00 Intro 0:27 The Fed decision 4:26 Market update 5:32 Gold, Bitcoin down 6:43 FedEx jumps & dividend paying stocks see higher interest 7:41 Expensive dollar threatens ECB, BoE 8:52 FTSE to feel the pinch of engdangered Brexit deal 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 #decision #dotplot #ECB #unscheduled #meeting #BoE #USD #EUR #GBP #CHF #Bitcoin #MicroStrategy #crude #oil #gold #market #selloff #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  
The Swing Overview – Week 23 2022

The Swing Overview – Week 23 2022

Purple Trading Purple Trading 17.06.2022 08:53
The Swing Overview - Week 23 Major global stock indices broke through their support levels after several days of range movement in response to the tightening economy, the ongoing war in Ukraine, slowing economic growth and high inflation. The Reserve Bank of Australia raised its interest rate by 0.50%. The ECB decided to start raising interest rates by 0.25% from July 2022. The winner of last week is the US dollar, which continues to strengthen. Macroeconomic data Data from the US labour market was highly anticipated. The job creation indicator, the so-called NFP, surprised the markets positively. Analysts expected that 325,000 new jobs had been created in May. In fact, 390 thousand jobs were created in the US. Unemployment is at 3.6%. The information on the growth of hourly wages, which is a leading indicator of inflation, was important. Average hourly earnings rose 0.3% in May, less than analysts who expected 0.4%.   Unemployment claims reached 229,000 this week. This is the highest levels since 3/3/2022. However, this is not an extreme increase. The number of claims is still in the pre-pandemic average area. Nevertheless, it can be seen that since 7/4/2022, when the number of applications reached 166 thousand, the number of applications is slowly increasing and this indicator will be closely monitored.  The ISM index of purchasing managers in the US service sector reached 55.9 in May. This is lower than the previous month's reading of 57.1. A value above 50 still points to expansion in the sector although the decline in the reading indicates  economy.   The yield on the US 10-year bond is close to its peak and is currently around 3%. The rise in yields has been followed by a rise in the US dollar. The dollar index has surpassed 103. The reason for the strengthening of the dollar is the aggressive tightening of the economy by the US Fed, which began reducing the central bank's balance sheet on June 1, 2022. In practice, this means that the Fed will let expire the government bonds it previously bought as part of QE and will not reinvest them further. The first tranche of bonds will expire on June 15, so the effect of this operation remains to be seen. Figure 1: The US 10-year bond yields and USD index on the daily chart   The SP 500 Index The SP 500 index has been moving in a narrow range for the past few days between 4,200, where resistance is and 4,080, where support has been tested several times. This support was broken and has become the new resistance as we can see on the H4 chart.   Figure 2: The SP 500 on H4 and D1 chart   The catalyst for this strong initiation move is the strong US dollar and rising bond yields. Therefore, the current resistance is in the 4,075 - 4,085 range.  The nearest support is 3,965 - 3,970 according to the H4 chart. The next support is 3,879 - 3,907.   German DAX index Macroeconomic data that affected the DAX was manufacturing orders for April, which fell 2.7% month-on-month, while analysts were expecting a 0.3% rise. Industrial production in Germany rose by 0.7% in April (expectations were for 1.0%). The war in Ukraine has a strong impact on the weaker figures. The catalyst for breaking support was the ECB's decision to raise interest rates, which the bank will start implementing from July 2022. Figure 3: German DAX index on H4 and daily chart The DAX is below the SMA 100 moving average according to the daily and H4 chart. This shows a bearish sentiment. The nearest resistance is 14,300 - 14,335. Support is at 13,870 - 13,900 according to the H4 chart.   The ECB left the interest rate unchanged  The ECB left interest rates unchanged on June 9, 2022, so the key rate is still at 0.0%. However, the bank said that it will proceed with a rate hike from July, when the rate is expected to rise by 0.25%. The next hike will then be in September, probably again by 0.25%. The bank pointed to the high inflation rate, which is expected to reach 6.8% for 2022. Inflation is expected to fall to 3.4% in 2023 and 2.1% in 2024.  Figure 4: The EUR/USD on H4 and daily chart According to the bank, a significant risk is Russia's unjustified aggression against Ukraine, which is causing problems in supply chains and pushing energy and some commodity prices up. The result is a slowdown in the growth of the European economy. The bank also announced that it will end its asset purchase program as of July 1, 2022. This is the soft end of this program, as the money that will flow from matured assets will continue to be reinvested by the bank. In practice, this means that the ECB's balance sheet will not be further inflated, but for now, unlike the Fed’s balance sheet, the bank has no plans to reduce its balance sheet. This, coupled with the more moderate rate hike plans and the existence of the above risks, has supported the dollar and the euro has begun to weaken sharply in response to the ECB announcement. The resistance is 1.0760-1.0770. Current support at 1.063-1.064 is broken and it will become new resistance if the break is confirmed. The next support according to the H4 chart is 1.0530 - 1.0550.   Australian central bank surprises with aggressive approach In Australia, the central bank raised its policy rate by 0.50%. Analysts had expected the bank to raise the rate by 0.25%. Thus, the current rate on the Australian dollar is 0.80%. However, this aggressive increase did not strengthen the Australian dollar, which surprisingly weakened. The reason for this is the strong US dollar and also the risk off sentiment that is taking place in the equity indices.  Also impacting the Aussie is the situation in China, where there is zero tolerance of COVID-19. This will impact the country's economic growth, which is very likely to fall short of the 5.5% that was originally projected.  Figure 5: The AUD/USD on H4 and daily chart According to the H4 chart, the AUD/USD currency pair has broken below the SMA 100 moving average, which is a bearish signal. The nearest resistance is 0.7140 - 0.7150. The support is in the zone 0.7030 - 0.7040. 
Eurozone Bank Lending Under Strain as Higher Rates Bite

The US Inflation - What Are The Predicted Prints?

InstaForex Analysis InstaForex Analysis 12.07.2022 13:05
Relevance up to 10:00 2022-07-13 UTC+2 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. Markets are currently focused on the US CPI report for June, which will be released on Wednesday, July 13. Forecasts show that inflation will continue to grow, where headline inflation, which includes changes in the cost of food and energy, will increase by 1.4% month-over-month and by 8.7% year-over-year. Seeing that prices have accelerated even more, inflation has every chance of reaching 8.7%. Statistics Austria reported that in addition to the increase in fuel and heating oil prices, there has also been significant growth in restaurant and food prices. If CPI turns out as expected, the Fed will most likely make another 75 basis point rate hike at the FOMC meeting later this month, especially given last week's employment report. They may also announce a fourth increase this year. The central bank began raising rates last March, the first time since 2018. The increase back then was 25 basis points, followed by a 50 bp increase in May and a 75 bp increase in June. The CME FedWatch tool sees the same scenario, indicating a 93% chance that the Fed will raise rates again by 75 basis points this month. This outlook weighs heavily on US equities, pushing the USD index up and lowering gold prices.   Read more: https://www.instaforex.eu/forex_analysis/315917
Inflation Outlook: Energy Prices Drive Hospitality, Food Inflation Eases

UK: Recession In The End Of 2022? Scary Projections Of Bank Of England!

Saxo Bank Saxo Bank 08.08.2022 09:36
Summary:  In today’s ‘Macro Chartmania’, we give an update on the British economy. A few months ago, we warned the UK economy is one of the developed countries most likely to enter into a recession. There is no debate about it anymore. Last week, the Bank of England updated its macroeconomic forecasts for the years until 2025. These are frightening. The United Kingdom is projected to enter into a recession in Q4 2022. This could last five quarters and cause GDP to fall about 2.1 % - as deep as the recession of the early 1990s. But this is not the worst. Very often, the economy rebounds quite sharply after a recession. This is unlikely to happen this time. The slump will last. The BoE sees GDP still 1.75 % below today’s levels in mid-2025. Click here 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. The United Kingdom is more and more looking like an emerging market country: Political instability (the new Prime Minister will be announced on 5 September after Boris Johnson’s resignation), trade disruptions (due to Brexit and Covid-related bottlenecks), energy crisis (the risk of a blackout this winter is real) and high inflation (the Bank of England forecasts that UK CPI will peak at 13 % in October but this is certainly a bit optimistic) are all hurting the UK economy. The only major difference : there is no currency crisis. The sterling pound exchange rate is rather stable. It only dropped 0.70 % against the euro and 1.50 % against the U.S. dollar over the past week. Our bet : after surviving Brexit uncertainty, we don’t see what could push the sterling pound into a free fall. All the leading indicators point in the same direction : The worst is yet to come for the British economy. There is a consensus among economists about that very fact. The OECD’s leading indicator for the United Kingdom, which is supposed to anticipate reversals in the economy six to nine months in advance, fell to 98.6 in June. The annual rate was 7.3 % in June 2021 (partially reflecting the post-lockdown rebound). It now stands at minus 2.9 %. The change is impressive over a year. This is not only linked to Covid data noise. This is a clear sign that a recession is coming. In addition, new car registrations, which are often considered as a leading indicator of the overall UK economy, continue to drop. This also reflects the deep collapse in consumer confidence (see chart below). In July 2021, after the peak of the pandemic, new car registrations stood at 1,835,000. They now stand at 1,528,000, a sharp drop of 14%. This is the lowest level since the end of the 1970s. The recession will be long and deep. There won’t be an easy escape. This is the most worrying, in our view. The Bank of England assesses the slump will last with GDP still 1.75 % below today’s levels in mid-2025. What Brexit has not done by itself, Brexit coupled with Covid and high inflation have succeeded in doing. The UK economy is crushed. The window for further rate hikes is closing :   Last week, the Bank of England hiked interest rates by 50 basis points, from 1.25 % to 1.75 %. We think the Bank of England’s next rate hike in September (probably of 50 basis points) could be the last. Outside of the jobs markets, there are signs that some of the key inflation drivers may be starting to ease. In addition, the prospect of a long recession (five negative quarters of GDP starting in Q4 2022 all the way through to Q4 2023) will certainly push the Bank of England into a wait-and-see position. On the topic of balance sheet reduction, we don’t expect any changes in the medium-term. Gilt sales will begin shortly after the September meeting. They will amount to £10bn per quarter the first year (this amount will be revised each year). We think the Bank of England has a rather traditional approach to deal with the current macroeconomic situation. Domestic demand must be slowed down by pushing GDP below its potential level, thus increasing unemployment and lowering inflation. A key rate of 2.25 % could already have a noticeable positive impact on the overall inflation dynamics, in our view. However, this is too early to know whether the current tightening cycle will definitely be over in September. The inflation dynamics have been a bit unpredictable in recent months. This is the least we can say. The social contract is broken : Imagine the graduate entering the workforce in 2009/10, who will have been told this was a once-in-a-lifetime crash. They are now in their early 30s and having yet another once-in-a-lifetime economic crisis. They faced an economy of suppressed wages, no housing prospects, two years of socializing lost to lockdown, obscene energy bills and rent and now a lengthy recession. This will lead to more poverty and despair. The Bank of England is now forecasting that real household post-tax disposable income will fall by 3.7 % over this year and next. This would be easily the weakest two years on record since 1963. The lowest income is hit the hardest. The International Monetary Fund found the poorest households in the United Kingdom are amongst the hardest hit by the cost of living in Europe. They found that living costs for the poorest 20 % of households are set to rise by about twice as much as those for the wealthiest, for instance. If this situation would happen in France, there would be a street revolution. Remember the Yellow Vest Movement in 2018. But this is the United Kingdom. It will unlikely lead to any major political shift. There will be more social distress, wealth inequality and poverty all around, however. The sixth largest economy in the world will look even more like an emerging market country, unfortunately.     Source: Chart of Week Emerging market Britain | Saxo Group (home.saxo)
A Bright Spot Amidst Economic Challenges

Coinbase's Plan. Is SIlver Better Than Gold? Latest Market News

Saxo Strategy Team Saxo Strategy Team 10.08.2022 12:00
Summary:  US equities were not impressed by the lower inflation expectations in the New York Fed’s consumer survey, and Micron’s revenue warning added to the fears with broad losses seen across the semiconductor space. Equity losses broadened as earnings continued to disappoint, and the yield curve inverted further. The US CPI wait game is unlikely to be much more than just noise, but upside risks to USD are seen on stronger underlying dynamics. On the radar today will also be China’s inflation data will be parsed for hints on demand recovery and Fed speakers who may continue to bring up market expectations of Fed’s rate hike path. Markets latest news     Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  US. Equities traded lower in a quiet session, awaiting today’s CPI data.  Nasdaq 100 fell 1.2% after Micron Technology (MU:xnas), added to investors’ concern over weakening demand for microchips when the company issued a negative revenue warning, just a day after another leading chip maker, Nvidia (NVDA:xnas) similarly announced.  The company said that the current quarter revenue could come in at or below the low end of prior guidance. Share price of Micron fell 3.7%. S&P 500 fell 0.4%. After the close, Coinbase Global, Roblox, and Wynn Resorts reported weaker-than-expected results and declined in after-hours trades. U.S. yield curve inverts further Front-end U.S. treasury yields rose 6bps and caused the 2-10-year yield spread further inverted to -49.5bps. The 10-year treasury note yield edged up by 2bps to 2.78% after the Q2 unit labor costs in the U.S. came in at 10.8%, higher than expected.  The 3-year action showed decent demand from investors after yields had risen ahead of the auction.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Shares of leading Hong Kong property developers surged as much as 5% at one point in the morning session, following newswires, citing Executive Council convener Regina Ip, suggested that Hong Kong is considering to remove the punitive double stamp duty imposed on residential property buyers from the mainland.  The Hang Seng Index rose as much as 1% in the morning but both the Hang Seng Index and Hong Kong developers pared gains after the office of the Financial Secretary refuting the speculation after midday.  Hung Kai Properties (00016:xhkg) and CK Assets (01113:xhkg) finished the day 2% higher and Henderson Land (00012:xhkg) +0.7%. The Hang Seng Index reversed and closed 0.2% lower.  Shares of coal miners surged 2% to 5% across the board following reports that a large Shanxi coal mine had an incident and caused temporary suspension of production.  Chinese EV names traded lower on concerns spurred by a 64% MoM fall of Tesla sales in July despite that the China Passenger Car Association raised EV sales estimate to 6 million, 9% higher from its previous estimate. In A-shares, CSI300 was modestly higher, with coal mining, auto parts, wind and solar power storage, and chiplet concept shares outperformed.   EURUSD and USDJPY stucked The US inflation will be relevant beyond the headline print. Key focus is likely to be on the core measure, as it is evident that lower commodity prices may have helped to cool the headline measure. The US dollar rallied sharply on Friday after a solid jobs print, but has since steadied. The next leg higher could depend on the stickiness of the inflation print, which may raise further the expectations of a 75bps rate hike at the September Fed meeting. EURUSD took another look above 1.0240 overnight but reversed back towards 1.0200 in early Asia. USDJPY is also stuck in the middle of the 130-140 range, awaiting triggers for a breakout one way or another. Oil prices (CLU2 & LCOV2) Oil prices steadied in the Asian morning on Wednesday amid renewed concerns on Russian flows to Europe. WTI futures were seen around the key $90 level, while Brent futures touched $96/barrel. API report also showed another week of strong inventory build, coming in at 2.2 million for week ended August 5 as compared to expectations of 73k. The official government inventory report is due today, and China’s inflation data will also be on watch. Grains eye the USDA report US grain futures led by corn traded higher on Tuesday in response to worsening crop conditions. Just like central Europe, soaring heat and drought have raised concerns about lower production and yields. USDA will publish its monthly supply and demand estimates on Friday. The crop condition report, published every Monday by the USDA throughout the growing season, shows the proportion of the US crop being rated in a good to excellent condition. Silver against Gold. Gold (XAUUSD) looking to test $1800 Gold’s focus remains on the geopolitical tensions, despite the recent rise in US Treasury yields. The US CPI and the $1800 resistance area are now the key tests for Gold ahead, and any pickup in rate hike expectations from the Fed could bring bears of the yellow metal back in force. Silver (XAGUSD) has been outshining Gold and in the process managing to mount a challenge above its 50-day moving average, now support at $20.33 with focus on resistance at $20.85.   What to consider?     US CPI due today will be just noise The highly-watched US inflation data is due to be released today, and the debate on inflation peaking vs. higher-for-longer will be revived. Meanwhile, the Fed has recently stayed away from providing forward guidance, which has now made all the data points ahead of the September 21 FOMC meeting a lot more important to predict the path of Fed rates from here. Bloomberg consensus expects inflation to slow down from 9.1% YoY in June to 8.8% YoY last month, but it will be more important to think about how fast inflation can decelerate from here, and how low it can go. The core print will gather greater attention to assess stickiness and breadth of price pressures. However, any surprise will still just be a noise given that we have another print for August due ahead of the next FOMC meeting. Fed’s Evans will take the hot seat today Chicago President Charles Evans discusses the economy and monetary policy today. Evans is not a voter this year, but he votes in 2023. He said last week a 50bps rate hike is a reasonable assessment for the September meeting, but 75bps is a possibility too if inflation does not improve. He expects 25bps from there on until Q2 2023 and sees a policy rate between 3.75-4% in 2023, which is in line with Fed’s median view of 3.8% for 2023, but above the 3.1% that the market is currently pricing in. US New York Fed survey of inflation expectations show sharp decline Median 1-year ahead and 3-year ahead inflation expectations declined sharply in July, from 6.8%/3.6% in June to 6.2%/3.2% in July. Lower income households showed the greatest shift lower in expectations, possibly linked to the sharp drop in petrol prices (the peak in June in one national measure was over $5.00/gallon, a level that fell to below $4.25/gallon by the end of July. China’s PPI inflation is set to ease while CPI is expected to pick up in July The median forecasts from economists being surveyed by Bloomberg are 4.9% (vs June: 6.1%) for PPI and 2.9% (vs 2.5% for June). The higher CPI forecast is mainly a result of a surge in pork prices by 35% in July from June. On the other hand, PPI is expected to continue its recent trend of deceleration due to a low base and a fall in material prices. The convergence of the gap between PPI and CPI is likely to benefit downstream manufacturing industries. Japan PPI shows continued input price pressures Japan’s July producer prices came in slightly above expectations at 8.6% y/y (vs. estimates of 8.4% y/y) while the m/m figure was as expected at 0.4%. The continued surge reflects that Japanese businesses are waddling high input price pressures, and these are likely to get passed on to the consumers, suggesting further increases in CPI remain likely. The government is also set to announce a cabinet reshuffle today, and households may see increased measures to help relieve the price pressures. That will continue to ease the pressure on the Bank of Japan to tighten policy. Coinbase is still losing but is going to give a fight Coinbase (COIN:xnas) reported la loss of USD1.1 billion in Q2, larger-than-expected. Revenues dropped to USD808 million, sharply lower from last year’s USD2.2 billion. Monthly transaction users fell to 9 million, 2% lower from prior quarter. The company sees average monthly transaction users 7 millions to 9 millions in the current quarter. Coinbase Global is worth watching given the fallout in cryptocurrency trading and the recent partnership with BlackRock to ease access for institutional investors. Chipmaker warnings continue, with Micron warning of ‘challenging’ conditions After Nvidia, now Micron (MU) has issued warning of a possible revenue miss in the current quarter and ‘challenging’ memory conditions. The company officials said that they expect the revenue for the fiscal fourth quarter, which ends in August, “may come in at or below the low end of the revenue guidance range provided in our June 30 earnings call.” The company had called for $6.8-7.6 billion in revenue in its June earnings report. Moreover, they also guided for a tough next quarter as well as shipments could fall on a sequential basis, given the inventory buildup with their customers.   For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast. Source: https://www.home.saxo/content/articles/equities/apac-daily-digest-10-aug-2022-10082022
Eurozone Bank Lending Under Strain as Higher Rates Bite

USD Stucked! Russia Blocks The Oil For Europe Over The Payment Issues. Market Newsfeed

Saxo Strategy Team Saxo Strategy Team 10.08.2022 13:00
Summary:  Market sentiment weakened again yesterday, with the US Nasdaq 100 index interacting with the pivotal 13,000 area that was so pivotal on the way up ahead of today’s US July CPI release, which could prove important in either confirming or rejecting the complacent market’s expectations that a slowing economy and peaking inflation will allow the Fed to moderate its rate hike path after the September meeting. A surprisingly strong core CPI reading would likely unsettle the market today.   Our trading focus   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) US interest rates are moving higher again and US equities lower with the S&P 500 at 4,124 yesterday with today’s price action testing the 100-day moving average around the 4,110 level. The past week has delivered more negative earnings surprises and weak outlooks impacting sentiment and the geopolitical risk picture is not helping either. In the event of a worse than expected US CPI release today we could take out the recent trading range in S&P 500 futures to the downside and begin the journey back to 4,000. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hang Seng Tech Index (HSTECH.I) fell 3%. China internet stocks declined across the aboard, losing 2-4%. Shares of EV manufacturers plunged 4-8% despite the China Passenger Car Association raised its 2022 EV sales estimate yesterday to 6mn, 9% higher from its previous estimate. Hang Seng Index plunged 2.4% and CSI300 fell 1.1%. USD decision time The USD remains largely stuck in neutral and may remain so unless or until some incoming input jolts the US treasury market and the complacent view that the US is set to peak its policy rate in December, with the potential to ease by perhaps mid-next year. Technical signs of a broad USD recovery, whether on yields pulling higher or due to a sudden cratering in market sentiment on concerns for the economic outlook or worsening liquidity as the Fed QT schedule is set to continue for now regardless of incoming data, would include USDJPY pulling above 136.00, EURUSD dropping down through 1.0100 and AUDUSD back down below 0.6900. Today’s July US CPI could prove a catalyst for a directional move in the greenback in either direction. Gold (XAUUSD) briefly tested a key area of resistance above $1800 on Tuesday ... before retracing lower as the recent support from rising silver and copper prices faded. With the dollar and yields seeing small gains ahead of today’s US CPI print, and with key resistance levels in all three metals looming, traders decided to book some profit. The market is looking for US inflation to ease from 9.1% to 8.8% and the outcome will have an impact on rate hike expectations from the Fed with a a higher-than-expected number potentially adding some downward pressure on metal prices. Silver (XAGUSD), as highlighted in recent updates, has been outshining Gold and in the process managing to mount a challenge above its 50-day moving average, now support at $20.33 with focus on resistance at $20.85.  Crude oil Crude oil prices rose on Tuesday on news pipeline flows of crude oil from Russia via Ukraine to Europe had been halted over a payment dispute of transit fees. The line, however, is expected to reopen within days but it nevertheless highlights and supports the current price divergence between WTI futures stuck around $90, amid rising US stockpiles and slowing gasoline demand, and Brent which trades above $96. The API reported a 2.2-million-barrel increase in US stockpiles last week with stocks at Cushing, the key storage hub, also rising. The official government inventory report is due today, with surveys pointing to a much smaller build at just 250k barrels. In addition, the market will be paying close attention to implied gasoline demand with recent data showing a slowdown. Also focus on China as lockdowns return, US CPI and Thursday’s Oil Market Reports from OPEC and the IEA. Grains eye Friday’s WASDE report US grain futures led by soybeans and corn trade higher on the week in response to worsening crop conditions. Just like central Europe, soaring heat and drought have raised concerns about lower production and yields. USDA will publish its monthly supply and demand estimates on Friday and given the current conditions a smaller yield could tighten the ending stock situation. The crop condition report, published every Monday by the USDA throughout the growing season, shows the proportion of the US crop being rated in a good to excellent condition. Last week the rating for corn dropped by 3% to 58% versus 64% a year ago. US Treasuries (IEF, TLT) US 10-year yields are poised in an important area ahead of the pivotal 3.00% level that would suggest a more determined attempt for yields to try toward the cycle top at 3.50%. Of late, the yield curve inversion has been the primary focus as long yields remain subdued relative to the front end of the curve, a development that could deepen if inflation remains higher than expected while economic activity slows. The three-year T-note auction yesterday saw solid demand, while today sees an auction of 10-year Treasuries.   Newsfeed   Taiwan officials want Foxconn to withdraw investment in Chinese chip company Foxconn announced a $800 million investment in mainland China’s Tsinghua Unigroup last month, but national security officials want the company to drop the investment, likely in connection with recent US-China confrontation in the wake of the visit to Taiwan from US House Speaker Pelosi and the ensuing Chinese military exercises around Taiwan. US Q2 Unit Labor costs remain high at 10.8%, while productivity weak at –4.6% These number suggest a very tight labor market as companies are beset with rising costs for work and less output per unit of worker effort. This number was down from the Q1 levels, but in many past cycles, rising labor costs and falling productivity often precede a powerful deceleration in the labor market as companies slow hiring (and once the recession hits begin firing employees which registers as lower unit costs and rising productivity). Japan PPI shows continued input price pressures Japan’s July producer prices came in slightly above expectations at 8.6% y/y (vs. estimates of 8.4% y/y) while the m/m figure was as expected at 0.4%. The continued surge reflects that Japanese businesses are waddling high input price pressures, and these are likely to get passed on to the consumers, suggesting further increases in CPI remain likely. The government is also set to announce a cabinet reshuffle today, and households may see increased measures to help relieve the price pressures. That will continue to ease the pressure on the Bank of Japan to tighten policy. Chipmaker warnings continue, with Micron warning of ‘challenging’ conditions After Nvidia, now Micron has issued warning of a possible revenue miss in the current quarter and ‘challenging’ memory conditions. The company officials said that they expect the revenue for the fiscal fourth quarter, which ends in August, “may come in at or below the low end of the revenue guidance range provided in our June 30 earnings call.” The company had called for $6.8-7.6bn in revenue in its June earnings report. Moreover, they also guided for a tough next quarter as well as shipments could fall on a sequential basis, given the inventory build-up with their customers. Vestas Q2 result miss estimates The world’s largest wind turbine maker has posted Q2 revenue of €3.3bn vs est. €3.5bn and EBIT of €-182mn vs est. €-119mn. The company is issuing a fiscal year revenue outlook of €14.5-16bn vs est. €15.2bn. Coinbase misses in revenue issues weak guidance Q2 revenue missed by 5% against estimates and the user metric MTU was lowered to 7-9mn from previously 5-15mn against estimates of 8.7mn. The crypto exchange is saying that retail investors are getting more inactive on cryptocurrencies due to the recent violent selloff. China’s PPI inflation eased while CPI picked up in July China’s PPI came in at 4.2% y/y in July, notably lower from June’s 6.1%).   The decline was mainly a result of lower energy and material prices.  The declines of PPI in the mining and processing sectors were most drastic and those in downstream industries were more moderate.  CPI rose to 2.7% y/y in July from 2.5% in June, less than what the consensus predicted.  Food inflation jumped to 6.3% y/y while the rise in prices of non-food items moderated to 1.9%, core CPI, which excludes food and energy, rose 0.8% y/y in July, down from June’s 1.0%. China issues white paper on its stance on Taiwan Despite extending the military drills near Taiwan beyond the originally schedule, in a less confrontational white paper released today, the Taiwan Affairs office and the Information Office of China’s State Council reiterated China’s commitment to “work with the greatest sincerity” and exert “utmost efforts to achieve peaceful reunification”.  The paper further says that China “will only be forced to take drastic measures” if “separatist elements or external forces” ever cross China’s red lines.    What are we watching next?   US CPI due today: the core in focus The highly watched US inflation data is due to be released today, and the debate on inflation peaking vs. higher-for-longer will be revived. Meanwhile, the Fed has recently stayed away from providing forward guidance, which has now made all the data points ahead of the September 21 FOMC meeting a lot more important to predict the path of Fed rates from here. Bloomberg consensus expects inflation to slow down from 9.1% YoY in June to 8.8% YoY last month. The core print will gather greater attention to assess stickiness and breadth of price pressures. Will any surprise just be noise given that we have another print for August due ahead of the next FOMC meeting, os is this market looking for an excuse to be surprised as it has maintained a rather persistent view that US inflation data will soon roll over and see a Fed set to stop tightening after the December FOMC meeting? Fed’s Evans will take the hot seat today Chicago President Charles Evans discusses the economy and monetary policy today. Evans is not a voter this year, but he votes in 2023. He said last week a 50bps rate hike is a reasonable assessment for the September meeting, but 75bps is a possibility too if inflation does not improve. He expects 25bps from there on until Q2 2023 and sees a policy rate between 3.75-4% in 2023, which is in line with Fed’s median view of 3.8% for 2023, but above the 3.1% that the market is currently pricing in. Earnings to watch Today’s US earnings in focus are marked in bold with the most important earnings release being Walt Disney and Coupang. Disney is expected to deliver revenue growth of 23% y/y with operating margins lower q/q as the company is still facing input cost headwinds. Coupang, which is the largest e-commerce platform in South Korea, is expected to deliver revenue growth of 13% y/y and another operating loss as e-commerce platforms are facing slowing demand and still significant input cost pressures. Today: Commonwealth Bank of Australia, Vestas Wind Systems, Genmab, E.ON, Honda Motor, Prudential, Aviva, Walt Disney, Coupang, Illumina Thursday: KBC Group, Brookfield Asset Management, Orsted, Novozymes, Siemens, Hapag-Lloyd, RWE, China Mobile, Antofagasta, Zurich Insurance Group, NIO, Rivian Automotive Friday: Flutter Entertainment, Baidu Economic calendar highlights for today (times GMT) 0700 – Czech Jul. CPI 1230 – US Jul. CPI 1430 – US Weekly DoE Crude Oil and Product Inventories 1500 – US Fed’s Evans (non-voter) to speak 1600 – UK Bank of England economist Pill to peak 1700 – US Treasury to auction 10-year notes 1800 – US Fed’s Kashkari (non-voter) to speak 2301 – UK Jul. RICS House Price Balance 0100 – Australia Aug. Consumer Inflation Expectations Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: https://www.home.saxo/content/articles/macro/market-quick-take-aug-10-2022-10082022
China: Caixin manufacturing PMI reaches 49.4, a bit more than in October. ING talks possible reduced impact of COVID on the country's economy

Worldwide News. The Highest CPI Level In Two Years In The Asia Country! The US Dollar Is Making Concessions

Marc Chandler Marc Chandler 10.08.2022 15:00
August 10, 2022  $USD, China, CPI, Currency Movement, Inflation, Italy, UK Overview: The US dollar is trading with a heavier bias ahead of the July CPI report. The intraday momentum indicators are overextended, and this could set the stage for the dollar to recover in North America. Outside of a handful of emerging market currencies, which include the Mexican peso and Hong Kong dollar, most are trading lower. Losses in US equities yesterday and poor news from another chip maker (Micron) weighed on Asia Pacific equities. Europe’s Stoxx 600 is steady and US futures are a little higher. The US 10-year yield is going into the CPI report softly around 2.76%. The US Treasury sells 10-year notes today as the second leg of the quarterly refunding. European benchmark yields are 2-3 bp lower. Gold continues to press against the $1800 cap. It has not closed above it for over a month. September WTI is hovering around $90. It appears stuck for the time being in an $87-$93 range. US natgas is about 1.1% higher after rising 3.2% yesterday. Europe’s benchmark is up 3%. It rose 1.5% yesterday. Iron ore is flat, while September copper is about 0.5% stronger after a small loss yesterday snapped a three-day advance. September wheat is up 1%, as it extends this week’s rise. If sustained, it would be the third consecutive gain, which matches the longest rally since March.   Asia Pacific China's July inflation readings underscore scope for easier monetary policy, but officials have shown a reluctance to use this policy lever. The key one-year medium term lending rate will be set in the coming days, but it is unlikely to be reduced from the 2.85% rate since January. July CPI rose to 2.7% from 2.5%, its highest level in two years, but shy of the 2.9% median forecast in Bloomberg's survey. Food prices were up 6.3% from a year ago, driven by a 20.2% jump in pork prices, the first rise since September 2020. Fresh food prices rose 16.9% and vegetable prices rose almost 13%. However, this seems to be a function of supply, while demand still seems soft. Service prices pressures slowed to 0.7% from June's 1.0% increase. The core rate eased to 0.8%. Meanwhile, producer price increases slowed to 4.2% from 6.1%. The median forecast (Bloomberg's survey) was for a 4.9% increase. Chinese producer prices have slowed for nine consecutive months. It peaked at 13.5% last October. Japan's well-telegraphed cabinet reshuffle was not about policy. Key ministers kept their posts, including the finance minister and chief cabinet secretary. Former Prime Minister Abe's brother, Defense Minister Kishi was replaced by Hamada, but he will stay on as a national security adviser. Trade Minister Hagiuda, an Abe acolyte was replaced by Nishimura, also for the Abe faction, but will become party policy chief. Prime Minister Kishida named his one-time rival Takaichi as minister of economic security. The reshuffle seemed to be about re-balancing power among the key factions and solidifying the government whose support has waned. The next economic policy focus may be on the drafting of a supplemental budget. In terms of monetary policy, BOJ Kuroda's term ends next April, while the term of his two deputies ends in March. The dollar is in narrow range of less than half a yen today, hovering around JPY135.00. It did edge above yesterday's JPY135.20 high but held below Monday's high slightly below JPY135.60. The exchange rate will likely take its cues from the reaction of the US Treasury market to today's CPI report. The US 10-year yield remains within the range set at the end of last week with the stronger than expected employment report (~2.67%-2.87%). The Australian dollar held support near $0.6945 but has stalled near $0.6975 in the European morning, where this week's hourly trendline is found. Intraday momentum indicators are stretched, suggesting that even if there is some penetration, follow-through buying may be capped. There are options for A$400 mln at $0.6985 that expire today. The greenback edged a little higher against the Chinese yuan, but it remains subdued. It is well within recent ranges. The dollar's reference rate was set at CNY6.7612, slightly above expectations (median in Bloomberg's survey) for CNY6.7606. Europe The more potent risk is not that the center-right wins next month's Italian election. That is increasing looking like a foregone conclusion. It is hard difficult to tell how much this reflects the judgment of voters and how much reflects the ineptitude of the center-left parties. The risk is that the center-right secures a two-thirds majority in both chambers, which would make constitutional changes possible. A poll published yesterday by Istituto Cattaneo shows the center-right drawing 46% of the vote and securing 61% of the deputies and 64% of the Senators. Analysis by Istituto Cattaneo suggested that even if the center-right saw its share of the votes go up, it might not be able to increase the number of deputies or senators. Italy's 10-year premium over German has fallen in eight of the past ten sessions, including today. It is around 2.10% today, slightly more than 25 bp off its recent peak, and a little below its 20-day moving average. Italy's 2-year premium fell to 0.73% yesterday, the lowest since mid-July. It peaked above 1.30% in late July.  Ironically as it may sound, but it is not Italy's center-right that is attacking the Bank of Italy or the European Central Bank. It is Truss who is leading Sunak to become the next leader of the Conservatives and Prime Minister. BOE Governor Bailey warned that UK was about to go into a five-quarter contraction (that does not even count the 0.2% contraction that economists expect the UK will announce for Q2 ahead of the weekend). Truss quickly responded that her GBP39 bln tax cuts (~$$7 bln) could avert that scenario. Sunak hiked the payroll tax this past April. She would unwind it. Truss would suspend the green levy on household energy bills and nix Sunak's corporate tax increase that was to be implemented next year. The swaps market is 85% confident of a 50 bp hike at the mid-September MPC meeting, less than a fortnight after the new Tory leaders is chosen. In the last two meetings of the year, the swaps market is pricing another 75 bp in hikes.  The euro is first firm holding above $1.02 so far today, the first time since August 1. However, it remains within last Friday's range (~$1.0140-$1.0250). The 1.2 bln euro options at $1.0210 that expire today likely have been neutralized ahead of today's US CPI report. The session high, slightly above $1.0225 was set in the European morning. This stretched the intraday momentum indicator, and we suspect it will probe lower now. Initial support below $1.02 is seen in the $1.0170-80 area. Sterling is in the same boat. It too is consolidating within the range seen before the weekend (~$1.2000-$1.2170). The push to session highs, a little above $1.21, in Europe has stretched the intraday momentum indicators. The risk is for a return to the $1.2050-60 area. America Today's CPI report is interesting but at the risk of exaggerating, it does not mean much. First, the strength of the employment data, even if flattered by seasonal adjustments or is incongruous with other labor market readings, suggests the labor market slowdown that the Fed wants to see is still in the very early stages. Second, as we have noted, financial conditions have eased recently, and the Fed has pushed back against this. Third, before the FOMC meets again, it will have the August CPI in hand. Fourth, no matter what the data shows today, it will not and cannot meet the Fed's definition of a sustained move toward the 2% target. The median in Bloomberg's survey has converged with the Cleveland Fed's Inflation Nowcast. The median in the survey is for an 8.7% headline rate (down from 9.1%) and a 6.1% core rate (up from 5.9%). The Cleveland's Fed Nowcast has it at 8.8% and 6.1%, respectively. The Fed funds futures market has about an 80% chance of a 75 bp hike next month discounted. It may not change very much after the CPI report.  The US Treasury sold $34 bln 1-year bills yesterday at 3.20%. That represents a 24 bp increase in yield. The bid-cover dipped but was still three-times oversubscribed and the indirect bidders took down almost 63%, a sharp rise from a little less than 51% last time. The US also sold $42 bln 3-year notes, also at 3.20%. This was an 11-bp increase in yield. The bid-cover edged up to 2.5% and the indirect participants took 63.1% of the issue, up from 60.4% previously. Today, Treasury goes back to the well with $30 bln 119-day cash management bill and $35 bln 10-year notes. At the last auction, the 10-year was sold at 2.96%. In the when-issued market, the 10-year yield is about 2.79%. The US dollar traded between around CAD1.2845 and CAD1.2900 yesterday and remains in that range today. There are options for almost 1.15 bln at CAD1.29 that expire today. The greenback slipped to session lows in Europe but as in the other pairs, we look it to recover. A move above the CAD1.2910 area could spur a move toward CAD1.2950. Mexico reported slightly higher than expected inflation yesterday. It underscored expectations for a 75 bp hike by Banxico tomorrow. The US dollar is offered against the peso today and it is pressed near yesterday's low around MXN20.20. The top side is blocked around MXN20.27-MXN20.30. Options for around $765 mln at MXN20.30 expire today. A convincing break of the MXN20.20 area could target the MXN20.05 area    Disclaimer
The US Dollar Weakens as Chinese and Japanese Intervention Threats Rise, While US CPI and UK Jobs Data Await: A Preview

Podcast: Walt Disney, Electric Vehicles, US CPI And More In The Latest Saxo Market Call

Saxo Bank Saxo Bank 10.08.2022 13:20
Summary:  Today we discuss the possible reactivity to today's US July CPI data point, especially if a hotter than expected core reading challenges the market's determined bet that inflation is set to roll over and normalize over the next couple of years. We also look at an equity market that is technically rolling over, a US dollar that needs to choose a direction, and compelling commodity stories and chart points in gold, crude oil and coffee. A semiconductor, EV, deglobalization, and Walt Disney focus on the equity coverage today. Today's pod features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are available via this link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: https://www.home.saxo/content/articles/podcast/podcast-aug-10-2022-10082022
Tokyo Core CPI Falls Short at 2.8%, Powell and Ueda Address Jackson Hole Symposium, USD/JPY Sees Modest Gains

Inflation In US Is Rising. Can It Get Worse? YES! FED Answers

Kenny Fisher Kenny Fisher 10.08.2022 21:00
USD/JPY continues to show little movement this week, in sharp contrast to Friday, when the pair jumped a massive 1.55%. In the European session, USD/JPY is trading at 135.02 down 0.09%. The yen had shown some strength against the dollar recently, but took a tumble after the stunning US nonfarm payroll report on Friday. The gain of 528 thousand more was more than double the estimate of 250 thousand, and the dollar responded with sharp gains against the majors. All eyes on US inflation Inflation has been rising in the US and hit 9.1% in June. The July inflation report will be released later today, and the release could have a strong impact on the direction of the US dollar. Headline CPI is expected to fall to 8.7%, down from 9.1%. If the reading does drop to around 8.7%, the markets may start thinking “peak” when it comes to inflation, and the dollar could lose ground. Conversely, if inflation stays around 9% or moves higher, it should be a catalyst for the dollar, as the Fed will have to consider a 75 or even a 100 basis point increase in September. After the inflation release, we’ll hear from Fed members Evans and Kashkari, and it will be interesting to hear their remarks on the heels of today’s inflation release. Last week, the Fed sent out the message that its rate-tightening cycle is not about to end, as the inflation fight is far from over. The spectacular nonfarm payrolls release pointed to continued strong wage growth and the participation rate dropping a notch, from 62.2% to 61.1%. These numbers point to a tighter labour market and stronger inflationary pressures. If today’s inflation report confirms that inflation is still accelerating, I would expect to hear hawkish remarks from Fed officials, which would likely give the US dollar a boost. . USD/JPY Technical USD/JPY is putting pressure on resistance at 134.40, which was tested on Wednesday. 136.30 is the next resistance line There is support at 133.65 and 131.80 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. Source: https://www.marketpulse.com/20220810/yen-drifting-as-us-inflation-looms/
Oanda Podcast: US Jobs Report, SVB Financial Fallout And More

US Inflation Data Brings Hope For A Growth, But Recession Fears May Be Back The Next Year

ING Economics ING Economics 11.08.2022 08:57
With today's surprisingly good news on US inflation - read all about it here - we're convinced we're going to see a big growth jump in the States next quarter. But with the Fed determined to raise interest rates still further, our James Knightley in New York says recessionary forces may start swirling again in early 2023   America’s non-recessionary recession US inflation's falling, not least because of lower oil prices, demand is strong as is the labour market. So even though America's in a technical recession, it certainly doesn't feel like it. ING's James Knightley is positive we're going to see a growth rebound later this year. But he says the Fed is still prepared to sacrifice growth to fight rising prices, so real recessionary forces may feel a little stronger in the new year.   Read this article on THINK TagsUS Inflation 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
Central Bank Policies: Hawkish Fed vs. Dovish Others"

US Income Is Rising But The Dollar Is Still Falling. What To Do?

John Hardy John Hardy 11.08.2022 09:30
Summary:  The market was happy to adjust US yields higher recently on stronger than expected US data points, but failed to take the USD lower, which in perfect hindsight suggests that the USD was set for a sharp drop on a soft CPI print today. And that’s what we got, with the headline CPI figure flat on month-on-month comparisons and the core rising less than expected. But how far can the market run on a single data print as data reactions have been fickle and fleeting of late. FX Trading focus: USD bears celebrate weak CPI print, but… The US CPI print came in weaker than expected for both the headline and for the ex Food and Energy figure. The headline softness was driven by huge drops in energy prices from June levels, with the entire energy category market -4.6% lower month-on-month and gasoline down -7.7%, much of the latter on record refinery margins collapsing. The ex Food & Energy category was up only +0.3% vs. the +0.5% expected, with soft prices month-on-month for used cars and trucks (-0.4%) and especially airfares (-7.8%) dragging the most on figure. Risk sentiment is off to the races as this fits the market’s Goldilocks soft-landing scenario, particularly given recent stronger-than-expected activity data. It’s hard to tell how far the market can take the reaction function to a data point like this when we are trading in an illiquid month and some very volatile categories are behind the surprise inflation number today, and recent data reactions have failed to hold beyond the end of the day. But for now, the USD has triggered lower and taken out some important local support. We suspect it is far too early in the cycle to call the aggressive shift from the Fed that the market has been pricing, as this July CPI data point has seen the market marking the September FOMC decision down close to 50 basis points now and taking more of the tightening out of the meetings beyond. The market’s interpretation of a profound shift in the Fed, the Fed’s own protestations notwithstanding, has driven a strong easing of financial conditions since mid-June. Could this result in the economy showing a heating up in the coming months, also as the shock of higher gasoline price in particular may have eased the pressure on consumer sentiment? The preliminary Aug. University of Michigan Sentiment survey could be an interesting test on that front. For now, USDJPY posted the biggest reaction to the data point today as one would expect on the big move in treasury yields – more on USDJPY below. EURUSD has broken above the local resistance just below 1.0300, but faces a more significant resistance level in the 1.0350 area – one that could lead to a return to 1.0500+ if this move sticks through the Friday close. Again, as mentioned recently, it is too early to call an end of the EURUSD bear – the market’s view will have to play out as currently priced, with all of the Goldilocks implications, etc., for the USD to shift to a sustained and broad bear market here. Elsewhere, AUDUSD has vaulted above 0.7000, the tactical bull/bear line, with a huge zone up into 0.7150-0.7250 the more structural area of note for direction. Gold not holding above 1,800 in reaction to this data point as of this writing is already a weak performance, and I am watching much of the treasury market kneejerk reaction higher seeping out of the US treasury market as well – so some of the reaction is already fading fast – stay tuned! A US treasury auction is up today at 1700 GMT – the longer end of the US yield curve may be the most important coincident indicator for all markets here – if yields pull back higher, for example the US 10-year benchmark moving back above 2.87% and especially toward 3.00%, today’s reaction in the USD and the JPY, etc.. should quickly reverse. Chart: USDJPYThe bottom dropped out of USDJPY on the softer than expected US July CPI data this afternoon, just as it vaulted higher on Friday on the stronger than expected US July jobs report – with US yields the key coincident indicator. On that note, the US Treasury market reaction fading fast in the wake of today’s data point suggests USDJPY bears should be cautious here – if the US 10-year benchmark closes back above 2.75% and especially above 2.87% in coming days, this move may be quickly neutralized, although if we do close down here well south of 133.50, the candlestick looks rather bearish for a test lower. If the pair closes back well above 134.00, the next step would be a move above 136.00 to suggest the bull market is back on (likely as US 10-year treasury yields pull to 3.00% or higher). Source: Saxo Group Table: FX Board of G10 and CNH trend evolution and strength.Let’s have a look at how the market behaves after the knee-jerk reaction to the US data point today before drawing conclusions. As noted above, some important coincident indicators for the US dollar are suggesting caution for USD bears here. Source: Bloomberg and Saxo Group Table: FX Board Trend Scoreboard for individual pairs.Today’s USD moves important if they stick into the close today and the close to the week – data reactions have been fickle and fleeting of late – so some patience may be required. Source: Bloomberg and Saxo Group Upcoming Economic Calendar Highlights (all times GMT) 1600 – UK Bank of England economist Pill to peak 1700 – US Treasury to auction 10-year notes 1800 – US Fed’s Kashkari (non-voter) to speak 2301 – UK Jul. RICS House Price Balance 0100 – Australia Aug. Consumer Inflation Expectations Source: FX Update: : Soft US CPI sparks significant kneejerk USD selling, but...    
Tepid BoJ Stance Despite Inflation Surge: Future Policy Outlook

Walt Disney Results Are Beyond All Expectations. Large Chinese Company Fires More Than 9K Employees!!! Market Newsfeed - 11.08.2022

Saxo Strategy Team Saxo Strategy Team 11.08.2022 10:40
Summary:  Risk on mode activated with a softer US CPI print, both on the headline and core measures. Equities rallied but the Treasury market reaction faded amid the hawkish Fedspeak. The market pricing of Fed expectations also tilted more in favor of a 50 basis points rate hike for September immediately after the CPI release, but this will remain volatile with more data and Fed speakers on tap ahead of the next meeting. Commodities, including oil and base metals, surged higher as the dollar weakened and demand outlook brightened but the gains appeared to be fragile. Gold unable to hold gains above the $1800 level. What is happening in markets?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities surged after the CPI prints that came in at more moderate level than market expectations. Nasdaq 100 jumped 2.9% and S&P500 gained 2.1%. Technology and consumer discretionary stocks led the market higher. Helped by the fall in treasury yields and better-than-feared corporate earnings in the past weeks, the Nasdaq 100 has risen 21% from its intraday low on June 16 this year and may technically be considered in a new bull market. The U.S. IPO market has reportedly become active again this week and more activities in the pipeline. Tesla (TSLA:xnas) climbed nearly 4% on news that Elon Musk sold USD6.9 billion of Tesla shares to avoid fire sale if having to pay for Twitter. Walt Disney (DIS:xnys) jumped 7% in after-hours trading on better-than-expected results. U.S. yields plunged immediately post CPI but recouped most of the decline during the US session The yields of the front-end of the U.S. treasury curve collapsed initially after the weaker-than-expected CPI data, almost immediately after the CPI release, 2-year yields tumbled as much as 20bps to 3.07% and 10-year yield fell as much as 11bps to 2.67%. Treasury yields then spent the day gradually climbing higher. At the close, 2-year yields were only 6bps at 3.21% and the 10-year ended the day at 2.78% unchanged from its previous close. The 2-10 yield curve steepened by 6bps to -44bps. Hawkish Fedspeak contributed to some of the reversal in the front-end from the post-CPI lows. At the close, the market is pricing in 60bps (i.e. 100% chance of at least a 50bps hike and about 40% chance of a 75bps rate hike) for the September FOMC after having come down to pricing in just about 50bps during the initial post-CPI plunge in yields. Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hang Sang Index declined nearly 2% and CSI300 was down 1.1% on Wednesday. Shares of Chinese property developers plunged.  Longfor (00960) collapsed 16.4% as there was a story widely circulated in market speculating that the company had commercial paper being overdue. In addition, UBS downgraded the Longor together with Country Garden, citing negative free cash flows in the first half of 2022.  Country Garden (02007) fell 7.2%.  After market close, the management held a meeting with investors and said that all commercial papers matured had been duly repaid. China High Speed Transmission Equipment (00658) tumbled 19% after releasing negative profit warnings.  The company expects a loss of up to RMB80 million for first half of 2022. Guangzhou Baiyunshan Pharmaceutical (00874) declined 4.1% after the company filed to the Stock Exchange of Hong Kong that the National Healthcare Security Administration was investigating the three subsidiaries of the company for allegedly “obtaining funds by ways of increasing the prices of pharmaceutical products falsely”. Wuxi Biologics (02269) dropped 9.3% as investors worrying its removal from the U.S. unverified list may be delayed in the midst of deterioration of relationship between China and the U.S. Oversized USD reaction on US CPI The US dollar suffered a heavy blow from the softer US CPI print, with the market pricing for September FOMC getting back closer to 50 basis points just after the release. As we noted yesterday, the July CPI print is merely noise with another batch of US job and inflation numbers due ahead of the September meeting. USD took out some key support levels nonetheless, with USDJPY breaking below the 133.50 support to lows of 132.10. Next key support at 131.50 but there possibly needs to be stronger evidence of an economic slowdown to get there. EURUSD broke above 1.0300 to its highest levels since July 5 but remains at risk of reversal given the frothy equity strength. Crude oil prices (CLU2 & LCOV2) Oil prices were relieved amid the risk on tone in the markets as softer US CPI and subsequent weakness in the dollar underpinned. WTI futures rose towards $91.50/barrel while Brent futures were at $97.40. EIA data also suggested improvement in demand. US gasoline inventories fell 4,978kbbl last week, which helped push gasoline supplied (a proxy for demand) up 582kb/d to 9.12mb/d. This was slightly tempered by a strong gain in US crude oil inventories, which rose 5,457kbbl last week. Supply concerns eased after Transneft resumed gas supplies to three central European countries which were earlier cut off due to payment issues. European Dutch TTF natural gas futures (TTFMQ2) European natural gas rallied amid concerns over Russian gas supplies and falling water levels on the key Rhine River which threatens to disrupt energy shipments. Dutch front month futures rose 6.9% to EUR 205.47/MWh as a drought amid extreme temperatures has left the river almost impassable. European countries have been filling up their gas storage, largely by factories cutting back on their usage. Further demand curbs and more imports of liquefied natural gas are likely the only option for Europe ahead of the winter. Gold (XAUUSD) and Copper (HGc1) Gold saw a run higher to $1800+ levels immediately after the US inflation report as Treasury yields plunged. However, the precious metal gave up much of these gains after Fed governors warned that it doesn’t change the US central bank’s path toward higher rates this year and next. With China also ceasing military drills around Taiwan, geopolitical risks remain capped for now easing the upside pressure on Gold. Copper was more buoyant as it extended gains on hopes of a stronger demand amid a fall in price pressures.   What to consider? Softer US CPI alters Fed expectations at the margin The US CPI print came in weaker than expected for both the headline and the core measures. The headline softness was driven by huge drops in energy prices from June levels, with the entire energy category market -4.6% lower month-on-month and gasoline down -7.7%, much of the latter on record refinery margins collapsing. The ex-Food & Energy category was up only +0.3% vs. the +0.5% expected, with soft prices month-on-month for used cars and trucks (-0.4%) and especially airfares (-7.8%) dragging the most on figure – again primarily a result of lower energy prices. While this may be an indication that US inflation has peaked, it is still at considerably high levels compared to inflation targets of ~2% and the pace of decline from here matters more than the absolute trend. Shelter costs – the biggest component of services inflation – was up 5.7% y/y, the most since 1991. Fed pricing for the September meeting has tilted towards a 50bps rate hike but that still remains prone to volatility with another set of labor market and inflation prints due ahead of the next meeting. Fed speakers continued to be hawkish Fed speaker Evans and Kashkari were both on the hawkish side despite being some of the most dovish members on the Fed panel. Evans again hinted that tightening will continue into 2023 as inflation remains unacceptably high despite a first sign of cooling prices. The strength of the labor market continued to support the case of a soft landing. Kashkari reaffirmed the view on inflation saying that he is happy to see a downside surprise in inflation, but it remains far from declaring victory. He suggested Fed funds rate will reach 3.9% in 2022 (vs. market pricing of 3.5%) and 4.4% in end 2023 (vs. market pricing of 3.1%). China’s PPI inflation eased while CPI picked up in July China’s PPI came in at 4.2% YoY in July, notably lower from June’s 6.1%).   The decline was mainly a result of lower energy and material prices.  The declines of PPI in the mining and processing sectors were most drastic and those in downstream industries were more moderate.  CPI rose to 2.7% YoY in July from 2.5% in June, less than what the consensus predicted.  Food inflation jumped to 6.3% YoY while the rise in prices of non-food items moderated to 1.9%. Core CPI, which excludes food and energy, rose 0.8% YoY in July, down from June’s 1.0%. In its 2nd quarter monetary policy report released on Wednesday, the People’s Bank of China expects the CPI to be at around 3% for the full year of 2022 and the recent downtrend of the PPI to continue. China issues white paper on its stance on Taiwan China ended its military drills surrounding Taiwan on Wednesday, which lasted three days longer what had been originally announced. In a less confrontational white paper released, the Taiwan Affairs Office and the Information Office of China’s State Council reiterated China’s commitment to “work with the greatest sincerity” and exert “utmost efforts to achieve peaceful reunification”.  The paper further says that China “will only be forced to take drastic measures” if “separatist elements or external forces” ever cross China’s red lines.  Walt Disney results beat estimates Disney reported solid Q2 results with stronger than expected 152.1 million Disney+ subscribers, up 31% YoY and beating market expectations (148.4 million).  Revenues climbed 26% YoY to USD21.5 billion and adjusted EPS came in at USD1.09 versus consensus estimates (USD0.96). Singapore Q2 GDP revised lower The final print of Singapore’s Q2 GDP was revised lower to 4.4% YoY from an advance estimate of 4.8% earlier, suggesting a q/q contraction of 0.2% as against gains of 0.2% q/q earlier. The forecast for annual 2022 growth was also narrowed to 3-4% from 3-5% earlier amid rising global slowdown risks. Another quarter of negative GDP growth print could now bring a technical recession in Singapore, but the officials have, for now, ruled that out and suggest a mild positive growth in Q3 and Q4. Softbank settled presold Alibaba shares early and Alibaba let go of a large number of employees The news that Softbank expects to post a gain of over USD34 billion from early physical settlement of prepaid forward contracts to unload its stake in Alibaba (09988:xhkg/BABA:xnas) and Alibaba laid off more than 9,000 staff between April and June this year added to the pressures over the share price of Alibaba.   For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 11, 2022  
Apple May Rise Price For iPhone 14! Are Fuel Warehouses Empty?

Apple May Rise Price For iPhone 14! Are Fuel Warehouses Empty?

Saxo Strategy Team Saxo Strategy Team 11.08.2022 13:39
Summary:  Equity markets are ebullient in the wake of the softer than expected US July CPI data print yesterday, as a sharp drop in energy prices helped drag the CPI lower than expected for the month. The knee-jerk reaction held well in equities overnight, if to a lesser degree in the weaker US dollar. But US yields are nearly unchanged from the levels prior to the inflation release, creating an interesting tension across markets, also as some Fed members are explicitly pushing back against market anticipation of the Fed easing next year.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) The July CPI report showing core inflation rose only 0.3% m/m compared to 0.5% m/m expected was just what the market was hoping for and had priced into the forward curve for next year’s Fed Funds rate. Long duration assets reacted the most with Nasdaq 100 futures climbing 2.9%. However, investors should be careful not to be too optimistic as we had a similar decline in the CPI core back in March before inflation roared back. As Mester recently stated that the Fed is looking for a sustained reduction in the CPI core m/m, which is likely a 6-month average getting back to around 0.2% m/m. Given the current data points it is not realistic to be comfortable with inflation before late Q1 next year. In Nasdaq 100 future the next natural resistance level is around 13,536 and if the index futures can take out this then the next level be around 14,000 where the 200-day average is coming down to. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hong Kong and mainland Chinese equities climbed, Hang Seng Index +1.8%, CSI300 Index +1.6%. In anticipation of a 15% rise in the average selling price of Apple’s iPhone 14 as conjectured by analysts, iPhone parts supplier stocks soared in both Hong Kong and mainland exchanges, Q Technology (01478:xhkg) +16%, Sunny Optical (02382:xhkg) +7%, Cowell E (01415:xhkg) +4%, Lingyi iTech (002600:xsec) +10%. Semiconductors gained, SMIC (00981:xhkg) +3%, Hua Hong (01347:xhkg) +4%. After collapsing 16% in share price yesterday, Longfor (00960) only managed to recover around 3% after the company denied market speculation that it failed to repay commercial papers due. UBS’ downgraded Longfor and Country Garden (02007:xhkkg) yesterday citing negative free cash flows for the first half of 2022 highlighted the tight spots even the leading Chinese private enterprise property developers are in. Chinese internet stocks rallied, Alibaba (09988:xhkg) +3%, Tencent (0700:xhkg) +1%, Meituan (03690:xhkkg) +2.7%. China ended its military drills surrounding Taiwan on Wednesday, which lasted three days longer what had been originally announced. USD: Treasuries don’t point to further weakness here The US dollar knee-jerked lower on the softer-than-expected July CPI data, although US yields ended the day unchanged, creating an interesting tension in a pair like USDJPY, which normally takes its lead from longer US yields (unchanged yesterday after a significant dip intraday after the US CPI release). USDJPY dipped almost all the way to 132.00 after trading above 135.00 earlier in the day. What are traders to do – follow the coincident US yield indicator or the negative momentum created by yesterday’s move? Either way, a return above 135.00 would for USDJPY would likely require an extension higher in the US 10-year yield back near 3.00%. EURUSD is another interesting pair technically after local resistance just below 1.0300 gave way, only to see the pair hitting a brick wall in the 1.0350 area (major prior range low from May-June). Was this a break higher or a misleading knee-jerk reaction to the US data? A close below 1.0250 would be needed there to suggest that EURUSD is focusing back lower again. A similar setup can be seen in AUDUSD and the 0.7000 area, with a bit more sensitivity to risk sentiment there. Gold (XAUUSD) did not have a good day on Wednesday Gold was trading lower on the day after failing to build on the break above resistance at $1803 as the dollar weakened following the lower-than-expected CPI print, thereby reducing demand for gold as an inflation hedge. Instead, the prospect for a potential shallower pace of future rate hikes supported a major risk on rally in stocks and another daily reduction in bullion-backed ETF holdings. Yet comments by two Fed officials saying it doesn’t change the central bank’s path toward even higher rates – and with that the risk of a gold supportive economic weakness - did not receive much attention. Gold now needs to hold $1760 in order to avoid a fresh round of long liquidation, while silver, which initially received a boost from higher copper prices before following gold lower needs to hold above its 50-day SMA at $20.26. Crude oil Crude oil futures (CLU2 & LCOV2) traded higher on Wednesday supported by a weaker dollar after the lower US inflation print gave markets a major risk on boost. Also, the weekly EIA report showed a jump in gasoline demand reversing the prior week’s sharp drop. Gasoline inventories dropped 5 million barrels to their lowest seasonal level since 2015 on a combination of strong exports and improved domestic demand while crude oil stocks rose 5.4m barrels primarily supported by a 5.3 million barrels release from SPR. Focus today on monthly Oil Market Reports from OPEC and the IEA. Dutch natural gas The Dutch TTF natural gas benchmark futures (TTFMQ2) rallied amid concerns over Russian gas supplies and falling water levels on the key Rhine River which threatens to disrupt energy shipments of fuel and coal, thereby forcing utilities and industries to consumer more pipelined gas. Dutch front month futures rose 6.9% to EUR 205.47/MWh while the October to March winter contract closed at a fresh cycle high above €200/MWH. European countries have been filling up their gas storage, largely by factories cutting back on their usage and through LNG imports, the flow of the latter likely to be challenged by increased demand from Asia into the autumn. Further demand curbs and more imports of liquefied natural gas are likely the only option for Europe ahead of the winter. US Treasuries (IEF, TLT) shrug off soft July CPI data US yields at first reacted strongly to the softer-than-expected July CPI release (details below), but ended the day mostly unchanged at all points along the curve, suggesting that the market is unwilling to extend its already aggressive view that the Fed is set to reach peak policy by the end of this year and begin cutting rates. Some Fed members are pushing back strongly against that notion as noted below (particularly Kashkari). A stronger sign that yields are headed back higher for the US 10-year benchmark would be on a close above 2.87% and especially 3.00%. Yesterday’s 10-year auction saw strong demand. What is going on? US July CPI lower than expected The US CPI print came in lower than expected for both the headline and the core measures. The headline softness was driven by huge drops in energy prices from June levels, with the entire energy category marked -4.6% lower month-on-month and gasoline down -7.7%, much of the latter on record refinery margins collapsing. The ex-Food & Energy category was up only +0.3% vs. the +0.5% expected, with soft prices month-on-month for used cars and trucks (-0.4%) and especially airfares (-7.8%) dragging the most on figure. While this may be an indication that US inflation has peaked, it is still at considerably high levels compared to inflation targets of ~2% and the pace of decline from here matters more than the absolute trend. Shelter costs – the biggest component of services inflation – was up 5.7% y/y, the most since 1991. Fed pricing for the September meeting has tilted towards a 50bps rate hike but that still remains prone to volatility with another set of labor market and inflation prints due ahead of the next meeting. Fed speakers maintain hawkish message Fed speaker Evans and Kashkari were both on the hawkish side in rhetoric yesterday. Evans again hinted that tightening will continue into 2023 as inflation remains unacceptably high despite a first sign of cooling prices. The strength of the labor market continued to support the case of a soft landing. Kashkari reaffirmed the view on inflation saying that he is happy to see a downside surprise in inflation, but it remains far from declaring victory. Long thought of previously as the pre-eminent dove among Fed members, he has waxed far more hawkish of late and said yesterday that nothing has changed his view that the Fed funds rate should be at 3.9% at the end of this year (vs. market pricing of 3.5%) and 4.4% by the end 2023 (vs. market pricing of 3.1%). Siemens cuts outlook Germany’s largest industrial company is cutting its profit outlook on impairment charges related to its energy division. FY22 Q3 results (ending 30 June) show revenue of €17.9bn vs est. €17.4bn and orders are strong at €22bn vs est. €19.5bn. Orsted lifts expectations The largest renewable energy utility company in Europe reports Q2 revenue of DKK 26.3bn vs est. 21.7bn, but EBITDA misses estimates and the fiscal year guidance on EBITDA at DKK 20-22bn is significantly lower than estimates of DKK 30.4bn. However, the new EBITDA guidance range is DKK 1bn above the recently stated guidance, so Orsted is doing better than expected but the market had just become too optimistic. Disney beats on subscribers Disney reported FY22 Q3 (ending 2 July) results showing Disney+ subscribers at 152.1mn vs est. 148.4mn surprising the market as several surveys have recently indicated that Amazon Prime and Netflix are losing subscribers. The entertainment company also reported revenue for the quarter of $21.5bn vs est. $21bn with Parks & Experiences deliver the most to the upside surprise. EPS for the quarter was $1.09 vs est. $0.96. If subscribers for ESPN and Hulu are added, then Disney has surpassed Netflix on streaming subscribers. Shares were up 6% in extended trading. Despite the positive result the company lowered its 2024 target for Disney+ subscriber to 135-165mn range. Coupang lifts fiscal year EBITDA outlook The South Korean e-commerce company missed slightly on revenue in Q2 but lifted its fiscal year adjusted EBITDA from a loss of $400mn to positive which lifted shares 6% in extended trading. China’s central bank expects CPI to hover around 3% In its 2nd quarter monetary policy report released on Wednesday, the People’s Bank of China (PBOC) expects the CPI being at around 3% for the full year of 2022 and at times exceeding 3%.  The release of pend-up demand from pandemic restrictions, the upturn of the hog-cycle, and imported inflation, in particular energy, are expected to drive consumer price inflation higher for the rest of the year in China but overall within the range acceptable by the central bank.  The PBOC expects the recent downtrend of the PPI to continue and the gap between the CPI and PPI growth rates to narrow. What are we watching next? Next signals from the Fed at Jackson Hole conference Aug 25-27 There is a considerable tension between the market’s forecast for the economy and the resulting expected path of Fed policy for the rest of this year and particularly next year, as the market believes that a cooling economy and inflation will allow the Fed to reverse course and cut rates in a “soft landing” environment (the latter presumably because financial conditions have eased aggressively since June, suggesting that markets are not fearing a hard landing/recession). Some Fed members have tried to push back against the market’s expectations for Fed rate cuts next year it was likely never the Fed’s intention to allow financial conditions to ease so swiftly and deeply as they have in recent weeks. The risks, therefore, point to a Fed that may mount a more determined pushback at the Jackson Hole forum, the Fed’s yearly gathering at Jackson Hole, Wyoming that is often used to air longer term policy guidance. Earnings to watch Today’s US earnings in focus are NIO and Rivian with market running hot again on EV-makers despite challenging environment on input costs and increased competition. NIO is expected to grow revenue by 15% y/y in Q2 before seeing growth jumping to 72% y/y in Q3 as pent-up demand is released following Covid restrictions in China in the first half. Rivian, which partly owned by Amazon and makes EV trucks, is expected to deliver its first quarter with meaningful activity with revenue expected at $336mn but free cash flow is expected at $-1.8bn. Today: KBC Group, Brookfield Asset Management, Orsted, Novozymes, Siemens, Hapag-Lloyd, RWE, China Mobile, Antofagasta, Zurich Insurance Group, NIO, Rivian Automotive Friday: Flutter Entertainment, Baidu Economic calendar highlights for today (times GMT) 0800 – IEA's Monthly Oil Market Report 1230 – US Weekly Initial Jobless Claims 1230 – US Jul. PPI 1430 – US Weekly Natural Gas Storage Change 1700 – US Treasury to auction 30-year T-Bonds 2330 – US Fed’s Daly (Non-voter) to speak During the day: OPEC’s Monthly Oil Market Report Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: Financial Markets Today: Quick Take – August 11, 2022  
ByBit talks trading bots. What are they? How can they help?

Crypto: As Expected! Bitcoin Price Rose After The Release Of The US CPI!

InstaForex Analysis InstaForex Analysis 11.08.2022 13:37
Relevance up to 10:00 2022-08-12 UTC+2 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. Bitcoin reacted to the CPI print by climbing 5.1% to $24,180 After the US Consumer Price Index (CPI) rose 8.5% year-on-year, cryptocurrency prices surged. While inflation has remained at one of its highest levels in decades, the actual data came in below the expected 8.7%, prompting traders to return to the markets. Bitcoin reacted to the CPI print by climbing 5.1% to $24,180, where it hit a solid bearish resistance wall that remains the last significant barrier ahead of $28,000. If today it closes higher, it will go further. Traders breathed a sigh of relief after the release, which came in 0.2% below expectations as it could potentially lead to a less aggressive Fed rate hike schedule. Federal Open Market Committee (FOMC) At the last two meetings of the Federal Open Market Committee (FOMC), the central bank has raised interest rates by 75 basis points each time, and yesterday's decline in the CPI compared to the previous month was the first evidence that the actions taken by the central bank are beginning to bear fruit. The positive reaction to the lower-than-expected CPI was immediate, with prices in the cryptocurrency market and traditional markets rising following the news. And growth will likely continue, at least next week. What's Ahead Of Bitcoin? What will happen next with Bitcoin, the cryptocurrency market, and global financial markets, in general, largely depends on the further actions of the Fed. In the broader altcoin market, there has been an even more pronounced reaction following the release of the CPI yesterday. Several of the top 200 coins posted double-digit gains, while the top altcoin, Ether (ETH), gained almost 9%. Crypto Market Capitalisation The total market capitalization of cryptocurrencies is currently at $1.14 trillion, and the Bitcoin dominance rate is 40.3%.   Read more: https://www.instaforex.eu/forex_analysis/318692
The US Has Again Benefited From Military Conflicts In Other Parts Of The World, The Capital From Europe And Other Regions Goes To The US

Is Fed Ready For It's Counter-Attack? Commodities, Earnings And More

Saxo Bank Saxo Bank 11.08.2022 13:52
Summary:  Today we look at the sharp correction in energy prices driving a softer than expected CPI print for the US in July, which saw sentiment responding by piling on to the recent rally and taking equities to new highs for the local cycle since June. Interestingly, the reaction to the CPI data has generated some tension as US treasury yields are trading sideways after erasing the knee-jerk drop in yields in the wake of yesterday's data. With financial conditions easing aggressively, the Fed faces quite a task if it wants to counter this development, with recent protests from individual Fed members failing to make an impression. Perhaps the Jackson Hole Fed forum at the end of this month is shaping up as a key event risk? Crude oil, the USD, metals, earnings and more also on today's pod, which features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com. Source: Podcast: Soft CPI revives risk rally, but treasury reaction creates dissonance    
Oz Minerals’ Quarterly Copper Output Hit A Record High, Brent Futures Rose

Copper Is Smashing For The Second Time This Summer! WTI Is Back From The Dead

Marc Chandler Marc Chandler 11.08.2022 14:12
Overview: The US dollar is consolidating yesterday’s losses but is still trading with a heavier bias against the major currencies and most emerging market currencies. The US 10-year yield is soft below 2.77%, while European yields are mostly 2-4 bp higher. The peripheral premium over the core is a little narrower today. Equity markets, following the US lead, are higher today. The Hang Seng and China’s CSI 300 rose by more than 2% today. Among the large bourses, only Japan struggled, pressured by the rebound in the yen. Europe’s Stoxx 600 gained almost 0.9% yesterday and is edging higher today, while US futures are also firmer. Gold popped above $1800 yesterday but could not sustain it and its in a $5 range on both sides of $1788 today. September WTI rebounded yesterday from a low near $87.65 to close near $92.00. It is firmer today near $93.00. US natgas is 1.4%, its third successive advance and is near a two-week high. Europe’s benchmark is also rising for the third session. It is up nearly 8% this week. Iron ore rose 2% today and it is the fourth gain in five sessions. September copper is also edging higher. If sustained, it would be the fifth gain in six sessions. It is at its highest level since late June. September wheat is 1.1% higher. It has risen every session this week for a cumulative gain of around 4.25%.  Asia Pacific In its quarterly report, the People's Bank of China seemed to downplay the likelihood of dramatic rate cuts or reductions in reserve requirements. It warned that CPI could exceed 3% and ruled out massive stimulus, while promising "high-quality" support, which sounds like a targeted measure. It is not tightening policy but signaled little scope to ease. Note that the 10-year Chinese yield is at the lower end of its six-month range near 2.74%. Its two-year yield is a little above 2.15%, slightly below the middle of its six-month range. Separately, Yiwa, a city of two million people, south of Shanghai has been locked down for three days starting today due to Covid. It is a manufacturing export hub. South Korea reported its first drop (0.7%) in technology exports in two years last month. While some read this to a statement about world demand, and there is likely something there given the earnings reports from the chip sector. However, there seems to be something else at work too. South Korea figures show semiconductor equipment exports to China have been more than halved this year (-51.9%) through July. China had accounted for around 60% of South Korea's semiconductor equipment. Reports suggest the main drivers are the US-China rivalry. Semiconductor investment in China has fallen and South Korea has indicated it intensions to join the US Chip 4 semiconductor alliance. Singapore's economy unexpectedly contracted in Q2. Initially, the government estimated the economy stagnated. Instead, it contracted by 0.2%. Given Singapore's role as an entrepot, its economic performance is often seen as a microcosm of the world economy. There was a nearly a 7% decline in retail trade services, while information and communication services output also fell. After the data, the Ministry of Trade and Industry narrowed this year's GDP forecast to 3%-4% from 3%-5%. While the drop in the US 10-year yield saw the dollar tumble against the yen yesterday, the recovery in yields has not fueled a recovery in the greenback. The dollar began yesterday above JPY135- and fell to nearly JPY132.00. Today, it has been confined to a little less than around half a yen on either side of JPY132.85. The cap seen at the end of last week and early this week in the JPY135.50-60 area, and the 20-day moving average (~JPY135.30) now looks like formidable resistance. Recall that the low seen earlier this month was near JPY130.40. The Australian dollar is also consolidating near yesterday's high set slightly below $0.7110. It was the best level in two months. The $0.7050 area may now offer initial support. The next upside target is seen in the $0.7150-70 band, which houses the (50%) retracement objective of the Aussie's slide from the April high (~$0.7660) and the July low (~$0.6680), and the 200-day moving average. The broad greenback sell-off yesterday saw it ease to about CNY6.7235, its lowest level in nearly a month. Despite the less-than-dovish message from the PBOC, it seemed to signal it did not want yuan strength. It set the dollar's reference rate at CNY6.7324, a bit above the median (Bloomberg's survey) of CNY6.7308. Europe Germany's coalition government has begun debating over the contours of the next relief package. The center-left government has implemented two support programs to ease the cost-of-living squeeze for around 30 bln euros. A third package is under construction now. The FDP Finance Minister Linder suggested as one of the components a 10 bln euro program to offset the "bracket creep" of higher inflation putting households into a higher tax bracket. The Greens want a more targeted effort to help lower income families. More work needs to be done, but a package is expected to be ready next month. The International Energy Agency estimates that Russian oil output will fall by around a fifth early next year as the EU import ban is implemented. The IEA warns that Russian output may begin declining as early as this month and estimates 2 mln barrels a day will be shut by early 2023. The EU's ban on most Russian oil will begin in early December, and in early February, oil products shipments will also stop. Now the EU buys around 1 mln barrels a day of oil products and 1.3 mln barrels of crude. Russia boosted output in recent months, to around 10.8 mln barrels a day. The IEA estimates that in June, the PRC overtook the EU to become the top market for Russia's seaborne crude (2.1 mln bpd vs. 1.8 mln bpd). Separately, the IEA lifted its estimate of world consumption by about 380k barrels a day from its previous forecast, concentrated in the Middle East and Europe. The unusually hot weather in the Middle East, where oil is burned for electricity, has seen stronger demand. In Europe, there has been more switched from gas to oil. The euro surged to almost $1.0370 yesterday on the back of the softer than expected US CPI. It settled near $1.03. It is trading firmly in the upper end of that range today. It held above $1.0275, just below the previous high for the month (~$1.0295). Today's high, was set in the European morning, near $1.0340. There is a trendline from the February, March, and June highs found near $1.04 today. It is falling by a little less than half a cent a week. Sterling's rally yesterday stalled in front of this month's high set on August 1 slightly shy of $1.2295. It is straddling the area where it settled yesterday (~$1.2220). We suspect the market may test the lows near $1.2180, and a break could see another half-cent loss ahead of tomorrow's Q2 GDP. The median forecast in Bloomberg's survey is for a 0.2% contraction after a 0.8% expansion in Q1.  America What the jobs data did for expectations for the Fed at next month's meeting were largely reversed by slower the expected CPI readings. On the eve of the employment data, the market was discounting a little better than a 35% chance of another 75 bp hike. It jumped to over a 75% chance after employment report but settled yesterday around a 45% chance. It is still in its early days, and the Fed will see another employment and CPI report before it has to decide. Although the market has downgraded the chances of a 75 bp hike at next month's meeting, it still has the Fed lifting rates 115 bp between now and the end of year. The market recognizes that that Fed is not done tightening no matter what trope is dragged out to use as a strawman. The truth is the market is pushing against some Fed views. Chicago Fed's Evans, who many regard as a dove from earlier cycles, said that Fed funds could finish next year in the 3.75%-4.00% area, which opined would be the terminal rate. The swaps market says that the Fed funds terminal rate is closer to 3.50% and in the next six months. More than that, the Fed funds futures are pricing in a cut late next year. At least a 25 bp cut has been discounted since the end of June. It was the Minneapolis Fed President Kashkari that surprised many with his hawkishness. Many see him as a dove because five years ago, he dissented against rate increases in 2017. However, he has been sounding more hawkish in this context and revealed yesterday that it was his "dot" in June at 3.90% this year and 4.4% next year. These were the most extreme forecasts. Perhaps it is not that he is more dovish or hawkish, labels that seemingly take a life on of their own but more activity. While neither Evans nor Kashkari vote on the FOMC this year, they do next year. San Francisco Fed President Daly seemed more willing to consider moderating the pace of tightening but still sees more work to be done. She does not vote this year or next.  Headline CPI was unchanged last month and the 0.3% rise in the core rate was less than expected. At 8.5%, the headline is rate is still too high for comfort, and the unchanged 5.9% core rate warns significant progress may be slow. Shelter is about a third of the CPI basket and it is rising about 0.5% a month. It is up 5.7% year-over-year. If everything else was unchanged, this would lift CPI to 2%. The US reports July Producer Prices. Both the core and headline readings are expected to have slowed. The headline peaked in March, 11.6% above year ago levels. It was 11.3% in June and is expected to have fallen to 10.4%. The core rate is likely to post its fourth consecutive decline. It peaked at 9.6% in March and fell to 8.2% in June. The median forecast (Bloomberg's survey) is for a 7.7% year-over-year pace, which would be the lowest since last October.  Late in the North American session, Mexico's central bank is expected to deliver its second consecutive 75 bp rate hike. It will lift the overnight target rate to 8.5%. The July CPI reported Tuesday stood at 8.15% and the core 7.65%. The swaps market has a terminal rate near 9.5% in the next six months. The subdued US CPI reading, helped spur a 0.85% rally in the JP Morgan Emerging Market Currency Index yesterday, its largest gain in almost four weeks. The peso, often a liquid and accessible proxy, rose around 1.1%. The greenback briefly traded below MXN20.00 for the first time since late June. The move was so sharp that closed below its lower Bollinger Band (~MXN20.08) for the first time in six months. The US dollar slumped to almost CAD1.2750 yesterday to hold above the 200-day moving average (~CAD1.2745). It is the lowest level in nearly two months, and it has not traded below the 200-day moving average since June 9. Like the other pairs, it is consolidating today near the lower end of yesterday's greenback range. The swaps market downgraded the likelihood that the Bank of Canada follows last month's 100 bp hike with a 75 bp move when it meets on September 7. It is now seen as a 30% chance, less than half of what was projected at the end of last week. We suspect that the US dollar can recover into the CAD1.2800-20 area today.     Disclaimer   Source: US Dollar Soft while Consolidating Yesterday's Drop
Bitcoin Is Showing The Potential For The Further Downside Rotation

Bitcoin Like Phoenix!? Crypto Community Can Breathe A Sigh Of Relief

Craig Erlam Craig Erlam 11.08.2022 14:48
Investors are certainly in a more upbeat mood as the relief from the US inflation data ripples through the markets. Positive surprises have been hard to come by on the inflation front this year and yesterday’s report was very much welcomed with open arms. While we shouldn’t get too carried away by the data, with headline inflation still running at 8.5% and core 5.9%, it’s certainly a start and one we’ve waited a long time for. Fed policymakers remain keen to stress that the tightening cycle is far from done and a policy u-turn early next year is highly unlikely. Once again, the markets are at odds with the Fed’s assessment on the outlook for interest rates but this time in such a way that could undermine its efforts so you can understand their concerns. I expect we’ll continue to see policymakers unsuccessfully push back against market expectations in the coming weeks while further driving home the message that data dependency works both ways. That said, the inflation report has further fueled the optimism already apparent in the markets and could set the tone for the rest of the summer. PBOC signals no further easing Unlike many other central banks, the PBOC has the scope to tread more carefully and continue to support the economy as it contends with lockdowns amid spikes in Covid cases. The country’s zero-Covid policy is a huge economic headwind and proving to be a drain on domestic demand. The PBOC has made clear in its quarterly monetary policy report though that it doesn’t want to find itself in the same position as many other countries right now. With inflation close to 3%, further easing via RRR or interest rates looks unlikely for the foreseeable future. Cautious targeted support looks the likely path forward as the central bank guards against inflation risks, despite the data yesterday surprising to the downside. Singapore trims growth forecasts A surprise contraction in the second quarter has forced Singapore to trim its full-year growth forecast range from 3-5% to 3-4% as the economy contends with a global slowdown, to which the country is particularly exposed, and Covid-related uncertainty in China. While the MAS has indicated monetary policy is appropriate after tightenings this year, inflation remains high so further pressures on this front may add to the headwinds for the economy. Where’s the momentum? Bitcoin took the inflation news very well and it continues to do so. Slower tightening needs and improved risk appetite is music to the ears of the crypto community who will be more confident that the worst is behind it than they’ve been at any point this year. Whether that means stellar gains lie ahead is another thing. The price hit a new two-month high today but I’m still not seeing the momentum I would expect and want. That may change of course and a break of $25,000 could bring that but we still appear to be seeing some apprehension that may hold it back in the near term. 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. Source: Welcome relief
UK Budget: Short-term positives to be met with medium-term caution

Boris Johnson Resignation Cause Further Difficulties For Pound Sterling (GBP)!? MarketTalk

Swissquote Bank Swissquote Bank 11.08.2022 12:20
US consumer prices eased in July, and they eased more than expected. US yields pulled lower after the CPI print, the US 10-year yield retreated, the US dollar slipped, gold gained, and the US stock markets rallied. Forex The EURUSD jumped to 1.0370 mark, as Cable made another attempt to 1.2272 but failed to extend gains into the 1.23 mark. And It will likely be hard for the pound sterling to post a meaningful recovery even if the dollar softens more, as there are too much political uncertainties in Britain following Boris Johnson’s resignation.   The sterling is under pressure, but the FTSE100 does just fine, and I will focus on why the British blue-chip companies are in a position to extend gains in this episode. Disney Elsewhere, Disney jumped on strong quarterly results, Tesla rallied despite news that Elon Musk dumped more stocks to prepare for an eventual Twitter purchase. Twitter shares gained.   Watch the full episode to find out more!   0:00 Intro 0:27 Softer-than-expected US CPI boosts appetite… 2:03 … but FOMC members warn that inflation war is far over! 3:39 FX update: USD softens, gold, euro, sterling advance 5:55 Why FTSE 100 is still interesting? 8:06 Disney jumps on strong results, Tesla, Twitter gain 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. #US #inflation #data #Gold #XAU #USD #EUR #GBP #FTSE #Disney #earnings #Tesla #Twitter #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 Source: Stocks up on soft US CPI, but inflation war is not over! | MarketTalk: What’s up today? | Swissquote
Behind Closed Doors: The Multibillion-Dollar Deals Shaping Global Markets

US Jobless Claims: Even More Than The Previous Year. PBOC Hopes CPI To Stay At 3%

Saxo Strategy Team Saxo Strategy Team 12.08.2022 09:03
Summary:  Another downside surprise in US inflation in the wake of lower energy prices lifted the equity markets initially overnight. However, sustained hawkishness from Fed speakers brought the yields higher, weighing on equities which closed nearly flat in the US. Crude oil prices made a strong recovery with the IEA boosting the global growth forecast for this year. EURUSD stayed above 1.0300 and will be eying the University of Michigan report today along with UK’s Q2 GDP. What is happening in markets?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  After rising well over 1% in early trading amid the weaker-than-expected PPI prints, U.S. equities wiped out gains and closed lower, S&P 500 -0.07%, Nasdaq 100 -0.65%. Energy stocks were biggest gainers, benefiting from a 2.6% rally in the price of WTI crude, Devon Energy (DVN:xnys) +7.3%, Marathon Oil (MRO:xnys) +7%, Schlumberger (SLB:xnys) +5.7%.  Consumer discretionary and technology were the biggest decliners on Thursday. Chinese ADRs gained, Nasdaq Golden Dragon Index climbed 2.6%.  U.S. treasuries bear steepened In spite of weaker-than-expected PPI data, U.S. long-end treasury yields soared, 10-year yields +10bps to 2.99%, 30-year yields +14bps to 3.17%. The rise in long-end yields were initially driven by large blocks of selling in the T-bond and Ultra-long contracts and exacerbated in the afternoon after a poor 30-year auction. The yield of 2-year treasury notes was unchanged and the 2-10-year yield curve steepened 10bps to minus 23bps.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hong Kong and mainland Chinese equities surged, Hang Seng Index +2.4%, CSI300 Index +2.0%. Northbound inflows into A shares jumped to a 2-month high of USD1.9 billion. In anticipation of a 15% rise in the average selling price of Apple’s iPhone 14 as conjectured by analysts, iPhone parts supplier stocks soared in both Hong Kong and mainland exchanges, Q Technology (01478:xhkg) +17.7%, Sunny Optical (02382:xhkg) +9%, Cowell E (01415:xhkg) +4%, Lingyi iTech (002600:xsec) +10%. China internet names rebounded, Alibaba (09988:xhkg) +4.3%, Tencent (00700:xhkg) +2.7%, Meituan (03690:xhkkg) +4.0%, Baidu (09888:xhkg) +5.2%. Power tool and floor care manufacturer, Techtronic Industries (00669:xhkg) soared nearly 11% after reporting  a 10% year-on-year growth in both revenues and net profits in 1H22. The company rolled out a new generation of drill drivers that have embedded with machine learning algorithm. After collapsing 16% in share price yesterday, Longfor (00960) managed to stabilize and recover 5.7% following the company’s refutation of market speculation that it had failed to repay commercial papers due. EURUSD re-tested resistance levels EURUSD reclaimed the key 1.0300 on Thursday amid a softer dollar, and printed highs of 1.0364. While weaker-than-expected inflation prints in the US this week have curtailed dollar strength, it is hard for EURUSD to sustain gains amid the energy crisis and European recession concerns. A break below 1.0250 would be needed for EURUSD to reverse the trend, however. AUDUSD, likewise, trades above 0.7100 amid the risk on tone, but a turn lower in equities could reverse the trend. GBPUSD has been more range-bound around 1.2200 ahead of the Q2 GDP data scheduled to be released today, and EURGBP may be ready to break above 0.8470 resistance if the numbers come out weaker-than-expected. Crude oil prices (CLU2 & LCOV2) Crude oil prices gained further on Thursday amid signs of softer inflation, weaker dollar and improving demand. The International Energy Agency (IEA) lifted its consumption estimate by 380 kb/d, saying soaring gas prices amid strong demand for electricity is driving utilities to switch to oil. This could be aided by lower gasoline prices, which have dented demand during the US driving season. Prices fell below USD4/gallon for the first time since March. Meanwhile, OPEC may struggle to raise output in coming months due to limited spare capacity. WTI futures touched $94/barrel while Brent futures rose towards the 100-mark.   What to consider? Another downside surprise in US inflation US July PPI dipped into negative territory to come in at -0.5% MoM, much cooler than 1% last month or the +0.2% expected. But on a YoY basis, PPI remains up a shocking 9.8%. Core PPI rose 0.4% MoM, which means on a YoY basis core producer prices are up 7.6% (lower than June's +8.2% but still near record highs). Goods PPI fell 1.8%, dominated by a 9.0% drop in energy. Meanwhile, services PPI was up 0.1% in July. Despite the slowdown in both PPI and CPI this week, PPI is still 1.3% points above CPI, suggesting margin pressures and a possible earnings recession. Fed’s Daly said she will be open to a 75bps rate hike at the September meeting. US jobless claims rise, University of Michigan ahead US initial jobless claims 262K vs 265K estimate, notably higher than the 248k the prior week and the highest since November 2021. The 4-week moving average of initial jobless claims increased to 252K vs 247.5K last week, but still below 350k levels that can cause an alarm. The modest pickup in claims suggests that turnover at weaker firms is increasing. Key data to watch today is the preliminary University of Michigan survey for August, where expectations are for a modest improvement given lower gasoline prices. China’s central bank expects CPI to hover around 3% In its 2nd quarter monetary policy report released on Wednesday, the People’s Bank of China (PBOC) expects the CPI being at around 3% for the full year of 2022 and at times exceeding 3%.  The release of pend-up demand from pandemic restrictions, the upturn of the hog-cycle, and imported inflation, in particular energy, are expected to drive consumer price inflation higher for the rest of the year in China but overall within the range acceptable by the central bank.  The PBOC expects the recent downtrend of the PPI to continue and the gap between the CPI and PPI growth rates to narrow. The PBOC reiterates that it will avoid excessive money printing to spur growth so as to safeguard against inflation.  China’s President Xi is said to be visiting Saudi Arabia next week The Guardian reports that President Xi Jinping is expected to visit Saudi Arabia on an invitation extended from Riyadh in March.  China has been eager to secure its oil supply and explore the possibility of getting its sellers to accept the renminbi to settle oil trade.   While relying on the United States for security in a volatile region and supplies of weapons, Saudi Arabia with Prince Mohammed being in charge is looking for leverage in the kingdom’s relationship with the United States.  UK Q2 GDP likely to show a contraction The Q2 GDP in the UK is likely to show a contraction after April was down 0.2% and May up 0.5%. June GDP is likely to have seen a larger contraction given less working days in the month, as well as constrained household spending as inflation surged to a fresh record high. While there may be a growth recovery in the near-term, the Bank of England clearly outlined a recession scenario from Q4 2022 and that would last for five quarters. Our Macro Strategist Chris Dembik has painted a rather pessimistic picture of the UK economy.   For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 12, 2022
Global Markets Shaken as Yields Soar: Dollar Surges, Stocks Slump, and Gold Holds Ground Amid Debt Concerns and Rate Hike Expectations

Boom! Ethereum Blows Up The Market!? Bitcoin Speeds Up! Crypto News

Conotoxia Comments Conotoxia Comments 12.08.2022 09:50
US Inflation Yesterday, the US inflation report was released, which came in at 8.5% in July. The market did not expect such a large drop, estimating a level of 8.7% before the data was released. The stock markets reacted positively and the major equity indexes rose significantly. The S&P 500 gained more than 2.1% during yesterday's session and the Nasdaq almost 2.9%. Crypto Cryptocurrencies, however, reacted most noticeably - on the Conotoxia MT5 platform, Bitcoin gained around 3.3% yesterday. And today, it continues its rise, breaking through the local peak of $2,485 on 30 August 2022. At 11.30 am GMT+3, the price of BTC is $24,471. The ETH price has risen even more strongly after a surprisingly low inflation reading. Ethereum gained more than 8.5% yesterday, and at 11.30 GMT+3, it is already up more than 2.3%. The token already costs $1,887 - its highest recorded level since 6 June this year.    What to expect? The market's reaction has a lot to do with expectations of interest rate hikes, which fell after the US inflation reading. However, it is still a long way from calling it a permanent decline. Inflation is still at its highest level in decades and the economy is operating in an environment of negative real interest rates.   According to CME Group data, the Federal Reserve (Fed) is likely to push rates even higher. Currently, the Fed Funds Rate is at just 2.5 pp, the level before the Covid pandemic. The CME Group estimates that we will still reach the 3.25 pp level this year, and peak in 2023 at 3.5 pp. However, as for the 2023 projections. The Federal Open Market Committee (FOMC), which decides them, is already much less unanimous and a lot may still depend on the information coming out of the economy.   Information on its state in the US is not pleasing. Most metrics - such as the yield curve, consumer sentiment, and economic growth - point to a recession. The labour market, which is surprisingly strong at the moment, is reacting last and is likely to become further evidence of a crisis soon.   The cryptocurrency market has never been in such a severe recession, so it is hard to determine exactly how it will behave. For now, the data shows a relatively high level of correlation between it and the stock market. This is not good news, as the latter almost always loses in a crash.   Polygon (MATIC) is an Ethereum token that powers the Polygon network, which is a protocol for building Ethereum-compatible blockchains and decentralised applications (DApps). Polygon is also referred to as a 2nd level (2nd level) solution to help Ethereum to scale faster, by increasing the efficiency of the network.    On Wednesday, Polygon shared data on user growth. Their total number in July was 11,800, gaining 47.5% since March and up 400% year-to-date. Interestingly, according to the project, "74% of teams integrated exclusively on Polygon, while 26% deployed on both Polygon and Ethereum,". This shows a very high level of confidence in the new technology, which can be the new foundation for the development of DApps. Since the local low on 19 July this year. MATIC has risen almost 172%.  Rafał Tworkowski, Junior Market Analyst, Conotoxia Ltd. (Conotoxia investment service)   Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.   CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.   Source: Crypto soars after the low inflation reading. Polygon grows rapidly, gaining 400% users
Gold Has A Chance For The Rejection Of The Support

Metals Recovery Process: Gold Survival Series. Copper Age

Saxo Strategy Team Saxo Strategy Team 12.08.2022 10:24
Summary:  US treasury yields at the long end of the curve surged over 15 basis points at one point yesterday in the wake of heavy treasury futures selling and a somewhat soft T-bond auction, which helped to turn sentiment lower in the equity market after the major averages had advanced to new local highs. The jump in US yields checked the US dollar’s descent as traders mull whether a break higher in US treasury yields will offer the currency fresh support after its break lower this week in many USD pairs.   What is our trading focus?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures attempted to run higher above the key 4,200 level but was rejected forcefully, closing a bit lower for the session and just above the 4,200 level. This morning the index futures are again trying to push higher trading around the 4,222 level with yesterday’s high at 4,260 being the natural resistance level in the short-term. Today’s earnings and macro calendar are light except for the Michigan surveys at 1400 GMT on consumer sentiment and expectations for the economy and inflation which could move the market on a surprise print. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hong Kong and mainland Chinese equities treaded water, fluctuating between small gains and losses. Sportswear and EV names gained. Li Ning (02332:xhkg) climbed more than 4% after reporting better than expected 1H results with sales growth of 22% and net profit growth of 12% from last year. The solid sales growth was led by online sales and wholesale business. China’s EV sales volumes grew 124% YoY (wholesale) and 117% YoY (retail) in July, much faster than the growth of the overall passenger vehicle market and had a penetration rate of 26.7%. XPeng (09868:xhkg) led the charge higher, gaining 4.2%, NIO (09866:xhkg) +3.6%, Li Auto (02015:xhkg) +1.7%. Leading semiconductor names, SMIC (00981:xhkg) and Hua Hong (01347:xhkg) reported inline and better-than expected results respectively. In its earnings call, the management of SMIC noted orders from some of its customers could fall meaningfully in near-term due to high inventories and suggested that recovery could come at around end of 2022 or early 2023. Share prices of SMIC declined 1.8%. USD: jump in long treasury yields checks the greenback’s descent After USDJPY traded to new local lows yesterday below 132.00, the pair snapped back well north of 133.00 in the wake of a surge in long US treasury yields (more below) and the USD sell-off was likewise checked elsewhere as risk sentiment also rolled over by late in the US equity trading session. The USD resilience is not yet technically significant and won’t be on a broad basis until/unless USDJPY surges back above perhaps 136.00, the EURUSD surge above 1.0300 is pushed back below 1.0250, and the aggressive AUDUSD move is pummeled back below 0.7000. The get a broader USD resurgence might require higher US yields and a deepening turn to the negative in risk sentiment, until then. Gold (XAUUSD) is heading for a fourth weekly gain ... supported by a weaker dollar after lower-than-expected CPI and PPI data helped reduce expectations for how high the Fed will allow rates to run. However, rising risk appetite as seen through surging stocks and bond yields trading higher on the week, have so far prevented the yellow metal from making a decisive challenge at key resistance above $1800/oz, and the recent decline in ETF holdings and low open interest in COMEX futures points to a market that is looking for a fresh and decisive trigger. Gold needs to hold $1760 in order to avoid a fresh round of long liquidation, while silver is looking for support at $20.23, its 50-day SMA. Copper and industrial metals in general have seen a strong recovery with COPPERSEP22 now eying resistance at $3.7150, its 50-day SMA. Crude oil (CLU2 & LCOV2) traded higher on Thursday ... before some light profit emerged overnight in Asia. Prices have been supported by signs of softer inflation improving the growth outlook, weaker dollar and improving demand, especially in the US where gasoline prices at the pumps have fallen below $4 per gallon for the first time since March. In addition, the International Energy Agency (IEA) lifted its consumption estimate by 380 kb/d, saying soaring gas prices amid strong demand for electricity is driving utilities to switch from expensive gas to fuel based products. Meanwhile, OPEC may struggle to raise output in coming months due to limited spare capacity. WTI futures touched $94/barrel while Brent futures returned to the 100-mark, thereby supporting our view that oil prices have reached a potential through in this correction phase.   US Treasuries (IEF, TLT) see long-end yields surging US yields at the long end of the curve ripped higher with the move aggravated by a somewhat soft 30-year T-bond auction, though the bulk of the move higher in yields unfolded earlier in the day on heavy selling of treasury futures. The 30-year yield rose a chunky 15.5 basis points at one point yesterday and traded to the highest levels in weeks, with the 10-year likewise poking above local highs in the 2.87% yield area. The jump in yields is technically significant if it holds and proceeds to 3.00%, suggesting that the consolidation phase is over. As well, the rise at the long end of the curve has significantly steepened the yield curve from a recent extreme in the 2-10 inversion of –49 basis points to –34 basis points.   What is going on?   US jobless claims rise, University of Michigan ahead US initial jobless claims 262K vs 265K estimate, notably higher than the 248k the prior week and the highest since November 2021. The 4-week moving average of initial jobless claims increased to 252K vs 247.5K last week, but still below 350k levels that can cause an alarm. The modest pickup in claims suggests that turnover at weaker firms is increasing. Key data to watch today is the preliminary University of Michigan survey for August, where expectations are for a modest improvement given lower gasoline prices. The grains sector trades at a five-week high ahead of today’s supply and demand report The Bloomberg Grains Index continues to recover following its 28% June to July correction with gains this past week being led by wheat (WHEATDEC22) and corn (CORNDEC22) in response to a weaker dollar and not least hot and dry weather in the US and another heatwave in Europe raising concerns about yield and production. Hot and dry weather at a critical stage for yield developments ahead of the soon to be harvested crop has given today’s World Agricultural Supply and Demand Estimates report some additional attention with surveys looking for lower yields and with that lower ending stocks. San Francisco Fed President Mary Daly sees 50 basis point hike at September FOMC meeting Daly is not an FOMC voter this year. Unlike her colleague (also a non-voter this year) Neel Kashkari at the Minneapolis Fed, she is satisfied with the median forecast of a 3.4% policy rate by year-end, which would be achieved with a 50 basis point move in September, followed by two 25 basis point hikes in November and December. Kashkari thinks 3.9% is more appropriate for a year-end target policy rate. Daly noted that she is happy to see inflation coming down, but is still open for a larger rate increase in September if necessary. “It really behooves us to stay data dependent and not call it”. The market is currently priced for 60 basis points of hiking at the September 21 FOMC meeting. Illumina shares down 23% on massive earnings miss The DNA-sequencing company slashed its fiscal year outlook last night due to potential penalties in Europe from its acquisition of another company. Its FY EPS forecast is now $2.75-2.90 down from previously $4-4.20.   What are we watching next?   UK Q2 GDP likely to show a contraction ... after April was down 0.2% and May up 0.5%. June GDP is likely to have seen a larger contraction given less working days in the month, as well as constrained household spending as inflation surged to a fresh record high. While there may be a growth recovery in the near-term, the Bank of England clearly outlined a recession scenario from Q4 2022 and that would last for five quarters. Our Macro Strategist Chris Dembik has painted a rather pessimistic picture of the UK economy. Another downside surprise in US inflation US July PPI dipped into negative territory to come in at -0.5% MoM, much cooler than 1% last month or the +0.2% expected. But on a YoY basis, PPI remains up a shocking 9.8%. Core PPI rose 0.4% MoM, which means on a YoY basis core producer prices are up 7.6% (lower than June's +8.2% but still near record highs). Goods PPI fell 1.8%, dominated by a 9.0% drop in energy. Meanwhile, services PPI was up 0.1% in July. Despite the slowdown in both PPI and CPI this week, PPI is still 1.3% points above CPI, suggesting margin pressures and a possible earnings recession. Fed’s Daly said she will be open to a 75bps rate hike at the September meeting. Next signals from the Fed at Jackson Hole conference Aug 25-27 There is a considerable tension between the market’s forecast for the economy and the resulting expected path of Fed policy for the rest of this year and particularly next year, as the market believes that a cooling economy and inflation will allow the Fed to reverse course and cut rates in a “soft landing” environment (the latter presumably because financial conditions have eased aggressively since June, suggesting that markets are not fearing a hard landing/recession). Some Fed members have tried to push back against the market’s expectations for Fed rate cuts next year it was likely never the Fed’s intention to allow financial conditions to ease so swiftly and deeply as they have in recent weeks. The risks, therefore, point to a Fed that may mount a more determined pushback at the Jackson Hole forum, the Fed’s yearly gathering at Jackson Hole, Wyoming that is often used to air longer term policy guidance. Earnings to watch There are no important earnings today except for Flutter Entertainment which has already reported ahead of the trading start in London. Flutter reports first-half revenue of £3.4bn vs est. £3.2bn. Today: Flutter Entertainment Economic calendar highlights for today (times GMT) 0900 – Eurozone Jun. Industrial Production 1400 – US Fed’s Barkin (non-voter) to speak 1400 – US Aug. Preliminary University of Michigan sentiment 1600 – USDA's World Agriculture Supply and Demand report (WASDE) Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: Financial Markets Today: Quick Take – August 12, 2022
FX Market Update: Calm Before the Central Bank Storm

AUDUSD Is Sliding Down. AUDJPY Aims High!? GBPAUD Finally Have A Chance!

Kim Cramer Larsson Kim Cramer Larsson 12.08.2022 08:47
AUDUSD AUDUSD confirmed short-term uptrend yesterday breaking above 0.7069. RSI back above 60 indicating AUDUSD is likely to move higher towards resistance at 0.7283. AUDUSD could move higher from there after a likely correction. If closing above 0.76 AUDUSD could move toward peak at around 0.7660.To neutralise that scenario AUDUSD must move back below 0.7069. To reverse it AUDUSD must collapse to below 0.6865. Source: Saxo Group Weekly chart shows AUDUSD trading in a wide falling channel. A test of upper falling trendline is not unlikely, given that the above bullish scenario plays out. Source: Saxo Group AUDJPY AUDJPY is slowly crawling higher after the spike down below key support last week. AUDJPY is back above all Simple Moving averages and RSI is still showing positive sentiment indicating a test of the slightly falling upper trendline is likely. If AUDJPY breaks above the trendline and above resistance at 95.75 the pairs is likely to take out the peak in June at around 96.90. Source: Saxo Group GBPAUD GBPAUD is testing support at 1.7173 and seems likely to break bearish out of the range it has been trading in past 6 months. If AUDGBP closes below 1.7173 the pair is set for lower levels Source: Saxo Group Weekly chart shows that 01.7173 is a key support level rejecting GBPAUD several times. If GBPAUD finally breaks below the support a medium- to long-term move towards 1.60 area is in the cards.IF it fails to close below 1.7173 GBPAUD could resume its rangebound behaviour Source: Saxo Group Source: Technical Update - AUD pairs on the move testing or breaking resistance levels. AUDUSD , AUDJPY & GBPAUD
Commodities Update: Strong Russian Oil Flows to China and Volatility in European Gas Market

Natural Gas Report After Weekly US Storage - Obnoxious Results

Saxo Bank Saxo Bank 12.08.2022 11:34
Summary:  Today we note that the big surge in yields at the long end of the US yield curve were likely the critical factor in capping and reversing the extension of the rally in equities yesterday. The US dollar found a bit of resilience on the development as well, if only half-hearted. Elsewhere, we zoom in on global natural gas supply concerns after the latest weekly US storage yesterday, discuss the grains outlook with a key report up late today and look ahead at the fairly busy macro calendar next week, while wondering how the Fed deals with re-establishing its hawkish credibility. Today's pod features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please!   We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: Podcast: US yields jump, capping complacency
Singapore's non-oil domestic exports shrank 20.6% year-on-year

Singapore Is Still Strong Despite All The Predictions. Inflation Remains High

Saxo Bank Saxo Bank 12.08.2022 12:35
Summary:  While the growth outlook for Singapore is deteriorating on the back of weaker external demand, we believe exposure to the Singapore market remains a key portfolio diversifier given its safe-haven status. Rising interest rates continue to position banking stocks favourably, while the reopening of the regional and global economies brings likely benefits to retail and hospitality REITs as well as other travel related stocks and sectors. There are also some stocks to consider in-line with our preferred global equity themes of commodities and defence. Macro conditions are deteriorating The final print of Singapore’s Q2 GDP was revised lower to 4.4% y/y from an advance estimate of 4.8% earlier, suggesting a q/q contraction of 0.2% as against gains of 0.2% q/q suggested by the advance estimate or the 0.8% q/q growth seen in the first quarter. The Ministry of Trade and Industry (MTI) has also narrowed the forecast for annual 2022 growth to 3-4% from 3-5% earlier amid rising global slowdown risks. Given Singapore is an export-driven economy, it remains prone to the volatile external environment. Meanwhile, China’s Zero-covid strategy has hampered global supply chains as well as export demand from Singapore. These risks keep the threat of a technical recession – which is defined as two or more consecutive quarters of negative GDP growth – alive. The officials have, however, ruled that out for now and suggest a mild positive growth for Q3 and Q4. Is more monetary policy tightening on the cards? Singapore’s inflation remains high, but with core at 4.4%, it is still below the global inflation levels. We can certainly feel the price pressures biting, especially in rents and transportation. That is likely to remain a key concern for the Monetary Authority of Singapore (MAS), while the gloomier growth picture will only add some caution. Headwinds from external demand will be somewhat offset by a service sector growth picking up as the local and regional economies continue to broaden their reopening measures. This is boosting retail sales and tourism-led spending, while the labor market is also still tight. What could possibly be ruled out is an off-cycle move, or possibly a re-centering of the S$NEER policy band, unless core inflation surprises significantly to the upside. Singapore’s monetary policy has entered a restrictive mode with four tightening moves since October 2021, and further steepening of the S$NEER slope cannot be ruled out. What to consider in the markets? Singapore’s safe-haven status makes it an important stabilizer in the portfolios, especially in the choppy global markets. Singapore equities are riding on services demand recovery and sustained export momentum. The banking stocks such as DBS (D05:xses), UOB (U11:xses) and OCBC (O39:xses) remain well positioned to benefit from the rising interest rates, even as the wealth management income takes a haircut due to the weak market sentiment. Meanwhile, REITs offer a good dividend yield, and therefore inflation protection. Travel related stocks and sectors, such as retail REITs, hospitality REITs, Singapore Airlines (C6L:xses) or SATS (S58:xses) could also benefit from a sustained reopening momentum. Out global equity baskets have shown an outperformance from the Commodities and Defence baskets so far this year. Defence stocks could remain in focus with the increasing geopolitical tensions, and that means Singapore Technologies Engineering (S63:xses) may be worth a look. Green transformation also necessitates a look at Sembcorp Industries (U96:xses), while Singtel (Z77:xses) remains in a position to ride through the economic crisis with its rapid 5G adoption. Wilmar (F34:xses), an agribusiness firm with market cap greater than Singapore Airlines, has gained tremendous attention due to the tight edible oil markets since the Ukraine invasion, and its exposure to consumption in some of the largest emerging markets also makes it a key inflation play. Some of the sectors to remain cautious about would be the technology or manufacturing with exposure to China. REITs with exposure to China’s property market also face further threat. Key risk factors to watch While the external demand outlook remains fragile and dampens the growth prospects of Singapore economy and companies, there are also risks from a global tightening wave which could result in capital outflows. Meanwhile, rising geopolitical tensions in the region could also result in cautious investor sentiment. There remains a risk of US-China trade tensions coming back, and that could be a headwind for Singapore. Lastly, a resurgence of Covid remains a key risk to watch in Singapore and Asia, as the response will likely remain stricter than Europe despite a high level of vaccination.   Source: Singapore Market Pulse: Weaker macro conditions, but safe-haven reputation supports
RBA Pauses Rates as Australian Dollar Slides; ISM Manufacturing PMI in Focus

Dollar (USD) Became Stronger, Not Enough Yet. Fed Better Meet Expectations!

John Hardy John Hardy 12.08.2022 14:23
Summary:  US treasury yields at the long end of the yield curve jumped higher yesterday to multi-week highs, a challenge to widespread complacency across global markets. The USD found a modicum of support on the development, though this was insufficient to reverse the recent weakening trend. It will likely take a more determined rise in US yields and a tightening of financial conditions, possibly on further Fed pushback against market policy expectations, to spark a more significant USD comeback. FX Trading focus: US yields jump, not yet enough to reverse recent USD dip A very interesting shift in the US yield curve yesterday as long yields jumped aggressively higher, with the 30-year yield getting the most focus on a heavy block sale of US “ultra” futures and a softer than expected 30-year T-bond auction from the US treasury. The 30-year benchmark yield jumped as much as 15 basis points from the prior close, with the 10-year move a few basis points smaller. We shouldn’t over-interpret a single day’s action, but it is a technical significant development and if it extends, could be a sign of tightening liquidity as the Fed ups its sales of treasuries and even a sign that market concern is growing that the Fed will fail to get ahead of inflation. As for the market reaction, the USD found some support, but it was modest stuff – somewhat surprisingly in the case of the normally very long-US-yield-sensitive USDJPY. Overnight, a minor shuffle in Japanese PMI Kishida’s cabinet has observers figuring that there is no real determined pushback yet against the Kuroda BoJ’s YCC policy, with focus more on bringing relief to lower income households struggling with price rises for essentials. Indeed, BoJ policy is only likely to come under significant pressure again if global yields pull to new cycle highs and the JPY finds itself under siege again. As for USDJPY, it has likely only peaked if long US yields have also peaked for the cycle. Chart: EURUSD EURUSD caught in limbo here, having pulled up through the resistance in the 1.0275+ area after a long bought of tight range trading, but not yet challenging through the next key layer of resistance into 1.0350+. It wouldn’t take much of a further reversal here to freshen up the bearish interest – perhaps a dip and close below 1.0250 today, together with a bit of follow through higher in US yields and a further correction in risk sentiment. Eventually, we look for the pair to challenge down well through parity if USD yields retest their highs and beyond. Source: Saxo Group Elsewhere – watching sterling here as broader sentiment may be at risk of rolling over and as we wind our way to the conclusion of the battle to replace outgoing Boris Johnson, with Liz Truss all but crowned. Her looser stance on fiscal prudence looks a sterling negative given the risks from UK external deficits. Her instincts seem pro-supply side on taxation, but the populist drag of cost-of-living issues has shown her to be quick to change her stripes – as she has often been, having reversed her position on many issues, including Brexit (was a former remainer). Today’s reminder of the yawning trade deficit (a current run rate of around 10% of GDP) and the energy/power situation together with dire supply side restraints on the UK economy have us looking for sterling weakness – a start would be a dip below 1.2100 in GBPUSD, which would reverse the reaction earlier this week to the US July CPI release. The week ahead features an RBNZ on Wednesday (market nearly fully priced for another two meetings of 50 basis points each). NZDUSD has looked too ambitious off the lows – there is no strong external surplus angle for the kiwi like there is for the Aussie – might be a place to get contrarian to the recent price action if global risk sentiment is set to roll over again finally now that the VIX has pushed all the way to 20 (!).  A Norges Bank meeting on Thursday may see the bank hiking another 50 basis points as it continues to catch up to inflationary outcomes. The US FOMC minutes are up next Wednesday and may be a bit of a fizzle, given that the bulk of the easing financial conditions that the Fed would like to push back against came after the meeting. Table: FX Board of G10 and CNH trend evolution and strength. The US dollar hasn’t gotten much from the latest development in yields – watching the next couple of sessions closely for direction there, while also watching for the risk of more sterling downside, while NZD looks overambitious on the upside. Source: Bloomberg and Saxo Group Table: FX Board Trend Scoreboard for individual pairs. The EURGBP turn higher could follow through here – on the lookout for that development while also watching GBPUSD status in coming sessions and whether the EURUSD move higher also follows through as per comments on the chart above. Source: Bloomberg and Saxo Group Upcoming Economic Calendar Highlights (all times GMT) 1400 – US Fed’s Barkin (non-voter) to speak 1400 – US Aug. Preliminary University of Michigan sentiment Share Source: FX Update: US yield jump brings USD resilience if not a reversal.
Canadian Dollar Falters as USD/CAD Tests Key Support Amidst Rising Oil Prices and Economic Data

Zantac: $40bn Scandal Meets The Market! S&P 500 Has Troubles?

Peter Garnry Peter Garnry 12.08.2022 14:52
Summary:  The easing inflation narrative has been building strength for six weeks now and the short-term vindication in the US CPI release on Wednesday has bolstered the bulls. However, the structural issues in the supply-side of the economy have been resolved and wages combined with rents will add more pressure on inflation going forward. We also highlight the unfolding scandal around the heartburn drug Zantac as it has erased $40bn in market value from Sanofi and GSK. Finally, we take a look at next week's earnings. It is too early to call inflation is tamed The US July CPI release on Wednesday has bolstered the soft-landing and easing inflation trade catapulting high duration assets higher. S&P 500 futures are attempting to push higher and the 200-day moving average sitting around the 4,325 level is suddenly not an outrageous gravitational point for US equities in the near-term. While the equity market is buying the all good scenario on inflation we would emphasise that it is too early to call. The Fed will like to see the 6-month average on the US CPI core m/m to go back to 0.2% before easing policy and that is simply not possible until at least the end of Q1 next year. Many of the structural issues except maybe for logistics, and this pain could come back again this winter if China gets another big Covid outbreak, are still not solved as capital expenditures in real terms are still not coming up in the global mining and energy industry. Labour markets remain tight with especially the US being the worst hit having lost around 1.5%-point of its labour force due to the pandemic and these people are likely never coming back. Rent dynamics are also heating up in both the US and Europe, and this winter will test the strength of the European population as the energy crisis could get much worse. We encourage investors to watch the US 10-year yield as a break above 3% again should cause a negative reaction in global equities. S&P 500 continuous futures | Source: Saxo Group US CPI core m/m | Source: Bloomberg Potential gigantic Zantac liabilities hit Sanofi, GSK, and Pfizer Health care is typically associated with stability, high valuations, and high predictability in the underlying cash flows, but the industry is being rocked by increasing concerns over the heartburn drug Zantac. Sanofi, GSK, and Pfizer have lost combined market value of $40bn and analysts are estimating that damage liabilities could reach $10-45bn. Zantac was removed from the market in 2019 by the FDA as the drug appears to be producing unacceptably high levels of a cancer-causing chemical. There is case coming up in Illinois on 22 August which will give the first indications of where this is going. There will continue to be short-term headwinds for both Sanofi and GSK where Pfizer seems to have been selling the drug for a much more reduced period than the two others. Weekly share prices of Sanofi, GSK, and Pfizer | Source: Bloomberg Earnings to watch next week The Q2 earnings season is slowly coming to end and what a quarter it has been with earnings jumping to a new all-time high (see chart) driven by a significant increase in profits in the energy sector. The technology sector measure by the Nasdaq 100 had another bad quarter with earnings declining reinforcing the need to cut costs of many of these previously fast growing technology companies. Next week’s most important earnings are highlighted below with the names in bold being those that can move market or industry sentiment. Meituan on Monday is important for gauging consumer spending and behaviour in China. BHP Group is must watch on Monday as the Australian miner is tapped into China’s growth and demand for iron ore. On Tuesday, earnings from Walmart and Home Depot can provide an updated picture on global supply chains and price pressures across a wide range of consumer products. Tencent reports on Wednesday and is an important earnings release for investors watching Chinese technology stocks as the recent amendment to China’s anti-monopoly laws is adding more pressure on the big technology platform companies. In the payments industry, Adyen’s result on Thursday will be highly watched as Adyen is really challenging PayPal on growth and dominance in the industry. Monday: China Construction Bank, Agricultural Bank of China, Meituan, China Life Insurance, China Shenhua Energy, China Petroleum & Chemical, BHP Group, COSCO Shipping, Li Auto, Trip.com Group, DiDi Global Tuesday: China Telecom, Walmart, Agilent Technologies, Home Depot, Sea Ltd Wednesday: Tencent, Hong Kong Exchanges & Clearing, Analog Devices, Cisco Systems, Synopsys, Lowe’s, CSL, Target, TJX, Coloplast, Carlsberg, Wolfspeed Thursday: Applied Materials, Estee Lauder, NetEase, Adyen, Nibe Industrier, Geberit Friday: China Merchants Bank, CNOOC, Shenzhen Mindray, Xiaomi, Deere Source: The soft-landing and inflation easing narrative is thriving
Chile's Lithium Nationalization and the Global Trend of Resource Nationalism: Implications for EV Supply Chains and Efforts to Strengthen Battery Metal Supply

Commodities: Prices Are Rising, Heatwaves In US And China Affect The Production Of Cotton

Ole Hansen Ole Hansen 12.08.2022 16:00
Summary:  The correction that for some commodities already started back in March has since the end of July increasingly been showing signs of reversing, driven by recent economic data strength, dollar weakness and signs inflation may have peaked. With the broad position adjustments having run their course, the focus has returned to supply which in many cases remains tight, thereby providing renewed support, especially across the sectors of energy and key agriculture commodities. The correction that for some commodities already started back in March has since the end of July increasingly been showing signs of reversing. According to the Bloomberg commodity sector indices, the correction period triggered peak to bottom moves of 41% in industrial metals, 31% in grains and 27% in energy. The main reason for the dramatic correction following a record run of strong gains was the change in focus from tight supply to worries about demand. Apart from China’s slowing growth outlook due to its zero-Covid policy and housing market crisis hitting industrial metals, the most important driver has been the way in which central banks around the world have been stepping up efforts to curb runaway inflation by forcing down economic activity through aggressively tightening monetary conditions. This process is ongoing but recent economic data strength, dollar weakness and signs inflation may have peaked have all helped support markets that have gone through weeks and in some cases months of sharp price declines, and with that an aggressive amount of long liquidation from financial traders as well as selling from macro-focused funds looking for a hedge against an economic downturn.With the broad position adjustments having run their course, the focus has returned to supply which in many cases remains tight, thereby providing renewed support and problems for those who have been selling markets looking for even lower prices in anticipation of recession and lower demand. Backwardation remains elevated despite growth worries The behaviour of spot commodity prices, as seen through first month futures contracts, rarely gives us the full fundamental picture with the price action often being dictated by technical price-driven speculators and funds focusing on macroeconomic developments, as opposed to the individual fundamental situation. The result of this has been a period of aggressive selling on a combination of bullish bets being scaled back but also increased selling from funds looking to hedge an economic slowdown.An economic slowdown, or in a worst-case scenario a recession, would normally trigger a surplus of raw materials as demand falters and production is slow to respond to a downturn in demand. However, during the past three months of selling, the cost of commodities for immediate delivery has maintained a healthy premium above prices for later deliveries. The chart below shows the spread measured in percent between the first futures and the 12-month forward futures contract, and while the tightness has eased a bit, we are still seeing tightness across a majority, especially within energy and agriculture. A sign that the market has sold off on expectations more than reality, and it raises the prospect of a strong recovery once the growth outlook stabilises. Crude oil The downward trending price action in WTI and Brent for the past couple of months is showing signs of reversing on a combination of the market reassessing the demand outlook amid continued worries about supply and who will and can meet demand going forward. The recovery from below $95 in Brent and $90 in WTI this week was supported by signs of softer US inflation reducing the potential peak in the Fed fund rates, thereby improving the growth outlook. In addition, the weaker dollar and improving demand, especially in the US where gasoline prices at the pumps have fallen below $4 per gallon for the first time since March.In addition, the International Energy Agency (IEA) lifted its global consumption estimate by 380 kb/d, saying soaring gas prices amid strong demand for electricity is driving utilities to switch from expensive gas to fuel-based products. Meanwhile, OPEC may struggle to raise output in the coming months due to limited spare capacity. While pockets of demand weakness have emerged in recent months, we do not expect these to materially impact on our overall price-supportive outlook. Supply-side uncertainties remain too elevated to ignore, not least considering the soon-to-expire releases of crude oil from US Strategic Reserves and the EU embargo of Russian oil fast approaching. With this in mind, we maintain our $95 to $115 range forecast for the third quarter. Gold (XAUUSD) The recently under siege yellow metal was heading for a fourth weekly gain, supported by a weaker dollar after the lower-than-expected US CPI and PPI data helped reduce expectations for how high the Fed will allow rates to run. However, rising risk appetite as seen through surging stocks and bond yields trading higher on the week have so far prevented the yellow metal from making a decisive challenge at key resistance above $1800/oz, and the recent decline in ETF holdings and low open interest in COMEX futures points to a market that is looking for a fresh and decisive trigger. We believe the markets newfound optimism about the extent to which inflation can successfully be brought under control remains too optimistic and together with several geopolitical worries, we see no reason to exit our long-held bullish view on gold as a hedge and diversifier. Gold has found some support at the 50-day moving average line at $1783, and needs to hold $1760 in order to avoid a fresh round of long liquidation the short-term. While some resistance is located just above $1800 gold needs a decisive break above $1829 in order to trigger the momentum needed to attract fresh buying in ETFs and managed money accounts in futures. Source: Saxo Group Industrial metals (Copper)   Copper has rebounded around 18% since hitting a 20-month low last month, thereby supporting a general recovery across industrial metals, the hardest hit sector during the recent correction. Supported by a softer dollar, data showing the US economy remains robust, easing concerns about the demand outlook in China and not least disruptions to producers in Asia, Europe as well as South America potentially curtailing supply at a time when exchange-monitored inventories remain at a decade low. All developments that have forced speculators to cut back recently established short positions.The potential for an improved demand outlook in China and BHP's recent announcement that it has made an offer for OZ Minerals and its nickel and copper-focused assets, is the latest in a series of global acquisitions aimed at shoring up supplies of essential metals for the energy transition. With its high electrical conductivity, copper supports all the electronics we use, from smartphones to medical equipment. It already underpins our existing electricity systems, and it is crucial to the electrification process needed over the coming years in order to reduce demand for energy derived from fossil fuels.Following a temporary recovery in the price of copper around the beginning of June when China began easing lockdown restrictions, the rally quickly ran out of steam and copper went on to tumble below key support before eventually stabilizing after finding support at $3.14/lb., the 61.8% retracement of the 2020 to 2022 rally. Since then, the price has recovered strongly but may temporarily pause after reaching finding resistance in the $3.70/lb area. We maintain a long-term bullish view on copper and prefer buying weakness instead of selling into strength. Source: Saxo Group The grains sector traded at a five-week high ahead of Friday’s supply and demand report from the US Department of Agriculture. The Bloomberg Grains Index continues to recover following its 28% June to July correction with gains this past week being led by wheat and corn in response to a weaker dollar and not least hot and dry weather in the US and another heatwave in Europe raising concerns about yield and production. Hot and dry weather at a critical stage for yield developments ahead of the soon-to-be-harvested crop has given the World Agricultural Supply and Demand Estimates report some additional attention with surveys pointing to price support with the prospect of lower yields lowering expectations for the level of available stocks ahead of the coming winter. Cotton, up 8% this month has seen the focus switch from growth and demand worries, especially in China, to deepening global supply concerns as heatwaves in the US and China hurt production prospects. Friday’s monthly supply and demand report (WASDE) from the US Department of Agriculture was expected to show lower US production driving down ending stocks by around 10% to 2.2 m bales, an 11-year low. Arabica coffee, in a downtrend since February, has also seen a steady rise since bouncing from key support below $2/lb last month. A persistent and underlying support from South American production worries has reasserted itself during the past few weeks as the current on-season crop potentially being the lowest since 2014. Brazil’s drought and cold curbed flowering last season and severe frosts in July 2021 led farmers to cut down coffee trees at a time of high costs for agricultural inputs, notably fertilizer. In addition, Columbia another top producer, has seen its crop being reduced by too much rainfall. Source: WCU: Commodity correction may have exhausted itself
Bond Markets Feeling Weighted: US 10-Year Yield Still Pressured

EUR/USD, GBP/USD. Is It Worth To Invest Today?

InstaForex Analysis InstaForex Analysis 11.08.2022 15:40
Relevance up to 11:00 2022-08-12 UTC+2 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. EUR/USD   Higher timeframes Bulls yesterday attempted to go beyond the nearest limit—the weekly short-term trend (1.0285). Their task now is to stay above the level and fix the achievement at the close of the week. In this case, the chances that the weekly upward correction will have development prospects will increase. On the daily timeframe, the nearest reference point for the continuation of the rise is now the Ichimoku cloud, the breakdown of which will form an additional upward reference point—the target for the breakout of the cloud. Among the supports today, we can note the levels of the daily golden cross (1.0246 – 1.0210 – 1.0160 – 1.0111). H4 – H1 The main advantage now belongs to the bulls, as the work is carried out above the key levels, but the pair is in the correction zone. The interests of bulls within the day today are the resistance of the classic pivot points (1.0378 – 1.0457 – 1.0545). The key levels now at 1.0290 (central pivot of the day) and 1.0226 (weekly long-term trend) separate the pair from a reprioritization in favor of a more bearish sentiment. Targets for decline today can be noted at 1.0211 – 1.0123 – 1.0044 (classic pivot points). *** GBP/USD Higher timeframes Bulls yesterday managed to push off the supports, around which the last few days have been consolidating (the main level 1.2082 is a weekly short-term trend), and enter the daily Ichimoku cloud. The breakdown of the cloud (1.2323) and consolidation in the bullish zone are the main tasks for bulls in the near term. When the mood changes, the relevance will return to supports. The support zone is now quite wide and includes 1.2174 (lower boundary of the daily cloud) – 1.2148 – 1.2089 – 1.2026 – 1.1963 (levels of the daily Ichimoku cross), as well as 1.2082 (weekly short-term trend) and 1.2000 (an important psychological level). H4 – H1 In the lower timeframes, the main advantage now belongs to the bulls. Among the bullish reference points during the day today, we can note 1.2303 – 1.2396 – 1.2515 (classic pivot points resistance) and 1.2301–34 (target for the breakdown of the H4 cloud). The balance of power will change if bears consolidate below key levels 1.2184 (central pivot point of the day) – 1.2120 (weekly long-term trend). After that, the reference points will be the support of the classic pivot points (1.2091 – 1.1972 – 1.1879). *** In the technical analysis of the situation, the following are used: higher timeframes – Ichimoku Kinko Hyo (9.26.52) + Fibo Kijun levels H1 - Pivot Points (classic) + Moving Average 120 (weekly long-term trend) Source: Forex Analysis & Reviews: Technical analysis recommendations on EUR/USD and GBP/USD for August 11, 2022
The Pound (GBP) Will Probably Continue To Move Sideways

GBP/USD Today. Pay Attention! Sell Or Be Sold?

InstaForex Analysis InstaForex Analysis 11.08.2022 16:01
Relevance up to 13:00 2022-08-12 UTC+2 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. Technical analysis: GBP/UISD has been trading flat today at the price of 1.2204 but I see potential for the second downside swing. Trading recommendation: Due to the strong growth yesterday and extreme condition, I see potential for the downside movement. Watch for potential selling opportunities with the downside objective at the price of 1.2135. Stochastic oscillator is showing overbought condition and bear cross, which is sign that sellers are taking control. Key resistance is set at the price of 1.2270 Source: Forex Analysis & Reviews: GBP/USD update for August 11, 2022 - Potential for the second downside swing to develop
Forex: XAU/USD Is Rising For The 3rd Day In A Row!

Gold Trading. Gold Is Spreading It's Wings!?

InstaForex Analysis InstaForex Analysis 11.08.2022 15:20
Relevance up to 12:00 2022-08-12 UTC+2 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. Technical analysis: Gold has been trading downside today and I see the breakout of the rising channel, which is sign that sellers are in control. Trading recommendation: Due to the breakout of the rising channel in the background, I see potential for further downside movement. Watch for potential selling opportunities with the downside objectives at the price of $1.783 and $1.770. Stochastic oscillator is showing overbought condition and bear cross, which is sign that sellers are taking control. Key resistance is set at the price of $1.805 Source: Forex Analysis & Reviews: Analysis of Gold for August 11,.2022 - Breakout of the rising channel in the backgorund
The Gold Rally Is Continuing To Stall, This Could Be A Good Year For Crude Oil

WTI Astonishing Streak! Japan Jumps. China, Australia And South Korea Are In Trouble?

Marc Chandler Marc Chandler 12.08.2022 15:15
Overview: The markets are putting the finishing touches on this week’s activity. Japan, returning from yesterday’s holiday bought equities, and its major indices jumped more than 2%. China, South Korea, and Australia struggled. Europe’s Stoxx 600 is firmer for the third consecutive session. It is up about 1.3% this week. US futures are also firmer after reversing earlier gains yesterday to close lower on the day. The US 10-year yield is flat near 2.88%, while European benchmarks are 4-6 bp higher. The greenback is mixed. The dollar-bloc currencies and Norwegian krone are slightly firmer, while the Swedish krona, sterling, and the yen are off around 0.3%-0.6%. Emerging market currencies are also mixed, though the freely accessible currencies are mostly firmer. The JP Morgan Emerging Market Currency Index is up about 1.15% this week, ahead of the Latam session, which if sustained would be the strongest performance in three months. Gold is consolidating at lower levels having been turned back from $1800 in the middle of the week. Near $1787.50, it is up less than 0.7% for the week. September WTI is edging higher for the third consecutive session, which would match the longest streak since January. US natgas surged 8.2% yesterday but has come back offered today. It is off 2.3%. Europe’s natgas benchmark is snapping a three-day advance of nearly 8% and is off 1.8% today. Iron ore rose 2.2% yesterday and it gave most of its back today, sliding almost 1.7%. September copper is unchanged after rallying more than 3.3% over the past two sessions. September wheat has a four-day rally in tow but is softer ahead of the Department of Agriculture report (World Agricultural Supply and Demand Estimates). Asia Pacific   Japan and China will drop some market sensitive high-frequency economic data as trading begins in the new week.  Japan will release its first estimate of Q2 GDP. The median in Bloomberg's survey and the average of a dozen Japanese think tanks (cited by Jiji Press) project around a 2.7% expansion of the world's third-largest economy, after a 0.5% contraction in Q1. Consumption and business investment likely improved. Some of the demand was probably filled through inventories. They added 0.5% to Q1 growth but may have trimmed Q2 growth. Net exports were a drag on Q1 (-04%) and may be flat. The GDP deflator was -0.5% in Q1 and may have deteriorated further in Q2. Some observers see the cabinet reshuffle that was announced this week strengthening the commitment to ease monetary policy. The deflation in the deflator shows what Governor Kuroda's successor next April must address as well. China reports July consumption (retail sales), industrial output, employment (surveyed jobless rate), and investment (fixed assets and property).  The expected takeaway is that the world's second-largest economy is recovering but slowly. Industrial output and retail sales are expected to have edged up. Of note, the year-to-date retail sales compared with a year ago was negative each month in Q2 but is expected to have turned positive in July. The year-over-year pace of industrial production is expected to rise toward 4.5%, which would be the best since January. The housing market, which acted as a critical engine of growth is in reverse. New home prices (newly build commercial residential building prices in 70 cities) have been falling on a year-over-year basis starting last September, and likely continued to do so in July. Property investment (completed investment in real estate) likely fell for the fourth consecutive month. It has slowed every month beginning March 2021. The pace may have accelerated to -5.6% year-over-year after a 5.4% slide in the 12-months through June. The surveyed unemployed rate was at 4.9% last September and October. It rose to 6.1% in April and has slipped back to 5.5% in June. The median forecast in Bloomberg's survey expects it to have remained there in July. Lastly, there are no fixed dates for the lending figures and the announcement of the one-year medium-term lending facility rate. Lending is expected to have slowed sharply from the surge in June, while the MLF rate is expected to be steady at 2.85%. Over the several weeks, foreign investors have bought a record amount of Japanese bonds.  Over the past six weeks, foreigners snapped up JPY6.44 trillion (~$48 bln). It may partly reflect short-covering after the run-in with the Bank of Japan who bought a record amount to defend the yield-curve control cap of 0.25% on the 10-year bond. There is another consideration. For dollar-based investors, hedging the currency risk, which one is paid to do, a return of more than 4% can be secured. At the same time, for yen-based investors, hedging the currency risk is expensive, which encourages the institutional investors to return to the domestic market. Japanese investors have mostly been selling foreign bonds this year. However, the latest Ministry of Finance data shows that they were net buyers for the third consecutive week, matching the longest streak of the year. Still, the size is small. suggesting it may not be a broad or large force yet. Although the US 10-year yield jumped 10 bp yesterday, extending its recovery from Monday's low near 2.75% for a third session, the dollar barely recovered against the yen.  After falling 1.6% on Wednesday, after the softer than expected US CPI, the greenback rose 0.1% yesterday and is edging a little higher today. Partly what has happened is that the exchange rate correlation with the 10-year yield has slackened while the correlation with the two-year has increased. In fact, the correlation of the change in the two-year and the exchange rate is a little over 0.60 and is the highest since March. The dollar appears to be trading comfortably now between two large set of options that expire today. One set is at JPY132 for $860 mln and the other at JPY134 for $1.3 bln. Around $0.7120, the Australian dollar is up about 3% this week and is near two-month highs. It reached almost $0.7140 yesterday. The next technical target is in the $0.7150-$0.7170 area. Support is seen ahead of $0.7050. Next week's data highlight is the employment data (August 18). The greenback traded in a CNY6.7235-CNY6.7600 on Wednesday and remained in that range yesterday and today. For the second consecutive week, the dollar has alternated daily between up and down sessions for a net change of a little more than 0.1%. The PBOC set the dollar's reference rate at CNY6.7413, tight to expectations (Bloomberg's survey) of CNY6.7415. Europe   The UK's economy shrank by 0.6% in June, ensuring a contraction in Q2.  The 0.1% shrinkage was a bit smaller than expected but the weakness was widespread. Consumption fell by 0.2% in the quarter, worse than expected, while government spending collapsed by 2.9% after a 1.3% pullback in Q1. A decline in Covid testing and slower retail sales were notable drags. The one bright spot was business investment was stronger than expected. The June data itself was miserable, though there was an extra holiday (Queen's jubilee). All three sectors, industrial output, services, and construction, all fell in June and the trade balance deteriorated. The market's expectation for next month's BOE meeting was unaffected by the data. The swaps market has about an 85% chance of another 50 bp hike discounted.  Industrial output in the eurozone rose by 0.7%, well above the 0.2% median forecast in Bloomberg's survey and follows a 2.1% increase in May.  The manufacturing PMI warned that an outright contraction is possible. Of the big four members, only Italy disappointed. The median forecast in Bloomberg's survey anticipated a decline in German, France, and Spain. Instead, they reported gains of 0.4%, 1.4%, and 1.1% respectively. Industrial output was expected to have contracted by 0.1% in Italy and instead it reported a 2.1% drop. In aggregate, the strength of capital goods (2.6% month-over-month) and energy (0.6%) more than offset the declines in consumer goods and intermediate goods. The year-over-year rise of 2.4% is the strongest since last September. The disruption caused by Russia's invasion of Ukraine and the uneven Covid outbreaks and responses are as Rumsfeld might have said known unknowns.  But the disruptive force that may not be fully appreciated is about to get worse. The German Federal Waterways and Shipping Administration is warning that water in the Rhine River will fall below a critical threshold this weekend. At an important waypoint, the level may fall to about 13 inches (33 centimeters). Less than around 16 inches (40 centimeters) and barges cannot navigate. An estimated 400k barrels a day of oil products are sent from the Amsterdam-Rotterdam-Antwerp region to Germany and Switzerland. The International Energy Agency warns that the effects could last until late this year, and hits landlocked countries who rely on the Rhine the hardest. Bloomberg reported that Barge rates from Rotterdam to Basel have risen to around 267 euros a ton, a ten-fold increase in a few months. The strong surge in the euro to almost $1.0370 on Wednesday has stalled.  The euro is consolidating inside yesterday's relatively narrow range (~$1.0275-$1.0365). The momentum traders may be frustrated by the lack of follow-through. We suspect a break of $1.0265 would push more to the sidelines. The downtrend line from the February, March, and June highs comes in slightly above $1.0385 today. The broad dollar selloff in response to the July CPI saw sterling reach above $1.2275, shy of the month's high closer to $1.2295. Similar to the euro, sterling stalled. It has slipped through yesterday's low (~$1.2180). A break of the $1.2140 area could see $1.2100. That said, the $1.20 area could be the neckline of a double top and a convincing break would signal the risk of a return to the lows set a month ago near $1.1760. America   Think about the recent big US economic news.  It began last Friday with a strong employment report, more than twice what economists expected (median, Bloomberg survey) and a new cyclical low in unemployment. The job gains were broadly distributed. That was followed by a softer than expected CPI and PPI. Some observers placed emphasis on the slump in productivity and jump in unit labor costs. Those are derived from GDP figures and are not measured separately, though they are important economic concepts. Typically, when GDP is contracting, productivity contracts and by definition, unit labor costs rise. In effect, the market for goods and services adjusts quicker the labor market, and the market for money, even quicker. If the economy expands as the Atlanta Fed GDPNow tracker or the median in Bloomberg's survey project (2.5% and 2.0%, respectively), productivity will improve, and unit labor costs will fall. Barring a precipitous fall today, the S&P 500 and NASDAQ will advance for the fourth consecutive week.  The 10-year yield fell by almost 45 bp on the last three week of July and has recovered around half here in August. That includes five basis points this week despite the softer inflation readings. The two-year note yield fell almost 25 bp in the last two weeks of July and jumped 34 bp last week. It is virtually flat this week around 3.22%. The odds of a 75 bp rate hike at next month's FOMC meeting fell from about 75% to about 47%. The year-end rate expectation fell to 3.52% from 3.56%. Some pundits claim the market is pricing in a March 2023 cut, but the implied yield of the March 2023 Fed funds futures contract is 18 bp above the December 2022 contract. It matches the most since the end of June. Still, while the Federal Reserve is trying to tighten financial conditions the market is pushing back. The Bloomberg Financial Conditions Index is at least tight reading since late April. The Goldman Sachs Financial Condition index is the least tight in nearly two months.  US import and export prices are the stuff that captures the market's imagination.  However, the preliminary University of Michigan's consumer survey, and especially the inflation expectations can move the markets, especially given that Fed Chair Powell cited it as a factor encouraging the 75 bp hike in June. The Bloomberg survey shows the median expectation is for a tick lower in inflation expectations, with the one-year slipping to 5.1% from 5.2%. The 5-10-year expectation is seen easing to 2.8% from 2.9%. If accurate, it would match the lowest since April 2021. The two-year breakeven (difference between the conventional yield and the inflation-protected security) peaked in March near 5% and this week reached 2.70%, its lowest since last October. It is near 2.80% now. Mexico delivered the widely anticipated 75 bp hike yesterday.  The overnight rate target is now 8.50%. The decision was unanimous. It is the 10th consecutive hike and concerns that AMLO's appointments would be doves has proven groundless. The central bank meets again on September 29. Like other central banks, it did not pre-commit to the size of the next move, preserving some tactical flexibility. If the Fed hikes by 75 bp, it will likely match it. Peru's central bank hiked its reference rate by 50 bp, the 10th consecutive hike of that magnitude after starting the cycle last August with a 25 bp move. It is not done. Lima inflation was near 8.75% last month and the reference rate is at 6.50%. The Peruvian sol is up about 1.2% this month, coming into today. It has appreciated by around 3.25% year-to-date, making it the second-best performer in the region after Brazil's 8.1% rise. Argentina hiked its benchmark Leliq rate by 950 bp yesterday to 69.5%. It had delivered an 800 bp hike two weeks again. Argentina's inflation reached 71% last month. The Argentine peso is off nearly 23.5% so far this year, second only to the Turkish lira (~-26%). The US dollar fell slightly below CAD1.2730 yesterday, its lowest level since mid-June. The slippage in the S&P 500 and NASDAQ helped it recover to around CAD1.2775. It has not risen above that today, encouraged perhaps by the firmer US futures. Although the 200-day moving average (~CAD1.2745) is a good mile marker, the next important chart is CAD1.2700-CAD1.2720. A convincing break would target CAD1.2650 initially and then CAD1.2600. While the Canadian dollar has gained almost 1.4% against the US dollar this week (around CAD1.2755), the Mexican peso is up nearly 2.4%. The greenback is pressing against support in the MXN19.90 area. A break targets the late June lows near MXN19.82. The MXN20.00 area provides the nearby cap.       Disclaimer   Source: Heading into the Weekend, Dollar's Downside Momentum Stalls
China: PMI positively surprises the market

GDP Of China May Reach 4% And Go Even Deeper. Foreign Trade Is Affected By Covid, Inflation And More

ING Economics ING Economics 16.08.2022 08:59
Real estate property construction, home sales and mortgages are just part of the weaknesses we have seen in the Chinese economy. Export demand could also weaken in the coming months. This will derail job growth in China, creating a vicious cycle on consumption and economic growth despite Covid measures becoming more flexible We are downgrading China's GDP growth to 4% in 2022, from 4.4% Central bank policy rate cut China's central bank, the People's Bank of China (PBoC), has lowered the Medium Lending Facility 1Y policy rate (MLF) to 2.75% from 2.85% and the PBoC 7D reverse repo rate to 2% from 2.1%. This is the first cut since January, in a move that indicates the re-emergence of China's downward economic cycle.   We expect banks to cut the Loan Prime Rate for 1Y to 3.6% from 3.7%, and for 5Y to 4.30% from 4.45%. Weaknesses in the economy go beyond real estate The economy's downward cycle is not just coming from lower demand for home sales and fewer home-building activities. It is due to a broad-based slowing in retail sales, industrial production and fixed-asset investments.  Retail sales only grew at 2.7% year-on-year in July compared to 3.1% in June. As the surveyed jobless rate was still high at 5.4%, consumption could continue to grow slowly in the coming weeks. My preferred gauge of an average consumer's retail behaviour – clothing sales – grew at a mere 0.8%YoY in July. This is lower than the headline, which indicates that the general public is spending only a little more than last year.  Industrial production grew slower at 3.8%YoY from 3.9%, mainly from weaker growth in materials for home-building activities. Semiconductor production fell 16.6%YoY, which confirms that the industry is entering a downward cycle as global demand for smart devices is going to be lower than in previous years. This makes up a big part of exports not only for Mainland China but also for other Asian economies. Textiles contracted 4.8%YoY, which could reflect not only weak domestic demand but also high inflation which is affecting export demand.  Fixed-asset investments growth slowed to 5.7%YoY year-to-date in July from 6.1%. The weakness was mainly from the slow growth in private-owned enterprise investments, which only grew 2.7%YoY YTD, compared to state-owned enterprise investments of 9.6%YoY YTD. The bright spot was electrical machinery and equipment manufacturing, which should form part of state investments for infrastructure projects.   Forecasts Due to this set of activity data and the PBoC's rate cuts, we are downgrading China's 2022 GDP growth from 4.4% to 4%. A further downgrade is still possible, depending on export demand, which is suffering from high inflation, the ongoing Covid situation, and unemployment growth in Mainland China.  Read this article on THINK TagsSemiconductor PBoC Monetary policy GDP 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
The Commodity Sector Has Dropped Significantly

People Are Buying Gold. SIlver And Copper Stopped? Crude Oil Weakness

Ole Hansen Ole Hansen 16.08.2022 09:23
Summary:  Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to August 9. A relatively quiet week where a continued improvement in risk appetite drove stocks higher while softening the dollar. Some commodity positions, with crude oil the major exceptions, showed signs of having reached a trough following weeks of heavy selling Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial. Link to latest report This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to August 9. A relatively quiet summer holiday impacted week where stocks traded higher ahead of last week’s CPI and PPI print after better than expected economic data helped reduce US recession fears while the market was looking for inflation to roll over. The dollar traded a tad softer, bond yields firmed up while commodities showed signs of having reached a trough following weeks of heavy selling.    Commodities Hedge funds were net buyers for a second week with demand concentrated in metals and agriculture while the energy sector saw continued selling. Overall the net long across 24 major commodity futures rose for a second week after recently hitting a two-year low. Buying was concentrated in gold, platinum, corn and livestock with crude oil and wheat being to most notable contracts seeing net selling. Energy: Speculators responded to continued crude oil weakness by cutting bullish bets in WTI and Brent crude by a combined 14% to a pre-Covid low at 304.5k lots. The reductions were primarily driven by long liquidation in both contracts following a demand fear driven breakdown in prices. Gas oil and gasoline longs were also reduced. Metals: Buying of metals extended to a second week led by gold which saw a 90% jump in the net long to 58.2k lots. Overall, net short positions were maintained in silver, platinum and copper with the latter seing a small amount of fresh selling due to profit taking on recently established longs. Agriculture: Grains were mixed with corn and soybeans seeing continued buying ahead of Friday's WASDE  report while the CBOT corn net short jumped 36% to 20k lotsand the Kansas net long was cut to a two-year low. The total grain long rose for second week having stabilised around 300k lots having collapse from a near record 800k lot on April 22.Soft commodities saw elevated short positions in sugar and cocoa being maintained with price gains in coffee and not least cotton supporting a small increase in their respective net longs. This before Friday's surge in cotton which left it up 13% on the week after the US Department of Agriculture slashed the US crop forecast by 19% to a 12-year low. Driven by a high level of abandonment of fields in the drought-stricken Southwest.      Forex In the week to August 9 when the dollar traded close to unchanged against a basket of major currencies, speculators increased to three the number of weeks of continued dollar selling. The pace of selling even accelerated to the highest since January after the gross long against ten IMM futures and the Dollar Index was slashed by 20% to $17.4 billion, a nine week low. Most notable selling of the greenback was seen against GBP and JPY followed by EUR and CHF. The Japanese yen, under pressure for months as yield differentials to the dollar widened saw its net short being cut by 22% to a 17-month low.     What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming  Source: COT: Speculators cut oil long to pre-covid low
China: PMI positively surprises the market

Hurtful News For Chinese Economy... Is China Able To Get Up? US Use The Situation

Saxo Strategy Team Saxo Strategy Team 16.08.2022 09:40
Summary:  The weaker-than-expected economic data from China caught much of the attention and dragged U.S. bond yields and commodities lower. U.S. equities have been in a 4-week rally. Investors are weighing if the U.S. economy is heading into a soft-landing or a recession and if the Chinese economy can recover in the coming months. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities opened lower on weak economic data prints from China as well as a weaker-than-expected Empire State manufacturing survey but climbed towards midday and finished higher. S&P 500 rose 0.4%. Nine of its 11 sectors gained, with shares of consumer staples and utilities outperforming. Nasdaq 100 rose 0.75%, led by a 3% jump in Tesla (TSLA:xnas).  U.S. treasury yields fell Treasury yields fell across the front end to the belly of the curve after a bunch of weak economic data from China and the Empire State manufacturing survey came in at -31.3, much weaker than 5.0 expected. Two-year yields fell by 7bps to 3.17% and 10-year yields declined 5bps to 2.78%.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hong Kong and mainland Chinese equities tried to move higher in early trading but soon reversed and turned south, Hang Seng -0.7%, CSI300 -0.1%.   The People’s Bank of China cut its policy on Monday but the unexpected move did not stir up much market excitement. The visit of another delegation of US lawmakers to Taiwan within 12 days of Speaker Pelosi’s visit stirred up concerns about the tension in the Sino-American relationship.   Container liner, Orient Overseas (00316:xhkg) plunged nearly 15%.   Stocks that have a dual listing of ADRs, in general, declined on Monday’s trading in Hong Kong following Friday’s decisions for five central SOEs to apply for delisting from the New York Stock Exchange, PetroChina (00857:xhkg/PTR:xnys) -3.4%, Sinopec (00386:xhkg/SNP:xnys) -2.9%, Alibaba (09988:xhkg/BABA:xnys) -1.2, Baidu (09888:xhkg/BIDU:xnas) -1%, Bilibili (09626:xhkg/BILI:xnas) -1%. SMIC (00981:xhkg) dropped more than 6% on analyst downgrades.  Chinese property names dropped as home prices continued to fall in China.  USD broadly firmer against G10 FX, expect JPY The US dollar started the week on the front foot, amid a weaker risk sentiment following a miss in China’s activity data and the disappointing US manufacturing and housing sentiments. The only outlier was the JPY, with USDJPY sliding to lows of 132.56 at one point before reversing the drop. The 131.50 level remains a key area of support for USDJPY and a bigger move in the US yields remains necessary to pierce through that level. The commodity currencies were the hardest hit, with AUDUSD getting in close sight of 0.7000 ahead of the RBA minutes due this morning. NZDUSD also plunged from 0.6450 to 0.6356. The Chinese yuan weakened and bond yields fell after disappointing economic data and surprising rate cuts USDCNH jumped more than 1% from 6.7380 to as high as 6.8200 on Monday following the weak credit data from last Friday, disappointing industrial production, retail sales, and fixed assets investment data released on Monday morning, and unexpected rate cuts by the People’s Bank of China. The 10-year Chinese government bond yield fell 8bps to 2.67%, the lowest level since April 2020, and about 20bps below the yield of 10-year U.S. treasury notes. Crude oil prices (CLU2 & LCOV2) Crude oil prices had a variety of headwinds to deal with both on the demand and the supply side. While demand concerns were aggravated due to the weak China data, and the drop in US Empire State manufacturing – both signaling a global economic slowdown may be in the cards – supply was also seen as being possibly ramped up. There were signs of a potential breakthrough in talks with Iran as Tehran said it sent a reply to the EU's draft nuclear deal and expects a response within two days. Meanwhile, Aramco is also reportedly ramping up production. WTI futures dropped back below $90 while Brent touched $95/barrel. Metals face the biggest brunt of China data weakness Copper led the metals pack lower after China’s domestic activity weakened in July, which has raised the fears of a global economic slowdown as the zero-Covid policy is maintained. Meanwhile, supply side issues in Europe also cannot be ignored with surging power prices putting economic pressure on smelters, and many of them running at a loss. This could see further cuts to capacity over the coming months. Iron ore futures were also down. What to consider? Weak Empire State manufacturing survey and NAHB Index Although a niche measure, the United States NY Empire State Manufacturing Index, compiled by the New York Federal Reserve, fell to -31.3 from 11.1 in July, its lowest level since May 2020 and its sharpest monthly drop since the early days of the pandemic. New orders and shipments plunged, and unfilled orders also declined, albeit less sharply. Other key areas of concern were the rise in inventories and a decline in average hours worked. This further weighed on the sentiment after weak China data had already cast concerns of a global growth slowdown earlier. Meanwhile, the US NAHB housing market index also saw its eighth consecutive monthly decline as it slid 6 points to 49 in August. July housing starts and building permits are scheduled to be reported later today, and these will likely continue to signal a cooling demand amid the rising mortgage rates as well as overbuilding. European power price soared to record high European power prices continue to surge to fresh record highs amid gas flow vagaries, threatening a deeper plunge into recession. Next-year electricity rates in Germany advanced as much as 3.7% to 477.50 euros ($487) a megawatt-hour on the European Energy Exchange AG. That’s almost six times as much as this time last year, with the price doubling in the past two months alone. UK power prices were also seen touching record highs. European Dutch TTF natural gas futures were up over 6%, suggesting more pain ahead for European utility companies. China’s activity data China’s July industrial production (3.8% YoY vs consensus 4.3% & June 3.9%), retail sales (2.7% YoY vs consensus 4.9% & June 3.1%), and fixed asset investments (5.7% YTD vs consensus 6.2% & June 6.1%) released this more were weak across the board.  Property investment growth dropped to -6.4% YTD or -12.3% YoY in July, well below market expectations of -5.7% YTD.  Surprising rate cuts from the PBOC met with muted market reactions The People’s Bank of China cut its policy 1-year Medium-term Lending Facility Rate by 10bps to 2.75% from 2.85% and the 7-day reverse repo rate by 10bps to 2.0% from 2.1%.  Market reactions to the surprising move were muted as credit demand, as reflected in the aggregate financing and loan growth data was weak in China. BHP ‘s FY22 results better than expected The Australian mining giant reported FY22 results beating analyst estimates with strong EBITDA and EBITDA margin. Coal segment performance was ahead of expectations while results from the copper and iron ore segments were slightly below expectations.  The company announced a larger-than-expected dividend payout and a higher capex plan for 2023. RBA minutes due to be released this morning Earlier in the month, the Reserve Bank of Australia (RBA) raised the cash rate by 50bps to 1.85% and the accompanying Statement on Monetary Policy emphasized an uncertain and data-dependent outlook. The RBA releases its minutes from the July meeting today, and the market focus will be on the range of options discussed for the August hike and any hint of future interest rate path.  US retailer earnings eyed After disappointing results last quarter, focus is on Walmart and Home Depot earnings later today. These will put the focus entirely on the US consumer after the jobs data this month highlighted a still-tight labor market while the inflation picture saw price pressures may have peaked. It would also be interesting to look at the inventory situation at these retailers, and any updated reports on the status of the global supply chains.     For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast. Source: APAC Daily Digest: What is happening in markets and what to consider next – August 16, 2022
Saxo Bank Podcast: The Upcoming Bank Of Japan Meeting, A Look At Crude Oil, Copper And More

Japanese Yen (JPY) Rise. Energy Prices Are Finally Falling!?

John Hardy John Hardy 16.08.2022 10:05
Summary:  Weak data out of China overnight, together with a surprise rate cut from the PBOC and collapsing energy prices later on Monday saw the Japanese yen surging higher across the board. Indeed, the two key factors behind its descent to multi-decade lows earlier this year, rising yields and surging energy prices, have eased considerably since mid-June with only modest reaction from the yen thus far. Is that about to change? FX Trading focus: JPY finding sudden support on new disinflation narrative Weaker than expected Chinese data overnight brought a surprise rate cut from the Chinese central bank and seems to have sparked a broadening sell-off in commodities, which was boosted later by a crude oil drop of some five dollars per barrel on the news that Iran will decide by midnight tonight on whether to accept a new draft on the nuclear deal forward by the Euro zone. In response, the Chinese yuan has weakened toward the highs for the cycle in USDCNH, trading 6.78+ as of this writing and  (there was a spike high to 6.381 back in May but the exchange rate has been capped by 6.80 since then), but the Japanese yen is stealing the volatility and strength crown, surging sharply across the board and following up on the move lower inspired by the soft US CPI data point. US long yields easing considerably lower after an odd spike last Thursday are a further wind at the JPY’s back here. In the bigger picture, it has been rather remarkable that the firm retreat in global long-date yields since the mid-June peak and the oil price backing down a full 25% and more from the cycle highs didn’t do more to support the yen from the yield-spread angle (Bank of Japan’s YCC policy less toxic as yields fall) and from the current account angle for Japan. Interestingly, while the JPY has surged and taken USDJPY down several notches, the US dollar is rather firm elsewhere, with the focus more on selling pro-cyclical and commodity currencies on the possible implication that China may be content to export deflation by weakening its currency now that commodity prices have come down rather than on selling the US dollar due to any marking down of Fed expectations. Still, while the USD may remain a safe haven should JPY volatility be set to run amok across markets, the focus is far more on the latter as long as USDJPY is falling Chart: EURJPY As the JPY surges here, EURJPY is falling sharply again, largely tracking the trajectory of longer European sovereign yields, which never really rose much from their recent lows from a couple of weeks back, making it tough to understand the solid rally back above 138.00 of late. After peaking above 1.90% briefly in June, the German 10-year Bund, for example, is trading about 100 basis points lower and is not far from the cycle low daily close at 77 basis points. The EURJPY chart features a rather significant pivot area at 133.50, a prior major high back in late 2021 and the recent low and 200-day moving average back at the beginning of the month. After a brief JPY volatility scare in late July and into early August that faded, are we set for a second and bigger round here that takes USDJPY down through 130.00 and EURJPY likewise? A more significant rally in long US treasuries might be required to bring about a real JPY rampage. Source: Saxo Group The focus on weak Chinese data and key commodity prices like copper suddenly losing altitude after their recent rally has the Aussie shifting to the defensive just after it was showing strength late last week in sympathy with strong risk sentiment and those higher commodity prices. Is the AUDUSD break above 0.7000-25 set for a high octane reversal here? AUDJPY is worth a look as well after it managed to surge all the way back toward the top of the range before. The idea that a weak Chine might export deflation from here might be unsettling for Aussie bulls. The US macro data focus for the week is on today’s NAHB homebuilder’s survey, which plunged to a low since 2015 in June (not including the chaotic early 2020 pandemic breakout months), the July Housing Starts and Building Permits and then the July Retail Sales and FOMC minutes on Wednesday. With a massive relief in gasoline prices from the July spike high, it will be interesting to see whether the August US data picks up again on the services side. The preliminary August University of Michigan sentiment survey release on Friday showed expectations rising sharply by over 7 points from the lowest since-1980 lows of June, while the Present Situation measure dropped a few points back toward the cycle (and record) lows from May. Table: FX Board of G10 and CNH trend evolution and strength. The JPY is the real story today, but as our trending measures employ some averaging/smoothing, the move will need to stick what it has achieved today to show more. Watch out for a big shift in the commodity currencies in coming days as well if today’s move is the start of something. Elsewhere, the JPY comeback is merely taking CHF from strength to strength, although even the might franc has dropped against the JPY today. Source: Bloomberg and Saxo Group Table: FX Board Trend Scoreboard for individual pairs. Big momentum shift afoot today and watching whether this holds and the JPY pairs and pairs like AUDUSD and USDCAD to see if we are witnessing a major momentum shift in themes here. Also note NOK pairs like USDNOK and EURNOK here. Source: Bloomberg and Saxo Group Upcoming Economic Calendar Highlights (all times GMT) 1400 – US Aug. NAHB Housing Market Index 0130 – Australia RBA Meeting Minutes Source: FX Update: JPY jumps on deflating energy prices, fresh retreat in yields.
Oanda Podcast: US Jobs Report, SVB Financial Fallout And More

US Giving More Manufacturing Jobs This Year But The Production Disappoints

Marc Chandler Marc Chandler 16.08.2022 10:30
After two-quarters of contraction, many still do not accept that the US economy is in a recession  Federal Reserve officials have pushed against it, as has Treasury Secretary Yellen. The nearly 530k rise in July nonfarm rolls, more than twice the median forecast in Bloomberg's survey, and a new cyclical low in unemployment (3.5%) lent credibility to their arguments. If Q3 data point to a growing economy, additional support will likely be found.   While the interest rate-sensitive housing sector may still feel the squeeze, we note that activity is at historically strong levels  Housing starts are expected to have fallen for the third consecutive month in July. That would be the longest decline since the last four months of 2018. However, around 1.5 mln annualized pace, starts are still elevated. Permits, which are leading indicators, are holding up even better. They peaked at the end of last year a little below 1.9 mln and may have fallen to around 1.65 mln in July. Since the Great Financial Crisis, they were above 1.5 mln only once (October 2019). before the surge began in mid-2020. Existing home sales have come off a bit more  They are expected to have fallen for the sixth consecutive month in July. It is the worst streak since 2013. Indeed, they are likely to fall below the 5 mln annualized mark for the first time since January 2019. Elevated mortgage rates are the highest since 2008 and have squeezed buyers while rising inventories have sparked some anecdotes about price cuts. The number of houses for sale rose for the first time in three years, around three months at the current pace of sales. Below five months of inventory is regarded as tight by realtors. Of interest, first-time buyers accounted for almost a third of the sales in June. Cash sales accounted for a quarter of all transactions in June. Houses were on the market for an average of two weeks last month, the shortest for more than a decade. Recall that new home sales are recorded on contract signings, while the existing home sales are counted on closes.   While the housing market is softening, consumption and output appear to have begun Q3 on solid footing  Retail sales, which account for around 40% of consumption, are expected to have edged by 0.1%-0.2% after a 1.0% rise in June. The drop in gasoline prices will likely be seen here and weigh on the retail sales, which are reported in nominal terms. Core retail sales, which excludes auto, gasoline, building materials, and food services, are expected to have risen 0.6% after 0.8% in June. More people working and earning a little bit more (on average), i.e., the income effect should help underpin consumption.   Manufacturers added 30k people to their payrolls in July, the most in three months and matching last year's average pace  The US has added more manufacturing jobs through July than it did in the same period a year ago (273k vs. 161k). Manufacturing output has disappointed. It fell by 0.5% in both May and June. The decline in vehicle and parts output may have been partially reversed in July amid a recovery in auto sales. Higher commodity prices encouraged mining output in May and June (1.2% and 1.7%, respectively). It may have slowed as commodity prices fell in July. The scorching summer and demand for air conditioning likely boosted utility output, which had fallen in June (-1.4%).  On a year-over-year basis, industrial output often contracts into a recession but not always before the start of the recession  Through June, it has risen by almost 4.2%. The capacity utilization rate is expected to have above 80.0% for the fourth consecutive month. That would match the last cyclical peak in 2018, the longest since the Great Financial Crisis. Utilization rates fall sharply during a recession. In two of the last three recessions, capacity usage fell before the downturn was dated. In the Financial Crisis, the peak coincided with the start of the recession. The US also reports the capital flow data for June (TIC on August 15) While a favorite of reporters and analysts, it is not a market mover. Through May, net long-term foreign capital inflows have been a little more than $465 bln., which is about an 8.5% increase from a year ago. Finally, the Empire State Survey August 15) and the Philadelphia Fed surveys (August 18), the first look into August aside for the weekly jobs claims and mortgage applications. The market appears to put more weight on some components of the Philly survey.   Three economic releases from Japan will draw attention  Japan reports its first estimate of Q2 GDP to kick off the week. The world's third-largest economy contracted at an annualized rate of  0.5% in Q1 but is expected to have rebounded to 2.7% in Q2. That translates into a 0.7% quarterly expansion (seasonally adjusted) after shrinking by 0.1% in Q1. Consumption and business investment rebounded. Inventories were likely unwound. After rising 0.5% in Q1, the median forecast in Bloomberg's survey looks for a 0.3% decline. The GDP deflator has been negative for the past five quarters. It was at -0.5% in Q1, but economists (Bloomberg survey) project a decline to -0.8%.  Despite the GDP deflator still showing deflation's grip, the July CPI (August 19) is likely to show inflation continues to rise above the BOJ's target  It targets the CPI, excluding fresh food, at 2.0%. It stood at 2.2% in June and is likely to have ticked up a little in July. The Tokyo CPI has already been reported. The core measure rose to 2.3% from 2.1%. Tokyo's headline rate increased to 2.5% from 2.3%, and the measure excluding food and energy crept up to 1.2% from 1.0%.  July trade figures will be reported on August 17 Japan is experiencing a  massive terms-of-trade shock. In the first half of this year, Japan reported a JPY7.94 trillion (~$59 bln) deficit. In H1 21,  it had a trade surplus of about JPY810 bln (~$6 bln). The problem is not with merchandise exports. In June, they were up almost a fifth from last year, when they were by nearly 50% over 2020. Imports have surged with food and energy prices. Merchandise imports had risen 46% above the year-ago level in June, and that is after an increase by a third from June 2020.   The UK and Canada report July retail sales and CPI  The UK also publishes its latest employment report, while Canada updates housing starts and portfolio flows. The data poses headline risk, but the macroeconomic backdrop is unlikely to change significantly. The Bank of England warns that the economy will enter a protracted recession that will carry into 2024. The Bloomberg survey found that the median forecast assessed a 45% probability of a recession over the next 12 months.   UK's labor market is fairly strong, and the unemployment rate is at 3.8%, having bottomed at 3.7% in March, the lowest level since 1974. Inflation is rising, and the base effect underscores the upside risk. Last July, CPI was unchanged on the month.   While wage growth may be strong, it is insufficient to cover the rising cost of living and this squeezing consumption June was the first month since October 2021 that retail sales, excluding gasoline, rose. However, UK retail sales, reported in volume terms, have fallen an average of 0.5% a month over the past 12 months. If there is going to be relief for the UK household, it will have to come from the new government. The Bank of England has one objective. Bring down inflation. The swaps market has discounted almost an 85% chance of another 50 bp increase to 2.25% at the September 15 meeting. It sees a year-end rate of around 2.80%, implying nearly 75 bp hikes in Q4.   Canada's labor market improvement is stalling, and it looks like the economy is too The monthly GDP downshifted from 0.7-0.8% in February and March to 0.3% in April and flat in May. Retail sales have been strong, flattered by rising prices. Through May, they have increased by an average of 1.5% a month. The average in the first five months of 2021 was 0.6. Canadian inflation accelerated to 8.1% in June and may have slowed in July for the first time since June 2021. Underlying core measures are expected to have stayed firm. Last month, the Bank of Canada surprised the market with a 100 bp hike in the overnight lending rate to 2.50%. The swaps market briefly took the possibility of a 75 bp hike at the September 7 meeting very seriously but now has slightly better than a 40% chance.  In Australia, the labor market is in focus  It added 60k full-time positions on average a month in Q2 after a 50.5k average in Q1. The pace is likely to moderate. The participation rate of 66.8% set in June was a record high. The unemployment rate of 3.5% was also a record low. There are some signs that the overall economy may be losing some momentum. Still, with CPI accelerating from 5.1% in Q1 to 6.1% in Q2, the Reserve Bank of Australia is tightening policy. After delivering the first hike in May of 25 bp, it lifted the cash target rate in 50 bp clips in June through August. Speculation of another 50 bp hike at the September 6 meeting is seen as slightly better than even money.  The Reserve Bank of New Zealand meets on August 17  It will most likely deliver the seventh hike in the cycle that began last October. After three quarter-point moves, it delivered three 50 bp hikes. The cash target rate now stands at 2.50%. With Q2 inflation rising faster than expected (7.3% year-over-year), unemployment low (3.3% in Q2; record low set last December at 3.2%), more forceful action is possible. However, the swaps market judges it unlikely and has about a 90% chance of a 50 bp hike reflected in current prices. The New Zealand dollar is strong, at its best level in two months, but maybe too strong. Although it closed firmly ahead for the weekend, it looks stretched from a technical perspective, perhaps signaling a "buy the rumor, sell the fact" type of activity.  Norway's central bank, Norges Bank, meets on August 18  A few hours after Norway reports Q2 GDP, Norges Bank makes its rate announcement. Typically, it prefers to adjust policy when it updates its economic assessment, similar in this regard to the European Central Bank. However, last week's CPI shock heightens the risk it breaks from the pattern. Headline CPI jumped 1.3% in July, lifting the year-over-year rate to 6.8%. The median forecast (Bloomberg's survey) was for an unchanged 6.3% pace. The underlying rate, which excludes energy and adjusts for tax changes, surged by 1.5%, nearly twice as much as expected. As a result, the year-over-year change was boosted to 4.5% from 3.6%.   The deposit rate stands at 1.25%  Norges Bank began the tightening cycle last September but has raised it by a cumulative 125 bp. However, among the high-income countries in Europe, only the UK's policy rate is higher. Sweden's inflation is higher at 8.5% (July from 8.7% in June), and its policy rate is 50 bp less than Norway. Since June 16, the day after the FOMC meeting that results in the first 75 bp rate hike, the Norwegian krone has been the strongest major currency, gaining 3.9% against the US dollar and 6.8% against the euro. Look for the dollar to correct higher, even if a 50 bp hike is delivered.    Disclaimer   Source: Week Ahead: More Evidence US Consumption and Output are Expanding, and RBNZ and Norges Bank to Hike
China's Deflationary Descent: Implications for Global Markets

Dollar (USD) Comes Back? Latin America's Currencies Perfomance

Marc Chandler Marc Chandler 16.08.2022 10:58
The bullish dollar narrative was fairly straightforward  Yes, the US main challengers, China and Russia, have been hobbled in different ways by self-inflicted injuries. Still, the driver of the dollar was the expected aggressive tightening by the Federal Reserve. The market accepted that after being a bit slower than ideal (though faster and before many other large central banks), the Fed would move forcefully against inflation, even if it diminished the chances of an economic soft-landing.   However, now the market seems to have a different reaction function  The euro was impressively resilient after the job growth of more than twice expectations. However, the softer than expected US CPI sent the dollar broadly lower, inflicting some apparent technical damage to the charts.  We are reluctant to chase the dollar lower and impressed in a week that the US reported a decline in CPI and PPI that the 10-year bond yield closed a few basis points higher and the first back-to-back weekly increase in two months Technically, it seems that the dollar's pullback, nearly a month-old, move is getting maybe getting stretched. We will try to identify levels that could confirm another leg lower and what would suggest the US dollar may snap back.   Dollar Index:   After reaching almost 107.00 after the stronger than expected jobs data, the Dollar Index fell to almost 104.65 in response to the softer than expected CPI. It was the lowest level since the end of June. The MACD is still falling but oversold. The Slow Stochastic looks poised to turn lower from the middle of the range. Nevertheless, we like it higher in the coming days. We target 106.30 and then 107.00. A move above 107.50 could signal a return to the highs near 109.30 from mid-July. That said, a close below 105.00 would boost the risk of another leg lower.  Euro:  The euro rallied strongly after the softer US CPI, but a key trendline drawn off the February, March, and June highs begins the new week near $1.0375 remains unchallenged. Although the momentum indicators allow for additional gains, we look for the euro to push lower in the coming days. Only a move above the trendline would give it new life. We think the greater likelihood is for the single currency to initially ease toward $1.0180-$1.0200. It may take a break of $1.01 to signal a return to the 20-year low set in mid-July near $0.9950. The US two-year premium over Germany narrowed every day last week for a cumulative 11 bp to near 2.66%. Italy's premium over Germany was trimmed by six basis points. It was the third week of convergence, but at 0.75%, it is still nearly twice what it was in June. Japanese Yen:  The greenback was pushed away from JPY135 by the decline in US rates after the CPI figures. It was sold to about JPY131.75, holding above the month's low set on August 2 near JPY130.40. However, US rates closed firmer on the week despite three softer-than-expected price reports (CPI, PPI, and import/export prices). As a result, the greenback looks poised to test the JPY135.00-50 ceiling. A move above JPY136 would target the JPY137.50 area. We have emphasized the strong correlation between changes in the exchange rate and the US 10-year yield. That correlation is off its highs though still above 0.50, while the correlation with the US two-year yield has risen toward 0.65, the highest in five months.  British Pound:   Sterling rose to $1.2275 in the broad US dollar sell-off in the middle of last week. It stalled in front of the high set on August 2, a little shy of $1.23. This sets up a potential double top formation with a neckline at $1.20. A break would re-target the two-year low set in July near $1.1760. The MACD is set to turn down. The Slow Stochastic is going sideways in the middle of the range after pulling back earlier this month. Sentiment seems poor, and in the week ahead, the UK is expected to report some easing in the labor market, accelerating consumer prices, and another decline in retail sales. Canadian Dollar:   The US dollar fell to near a two-month low last week slightly below CAD1.2730, and slipped through the 200-day moving average on an intraday basis for the first time since June 9. The test of the (61.8%) retracement of this year's rally (early April low ~CAD1.2400 and the mid-July high ~CAD1.3225) found near CAD1.2715 was successful. The US dollar recovered ahead of the weekend back to the CAD1.2800 area. Although the momentum indicators give room for further US dollar losses, we suspect a near-term low is in place and look for an upside correction toward CAD1.2850-CAD1.2900. The Canadian dollar remains sensitive to the immediate risk environment reflected in the change in the S&P 500. The correlation over the past 30 sessions is a little better than 0.60. The correlation reached a two-year high in June near 0.80. The exchange rate's correlation (30 sessions) with oil prices (WTI) set this year's high in early August near 0.60. It is now slightly below 0.50.  Australian Dollar:   Although our bias is for the US dollar to correct higher, the Aussie does not line up quite as well. It broke above the high set at the start of the month near $0.7050 and has held above it. However, its surge stalled slightly above $0.7135, and it consolidated in a narrow range around $0.7100 ahead of the weekend. The momentum indicators are constructive. The main hurdle is the 200-day moving average near $0.7150 and the (50%) retracement of this year's decline (~$0.7660 in early April and ~$6680 in mid-July) found near $0.7170. A break of this area could see a return to the June high by $0.7285.   Mexican Peso:   Latin American currencies had a good week, except for the Argentine peso, which fell by more than 1%, for the dubious honor of being the poorest performer in the emerging markets. Led by Chile (+3.9%) and the Colombian peso (3.8%), Latam currencies accounted for half of the top five performers last week. The peso's 2.7% gain was its best in five months, and the dollar was sold a little through MXN19.85, its lowest level since late June when it reached almost MXN19.82.There seems little to prevent a move toward MXN19.50. Any worries that AMLO's appointments to the central bank would block aggressive tightening of monetary policy must have evaporated as Banxico demonstrated a resolve to hike rates and shadow the US.  Chinese Yuan:   The yuan took a step lower from mid-April until mid-May. Since then, it has been trading within the range more or less seen in the second half of May. That dollar range is roughly CNY6.650 to CNY6.77. For the past month, the dollar has traded between CNY6.72 and CNY6.78, fraying the upper end of the broader range after the greenback surged broadly after the US employment data. Policymakers have signaled concern about inflation and its reluctance to ease monetary policy. It would seem the domestic policy efforts might favor a firm yuan.     Disclaimer   Source: Is the Dollar's Month-Long Pullback Over?
Saxo Bank Podcast: Natural Gas On Colder Weather, Wheat And Coffee Under Pressure, JPY Weaker And More

Natgas Fought Back And Now Have A Solid Position! Iron And Copper Are Out Of Fashion!?

Marc Chandler Marc Chandler 16.08.2022 14:19
Overview: After retreating most of last week, the US dollar has extended yesterday’s gains today. The Canadian dollar is the most resilient, while the New Zealand dollar is leading the decline with a nearly 0.75% drop ahead of the central bank decision first thing tomorrow. The RBNZ is expected to deliver its fourth consecutive 50 bp hike. Most emerging market currencies are lower as well, led by central Europe. Equities in Asia Pacific and Europe are mostly higher today. Japan and Hong Kong were exceptions, and China was mixed with small gains in Shanghai and Shenzhen composites, but the CSI 300 slipped. Europe’s Stoxx 600 is stretching its advance for the fifth consecutive session. It is at two-month highs. US futures are softer. The US 10-year yield is slightly firmer near 2.80%, while European benchmark yields are mostly 2-4 bp higher, but Italian bonds are under more pressure and the yield is back above the 3% threshold. Gold is softer after being repulsed from the $1800 area to test $1773-$1775. A break could signal a test on the 20-day moving average near $1761. October WTI tested last week’s lows yesterday near $86 a barrel on the back of the poor Chinese data. It is straddling the 200-day moving average (~$87.95). The market is also watching what seems like the final negotiations with Iran, where a deal could also boost supply. US natgas prices are more than recouping the past two days of losses and looks set to challenge the $9 level. Europe’s benchmark leapt 11.7% yesterday and is up another 0.5% today. Iron ore has yet to a base after falling more than 5.5% in the past two sessions. It fell almost 0.65% today. September copper has fallen by almost 2.5% over the past two sessions and is steady today. Lastly, September wheat is slipping back below $8 a bushel and is trading heavily for the third consecutive session. Asia Pacific Japan's 2.2% annualized growth in Q2 does not stand in the way of a new government support package  Prime Minister Kishida has been reportedly planning new measures and has instructed the cabinet to pull it together by early next month. He wants to cushion the blow of higher energy and food prices. An extension of the subsidy to wholesalers to keep down the gasoline and kerosene prices looks likely. Kishida wants to head off a surge in wheat prices. Without a commitment to maintain current import prices of wheat that is sold to millers, the price could jump 20% in October, according to reports. Separately, and more controversially, Kishida is pushing for the re-opening of nine nuclear plants that have passed their safety protocols, which have been shut since the 2011 Fukushima accident.  The minutes from the Reserve Bank of Australia's meeting earlier this month signaled additional rate hikes will be forthcoming  After three half--point hikes, it says that the pace going forward will be determined by inflation expectations and the evolving economic conditions. The minutes noted that consumer spending is an element of uncertainty given the higher inflation and interest rates. Earlier today, the CBA's household spending report shows a 1.1% jump month-over-month in July and a 0.6% increase in June. The RBA wants to bring the cash target rate to neutral (~2.50%). The target rate is currently at 1.85% and the cash rate futures is pricing in about a 40% chance of a 50 bp hike at the next RBA meeting on September 6. It peaked near 60% last week. On Thursday, Australia reports July employment. Australia grew 88.4k jobs in June, of which almost 53k were full-time positions. The median forecast in Bloomberg's survey envisions a 25k increase of jobs in July.  The offshore yuan slumped 1.15% yesterday  It was the biggest drop since August 2019 and was sparked by the unexpected cut in rates after a series of disappointing economic data. The US dollar reached almost CNH6.82 yesterday, its highest level in three months. It has steadied today but remains firm in the CNH6.7925-CNH6.8190 range. China's 10-year yield is still under pressure. It finished last week quietly near 2.74% and yesterday fell to 2.66% and today 2.63%. It is the lowest since May 2020. As we have noted, the dollar-yen exchange rate seems to be more sensitive to the US 2-year yield (more anchored to Fed policy) than the 10-year yield (more about growth and inflation)  The dollar is trading near four-day highs against the yen as the two-year yield trades firmer near 3.20%. Initial resistance has been encountered in Europe near JPY134.00. Above there, the JPY134.60 may offer the next cap. Support now is seen around JPY133.20-40. The Australian dollar extended yesterday's decline and slipped through the $0.7000-level where A$440 mln in options expire today. It also corresponds with a (50%) retracement of the run-up form the mid-July low (~$0.6680). The next area of support is seen in the $0.6970-80 area. The greenback rose 0.45% against the onshore yuan yesterday after gapping higher. Today it gapped higher again and rose to almost CNY6.7975, its highest level since mid-May. It reached a high then near CNY6.8125. The PBOC set the dollar's reference rate at CNY6.7730, slightly less than the median in Bloomberg's survey (CNY6.7736). The takeaway is the central bank did not seem to protest the weakness of the yuan. Europe The euro has been sold to a new seven-year low against the euro near CHF0.9600 The euro has been sold in eight of the nine weeks since the Swiss National Bank hiked its policy rate by 50 bp on June 16. Half of those weekly decline were 1% or larger. The euro has fallen around 7.4% against the franc since the hike. Swiss domestic sight deposit fell for 10 of 11 weeks through the end of July as the SNB did not appear to be intervening. However, in the last two weeks, as the franc continued to strengthen, the Swiss sight deposits have risen, and recorded their first back-to-back increase in four months. This is consistent with modest intervention. The UK added 160k jobs in Q2, almost half of the jobs gain in the three months through May, illustrating the fading momentum  Still, some 73k were added to the payrolls in July, well above expectations. In the three months through July, job vacancies in the UK fell (~19.8k) for the first time in nearly two years. Average weekly earnings, including bonuses, rose 5.1% in Q2. The median forecast was for a 4.5% increase. Yet, real pay, excluding bonuses and adjusted for inflation slid 3% in the April-June period, the most since at least 2001. The ILO measure of unemployment in Q2 was unchanged at 3.8%. The Bank of England warns it will rise to over 6%. The market still favors a 50 bp hike next month. The swaps market has it at a little better than an 80% probability. The euro is extending its retreat  It peaked last week, near $1.0365 and tested this month's low near $1.0125 in the European morning. The intraday momentum indicators are stretched, and that market does not appear to have the drive to challenge the 1.2 bln euros in options struck at $1.0075 that expire today. With yesterday's loss, the euro met the (50%) retracement objective of the bounce off the mid-July 22-year low (~$0.9950). The next retracement objective (61.8%) is near $1.0110. Nearby resistance may be met near $1.0160-70. Sterling has been sold for the fourth consecutive session. It approached the $1.20-level, which may be the neckline of a double top. If violated it could signal a return to the low seen in mid-July around $1.1760. Sterling is holding in better than the euro now. The cross peaked before the weekend in front of GBP0.8500 and is approaching GBP0.8400 today. A break would look ominous and could spur a return to the GBP0.8340 area. America The Empire State manufacturing survey and the manufacturing PMI line up well  Both bottomed in April 2020 and peaked in July 2021. The outsized decline in the August Empire State survey points to the downside risks of next week's preliminary August manufacturing PMI. Recall that the July manufacturing PMI fell to 52.2, its third consecutive decline and the lowest reading since July 2020. There was little good in the Empire survey. Orders and shipments fell dramatically. Employment was also soft. Prices paid softened to the lowest this year, but prices received edged higher. The US reports housing start and permits and industrial output today The housing market continues to slow from elevated levels. Housing starts are expected to have fallen 2% in July, matching the June decline. It would be the third consecutive decline, and the longest declining streak since 2018. Still, in terms of the absolute level of activity, anything above 1.5 mln units must still be regarded as strong. They stood at almost 1.56 mln in June. Permits fell by 10% in April-May before stabilizing in June. The median forecast in Bloomberg's survey projects a 3.3% decline. Permits were running at 1.685 mln in June. From April 2007 through September 2019, permits held below 1.5 mln. The industrial production report may attract more attention Output fell in June (-0.2%) for the first time this year, and even with it, industrial product has risen on average by 0.4% a month in H1 22, slightly above the pace seen in H1 21. Helped by manufacturing and utility output, industrial production is expected to rise by around 0.3%. In the last cycle, capacity use spent four months (August-November 2018) above 80%. It had not been above 80% since the run-up to the Great Financial Crisis when it spent December 2006 through March 2008 above the threshold and peaked slightly above 81.0%. Last month was likely the fourth month in this cycle above the 80% capacity use rate. Note that the Atlanta Fed's GDPNow tracker will be updated later today. The update from August 10 put Q3 GDP at 2.5%. Housing starts in Canada likely slow last month, which would be the first back-to-back decline this year  The median forecast (Bloomberg's survey) calls for a 3.6% decline after an 8.4% fall in June. Still, the expected pace of 264k is still 10% higher since the end of last year. On Monday, Canada reported that July existing home sales fell by 5.3%, the fifth consecutive decline. They have fallen by more than a third since February. Canada also reports its monthly portfolios. Through May, Canada has experienced C$98.5 bln net portfolio inflows, almost double the pace seen in the first five months last year. However, the most important report today is the July CPI. A 0.1% increase, which is the median forecast in Bloomberg's survey would be the smallest of the year and the year-over-year pace to eased to 7.6% from 8.1%. If so, it is the first decline since June 2021. Similar with what the US reported, the core measures are likely to prove sticky. After the employment data on August 5, the swaps market was still leaning in favor a 75 bp hike at the September 7 meeting (64%). However, since the US CPI report, it has been hovering around a 40% chance. While the US S&P 500 rose reached almost four-month highs yesterday, the Canadian dollar found little consolation  It held in better than the other dollar-bloc currencies and Scandis, but it still suffered its biggest decline in about a month yesterday. The greenback reached almost CAD1.2935 yesterday and is consolidating in a narrow range today above CAD1.2890. The next important chart point is near CAD1.2975-85 and the CAD1.3050. After testing the MXN20.00 level yesterday, the US dollar was sold marginally through last week's low (~MXN19.8150). It is consolidating today and has not been above MXN19.8850. It has come a long way from the month's high set on August 3 near MXN20.8335. The greenback's downside momentum seems to have eased as it stalls in front of MXN19.81 for the third consecutive session.     Disclaimer   Source: Greenback Remains Firm
USA: People Are Not Interested In Buying New Houses! Equities Are Still Trading High As The Hopes For Iran Nuclear Deal Are Still Alive

USA: People Are Not Interested In Buying New Houses! Equities Are Still Trading High As The Hopes For Iran Nuclear Deal Are Still Alive

Saxo Strategy Team Saxo Strategy Team 16.08.2022 14:00
Summary:  Equities traded higher still yesterday as treasury yields fell further back into the recent range and on hopes that an Iran nuclear deal will cement yesterday’s steep drop in oil prices. The latest data out of the US was certainly nothing to celebrate as the July US Homebuilder survey showed a further sharp drop in new housing interest and a collapse in the first regional US manufacturing survey for August, the New York Fed’s Empire Manufacturing.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures extended their gains yesterday getting closer to the 200-day moving average sitting around the 4,322 level. The US 10-year yield seems well anchored below 3% and financial conditions indicate that S&P 500 futures could in theory trade around 4,350. The news flow is light but earnings from Walmart later today could impact US equities should the largest US retailer lower their outlook for the US consumer. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hong Kong and mainland Chinese equities were mixed. CSI300 was flat, with electric equipment, wind power, solar and auto names gained. Hang Seng Index declined 0.5%. Energy stocks fell on lower oil price. Technology names were weak overall, Hang Seng TECH Index (HSTECH.I) declined 0.9%. Sunny Optical (02382:xhkg) reported worse than expected 1H22 results, revenues -14.4% YoY, net profits -49.5%, citing weakening component demand from the smartphone industry globally. The company’s gross margin plunged to 20.8% from 24.9%. Li Auto’s (02015:xhkg/LI:xnas) Q2 results were in line with expectations but Q3 guidance disappointed. The launch L9 seems cannibalizing Li ONE sales. USD: strength despite weak US data and falling treasury yields and strong risk sentiment Yesterday, the JPY tried to make hay on China cutting rates and as global yields eased back lower, with crude oil marked several dollars lower on hopes for an Iran nuclear deal. But the move didn’t stick well in USDJPY, which shrugged off these developments as the USD firmed further across the board, despite treasury yields easing lower, weak data and still strong risk sentiment/easy financial conditions. A strong US dollar is in and of itself is a tightening of financial conditions, however, and yesterday’s action has cemented a bullish reversal in some pairs, especially EURUSD and GBPUSD, where the next important levels pointing to a test of the cycle lows are 1.0100 and 1.2000, respectively. Elsewhere, USDJPY remains in limbo (strong surge above 135.00 needed to suggest upside threat), USDCAD has posted a bullish reversal but needs 1.3000 for confirmation, and AUDUSD is teetering, but needs a close back below 0.7000 to suggest a resurgent US dollar and perhaps widening concerns that a Chinese recession will temper interest in the Aussie. Crude oil Crude oil (CLU2 & LCOV2) trades lower following Monday’s sharp drop that was driven by a combination softer economic data from China and the US, the world’s top consumers of oil, and after Iran signaled a nuclear deal could be reached soon, raising the prospect of more Iranian crude reaching the market. The latest developments potentially reducing demand while adding supply forced recently established longs to bail and short sellers are once again in control. Brent needs to hold support at $93 in order to avoid further weakness towards $90. Focus on Iran news. Copper Copper (COPPERUSSEP22) led the metals pack lower, without breaking any key technical levels to the downside, after China’s domestic activity weakened in July. Meanwhile, supply side issues in Europe also cannot be ignored with surging power prices putting economic pressure on smelters, and many of them running at a loss. HG copper jumped 19% during the past month and yesterday’s setback did not challenge any key support level with the first being around $3.50/lb. BHP, the world’s top miner meanwhile hit record profits while saying that China is likely to offer a “tail wind” to global growth (see below). EU power prices hit record high on continued surge in gas prices ... threatening a deeper plunge into recession. The latest surge being driven by low water levels on Europe’s rivers obstructing the normal passage for diesel, coal, and other fuel products, thereby forcing utilities to use more gas European Dutch TTF benchmark gas futures (TTFMU2) has opened 5% higher at €231/MWh, around 15 times higher than the long-term average, suggesting more pain ahead for European utility companies. Next-year electricity rates in Germany (DEBYF3) closed 3.7% higher to 477.50 euros ($487) a megawatt-hour on the European Energy Exchange AG. That is almost six times as much as this time last year, with the price doubling in the past two months alone. UK power prices were also seen touching record highs. US Treasuries (IEF, TLT) see long-end yields surging. Yields dipped back lower on weak US economic data, including a very weak Empire Manufacturing Survey (more below) and another sharp plunge in the NAHB survey of US home builders, suggesting a rapid slowdown in the housing market. The survey has historically proven a leading indicator on prices as well. The 10-year benchmark dipped back further into the range after threatening to break up higher last week. The choppy range extends down to 2.50% before a drop in yields becomes a more notable development, but tomorrow’s US Retail Sales and FOMC minutes offer the next test of sentiment. What is going on? Weak Empire State manufacturing survey and NAHB Index Although a niche and volatile measure, the United States NY Empire State Manufacturing Index, compiled by the New York Federal Reserve, fell to -31.3 from 11.1 in July, its lowest level since May 2020 and its sharpest monthly drop since the early days of the pandemic. New orders and shipments plunged, and unfilled orders also declined, albeit less sharply. Other key areas of concern were the rise in inventories and a decline in average hours worked. This further weighed on the sentiment after weak China data had already cast concerns of a global growth slowdown earlier. Meanwhile, the US NAHB housing market index also saw its eighth consecutive monthly decline as it slid 6 points to 49 in August. July housing starts and building permits are scheduled to be reported later today, and these will likely continue to signal a cooling demand amid the rising mortgage rates as well as overbuilding. China's CATL plans to build its second battery factory in Europe CATL unveiled plans to build a renewable energy-powered factory for car battery cells and modules in Hungary. It will invest EUR 7.34 billion (USD 7.5bn) on the 100-GWh facility, which will be its second one in Europe. To power the facility CATL will use electricity from renewable energy source, such as solar power. At present, CATL is in the process of commissioning its German battery production plant, which is expected to roll out its first cells and modules by the end of 2022. Disney (DIS) shares rise on activist investor interest Daniel Loeb of Third Point announced a significant new stake in Disney yesterday, helping to send the shares some 2.2% higher in yesterday’s session. The activist investor recommended that the company spin off its ESPN business to reduce debt and take full ownership of the Hulu streaming service, among other moves. Elliott exits SoftBank Group The US activist fund sold its stake in SoftBank earlier this year in a sign that large investors are scaling back on their investments in technology growth companies with long time to break-even. In a recent comment, SoftBank’s founder Masayoshi Son used more cautious words regarding the investment company’s future investments in growth companies. BHP reports its highest ever profit, bolstered by coal BHP posted a record profit of $21.3bn supported by considerable gains in coal, nickel and copper prices during the fiscal year ending 30 June 2022. Profits jumped 26% compared to last year’s result. The biggest driver was a 271% jump in the thermal coal price, and a 43% spike in the nickel price. The world’s biggest miner sees commodity demand improving in 2023, while it also sees China emerging as a source of stable commodity demand in the year ahead. BHP sees supply covering demand in the near-term for copper and nickel. According to the company iron ore will likely remain in surplus through 2023. In an interview Chief Executive Officer Mike Henry said: Long-term outlook for copper, nickel and potash is really strong because of “unstoppable global trends: decarbonization, electrification, population growth, increasing standards of living,” What are we watching next? Australia Q2 Wage Index tonight to determine future RBA rate hike size? The RBA Minutes out overnight showed a central bank that is trying to navigate a “narrow path” for keeping the Australian economy on an “even keel”. The RBA has often singled out wages as an important risk for whether inflation risks becoming more embedded and on that note, tonight sees the release of the Q2 Wage Index, expected to come in at 2.7% year-on-year after 2.4% in Q1. A softer data point may have the market pulling back expectations for another 50 basis point rate hike at the next RBA meeting after the three consecutive moves of that size. The market is about 50-50 on the size of the RBA hike in September, pricing a 35 bps move. RBNZ set to decelerate its guidance after another 50 basis point move tonight? The Reserve Bank of New Zealand is expected to hike its official cash rate another 50 basis points tonight, taking the policy rate to 3.00%. With business and consumer sentiment surveys in the dumps in New Zealand and oil prices retreating sharply the RBNZ, one of the earliest among developed economies to tighten monetary policy starting late last year, may be set for more cautious forward guidance and a wait and see attitude, although wages did rise in Q2 at their second fastest pace (+2.3% QoQ) in decades. The market is uncertain on the future course of RBNZ policy, pricing 44 bps for the October meeting after tonight’s 50 bps hike and another 36 bps for the November meeting. US retailer earnings eyed After disappointing results last quarter, focus is on Walmart and Home Depot earnings later today. These will put the focus entirely on the US consumer after the jobs data this month highlighted a still-tight labor market while the inflation picture saw price pressures may have peaked. It would also be interesting to look at the inventory situation at these retailers, and any updated reports on the status of the global supply chains.   Earnings to watch Today’s US earnings focus is Walmart and Home Depot with analysts expecting Walmart to report 7% revenue growth y/y and 8% decline y/y in EPS as the US retailer is facing difficulties passing on rising input costs. Home Depot is expected to report 6% growth y/y in revenue and 10% growth y/y in EPS as the US housing market is still robust driving demand for home improvement products. Sea Ltd, the fast-growing e-commerce and gaming company, is expected to report revenue growth of 30% y/y in Q2 but worsening EBITDA margin at -16.2%. The previous winning company is facing headwinds in its gaming division and cash flow from operations have gone from positive $318mn in Q1 2021 to negative $724mn in Q1 2022. Today: China Telecom, Walmart, Agilent Technologies, Home Depot, Sea Ltd Wednesday: Tencent, Hong Kong Exchanges & Clearing, Analog Devices, Cisco Systems, Synopsys, Lowe’s, CSL, Target, TJX, Coloplast, Carlsberg, Wolfspeed Thursday: Applied Materials, Estee Lauder, NetEase, Adyen, Nibe Industrier, Geberit Friday: China Merchants Bank, CNOOC, Shenzhen Mindray, Xiaomi, Deere Economic calendar highlights for today (times GMT) 0900 – Germany Aug. ZEW Survey 0900 – Eurozone Jun. Trade Balance 1200 – Poland Jul. Core CPI 1215 – Canada Jul. Housing Starts 1230 – US Jul. Housing Starts and Building Permits 1230 – Canada Jul. CPI 2030 – API Weekly Report on US Oil Inventories 2350 – Japan Jul. Trade Balance 0130 – Australia Q2 Wage Index 0200 – New Zealand RBNZ Official Cash Rate announcement 0300 – New Zealand RBNZ Governor Orr Press Conference  Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: Financial Markets Today: Quick Take – August 16, 2022
Russia's Weekend Mutiny and Gold's Bounce off Support Raise Concerns; Verbal Intervention in USD/JPY and US Banking Stocks Tumble Ahead of Fed's Stress Test Results

Why Is Dollar (USD) So Important To Follow? S&P 500 Index Stumbling Block?

Saxo Bank Saxo Bank 16.08.2022 13:30
Summary:  Today we look at a confusing market backdrop as the US dollar rose across the board despite weak US data and US treasury yields easing lower again. While measures of risk sentiment and financial conditions look very strong here, we need to remember that the US dollar is a financial condition unto itself and one of the most import exchange rates, the USDCNH rate should be on every trader's radar. As well, the US S&P 500 index is pushing up against a major resistance level. Crude oil, copper, earnings reports ahead and more on today pod, which features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast  Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com. Source: Podcast: The US dollar is a financial condition, too
Volume Of Crude Oil Rose For The Second Session In A Row

The Cheapest Oil In Six Months!!! How Will It Affect The Global Economics?

Conotoxia Comments Conotoxia Comments 16.08.2022 11:55
The price of WTI crude oil remained below $90 per barrel at the beginning of the week, the level before Russia's attack on Ukraine. Oil today is the cheapest in six months. It seems that the topic of a global economic slowdown or recession and how long it may last may be important for the oil market. Chinese and U.S. economic data seem to show a weaker condition in both economies and thus could affect the decline in oil demand. This, in turn, could put downward pressure on prices. According to published data, factory activity in China declined enough in July to force the central bank to cut lending rates to keep demand from collapsing. In the United States, on the other hand, the market may have been taken by surprise by the second-largest drop in the history of the New York Empire State Manufacturing Index. The above indicators may affect the market from the demand side, but this is only one part of the puzzle. On the supply side, long-awaited changes may be brewing. Once the embargo is lifted, oil from Iran may start flowing into the market again. Iran has responded to the European Union's proposal. It may seek to re-implement the 2015 nuclear agreement. The EU is also calling on the US to show more flexibility in implementing the agreement. Saudi Arabia may also be preparing to increase its oil supply. The chairman of Saudi Aramco, the state-owned oil giant, stated over the weekend that his company is ready to increase production to 12 million barrels per day, the company's current production capacity limit. Only a decision by the Saudi Arabian government is needed to increase production. According to the EIA agency's forecast, the United States can also increase its production. US oil production in the August forecast averages 11.9 million barrels per day (b/d) in 2022. It could rise to 12.7 million b/d in 2023. If this forecast comes true, the US could set a production record next year. The current one is 12.3 million b/d and was set in 2019.   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. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Source: Oil near six-month lows
Lowest China's Yield Level In 2 Years!? Dollar (USD) Is Disturbing Gold In It's Challenge

Lowest China's Yield Level In 2 Years!? Dollar (USD) Is Disturbing Gold In It's Challenge

Marc Chandler Marc Chandler 16.08.2022 11:44
Overview: Equities were mostly higher in the Asia Pacific region, though Chinese and Hong Kong markets eased, and South Korea and India were closed for national holidays. Despite new Chinese exercises off the coast of Taiwan following another US congressional visit, Taiwan’s Taiex gained almost 0.85%. Europe’s Stoxx 600 is advancing for the fourth consecutive session, while US futures are paring the pre-weekend rally. Following disappointing data and a surprise cut in the one-year medium-term lending facility, China’s 10-year yield fell to 2.66%, its lowest in two years. The US 10-year is soft near 2.83%, while European yields are mostly 2-4 bp lower. Italian bonds are bucking the trend and the 10-year yield is a little higher. The Antipodeans and Norwegian krone are off more than 1%, but all the major currencies are weaker against the greenback, but the Japanese yen, which is practically flat. Most emerging market currencies are lower too. The Hong Kong Dollar, which has been supported by the HKMA, strengthened before the weekend, and is consolidating those gains today. Gold tested the $1800 level again but has been sold in the wake of the stronger dollar and is at a five-day low near $1778. The poor data from China raises questions about demand, and September WTI is off 3.6% after falling 2.4% before the weekend. It is near $88.60, while last week’s five-month lows were set near $87.00. US natgas is almost 2% lower, while Europe’s benchmark is up 2.7% to easily recoup the slippage of the past two sessions. China’s disappointment is weighing on industrial metal prices. Iron ore tumbled 4% and September copper is off nearly 3%. September wheat snapped a four-day advance before the weekend and is off 2.3% today.  Asia Pacific With a set of disappointing of data, China surprised with a 10-bp reduction in the benchmark one-year lending facility rate to 2.75%  It is the first cut since January. It also cut the yield on the seven-day repo rate to 2.0% from 2.1%. The string of poor news began before the weekend with a larger-than-expect in July lending figures. However, those lending figures probably need to be put in the context of the surge seen in June as lenders scramble to meet quota. Today's July data was simply weak. Industrial output and retail sales slowed sequentially year-over-year, whereas economists had projected modest increases. New home prices eased by 0.11%, and residential property sales fell 31.4% year-over-year after 31.8% decline in June. Property investment fell 6.4% year-over-year, year-to-date measures following a 5.4% drop in June. Fix asset investment also slowed. The one exception to the string of disappointment was small slippage in the surveyed unemployment rate to 5.4% from 5.5%. Incongruous, though on the other hand, the jobless rate for 16–24-year-olds rose to a record 19.9%. Japan reported a Q2 GDP that missed estimates, but the revisions lifted Q1 GDP out of contraction  The world's second-largest economy grew by 2.2% at an annualized pace in Q2. While this was a bit disappointing, Q1 was revised from a 0.5% fall in output to a 0.1% expansion. Consumption (1.1%) rebounded (Q1 revised to 0.3% from 0.1%) as did business spending (1.4% vs. -0.3% in Q1, which was originally reported as -0.7%). Net exports were flat after taking 0.5% off Q1 GDP. Inventories, as expected, were unwound. After contributing 0.5% to Q1 GDP, they took 0.4% off Q2 growth. Deflationary forces were ironically still evident. The GDP deflator fell 0.4% year-over-year, almost the same as in Q1 (-0.5%). Separately, Japan reported industrial surged by 9.2% in June, up from the preliminary estimate of 8.9%. It follows a two-month slide (-7.5% in May and -1.5% in April) that seemed to reflect the delayed impact of the lockdowns in China. The US dollar is little changed against the Japanese yen and is trading within the pre-weekend range (~JPY132.90-JPY133.90). It finished last week slightly above JPY133.40 and a higher closer today would be the third gain in a row, the longest advance in over a month. The weakness of Chinese data seemed to take a toll on the Australian dollar, which has been sold to three-day lows in the European morning near $0.7045. It stalled last week near $0.7140 and in front of the 200-day moving average (~$0.7150). A break of $0.7035 could signal a return to $0.7000, and possibly $0.6970. The greenback gapped higher against the Chinese yuan and reached almost CNY6.7690, nearly a two-week high. The pre-weekend high was about CNY6.7465 and today's low is around CNY6.7495. The PBOC set the dollar's reference rate at CNY6.7410, a little above the Bloomberg survey median of CNY6.7399. Note that a new US congressional delegation is visiting Taiwan and China has renewed drills around the island. The Taiwan dollar softened a little and traded at a three-day low. Europe Turkey's sovereign debt rating was cut a notch by Moody's to B3 from B2  That is equivalent to B-, a step below Fitch (B) and two below S&P (B+). Moody's did change its outlook to stable from negative. The rating agency cited the deterioration of the current account, which it now sees around 6% of GDP, three times larger than projected before Russia invaded Ukraine. The Turkish lira is the worst performing currency this year, with a 27.5% decline after last year's 45% depreciation. Turkey's two-year yield fell below 20% today for the first time in nine months, helped ostensibly by Russia's recent cash transfer. The dollar is firm against the lira, bumping against TRY17.97. The water level at an important junction on the Rhine River has fallen below the key 30-centimeter threshold (~12 inches) and could remain low through most of the week, according to reports of the latest German government estimate  Separately, Germany announced that its gas storage facility is 75% full, two weeks ahead of plan. The next target is 85% by October 1 and 95% on November 1. Reports from France show its nuclear reactors were operating at 48% of capacity, down from 50% before the weekend. A couple of reactors were shut down for scheduled maintenance on Saturday.  Ahead of Norway' rate decision on Thursday, the government reported a record trade surplus last month  The NOK229 bln (~$23.8 bln). The volume of natural gas exports surged more than four-times from a year earlier. Mainland exports, led by fish and electricity, rose by more than 20%. The value of Norway's electricity exports increased three-fold from a year ago. With rising price pressures (headline CPI rose to 6.8% in July and the underlying rate stands at 4.5%) and strong demand, the central bank is expected to hike the deposit rate by 50 bp to 1.75%. The euro stalled near $1.0370 last week after the softer than expected US CPI  It was pushed through the lows set that day in the European morning to trade below $1.02 for the first time since last Tuesday. There appears to be little support ahead of $1.0160. However, the retreat has extended the intraday momentum indicators. The $1.0220 area may now offer initial resistance. Sterling peaked last week near $1.2275 and eased for the past two sessions before breaking down to $1.2050 today. The intraday momentum indicators are stretched here too. The $1.2100 area may offer a sufficient cap on a bounce. A break of $1.20 could confirm a double top that would project back to the lows. America The Congressional Budget Office estimates that the Inflation Reduction Act reduces the budget deficit but will have a negligible effect on inflation  Yet, starting with the ISM gauge of prices paid for services, followed by the CPI, PPI, and import/export prices, the last string of data points came in consistently softer than expected. In addition, anecdotal reports suggest the Big Box stores are cutting prices to reduce inventories. Energy is important for the medium-term trajectory of measured inflation, but the core rate will prove sticky unless shelter cost increases begin to slow. While the Democrats scored two legislative victories with the approval of the Chips and Science Act and the Inflation Reduction Act, the impact on the poll ahead of the November midterm election seems minor at best. Even before the search-and-seizure of documents still in former President Trump's residence, PredictIt.Org "wagers" had turned to favor the Democratic Party holding the Senate but losing the House of Representatives. In terms of the Republican nomination for 2024, it has been back-and-forth over the last few months, and recently Florida Governor DeSantis narrowly pulled ahead of Trump. The two new laws may face international pushback aside from the domestic impact  The EU warned last week that the domestic content requirement to earn subsidies for electric vehicles appears to discriminate against European producers. The Inflation Reduction Act offers $7500 for the purchases of electric cars if the battery is built in North America or if the minerals are mined or recycled there. The EU electric vehicle subsidies are available for domestic and foreign producers alike. On the other hand, the Chips and Science Act offers billions of dollars to attract chip production and design to the US. However, it requires that companies drawing the subsidies could help upgrade China's capacity for a decade. Japan and Taiwan will likely go along. It fits into their domestic political agenda. However, South Korea may be a different kettle of fish. Hong Kong and China together accounted for around 60% of South Korea's chip exports last year. Samsung has one overseas memory chip facility. It is in China and produces about 40% of the Galaxy phones' NAND flash output. Pelosi's apparent farewell trip to Asia, including Taiwan, was not well received in South Korea. President Yoon Suk Yeol did not interrupt his staycation in Seoul to meet the US Speaker. Nor was the foreign minister sent. This is not to cast aspersions on South Korea's commitment to regional security, simply that it is not without limits. Today's economic calendar features the August Empire State manufacturing survey  A small decline is expected. The June TIC data is out as the markets close today. Today is also the anniversary of the US ending Bretton Woods by severing the last links between gold and the dollar in 1971. Canada reports manufacturing sales and wholesale trade, but the most market-sensitive data point may be the existing home sales, which are expected to have declined for the fifth consecutive month. Canada reports July CPI tomorrow (Bloomberg survey median forecast sees headline CPI slowing to 7.6% from 8.1% in June).  The Canadian dollar is under pressure  The US dollar has jumped above CAD1.2900 in Europe after finishing last week near CAD1.2780. Last week's high was set near CAD1.2950, where a $655 mln option is set to expire today. A move above CAD1.2920 could target CAD1.2975-CAD1.3000 over the next day or day. A combination of weaker equities, thin markets, and a short-term market leaning the wrong way after the likely drivers today. The greenback posted its lowest close in two months against the Mexican peso before the weekend near MXN19.85. However, it is rebounding today and testing the MXN20.00 area Initial resistance may be encountered around MXN20.05, but we are looking for a move toward MXN20.20 in the coming days. Mexico's economic calendar is light this week, and the highlight is the June retail sales report at the end of the week.    Disclaimer Source: China Disappoints and Surprises with Rate Cut
Walmart And Home Depot Did Better Than Expected. S&P 500 Reaches The 4,3k Level

Walmart And Home Depot Did Better Than Expected. S&P 500 Reaches The 4,3k Level

Saxo Strategy Team Saxo Strategy Team 17.08.2022 08:35
Summary:  S&P500 index broke above the key 4,300 resistance level while the NASDAQ pushed lower amid mixed economic data and better-than-feared earnings from Walmart and Home Depot. US housing data continues to worsen, but the focus now turns to FOMC minutes due later today, as well as the US retail sales which will be next test of the strength of the US consumer. Asia session may have trouble finding a clear direction, but Australia’s wage price index and RBNZ’s rate hike may help to provide some bounce. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities were mixed. Tech names had an initial pullback, followed by short-coverings that narrowed the loss of the Nasdaq 100 to 0.23% at the close. S&P500 edged up 0.19% to 4,305 on better-than-feared results from retailers, moving towards its 200-day moving average (4,326). Walmart (WMT:xnys) and Home Depot (HD:xnys) reported Q2 results beating analyst estimates. Walmart gained 5% on strong same-store sales growth and a deceleration in inventory growth. Home Depot climbed 4% after reporting better than expected EPS and same-store sales but with an acceleration in inventory buildup. The declines in housing starts and building permits released on Monday and the downbeat comments about the U.S. housing market from the management of Compass (COMP:xnys), an online real estate brokerage, highlighted the challenges faced in the housing sector.  Short-end U.S. treasury yields rose as the long-end little changed The bigger than expected increases in July industrial production (+0.6% MoM), manufacturing production (+0.7% MoM), and business equipment production (+0.6%) triggered some selling in the short-end of U.S. treasury curve, pushing the 2-year yield 8 bps higher to 3.25% as 10-year yield edged up 1bp.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) China internet stocks were sold off on Tuesday afternoon after Reuters ran a story suggesting that Tencent (00700:xhkg) plans to divest its 17% stake (USD24 billion) in Meituan (03690:xhkg).  The shares of Meituan collapsed 9% while Tencent gained 0.9%.  After the close of the Hong Kong market, Chinese media, citing sources “close to the matter” suggested that the divesture story is not true. However, the ADRs of Meituan managed to recover only 1.7% in New York trading. The newswire story also triggered selling on Kuaishou (01024:xhkg), -4.4%, which has Tencent as a major investor. The decline in internet stocks dragged the Hang Seng Index 1% lower. On the other hand, Chinese developers soared on another newswire report that state-owned China Bond Insurance is going to provide guarantees to new onshore debts issued by several “high quality” developers, including Country Garden (02007:xhkg) +9%, Longfor (00960:xhkg) +12%, CIFI (00884:xhkg) +12.9%, and Seazen (01030:xhkg) +7.6%.  Shares of Chinese property management services also surged higher.  GBPUSD bounced off the 1.2000 support, NZD eyeing RBNZ A mixed overnight session for FX as the US yields wobbled. Risk sentiment held up with the mixed US data accompanied by a less bad outcome in the US retailer earnings than what was expected. This made the safe-haven yen a clear underperformer, and USDJPY rose back above 134. But a clear trend in the pair is still missing and a break above 135 is needed to reverse the downtrend. Cable got lower to remain in close sight of the 1.2000 big figure, but rose above 1.2100 subsequently. UK CPI report due today may confirm the need for further BOE action after labor data showed wage pressures. NZDUSD remains near lows of 0.6320 but may see a knee-jerk higher if RBNZ surprises on the hawkish side. Crude oil prices (CLU2 & LCOV2) Crude oil prices remain under pressure due to the prospect of Iran nuclear deal, and printed fresh lows since the Ukraine invasion. Some respite was seen in early Asian session, and WTI futures were last seen at $87/barrel and Brent is below $93. The EU submitted a final proposal to salvage the Iran nuclear deal, and prospects of more energy supply are dampening the price momentum. It has been reported that Iran’s response was constructive, and they are now consulting with the US on a way ahead for the protracted talks. The API reported crude inventories fell by 448,000 barrels last week, while gasoline stockpiles increased by more than 4 million barrels. Government data is due later Wednesday. European Dutch TTF benchmark gas futures (TTFMU2) touched €250/MWh, but has cooled off slightly recently, but still signals the heavy price that Europe is paying for the dependence on Russian gas. Copper holding up well despite China slowdown concerns Despite reports of weaker financing and activity data from China earlier this week, Copper remains well supported and registered only modest declines. BHP’s results provided some offset, as did the supply side issues in Europe. Only a break below the key 350 support will turn the focus lower. Meanwhile, zinc rallied amid concerns of smelter closures in Europe. What to consider? US housing scare broadens, industrial production upbeat Housing starts fell 9.6% in July to 1.446 mn, well beneath the prior 1.599 mn and the expected 1.537 mn. Housing starts are now down for five consecutive months, and suggest a cooling housing market in the wake of higher borrowing costs and higher inflation. Meanwhile, building permits declined 1.3% in July to 1.674 mn from 1.696 mn, but printed above the expected 1.65 mn. There will be potentially more scaling back in construction activity as demand weakens and inventory levels rise. On the other hand, industrial production was better than expected at 0.6% m/m (prev: -0.2%) possibly underpinned by holiday demand but the outlook is still murky amid persistent inflation and supply chain issues. US retailer earnings come in better than feared Walmart (WMT:xnys) and Home Depot (HD:xnys) reported better-than-feared results on Tuesday. Walmart’s Q2 revenues came in at USD152.9 billion (+8.4% YoY, consensus USD150.5bn). Same-store sales increased 8.4% YoY (vs consensus +6.0% YoY).  EPS of USD1.77, down 0.8% from a year ago quarter but better than the consensus estimate of USD1.63. While inventories increased 25.5% in Q2, the rate of increase has moderated from the prior quarter’s +32.0%. The company cited falls in gas prices, market share gain in grocery, and back-to-school shopping key reasons behind the strength in sales.  Home Depot reported Q2 revenues of USD43.9 billion (vs consensus USD43.4bn), +6.5% YoY.  Same-store sales grew 5.8%, beating analyst estimates (+4.9%).  EPS rose 11.5% to $5.05, ahead of analyst estimates (USD4.95). However, inventories grew 38% YoY in Q2, which was an acceleration from the prior quarter. The management cited inflation and pulling forward inventory purchases given supply chain challenges as reasons for the larger inventory build-up. Target (TGT:xnys) is scheduled to report on Wednesday. Eyes on US retail sales US retail sales will be next test of the US consumer after less bad retailer earnings last night. Retail sales should have been more resilient given the lower prices at pump improved the spending power of the average American household, and Amazon Prime Day in the month possibly attracted bargain hunters as well. However, consensus expectations are modest at 0.1% m/m compared to last month’s 1.0%. A cooling labor market in the UK UK labor market showed signs of cooling as job vacancies fell for the first time since August 2020 and real wages dropped at the fastest pace in history. Unemployment rate was steady at 3.8%, and the number of people in employment grew by 160,000 in the April-June period as against 256,000 expected. There was also a sprinkle of good news, with the number of employees on payrolls rising 73,000 in July, almost triple the pace expected. Also, wage growth was strong at 4.7% in the June quarter from 4.4% in the three months to May, which may be key for the BOE amid persistent wage pressures. Australia Q2 Wage Index to determine future RBA rate hike size? The RBA Minutes out on Tuesday showed a central bank that is trying to navigate a “narrow path” for keeping the Australian economy on an “even keel”. The RBA has often singled out wages as an important risk for whether inflation risks becoming more embedded and on that note, today sees the release of the Q2 Wage Index, expected to come in at 2.7% year-on-year after 2.4% in Q1. A softer data point may have the market pulling back expectations for another 50 basis point rate hike at the next RBA meeting after the three consecutive moves of that size. The market is about 50-50 on the size of the RBA hike in September, pricing a 35bps move. RBNZ set to decelerate its guidance after another 50 basis point move today? The Reserve Bank of New Zealand is expected to hike its official cash rate another 50 basis points tonight, taking the policy rate to 3.00%. With business and consumer sentiment surveys in the dumps in New Zealand and oil prices retreating sharply the RBNZ, one of the earliest among developed economies to tighten monetary policy starting late last year, may be set for more cautious forward guidance and a wait and see attitude, although wages did rise in Q2 at their second fastest pace (+2.3% QoQ) in decades. The market is uncertain on the future course of RBNZ policy, pricing 45bps for the October meeting after today’s 50bps hike and another 37bps for the November meeting. FOMC minutes to be parsed for hints on future Fed moves The Federal Reserve had lifted rates by 75bps to bring the Fed Funds rate at the level that they consider is neutral at the July meeting, but stayed away from providing any forward guidance. Meeting minutes will be out today, and member comments will be watched closely for any hints on the expectation for September rate hike or the terminal Fed rate. The hot jobs report and the cooling inflation number has further confused the markets since the Fed meeting, even as Fed speakers continue to push against any expectations of rate cuts at least in ‘early’ 2023. We only have Kansas City Fed President Esther George (voter in 2022) and Minneapolis Fed President Kashkari (non-voter in 2022) speaking this week at separate events on Thursday, so the bigger focus will remain on Jackson Hole next week for any updated Fed views.   For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 17, 2022
Online Sales Are Becoming A Part Of Everyday Life. Supermarkets Are Having A Good Time

Online Sales Are Becoming A Part Of Everyday Life. Supermarkets Are Having A Good Time

Conotoxia Comments Conotoxia Comments 17.08.2022 09:15
Home Depot (HD) and Walmart (WMT) are among the largest US retailers whose results seem to show the attitude of the average American consumer towards spending money. HD is a chain of large-format home improvement shops, very similar to Europe's Leroy Merlin. WMT, on the other hand, is the largest US retail chain. Last month, Walmart spooked markets by lowering its profit forecasts and warned of a rapid decline in demand. However, the results announced today said sales were up more than 8% year-on-year to $152.9 billion against expectations of $150.8 billion. Online sales alone rose by as much as 12%. The company is struggling with a gigantic inventory problem (worth $61 billion at the end of Q1), prominent among the backlog of products is apparel, for example. To deal with this, discounts have been introduced on many products, thereby boosting sales by stimulating demand. At present, the value of stock amounts to USD 59.9 billion. However, the increased sales do not translate directly into profits. "The actions we’ve taken to improve inventory levels in the US, along with a heavier mix of sales in grocery, put pressure on the profit margin for Q2 and our outlook for the year," - CEO Doug McMillon said. Walmart's second-quarter net income rose to $5.15bn, or $1.77 per share (EPS) against Wall Street analysts' estimates of $1.62. In the same period a year ago, net income was $4.28bn, or $1.52 per share (EPS). Walmart maintained its forecast for the second half of the year. It expects US shop sales to grow by about 3% (excluding fuel), in the second half of the year, or about 4 per cent for the full year. It expects adjusted earnings per share to decline 9% for the year. Home Depot also announced a 5.8% increase in sales, to 43.8 billion against expectations of $43.36 billion. Net sales were up 6.5% year-over-year, marking the highest quarterly sales in the company's history. "Our team has done a fantastic job serving our customers while continuing to navigate a challenging and dynamic environment," - CEO Ted Decker said, commenting on the company's results. Net income increased to $5.17 billion, up 7.6% year-over-year. EPS was $5.05 against analysts' forecasts of $4.94. Walmart and Home Depot gain 4.7% and 1.9%, respectively, on the market open. The retailers' results show that, despite the looming recession, consumers are spending money and the situation could be not that bad in the short term. However, at the same time, the figures for financing this spending are alarming. A large proportion of Americans are covering higher prices with credit cards, which must eventually be repaid, according to data published by Bloomberg. The worsening outlook for economic health, alarming PMI levels and the bond yield curve all translate into possible future deterioration in consumer health.   Rafał Tworkowski, Junior Market Analyst, Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.  Source: Retailers announce strong results - shares rise
China’s Caixin Manufacturing PMI Data Might Support The New Zealand Dollar (NZD)

The Reserve Bank Of New Zealand Has The Best Main Interest Rate In 7 Years!!! RBNZ Will Be A Savior From Inflation!?

Conotoxia Comments Conotoxia Comments 17.08.2022 11:45
The Reserve Bank of New Zealand today raised its main interest rate by 0.5 percentage points, to 3 percent, a level last seen seven years ago. It was the fourth 50-basis point hike in the current cycle, which may make the RBNZ one of the stronger monetary tightening central banks to bring down inflation.   Today's hike was in line with market expectations. Some policymakers believe that inflation may soon begin to stabilize or even start to decline through lower fuel prices and transportation prices. However, inflation may not return to the New Zealand central bank's target until mid-2024. Thus, further monetary tightening may be required, with its end expected in the first quarter of 2023 - according to a statement issued to today's decision. As a result, the RBNZ may raise the main interest rate by about 3.75 percentage points throughout the cycle, to 4 percent, from the record low of 0.25 percent that occurred in 2021. Inflation in New Zealand rose to 7.3 percent y/y in the second quarter of 2022, up from 6.9 percent in the previous period. This was the highest figure since the second quarter of 1990.   The NZD/USD exchange rate seemed to react relatively calmly to the above decision, as it was in line with the market consensus. At 07:30 GMT+3 on the Conotoxia MT5 platform, the NZD/USD exchange rate rose by 0.25 percent, to 0.6360. As a result, at this hour, of the major currencies against the US dollar, it is the NZD that seems to have gained the most. Since the beginning of the month, the NZD has gained 1.10 percent to the USD, which may make New Zealand's currency the strongest of the world's major currencies.   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. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.   Source: Bank of New Zealand with another rate hike
Apple May Surprise Investors. Analysts Advise Caution

Apple Supplier In China Closing Its Factories! Big European Aluminium Plant Stops Its Production Due To Unfavorable Conditions

Saxo Strategy Team Saxo Strategy Team 17.08.2022 12:53
  Summary:  The US equity market rally extended modestly yesterday, but turned tail upon the cash S&P 500 Index touching the key 200-day moving average at 4,325. Market today will eye the latest US Retail Sales report from July, which saw peak gasoline prices in the US mid-month, while the FOMC Minutes may prove a bit stale, given they were created before three weeks of the market rallying sharply and financial conditions easing aggressively, likely not the Fed’s intention.   What is our trading focus?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures broke above the 200-day moving average yesterday and then got rejected. Momentum in US equities got a bit more fuel from two good earnings releases from Home Depot and Walmart rising 4% and 5% respectively. S&P 500 futures are pushing higher again this morning and will likely attempt once more to break above the 200-day moving average. Long-term US interest rates are still well-behaved trading around the 2.8% level and the VIX Index has stabilised just below the 20 level. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hang Seng Index rallied 1% today, reversing yesterday’s loss. Meituan (03690:xhkg) bounced nearly 5% after its 9% drop yesterday due to a Reuters story suggesting that Tencent (00700:xhkg) plans to divest its 17% stake (USD24 billion) in Meituan.  Tencent denied such a divesture plan last night.  Power drills and floor care equipment maker and a supplier to Home Depot (HD:xnys), Techtronic Industries (00669:xhkg) jumped more than 7% after better-than-expected results from Home Depot overnight.  On Tuesday, China’s Premier Li Keqiang held a video conference with provincial chiefs from Jiangsu, Zhejiang, Shandong, Henan, and Sichuan to reiterate the central government’s push for full use of policies to stabilize the economy.  CSI300 gained 0.6%. USD pairs, including GBPUSD, which bounced strongly off 1.2000 support  A mixed overnight session for FX as the US yields wobbled. Risk sentiment held up with the mixed US data accompanied by a less bad outcome in the US retailer earnings than expected. This made the safe-haven yen a clear underperformer, and USDJPY rose back above 134. But a clear trend in the pair is still missing and a break above 135 is needed to reverse the downtrend. Cable teased key psychological support at 1.2000 yesterday before rising later in the day above 1.2100 ahead of today’s UK CPI report, which may confirm the need for further BOE action after labor data showed wage pressures. EURUSD bounced from session lows at 1.0123 but has posted a recent bearish reversal that keeps the focus lower, particularly on any breakdown through 1.0100, the multi-week range low. USD traders will focus on today’s US Retail Sales and FOMC minutes. USDCNH – there was a brief spike higher in USDCNH earlier this week as China moved to stimulate with a small 10-basis point rate cut of the key lending rate – no drama yet, but traders should keep an eye on this very important exchange rate for larger volatility and significant break above 6.80, as Chines exchange rate policy shifts can provoke significant moves across markets. Crude oil (CLU2 & LCOV2) touched a fresh six-month low on Tuesday with Brent trading lower, in anticipation of the Iran nuclear deal being revived, before bouncing in response to the API reporting a draw in crude oil and especially gasoline stocks. While a deal with Iran could see it raise production by around one million barrels per day, Goldmans talks about a mutually beneficial stalemate for both sides with Iran wanting to avoid sanctions while the US wants to avoid higher oil prices but also the political backlash from a potential deal. EIA’s weekly crude and fuel stocks report on tap later with the market also focusing on gasoline demand and the levels of exports. Over in Europe meanwhile the Dutch TTF benchmark gas trades near an eye-popping $400 per barrel crude oil equivalent, a level that will continue to attract demand for oil-based products due to switching. Copper (COPPERUSSEP22) continues to trade within its established upward trending range after China’s Premier Li Keqiang asked local officials from six provinces to bolster pro-growth measures after weaker financing and activity data were reported earlier this week. In addition, copper is also enjoying some tailwind from rising zinc and aluminum prices after Europe's largest smelters said it would halt production and after producers in China were told to curb production in order to preserve electricity supply during the current heatwave. HG copper’s trading range has narrowed to between $3.585, the uptrend from the July low and $3.663 the 50-day moving average.   What is going on?   US housing scare broadens, industrial production upbeat US Housing starts fell 9.6% in July to an annualized 1,446k, well beneath the prior 1,599 and the expected 1,537k. Housing starts are now down for five consecutive months, and suggest a cooling housing market in the wake of higher borrowing costs and higher inflation. Meanwhile, building permits declined 1.3% in July to 1,674k from 1,696, but printed above the expected 1,650k. There will be potentially more scaling back in construction activity as demand weakens and inventory levels rise. On the other hand, industrial production was better than expected at 0.6% m/m (prev: -0.2%) in July, possibly underpinned by holiday demand but the outlook is still murky amid persistent inflation and supply chain issues. UK headline inflation hits 10.1% The highest in decades and above the 9.8% expected and for the month-on-month reading of +0.6%, higher than the +0.4% expected. Core inflation hit 6.2% vs. 5.9% expected and 5.8% in Jun. That matched the cycle high from back in April. Retail inflation rose +0.9% MoM and +12.3% YoY vs. +0.6%/+12.0% expected, respectively. The Bank of England has forecast that inflation will peak out this fall at above 13%. Reserve Bank of New Zealand hikes 50 basis points to 3.00%, forecasts 4% policy rate peak The RBNZ both increased and brought forward its peak rate forecast to 4.00%, a move that was actually interpreted rather neutrally – more hawkish for now, but suggesting that the RBNZ would like to pause after achieveing 4.00%. 2-year NZ rates were unchanged later in the session after a brife poke higher. RBNZ Governor warned in a press conference that New Zealand home prices will continue to fall. This is actually a desired outcome after a huge spike in housing speculation and prices due to low rates from the pandemic response and massive pressure from a Labor-led government that had promised lower housing costs were behind the RBNZ’s quick pivot and more aggressive hiking cycle in 2021. Walmart shares rally on improved outlook The largest US retailer surprised on both revenue and earnings in its Q2 report with most of the revenue growth coming from higher prices and not volume. The retailer now sees an EPS decline of 9-11% this fiscal year compared to previously 11-13% suggesting input cost pressures are easing somewhat. Walmart is seeing more middle and high-income customers and the retailer has also cancelled orders for billions of dollars to lower inventory levels suggesting global supply chains are improving. Walmart shares were up 5%. Home Depot still sees robust market The largest US home improvement retailer beat on revenue and earnings yesterday in its Q2 results with Q2 comparative sales up 5.8% vs est. 4.6% highlighting that volumes are falling as revenue growth is below inflation rates. The US housing market figures on housing starts and permits cemented that the US housing market is slowing down due to the recent rally in mortgage rates. Home Depot is taking a conservative approach to guidance, but the market nevertheless pushed shares 4% higher. Apple supplier Foxconn suspends its factory in Chengdu due to a power crunch Foxconn’s Chengdu factory is suspending operations for six days from August 15 to 20 due to a regional power shortage. The suspension is affecting Foxconn’s supply of iPad to Apple. The company says the impact “has been limited at the moment” but it may affect shipments if the power outage persists. The Chengdu government is imposing power curbs on industrial users to ensure electricity supply for the city’s residents. At the same time, Foxconn has started test production of the Apple watch in its factories in Vietnam. With the passage of CHIPS and Science Act earlier this month in the U.S., there have been speculations that Taiwanese and Korean chipmakers and their customers may be accelerating the building up of production capacity away from China. Big European aluminium plant to halt production Norsk Hydro’s aluminium plant in Slovakia is halting primary production by end of September due adverse conditions such as elevated electricity prices. The aluminium company would incur significant financial losses should it continue its operations.   What are we watching next?   Eyes on US retail sales today  US retail sales will be next test of the US consumer after less bad retailer earnings last night. Retail sales should have been more resilient given the lower prices at pump improved the spending power of the average American household, and Amazon Prime Day in the month possibly attracted bargain hunters as well. However, consensus expectations are modest at 0.1% m/m compared to last month’s 1.0%. FOMC minutes to be parsed for hints on future Fed moves The Federal Reserve had lifted rates by 75bps at the late July meeting to bring the Fed Funds rate to a level they have previously considered neutral, but stayed away from providing any forward guidance. The minutes of that July meeting are to be released later today, and member comments will be watched closely for any hints on the expectation for September rate hike or the terminal Fed rate. The hot July US jobs report and the cooling July inflation number, as well as a blistering three week rally in equity markets have further confused the markets since the Fed meeting, even as Fed speakers continue to push against any expectations of rate cuts as soon as ‘early’ 2023. The next chief focus for Fed guidance will remain on the Fed’s Jackson Hole, Wyoming symposium next week. Earnings to watch Today’s European earnings focus is Carlsberg and Coloplast with the former reporting strong first-half organic growth of 20.7% vs est. 15.5% suggesting breweries are seeing healthy volume and price gains. Tencent is the key focus in Asia and especially given the recent developments in China on anti-monopoly laws and its decision to divest its $24bn stake in Meituan. In the US the focus will be on Cisco which saw its growth grinding to a halt in the previous quarter. Wednesday: Tencent, Hong Kong Exchanges & Clearing, Analog Devices, Cisco Systems, Synopsys, Lowe’s, CSL, Target, TJX, Coloplast, Carlsberg, Wolfspeed Thursday: Applied Materials, Estee Lauder, NetEase, Adyen, Nibe Industrier, Geberit Friday: China Merchants Bank, CNOOC, Shenzhen Mindray, Xiaomi, Deere Economic calendar highlights for today (times GMT) 0900 – Eurozone Q2 GDP Estimate 1230 – US Jul. Retail Sales 1430 – US Weekly Crude Oil and Product Inventories 1800 – US FOMC Minutes 1820 – US Fed’s Bowman (Voter) to speak 2110 – New Zealand RBNZ Governor Orr before parliamentary committee 0130 – Australia Jul. Employment Change (Unemployment Rate)   Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Has The Best Main Interest Rate In 7 Years
The USD/CNH Pair Remains On The Bear’s Trend

China Is Planning The Devaluation? If So, CNHUSD May Become A Strong Value

Saxo Bank Saxo Bank 17.08.2022 13:20
Summary:  Today we look at the US equity market rolling over a bit after hitting a key resistance point in the form of the S&P 500's 200-day moving average. We continue to note the resilient US dollar and the risk of USDCNH suddenly commanding the market's attention again if China moves to devalue its currency. We also zero in on weak Antipodean currencies as AUDUSD struggles and NZD can't get a boost from the RBNZ overnight. Crude oil, industrial metals, the latest on the dire power emergency in the EU, danger of meme stocks, earnings ahead and more on today's pod, which features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: Podcast: Watching for signs of altitude sickness
Increase In Interest Of Nuclear Energy Around The World

Decision On Closing Three German Nuclear Plants Is Not Made Yet. In France Wind Generation And Hydropower Stations Results Are Below Norms

Marc Chandler Marc Chandler 17.08.2022 15:00
Overview: The biggest development today in the capital markets is the jump in benchmark interest rates.  The US 10-year yield is up five basis points to 2.86%, which is about 10 bp above Monday’s low.  European yields are up 9-10 bp.  The 10-year German Bund yield was near 0.88% on Monday and is now near 1.07%.  Italy’s premium over German is near 2.18%, the most in nearly three weeks.  Although Asia Pacific equities rallied, led by Japan’s 1.2% gain, but did not include South Korea, European equities are lower as are US futures.  The Stoxx 600 is struggled to extend a five-day rally.  The Antipodeans are the weakest of the majors, but most of the major currencies are softer. The euro and sterling are straddling unchanged levels near midday in Europe.  Gold is soft in yesterday’s range, near its lowest level since August 5.  While $1750 offers support, ahead of it there may be bids around $1765. October WTI is pinned near its lows around $85.50-$86.00.  The drop in Chinese demand is a major weight, while the market is closely monitoring developments with the Iranian negotiations.  US natgas is edging higher after yesterday 6.9% surge to approach last month’s peak.  Europe’s benchmark is 4.5% stronger today after yesterday’s 2.7% pullback.  Iron ore fell (3.9%) for the fourth consecutive decline. The September contract that trades in Singapore is at its lowest level since July 22.  September copper is a little heavier but is still inside Monday’s range.  September wheat is extending its pullback for the fourth consecutive session.  It had risen in the first four sessions last week. It is moving sideways in the trough carved over the past month.    Asia Pacific   The Reserve Bank of New Zealand delivered the anticipated 50 bp rate hike and signaled it would continue to tighten policy    It did not help the New Zealand dollar, which is posting an outside day by trading on both sides of yesterday's range.  The close is the key and below yesterday's low (~$0.6315) would be a bearish technical development that could spur another cent decline.  It is the RBNZ's fourth consecutive half-point hike, which followed three quarter-point moves.  The cash target rate is at 3.0%.  Inflation (Q2) was stronger than expected rising 7.3% year-over-year.  The central bank does not meet again until October 5, and the swaps market has a little more than a 90% chance of another 50 bp discounted.    Japan's July trade balance deteriorated more than expected    The shortfall of JPY1.44 trillion (~$10.7 bln) form JPY1.40 trillion in June.  Exports slowed to a still impressive 19% year-over-year from 19.3% previously, while imports rose 47.2% from 46.1% in June.  The terms-of-trade shock is significant in both Japan and Europe.  Japan's ran an average monthly trade deficit of about JPY1.32 trillion in H1 22 compared with an average monthly surplus of JPY130 bln in H1 21.  The eurozone reported an average shortfall of 23.4 bln euros in H1 22 compared with a 16.8 bln average monthly surplus in H1 21.  The two US rivals, China, and Russia, have been hobbled by their own actions, while the two main US economic competitors, the eurozone and Japan are experiencing a dramatic deterioration of their external balance,     The 11 bp rise in the US two-year yield between yesterday and today has helped lift the US dollar to almost JPY135.00, a five-day high   It has met the (50%) retracement target of the downtrend since the multiyear peak in mid-July near JPY139.40.  The next target is the high from earlier this month around JPY135.60.  and then JPY136.00.  Initial support now is seen near JPY134.40.  After recovering a bit in the North American session yesterday, the Australian dollar has come under renewed selling pressure and is trading at five-day lows below the 20-day moving average (~$0.6990).  It has broken support in the $0.6970-80 area to test the trendline off the mid-July low found near $0.6965.  A break could signal a move toward $0.6900-10.  The gap created by yesterday's high US dollar opening against the Chinese yuan was closed today as yuan recovered for the first day in three sessions.  Monday's high was CNY6.775 and yesterday's low was CNY6.7825.  Today's low is about CNY6.7690.  For the second consecutive session, the PBOC set the dollar's reference rate a little lower than the market (median in Bloomberg's survey) expected (CNY6.7863 vs. CNY6.7877).  The dollar has risen to almost CNH6.82 in the past two sessions and still trading a little above CNH6.80 today but was sold to nearly CNH6.7755 where is has found new bids.      Europe   The UK's headline CPI accelerated to 10.1% last month from 9.4% in June    It was above market expectations and the Bank of England's forecast for a 9.9% increase.  Although the rise in food prices (2.3% on the month and 12.7% year-over-year) lifted the headline, the core rate, which excludes food, energy, alcohol, and tobacco rose to 6.2% from 5.8% and was also above expectations (median forecast in Bloomberg's survey was for 5.9%).  Producer input prices slowed, posting a 0.1% gain last month for a 22.6% year-over-year pace (24.1% in June).  However, output prices jumped 1.6% after a 1.4% gain in June.  This puts the year-over-year pace at 17.1%, up from 16.4% previously.  The bottom line is that although the UK economy contracted in Q2 and the BOE sees a sustained contraction beginning soon, the market recognize that the monetary policy will continue to tighten.  The market swaps market is fully pricing in a 50 bp hike at the mid-September meeting and is toying with the idea of a larger move (53 bp of tightening is discounted).    What a year of reversals for Germany    After years of pressure from the United States and some allies in Europe, Germany finally nixed the Nord Stream 2 pipeline with Russia.  Putin also got Germany to do something that several American presidents failed to achieve and that is boost is defense sending in line with NATO commitments. The energy crunch manufactured by Russia is forcing Germany to abandon is previous strategy of reducing coal and closing down its nuclear plants.  Ironically, the Greens ae in the coalition government and recognize little choice.  A formal decision on three nuclear plants that were to be shuttered before the end of the year has yet to be made, but reports confirm it is being discussed at the highest levels.     Germany's one-year forward electricity rose by 11% to 530.50 euros a megawatt-hour in the futures market years, a gain of more than 500%     France, whose nuclear plants are key to the regional power grid, is set to be the lowest in decades, according to reports.  France has become a net importer of electricity, while the extreme weather has cut hydropower output and wind generation is below seasonal norms.  The low level of the Rhine also disrupts this important conduit for barges of coal and oil. Starting in October, German households will have a new gas tax (2.4-euro cents per kilowatt hour for natural gas) until 1 April 2024. Economic Minister Habeck estimated that for the average single household the gas tax could be almost 100 euros a month, while a couple would pay around 195 euros.  Also, starting in October, utilities will be able to through to consumers the higher costs associated with the reduction of gas supply from Russia.  This poses upside risk to German inflation.     The euro held technical support near $1.0110 yesterday and is trading quietly today in a narrow (~$1.0150-$1.0185) range today    Yesterday was the first session since July 15 that the euro did not trade above $1.02.  The decline since peaking last week a little shy of $1.0370 has seen the five- and 20-day moving averages converge and could cross today or tomorrow for the first time since late July. We note that the US 2-year premium over German is testing the 2.60% area.  It has not closed below there since July 22.  Sterling held key support at $1.20 yesterday and traded to almost $1.2145 today, which met the (50%) retracement objective of the fall from last week's $1.2275 high.  The next retracement (61.8%) is closer to $1.2175.  The UK reported employment yesterday, CPI today, and retail sales ahead of the weekend.  Retail sales, excluding gasoline have fallen consistently since last July with the exception of October 2021 and June 2022.  Retail sales are expected to have slipped by around 0.3% last month.     America   The Empire State manufacturing August survey on Monday and yesterday's July housing starts pick up a thread first picked up in the July composite PMI, which fell from 52.3 to 47.7 of some abrupt slowing of economic activity  The Empire State survey imploded from 11.1 to -31.3.  Housing starts fell 9.6%, more than four-times the pace expected (median Bloomberg survey -2.1%).  It was small comfort that the June series was revised up 2.4% from initially a 2.0% decline.  The 1.45 mln unit pace is the weakest since February 2021 and is about 9% lower than July 2021.  However, offsetting this has been the strong July jobs report and yesterday' industrial production figures.  The 0.6% was twice the median forecast (Bloomberg's survey) and the June decline (-0.2%) was revised away. The auto sector continues to recover from supply chain disruptions, and this may be distorting typically seasonal patterns.  Sales are rose in June and July, the first back-to-back gain in over a year. To some extent, supply is limiting sales, which would seem to encourage production.  Outside of autos, output slowed (year-over-year) for the third consecutive month in July.     Today's highlights include July retail sales and the FOMC minutes     Retail sales are reported in nominal terms, which means that the 13% drop in the average retail price of gasoline will weigh on the broadest of measures.  However, excluding auto, gasoline, building materials, and food services, the core retail sales will likely rise by around 0.6% after a 0.8% gain in June.  The most important thing than many want to know from the FOMC minutes is where the is bar to another 75 bp rate hike.  The Fed funds futures market has it nearly 50/50.     Canada's July CPI was spot on forecasts for a 0.1% month-over-month increase and a 7.6% year-over-year pace (down from 8.1%)     However, the core rates were firm than average increased.  The market quickly concluded that this increases the likelihood that the central bank that surprised the market with a 100 bp hike last month will lift the target rate by another 75 bp when it meets on September 7.  In fact, the swaps market sees it as a an almost 65% probability, the most since July 20.  Canada reports June retail sales at the end of the week.  The median forecast in Bloomberg's survey is for a 0.4% gain, but even if it is weaker, it is unlikely to offset the firm core inflation readings.     The dollar-bloc currencies are under pressure today, but the Canadian dollar is faring best, off about 0.25% in late morning trading in Europe     The Aussie is off closer to 0.75% and the Kiwi is down around 0.5%.  US equities are softer. The greenback found support near CAD1.2830 and is near CAD1.2880.  Monday and Tuesday's highs were in the CAD1.2930-5 area and a break above there would target CAD1.2985-CAD1.3000.  However, the intraday momentum indicators are overextended, and initial support is seen in the CAD1.2840-60 area. The greenback has forged a shelf near MXN19.81 in recent days.  It has been sold from the MXN20.83 area seen earlier this month.  It has not been above MXN20.05 for the past five sessions.  A move above there, initially targets around MXN20.20.  The JP Morgan Emerging Market Currency Index is off for the third consecutive session. If sustained, it would be the longest losing streak since July 20-22.     Disclaimer   Source: Markets Look for Direction
Saxo Bank Podcast: US Equities Continue To Trade Up, Natural Gas In Europe, Bank of Japan Meeting Ahead And More

Natural Gas Is More Valuable Than Crude Oil!? Carbon Emission Is Almost The Highest In History!!!

Kim Cramer Larsson Kim Cramer Larsson 17.08.2022 16:02
Dutch TTF Gas is resuming uptrend taking out July peak testing the 0.618 Fibonacci retracement at around €242.75.RSI has broken its falling trend and is likely to trade out/cancel the divergence since mid-July. If Dutch gas closes above the 0.618 retracement the 0.764 retracement at around 281.82 is next level likely to be reached. The upper rising trend line is likely to be reached and possibly broken in a gas price that seems to accelerate.To reverse the uptrend a close below 187.50 is needed.However, a correction over the next couple of days is not unlikely given the Spinning Top Candle formed yesterday. IT is often a top and reversal indicator but needs to be confirmed by a bearish candle the following day. IF Dutch Gas closes above its peak the potential top and reversal is demolished. Source: Saxo Group Henry Hub Gas has taken out resistance at the 0.618 retracement at around $8.90 and now also 0.764 retracement indicating previous highs at $9.66-9.75 are likely to be tested. If Henry Hub Gas closes above previous highs new price targets Source: Saxo Group Brent Crude oil continue its downtrend closing in on support at around $90. RSI is testing previous lows. There is divergence indicating a weakening of the downtrend but if RSI makes a new low the $90 support could be broken. Next support would be at around the 0.764 retracement at 85.76To set the downtrend on pause a close above 100.38. That will most likely not reverse the trend but merely just put it on pause. Source: Saxo Group WTI Crude oil was rejected at the short-term falling trendline and is now back below the 0.618 retracement. Next support at 81.90. There is divergence on RSI indication the downtrend is weakening. However, if RSI closes below If WTI closes back above the 200 SMA i.e. above $95 thereby also breaking above the short-term falling trendline, a larger correction to around 105-110 is likely. Source: Saxo Group Carbon Emissions broke its falling trendline last week and has now also broken above resistance at 92.75 closing in on its all-time high just below €100. RSI is entering over-bought territory but there is no divergence indicating higher levels (above 100) is likely. However, do expect a correction from just below previous highs.            Source: Saxo Group   Source: Technical Update - Natural Gas powers higher. Oil downtrend weakening, close to and end? Carbon Emission close to all-time highs
Nuclear Power Emerges as Top Theme for 2023, Bubble Stocks Under Pressure

We Need To Build Our Green Energy Future. Here Is Why

Peter Garnry Peter Garnry 17.08.2022 16:26
Summary:  We are used to not think about the energy sector, but the galloping global energy crisis has illuminated our deficits in primary energy due to years of underinvestment in fossil fuels and renewable energy sources inability to scale fast enough with the green transformation and electrification of our economy. It seems more likely now that the non-renewable and the renewable energy sector will both provide attractive returns as we will need both to overcome our short-term energy crisis and long-term aspirations of a greener energy future. The energy crisis keeps getting worse Electricity prices in Europe are nine times higher than the historical average since 2007 as lack of investments and cutting the ties to Russia’s energy supplies are severely constraining available energy in society. Since before the pandemic we have written many equity notes on the green transformation which involves building out renewable energy sources and electrifying everything in the economy to reduce the carbon emissions involved with our current living standard. Switching a large part of the transportation sector to electricity or green fuels, switching the heating source from natural gas to renewable energy through electrification (air-to-water heat pumps) etc. is very difficult as our rising wealth (measured by GDP) is finely mapped to carbon emissions over the past 300 years. We described this in our note The inconvenient truth on energy and GDP. Decoupling our wealth generating function from that of carbon emissions is probably the greatest task humans has ever set out to do. German baseload electricity 1 year forward | Source: Bloomberg There is not ‘one solution’ that fixes our energy crisis As BP’s 2022 Statistical Review of World Energy pictures primary energy demand in 2021 eclipsed 2019 suggesting the world’s demand for energy is now higher than before the pandemic and the usage of fossil fuels (82%) is only slightly down compared to five years ago (85%). We very much still live in a fossil fuel based economy. Things will change over time and the share of fossil fuels will likely decline, but the idea that the world can do the green transformation by electrifying everything based on renewable energy sources is naïve. Investors should also remember that the change in primary energy demand is mostly driven by the non-OECD countries. Renewable energy does not scale fast enough for a complete transition due to the speed on electrification and recently the CEOs of Orsted and Vestas complained about bureaucracy related to get new offshore wind power projects approved. The recent Climate & Tax Bill is acknowledging that we will need oil and gas for longer than expected just three years ago and thus our current energy crisis will allow both renewable energy and fossil fuel energy to be good investments in parallel. Renewable energy is the third best theme basket this year while the commodities basket (which includes oil & gas and mining companies) is the best performer. Our view of the future of energy is that there is no ‘one solution’ to our energy problem. We must move to a mindset of energy diversification. We will need many different sources of energy and never rely too much on one source. Germany’s reliance on natural gas for its economic model has proved fragile. Even France’s concentrated bet on nuclear power has proved to be fragile due to corrosion and now too hot rivers. The world must invest in all types of energy and thus our view is that investors mut get broad exposure to energy going forward. The non-renewable energy sector at a glance In this equity note we will focus on the non-renewable energy because this is the part of the energy sector which has changed the most relative to market pricing and expectations and where there is more room for valuations changing. Despite high oil and gas prices the energy sector is still relatively cheap as we described already back in May in our note Global energy stocks are the cheapest in 27 years where we measured valuation on the free cash flow yield. The high oil and gas prices have also led to record profits for refiners and recently the highest quarterly profit ever recorded in the global energy sector which we described in our note Earnings hit new all-time high as inflation lifts all boats. The global energy sector (defined by GICS and being the non-renewable energy sector) is still cheap relative to the global equity market with the 12-month EV/EBITDA being two standard deviations below the average valuation spread since 2005. In terms of total return the global energy sector has delivered a higher return than the global equity market since 1995 (see chart). It is also worth noting that measured on the 12-month forward EV/EBITDA the renewable energy sector has twice the valuation level compared to the non-renewable energy sector reflecting the different in expectations for the future priced in the market. As we described in our Q1 Outlook the current dividend yield and expected dividend growth suggest that the global energy sector has an expected long-term return of 10% annualised subject of course to a large degree of uncertainty related to equity valuation compression in the industry or lower dividend growth in the future than expected today. Global energy vs global equities | Source: Bloomberg The easiest way to invest in the energy sector is through ETFs tracking the sector and most investors should do that. A different approach is investing in specific parts of the non-renewable energy sector. The tables below show the top five company on market value in each of the GICS industries in the GICS energy sector. As the five-year total returns in USD column show, the industries related only to drilling and providing equipment for drilling activities have done the worst because the decline in capital expenditures since 2015 has dried up activity for this industry. The integrated oil and gas majors have done better due to refining and trading businesses. Over the past five years, the best performing industries in the energy sector have been refining and marketing due to the crack spreads (the difference between crude oil and refined products) have expanded during the pandemic. The global coal industry has also done very well which in terms of climate change and reducing carbon emissions is a sad observation but we should be aware of that the primary fuel source for power generation globally is still coal. GICS industries in the energy sector | Source: Bloomberg and Saxo Group Source: How to invest in energy and the unfolding energy crisis?
Liquidity at Stake: Exploring the Risks and Challenges for Non-Bank Financial Intermediaries

Sterling (GBP) And Dollar (USD) Are At The Top Of The World!!! What To Consider Next?

John Hardy John Hardy 17.08.2022 17:04
Summary:  The stronger US dollar is beginning to dominate across FX, and we haven’t even seen risk sentiment roll over badly yet, although this time it could be the US dollar itself that defines and drives financial conditions across markets. Elsewhere, we have seen an interesting fundamental test of sterling over the last couple of sessions, as sterling has begun rolling over today, even as a ripping increase in rate tightening bets in the wake of another hot CPI print out of the UK this morning. FX Trading focus: USD dominating again, GBP rate spike impact fading fast and indicating danger ahead for sterling. RBNZ hawkishness fails to impress the kiwi. The US dollar rally is broadening and intensifying, and US long yields are threatening back higher, which is finally pushing back against the recent melt-up in financial conditions/risk sentiment. The US July Retail Sales report looks solid, given the +0.7% advance in “ex Autos and Gas” sales after the June spike in average nationwide gasoline price to the unprecedented 5 dollar/gallon level. Yes, July gasoline prices were lower than June’s, but there wasn’t a huge delta on the average price for the month, and the impact of lower gas prices will likely be more in the August full month of vastly lower prices – presumably averaging closer to 4/gallon, together with the psychological relief that the spike seems in the rear view mirror, even if we can’t know whether a fresh spike awaits in the fall, after the draw on strategic reserves is halted. A strong US dollar, higher US yields and a fresh unease in risk sentiment are a potential triple whammy in which the US dollar itself is the lead character, as USDJPY has reversed back above 135.00 even before the US data, suggesting a threat back toward the cycle highs. AUDUSD has entirely reversed its upside sprint above 0.7000, refreshing its bearish trend after a squeeze nearly to the 200-day moving average there. Elsewhere, EURUSD and GBPUSD are a bit stuck in the mud, watching 1.0100 and 1.2000 respectively. The most important additional aggravator of this USD volatility in coming sessions would be a significant break higher in USDCNH if China decides it is tiring again of allowing the CNH to track USD direction at these levels. The pressure has to be building there after the PBOC’s rate cut at the start of the week. The UK July CPI release this morning raised eyebrows with another beat of expectations across the board, the day after strong earnings data. The 10.1% headline figure represents a new cycle and the month-on-month figure failed to moderate much, showing +0.6% vs. +0.4% expected. Core inflation also rose more than expected, posting a gain of 6.2% YoY and thus matching the cycle high from  April. The Retail Price Index rose 12.3% vs. 12.1% expected. The market reaction was easily the most interesting, as we have seek UK yields flying higher but failing to impress sterling much after a bit of a surge yesterday and into this morning. Now, sterling is rolling over despite a 40 basis point advance(!) in the 2-year swap rate from yesterday’ open, much of that unfolding in the wake of the CPI release today. Chart: GBPUSD Not that much drama at the moment in the GBPUSD chart, but that is remarkable in and of itself, as the soaring UK yields of yesterday and particularly today in the wake of a higher than expected CPI release are not doing much to support sterling. When rate moves don’t support a currency, it is starting to behave somewhat like an emerging market currency, a dangerous signal for the sterling, where we watch for a break of 1.2000 to usher in a test of the cycle lows below 1.1800, but possibly even the pandemic panic lows closer to 1.1500. The Bank of England hikes will only a accelerate the erosion of demand and slowdown in the UK economy that will lead to a harsh recession that the Bank of England itself knows is coming, but may have to prove slow to react to due to still elevated inflation levels, in part on a weak currency. Source: Saxo Group The RBNZ hiked fifty basis points as expected overnight and raised forward guidance for the Official Cash Rate path to indicate the expectation that the OCR will peak near 4%, a raising and bringing forward of the expected rate peak for the cycle. In the press conference, RBNZ Governor Orr spelled out the specific guidance that he would like to get the rate to 4% and take a significant pause to see if that is enough. “Our view is that sitting around that 4% official cash rate level buys the monetary policy committee right now significant comfort that we would have done enough to see inflation back to our remit.” NZ short rates were volatile, but hardly changed by the end of the day, meaning that NZD direction defaulted to risk sentiment, with a fresh dip in AUDNZD erased despite a weak AUD, and NZDUSD confirming a bearish reversal. Table: FX Board of G10 and CNH trend evolution and strength. Note the big shift in USD momentum, the most notable on the chart, although the absolute value of the SEK negative shift has been even larger over the last few days as EU woes and the growth outlook weigh even more heavily on SEK, which is often leveraged to the EU outlook, also as EURSEK has now failed to progress lower after a notable break below the 200-day moving average. Note the AUD negative shift as well, with sluggish wage growth data overnight for Q2 offering no helping hand. Source: Bloomberg and Saxo Group Table: FX Board Trend Scoreboard for individual pairs. USDJPY looks to flip back to a positive trend on a higher close today or tomorrow, the recent flip negative in GBPUSD looks confirmed on a hold below 1.2000, and AUDUSD looks a matter of time before flipping negative as well, while USDCAD has beaten it to the punch – although a more forceful upside trend signal there would be a close above 1.3000 again. Source: Bloomberg and Saxo Group Upcoming Economic Calendar Highlights (all times GMT) 1800 – US FOMC Minutes 1820 – US Fed’s Bowman (Voter) to speak 2110 – New Zealand RBNZ Governor Orr before parliamentary committee 0130 – Australia Jul. Employment Change (Unemployment Rate)   Source: FX Update: GBP in danger as rate spike fails to support. USD dominating.
US: Drivers Demand Of Oil The Highest This Year! Silver Lost Almost The Half Of Its Recent Gaines

US: Drivers Demand Of Oil The Highest This Year! Silver Lost Almost The Half Of Its Recent Gaines

Saxo Strategy Team Saxo Strategy Team 18.08.2022 10:50
Summary:  US equities traded a bit lower yesterday after the S&P 500 challenged the 200-day moving average from below the prior day for the first time since April in the steep comeback from the June lows. Sentiment was not buoyed by the FOMC minutes of the July meeting suggesting the Fed would like to slow the pace of tightening at some point. Crude oil rose from a six-month low on bullish news from the US and OPEC.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures rolled over yesterday wiping out the gains from the two previous sessions and the index futures are continuing lower this morning trading around the 4,270 level. US retail sales for July were weak and added to worries of the economic slowdown in real terms in the US. The 10-year yield is slowing crawling back towards the 3% level sitting at 2.87% this morning. A move to 3% and potentially beyond would be negative for equities. The next levels to watch on the downside in S&P 500 futures are 4,249 and then 4,200 Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Shares in the Hong Kong and mainland China markets declined. China internet stocks were weak across the board with Tencent (00700:xhkg) +2.7% and Meituan (03690:xhkg) +1%, being the positive outliers. Tencent reported a revenue decline of 3% y/y in Q2, weak, but in line with market expectations. Non-GAAP operating profit was down 14% y/y to RMB 36.7bn, and EPS fell 17% y/y to RMB 2.90 but beating analyst estimates. Revenues from advertising at -18% y/y were better than expected. In the game segment, weaker mobile game revenues were offset by stronger PC game revenues. Beer makers outperformed China Resources Beer (00291:xhkg) +3.8%, Tsingtao Brewery (00168:xhkg) +1.7%. COSCO Shipping Energy Transportation (01138:xhkg) made a new high at the open on strong crude oil tanker freight rates before giving back some gains. USD pairs as the USD rally intensifies The US dollar rally broadened out yesterday, as USDJPY retook the 135.00 area, but needs to follow through above 135.50-136.00 to take the momentum back higher. Elsewhere, AUDUSD has broken down again on the move down through 0.7000 and USDCAD has posted a bullish reversal, needing 1.3000 for more upside confirmation. The GBPUSD pair looks heavy despite a massive reset higher in UK rates in the wake of recent UK inflation data, with a close below 1.2000 indicating a possible run on the sub-1.1800 lows, while EURUSD is rather stuck tactically, as price has remained bottled up above the 1.0100 range low. USDCNH, as discussed below, may be a key pair for whether the USD rally broadens out even more aggressively, and long US treasury yields and risk sentiment are other factors in the mix that could support the greenback, should the 10-year US treasury benchmark move higher toward 3.00% again or sentiment roll over for whatever reason. Certainly, tightening USD liquidity could prove a concern for sentiment as the Fed turns up the pace of quantitative tightening – something it seems behind schedule in doing if we look at the latest weekly Fed balance sheet data.  USDCNH The exchange rate edged higher again to above 6.80 overnight after a brief spike higher earlier this week as China’s PBOC moved to stimulate with a small 10-basis point rate cut of the key lending rate. There is no real drama in the exchange rate yet after the significant rally this spring from below 6.40 to 6.80+, but traders should keep an eye on this very important exchange rate for larger volatility and significant break above 6.83, as China’s exchange rate policy shifts can provoke significant volatility across markets. Crude oil Crude oil (CLU2 & LCOV2) bounced from a six-month low on Wednesday in response to a bullish US inventory report that saw big declines in gasoline and crude oil stocks as demand from US motorist climbed to the highest this year while crude exports reached a record $5 million barrels per day. The prospect for an Iran nuclear deal continues to weigh while OPEC’s new Secretary-General said spare capacity was becoming scarce. US strategic reserves are now at the lowest level since 1985 and the government has by now sold around 90% of what was initially offered in order to bring down prices. While demand concerns remain a key driver for macroeconomic focused funds selling crude oil as a hedge we notice a renewed surge in refinery margins, especially diesel, supported by increased demand from gas-to-fuel switching Gold and silver Gold has so far managed to find support at $1759, the 38.2% retracement of the July to August bounce, after trading weaker in response to a stronger dollar and rising yields. Silver (XAGUSD) meanwhile has almost retraced half of its recent strong gains with focus now on support at $19.50. The latest driver being the FOMC minutes which signaled ongoing interest-rate hikes and eventually at a slower pace than the current. The short-term direction has been driven by speculators reducing bullish bets following a two-week buying spree in the weeks to August 9 which lifted the net by 63k lots, the strongest pace of buying in six months. ETF holdings meanwhile have slumped to a six-month low, an indication investor, for now, trusts the FOMC’s ability to bring down inflation within a relatively short timeframe   What is going on? Financial conditions are tightening, if modestly. Recent days have brough a rise in short US treasury yields, but more importantly it looks as though some of the risk indicators like corporate credit spreads may have bottomed out here after a sharp retreat from early July highs – one Bloomberg high yield credit spreads to US treasuries peaked out above 5.75% and was as low as 4.08% earlier this week before rising to 4.19% yesterday, with high yield bond ETFs like HYG and JNK suffering a sharp mark-down yesterday of over a percent. Factors that could further aggravate financial conditions include a significant CNH weakening, higher US long treasury yields (10-year yield moving back toward 3.00%, for example) or further USD strength. Adyen sees margin squeeze. One of Europe’s largest payment companies reports first-half revenue of €609mn vs est. €615mn despite processed volume came significantly above estimates at €346bn suggesting the payments industry is experiencing pricing pressures. Cisco outlook surprises. The US manufacturer of networking equipment surprised to the upside on both revenue and earnings in its fiscal Q4 (ending 30 July), but more importantly, the company is guiding revenue growth in the current fiscal quarter of 2-4% vs est. -0.2% and revenue growth for the current fiscal year of 4-6% vs est. 3.3%. Cisco said that supply constraints are beginning to ease and that customer cancellations are running below pre-pandemic levels, and that the company’s growth will be a function of availability. Stale FOMC minutes hint at sustained restrictive policy, but caution on pace of tightening. Fed’s meeting minutes from the July meeting were released last night, and officials agreed to move to restrictive policy, with some noting that restrictive rates will have to be maintained for some time to bring inflation back to the 2% target. Still, there was also talk of slowing the pace of rate hikes ‘at some point’, despite pushing back against easing expectations for next year. The minutes were broadly in-line with the market’s thinking, and lacked fresh impetus needed to bring up the pricing of Fed’s rate hikes. Chairman Powell’s speech at the Jackson Hole Symposium next week will be keenly watched for further inputs. US retail sales were a mixed bag. July US retail sales were a little softer at the headline level than the market expected (0% growth versus the +0.1% consensus) but the ex-auto came in stronger at 0.4% (vs. -0.1% expected). June’s growth was revised down to 0.8% from 1%. The mixed data confirmed that the US consumers are feeling the pinch from higher prices, but have remained resilient so far and that could give the Fed more room to continue with its aggressive rate hikes. Lower pump prices and further improvements in supply chain could further lift up retail spending in August. The iron ore miners are resilient despite price pressures Despite China planning more fiscal stimulus to fund infrastructure investment, the iron ore (SCOA, SCOU2) price paired back 8% this week, retreating to its lowest equal level in five weeks at $101.65, a level the iron ore price was last at in December 2021. Since March, the iron ore price has retreated 37%, with the most recent pull back being fueled by concerns China’s Covid cases are surging again with cases at a three-month high, as the outbreak worsens in the tropical Hainan province. Despite iron ore pulling back, shares in iron ore majors like BHP, remain elevated, up off their lows, with BHP’s shares trading 14% up of its July low, and moving further above its 200-day moving average, on hopes of commodity demand picking up. What are we watching next? Norway’s central bank guidance on further tightening. The Norges Bank is expected to hike 50 basis points today to take the policy rate to 1.75% despite an indication from the bank in June that the bank would prefer to shift back to hiking rates by 25 basis points, as a tight labour market and soaring inflation weigh. The path of tightening for the central bank has been an odd one, as it was the first G10 bank to actually hike rates in 2021, but finds itself with a far lower policy rate than the US, for example, which started much later with a faster pace of hikes. But NOK may react more to the direction in risk sentiment rather than guidance from the Norges Bank from here, assuming no major surprises. The EURNOK downtrend has slowed of late – focusing on 10.00 if the price action continues to back up. Japan’s inflation will surge further. Japan’s nationwide CPI for July is due on Friday. July producer prices came in slightly above expectations at 8.6% y/y (vs. estimates of 8.4% y/y) while the m/m figure was as expected at 0.4%. The continued surge reflects that Japanese businesses are grappling with high input price pressures, and these are likely to get passed on to the consumers, suggesting further increases in CPI remain likely. More government relief measures are likely to be announced, while signs of any Bank of Japan pivot away from its low rates and yield-curve-control policy are lacking. Bloomberg consensus estimates are calling for Japan’s CPI to accelerate to 2.6% y/y from 2.4% previously, with the ex-fresh food number seen at 2.4% y/y vs. 2.2% earlier.   Earnings to watch In Europe this morning, the key earnings focus is Adyen which has already reported (see review above) and Estee Lauder which is deliver a significant slowdown in figures and increased margin pressure due to rising input costs. Today’s US earnings to watch are Applied Materials and NetEase, with the former potentially delivering an upside surprise like Cisco yesterday on improved supply chains. NetEase, one of China’s largest gaming companies, is expected to deliver Q2 revenue growth of 12% y/y as growth continues to slow down for companies in China. Today: Applied Materials, Estee Lauder, NetEase, Adyen, Nibe Industrier, Geberit Friday: China Merchants Bank, CNOOC, Shenzhen Mindray, Xiaomi, Deere Economic calendar highlights for today (times GMT) 0800 – Norway Deposit Rates 0900 – Eurozone Final Jul. CPI 1100 – Turkey Rate Announcement 1230 – US Weekly Initial Jobless Claims 1230 – Canada Jul. Teranet/National Bank Home Price Index 1230 – US Philadelphia Fed Survey 1400 – US Jul. Existing Home Sales 1430 – EIAs Weekly Natural Gas Storage Change 1720 – US Fed’s George (Voter) to speak 1745 – US Fed’s Kashkari (Non-voter) to speak 2301 – UK Aug. GfK Consumer Confidence 2330 – Japan Jul. National CPI Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Financial Markets Today: Quick Take – August 18, 2022
China's Property Debt Crisis, Economic Momentum, and Upcoming Meetings: A Market Analysis

A Pick Up In Yields May Come, The Question Is Open As US Treasury Yields Remain Rangebound

Saxo Bank Saxo Bank 18.08.2022 11:38
Summary:  Today we note a further softening in sentiment, in part on a pick up in yields, but that story has yet to really trigger as long US treasury yields remain rangebound, if teasing important levels. We note important supports for the crude oil outlook, the crack spread picture in the energy complex, the still very low valuation of energy stocks relative to the broader market, stocks and earnings on our radar, FX developments as we keep the USDCNH chart front and center as a potential aggravator of weakening risk sentiment and more. Today's pod features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: Podcast: As risk sentiment rolls over, is crude oil set to rally?
GBP Strength and EUR/GBP Testing Lows Amid Economic Data

Euro Bund And T-Note Seems To Be Sliding Down In The Following Years

Kim Cramer Larsson Kim Cramer Larsson 18.08.2022 12:24
US 10-years Treasury Yields have tested the short term falling trendline from the upper side and is trying to move higher but seems to struggle a bit around 2.90%. If Yields move above 55 SMA it is likely to get momentum for higher levels with resistance at 3.11 The US 10-years Treasury Note is in a confirmed downtrend. 55 SMA is providing some support but no strong support before at 117 18/32.To reverse the downtrend a close above 120 is needed. Source: Saxo Group Euro Bund has broken bearish out of rising channel and is testing support at 153.50. Downtrend is confirmed and a close above 156.88 is needed to reserve that picture.Some support at 152.43 and strong support at around 150-149.75           Source: Saxo Group   Source: Technical Update - 10-year Yields ticking higher. US 10-years T-Note future and Euro Bund in confirmed downtrends
The US PCE Data Is Expected To Confirm Another Modest Slowdown

Fed Reptesentatives Are Committed To Holding Back Price Growing And Control The Inflation According To Expectations

Conotoxia Comments Conotoxia Comments 18.08.2022 13:17
Last night's publication of the minutes of the last Fed meeting, which took place at the end of July, may have affected the US dollar's trading. The policymakers touched on the regulation of the digital asset market for the first time at such a meeting. According to the published minutes, Fed officials remain very attentive to inflation risks and are committed to lowering price growth and keeping inflation expectations under control. A commitment to tightening monetary policy can take place, even if it comes at the expense of economic growth, the FOMC minutes show. The July discussion touched on the possible risks of too many and too large interest rate hikes. There was also talk that the Fed may be pursuing too much restrictive monetary policy than is necessary to restore price stability in the economy. The Fed, for the moment, seems unconcerned about GDP data and the risk of a sustained slowdown or official recession, as officials said the economy is stable for now, pointing to strong job growth, a low unemployment rate and elevated wage growth. Moreover, there was also discussion of the possibility of a later upward revision of earlier GDP readings, which are revised over time. There was also a statement regarding possible further action by the Federal Reserve. Policymakers discussed the possibility of slowing the pace of interest rate hikes at some point, but this will require data readings that can be considered satisfactory in terms of the impact of current hikes on slowing inflation. Meanwhile, for the moment, it may be crucial to maintain a restrictive stance to avoid a loosening of inflation expectations. Initially, after the release of the minutes, the EUR/USD exchange rate rose to 1.0200, before retreating to the region of 1.0150 this morning. The reaction thus appears to be mixed, without leading to a major impulse, and the exchange rate of the main currency pair has remained in consolidation since the morning of August 16. On Wall Street, on the other hand, indexes were down after the publication. The S&P500 fell 0.3 percent and the Nasdaq 100 fell 0.6 percent. The committee also turned its attention to the world of digital assets. Participants recognized the growing importance of digital assets and their increasing interconnectedness with other segments of the financial system, underscoring the need to establish a robust supervisory and regulatory framework for the sector to adequately mitigate potential systemic risks. Several participants mentioned the need to strengthen supervision and regulation of certain types of non-bank financial institutions, according to published minutes. 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. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.   Source: Highlights from the Fed minutes
The Commodities Feed: China's 2023 growth target underwhelms markets

Apple Concentrated On Vietnam Productions As China Having Problems With Energy Supply

Marc Chandler Marc Chandler 18.08.2022 14:03
Overview: The sell-off in European bonds continues today. The 10-year German Bund yield is around four basis points higher to bring three-day increase to about 22 bp. The Italian premium over Germany has risen by almost 18 bp over these three sessions. Its two-year premium is widening for the fifth consecutive session and is above 90 bp for the first time in almost three weeks. The 10-year US Treasury yield is a little softer near 2.88%. Most of the large Asia Pacific equity markets fell, with India a notable exception. Europe’s Stoxx 600 snapped a five-day rally yesterday with a 0.9% loss. It is slightly firmer today, while US futures are hovering around yesterday’s closing levels. The greenback is firm against most of the major currencies. The Australian and Canadian dollars  and Norwegian krone and sterling are the most resilient today. The Philippines, like Norway hiked 50 bp but unlike Norway, the currency has not been bought. Most emerging market currencies are softer today. Gold is trying to break a three-day slide after approaching $1760. It settled last week at $1802. October WTI found a base a little below $85.50 and is around $88.50 near midday in Europe. The week’s high was set Monday by $91.50. US natgas is up 1.1% to recoup yesterday’s loss in full. Europe’s benchmark is extended this week’s run. It finished last week near 205.85 and now is around 232.00, a 12.7% gain after 6% last week. Iron ore ended a four-day 8% slide. September copper is recovering from the early drop to near two-week lows ($354.20) and is now near 362.00. A move above yesterday’s high (~$365) would be constructive. The sell-ff in September wheat has accelerated. It is off for the fifth consecutive session and is at its lowest level since January. After falling around 3% in three days from last Friday, it is off more than 5% between yesterday and today. Asia Pacific For good reasons, Beijing and Washington suspect the other of trying to change that status quo over Taiwan  The visits by US legislators may be only the initial efforts by Congress to force a more aggressive US position. It could come to a head in the fall when a bill that wants to recognize Taiwan as a major non-NATO ally and to foster Taiwan's membership in international forums will draw more attention. Meanwhile, US-Taiwan trade talks will begin later this year that was first aired a couple of months ago. At the same time, the Biden administration has been considering lifting some of the tariffs levied by the previous administration, but China's militaristic response to the visits makes it more difficult. Biden wants to lift the tariffs not to reward Beijing but to ease the costs to Americans. The Consumer Technology Association, an industry group, estimated that the tariffs have boosted the bill for American consumer technology companies by around $32 bln. The tariffs are paid to the US government. It seems that in lieu of lifting the tariffs, a broad exclusion process is possible. Related but separately, the Nikkei Asia reported that Apple is in talks to produce its watches and computers in Vietnam for the first time  Two suppliers have been producing Apple Watches in northern Vietnam. A couple of months ago, reports indicated that Apple would more some production of its tablets to Vietnam. Apple's ecosystem is establishing a presence in Vietnam, with nearly two dozen suppliers have factories now, almost doubling since 2018. As a result of these forces and the movement of capacity outside of China, Vietnam's trade surplus with the US is exploding. The $33 bln surplus in 2016 ballooned to $91 bln last year and was nearly $58 bln in the first half. For the past five years, the dollar has traded in a roughly 2% band around VND23000. The greenback is near the upper end of the range. Australia's July jobs report was disappointing  It lost almost 87k full-time positions after gaining nearly 53k in June. Part-time positions increased (46k), leading to a 40.9k loss of overall jobs. The median forecast (Bloomberg survey) was for a gain of 25k jobs. The unemployment rate slipped to a new record low of 3.4% (from 3.5%) but this was due to a sharp drop in the participation rate (66.4% from 66.8%). Ostensibly, this could give the central bank space to be more flexible at its September 6 meeting. However, the futures market as taken it in stride that has left the odds of a 50 bp hike next month essentially unchanged around 57%. This is essentially where it was at the end of last week and the week before. Many are now familiar with China's rolling lockdowns to combat Covid and the implosion of property market, a key engine of growth and accumulation  A new threat has emerged. The extreme weather has seen water levels in Sichuan's hydropower reserves as much as 50% this month, according to report, prompting the shuttering of factories (hub for solar panels, cement, and urea). Dazhou, a city of nearly 3.5 mln people, imposed a 2 1/2-hour power cuts this week that were expanded to three hours yesterday. Office buildings in Chengdu, the provincial capital, were barred from using air conditioning. Many areas in central and northern China imposed emergency measures to ensure the availability of drinking water. The heat and drought threaten summer crops and risk greater food-driven inflation. At the same time, Shanxi, which provides about a quarter of China's coal is worried about floods, it has suspended the operation of more than 100 mines since June. The government-imposed measures to boost output and Shanxi coal output rose by around 16% in H1.  The dollar is confined to a narrow range, straddling the JPY135 area  It has held `below last week's high around JPY135.60 and above the JPY134.55, where options for $700 mln expire today. The Australian dollar has been sold aggressively this week. It began near $0.7115 and tested $0.6900 today, meeting the (50%) retracement objective of the rally from the mid-July low (~$0.6880). It was only able to make a marginal new low today, suggesting that the selling pressure has abated. The next retracement (61.8%) is closer to $0.6855. Initial resistance is seen around $0.6950. After slipping a little yesterday, the greenback returned to its recent highs against the Chinese yuan around CNY6.7960. This year's high was set in May near CNY6.8125. Between Covid lockdowns, the weather disruptions, and the continued unwinding of the property bubble, a weaker yuan may the path of least resistance. The PBOC set the dollar's reference rate at CNY6.7802 compared with expectations from Bloomberg's survey of CNY6.7806. The yuan is falling for the sixth consecutive month against the dollar. Europe The eurozone may not have completed its banking and monetary union, but the ECB said that it would harmonize how banks offer crypto assets and have sufficient capital and expertise  Crypto companies have negotiated with national authorities in several EMU member countries, but common EU licensing rules are unlikely any time soon. There is a patchwork of differing national rules, and in some countries, some types of crypto activity may require a banking license, for example. Norway's central bank hiked its deposit rate by 50 bp and indicated it would "most likely" lift rates again next month What makes today's move somewhat more aggressive that it may appear is that the hike took place at a meeting that did not include an economic update and projections for the future path of policy. Norges Bank acknowledged that the policy rate trajectory would be faster than projected in June and the inflation risks being higher for longer. The deposit rate now sits at 1.75%. Another 50 bp hike next month (September 22) seems likely followed by a 25 bp move in November, the last meeting of the year. The euro briefly popped a little above $1.02 on what was initially seen as dovish FOMC minutes in the North American afternoon yesterday  However, it returned to yesterday's lows low near $1.0145 before finding a bid. The week's low was set Tuesday slightly below $1.0125, which is ahead of the retracement objective we identified near $1.0110. The euro is consolidating as the US two-year premium over Germany falls to its lowest level in a nearly a month (2.54%), and almost 25 bp below the peak seen after the US jobs data on August 5. Labor disputes are crippling UK trains, buses, subways, and a key container port today. Sterling slipped to $1.1995, its lowest level since July 26. The nicking of the neckline of a possible double top was not a convincing violation and sterling has recovered to the $1.2060 area in the London morning. If this is not the peak in sterling, it seems close. Tomorrow, the UK is expected to report a decline in July retail sales, excluding gasoline. This measure of retail sales rose by 0.4% in June, the first increase since last October. The median forecast (Bloomberg survey) is for a 0.3% fall. The swaps market is pricing in a 50 bp hike at the mid-September BOE meeting and about a 1-in-5 chance of a 75 bp move. America US interest rates softened and dragged the dollar lower following the release of the FOMC minutes  The market seems to have focused on the concern of "many" members that it could over-tighten but there was no sign that this was going to prevent them for raising rates further. Indeed, it suggest that the risk of inflation expectations becoming embedded was greater. More hikes were appropriate, the minutes said, and a restrictive stance may be required for "some time". The minutes also played the recent pullback in commodity prices as an indicator of lower inflation, which it still says the evidence is lacking. When everything was said and done the September Fed funds futures were unchanged for the fourth consecutive session. Autos and gasoline held by retail sales in July, but excluding them, retail sales rose by 0.7%, matching the June increase  The core measure, which also excludes building materials and food services rose a solid 0.8%. Retail sales account for around 40% of personal consumption expenditures. The July PCE is due next week (August 26) and picks up service consumption too. The early call is for it to rise by 0.5%. However, it too is a nominal report, and in real terms, a 0.3%-0.4% gain would be a strong showing. The retail sales report lent credence to anecdotal stories about department stores discounting prices to move inventory. Amazon's Prime Day (July 12-13) was claimed to be the biggest so far. Online sales overall surged 2.7%. Today's data includes weekly jobless claims, the Philadelphia Fed survey, existing home sale, and the index of Leading Economic Indicators  Th four-week average of weekly jobless claims rose to 252k in the week ending August 5. Recall the four-week moving average, used to smooth out some of the noise bottomed in the week ending April 1 at 170.5k. They averaged around 238k in December 2019, which was the highest since the first half of January 2018. Continuing claims have edged higher in recent weeks, but at 1.428 mln, they are roughly 20% below the peak at the start of this year. The Philadelphia Fed survey is particularly interesting today because of the disastrous Empire State survey. The median forecast in Bloomberg's survey is for a -5 reading after -12.3 in July. Meanwhile, existing home sales have fallen for five months through June. In fact, new home sales have been fallen every quarter since the end of 2020, with the exception of Q3 21. They fell by an average of 1.7% in Q1 22 and 3.8% in Q2 22. The median forecast is for a nearly 5% decline in July. The market tends not to get excited about the leading economic index series. Economists expected the fifth consecutive decline. The only month it rose this year was February. The US dollar extended its recovery against the Canadian dollar to reach almost CAD1.2950, its highest level since August 8 today  It was pressed lower by new offers in the European morning that drove it back to almost CAD1.2900. The market may take its cues from the S&P 500 and the general risk appetites in the North American session. With the intraday momentum indicators stretched, yesterday's post-FOMC minutes low near CAD1.2880 may offer sufficient support. The greenback rose to a five-day high against the Mexican peso yesterday around MXN20.09. It is consolidating and straddling the MXN20.00 area. Our reading of the technical condition favors the dollar's upside, and the first important target is near MXN20.20. The US dollar gapped higher against the Brazilian real yesterday and approached the BRL5.22 area, where the 20-day and 200-day moving averages converge. The opening gap was closed late on the pullback spurred by the reading of FOMC minute headlines. The price action is similar to the peso, where the dollar has traded heavily since last month but appears to have found a bottom. A break above BRL5.22 would target the month's high near BRL5.3150.       Disclaimer   Source: Fed Minutes were Not as Dovish as Initially Read
West Texas Intermediate (WTI) Price Analysis: The Oil Price Has Corrected And Dropped

Crude Oil Price Probably Not Reach 100$(USD) Shortly

Swissquote Bank Swissquote Bank 18.08.2022 15:56
The equity rally in the US didn’t pick up momentum after the Federal Reserve (Fed) released its latest meeting minutes, which sounded more hawkish-than-expected, or more hawkish-than-what-was-needed-to-give-another-boost to the US stock markets. The biggest take was that the Fed will continue tightening its policy until it sees that inflation is ‘firmly on path back to 2%’. The S&P500 fell 0.72% as Nasdaq gave back 1.20%, although the jump in the US 2-year yield was relatively soft, and the Fed funds futures scaled back the expectation of a 75 bp hike in the next meeting. Crude price completed an ABCD pattern, and it is more likely than not we see the price rebound to the $100 level in the medium run. In China, Tencent announced its first ever revenue drop as government crackdown continued taking a toll on its sales, and the pound couldn’t gain even after the above 10% inflation data boosted the Bank of England (BoE) hawks and the call fall steeper rate hikes to tame inflation in the UK. Watch the full episode to find out more! 0:00 Intro 0:28 As expected, Fed minutes were more hawkish-than-expected 3:39 Crude oil has more chance to rebound than to fall 6:02 Tencent posts first-ever revenue drop 7:14 Apple extends gains, but technicals warn of correction 8:38 Pound unable to extend gains despite rising Fed hawks’ voices 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 #minutes #USD #GBP #inflation #Tencent #Alibaba #earnings #crude #oil #natural #gas #coal #futures #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
Oil Is An Indicator Of The Health Of The Global Economy

Crude Oil Has A Selling Weariness? Europe Prefers Oil Over Gas!?

Ole Hansen Ole Hansen 18.08.2022 16:14
Summary:  Crude oil, in a downtrend since June, is showing signs of selling fatigue with the technical outlook turning more price friendly while fresh fundamental developments are adding some support as well. The energy crisis in Europe continues to strengthen, most recently due to lower water levels on the river Rhine preventing the movement of barges carrying coal and fuel products such as diesel. The result being an increased gas-to-fuel switching supporting the demand outlook for crude oil. Crude oil, in a downtrend since June, is showing signs of selling fatigue with the technical outlook turning more price friendly while fresh fundamental developments are adding some support as well. Worries about an economic slowdown driving by China’s troubled handling of Covid outbreaks, and its property sector problems as well as rapidly rising interest rates, were the main drivers behind the selling seen across commodities in recent months. Crude oil with its strong underlying fundamentals, with tight supply driven by Russia sanctions and OPEC struggling to lift production, was the last shoe to drop and since the mid-June peak, speculators and macroeconomic focused funds have been net sellers of both WTI and Brent crude oil futures. With most of these market participants using the front of the futures curve, the selling has seen the forward curve flatten, a development that is normally viewed as price negative as it signals reduced tightness in the market. However, for that to ring true we should see inventory levels of crude oil and fuel products rise while refinery margins should ease. None of these developments have occurred and it strengthens our belief that the weakness sign has more to do with position adjustments and short positions being implemented by traders focusing on macro instead of micro.  In the week to August 9, the combined net long in Brent and WTI slumped to 304k lots a level last seen in April 2020, and 209k lots below the mid-June peak.  While the macro-economic outlook is still challenged, recent developments within the oil market, so-called micro developments, have raised the risk of a rebound. The energy crisis in Europe continues to strengthen, most recently due to lower water levels on the river Rhine preventing the movement of barges carrying coal and fuel products such as diesel. The result being surging gas prices as utilities are forced to buy more gas to keep the turbines running. This week the cost of Dutch TTF benchmark gas reached $400 per barrel of crude oil equivalent. Such a wide gap between oil and gas has and will continue to attract increased demand for fuel-based product at the expense of gas and this switch was specifically mentioned by the IEA in their latest update as the reason for raising their 2022 global oil demand growth forecast by 380k barrels per day to 2.1 million barrels per day. Since the report was published the incentive to switch has increased even more, adding more upward pressure on refinery margins, so called crack spreads (EU diesel crack shown below as an example) As mentioned, the recent selling pressure together with a deteriorating macro-economic backdrop have been the main drivers behind crude oils near 40-dollar slump since mid-June. The WTI chart below points to support at $85.50, a level almost reached on Tuesday. The price action is currently confined within a declining wedge and a break to the upside could trigger a strong buying response. For that to happen the price first needs to go back above $92 and the 21-day simple moving average, currently at $92.85. Source: Saxo Bank   How to invest in energy and the unfolding energy crisis? By Peter Garnry, Head of Equity StrategySummary:  We are used to not think about the energy sector, but the galloping global energy crisis has illuminated our deficits in primary energy due to years of underinvestment in fossil fuels and renewable energy sources inability to scale fast enough with the green transformation and electrification of our economy. It seems more likely now that the non-renewable and the renewable energy sector will both provide attractive returns as we will need both to overcome our short-term energy crisis and long-term aspirations of a greener energy future.   Source: Refinery margin jump lends fresh support to crude
Rates Surge: US Service Sector Strengthens Yields

Sterling (GBP) And Euro (EUR) Can Barely Stand On Their Feet. Strong Dollar (USD)

Kim Cramer Larsson Kim Cramer Larsson 19.08.2022 09:12
EURUSD was rejected at key resistance at around 1.0360 and the falling upper trendline and is now close to test key support at around 1.01. If EURUSD closes below the support, parity is likely to be tested shortly after.RSI is still showing negative sentiment after failing to break above 60 threshold supporting the bearish picture. If RSI closes below 40 threshold combined with a EURUSD close below 1.01 down trend is confirmed., At the time of writing Bollinger bands are expanding indicating the initial stage of a (down)trend. IF EURUSD closes outside of the lower Bollinger band it is further a strong indication of a down trend.   Source: Saxo Group GBPUSD has formed a Double Top like pattern on the very short term. If GBPUSD closes below 1.20 it is confirmed and GBPUSD is likely to test July lows at around 1.1760 . If GBPUSD is to move the same distance as the difference between the peak and low of the Double Top formation after breaking 1.20 it could reach 1.1729 illustrated by the two vertical arrows. However, there could be more downside in store for GBPUSD. If it takes out 1.1760 there is not support before around 1.14. See weekly chart Source: Saxo Group     Source: Saxo Group Source: Technical Update - EURUSD and GBPUSD testing key supports. Will they hold or will EURUSD test parity again and GBPUSD drop to 1.14?
German Business Confidence Dips, ECB's Lagarde Hosts Central Banking Conference in Portugal, EUR/USD Drifts Higher

Fed's Plan Is To Push For More Rate Hikes To Boost Dollar (USD)!?

Saxo Strategy Team Saxo Strategy Team 19.08.2022 10:37
Summary:  Better than expected economic data continued to support sentiment in US in contrast to Europe, where ECB’s Schnabel's warning on the growth/inflation picture aggravated concerns. Fed speakers meanwhile continued to push for more rate hikes this year, aiding dollar strength despite lack of a clear direction in long end yields. EUR and GBP broke below key support levels, but oil prices climbed higher amid improving demand outlook but sustained supply issues. Focus now on Jackson Hole next week. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  In its second lightest volume session of the year, U.S. equities edged modestly higher, S&P 500 +0.23%, Nasdaq 100 +0.26%. As WTI crude climbed 2.7%, rebounding back above $90, the energy space was a top gainer aside from technology. Exxon Mobil (XOM:xnys) gained 2.4%.  Cisco (CSCO:xnas) surged 5.8% after reporting better-than-expected revenues. Nvidia (NVDA:xnas), +2.4% was another top contributor to the gain of the S&P 500 on Wednesday.  95% of S&P 500 companies have reported Q2 results, with about three-quarters of them managing to beat analyst estimates. On Friday there is a large number of options set to expire.  The U.S. treasury yield curve bull steepened on goldilocks hope The U.S. 2-10-year curve steepened 7bps to -32bps, driven by a 9bp decline in the 2-year yield.  In spite of hawkish Fed official comments and the August Philadelphia Fed Index bouncing back to positive territory, the market took note of the falls in the prices paid diffusion index and the prices received index from the survey and sent the short-end yields lower.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Both Hang Seng Index and CSI300 declined about 0.8%.  Tencent (00700:xhkg) rose 3.1% after reporting results that beat estimates as a result of better cost control and adverting revenues. Other China internet stocks traded lower, Bilibili (09626:xhkg) -4.2%, Baidu (09888:xhkg) -4.5%, Alibaba (09988:xhkg) -2.1%, JD.COM (09618:xhkg) -2.5%. The surge of Covid cases in China to a three-month high and the Hainan outbreak unabated after a 2-week lockdown, pressured consumer stocks.  Great Wall Motor (02333:xhkg) led the charge lower in autos, plunging near 6%.  Other automakers fell 2% to 4%.  Geely (00175:xhkg) fell 3.1% after reporting 1H earnings missing estimates.  A share Chinese liquor names declined, Kweichow Moutai (600519:xssc) -1.2%, Wuliangye Yibin (000858:xsec) -1.6%. Chinese brewers were outliner gainers in the consumer space, China Resources Beer (00291:xhkg) +4.8%, Tsingtao Brewery (00168:xhkg) +1.9%. Chinese property developers traded lower with Country Garden (02007:xhkg) losing the most, -5.2% , after warning that 1H earnings may have been down as much as 70%. The China Banking and Insurance Regulatory Commission (CBIRC) is looking at the quality of real estate loan portfolios at some financial institutions.  EURUSD and GBPUSD break through key support levels Dollar strength prevailed into the end of the week with upbeat US economic data and a continued hawkish Fedspeak which continued to suggest more Fed rate hikes remain in the pipeline compared to what the market is currently pricing in. EUR and GBP were the biggest loser, with both of them breaking below key support levels. EURUSD slid below 1.0100 handle while GBPUSD broke below 1.2000 despite a selling in EGBs and Gilts. USDJPY also broke above 136 in early Asian trading hours despite lack of a clear direction in US 10-year yields and a slide in 2-year yields. AUDUSD testing a break below 0.6900 as NZDUSD drops below 0.6240. Crude oil prices (CLU2 & LCOV2) Oil prices reversed their drop with WTI futures back above $90/barrel and Brent futures above $96. Upbeat US economic data has supported the demand side sentiment in recent days. Moreover, President Xi’s comment that China will continue to open up the domestic economy also aided the demand equation. Supply concerns, meanwhile, were aggravated by geopolitical tension around a potential incident at the Zaporizhzhia nuclear plant in Ukraine. Meanwhile, Shell hinted at reducing the capacity of Rhineland oil refinery due to the lower water level on the Rhine river and said the situation regarding supply is challenging but carefully managed. Gold (XAUUSD) still facing mixed signals The fate of gold has been turned lower again this week with the yellow metal facing decline of 2.5% so far in the week and breaking below the $1759 support, the 38.2% retracement of the July to August bounce. Stronger dollar, along with Fed’s continued hawkish rhetoric, weighed. Silver (XAGUSD) is also below the key support at $19.50, retracing half of its recent gains. The short-term direction has been driven by speculators reducing bullish bets, but with inflation remaining higher-for-longer, the precious metals can continue to see upside in the long run. What to consider? Existing home sales flags another red for the US housing market US existing home sales fell in July for a sixth straight month to 4.81 mn from 5.11 mn, now at the slowest pace since May 2020, and beneath the expected 4.89 mn. Inventory levels again continued to be a big concern, with supply rising to 3.3 months equivalent from 2.9 in June. This continues to suggest that the weakening demand momentum and high inventory levels may weigh on construction activity. US economic data continues to be upbeat The Philly Fed survey outperformed expectations, with the headline index rising to +6.2 (exp. -5.0, prev. -12.3), while prices paid fell to 43.6 (prev. 52.2) and prices received dropped to 23.3 (prev. 30.3). new orders were still negative at -5.1, but considerably better than last month’s -24.8 and employment came in at 24.1 from 19.4 previously. While this may be a good signal, survey data tends to be volatile and a long-term trend is key to make any reasonable conclusions. Jobless claims also slid to 250k still suggesting that the labor market remains tight. Fed speakers push for more rate hikes St. Louis Federal Reserve President James Bullard flagged another 75 basis point rate hike at the September meeting and hinted at 3.75-4% Fed funds rate by the end of the year with more front-loading in 2022. Fed’s George, much like Fed’s Daly, said that last month’s inflation is not a victory and hardly comforting. Bullard and George vote in 2022. Fed’s Kahskari said that he is not sure if the Fed can avoid a recession and that there is more work to be done to bring inflation down, but noted economic fundamentals are strong. Overall, all messages remain old and eyes remain on Fed Chair Powell speaking at the Jackson Hole conference on August 25. Japan’s inflation came in as-expected Japan’s nationwide CPI for July accelerated to 2.6% y/y, as expected, from 2.4% y/y in June. The core measure was up 2.4% y/y from 2.2% previously, staying above the Bank of Japan’s 2% target and coming in at the strongest levels since 2008. Upside pressures remain as Japan continues to face a deeper energy crisis threat into the winter with LNG supplies possibly getting diverted to Europe for better prices. Still, Bank of Japan may continue to hold its dovish yield curve control policy unless wage inflation surprises consistently to the upside. Cisco’s revenues came in flat, beating a previously feared decline Cisco Systems reports July 2022 quarter revenues of USD13.1 billion, down 0.2% YoY but better than the consensus of a 3% decline.  Net income came in at USD3.4 billion, -3.2% YoY but more than 1 percentage point above consensus.  The fall in product order was also smaller than feared.  The company guided the fiscal year 2023 revenue growth of +4% to +6%, ahead of the 3% expected and FY23 EPS of USD3.49 to USD3.56, in line with expectations as gross margin pressures are expected to offset the impact of higher sales.  NetEase’s Q2 results beat NetEase (09999:xhkg/NTES:xnas) reported above-consensus Q2 revenues, +13% YoY, and net profit from continuing operations, +28%.  PC online game revenues were above expectations, driven by Naraka Bladepoint content updates and the launch of Xbox version.  Mobile game segment performance was in line.  Geely Automobile 1H earnings missed estimates on higher costs Chinese automaker Geely reported higher-than-expected revenue growth of 29%YoY in 1H22 but a 35% YoY decline in net profit which was worse than analyst estimates.  The weakness in profit was mainly a result of a 2.6 percentage point compression of gross margin to 14.6% due to higher material costs and production disruption, higher research and development costs, and the initial ramping-up of production of the Zeekr model.  The company maintains its sales volume target of 1.65 million units, an growth of 24% YoY, for the full year of 2022.    For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 19, 2022
Ukraine Saves The Day For The World As The Corridor Shipping Crops Is Opened. Other Countries Harvest Is Quite Low Therefore To Weather Issues

Ukraine Saves The Day For The World As The Corridor Shipping Crops Is Opened. Other Countries Harvest Is Quite Low Therefore To Weather Issues

Saxo Strategy Team Saxo Strategy Team 19.08.2022 11:33
Summary:  Equity markets managed a quiet session yesterday, a day when the focus is elsewhere, especially on the surging US dollar as EURUSD is on its way to threatening parity once again, GBPUSD plunged well below 1.2000 and the Chinese renminbi is perched at its weakest levels against the US dollar for the cycle. Also in play are the range highs in longer US treasury yields, with any significant pull to the upside in yields likely to spell the end to the recent extended bout of market complacency.   What is our trading focus?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures bounced back a bit yesterday potentially impacted by the July US retail sales showing that the consumer is holding up in nominal terms. The key market to watch for equity investors is the US Treasury market as the US 10-year yield seems to be on a trajectory to hit 3%. In this case we would expect a drop in S&P 500 futures to test the 4,200 level and if we get pushed higher in VIX above the 20 level then US equities could accelerate to the downside. Fed’s Bullard comments that he is leaning towards a 75 basis point rate hike at the September meeting should also negatively equities here relative to the expectations. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hang Seng Index edged up by 0.4% and CSI300 was little changed. As WTI Crude bounced back above $90/brl, energy stocks outperformed, rising 2-4%. Technology names in Hong Kong gained with Hang Seng Tech Index (HSTECH.I) up 0.6%. Investors are expecting Chinese banks to cut loan prime rates on Monday, following the central bank’s rate cut earlier this week. The China Banking and Insurance Regulatory Commission (CBIRC) is looking at the quality of real estate loan portfolios and reviewing lending practices at some Chinese banks. The shares of NetEase (09999:xhkg/NTES:xnas) dropped more than 3% despite reporting above-consensus Q2 revenue up 13% y/y, and net profit from continuing operations up 28%.  PC online game revenue was above expectations, driven by Naraka Bladepoint content updates and the launch of Xbox version. Mobile game segment performance was in line. USD pairs as the USD rally intensifies The US dollar rally is finding its legs after follow up action yesterday that took EURUSD below the key range low of 1.0100, setting up a run at the psychologically pivotal parity, while GBPUSD slipped well south of the key 1.2000 and USDJPY ripped up through 135.50 resistance. An accelerator of that move may be applied if US long treasury yields pull come further unmoored from the recent range and pull toward 3.00%+. A complete sweep of USD strength would arrive with a significant USDCNH move as discussed below, and the US dollar “wrecking ball” will likely become a key focus and driver of risk sentiment as it is the premiere measure of global liquidity. The next key event risk for the US dollar arrives with next Friday’s Jackson Hole symposium speech from Fed Chair Powell. USDCNH The exchange rate is trading at the highs of the cycle this morning, and all traders should keep an eye out here for whether China allows a significant move in the exchange rate toward 7.00, and particularly whether CNH weakness more than mirrors USD strength (in other words, if CNH is trading lower versus a basket of currencies), which would point to a more determined devaluation move that could spook risk sentiment globally, something we have seen in the past when China shows signs of shifting its exchange rate regime from passive management versus the USD. Crude oil Crude oil (CLU2 & LCOV2) remains on track for a weekly loss with talks of an Iran nuclear deal and global demand concerns being partly offset by signs of robust demand for fuel products. Not least diesel which is seeing increasing demand from energy consumers switching from punitively expensive gas. Earlier in the week Dutch TTF benchmark gas at one point traded above $400 per barrel crude oil equivalent. So far this month the EU diesel crack spread, the margin refineries achieve when turning crude into diesel, has jumped by more than 40% while stateside, the equivalent spread is up around 25%, both pointing to a crude-supportive strength in demand. US natural gas US natural gas (NGU2) ended a touch lower on Thursday after trading within a 7% range. It almost reached a fresh multi-year high at $9.66/MMBtu after spiking on a lower-than-expected stock build before attention turned to production which is currently up 4.8% y/y and cooler temperatures across the country lowering what until recently had driven very strong demand from utilities. LNG shipments out of Freeport, the stricken export plant may suffer further delays, thereby keeping more gas at home. Stockpiles trail the 5-yr avg. by 13%. US Treasuries (TLT, IEF) The focus on US Treasury yields may be set to intensify if the 10-year treasury benchmark yield, trading near 2.90% this morning, comes unmoored from its recent range and trades toward 3.00%, possibly on the Fed’s increase in the pace of its quantitative tightening and/or on US economic data in the coming week(s). Yesterday’s US jobless claims data was better than expected and the August Philadelphia Fed’s business survey was far more positive than expected, suggesting expansion after the volatile Empire Fed survey a few days earlier posted a negative reading.   What is going on?   Global wheat prices continue to tumble ... with a record Russian crop, continued flows of Ukrainian grain and the stronger dollar pushing down prices. The recently opened corridor from Ukraine has so far this month seen more than 500,000 tons of crops being shipped, and while it's still far below the normal pace it has nevertheless provided some relief at a time where troubled weather has created a mixed picture elsewhere. The Chicago wheat (ZWZ2) futures contract touch a January on Thursday after breaking $7.75/bu support while the Paris Milling (EBMZ2) wheat traded near the lowest since March. Existing home sales flags another red for the US housing market while other US economic data continues to be upbeat US existing home sales fell in July for a sixth straight month to 4.81 mn from 5.11 mn, now at the slowest pace since May 2020, and beneath the expected 4.89 mn. Inventory levels again continued to be a big concern, with supply rising to 3.3 months equivalent from 2.9 in June. This continues to suggest that the weakening demand momentum and high inventory levels may weigh on construction activity. The Philly Fed survey meanwhile outperformed expectations, with the headline index rising to +6.2 (exp. -5.0, prev. -12.3), while prices paid fell to 43.6 (prev. 52.2) and prices received dropped to 23.3 (prev. 30.3). New orders were still negative at -5.1, but considerably better than last month’s -24.8 and employment came in at 24.1 from 19.4 previously Fed speakers push for more rate hikes St. Louis Federal Reserve President James Bullard 2.6% with more front-loading in 2022. Fed’s George, much like Fed’s Daly, said that last month’s inflation is not a victory and hardly comforting. Bullard and George vote in 2022. Fed’s Kashkari said that he is not sure if the Fed can avoid a recession and that there is more work to be done to bring inflation down, but noted economic fundamentals are strong. Overall, all messages remain old and eyes remain on Fed Chair Powell speaking at the Jackson Hole conference on August 26, next Friday.  Japan’s inflation came in as expected Japan’s nationwide CPI for July accelerated to 2.6% y/y, as expected, from 2.4% y/y in June. The core measure was up 2.4% y/y from 2.2% previously, staying above the Bank of Japan’s 2% target and coming in at the strongest levels since 2008. Upside pressures remain as Japan continues to face a deeper energy crisis threat into the winter with LNG supplies possibly getting diverted to Europe for better prices. Still, Bank of Japan may continue to hold its dovish yield curve control policy unless wage inflation surprises consistently to the upside.   What are we watching next?   Strong US dollar to unsettle markets – and Jackson Hole Fed conference next week? The US dollar continues to pull higher here, threatening the cycle highs versus sterling, the euro and on the comeback trail against the Japanese yen as well. The US dollar is a barometer of global liquidity, and a continued rise would eventually snuff out the improvement in financial conditions we have seen since the June lows in equity markets, particularly if longer US treasury yields are also unmoored from their recent range and rise back to 3.00% or higher.  The focus on the strong US dollar will intensify should the USDCNH exchange rate, which has pulled to the highs of the cycle above 6.80, lurch toward 7.00 in coming sessions as it would indicate that China is unwilling to allow its currency to track USD direction. As well, the Fed seems bent on pushing back against market expectations for Fed rate cuts next year and may have to spell this out a bit more forcefully at next week’s Jackson Hole conference starting on Thursday (Fed Chair Powell to speak Friday). Earnings to watch The two earnings releases to watch today are from Xiaomi and Deere. The Chinese consumer is challenged over falling real estate prices and input cost pressures on food and energy, and as a result consumer stocks have been doing bad this year. Xiaomi is one the biggest sellers of smartphones in China and is expected to report a 20% drop in revenue compared to last year. Deere sits in the booming agricultural sector, being one of the biggest manufacturers of farming equipment, and analysts expect a 12% gain in revenue in FY22 Q3 (ending 31 July).   Today: China Merchants Bank, CNOOC, Shenzhen Mindray, Xiaomi, Deere Economic calendar highlights for today (times GMT) 1230 – Canada Jun. Retail Sales 1300 – US Fed’s Barkin (Non-voter) to speak Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Financial Markets Today: Quick Take – August 19, 2022
Tokyo Issues Warning as Yen Depreciates, USD/JPY in Positive Territory

Dollar (USD) Rules!!! Natural Gas Prices Collapse

Saxo Bank Saxo Bank 19.08.2022 13:00
Summary:  Today we note the strengthening headwinds against the melt-up in financial conditions as the US dollar continues to rise, having now broken higher against the Euro, sterling and yen, and as a new surge in US 10-year yields threatens. Elsewhere, US Natural Gas prices ease despite a weak storage build yesterday and wheat prices are retreating rapidly. In equities, focus on Applied Materials after their earning report, Canadian Solar and a look ahead at Deere. Today's pod features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: Podcast: USD and treasury yields pushing back against the melt-up
Latam FX Outlook 2023: Brazil's Local Currency Bonds Can Be Very Attractive

Mexican Gold - Peso Is Climbing High. Russia Is Building Nuclear Plant In Turkey!?

Marc Chandler Marc Chandler 19.08.2022 14:26
Overview:  The dollar is on fire. It is rising against all the major currencies and cutting through key technical levels like a hot knife in butter. The Canadian dollar is the strongest of the majors this week, which often outperforms on the crosses in a strong US dollar environment. It is off 1.5% this week. The New Zealand dollar, where the RBNZ hiked rates this week by 50 bp, is off the most with a 3.5% drop. Emerging market currencies are mostly lower on the day and week as well. The JP Morgan Emerging Market Currency Index is off for the fifth consecutive session, and ahead of the Latam open, it is off 2.1% this week. Asia Pacific equities were mostly lower, and Europe’s is off around 0.4%. It was flat for the week coming into today. US futures are lower, and the S&P and NASDAQ look poised to snap its four-week advance. Gold, which began the week near $1800 is testing support near $1750 now. Next support is seen around $1744.50. October WTI is consolidating in the upper end of yesterday’s range, which briefly poked above $91. Initial support is pegged near $88. US natgas is softer for the third successive session, but near $9.04 is up about 3.2% for the week. Europe’s benchmark is up 1.7% and brings this week’s gain to almost 20%. Demand concerns weigh on iron ore. It was off marginally today, its fifth loss in six sessions. It tumbled 8.8% this week after a 1.15% gain last week. Copper is up fractionally after rising 1.3% yesterday. September wheat is trying to stabilize. It fell more than 4% yesterday, its fifth loss in a row. It is off around 8.5% this week. Asia Pacific Japan's July CPI continued to rise  Th headline now stands at 2.6%, up from 2.4% in June, up from 0.8% at the start of the year and -0.3% a year ago. The core measure that excludes fresh food accelerated from 2.2% to 2.4%. It is the fourth consecutive month above the 2% target. Excluding both fresh food and energy, Japan's inflation is less than half the headline rate at 1.2%. It was at -0.7% at the end of last year and did not turn positive until April. The BOJ's next meeting is September 22, and despite the uptick in inflation, Governor Kuroda is unlikely to be impressed. Without wage growth, he argues, inflation will prove transitory. With global bond yields rising again, the 10-year, the market may be gearing up to re-challenge the BOJ's 0.25% cap. The yield is finishing the week near 0.20%, its highest since late July. Separately, we note that after divesting foreign bonds in recent months, Japanese investors have returned to the buy side. They have bought foreign bonds for the past four weeks, according to Ministry of Finance data. Last week's JPY1.15 trillion purchases (~$8.5 bln) were the most since last September.  China surprised the markets to begin the week with a 10 bp reduction in the benchmark 1-year medium-term lending facility rate  It now stands at 2.75%. It was the first cut since January, which itself was the first reduction since April 2020. Before markets open Monday, China is expected to announce a 10 bp decline in the 1- and 5-year loan prime rates. That would bring them to 3.60% and 4.35%, respectively. These rates are seen closer to market rates, but the large banks that contribute the quotes are state-owned. There is some speculation that a larger cut in the 5-year rate. The one-year rate was cut in January, but the 5-year rate was cut by 15 bp in May. The dollar is rising against the yen for the fourth consecutive session  It has now surpassed the JPY137.00 area that marks the (61.8%) retracement of the decline from the 24-year high set-in mid-July near JPY139.40. There may be some resistance in the JPY137.00-25 area, but a retest on the previous high looks likely in the period ahead. The Australian dollar is off for the fifth consecutive session and this week's loss of 3% offset last week's gain of as similar magnitude and, if sustained, would be the largest weekly decline since September 2020. The Aussie began the week near $0.7125 and recorded a low today slightly below $0.6890. The $0.6855-70 area is seen as the next that may offer technical support. The PBOC set the dollar's reference rate at CNY6.8065 (median in Bloomberg's survey was CNY6.9856). The fix was the lowest for the yuan (strongest for the dollar) since September 2020. Yesterday's high was almost CNY6.7960 and today's low was a little above CNY6.8030. To put the price action in perspective, note that the dollar is approaching the (61.8%) retracement of the yuan's rise from mid-2020 (~CNY7.1780) to this year's low set in March (~CNY6.3065). The retracement is found around CNY6.8250. Europe UK retail sales surprised to the upside but are offering sterling little support  Retail sales including gasoline rose by 0.3% in July. It is the second gain of the year and the most since last October. Excluding auto fuel, retail sales rose by 0.4%, following a 0.2% gain in June. It is the first back-to-back gain since March and April 2021. Sales online surged 4.8% as discounts and promotions drew demand, and internet retailers accounted for 26.3% of all retail sales. Separately, consumer confidence, measured by GfK, slipped lower (-44 from -41), a new record low. Sterling is lower for the third consecutive session and six of the past seven sessions. The swaps market continues to price in a 50 bp rate hike next month and about a 1-in-5 chance of a 75 bp move. Nearly every press report discussing next month's Italian elections cited the fascist roots of the Brothers of Italy, which looks likely to lead the next government  Meloni, who heads up the Brothers of Italy and has outmaneuvered many of her rivals, and may be Italy's next prime minister, plays the roots down. She compares the Brothers of Italy to the Tory Party in the UK, the Likud in Israel, and the Republican Party in the US. The party has evolved, and the center-right alliance she leads no longer wants to leave the EU, it is pro-NATO, and condemns Russia's invasion of Ukraine. The center-right alliance may come close to having a sufficient majority in both chambers to make possible constitutional reform. High on that agenda appears to transform the presidency into a directly elected office. The Italian presidency has limited power under the current configuration, but it has been an important stabilizing factor in crisis. Ironically, the president, picked by parliament, stepped in during the European debt crisis and gave Monti the opportunity to form a technocrat government after Berlusconi was forced to resign in 2011. Fast-forward a decade, a government led by the Conte and the Five Star Movement collapsed and a different Italian president gave Draghi a chance to put together a government. It almost last a year-and-half. Its collapse set the stage for next month's election. The center-left is in disarray and its inability to forge a broad coalition greases the path for Meloni and Co. Italy's 10-year premium over German is at 2.25%, a new high for the month. Last month, it peaked near 2.40%. The two-year premium is wider for the sixth consecutive session. It is near 0.93%, more than twice what it was before the Draghi government collapsed. Some critics argue against the social sciences being science because of the difficulty in conducting experiments  Still an experiment is unfolding front of us. What happens when a central bank completely loses its independence and follows dubious economic logic?  With inflation at more than two decades highs and the currency near record lows, Turkey's central bank surprised everyone by cutting its benchmark rate 100 bp to 13% yesterday. Governor Kavcioglu hinted this was a one-off as it was preempting a possible slowdown in manufacturing. Even though President Erdogan promised in June rates would fall, some observers link the rate cut to the increase in reserves (~$15 bln) recently from Russia, who is building a nuclear plant in Turkey. The decline in oil prices may also help ease pressure on Turkey's inflation and trade deficit. The lira fell to new record-lows against the dollar. The lira is off about 7.5% this quarter and about 26.4% year-to-date. Significant technical damage has been inflicted on the euro and sterling  The euro was sold through the (61.8%) retracement objective of the runup since the mid-July two-decade low near $0.9950. That retracement area (~$1.0110) now offers resistance, and the single currency has not been above $1.01 today. We had suspected the upside correction was over, but the pace of the euro's retreat surprises. There is little from a technical perspective preventing a test on the previous lows. Yesterday, sterling took out the neckline of a potential double top we have been monitoring at $1.20. It is being sold in the European morning and has clipped the $1.1870 area. The low set-in mid-July was near $1.1760, and this is the next obvious target and roughly corresponds to the measuring objective of the double top.  America With no dissents at the Fed to last month's 75 bp hike, one might be forgiven for thinking that there are no more doves  Yet, as we argued even before Minneapolis Fed President Kashkari, once regarded as a leading dove, admitted that his dot in June was the most aggressive at 3.90% for year-end, hawk and dove are more meaningful within a context. Kashkari may be more an activist that either a hawk or dove. Daly, the San Francisco Fed President does not vote this year, suggested that a Fed funds target "a little" over 3% this year would be appropriate. She said she favored a 50 bp or a 75 bp move. The current target range is 2.25%-2.50%. and the median dot in June saw a 3.25%-3.50% year-end target. St. Louis Fed President Bullard says he favors another 75 bp hike next month. No surprise there. George, the Kansas, Fed President, dissented against the 75 bp hike in June seemingly because of the messaging around it, but it's tough to call her vote for a 50 bp hike dovish. She voted for the 75 bp move in July. She recognizes the need for additional hikes, and the issue is about the pace. George did not rule out a 75 bp hike while cautioning that policy operates on a lag. Barkin, the Richmond Fed President, also does not vote this year. He is the only scheduled Fed speaker today.  The odds of a 75 bp in September is virtually unchanged from the end of last week around a 50/50 proposition.  The October Fed funds implies a 2.945% average effective Fed funds rate. The actual effective rate has been rocksteady this month at 2.33%. So, the October contract is pricing in 61 bp, which is the 50 bp (done deal) and 11 of the next 25 bp or 44% chance of a 75 hike instead of a half-point move. Next week's Jackson Hole conference will give Fed officials, and especially Chair Powell an opportunity to push back against the premature easing of financial conditions  The better-than-expected Philadelphia Fed survey helps neutralize the dismal Empire State manufacturing survey. The median from Bloomberg's survey looked for improvement to -5 from -12.3. Instead, it was reported at 6.2. Orders jumped almost 20 points to -5.1 and the improvement in delivery times points to the continued normalization of supply chains. Disappointingly, however, the measure of six-month expectations remained negative for the third consecutive month. Still, the plans for hiring and capex improved and the news on prices were encouraging. Prices paid fell to their lowest since the end of 2020 (energy?) and prices received were the lowest since February 2021. The Fed also asked about the CPI outlook. The median sees it at 6% next year down from 6.5% in May. The projected rate over the next 10-years slipped to 3%. Canada and Mexico report June retail sales today  Lift by rising prices, Canada's retail sales have posted an average monthly gain this year of 1.5%. However, after a dramatic 2.2% increase in May, Canadian retail sales are expected (median in Bloomberg' survey) to rise by a modest 0.4%. Excluding autos, retail sales may have held up better. Economists look for a 0.9% increase after a 1.9% rise in May. Through the first five months of the year, Mexico's retail sales have risen by a little more than 0.5% a month. They have risen by a 5.2% year-over-year. Economists expected retail sales to have slowed to a crawl in June and see the year-over-year pace easing to 5.0%. The greenback rose the CAD1.2935 area that had capped it in the first half of the week. It settled near CAD1.2950 yesterday and is pushing closer to CAD 1.2980 now. Above here, immediate potential extends toward CAD1.3035. The US dollar is gaining for the third consecutive session against the Canadian dollar, the longest advancing streak in a couple of months. Support is seen in the CAD1.2940-50 area. The Mexican peso is on its backfoot, and is falling for the fourth session, which ended a six-day rally. The dollar has met out first target near MXN20.20 and is approaching the 20-day moving average (~MXN20.2375). Above there, the next technical target is MXN20.32. The broader dollar gains suggest it may rise above the 200-day moving average against the Brazilian real (~BRL5.2040) and the (38.2%) of the slide since the late July high (~BRL5.5140) that is found near BRL5.2185.    Disclaimer   Source: The Dollar is on Fire
Commodities: Deglobalization, Green Transformation, Urbanization And Other Things That Got Involved

Commodities: Deglobalization, Green Transformation, Urbanization And Other Things That Got Involved

Ole Hansen Ole Hansen 19.08.2022 15:50
Summary:  Commodities traded with a softer bias this week as the focus continued to rest on global macro-economic developments, in some cases reducing the impact of otherwise supportive micro developments, such as the fall in inventories seen across several individual commodities. Overall, however, we do not alter our long-term views about commodities and their ability to move higher over time, with some of the main reasons being underinvestment, urbanization, green transformation, sanctions on Russia and deglobalization. Commodities traded with a softer bias this week as the focus continued to rest on global macro-economic developments, in some cases reducing the impact of otherwise supportive micro developments, such as the fall in inventories seen across several individual commodities. The dollar found renewed strength and bond yields rose while the month-long bear-market bounce across US stocks showed signs of running out of steam.The trigger being comments from Federal Reserve officials reiterating their resolve to continue hiking rates until inflation eases back to their yet-to-be revised higher long-term target of around 2%. Those comments put to rest expectations that a string of recent weak economic data would encourage the Fed to reduce the projected pace of future rate hikes.The result of these developments being an elevated risk of a global economic slowdown gathering pace as the battle against inflation remains far from won, not least considering the risk of persistent high energy prices, from gasoline and diesel to coal and especially gas. A clear sign that the battle between macro and micro developments continues, the result of which is likely to be a prolonged period of uncertainty with regards to the short- and medium-term outlook.Overall, however, these developments do not alter our long-term views about commodities and their ability to move higher over time. In my quarterly webinar, held earlier this week, I highlighted some of the reasons why we see the so-called old economy, or tangible assets, performing well over the coming years, driven by underinvestment, urbanization, green transformation, sanctions on Russia and deglobalization. Returning to this past week’s performance, we find the 2.3% drop in the Bloomberg Commodity Index, seen above, being in line with the rise in the dollar where gains were recorded against all the ten currencies, including the Chinese renminbi, represented in the index. It is worth noting that EU TTF gas and power prices, which jumped around 23% and 20% respectively, and Paris Milling wheat, which slumped, are not members of the mentioned commodity index.Overall gains in energy led by the refined products of diesel and US natural gas were more than offset by losses across the other sectors, most notably grains led by the slump in global wheat prices and precious metals which took a hit from the mentioned dollar and yield rise. Combating inflation and its impact on growth remains top of mind Apart from China’s slowing growth outlook due to its zero-Covid policy and housing market crisis hitting industrial metals, the most important driver for commodities recently has been the macro-economic outlook currently being dictated by the way in which central banks around the world have been stepping up efforts to curb runaway inflation by forcing down economic activity through aggressively tightening monetary conditions. This process is ongoing and the longer the process takes to succeed, the bigger the risk of an economic fallout. US inflation expectations in a year have already seen a dramatic slump but despite this the medium- and long-term expectations remain anchored around 3%, still well above the Fed’s 2% target.Even reaching the 3% level at this point looks challenging, not least considering elevated input costs from energy. Failure to achieve the target remains the biggest short-term risk to commodity prices with higher rates killing growth, while eroding risk appetite as stock markets resume their decline. These developments, however, remain one of the reasons why we find gold and eventually also silver attractive as hedges against a so-called policy mistake. Global wheat prices tumble The prospect for a record Russian crop and continued flows of Ukrainian grain together with the stronger dollar helped push prices lower in Paris and Chicago. The recently opened corridor from Ukraine has so far this month seen more than 500,000 tons of crops being shipped, and while it's still far below the normal pace, it has nevertheless provided some relief at a time where troubled weather has created a mixed picture elsewhere. The Chicago wheat futures contract touched a January low after breaking $7.75/bu support while the Paris Milling (EBMZ2) wheat traded near the lowest since March. With most of the uncertainties driving panic buying back in March now removed, calmer conditions should return with the biggest unknown still the war in Ukraine and with that the country’s ability to produce and export key food commodities from corn and wheat to sunflower oil. EU gas reaches $73/MMBtu or $415 per barrel of oil equivalent Natural gas in Europe headed for the longest run of weekly gains this year, intensifying the pain for industries and households, while at the same time increasingly threatening to push economies across the region into recession. The recent jump on top of already elevated prices of gas and power, due to low supplies from Russia, has been driven by an August heatwave raising demand while lowering water levels on the river Rhine. This development has increasingly prevented the safe passage of barges transporting coal, diesel and other essentials, while refineries such as Shell’s Rhineland oil refinery in Germany have been forced to cut production. In addition, half of Europe’s zinc and aluminum smelting capacity has been shut, thereby adding support to these metals at a time the market is worried about the demand outlook.An abundance of rain and lower temperatures may in the short term remove some of the recent price strength but overall, the coming winter months remain a major worry from a supply perspective. Not least considering the risk of increased competition from Asia for LNG shipments. Refinery margin jump lends fresh support to crude oil Crude oil, in a downtrend since June, is showing signs of selling fatigue with the technical outlook turning more price friendly while fresh fundamental developments are adding some support as well. Worries about an economic slowdown driven by China’s troubled handling of Covid outbreaks and its property sector problems as well as rapidly rising interest rates were the main drivers behind the selling since March across other commodity sectors before eventually also catching up with crude oil around the middle of June. Since then, the price of Brent has gone through a $28 dollar top to bottom correction. While the macro-economic outlook is still challenged, recent developments within the oil market, so-called micro developments, have raised the risk of a rebound. The mentioned energy crisis in Europe continues to strengthen, the result being surging gas prices making fuel-based products increasingly attractive. This gas-to-fuel switch was specifically mentioned by the IEA in their latest update as the reason for raising their 2022 global oil demand growth forecast by 380k barrels per day to 2.1 million barrels per day. Since the report was published, the incentive to switch has increased even more, adding more upward pressure on refinery margins. While pockets of demand weakness have emerged in recent months, we do not expect these to materially impact on our overall price-supportive outlook. Supply-side uncertainties remain too elevated to ignore, not least considering the soon-to-expire releases of crude oil from US Strategic Reserves and the EU embargo of Russian oil fast approaching. In addition, the previously mentioned increased demand for fuel-based products to replace expensive gas. With this in mind, we maintain our $95 to $115 range forecast for the third quarter. Gold and silver struggle amid rising dollar and yields Both metals, especially silver, were heading for a weekly loss after hawkish sounding comments from several FOMC members helped boost the dollar while sending US ten-year bond yields higher towards 3%. It was the lull in both that helped trigger the recovery in recent weeks, and with stock markets having rallied as well during the same time, the demand for gold has mostly been driven by momentum following speculators in the futures market. The turnaround this past week has, as a result of speculators' positioning, been driven by the need to reduce bullish bets following a two-week buying spree which lifted the net futures long by 63k lots or 6.3 million ounces, the strongest pace of buying in six months. ETF holdings meanwhile have slumped to a six-month low, an indication that investors, for now, trust the FOMC’s ability to bring down inflation within a relatively short timeframe. An investor having doubts about this should maintain a long position as a hedge against a policy mistake. Some investors may feel hard done by gold’s negative year-to-date performance in dollars, but taking into account it had to deal with the biggest jump in real yields since 2013 and a surging dollar, its performance, especially for non-dollar investors relative to the losses in bonds and stocks, remains acceptable. In other words, a hedge in gold against a policy mistake or other unforeseen geopolitical events has so far been almost cost free.   Source: WCU: Bearish macro, bullish micro regime persists
Bed Bath & Beyond (BBBY) Shares Gained +300% But Can Lose It All!

Bed Bath & Beyond (BBBY) Shares Gained +300% But Can Lose It All!

Conotoxia Comments Conotoxia Comments 19.08.2022 16:55
Bed Bath & Beyond (BBBY) shares have gained 300% since the beginning of August after many previously opened short positions were closed. According to Seeking Alpha data, the short interest on BBBY currently stands at a whopping 41.9% (nearly half of the shares available for trading are sold short). At its peak, BBBY shares reached a price of $30. Today, however, they appear to be down almost 45% ahead of the market opening at 14:00 GMT+3 - this could be the company's worst day since its IPO in 1992. BBBY shares were already down almost 20% yesterday, as investors began to realise potential gains. One of those investors is celebrity billionaire investor Ryan Cohen. He sold his shares, earning $68.1 million (56% on invested capital). According to a report filed with the SEC, Cohen's RC Ventures sold millions of shares on Tuesday and Wednesday in a price range of $18.68 to $29.21. Since then, according to Bloomberg data, the activist investor has asked the company to consider selling the business, reached an agreement to add three independent directors to the board and pushed for the departure of CEO Mark Tritton. Shares also peaked in March 2022, when Cohen first disclosed a 9.8% stake in the company. "The ailing retailer’s share price rise of late has defied logic," - said Danni Hewson, an analyst at AJ Bell. The company has hired the law firm, Kirkland & Ellis, to help it deal with its hard-to-manage debt, media reports said yesterday. Kirkland & Ellis is a well-known advisory firm that plans to help its client by raising new funds and refinancing debt. Other so-called 'meme stocks' also fell on Friday before the open. GameStop (GME) lost 6.5% and AMC Entertainment Holdings (AMC) 4.7% at 14:00 GMT+3. Rafał Tworkowski, Junior Market Analyst, Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.   Source: Bed Bath & Beyond loses more than 45% before the open - the end of the short squeeze?
Dollar (USD) Waits For The Jackson Hole Symposium Results. Nvidia With Good Earnings

Dollar (USD) Waits For The Jackson Hole Symposium Results. Nvidia With Good Earnings

Saxo Strategy Team Saxo Strategy Team 22.08.2022 11:41
Summary:  The dollar story will face a fresh test this week as the central bankers gather for the Jackson Hole symposium from August 25 to 27. We can expect some more push back on the 2023 easing expectations, and this could also mean some upside in US Treasury yields. July PCE due at the end of the week will likely be side-lined by the event, and any gasoline-driven easing should have little relevance. In Europe, the gas situation remains on watch and the July PMIs will likely spell more caution. China’s LPR cuts this morning have signalled a stronger support to the property markets, but the Covid situation and the power curbs continue to cloud the outlook. Earnings pipeline remains robust, key ones being Palo Alto, Nvidia and Intuit, followed by a few discount retailers like Dollar General and Dollar Tree in the U.S., and China Internet companies, JD.COM, and Meituan.   US dollar awaiting its next signals from the Jackson Hole There is a considerable tension between the market’s forecast for the economy and the resulting expected path of Fed policy for the rest of this year and particularly next year, as the market believes that a cooling economy and inflation will allow the Fed to reverse course and cut rates in a “soft landing” environment (the latter presumably because financial conditions have eased aggressively since June, suggesting that markets are not fearing a hard landing/recession). Some Fed members have tried to push back against the market’s expectations for Fed rate cuts next year it was likely never the Fed’s intention to allow financial conditions to ease so swiftly and deeply as they have in recent weeks. The risks, therefore, point to a Fed that may mount a more determined pushback at the Jackson Hole forum, the Fed’s yearly gathering at Jackson Hole, Wyoming that is often used to air longer term policy guidance. This will have further implications for the US dollar, which is threatening the cycle highs versus sterling, the euro and on the comeback trail against the Japanese yen as well. The US dollar is a barometer of global liquidity, and a continued rise would eventually snuff out the improvement in financial conditions we have seen since the June lows in equity markets, particularly if longer US treasury yields are also unmoored from their recent range and rise back to 3.00% or higher. Europe and UK PMIs may spell further caution The Euro-area flash composite PMI and the UK flash PMI for August are both due to be released on Tuesday. Following a slide in ZEW and Sentix indicators for July, the stage is set for a weaker outcome on the PMIs too. July composite PMI for the Euro-area dipped into contractionary territory at 49.9, while the UK measure held up at 52.1. The surge in gas and electricity prices continue to weigh on GDP growth outlook, with recession likely to hit by the end of the year. More price pressures to come to Asia Singapore's inflation likely nudged higher in July, coming in close proximity to 7% levels from 6.7% y/y in June. While both food and fuel costs continue to create upside pressures on inflation, demand-side pressures are also increasing as the region moves away from virus curbs. House rentals are also running high due to high demand and delayed construction limiting supplies. The Monetary Authority of Singapore has tightened monetary policy but more tightening moves can be expected in H2 even as the growth outlook has been downwardly revised. We also get Japan's Tokyo CPI for August, which is likely to suggest further gains above the Bank of Japan's 2% target. Consensus expectations point toward another higher print of 2.7% y/y for the headline measure and 2.5% y/y on the core measure, signalling inflationary pressures will continue to question the Bank of Japan's resolve on the ultra-easy policy stance. Malaysia’s July inflation is also due at the end of the week, and likely to go above the 4%-mark from 3.4% previously. Softer July US PCE print would not derail Fed’s tightening After a softer CPI report in July, focus will turn to the PCE measure – the version of the CPI that is tracked by the Fed to gauge price pressures. Lower gasoline prices mean that PCE prints could also see some relief, although we still upside pressures to inflation given that energy shortages will likely persist and easing financial conditions mean that inflation could return. We would suggest not to read too much into a softer PCE print this week, as the stickier shelter and services prices mean that the 2% inflation target of the Fed remains unachievable into then next year. This suggests that the aggressive tightening by the Fed will likely continue, despite any likely softness in the PCE this week. Housing markets, Covid-19 cases, and power curbs are key things to watch in China this week The data calendar is light in China this week with only July industrial profits data scheduled to release on Saturday.  This morning, China’s National Interbank Fund Center, based on quotes from banks and under the supervision of the PBoC, fixed the 1-year loan prime rate (“LPR”) 5 bps lower at 3.60% and the 5-year loan prime rates (“LPR”) 15 basis points lower at 4.30%.  The larger reduction in the 5-year LPR, which is the benchmark against which mortgage loan rates in China are set, may signal stronger support from the PBoC to the housing market.  Last Friday the Housing Ministry, the Ministry of Finance, and the PBoC, according to Xinhua News, jointly rolled out a program to make special loans through policy banks to support the delivery of presold residential housing projects which are facing difficulties in completion due to lack of funding.  Investors will monitor closely this week to gauge if there is additional information about the size of the program and if the PBoC will print money to fund it.  As daily locally transmitted new cases of Covid-19 in China persistently surged and stayed above 2,000 since August 12, 2022, the market will watch the development closely and how it will affect the economy.   In addition to the pandemic, power shortage in the Sichuan province and some other areas in China due to unusually high temperature (higher power consumption for air-conditioning) and drought (which affects hydropower output), investors are assessing the impact of the government-imposed power rationing for industrial users on production, in particular the auto industry and consumer electronics industry in the affected areas. Key earnings this week On Monday, investors will scrutinize the results from Palo Alto Networks (PANW:xnas) in the U.S. to gauge the latest business development in the security software industry, which has drawn much attention this year as cybersecurity has become a focus. Intuit (INTU:xnas) is scheduled to report on Tuesday and its results may provide information about the small and medium-sized businesses that the company focuses in it business.  After a disappointing preannouncement earlier in the month, the bar for Nvidia (NVDA:xnas)’s earnings release this Wednesday may be low.  In HK/China, the results from the Postal Savings Bank of China may provide the market with some insights into the state of the Chinese banking system, especially situations outside the top-tier cities. JD.COM (09618:xhkg/JD:xnas) on Tuesday and Meituan (03690:xhkg) on Friday will be the focus of investors monitoring the business trend of eCommerce and delivery platforms in China.  Key economic releases & central bank meetings this week Monday, Aug 22 South Korea: Exports (Aug, first 20 days)Hong Kong: CPI (Jul)   Tuesday, Aug 23 United States: S&P Global US Manufacturing PMI (Aug, preliminary)United States: S&P Global US Services PMI (Aug, preliminary)Eurozone: PMI Manufacturing (Aug)Eurozone: Consumer Confidence (Aug)United Kingdom: PMI Manufacturing (Aug), PMI Services (Aug)Japan: PMI Manufacturing (Aug)Singapore: CPI (Jul) Wednesday, Aug 24 United States: Durable Goods Orders (Jul, preliminary)United States: Pending Home Sales (Jul) Thursday, Aug 25 United States: GDP (Q2, second)United States: Initial Jobless Claims (Aug)United States: Kansas City Fed Manufacturing Activity (Aug)United States: Jackson Hole Symposium (Aug 25 to 27)Germany: IFO Survey (Aug)France: Business Confidence (Aug)South Korea: Bank of Korea Policy Meeting Friday, Aug 26 United States: Personal Income, Personal Spending, PCE Deflator & PCE Core Deflator (Jul)United States: U of Michigan Sentiment Survey (Aug, final)United States: Fed Chair Powell’s speech at the Jackson Hole SymposiumFrance: Consumer Confidence (Aug)Eurozone: M3 (Jul)Italy: Consumer Confidence (Aug)Italy: Economic Sentiment (Aug)Tokyo: Tokyo-area CPI (Aug)Singapore: Industrial Production (Jul) Saturday, Aug 27 China: Industrial Profits (Jul) Key earnings releases this week Monday: Postal Savings Bank of China (01658:xhkg), Palo Alto Networks (PANW:xnas) Tuesday: Medtronic (MDT:xnys), Intuit (INTU:xnas), JD.COM (09618:xhkg/JD:xnas), JD Logistics (02615:xhkg), Kingsoft (03888:xhkg), Kuaishou (01024:xhkg) Wednesday: PetroChina (00857:xhkg), Ping An Insurance (02318:xhkg), Nongfu Spring (09633:xhkg), LONGi Green Energy Technology (601012:xssc), Pinduooduo (PDD:xnas), Nvidia (NVDA:xnas), Salesforce (CRM:xnys), JD Health (06618:xhkg) Thursday: AIA (01299:hkgs), Wulinagye Yibin (000858:xsec), China Life Insurance (02628:xhkg), CNOOC (00883:xhkg), Dollar General (DG:xnys), NIO (09866:xhkg/NIO:xnas) Friday: Meituan (03690:xhkg), China Shenhua (01088:xhkg), Sinopec (00386:xhkg)    Source: Saxo Spotlight: What’s on investors and traders radars this week?
China Rolled Out A Special Loan Program! Fed's News

China Rolled Out A Special Loan Program! Fed's News

Saxo Strategy Team Saxo Strategy Team 22.08.2022 12:33
Summary:  Equities closed last week on the defensive as a rising US dollar and especially US treasuries weighed. The US 10-year yield is threatening the 3.00% level for the first time in a month ahead of the important US July PCE inflation data and Fed Chair Powell’s speech on Friday. How forcefully will Powell push back against the virtual melt-up in financial conditions after the market felt the Fed pivoted to less tightening at the July meeting?   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures are still rolling over as the US 10-year yield zoomed to 3% on Friday with the index futures trading just above the 4,200 level this morning. The next levels on the downside sit around the 4,100 to 4,170 range, but in the longer term the 4,000 level is the big level to watch. Energy markets are still sending inflationary signals which is key to watch for sentiment this week. In terms of earnings, Palo Alto Networks and Zoom Video will report earnings. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hang Seng Index and CSI300 were moderately higher, +0.2% and +0.8% respectively. Chinese developers gained on today’s larger-than-expected cut in the 5-year loan prime rate and last Friday’s report that the PBoC, jointly with the Housing Ministry and the Ministry of Finance to roll out a program to make special loans through policy banks to support the delivery of stalled residential housing projects. Great Wall Motor (02333:xhkg) soared 11%. In A-shares, auto names were among stocks that outperformed. Xiaomi (01810:xhkg) dropped 3% after reporting Q2 revenues -20% YoY and net profit -67% YoY, largely in line with expectations.  US dollar dominates focus in forex this week The US dollar rally picked up speed last week, with key levels falling in a number of USD pairs last week that now serve as resistance, including 1.0100 in EURUSD and 1.2000 in GBPUSD, both of which now serve as resistance/USD support. A significant break of EURUSD parity will likely add further psychological impact, and more practically, an upside break in yields at the longer end of the US yield curve is playing a supportive roll, one that will intensify its driving roll if the benchmark 10-year US Treasury yield follows through higher above the 3.00% level it touched in trading overnight. A complete sweep of USD strength also threatens on any significant follow through higher in USDCNH as it threatens an upside break here (more below). The next key event risk for the US dollar arrives with this Friday’s Jackson Hole symposium speech from Fed Chair Powell (preview below). USDCNH Broad USD strength is helping to drive a move to new cycle highs above 6.84 as the week gets underway, but CNH is not weak in other pairings with G10 currencies, quite the contrary. Still, a move in this critical exchange rate will remain a focus, and the contrast between an easing PBOC (moving once again overnight) and tightening central banks nearly everywhere else is stark. The USDCNH moving higher will receive considerable additional focus if the 7.00 level. Crude oil prices (CLU2 & LCOV2) Crude oil turned lower in the Asian overnight after modest gains last week as the focus continues to alter between demand destruction fears and persistent supply shortages. Fears of an economic slowdown reducing demand remains invisible in the physical market but it has nevertheless seen crude oil give up all the post Russia invasion gains while speculators or hedge funds have cut bullish bets on WTI and Brent to the lowest since April 2020. WTI futures trades back below $90/barrel while Brent futures dipped below $96. Still, the gas-to-fuel switch led by record gas prices in Europe has seen refinery margins strengthen again lately and it now adds to the fundamental price-supportive factors. Focus may turn back to Iranian supply early in the week though, with reports that a deal is ‘imminent’. Cryptocurrencies The crypto market took a major hit on Friday with the total crypto market cap diving by more than 9 %, but prices have stabilized over the weekend. The total market cap is now close to the psychological $1 trillion level. US Treasuries (TLT, IEF) Rising US Treasury yields are pushing back against the strong improvement in financial conditions of recent weeks after the US 10-year Treasury yield benchmark jumped to new highs on Friday, well clear of the prior range after a few teases higher earlier in the week and bumping up against the psychologically key 3.00% level. Any follow through higher toward the 3.50% area highs of the cycle would likely add further pressure to financial conditions and risk sentiment more broadly. What is going on? German PPI shocks on the upside Germany’s July PPI smashed expectations to come in at 5.3% MoM, the biggest single gain since the Federal Republic started compiling its data in 1949 and above the consensus estimate of 0.7%. The data suggests potentially a lot more room on the upside to Eurozone inflation, and a lot more pain for German industries. European PMIs due this week will gather attention, as will Germany’s IFO numbers. Berkshire Hathaway wins approval to acquire Occidental Petroleum Warren Buffett’s industrial conglomerate that recently increased its stake in Occidental Petroleum to over 20% following the US Climate & Tax bill which adds more runway for oil and gas companies has now won regulatory approval for acquiring more than 50% the oil and gas company. This means that Berkshire Hathaway is warming up to its biggest acquisition since its Burlington acquisition. The power shortage in China China is currently being hit by a heatwave with a large part of the country experiencing -degree Celsius temperatures since the beginning of August. The surge in air conditioning caused electricity consumption to soar. To make things worse, drought has reduced hydropower output.  Some provinces and municipalities, especially Sichuan, are curbing electricity supply to industrial users in order to ensure electricity supply for residential use. This has caused disruptions to manufacturing production and added to the headwinds faced by the Chinese economy. China cut its 5-year loan prime rate loan prime more than expected China’s National Interbank Fund Center, based on quotes from banks and under the supervision of the PBoC, fixed the 1-year loan prime rate (“LPR”) 5 bps lower at 3.60% and the 5-year loan prime rates (“LPR”) 15 basis points lower at 4.30%. The larger-than-expected reduction in the 5-year LPR, which is the benchmark against which mortgage loan rates in China are set at a spread, may signal stronger support from the PBoC to the housing market.  The Chinese authorities are coming to the developers’ aid in delivering pre-sold homes Last Friday the Housing Ministry, the Ministry of Finance, and the PBoC, according to Xinhua News, jointly rolled out a program to make special loans through policy banks to support the delivery of presold residential housing projects which are facing difficulties in completion due to lack of funding.  Investors will monitor closely this week to gauge if there is additional information about the size of the program and if the PBoC will print money to fund it.  The resurgence of Covid cases in China Daily locally transmitted new cases of Covid-19 in China persistently stated above 2,000 since August 12, 2022, with Hainan, Tibet, and Xinjiang being the regions most impacted. The constituent companies of the Hang Seng Index will increase to 73 from 69 Hang Seng Indexes Company announced last Friday to add China Shenhua Energy (01088:xhkg), Chow Tai Fook Jewellery (01929:xhkg), Hansoh Pharmaceutical (03693:xhkg), and Baidu (09888:xhkg) to the Hang Seng Index, bringing the latter’s number of constituent companies to 73 from 69. The changes will take effect on September 5, 2022. In addition, SenseTime (00020:xhkg) will replace China Pacific Insurance (02601:xhkg) as a constituent company of the Hang Seng China Enterprises Index.  Australian share market at a pivotal point After rising for five straight weeks including last week's 1.2% lift, many market participants hold their breath this rally will continue. However, standing in the way are profit results from a quarter of the ASX200 companies to be released this week. For the final week of profit results, we hear from Qantas (Australia's largest airline), Whitehaven Coal (Australia's largest coal company), as well as other stocks that are typically held in Australian superannuation funds; including Coles, Woolworths, Wesfarmers, Endeavour. And lastly about 20 companies trade ex-dividend this week, however they are not expected to move the market's needle. Money managers increased their commodity exposure for a third week to August 16 The Commitment of Traders (COT) Report covering positions and changes made by money managers in commodities to the week ending August 16 showed a third week of net buying with funds adding 123k lots to 988k lots, a seven-week high. The buying was broad led by natural gas, sugar, cattle and grains with most of the selling concentrated in crude oil and gold. More in our weekly update out later. Prior to the latest recovery in price and positions hedge funds had been net sellers for months after holding 2.6 million lots at the start of the year. What are we watching next? USD and US Treasury yields as Jackson Hole Fed conference is the macro event risk of the week Friday The US dollar strengthened sharply, with EURUSD challenging near parity, USDCNH breaking higher today after another PBOC rate cut, and USDJPY not far from cycle highs. US Treasury yields have supported the move with the entire curve lifting over the last couple of weeks and longer yields pulling to new local highs last week. The Fed has pushed back consistently against the market’s pricing of a Fed turnaround to easing rates next year with partial success, as expectations for rate cuts have shifted farther out the curve and from higher levels. This week, the key test for markets is up on Friday as the US reports the Fed’s preferred measure of inflation, the July PCE inflation data, while Fed Chair Powell will also speak on Friday, offering the most important guidance on how the Fed feels about how it feels the market understands its intentions.   Earnings to watch Plenty of important earnings releases this week with the largest ones listed below. Today’s key focus is Palo Alto Networks, Zoom Video, and XPeng. Cyber security stocks have done reasonably well over the past year despite valuations coming down as demand is still red hot, Analysts expect Palo Alto Networks to report revenue growth of 27% y/y. Zoom Video, which was the pandemic superstar, is also reporting today with estimates looking for 9% revenue growth, down considerably from 54% y/y growth just a year ago. Monday: Palo Alto Networks, Zoom Video, XPeng Tuesday: CATL, Intuit, Medtronic, JD.com Wednesday: LONGi Green Energy, Royal Bank of Canada, PetroChina, Ping An Insurance Group, Nongfu Spring, Mowi, Nvidia, Salesforce, Pinduoduo, Snowflake, Autodesk Thursday: South32, Toronto-Dominion Bank, Fortum, Delivery Hero, AIA Group, China Life Insurance, CNOOC, CRH, Dollar General, Vmware, Marvell Technology, Workday, Dollar Tree, Dell Technologies, NIO Friday: Meituan, China Shenhua Energy, China Petroleum & Chemical Economic calendar highlights for today (times GMT) 0800 – Switzerland SNB weekly sight deposits 1230 – US Jul. Chicago Fed National Activity Index 2300 – Australia Aug. Flash Manufacturing/Services PMI 0030 – Japan Aug. Flash Manufacturing/Services PMI Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Financial Markets Today: Quick Take – August 22, 2022
Oil Price Surges Above $91 as Double Bottom Support Holds

All Eyes On Fed Chair Powell's Speech. Latest Natural Gas Developments

Saxo Bank Saxo Bank 22.08.2022 12:52
Summary:  The US dollar wrecking ball is in full swing, taking even USDCNH to new highs for the cycle after another rate cut in China overnight. Longer US treasury yields are also pressuring financial conditions and risk sentiment as the 10-year benchmark yield threatens 3.00% again. The chief event risk for the week will be the Jackson Hole, Wyoming speech from Fed Chair Powell. We also discuss the latest natural gas developments in Europe, speculative positioning in the commodities markets, the long term perspective for tangible vs. intangible stock returns over the last couple of decades, upcoming earnings, & more. Today's pod features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: Podcast: USD and US yields brewing up trouble ahead of Jackson Hole
Gold Has A Chance For Further Downside Movement - 30.12.2022

Gold Is At Risk Of Being Liquidated!? Ukraine Shipment Accelerates

Ole Hansen Ole Hansen 22.08.2022 13:47
Summary:  Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to August 16. A week that potentially saw a cycle peak in US stocks and where the dollar and treasury yields both traded calmly before pushing higher. Commodities meanwhile continued their recent recovery with funds being net buyers of most contracts, the major exceptions being gold and crude oil Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial. Link to latest report This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to August 16. A week that potentially saw a cycle peak in US stocks with the S&P 500 reversing lower after reaching a four-month high, and where the dollar and treasury yields both traded calm before pushing higher. Commodities meanwhile continued their recent recovery with all sectors, except precious metals and grains recording gains. Commodities Hedge funds were net buyers for a third week with the total net long across the 24 major commodity futures tracked in this update rising by 14% to reach a seven week high at 988k lots. Some 56% below the recent peak reached in late February before Russia’s attack on Ukraine drove an across-the-board volatility spike which forced funds to reduce their exposure. Since then and up until early July, worries about a global economic slowdown, caused by a succession of rapid rate hikes in order to kill inflation, was one of the key reasons for the slump in speculative length.Returning to last week, the 123k lot increase was split equally between new longs being added and short positions being scaled back, and overall the net increase was broad led by natural gas, sugar, cattle and grains with most of the selling being concentrated in crude oil and gold. Energy: Weeks of crude oil selling continued with the combined net long in WTI and Brent falling by 26k lots to 278k lots, the lowest belief in rising prices since April 2020. Back then the market had only just began recovering the Covid related energy shock which briefly sent prices spiraling lower. While funds continued to sell crude oil in anticipation of an economic slowdown the refined product market was sending another signal with refinery margins on the rise again, partly due surging gas prices making refined alternatives, such as diesel, look cheap. As a result, the net long in ICE gas oil was lifted by 24% to 62k lots while RBOB gasoline and to a lesser extent ULSD also saw net buying. The net short in Henry Hub natural gas futures was cut by 55% as the price jumped by 19%. Metals: Renewed weakness across investment metals triggered a mixed response from traders with gold seeing a small reduction in recently established longs while continued short covering reduced bearish bets in silver, platinum and palladium. With gold resuming its down move after failing to find support above $1800, the metal has been left exposed to long liquidation from funds which in the previous two weeks had bought 63.3k lots. Copper’s small 1% gain on the week supported some additional short covering, but overall the net short has stayed relatively stable around 16k lots for the past six weeks. Agriculture: Speculators were net buyers of grains despite continued price weakness following the latest supply and demand report from the US Department of Agriculture on August 12, and after shipments of grains from Ukraine continued to pick up speed. From a near record high above 800k lots on April 19, the net long across six major crop futures went on to slump by 64% before buyers began dipping their toes back in to the market some three weeks ago. Buying was concentrated in bean oil and corn while the wheat sector remained challenged with the net long in Kansas wheat falling to a 2-year low. The four major softs contract saw strong buying led by sugar after funds flipped their position back to a 13.4k lots net long. The cocoa short was reduced by 10% while the coffee long received a 25% boost. Cotton’s 18% surge during the week helped lift the long by 35% to 44.7k lots.     Forex A mixed week in forex left the speculative dollar long close to unchanged against ten IMM futures and the DXY. Selling of euro saw the net short reach a fresh 2-1/2-year high at 42.8k lots or €5.3 billion equivalent while renewed selling of JPY, despite trading higher during the reporting week, made up most of the increase in dollar length. Against these we saw short covering reduce CHF, GBP and MXN short while CAD net long reached a 14-month high.    What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming   Source: COT: Gold and oil left out as funds return to commodities
Japan's Prime Minister Tested Covid Positive. Gazprom Confirmed Gas Shipment Would Be Stopped!

Japan's Prime Minister Tested Covid Positive. Gazprom Confirmed Gas Shipment Would Be Stopped!

Marc Chandler Marc Chandler 22.08.2022 16:28
Overview: The euro traded below parity for the second time this year and sterling extended last week’s 2.5% slide. While the dollar is higher against nearly all the emerging market currencies, it is more mixed against the majors. The European currencies have suffered the most, except the Norwegian krone. The dollar-bloc and yen are also slightly firmer. The week has begun off with a risk-off bias. Nearly all the large Asia Pacific equity markets were sold. Chinese indices were a notable exception following a cut in the loan prime rates. Europe’s Stoxx 600 is off by around 1.20%, the most in a month. US futures are more than 1% lower. The Asia Pacific yield rose partly in catch-up to the pre-weekend advance in US yields, while today, US and European benchmark 10-year yields are slightly lower. The UK Gilt stands out with a small gain. Gold is being sold for the sixth consecutive session and has approached the (61.8%) retracement of the rally from last month’s low (~$1680) that is found near $1730. October WTI is soft below $90, but still inside the previous session’s range. US natgas is up 2.4% to build on the 1.6% gain seen before the weekend. It could set a new closing high for the year. Gazprom’s announcement of another shutdown of its Nord Stream 1 for maintenance sent the European benchmark up over 15% today. It rose almost 20.3% last week. Iron ore rose for the first time in six sessions, while September copper is giving back most of the gains scored over the past two sessions. September wheat rallied almost 3% before the weekend and is off almost 1% now.  Asia Pacific Following the 10 bp reduction in benchmark one-year Medium-Term Lending Facility Rate at the start of last week, most observers expected Chinese banks to follow-up with a cut in the loan prime rates today  They delivered but in a way that was still surprising. The one-year loan prime rate was shaved by five basis points to 3.65%, not even matching the MLF reduction. On the other hand, the five-year loan prime rate was cut 15 bp to 4.30%. This seems to signal the emphasis on the property market, as mortgages are tied to the five-year rate, while short-term corporate loans are linked to the shorter tenor. The five-year rate was last cut in May and also by 15 bp. Still, these are small moves, and given continued pressures on the property sector, further action is likely, even if not immediately. In addition to the challenges from the property market and the ongoing zero-Covid policy, the extreme weather is a new headwind to the economy. The focus is on Sichuan, one of the most populous provinces and a key hub for manufacturing, especially EV batteries and solar panels. It appears that the aluminum smelters (one million tons of capacity) have been completed halted. The drought is exacerbating a local power shortage. Rainfall along the Yangtze River is nearly half of what is normally expected. Hydropower accounts for a little more than 80% of Sichuan power generation and the output has been halved. Officials have extended the power cuts that were to have ended on August 20 to August 25. Factories in Jiangsu and Chongqing are also facing outages. According to reports, Shanghai's Bund District turned off its light along the waterfront. Japan's Prime Minister Kishida tested positive for Covid over the weekend  He will stay in quarantine until the end of the month. In addition to his physical health, Kishida's political health may become an issue. Support for his government has plunged around 16 percentage points from a month ago to slightly more than 35% according to a Mainchi newspaper poll conducted over the weekend. The drag appears not to be coming from the economy but from the LDP's ties with the Unification Church. Meanwhile, Covid cases remain near record-highs in Japan, with almost 24.8k case found in Tokyo alone yesterday. Others are also wrestling with a surge in Covid cases. Hong Kong's infections reached a new five-month high, for example. The dollar reached nearly JPY137.45 in Tokyo before pulling back to JPY136.70 in early European turnover  It is the fifth session of higher highs and lows for the greenback. The upper Bollinger Band (two standard deviations above the 20-day moving average) is near JPY137.55 today. We suspect the dollar can re-challenge the session high in North America today. The Australian dollar is proving resilient today after plunging 3.45% last week. It is inside the pre-weekend range (~$0.6860-$0.6920). Still, we like it lower. Initial support is now seen around $0.6880, and a break could spur another test on the lows. That pre-weekend low coincides with the (61.8%) retracement of the rally from last month's low (~$0.6680) to the high on August 11 (~$0.7135). The Chinese yuan slumped to new lows for the year today. For the second consecutive session, the dollar gapped higher and pushed through CNY6.84. The PBOC set the dollar's reference rate at CNY6.8198. While this was lower than the CNY6.8213, it is not seen as much as a protest as an at attempt to keep the adjustment orderly. Europe Gazprom gave notice at the end of last week that gas shipments through the Nord Stream 1 pipeline would be stopped for three days (August 31-September 2) for maintenance  The European benchmark rose nearly 20.3% last week and 27% this month. It rose 35.2% last month and 65.5% in June. The year-to-date surge has been almost 380%. The energy shock seems sure to drive Europe into a recession. The flash August PMI out tomorrow is expected to see the composite falling further below the 50 boom/bust level. Bundesbank President Nagel, who will be attending the Jackson Hole symposium at the end of this week recognized the risk of recession but still argued for the ECB rate increases to anchor inflation expectations. The record from last month's ECB meeting will be published on Thursday. There are two keys here. First, is the color than can be gleaned from the threshold for using the new Transmission Protection Instrument. Second, the ECB lifted its forward guidance, which we argue is itself a type of forward guidance. Is there any insight into how it is leaning? The swaps market prices in another 50 bp hike, but a slight chance of a 75 bp move. The German 10-year breakeven (difference between the yield of the inflation linked bond and the conventional security) has been rising since last July and approached 2.50% last week  It has peaked in early May near 3% before dropping to almost 2% by the end of June. It is notable that Italy's 10-year breakeven, which has begun rising again since the third week of July, is almost 25 bp less than Germany. Several European countries, including Germany and Italy, have offered subsidies or VAT tax cut on gasoline that have offset some of the inflation pressures. Nagel, like Fed Chair Powell, BOE Governor Bailey, and BOJ Governor Kuroda place much emphasis on lowering wages to bring inflation down. Yet wages are rising less than inflation, and the cost-of-living squeeze is serious. They take for granted that business are simply passing on rising input costs, including labor costs, but if that were true, corporate earnings would not be rising, which they have. Costs are being passed through. Later this week, the UK regulator will announce the new gas cap for three months starting in October  Some reports warn of as much as an 80% increase. It is behind the Bank of England's warning that CPI could hit 13% then. The UK's wholesale benchmark has soared 47.5% this month after an 83.7% surge last month. Gas prices in the UK have nearly tripled this year. The UK's 10-year breakeven rose by 38 bp last week to 4.29%, a new three-month high. Although the UK economy shrank slightly in Q2 (0.1%), the BOE warned earlier this month that a five-quarter recession will likely begin in the fourth quarter. Unlike the eurozone, the UK's composite PMI has held above the 50 boom/bust level. Still, it is expected to have slowed for the fourth month in the past five when the August preliminary figures are presented tomorrow. The euro and sterling extended their pre-weekend declines  The euro slipped below parity to $0.9990. The multiyear low set last month was near $0.9950. The break of parity came in the early European turnover. Only a recovery of the $1.0050-60 area helps stabilizes the tone. Speculators in the futures market extended their next short euro position in the week through August 16 to a new two-year extreme and this was before the euro's breakdown in the second half of last week. The eurozone's preliminary August composite PMI due tomorrow is expected to show the contraction in output deepened while the market is expecting the Fed's Powell to reinforce a hawkish message on US rates. After falling to almost $1.1790 before the weekend, sterling made a marginal new low today, closer to $1.1780. The two-year low set last month was near $1.1760. The $1.1850-60 area offers an initial cap. Strike activity that hobbled the trains and underground spread to the UK's largest container port, Felixstowe, which handles about half of the country's containers. An eight-day strike began yesterday. Industrial activity is poised to spread, and this is prompting Truss and Sunak who are locked in a leadership challenge, to toughen their rhetoric against labor. America This is a busy week for the US  First, there is supply. Today features $96 bln in bills. Tomorrow sees a $60 bln three-week cash management bill and $44 bln 2-year notes. On Wednesday, the government sell another $22 bln of an existing two-year floating rate note, and $45 bln five-year note. Thursdays sale includes four- and eight-week bills and $37 bln seven-year notes. There are no long maturities being sold until mid-September. The economic data highlights include the preliminary PMI, where the estimate for services is forecast (median in Bloomberg's survey) to recover from the drop below the 50 boom/bust level. In the middle of the week, the preliminary estimate of July durable goods is expected. Shipments, which feed into GDP models is expected to rise by 0.3%. The revision of Q2 GDP the following day tends not to be a `big market movers. Friday is the big day. July merchandise trade and personal income and consumption measures are featured. Like we saw with the CPI, the headline PCE deflator is likely to ease while the core measure proves a bit stickier. Shortly after they are released, Powell addresses the Jackson Hole gathering.  Canada has a light economic diary this week, but Mexico's a bit busier  The highlight for Mexico will be the biweekly CPI on Wednesday. Price pressures are likely to have increased and this will encourage views that Banxico will likely hike by another 75 bp when it meets late next month (September 29). The July trade balance is due at the end of the week. It has been deteriorating sharply since February and likely continued.    The US dollar rose more than 1% against the Canadian dollar over the past three sessions. It edged a little higher today but stopped shy of the CAD1.3035 retracement objective. Initial support is seen near CAD1.2975-80. With sharp opening losses expected for US equities, it may discourage buying of the Canadian dollar in the early North American activity. The greenback is rising against the Mexican peso for the fifth consecutive session. However, it has not taken out the pre-weekend high near MXN20.2670. Still, the next important upside technical target is closer to MXN20.3230, which corresponds to the middle of this month's range. Support is now seen near MXN20.12.    Disclaimer   Source: No Relief for the Euro or Sterling
Euro (EUR) And British Pound (GBP) Losing The Race Against U.S. Dollar (USD)! 1 Year Statistics

Euro (EUR) And British Pound (GBP) Losing The Race Against U.S. Dollar (USD)! 1 Year Statistics

Conotoxia Comments Conotoxia Comments 22.08.2022 16:44
The recent behavior of the euro and the British pound and their potential weakness against the rest of the world's major currencies is beginning to bring concerns about a sustained deterioration in the prospects for these currencies. As Bloomberg commentators note, the behavior of the pound and the euro are worrisome. We have recently seen large shifts in the euro and pound's short-term market interest rates against the U.S. dollar, with a simultaneous weakening of the GBP/USD and EUR/USD exchange rates. Last week was the worst week for the pound in nearly two years, and at the same time, the yield on the UK's 2-year bond rose by 50 basis points. Typically, the opposite happens in developed markets. Expectations of a central bank rate hike and thus an increase in short-term market yields generally strengthen the currency. The collapse in the correlation between the exchange rate and interest rates is usually associated with emerging markets, which may have lost the battle for the credibility of keeping inflation within the inflation target. The energy dependence of the UK and Europe as a whole means that their balance sheets could deteriorate in the near future, while energy commodity inflation shows no signs of abating. Rate hikes in such a situation may not stem the tide of depreciation of the aforementioned currencies, Bloomberg reports. Thus, it seems that the winter months for the EUR and GBP may be a kind of test of the credibility of the economies in the eyes of investors. Their abandonment of investments in the EUR and GBP despite rising interest rates could be potentially worrying. Moreover, it could change the entire scene of the foreign exchange market. In the dollar index, the euro has a weighting of more than 57 percent, while the pound has a weighting of more than 11 percent. Together, these two currencies alone have a weighting of almost 70 percent. Since the beginning of the year, the euro against the U.S. dollar has lost almost 12 percent, and the British pound almost 13 percent. In contrast, since August 2021, the euro has lost almost 15 percent to the dollar, and the British pound less than 14 percent. Of the major currencies, only the Japanese yen has fared worse and has weakened by almost 20 percent against the U.S. dollar over the 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. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.   Source: Pound and euro similar to currencies of emerging markets?
iPhones Banned in Chinese Offices: Tech Tensions Escalate

China's Plan For Dying Property Markets. Nasdaq 100 And S&P 500

Saxo Strategy Team Saxo Strategy Team 23.08.2022 08:37
Summary:  Equities were sold off on Monday, continuing a slide from their summer rally high, in the midst of position adjustments ahead of the Jackson Hole central banker event later this week. U.S. 10-year yields returned to above 3%. China cut its 5-year loan prime rates and plans to extend special loans to boost the ailing property markets. What is happening in markets?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities lost ground and continued to retrace from the high of the latest rally since mid-June.  The market sentiment has become more cautious ahead of Fed Chair Powell’s speech this Friday at the Jackson Hole symposium and a heavy economic data calendar, S&P 500 – 2.1%, Nasdaq 100 -2.7%.  The rise of U.S. 10-year bond yield back to above 3% added to the selling pressures in equities.  Zoom Video (ZM:xnas) fell 8% in after-hours trading as the company reported Q2 revenues and earnings missing estimates and cut its full year revenues guidance. U.S. treasuries (TLT:xnas, IEF:xnas, SHY:xnas) Bonds were sold off as traders adjusted positions ahead of the Jackson Hole.  The treasury yield curve bear flattened with 2-year yields surging 8bps to 3.30% and 10-year yields climbing 4bps to 3.01%, above the closely watched 3% handle.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hang Seng fell 0.6% while CSI300 climbed 0.7% on Monday. Chinese developers gained on today’s larger-than-expected cut in the 5-year loan prime rate and the Chinese authorities plan to provide special loans through policy banks to support the delivery of stalled residential housing projects, CIFI (00883:xhkg) +11.5%, Country Garden (02007:xhkg) +3.2%.  China extended EV waivers from vehicle purchase tax and other fees to the end of 2023, but the share price reactions of Chinese EV makers traded in Hong Kong were mixed.  Great Wall Motor (02333:xhkg) soared 11%, benefiting from launching a new model that has a 1,000km per charge battery while Nio (09866:xhkg) and Li Auto(02015:xhkg) fell 4.2% and 1.4% respectively. Xiaomi (01810:xhkg) dropped 3.3% after Q2 revenues -20% YoY and net profit -67% YoY, on lower smartphone shipments (-26% YoY).  Smartphone parts suppliers, AAC Technologies (02018:xhkg) and Sunny Optical (02382:xhkg) declined 5.6% and 4.2% respectively.  The share price performance of the four companies that will be added to the Hang Seng Index was mixed, Baidu (09888:xhkg) +0.9%, China Shenhua Energy (01088:xhkg) +2.1%, Hansoh Pharmaceutical (03692:xhkg) +3.2% but Chow Tai Fook Jewellery (01929:xhkg) -0.6%.  SenseTime (00020:xhkg) gained 4.2% as the company will replace China Pacific Insurance (02601:xhkg) -2.8% as a constituent company of the Hang Seng China Enterprises Index.  ENN Energy (02688:xhkg) plunged more than 14% after reporting H1 results below market expectations.  China retailer Gome (00493) collapsed 20% after resuming trading from suspension and a plan t buy from the controlling shareholder a stake in China property assets.  EURUSD falls below parity, eyes on 0.9500 The latest concerns on the European energy crisis weighed on the Euro which was seen sipping below parity to the US dollar. Higher US yields and gains in the US dollar also underpinned, taking EURUSD to lows of 0.9926. The European recession is coming hard and fast, and the PMIs today will likely signal increasing pressure on the region. Also on the radar will be Fed Chair Powell’s speech at the Jackson Hole later this week, with a fresh selloff in the pair likely to target 0.9500 next. USDCNH heading to further highs After PBOC’s easing measures on Monday, the scope for further yuan weakness has increased. USDCNH broke above 6.8600 overnight and potentially more US dollar strength this week on the back of a pushback from Fed officials on easing expectations for next year could mean a test of 7.00 for USDCNH. Still, the move in yuan is isolated, coming from China moving to prevent the yuan from tracking aggravated USD strength rather than showing signs of desiring a broader weakening. EURCNH has plunged to over 1-month lows of 6.8216 on the back of broader EUR weakness. Crude oil prices (CLU2 & LCOV2) Crude oil prices made a recovery overnight despite the strength in the US dollar. A global shift from gas to oil, from Europe to Asia, has taken a deeper hold amid gas shortage fears accelerating in the wake of another upcoming maintenance of the Nordstream pipeline. Diesel and refinery margins have also been supported as a result, with Asia diesel crack rising to its previous high of $63 amid low inventory levels. WTI futures reversed back to the $90/barrel levels and Brent were back above $96. Comments from Saudi Energy Minister threatening to dial back supply also lifted prices, but these were mis-read and in fact, focused more on the mismatch between the tightness in the futures and the physical market. Gold (XAUUSD) and Silver (XAGUSD) Gold broke below the key $1744 support and is now eying $1729, the 61.8% retracement of the July to August bounce. Dollar strength and a run higher in US yields weighed on the shine of the yellow metal, which has seen downside pressures since last week after touching the critical $1800-level. Hawkish Fed talk this week could further weigh on the short-term prospects for Gold. Silver also dipped below the key 19 handle, erasing most of the gains seen since late July.   What to consider?   German year-ahead power prices hit a fresh record high German year-ahead power prices surged to EUR 700/MWh with Dutch TTF gas prices close to EUR 300/MWh. The surge came on the back of another leg higher in natural gas prices which rose over 8% in Europe amid concerns around the next scheduled 3-day maintenance of the Nordstream pipeline. It appears that demand destruction remains the most obvious but painful cure right now, along with a longer-term focus on ensuring a broad-based supply of energy from coal, gas, nuclear, solar, hydrogen, and more.  Australia and Japan services PMIs plunged into contraction Australia saw its services PMI drop to 49.6 in August in a flash print, from 50.9 in July. Manufacturing PMI, however, held up at 54.5, just weakening slightly from last month’s 55.7. The spate of rate hikes seen from Reserve Bank of Australia is likely taking its toll on demand and manufacturing. Meanwhile, prices remain elevated amid the persistent supply chain issues, and more rate hikes are still on the cards. Japan’s flash manufacturing PMI for August came in lower at 51.0 from 52.1 previously, nut stayed in expansion territory. Services PMI however plunged into the contraction zone below 50, coming in at 49.2 for a flash August print from 50.3 in July. The fresh COVID wave in Japan, although comes without any broad-based new restrictions, is impeding the services demand and will likely weigh on Q3 GDP growth. Europe and UK PMIs may spell further caution The Euro-area flash composite PMI and the UK flash PMI for August are both due to be released on Tuesday. Following a slide in ZEW and Sentix indicators for July, the stage is set for a weaker outcome on the PMIs too. July composite PMI for the Euro-area dipped into contractionary territory at 49.9, while the UK measure held up at 52.1. The surge in gas and electricity prices continue to weigh on GDP growth outlook, with recession likely to hit by the end of the year. China’s plan to provide loans to ensure delivery of presold residential projects is said to be of the size of RMB 200 billion Last Friday, Xinhua News reported that the PBoC, jointly with the Housing Ministry and the Ministry of Finance rolled out a program to make special loans through policy banks to support the delivery of stalled residential housing projects but the size of the program was not mentioned.   A Bloomberg report yesterday, citing “people familiar with the matter”, suggested the size of the support lending program could be as large as RMB 200 billion.  Beijing municipal government rolled out initiatives to promote hydrogen vehicles The municipal government of Beijing announced support for the construction of hydrogen vehicle refueling stations with RMB500 million for each station, aiming at building 37 new stations by 2023 and bringing the adoption of fuel-cell cars to over 10,000 units in the capital. Earlier in the month, the Guangdong province released a plan to build 200 hydrogen vehicle refueling stations by 2025. Since last year, there have been 13 provinces and municipalities rolling out policies to promote the development of the hydrogen vehicle industry.  Earnings on tap Reportedly there have been shorts being built up in Dollar Tree (DLTR:xnys) as traders are expecting that discount retailer missing when reporting this Thursday.   On the other hand, investors are expecting Dollar General (DG:xnys) results to come in more favourably, , which also reports this Thursday.  Key earnings scheduled to release today including Medtronic (MDT:xnys), Intuit (INTU:xnas), JD.COM (09618.xhkg/JD.xnas), JD Logistics (02615:xhkg), Kingsoft (02888:xhkg), and Kuishaou (01023:xhkg). Singapore reports July inflation figures today Singapore's inflation likely nudged higher in July, coming in close proximity to 7% levels from 6.7% y/y in June. While both food and fuel costs continue to create upside pressures on inflation, demand-side pressures are also increasing as the region moves away from virus curbs. House rentals are also running high due to high demand and delayed construction limiting supplies. The Monetary Authority of Singapore has tightened monetary policy but more tightening moves can be expected in H2 even as the growth outlook has been downwardly revised.     For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 23, 2022
What Should We Expect Before Winter? Will Energy Crisis Come?

What Should We Expect Before Winter? Will Energy Crisis Come?

Peter Garnry Peter Garnry 22.08.2022 18:44
Summary:  Financial conditions loosening over the past six weeks were a natural evolution of the US economy improving in July, but the Fed is poised to hike potentially 75 basis points at the September meeting to tighten financial conditions even more as the nominal economy is still running too hot to get inflation meaningfully lower. The most likely scenario is weaker equities as winter approaching as the energy crisis will hurt. Financial conditions will soon begin tightening again S&P 500 futures are trading 3.4% lower from their high last week touching the 200-day moving average before rolling over again. Sentiment has shifted as the market is slowly pricing less rate cuts for next year with Fed Funds futures curve on Friday (the blue line) has shifted lower compared to a week ago (the purple line) as inflationary pressures are expected to ease as much as betted on by the market over the past month. Fed member Bullard recently said that he was leaning towards 75 basis points rate cut at the September FOMC meeting to cool the economy further. If the Fed goes with 75 basis points while the real economy is seeing lower activity it will mean that financial conditions will begin tightening more relative to the economic backdrop. Financial conditions have been loosening since June but expectation is that we will see another leg of tightening to levels eclipsing the prior high and with that US equities will likely roll over. S&P 500 futures are now well below the 4,200 level and currently in the congestion zone from before the last leg higher. The next gravitational point to the downside is the 4,100 and below that just above 4,000. December put options on the S&P 500 are currently bid around $208 which roughly a 5% premium for getting three-month downside protection at-the-money. S&P 500 futures | Source: Saxo Group   Fed Funds futures forward curve | Source: Bloomberg   US financial conditions | Source: Bloomberg The US is headed for a recession, but when? US financial conditions eased in July lifting equities and with good reasons we can see. The Chicago Fed National Activity Index (the broadest measure of economic activity) rose to 0.27 in July from -0.25 in June suggesting a significant rebound in economic activity. The rebound was broad-based across all the four major sub categories in the index with the production index rising the most. The three-month average is still -0.09 with -0.7 being the statistical threshold for when this indicator suggests that the US economy is in a recession. The probability is therefore still elevated for a recession but the slowdown in the US economy has eased which is positive factor for US equity markets. Predicting the economy is difficult but our thesis going into the winter months on the Northern hemisphere is that it is very difficult to avoid a recession, at least in real terms, when the economy is facing an energy crisis. The most likely scenario is that the US economy will slide into a nominal recession but continue at a fast clip in nominal terms.          China is facing a 2008-style rescue of its real estate sector We have written earlier this year about the downfall of Evergrande and the other Chinese real estate developers. The stress in China’s real estate sector was a big theme earlier this year but has since faded, but recently the Chinese central bank has eased rates and today the government is planning a $29bn rescue package of special loans for troubled developers. Tensions in Chinese real estate are weighing down on the economy through lower consumer confidence and investors are increasingly reducing exposure to China has we have highlighted in our daily podcast. The PBoC (central bank) is urging banks to maintain steady growth of lending, but with the market value of banks relative to assets having declined for many years the market is no longer viewing the credit extension as driven by sound credit analysis, but more as an extended policy tool of the government with unknown but likely less good credit quality.   Source: Equities are rolling over as conditions are set to tighten
Switch Splatoon 3 Broke All Previous Sales Records, The Closer To Winter The More Visible Crisis

Tech Stocks Market: Nvidia May Release Its Growth Rate. People Are Not Interested In Playing Games Anymore?

Peter Garnry Peter Garnry 23.08.2022 14:17
Summary:  Nvidia, Salesforce, and Snowflake report earnings tomorrow providing more clarity on technology spending and the outlook for the overall technology sector. Nvidia is expected to report a big drop in its growth rate due to weakening demand in gaming and more importantly crypto mining. Salesforce is expected to show solid growth and here investors will focus on the Slack integration and what it means for growth ahead. Snowflake's growth rate is coming down and thus investors will demand improvements in the operating income. Nvidia: turbulence to continue Earlier this month Nvidia cut its outlook, which we covered in an equity update, driving by excess inventory of GPUs leading to price pressures in GPUs. Lower demand for GPUs, which we believe is mainly driven by less favourable dynamics for crypto mining, is forcing Nvidia to lower its sales outlook, cutting prices, and writing down its existing inventory. Nvidia has gone to great length explaining off the weakness as due to a slowdown in gaming, but the companies in gaming are not showing the decline in demand consistent with the slowdown Nvidia is experiencing. Because Nvidia does not know very well the end-use cases of their GPUs it is difficult for them to segment revenue, but in our view the economics of crypto mining tied to the Bitcoin price is the best explanation for the historical variance in revenue. Nvidia’s slowdown is tied to cryptocurrencies and thus higher interest rates is not only a key risk to Nvidia’s equity valuation, but it is also a risk to their demand as higher interest rates could lower cryptocurrency prices substantially from current levels. Nvidia is expected on Wednesday to report only 3% y/y revenue growth in FY23 Q2 (ending 31 July) down from 46% y/y in FY23 Q1 (ending 1 May) which is an abrupt slowdown in growth. It also highlights Nvidia’s biggest business risk. The chipmaker does not fully understand its demand function which can lead to a mismatch in supply and demand. The key question for investors is to what extent Nvidia expects growth to come back but more importantly whether they will change their outlook for operating margins. Nvidia financials | Source: Bloomberg Salesforce: can Slack sustain the growth? Salesforce is reporting FY23 Q2 (ending 31 July) results on Wednesday with analysts estimating revenue growth of 21% y/y which is in line with the long-term growth rate the company has enjoyed for 10 years. The Slack acquisition which has now been fully integrated is one of the key drivers for future growth and an acquisition that has expanded the company’s addressable market and market position in cloud business application software. Salesforce is competing against Microsoft, Oracle, and SAP, and has shown over the years that it gain market share plowing back a lot of its profits back into growth. With rising interest rates the pressure is on Salesforce to lift its operating margin and investors are likely demanding a surprise on operating margin rather than revenue in tomorrow’s earnings release. Salesforce financials | Source: Bloomberg Snowflake: consumption model vs economic uncertainty It is rare for Berkshire Hathaway to engage in technology companies let alone IPOs, but that is exactly what the investment firm did with Snowflake back in 2020. The company sits in the data analytics and cloud intersection providing a novel approach to data warehousing on the cloud at a low costs. The company has grown revenue from $97mn in 2018 to around $1.2bn in 2021 and revenue growth is expected at 72% y/y in FY23 Q2 (ending 31 July) but down from 104% y/y a year ago, but this should be expected as all high growth companies always see their growth rate coming down. The question is to what degree the growth rate is decaying over time. The company has recently disappointed analysts and there might be a downside risk to Snowflake’s results as the business model is centered around consumption which means that if technology spending is slowing down then it will hit Snowflake’s growth rate immediately. Secondly, the company’s high equity valuation relative to revenue means that investors will want to see a big improvement in operating income. Snowflake financials | Source: Bloomberg Source: Earnings preview: Nvidia, Salesforce, and Snowflake
Copper Spreads Widen as Demand Pressures Continue Amidst Industrial Slowdown

Covid Vaccine Caused The World Of Business To Come Back From The Dead, The History Repeats Itself

Peter Garnry Peter Garnry 19.08.2022 16:42
 Summary:  The world and the global equity market can be divided into two parts; the tangible and the intangible. Since 2008 the tangibles driven industry groups have severely underperformed the intangibles driven industry groups due falling interest rates and an explosion in profits by companies utilising a lot of intangibles in their business model. However, since the Covid vaccine was announced the world came roaring back causing demand to outstrip supply and thus fueling inflation. The lack of supply of physical goods in the world and deglobalisation will be a theme going forward and our bet is that the tangible world will stage a comeback against the intangible world. The Great Financial Crisis proved to be the end of the tangible world The SaxoStrats team has been talking a lot about how intangibles took over the world and now the time has come for the tangible world to win back some terrain as years of underinvestment has created enormous supply deficits in energy, food, metals, construction materials etc. We have finally created two indices capturing the market performance of intangibles and tangibles driven industry groups. These indices will make it easier to observe performance in these two parts of the economy and will enable us to quantify whether our “tangibles are coming back” thesis is correct. When we look at intangibles vs tangibles over the period 1998-2022 it is clear we two distinct periods. From 1998-2008 the tangible part of the economy delivered the best total return to investors driven by a booming financial sector, rising real estate prices, and a commodities super cycle. Since 2008, the separation of the two parts of the economy becomes very clear. Lower and lower interest rates are inflating equity valuations of growth assets and intangibles driven industry groups are seeing an unprecedented acceleration in profits due to software business models maturing and e-commerce penetrating all consumer markets fueling the outperformance. If we look at the relative performance the tangible world peaked in April 2008 and was more or less in a continuous decline relative to the intangible world until October 2020. In November 2020, the revelation of the Covid vaccine reopened the economy so fast that demand come roaring back to a degree in which the physical supply of goods could not keep up. Prices began to accelerate causing the current run-away inflation and headache for central banks. The tangible world has since done better relative to intangibles and if we are right in our main theme of an ongoing energy and food crisis combined a multi-decade long deglobalisation then tangibles should continue to do well. Intangibles are still ahead despite rising interest and the current energy crisis During the pandemic the intangibles driven industry groups did better than the physical world because the whole world went into lockdown. Intangibles driven industries were suddenly necessary for making the world go around when we could not operate in the physical world. Government stimulated the economy in extraordinary amounts across monetary and fiscal measures and the demand outcome from this stimulus has caused global demand to outstrip available supply and especially of things in the physical world. The outcome of this has been inflation and also a comeback to the tangible world, but the tangibles driven industry groups are still behind the intangibles measured from the starting point of December 2019. It is our expectations that as interest rates are lifted to cool demand and inflation in the short-term the tangible world will gain more relative to intangibles. What has been the best performing industry group since 1998? One thing is to look at the aggregated indices of the tangibles and intangibles driven industry group, but another interesting observation is to look at the best performing industry. There were three close industry groups, but by a small amount the performing industry group has actually been the retailing industry. The industry group was not creating a lot of shareholder value until after the Great Financial Crisis when the e-commerce, automation, and digitalization combined with expansion of manufacturing in China lifted profitability and market value of retailing companies. The largest retailing companies in the industry group today are Amazon.com, Home Depot, Alibaba, Lowe’s, Meituan, and JD.com. Our definition of tangible and intangible industry groups Tangible assets are loosely defined as physical assets one can touch and feel, and which can be collateralised for loans. This definition is too broad and not meaningful, because in the consumer services industry group, which we have defined as driven by intangibles, you find companies such as Starbucks and McDonald’s which both employ a lot of physical assets in their business. The way we have defined intangibles and tangibles driven industry groups was going back to 1998 and calculate the market value to assets for all the active companies at that point in time. We need calculated the average ratio for each of the 24 industry groups. All the industry groups with a ratio above the average of all groups we put into the intangibles. If the market value is substantially above the book value of assets on the balance sheet it must mean that the market is putting a value on something that is not there, or at least in accounting terms, and this is clearly the intangibles. So for McDonald’s they do employ a lot of physical assets but it is the branding, store network, product etc. that derives the meaningful value creation and thus the market is valuing the company way above the book value of its assets. One could argue that McDonald’s is a hybrid company but for our purposes we define it as being mostly intangibles driven. The full list is presented below. Banks are interesting because many think they are driven by intangibles because it employs a lot of people, but the thing is that banks are essentially deriving their profits from the spread between loans and deposits. The majority of bank loans are tied to physical assets and thus banks are tightly connected to the physical world. Tangibles driven industry groups Automobiles & Components Banks Capital Goods Commercial & Professional Services Consumer Durables & Apparel Diversified Financials Energy Food & Staples Retailing Insurance Materials Real Estate Telecommunication Services Transportation Utilities Intangibles driven industry groups Consumer Services Food, Beverage & Tobacco Health Care Equipment & Services Household & Personal Products Media & Entertainment Pharmaceuticals, Biotechnology & Life Sciences Retailing Semiconductors & Semiconductor Equipment Software & Services Technology Hardware & Equipment Source: The tangible world is fighting back
Shopes Are Forced To Cut Prices!!! Drop In Demand Showed Up

Shopes Are Forced To Cut Prices!!! Drop In Demand Showed Up

Conotoxia Comments Conotoxia Comments 23.08.2022 17:51
During the recent earnings season investors' were especially focused on consumer staples companies. Their sales figures are potentially a good indicator of the consumer situation - they can show how the average shopper is seeking savings and how much they are buying. How did the consumer staples companies perform? Thanks to the strong return of demand after lockdowns and the uncertainty of supply chains, stores have accumulated a lot of inventory, which, with the current drop in demand, could pose a significant problem. Most stores have been forced to cut prices or write off products.  Walmart (WMT), Costco (COST) and Target (TGT) are among the largest U.S. retailers. Unlike Whole Foods and Trader Joe's, they tend to have lower prices, especially Walmart. Walmart initially spooked markets by lowering its profit forecasts and warned of a rapid rate of decline in demand. However, announced second-quarter results show that WMT and COST sales rose 8.4% and 16.2%, respectively. For Walmart, they totalled $152.9 billion and Costco reported $52.6 billion in revenue. In addition, Walmart's online sales jumped as much as 12%. Despite the improved sales, the companies are struggling with the problem of giant inventories. Walmart alone had $61 billion worth of inventory at the end of Q1. Prominent among the inventory is apparel. Most likely, the introduction of a series of discounts has boosted sales levels by stimulating demand. The news reported inventory value for Walmart remains high, at $59.9 billion.  Walmart and Costco's second-quarter net income rose to $5.15 billion ($1.77 EPS) and $1.35 billion ($3.04 EPS), respectively, marginally exceeding Wall Street analysts forecasts.  The black sheep was Target (TGT), whose profits fell a staggering 51.9%, despite revenue growth. Net profit margin slipped 53.8% to 4.01%, driven by the write-down of gigantic amounts of inventory. "If we hadn’t dealt with our excess inventory head on, we could have avoided some short-term pain on the profit line, but that would have hampered our longer-term potential," - said the Target chain's CFO. Executives noted that sales of lower-priced and low-margin products are on the rise, which may indicate a consumer search for savings. This was naturally reflected in a decline in net profit margins. In general, the performance of companies in the consumer staples sector proved to be good. Consumers, taking advantage of discounts and avoiding the more expensive stores (ex. Whole Foods and Trader Joe's), are contributing to the revenue growth of the cheaper ones, which include Walmart. Profits despite the losses from excess inventory in the case of Walmart and Costco appear to be strong. Target, adopted a more drastic strategy and preferred to write off much more merchandise and suffered gigantic losses.    Rafał Tworkowski, Junior Market Analyst, Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.   Source: Summary of consumer staples' earnings - What is the consumer's situation?
What Should Happened For Gold To Go Into Renaissance

What Should Happened For Gold To Go Into Renaissance

InstaForex Analysis InstaForex Analysis 23.08.2022 18:45
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. Red lines - bearish channel Black lines - Fibonacci retracements Gold price is bouncing towards $1,750. Gold price made a low right at the 61.8% Fibonacci retracement and is now bouncing. This is positive news for bulls. Respecting the 61.8% Fibonacci level is very important for bulls. At this retracement level we usually see trend reversals. Gold's decline from above $1,800 is now complete. Price has formed a higher low at $1,727. Price remains inside the bearish medium-term channel. Is Gold price starting a new upward move from current levels that will eventually push out of the medium-term bearish channel towards $1,850-$1,900? In order for this scenario to come true we need to see a) a new sequence of higher highs and higher lows b) bulls must defend $1,727 area and not let price fall below it c) break above $1,790 upper channel boundary. On the other hand bears would want to see price form a lower high and get rejected at the bounce towards $1,790. Bears want to see a lower high being formed and then price break below $1,727. Conclusion, as long as price remains inside the bearish medium-term channel, we favor the bearish scenario.   Source: Forex Analysis & Reviews: Technical analysis on Gold for August 23rd, 2022.  
Saxo Bank Podcast: Natural Gas On Colder Weather, Wheat And Coffee Under Pressure, JPY Weaker And More

Experts Say Blue Fuel's Price Will Probably Grow

InstaForex Analysis InstaForex Analysis 23.08.2022 19:14
Relevance up to 13:00 2022-08-24 UTC+2 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. The EUR/USD pair is trying to consolidate below the parity level. Looking ahead, it should be noted that this is a rather risky game, given the fact that the dollar is strengthening its positions rather on emotions, on bursts of anti-risk sentiment in the market, as well as on the strengthening of hawkish expectations. Such fundamental factors are a priori transient. Also, the downward dynamics of EUR/USD is due to the weakening of the euro, which is under pressure from the aggravating energy crisis. But the psychological factor also played its role here: September futures for delivery on the Dutch TTF hub yesterday jumped to $3,086 per thousand cubic meters. Of course, the August downward breakthrough under the parity level is different from the July one. Figuratively speaking, a month ago, the EUR/USD bears carried out reconnaissance in force, undertaking short-term raids in the area of the 99th figure. At that time, the pair's sellers were only able to stay below the 1.0000 mark for a few hours, after which the buyers seized the initiative. Today the situation is radically different. Traders not only settled within the 99th figure, but also approached its base, clearly intending to test the support level of 0.9900. This suggests that market participants have overcome the psychological barrier associated with a kind of "sacredness" of the notorious parity level. This factor prevented EUR/USD sellers from developing the downward trend in this price area in July: traders were in a hurry to close short positions, opening long positions at the same time. Nevertheless, the risk of catching the price bottom at the moment is as great as it was a month ago. And the lower the price goes, the riskier the sales look. In other words, despite the actual overcoming of the psychologically important level of resistance, it is advisable to open short positions on the EUR/USD pair only on the waves of corrective pullbacks. Whereas entering sales, for example, at the bottom of the 99th figure with the expectation of conquering the 98th price level is very adventurous. Please note that not all dollar pairs of the "major group" have a greenback that demonstrates dominant positions. For example, the USD/CAD pair is declining today, the USD/JPY pair is frozen in place, as is the AUD/USD pair. Even GBP/USD shows some resilience, resisting the onslaught of bears. This suggests that the downward impulse for the EUR/USD pair may fade at any moment, especially after a protracted and almost non-recoiling 4-day downward shaft. Also, do not forget that the dollar is gaining momentum on the eve of the most important event of this month. We are talking about the Jackson Hole Economic Symposium, in which the heads (representatives) of many Central Banks will speak, including Jerome Powell. As a rule, the speeches of the heads of the Central Bank at this symposium are not formal. It is expected that the head of the Fed will comment on the latest macroeconomic reports (strengthening of the labor market, slowdown in the growth of the consumer price index), assessing the possible pace of tightening of the Fed's monetary policy. It is likely that the dollar is now the beneficiary of the "buy the rumor, sell the fact" trading principle. Greenback is in high demand amid growing hawkish expectations, especially after the latest speech by Fed Rep. James Bullard (who has the right to vote this year), who returned the issue of a 75-point rate hike to the agenda next month. He said he would support the idea at the September meeting, given the fact that US inflation "remains at a high level." Some other representatives of the Fed (George, Barkin, Daly, Bowman) did not rule out this option either. If Jerome Powell joins this chorus of hawks on Friday, the dollar will receive additional support. Actually, due to these expectations, the greenback is now keeping afloat, strengthening its position in many pairs. But if contrary to expectations, the head of the Fed voices restrained rhetoric, thereby hinting at the advisability of a 50-point rate hike, the dollar will weaken across the market. In this case, the EUR/USD pair will not be able to hold under the 1.0000 mark—the buyers will have a great opportunity to organize a corrective counteroffensive. In my opinion, at the moment it is best to take a wait-and-see attitude. Longs in any case look risky, but sales are best viewed at the peak (when fading) of corrective pullbacks. After all, even if Jerome Powell disappoints the dollar bulls, the euro will remain under significant pressure amid the deepening energy crisis in Europe. So, according to many experts, the cost of blue fuel is likely to continue to grow. The upward dynamics is due to a decrease in supplies from the Russian Federation and increased demand for gas against the background of the upcoming heating season and insufficient filling of underground gas storage facilities in Europe. All these factors will push the price up while putting pressure on the single currency. Therefore, it is advisable to open short positions on the EUR/USD pair on corrective bursts. At the moment, entering into sales or purchases is quite risky. Source: Forex Analysis & Reviews: EUR/USD. Euro is cheaper than dollar, dollar is more expensive than euro: new realities have created new risks    
In Germany, The Next-Year Prices For Energy Are Astonishing! Why?

In Germany The Next-Year Prices For Energy Are Astonishing! Why?

Saxo Strategy Team Saxo Strategy Team 24.08.2022 09:03
Summary:  Equities were sold off on Monday, continuing a slide from their summer rally high, in the midst of position adjustments ahead of the Jackson Hole central banker event later this week. U.S. 10-year yields returned to above 3%. China cut its 5-year loan prime rates and plans to extend special loans to boost the ailing property markets. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities lost ground and continued to retrace from the high of the latest rally since mid-June.  The market sentiment has become more cautious ahead of Fed Chair Powell’s speech this Friday at the Jackson Hole symposium and a heavy economic data calendar, S&P 500 – 2.1%, Nasdaq 100 -2.7%.  The rise of U.S. 10-year bond yield back to above 3% added to the selling pressures in equities.  Zoom Video (ZM:xnas) fell 8% in after-hours trading as the company reported Q2 revenues and earnings missing estimates and cut its full year revenues guidance. U.S. treasuries (TLT:xnas, IEF:xnas, SHY:xnas) Bonds were sold off as traders adjusted positions ahead of the Jackson Hole.  The treasury yield curve bear flattened with 2-year yields surging 8bps to 3.30% and 10-year yields climbing 4bps to 3.01%, above the closely watched 3% handle.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hang Seng fell 0.6% while CSI300 climbed 0.7% on Monday. Chinese developers gained on today’s larger-than-expected cut in the 5-year loan prime rate and the Chinese authorities plan to provide special loans through policy banks to support the delivery of stalled residential housing projects, CIFI (00883:xhkg) +11.5%, Country Garden (02007:xhkg) +3.2%.  China extended EV waivers from vehicle purchase tax and other fees to the end of 2023, but the share price reactions of Chinese EV makers traded in Hong Kong were mixed.  Great Wall Motor (02333:xhkg) soared 11%, benefiting from launching a new model that has a 1,000km per charge battery while Nio (09866:xhkg) and Li Auto(02015:xhkg) fell 4.2% and 1.4% respectively. Xiaomi (01810:xhkg) dropped 3.3% after Q2 revenues -20% YoY and net profit -67% YoY, on lower smartphone shipments (-26% YoY).  Smartphone parts suppliers, AAC Technologies (02018:xhkg) and Sunny Optical (02382:xhkg) declined 5.6% and 4.2% respectively.  The share price performance of the four companies that will be added to the Hang Seng Index was mixed, Baidu (09888:xhkg) +0.9%, China Shenhua Energy (01088:xhkg) +2.1%, Hansoh Pharmaceutical (03692:xhkg) +3.2% but Chow Tai Fook Jewellery (01929:xhkg) -0.6%.  SenseTime (00020:xhkg) gained 4.2% as the company will replace China Pacific Insurance (02601:xhkg) -2.8% as a constituent company of the Hang Seng China Enterprises Index.  ENN Energy (02688:xhkg) plunged more than 14% after reporting H1 results below market expectations.  China retailer Gome (00493) collapsed 20% after resuming trading from suspension and a plan t buy from the controlling shareholder a stake in China property assets.  EURUSD falls below parity, eyes on 0.9500 The latest concerns on the European energy crisis weighed on the Euro which was seen sipping below parity to the US dollar. Higher US yields and gains in the US dollar also underpinned, taking EURUSD to lows of 0.9926. The European recession is coming hard and fast, and the PMIs today will likely signal increasing pressure on the region. Also on the radar will be Fed Chair Powell’s speech at the Jackson Hole later this week, with a fresh selloff in the pair likely to target 0.9500 next. USDCNH heading to further highs After PBOC’s easing measures on Monday, the scope for further yuan weakness has increased. USDCNH broke above 6.8600 overnight and potentially more US dollar strength this week on the back of a pushback from Fed officials on easing expectations for next year could mean a test of 7.00 for USDCNH. Still, the move in yuan is isolated, coming from China moving to prevent the yuan from tracking aggravated USD strength rather than showing signs of desiring a broader weakening. EURCNH has plunged to over 1-month lows of 6.8216 on the back of broader EUR weakness. Crude oil prices (CLU2 & LCOV2) Crude oil prices made a recovery overnight despite the strength in the US dollar. A global shift from gas to oil, from Europe to Asia, has taken a deeper hold amid gas shortage fears accelerating in the wake of another upcoming maintenance of the Nordstream pipeline. Diesel and refinery margins have also been supported as a result, with Asia diesel crack rising to its previous high of $63 amid low inventory levels. WTI futures reversed back to the $90/barrel levels and Brent were back above $96. Comments from Saudi Energy Minister threatening to dial back supply also lifted prices, but these were mis-read and in fact, focused more on the mismatch between the tightness in the futures and the physical market. Gold (XAUUSD) and Silver (XAGUSD) Gold broke below the key $1744 support and is now eying $1729, the 61.8% retracement of the July to August bounce. Dollar strength and a run higher in US yields weighed on the shine of the yellow metal, which has seen downside pressures since last week after touching the critical $1800-level. Hawkish Fed talk this week could further weigh on the short-term prospects for Gold. Silver also dipped below the key 19 handle, erasing most of the gains seen since late July.   What to consider? German year-ahead power prices hit a fresh record high German year-ahead power prices surged to EUR 700/MWh with Dutch TTF gas prices close to EUR 300/MWh. The surge came on the back of another leg higher in natural gas prices which rose over 8% in Europe amid concerns around the next scheduled 3-day maintenance of the Nordstream pipeline. It appears that demand destruction remains the most obvious but painful cure right now, along with a longer-term focus on ensuring a broad-based supply of energy from coal, gas, nuclear, solar, hydrogen, and more.  Australia and Japan services PMIs plunged into contraction Australia saw its services PMI drop to 49.6 in August in a flash print, from 50.9 in July. Manufacturing PMI, however, held up at 54.5, just weakening slightly from last month’s 55.7. The spate of rate hikes seen from Reserve Bank of Australia is likely taking its toll on demand and manufacturing. Meanwhile, prices remain elevated amid the persistent supply chain issues, and more rate hikes are still on the cards. Japan’s flash manufacturing PMI for August came in lower at 51.0 from 52.1 previously, nut stayed in expansion territory. Services PMI however plunged into the contraction zone below 50, coming in at 49.2 for a flash August print from 50.3 in July. The fresh COVID wave in Japan, although comes without any broad-based new restrictions, is impeding the services demand and will likely weigh on Q3 GDP growth. Europe and UK PMIs may spell further caution The Euro-area flash composite PMI and the UK flash PMI for August are both due to be released on Tuesday. Following a slide in ZEW and Sentix indicators for July, the stage is set for a weaker outcome on the PMIs too. July composite PMI for the Euro-area dipped into contractionary territory at 49.9, while the UK measure held up at 52.1. The surge in gas and electricity prices continue to weigh on GDP growth outlook, with recession likely to hit by the end of the year. China’s plan to provide loans to ensure delivery of presold residential projects is said to be of the size of RMB 200 billion Last Frida, Xinhua News reported that the PBoC, jointly with the Housing Ministry and the Ministry of Finance rolled out a program to make special loans through policy banks to support the delivery of stalled residential housing projects but the size of the program was not mentioned.   A Bloomberg report yesterday, citing “people familiar with the matter”, suggested the size of the support lending program could be as large as RMB 200 billion.  Beijing municipal government rolled out initiatives to promote hydrogen vehicles The municipal government of Beijing announced support for the construction of hydrogen vehicle refueling stations with RMB500 million for each station, aiming at building 37 new stations by 2023 and bringing the adoption of fuel-cell cars to over 10,000 units in the capital. Earlier in the month, the Guangdong province released a plan to build 200 hydrogen vehicle refueling stations by 2025. Since last year, there have been 13 provinces and municipalities rolling out policies to promote the development of the hydrogen vehicle industry.  Earnings on tap Reportedly there have been shorts being built up in Dollar Tree (DLTR:xnys) as traders are expecting that discount retailer missing when reporting this Thursday.   On the other hand, investors are expecting Dollar General (DG:xnys) results to come in more favourably, , which also reports this Thursday.  Key earnings scheduled to release today including Medtronic (MDT:xnys), Intuit (INTU:xnas), JD.COM (09618.xhkg/JD.xnas), JD Logistics (02615:xhkg), Kingsoft (02888:xhkg), and Kuishaou (01023:xhkg). Singapore reports July inflation figures today Singapore's inflation likely nudged higher in July, coming in close proximity to 7% levels from 6.7% y/y in June. While both food and fuel costs continue to create upside pressures on inflation, demand-side pressures are also increasing as the region moves away from virus curbs. House rentals are also running high due to high demand and delayed construction limiting supplies. The Monetary Authority of Singapore has tightened monetary policy but more tightening moves can be expected in H2 even as the growth outlook has been downwardly revised.     For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast Source: APAC Daily Digest: What is happening in markets and what to consider next – August 23, 2022
The Organization Of Petrolum Exporting Countries May Decide To Cut Oil Production!

The Organization Of Petrolum Exporting Countries May Decide To Cut Oil Production!

Conotoxia Comments Conotoxia Comments 24.08.2022 10:34
WTI crude oil futures rose above the $93 per barrel level today. The price increase may be supported by both macroeconomic data and statements from Saudi Arabia and OPEC. The Organization of Petroleum Exporting Countries may decide to cut oil production in the event of a global recession, representatives of several countries in the alliance told The Wall Street Journal on Tuesday. OPEC and its partners, led by Russia, have been closely coordinating oil production volumes, especially since the initial impact of the coronavirus pandemic in the first half of 2020. The alliance's members will meet again on September 5 to set an oil production rate, according to the BBN news service. Meanwhile, crude inventories in the United States fell by 5.6 million barrels last week, according to data released by the American Petroleum Institute (API). The market consensus was for a much lower decline of 0.9 million barrels. The EIA's official government data will be released today. It is expected to reduce reserves by 933,000 barrels. Probably by a combination of the above two factors, oil prices rose almost 4 percent on Tuesday. Counting from the June peak, however, oil has lost about 25 percent, probably due to growing concerns that a global economic slowdown could dampen consumption. Does the Fed need to be aggressive? The U.S. dollar index rebounded on Wednesday to near 108.7 and rose again toward its highest level in 20 years. USD appreciation may have been influenced by comments from US Federal Reserve officials. Minneapolis Fed Chairman Neel Kashkari said that his biggest concern is that the extent of price pressures has been underestimated and that the central bank will have to be more aggressive for a longer period if inflation persists. This could mean tightening monetary policy even as the specter of a stronger brake on the economy looms. Kashkari added that the central bank may ease interest rate hikes when it becomes clear that inflation is heading toward 2 percent. Further clues about the Federal Reserve's action plans may emerge later this week, when Jerome Powell, chairman of the Fed, addresses the annual symposium in Jackson Hole. 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. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Source: Oil rises in price, dollar rises in strength
Coffee Is In Danger As Its Suppliers Have Troubles With Crops

Coffee Is In Danger As Its Suppliers Have Troubles With Crops

Saxo Bank Saxo Bank 24.08.2022 12:30
Summary:  A zany day for US data as the August flash S&P Global Services PMI suggests a deepening contraction is afoot in the US services sector after an already weak July reading that contrasted with strength in the ISM Services survey for July. What are we supposed to believe. Elsewhere, crude oil has cemented its comeback with an extension higher yesterday and coffee is at risk of a further rise on supply woes. In equities, we look at the latest in the Tesla/Twitter saga, earnings ahead including NVidia after the close today, and an interesting company in the EV batter supply chain in Europe. Today's pod features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: Podcast: Crude oil bounce extends. Zany mismatch in US Services sector surveys
Treading Carefully: Federal Reserve's Rate Hike Pause, ECB and Bank of England on the Horizon

USD/CNY and USD/CNH analysis. Russia’s inflation has been accelerating sharply since the invasion of Ukraine

Ed Moya Ed Moya 09.05.2022 06:53
The focus for the upcoming week will naturally be a wrath of Fed speak and the latest US CPI data which is expected to show inflation decelerated sharply last month. A sharper decline with prices could vindicate Fed Chair Powell’s decision to remove a 75 basis-point rate increase at the next couple policy meetings.   Russia Russia’s inflation has been accelerating sharply since the invasion of Ukraine. In March, CPI rose to 16.7% (YoY) and is expected to climb to 18.1% in April. The driver behind the sharp upswing has been Western sanctions, which have reduced the availability of consumer imports and key components for domestic products. CPI is expected to continue to climb in the coming months.   China China releases its Balance of Trade on Monday and Inflation on Tuesday. Both have downside risks given the disruption to business and the collapse in property sales and sentiment due to the covid-zero policy. Restrictions continue tightening in Beijing and the covid-zero policy has become the biggest headwind to a China recovery. The government reaffirmed its commitment to the policy Friday, sending China stocks lower. Additionally, US-listed China stocks face new delisting risk from US regulators that is weighing on Hong Kong markets especially, where most dual listings live. Negative headlines around Covid 19 or US delisting over the weekend could send China equities sharply lower into the start of the week. USD/CNY and USD/CNH have now risen from  6.4000 to 6.7000 in just two weeks. The PBOC remains comfortable at this stage, being a back door stimulus to manufacturers. The PBOC USD/CNY fixing will be the key indicator as to whether the authorities have said Yuan depreciation has gone far enough.
TEST

Brent - Gas Oil (Diesel) Crack Spread Jump 55% This Month!

Ole Hansen Ole Hansen 24.08.2022 14:12
Summary:  Crude oil’s bounce from a six-month low has so far seen Brent crude oil return above $100 per barrel while WTI following a brief dip to the mid-80’s has turned higher to trade around $95 per barrel. With oil fundamentals still very supportive, the market seems to be realizing the energy market is not the best hedge against an economic slowdown, and it has raised the risk of a response from specualators who recently cut bullish oil bets to an April 2020 low. Crude oil’s bounce from a six-month low has so far seen Brent crude oil return above $100 per barrel while WTI following a brief dip to the mid-80’s has turned higher to trade around $95 per barrel. In our previous update we mentioned the fact that crude oil, in a downtrend since June, had started to show signs of selling fatigue as the technical outlook had started to turnmore price friendly while fresh fundamental developments added some support as well. After finding support below $94 per barrel, the 61.8% retracement of the December to March surge, Brent crude oil now trades back above its 200-day simple moving average with the next key upside hurdle being an area below $102.50 per barrel. Source: Saxo Group While the macro-economic outlook remains challenging due to the lower growth outlook and renewed dollar strength, recent developments within the oil market, so-called micro developments, have raised the risk of a rebound. The energy crisis in Europe continues to strengthen, with gas and power prices surging to levels that measured in dollars per barrel of crude oil equivalent equates to $470 and $1,050 per barrel respectively. The latest surge being driven by recent low-water level disruptions on the river Rhine and Gazprom announcing a three-day closure of the Nord Stream 1 pipeline due to maintenance, starting on August 31.  Should Gazprom (Putin) decide for geopolitical reasons to keep the pipeline shut after maintenance ends, the risk of further spikes remains, thereby extending the already wide price gap between gas and crude oil. A development that will further support an already very visible increase in demand for fuel-based product, especially diesel, at the expense of gas. This gas-to-fuel switch was specifically mentioned by the IEA in their August update as the reason for raising their 2022 global oil demand growth forecast by 380k barrels per day to 2.1 million barrels per day. Since the report was published the incentive to switch has increased even more, and the result being sharply higher refinery margins for diesel across the world, led by Europe which so far this month has seen the Brent – Gas Oil (diesel) crack spread jump 55%.  The trigger which eventually sent crude oil higher this week where comments from the Saudi Energy Minister flagging possible cuts to production amid an increased disconnect between falling futures markets and a physical market that has yet to show weakness. While his comment sent the ball rolling, yesterday’s API report gave it an extra spin, resulting in the rally back above $100 per barrel. A recovery at this point may force money managers to reassess their exposure in Brent and WTI with a potential short-squeeze brewing. During a three-week period to August 16 these speculative traders increased their gross short positions in Brent and WTI by 43k lots to 125k lots, while cutting gross longs by 61k lots to 403k lots, developments that has reduced the net long to 278k lots, the lowest since April 2020.          Later today the EIA publishes its weekly oil and fuel stock report and expectations for a bigger-than-expected draw in crude oil stocks has risen after the American Petroleum Institute reported a 5.6 million barrel drop together with small increases in gasoline and diesel stocks. Traders will also be watching implied gasoline demand which reached a high for the year in the previous week. Crude oil hungry refineries around the world, balking at buying Russian crude, helped drive US exports to a record 5 million barrels per day, and the market will be watching this pace as well as signs of a recovery in production which dipped 100k barrels per day during the previous reporting week.  The result of the EIA report will be published on my Twitter profile: @ole_s_hansen.    Source: Brent on watch for short squeeze above $100
European Construction Markets: A Look at Poland, France, and Turkey's Prospects

The Governor Of The Central Bank Of Finland Thinks CBDC Is The Solution To The Problem

InstaForex Analysis InstaForex Analysis 25.08.2022 00:04
Relevance up to 15:00 2022-08-25 UTC+2 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. One of the theories that pushes the cryptocurrency market up is a misunderstanding of the economy and monetary policy pursued by central banks worldwide. Conspiracy theories could also be added here, but the governor of the central bank of Finland did not go that far in his interview. In his opinion, the central bank's money in digital form can be trusted unconditionally. "Some joked that the central bank's digital currency (CBDC) is the solution to the problem. Although I may not be an ardent fan of CBDC, I think that detractors unfairly downplay the potential advantages of this tool," said Olli Rehn during a speech at the University of California at Berkeley. Since last year, when the special activity began, central banks worldwide have begun to explore the benefits of CBDC. Some of them, for example, China and Nigeria, have already introduced digital currencies inside their countries. The European Central Bank is still in the middle of an experiment with the digital euro, which is due to end in October 2023. However, the bank's public announcement about the digital euro has been repeatedly criticized for the perceived dangers and risks. During the interview, Rehn also warned against the potential risks of moving to a more digital economy, as evidenced by the growth of cryptocurrency markets over the past five years. According to Rehn, the high volatility of crypto assets will be quite difficult to link with monetary policy and the general movement of prices. "Central banks should prepare for a digital future in which the demand for cash as a medium of exchange may decrease, requiring convertibility into digital money by the central bank. We must remember that our main task is maintaining price and financial stability," Ren said. If we return to the real market and set aside the future, the further direction of bitcoin will depend directly on what the Fed representatives say at the end of this week. Several politicians have already made disappointing statements that they support a further hard course of raising interest rates, which goes against market expectations and affects the demand for risky assets, which includes bitcoin. Bitcoin buyers tried returning to the $21,500 level earlier this week, but it didn't work out well. Most likely, the pressure on the trading instrument will continue to increase as investors abandon risk. The bulls' focus is now on the nearest support of $20,800, a fall to which for the third time could be fatal for the bulls. In the event of a breakthrough in this area, the $19,966 level will play an equally significant role. Its breakdown will send the trading instrument back to the lows of $19,232 and $18,600. It is necessary to consolidate above $21,500 as quickly as possible to restore the demand for bitcoin. It is necessary to break above the resistance of $22,180 and $22,670 to build an upward trend. Fixing this range will give a real prospect of returning to the highs: $23,180 and $23,680. Ether buyers have every chance to miss the nearest support of $1,605, so it is not yet possible to talk about the resumption of a bullish scenario. There will be a change in the market direction only after the return of the $1,670 level, allowing you to get to $1,740 and reach the $1,820 test. The $1,885 area will act as a further target. While maintaining pressure on the trading instrument, buyers will likely show themselves at around $ 1,540. A breakdown at this level will quickly dump the ether at a minimum of $1,490 with the prospect of updating to $1,420. Source: Forex Analysis & Reviews: The Governor of the Central Bank of Finland supports CBDC  
Despite Lower Dependence On Russia, Asia Will Feel The Energy Crisis During The Higher Import Dependence

Despite Lower Dependence On Russia, Asia Will Feel The Energy Crisis During The Higher Import Dependence

Saxo Bank Saxo Bank 25.08.2022 10:43
Summary:  Asia has been vulnerable to rising energy prices, and will now face further headwinds in securing energy supplies as bidding wars with Europe heat up. Japan, China and South Korea are the biggest importers of LNG in the region, and Asia LNG prices have shot up to record highs, following the European gas prices higher. Power shortages in China and a re-embrace of nuclear in Japan are some of the early signals of what’s to come in the winter ahead. From energy prices to energy supply Despite lower dependence on Russian energy supplies, Asia won’t be spared from the winter energy crisis. Vulnerabilities stem from higher import dependence, which has been felt so far in higher fuel prices taking the headline inflation in the region to fresh highs. This has taken a heavy toll on the emerging and frontier markets, such as Sri Lanka, Bangladesh and Pakistan which have been pushed to the brink of a collapse. The next and the more severe risk is seen from shortage of energy supplies to Asia which raises the risk of blackouts, manufacturing halts, involuntary demand destruction, calculated energy rationing, depleting forex reserves and market volatility. The shortage of gas supplies in Europe from Russia is switching demand to LNG and dictating global spot LNG prices. Asia is losing LNG cargoes to Europe in a bidding war, and inflows to Asia are expected to drop for the rest of the year. The countries most exposed in Asia from the global shortage of energy supplies are Japan, China and South Korea. The International Energy Agency (IEA), which has forecast that Asian economies will account for almost half of global gas consumption to 2025, expects LNG to play a pivotal role in meeting rising gas demand in Asia. LNG bidding wars: Asia vs. Europe Asian spot LNG prices for the summer of 2022 are at their highest level on record, about 7x the average price in 2017-2021. India and China have posted some of the largest declines in LNG imports as the spot LNG inflows have largely evaporated. China's LNG imports in the first six months of 2022 are down more than 20% year on year, while India's spot LNG imports are down around 14% year on year. Japan and South Korea are also seeing declining LNG imports. Global exports have risen by just over 10 million tonnes to 234.83 million in the first seven months, even as LNG producers try to maximise output and minimise outages. Strategic shifts remain likely Much of the energy pain has been priced in for Europe, a lot may well be in store for EM assets. Meanwhile, there are reports that natural gas inventory levels in Europe are reaching near 80% capacity targets. LNG terminals in Poland may be coming online, and more countries like Germany itself may add LNG capacity as well. So even as Europe may survive the energy crisis, the same is hard to say for the weaker emerging markets. Demand destruction is possibly the only way forward in Europe and Asia. Several provinces and cities in China have issued plans for "orderly" electricity consumption in 2022 to prepare for the risk of insufficient power supply in peak summer, and Chinese Premier Li Keqiang has repeatedly called for maximizing domestic coal production and energy supply from all sources. In the medium-to-long term, the lack of fuel supply will pose a serious threat to EM fundamental factors as it may slow down urbanization and improvements in living standards. This suggests investments in LNG infrastructure will likely ramp up to counter that threat, especially in China which remains committed to LNG use. Meanwhile, Japan’s new strategic energy plan to 2030 envisions the share of LNG in the power mix to fall to 20% by 2030 from the current 37%. This means Asia will also diversify its energy sources and shift towards broader energy dependence on a variety of sources including the traditional coal and the renewable sources such as solar, hydro, wind, hydrogen etc. Japan’s re-embrace of nuclear is a first step towards more such measures to come in the region.   Source: Asia won’t be spared in the energy crisis
German labour market starts the year off strongly

Germany Is Going Down. Will Euro (EUR) Follow It?

Christopher Dembik Christopher Dembik 25.08.2022 13:13
Summary:  In today’s ‘Macro Chartmania’, we give an update on the German economy. Back in 2019, we wrote that the German economy was structurally doomed to decelerate due to China’s slowdown and severe underinvestment in the ICT (Information and Communication Technology) sector. This was before the 2020 pandemic outbreak and the 2022 energy crisis. Now, there is little doubt that Germany will enter into a recession this year. It is facing a perfect storm : high inflation for a prolonged period, failure of the multi-decade model growth based on cheap Russian energy and massive imbalance in R&D investment. This is not to say that Germany will become Europe’s new sick man. The country has everything in hand to overcome these challenges. But, in the short-term, it is without doubt a tough time for Germany and thus for the rest of the eurozone. Click here 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. The below chart partially explains why the German economy is not out of the woods anytime soon. So far, the country has avoided entering into a technical recession. This is explained by a rebound in external demand reflecting improved export growth to Turkey and a stabilization in export growth to the United Kingdom - two key trade partners. However, a recession is certainly only a matter of time. On Monday, the Bundesbank acknowledged that a recession is likely this year. The weak economic momentum in China is a source of concern. China is Germany’s most important trading partner with an average total trade volume in recent years of around €200bn. The latest data show that Germany export growth to China is close to its lowest level since the pandemic outbreak, at minus 8.3 % year-over-year in July. Based on preliminary trade data, the recent stabilization we can see in the below chart is likely to continue. But China’s weak growth is not Germany’s only problem. Inflation is here to stay. The Bundesbank forecasts it will peak around 10 % in the coming months versus 8.5 % year-over-year in July. This is likely. Contrary to the United States, the peak in eurozone inflation is ahead of us. Even if we pass the peak, inflation will remain elevated for long due to higher energy prices (lower reliance on Russian gas and oil will take years to materialize), weak euro exchange rate (a drop of the EUR/USD cross to 0.96 by year-end is highly possible) and the easing of government measures to cap prices (eurozone inflation is actually now artificially low). On top of that, Germany is also facing a structural challenge due to misallocation of investment. This is nothing new. But this is becoming an accurate problem nowadays as the economy is showing worrying signs of weakness. Looking at the global level, Germany is well-ranked in terms of R&D investment. Here comes the issue. A big chunk of it is attributable to the struggling automotive sector. It represents more than 50 % of total R&D investment over the recent years against only 6 % in the United States, for instance. The automotive sector is now in disarray. Supply chain disruptions, weaker demand and high energy bills are hurting carmakers. In the latest ZEW report for August 2022, the current conditions subindex for the car industry was out at minus 44.1. This is a better reading than a few months ago. It fell at minus 61.7 in April 2022 on the back of the Ukraine war, for instance. This is still close to its lowest annual levels, however. The oversized share of R&D investment coming from the car industry has an immediate negative impact : the ICT sector suffers from chronic underinvestment. This negatively impacts potential growth and leadership in key technological innovation. The pandemic outbreak and the following lockdowns showed that Germany is lagging behind in digitalization notably. Germany’s economy is now at a crossroads. For years, policymakers avoided tackling the issue of overdependence on cheap Russian energy (which was a key factor behind German industry’s high competitiveness) and massive imbalance in R&D investment. Hopefully, the upcoming recession will help to move forward on these two issues. There is no other choice but to find new energy alternatives.  The process has already started. This is also urgent to reduce economic dependence on the car industry and channel R&D investment in other sectors. This has yet to happen. In the meantime, if Germany sinks into a recession, expect the eurozone to follow immediately after.     Source: Chart of the Week : Weak Germany
Saxo Bank Podcast: Natural Gas On Colder Weather, Wheat And Coffee Under Pressure, JPY Weaker And More

US Herny Hub Natural Gas As The Biggest Component In The Bloomberg Commodity Index!

Ole Hansen Ole Hansen 25.08.2022 13:33
Summary:  US Henry Hub Natural gas has following a 160% year-to-date surge become the biggest component in the Bloomberg Commodity Index, and it highlights just how extreme market moves and developments have been during the past year across the commodity sector. In this we look at what it means and what investors in commodity tracking funds should be aware of US Henry Hub Natural gas (ticker: NG) has following a 160% year-to-date surge become the biggest component in the Bloomberg Commodity Index (BCOM), the first time this has occurred in the index’ +30 year history, and it highlights just how extreme market moves and developments have been during the past year across the commodity sector. The BCOM index which together with the S&P GSCI and DBIQ Optimum Yield Diversified Commodity Index belongs to the heavy weights within the global investment industry, tracks the performance of 23 major commodity futures targeting a one-third exposure in the main sectors of energy, metals and agriculture. The target weights are set once a year every January and if prices shift significantly during the year, a reweighting will not occur until the following January. The mentioned 160% year-to-date surge in US natural gas futures has more than doubled its weight to 17.2% from 8%, and in the process made it the biggest component in the BCOM index, more than double that of WTI and Brent combined. From a sector perspective, and given strong gains across the other energy components, especially fuel-based products, it has lifted the total energy exposure by 9.2% to 40.9%. All other sectors and sub-sectors share the reduction with the biggest seen in metals with industrial and precious down by a combined 7.5%. What it means?The BCOM index is likely to become more volatile with its performance increasingly dependent on developments within the energy sector, especially natural gas. Recently the price hit $10 per MMBtu before suffering a 10% setback due to a further delay of the restart of the Freeport LNG export plant which has been closed for months following an explosion. The expected restart will increase demand for US gas and with that slow the process of adding stockpiles before the winter extraction season starts in a couple of months’ time. The biggest threat to the energy sectors strong performance is the combination of a deep recession eroding demand and a peaceful solution to the war in Ukraine sending EU gas prices sharply lower in anticipation of flows from Russia normalizing. What should investors in commodity tracking ETF’s do?The short answer is nothing as the reasons for investing in tangible assets such as commodities has not changed. The other commodity tracking funds mentioned earlier, and which also include the CRB Index will all be affected depending on their individual exposure to natural gas. Overall, the BCOM has from the outset the largest exposure and is therefore the index impacted the most. From an investor perspective these types of futures tracking commodity funds remains a cheap solution to gain exposure to commodities. With natural gas being notoriously volatile some increased price swings on the index can be expected, and if the strong gains are being maintained we should expect a very active rebalancing next January where gainers will be sold, and losers bought in order to reset the target weights. Source: Bloomberg, Saxo Group   Source: NatGas surge weighs heavily in commodity indices
The US Dollar Index Is Expected A Pullback Rally At Least In The Near Term

Doubts On The Health Of US Consumers After Dollar Tree Comments

Saxo Strategy Team Saxo Strategy Team 26.08.2022 09:47
Summary:  U.S. equities rallied ahead of the Jackson Hole Powell keynote. Comments from discount retailer Dollar Tree about pressures to cut prices and customers shifting to “needs-based consumable products” cast doubts on the health of U.S. consumers. The market chatters and then a WSJ article on a potential deal between the U.S. and China on access to audit working papers and avoiding Chinese ADR delisting sent the share prices of China internet stocks and ADRs soaring. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities rallied for the second day in a row ahead of the much anticipated Powell speech at the Jackson Hole symposium on Friday, S&P 500 +1.4%, Nasdaq 100 +1.8%.  Discount retailers, Dollar General (DG:xnys) and Dollar Tree (DLTR:xnys) reported Q2 results.  Discount General beat the relatively high expectations and finished the session down modestly -0.6%.  Peer Dollar Tree’s results fared weaker with in-line Q2 results but a downward revision of full-year EPS due to its plan to cut prices sent its share price 10.2% lower.   U.S. treasuries (TLT:xnas, IEF:xnas, SHY:xnas) U.S. treasury yield fell 7 to 8 basis points from the belly to the long-end of the curve after a strong 7-year auction. The change in 2-year yields was relatively modest, -2bps. Flows were light ahead of Chair Powell’s keynote speech at the Jackson Hole event on Friday. Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) China internet stocks rallied dramatically in a typhoon-shortened session in Hong Kong on Thursday, JD.COM (09618:xhkg) +11%, Bilibili (09626:xhkg) +10.3%, Baidu (09888:xhkg) +9.2%, Alibaba (09988:xhkg) +8.8%, Meituan (03690:xhkg) +8%, Tencent (00700:xhkg) +4.8%.  Hang Seng Tech Index (HSTECH.I) surged 6%.  Investors found optimism in the 19-point stimulus package as well as chatters among traders about unverified progress on resolving the audit working papers access issue in the heart of the Chinese ADR delisting risk.  During New York hours, the Wall Street Journal ran an article, suggesting that the U.S. and China are nearing a deal to allow American regulators to inspect in Hong Kong the audit working papers of Chinese companies listed in the U.S.  The NASDAQ Golden Dragon China Index soared 6.3%. Compared to their respective Hong Kong closing levels, Alibaba +4.5%, Meituan +4.0%, Tencent +2.1%.  Chinese property names rallied across the board by 2% to 5%.   The performance in A-shares was more measured, CSI 300 fluctuated between gains and losses and finished the session 0.8% higher.   Coal miners, oil and gas, and crude tankers stocks surged in Hong Kong as well as mainland bourses.  Mainland investors did not participate much in the sharp move higher as southbound flows registered a net outflow. AUDUSD on the backfoot in early Asian hours The USD rebound returned in early Asian hours on Friday amid a sustained hawkish tilt inn Fed commentaries ahead of Powell taking the stage at the Jackson Hole summit. AUDUSD saw downside pressures and slid to sub-0.6960 from an overnight high of 0.6991. AUDNZD found support at 1.1200 and may be looking at new highs of the cycle with the current account differentials at play. USDJPY caught a bid early as well, and rose to 136.70 with focus squarely on high Powell’s comments can take the US yields. Crude oil prices (CLU2 & LCOV2) Hawkish Fed comments and further prospects of Iran deal saw crude oil reversing lower in the overnight session. However, modest gains have returned this morning with the supply side remaining a key focus with Brent futures close to $100 and WTI at $93+. Saudi Arabia was joined by Libya and Congo in supporting the view that supply curbs may be needed to stabilise the oil market. Further concerns on Kazakhstan’s supply also emerged amid repair works required on three damage moorings at the port facility. What to consider? Some more hawkish Fed comments before we get to Powell Several Fed speakers were on the wires echoing the same message on inflation and more rate hikes. The markets are still holding their breath for wat Powell has to say later today. James Bullard (2022 voter) reiterated his year-end target of 3.75% to 4% and market expectation is not too far from that now. Esther George (2022 voter) was more open about rates going above 4%, but stayed away from a specific guidance for the September meeting. Patrick Harker (2023 voter) said rates need to be lifted into restrictive territory. Raphael Bostic (2024 voter) told the WSJ it's too soon to call inflation’s peak and that he hasn't decided yet on a 50 or 75bps rate hike next month. Tokyo CPI surprises to the upside Japan’s Tokyo inflation for August has come in close sight of the 3% mark, with headline at 2.9% y/y vs. expectations for 2.6%. The core measure was also above expectations at 2.6% y/y, coming in despite measures to help cool price pressures. Further gains can be expected later in the year as cheaper cell phone fees are reversed, and we also see threats of an energy crisis in Japan as LNG imports get diverted to Europe. This will continue to erode the purchasing power and keep the risk of a BOJ pivot alive. Europe’s energy woes French power prices soared 15% to EUR 900/MWh, more than 10x last year’s price amid expanding nuclear outages. Meanwhile in Germany, power prices for next year soared as much as 23% to an all-time high of EUR 792/MWh. UK and Italy also recorded fresh highs in power prices while Spain's parliament approved a law aimed at cutting energy use. The UK will announce its financial commitment for a new nuclear plant, Sizewell C, next week. The U.S. and China are said to nearing a deal in resolving the Chinese ADR audit papers inspection issue According to a Wall Street Journal article, Chinese securities regulators “are making arrangements for U.S.-listed Chinese companies and their accounting firms to transfer their audit working papers and other data from mainland China to Hong Kong” and “would allow American accounting regulators to travel to Hong Kong to inspect the audit records”. It is important to note that an agreement has yet to be reached and the regulators from both sides remain silent about it so far.  One of the hurdles to the proposed arrangement of transfer of audit working papers from the mainland to Hong Kong can satisfy the U.S. regulators, particularly the U.S. SEC Chair Gensler who has emphasized “full access”.  If this turns out to happen, it will not only benefit the Chinese companies that are listed in the U.S. but also sets the U.S. and China in a more conciliatory mood at least in some financial matters, and shows case the uniqueness of the position of Hong Kong.  German business sentiment is not that bad in August The headline reading is out at 88.5 versus expected 86.8 and prior 88.6. This is only a bit softer than the previous month. The same goes as well for the current conditions (out at 97.5 in August versus prior 97.7) and the expectations (80.3, unchanged compared to July). Overall, business sentiment remains soft. But given the quick economic deterioration, it could have been much worse. We still expect sentiment to further fall in the coming months as the German economy sinks into a recession. The energy crisis is hitting very hard consumers and companies – thus leading to lower demand and corporate investment. Yesterday, Germany’s benchmark year-end power kept rising (+13% in one day) to a new record of EU725/MWH. So far, the German government has spent roughly €60bn to limit the impact of higher energy prices on households and corporations. This represents about 1.7% of GDP according to the calculations of the Belgium-based think tank Bruegel. In percentage of GDP, this is still much less than many other European countries (3.7 % of GDP for Greece, 2.8 % for Italy and 2.3 % for Spain, for instance). In any case, this is unsustainable, of course. Softer July US PCE print would not derail Fed’s tightening After a softer CPI report in July, focus will turn to the PCE measure – the version of the CPI that is tracked by the Fed to gauge price pressures. Lower gasoline prices mean that PCE prints could also see some relief, although we still upside pressures to inflation given that energy shortages will likely persist and easing financial conditions mean that inflation could return. We would suggest not to read too much into a softer PCE print this week, as the stickier shelter and services prices mean that the 2% inflation target of the Fed remains unachievable into then next year. This suggests that the aggressive tightening by the Fed will likely continue, despite any likely softness in the PCE this week. U.S. discount retailers reported mixed Q2 results, highlighting pricing pressures ahead Dollar General (DG:xnys) reported revenue growth of 9% YoY to $9.4 billion, in line with the consensus estimate, and EPS of $2.98, +10.6% YoY, above the consensus estimate of $2.94.  Same-store sales in Q2 grew 4.6% YoY, above the consensus at +3.8%.  In the company’s guidance for 2022, revenue growth was raised to +11% from previously +10.0-10.5% and the same-store-sales growth was raised to +4.0-4.5% from +3.0-3.5%.  Q2 results from another discount retailer, Dollar Tree (DLTR:xnys) were however weaker, with revenue growth of 6.7% YoY to $6.77 billion, slightly below the consensus estimate of $6.79 billion.  EPS came in at $1.60, in line with expectations.  Same-store-sale for the quarter was +4.9%, below the consensus estimate at +5.0%.  The company lowered its 2022 full-year EPS guidance to $7.10-$7.40 and said that 60% of the cut was due to cutting prices.  The management said that they “expect the combination of this pricing investment at Family Dollar and the shoppers’ heightened focus on needs-based consumable products will pressure gross margins in the back half of the year”.  The comments from Dollar Tree casts a shawdow over the health of consumers in the U.S. in general.  Earnings on the tap Meituan (03690:xhkg) is scheduled to report Q2 results on Friday after the market close.  Analysts are upbeat about the food and grocery delivery platform’s potential in being benefited from the recovery of consumer demand amid the reopening and cost control initiatives.  The consensus estimate (as per the Bloomberg survey) for Q2 revenue is to grow 11% YoY to RMB48.59billion and adjusted net loss of RMB2.17 billion.  Coal miner China Shenhua Energy (01088:xhkg) and oil and gas company Sinopec (00386:xhkg) are also scheduled to report on Friday.      For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 26, 2022
USD/JPY Technical Analysis: Awaiting Breakout from Consolidation Range

Europe's Stoxx 600 First Back-to-back Weekly Loss In Two Months!

Marc Chandler Marc Chandler 26.08.2022 12:58
Overview: Ahead of the much-anticipated speech by Federal Reserve Chair Powell, the Fed funds futures are pricing in about a 70% chance of a 75 bp hike next month.  The US 10-year yield is up nearly five basis points today to 3.07% and the two-year yield is firm at 3.38%.  Asia Pacific equities were mostly higher, with China the main exception among the large markets, after US equities rallied yesterday.  Europe’s Stoxx 600 is off about 0.3% to bring this week’s loss to a little over 1%.  It would be the first back-to-back weekly loss in two months.  US futures seeing yesterday’s gains pared.  Europe’s benchmark 10-year yields are mostly 4-8 bp higher.  The greenback is mixed with the European currencies mostly higher, led by the euro, pushing above parity where options for 1.5 bln euros expire today.  The dollar bloc and yen are nursing losses.  The firmer euro tone appears to be lending support to the central European currencies, while the South African rand and Thai baht are off a little more than 0.5% to pace the declines.  Gold set the high for the week yesterday near $1765 and is struggling to stay above $1750 today. October WTI is up 1% today and 3.4% for the week.  It posted an outside down day yesterday to fell 2.5% but is consolidating quietly today. Europe’s natgas benchmark is off 0.5% to pare this week’s gain to around 25.2% after rallying 20.3% last week.  The US natgas is gaining for a third day, up 2.2%.  It was nearly flat on the week coming into today. Iron ore rose almost 3% to bring this week’s gain to 5.2%, the strongest weekly advance this month.  September copper is up 1.4% after yesterday’s 1.5% advance. December wheat is firm after a four-day rally was snapped yesterday. Poor weather is seen behind the week’s 3% gain.   Asia Pacific Tokyo's August CPI, which does a good job of reflecting national forces, rose more than expected.  The headline rate rose to 2.9% from 2.5%, its highest in 30 years.  The core measure, which excludes fresh food, stands at 2.6%, up from 2.3%.  Several banks are now warning it could surpass 3% in Q4.  A little more than half of Japan's inflation stems from fresh food and energy, with which CPI rose 1.4% from a year ago, up from 1.2%.  The Bank of Japan meets on September 22 and is expected to remain the outlier among the high-income countries and maintain the current policy setting, with the target rate at -0.10%.   There are three developments in China to note.  First, after several initiatives, which individually have been played down by observers as not going far enough, China's high-yield bond market, dominated by the property sector, have shown some new domestic interest.  The back-to-back gains are the first in four months. Second, there appears to be some progress in US-China talks about US regulators access to the accounting records of Chinese companies that list on American exchanges.  These Chinese companies have been instructed to prepare audit working papers to bring to Hong Kong to be reviewed by US officials.  Although mainland equities have languished this week (CSI 300 is off 1%), Hong Kong stocks have rallied.  The Hang Seng gained 2% this week, half of which came earlier today.  The HK China Enterprise Index (mainland companies that trade in HK) rose 3% this week.  Third, dubbed teapot, the independent oil refiners in the Shandong province have cut their run-rates to 61.3% this week, the lowest since May.  This seems to reflect the poor state of the economy, hampered by the extreme weather and shortage of electricity.   The dollar rose 2.65% against the yen last week but has gone nowhere in recent day. It continues to chop in Tuesday's range (~JPY135.80-JPY137.70). The ranges have gotten steadily narrower. Today's range has been roughly JPY136.40 to JPY137.15.  Two images come to mind, a spring coiling (dollar bullish) or a sideways affair.  Momentum indicators are mixed.  The exchange rate still seems sensitive to US interest rate developments.  The Australian dollar reached a six-day high yesterday near $0.6990, and although it closed firmly, there has been no follow-through buying.  It has consolidated down to $0.6950.  A convincing move through $0.6940 may refocus attention on the downside.  The PBOC again set the dollar's reference rate lower than the market (Bloomberg survey) expected at CNY6.8468 vs. CNY6.8542.  The gap was half of yesterday's, which was the most since February 2020.  Nevertheless, the market still extended the greenback's gains.  Around CNY6.8620, the dollar is up about 0.2% today and 0.65% for the week.  If sustained, it will be highest weekly close since August 2020.    Europe The record of last month's ECB meeting, where it delivered its first rate hike with a half-point move did not tell us anything we did not already know.  First, the rise in inflation to near 9% was the catalyst for the rate hike. That there were some who wanted a quarter-point move is not surprising.  The preliminary estimate of this month’s CPI will be released on August 31.  The month-over-month pace is expected to rise by 0.3% after a 0.1% gain in July.  However, the base effect will translate this in a slightly slower year-over-year rate (8.8%). The core rate is expected to be steady at 4.0%, though the risk is on the upside. The market has fully priced in a 50 bp hike at the September 8 meeting, the swaps market is consistent with around a chance of 75 bp move, which seems a bit exaggerated.  While there is some debate in the US whether inflation has peaked, in the eurozone this may be a brief respite.   Like the FOMC minutes, the ECB's record of its meeting should not be understood as an objective report of the meeting, but another channel by which officials communicate to the market.  In its record, the ECB insists that the 50 bp rate hike should be seen accelerating removal of accommodation, what it calls front-loading, rather than raise the terminal rate.  While many press accounts repeated it, the market seems less sanguine.  Consider that on July 1, the swap market had the policy rate at 1.23% in mid-June 2023.  Now it is 1.77%.  ECB officials were cognizant that the economies were slowing, and a recession may be near.  However, in what seems to be an innocuous comment observed that governments may be better positioned to address it.  What is striking is that this goes against ordoliberalism, which Draghi and others said its part of the ECB's DNA.  Ordoliberalism reject Keynesian demand management through fiscal policy.   We had thought there was a quid pro quo at the July ECB meeting, which allowed for the larger rate hike in exchange for the new Transmission Protection Instrument.  However, if this was case, the hawks have the advantage.  There appear to be so many hurdles to its use that, like the Outright Market Transactions (announced with Draghi's "whatever it takes") it may never be used.  The ECB's record indicated that the Governing Council would take into account analysis by the EC, the European Stability Mechanism, the IMF, "and other institutions", alongside the ECB's own analysis, with no ranking provided.  Unlike the OMT, which was to be triggered at a country's request, the TPI is done at the ECB's discretion.   The euro slipped through yesterday's low by a couple hundredths of a cent in Asia but has come back bid in Europe, and pushed above $1.00, where options for 1.5 bln euros expire at the same time today that Fed Chair Powell is scheduled to begin presenting in Jackson Hole.  The single currency has not closed above parity this week and set a new 20-year low on Tuesday slightly ahead of $0.9900.  It seems like the recent price action is more about market positioning than new developments.   Sterling set a range on Tuesday between $1.1720, a new 2-year low, and $1.1880.  It has not traded out of that range in subsequent action.  Near $1.1825, sterling is virtually flat this week against the dollar and about 0.35% first against the euro. Press reports suggest that Truss, who looks set to become the new Prime Minister in a couple of weeks could trigger Article 16 that would allow the suspension of some parts of the Northern Ireland protocol as early as September 15, when the existing arrangements that allowed for easier checks expire.  Between this, Italy's election on September 25, and the ongoing energy and extreme weather challenges cast a pall over the outlook.  America Fed Chair Powell's long-awaited speech at Jackson Hole is a few hours away, and the market is pricing in about a 70% chance that the Fed hikes 75 bp next month.  Of course, there is important data due before the FOMC meeting concludes on September 21 including the jobs report next Friday and CPI on September 13.  Still, it is unlikely that either report changes that overall assessment that the labor market remains strong, even if job growth slows a bit from the unexpectedly sharp 528k jump in July nonfarm payrolls, and that price pressures are far too high, even if the pace eases a little.  Those who insist on reading Powell dovishly seem to be focusing on the line in the recent FOMC minutes, which noted that many members recognized the risk that the Fed could overdo it.  However, what these observers seem to under-appreciate is that the observation was in the context of a general assessment of the risks and the minutes recognized an even greater risk that inflation expectations get embedded.  Indeed, in recent weeks there have been numerous essays claiming that the era of low inflation is over, due to various structural factors, including the re-shoring and pullback from globalization, the integration of large populations in central Europe and Asia, and the costs of sustainable development.   We do not think Powell is as dovish as the many pundits argue, and despite this era for forward guidance, we think it best to focus on what the Fed does rather than what it says in this context.  Among the high-income countries, no central bank has been as aggressive as the Federal Reserve, even if some like the Bank of England began normalizing policy earlier.  In addition, starting in a few days, the pace that the Fed will shrink its balance sheet will double to $95 bln a month. If dovish and hawkish are to signify anything of importance, they cannot be understood in the abstract, but placed in a context.  By the Fed's own history, and in comparison, to other high income central banks, several of whom have higher inflation than the US, it has acted expeditiously this year and knows that it is not done.  Many of those who criticize the Fed for not being even more aggressive are also among those that have the most pessimistic economic outlooks.  It is an easy space to occupy if one is not held accountable. For whom do they speak? Even the hawks at the Bundesbank are not hawkish enough for many of these critics.   Play the player or play the game?  What Powell actually says may not means as much in the short run as to how the market responds.  Consider the FOMC minutes again.  When they were initially reported, the pundits said it was dovish and the December Fed funds futures made new session highs on August 17 and follow-through buying the next day.  We insisted that a dovish reading was a mistake, and although the subsequent economic data have mostly been weaker than expected, the December Fed fund futures have sold off and the implied yield rose to new highs for the month (~3.54%) yesterday. Similarly, since those "dovish minutes" were released, the implied yield of the October Fed funds futures contract (no FOMC meeting in October, so arguably a cleaner read than the September contract) has risen by 5.5 bp, reflecting perceptions of heightened Rather than focusing on Powell's exact words, we suspect it may be more fruitful to focus on the market's penchant for reacting as if the Fed were dovish.   Ahead of Powell, the US reports a bevy of data, which include the advanced estimate of US merchandise July trade figures, and inventory, and personal income and consumption data.  Given the importance attributed to Powell's speech, the data is likely to be more important for economists as they work on their Q3 GDP forecasts than market participants.  The PCE headline deflator, which the Fed official targets are expected to slip toward 6.4% from 6.8%. The core deflator is projected to tick lower to 4.7% from 4.8%.  The CPI, which comes out first, and is based on different methodology, has stolen the deflators thunder and was cited by Powell in explaining the larger-than-signaled hike in June.  Mexico also reports July trade figures today.  Mexico's trade balance is deteriorating sharply.  The Q2 monthly average deficit was $2.69 bln.  In Q2 21, it was in surplus by $927 mln.  This has been blunted a little by surging worker remittances, and the July report is next week.  Worker remittances averaged $5.01 bln in a month in Q2 22 (vs. $4.3 bln in Q2 21). The US dollar set a five-day low yesterday, slightly below CAD1.2900.  It was probing the CAD1.3060 area in the first two sessions this week.  It is near CAD1.2935 in the Europe, and it needs to resurface above CAD1.2960-80 to open the upside again.  If the yen takes is cues from US yields, the Canadian dollar takes its from the general risk appetite reflected in the US S&P 500. Initial support is seen now near CAD1.2920.  The US dollar slipped to seven-day lows against the Mexican peso yesterday (~MXN19.85) and recovered through the North American session to MXN19.98.  It is trading sideways today above MXN19.92.  The intraday momentum readings seem to favor the dollar's upside today provided that the MXN19.90 area holds.      Disclaimer   Source: Jackson Hole and More
Chinese Earnings After Covid-19 Were In Hell And Back

Chinese Earnings After Covid-19 Were In Hell And Back

Peter Garnry Peter Garnry 26.08.2022 13:29
Summary:  Chinese earnings were less impacted than the rest of the world in the initial phase of the pandemic, but since then China has moved into crisis mode due to a housing crisis and energy constraints lately being intensified due to severe drought. We also take a look at Lululemon earnings next Thursday where expectations are high for revenue growth and a significant margin rebound. Underweight Chinese equities as growth has stalled China came through the early phase of the pandemic with less scars on the economy due to the country’s effective lockdown. The impact on corporate earnings were less than that in the rest of the world (see chart), but the subsequent phase during the reopening has been much more challenging. China is currently facing a real estate crisis, rising unemployment, energy shortages that have recently been worsened by severe droughts, and general slowdown of the economy. In many ways it looks like the Chinese economy will go through some painful years of readjustment away from being heavily dependent on heavy investments in housing and exports. Earnings in Q2 have been better than expected but Chinese earnings growth since Q3 2019 has lacked behind the rest of the world. A lot of new regulation in the private sector has lowered profit growth and investor flows into China has slowed down as well. Following the war in Ukraine investors have further cut exposure to China and our take is still underweight Chinese equities at this point. Is Lululemon still attracting the consumer amid worsening inflation outlook? While big Chinese earnings are scheduled for next week it will not have the market’s attention. From a macro perspective we are much more interested in Lululemon reporting Thursday because the company’s result will be a good barometer on consumer spending and also the outlook. We have recently seen in earnings releases from Dell and Salesforce that both companies are observing a significant change in business spending starting in July. Analysts expect Lululemon to grow revenue in FY23 Q2 (ending 31 July) by 22% y/y with operating margin expanding again from a low level in Q1. Freight rates and global supply chains have eased somewhat over the past three months and Lululemon has had great success with its introduction of footwear. The key downside risk to watch is revenue growth expectations for the current quarter ending in October as analysts expect 20% y/y which might be too optimistic given the current trajectory of the US economy. The list below shows the most important earnings releases next week. Monday: Haier Smart Home, Foshan Haitian Flavouring, Agricultural Bank of China, BYD, Pinduoduo, Trip.com, DiDi Global, CITIC Securities Tuesday: Woodside Energy, ICBC, China Yangtze Power, Muyuan Foods, SF Holdings, Shaanxi Coal, Midea Group, Tianqi Lithium, Ganfeng Lithium, Bank of Montreal, China Construction Bank, Bank of China, Great Wall Motor, COSCO Shipping, Partners Group, Baidu, Crowdstrike, HP Wednesday: MongoDB, Brown-Forman, Veeva Systems Thursday: Pernod Ricard, Broadcom, Lululemon Athletica, Hormel Foods Friday: BNP Paribas Fortis   Source: Chinese earnings are playing catch-up
Saxo Bank Members Talks About Commodities, Intervention From Japan And More

Commodities Can Weather Headwinds From An Economic Slowdown

Ole Hansen Ole Hansen 26.08.2022 15:07
Summary:  The commodity sector continues to recover with the Bloomberg Commodity Index clawing back more than half of what it lost during the June to July 20% correction. It supports our long-held view that commodities can weather headwinds from an economic slowdown with supply of key commodities being equally challenged. Gains this past week were seen across most sectors, led by agriculture and energy, the latter seeing rising demand diesel as the cost of gas continued its near vertical ascent. PLEASE NOTE: This update was written before Friday’s Jackson Hole speech from Federal Reserve Chair Jerome Powell The commodity sector continues to recover as the Bloomberg Commodity Index claws back more than half of what it lost during the June to July 20% correction. Gains were seen across most sectors, led by agriculture as weather woes lifted the cost of coffee and the three major crops – especially corn. Industrial metals received a boost from China’s continued efforts to support its weakening economy by announcing more stimulus policies that would pump billions into infrastructure projects. The energy sector was supported by surging gas prices driving up demand for diesel and Saudi Arabia flagging the risk that OPEC+ may cut production to stabilise volatile markets.In financial markets, the dollar reached a fresh 20-year high against the euro as Europe’s energy crisis continued to pressure the economic outlook for the region. US stocks tumbled and bond yields rose ahead of Friday’s eagerly awaited speech by Federal Reserve Chair Jerome Powell. In which, he was expected to reiterate his determination to bring down inflation by continuing to hike interest rates. Inflation-fighting measures, such as hiking interest rates and removing stimulus into a post-pandemic economic slowdown, was the main driver behind the recent correction in commodities. Overall, however, we maintain the view that commodities can weather headwinds from an economic slowdown with supply of key commodities being equally challenged. In the long term, support for commodities will be driven by underinvestment, urbanisation, the green transformation and deglobalisation. In the short term, prices are likely to be supported by the unfolding energy crisis in Europe, Russia-sanctions related supply disruptions, adverse weather raising fresh concerns about food supplies, and China’s efforts to support its economy.    Crude oil sellers having second thoughts While the macro-economic outlook remains challenging due to the lower growth outlook and recent dollar strength, crude oil and the product markets have nevertheless managed a strong rebound this past week. The energy crisis in Europe continues to strengthen, with gas and power prices surging to levels that measured in dollars per barrel of crude oil equivalent equates to $530 and $1,400 per barrel, respectively. The latest surge was driven by recent low-water level disruptions on the river Rhine and Gazprom announcing a three-day closure of the Nord Stream 1 pipeline due to maintenance, starting on August 31.Should Gazprom (President Putin) decide to weaponize supplies further and keep the pipeline shut after maintenance ends, the risk of further spikes remains – thereby extending the already wide price gap between gas and crude oil. A development that will further support an already very visible increase in demand for fuel-based product, especially diesel and later on this autumn also heating oil, at the expense of gas. This gas-to-fuel switch has supported the recent recovery with the US last week shipping a record amount of diesel to energy-starved customers looking for alternatives to Russian supplies.However, the trigger which eventually sent crude oil higher this week were comments from the Saudi Energy Minister and other OPEC members. These comments flagged possible cuts to production following a recent and growing disconnect between falling futures markets and a physical market that has yet to show weakness. A discrepancy we have noticed as well in recent weeks with crude oil futures being sold as a hedge against an economic slowdown with little focus on the physical market and its current price supportive supply and demand fundamentals.Having found support after retracing 61.8% of the December to March 111% surge, the Brent crude oil futures contract has now returned to $100 per barrel with trendline resistance, currently $102.25 preventing a further upside push. A continued recovery at this point may force money managers to reassess their exposure in Brent and WTI with a potential short-squeeze brewing. During a three-week period to August 16, speculative traders reduced their net long to 278k lots, the lowest since April 2020. Source: Saxo Group Rising grain prices and strong dollar re-ignite food supply worries. U.S. corn reached a two-month high and, together with more muted gains across the other major US traded crop futures, the Bloomberg Commodity Grain Index has now risen by 12% following the May to July correction which at least temporarily helped reduced worries about a global food crisis. However, with bad weather continuing to impact production and with Ukraine exports still well below previous years, the mentioned worries have started to re-emerge – not least considering the recent run up in the dollar which has only made matters worse for buyers of grains in local currencies.The latest run up in US corn has been supported by concerns that hot and dry weather in the Midwest during the final crop development period may limit the production outcome. The US is the biggest producer and exporter of corn – which is used in everything from animal feed to biofuels and sweeteners – and a poor US harvest will likely rekindle recent worries about food security that was driven by war, drought and the overall impact of climate change. In addition to the above and the mentioned slow pace of shipments from Ukraine, we are currently seeing drought in China threatening the local harvest which could lead to higher imports. Dryness within the European Union this summer has continued to drive production forecast lower.   Coffee prices surge on Brazil and Vietnam supply worries Both Arabica and Robusta coffee futures returned to strength, both rallying strongly on signs of a deteriorating supply outlook. Stockpiles in Vietnam – the world’s top supplier of the Robusta variety – are expected to halve by the end of September from a year earlier while stocks of the Arabica bean monitored by the ICE exchange has slumped to a 23-year low. Freak weather in South America during the past year has decimated the production outlook for Brazil, Colombia and Central America, while recent dryness and a continued surge in the cost of fertilizer have already started to raise concerns about next year’s crop. The Arabica futures contract paused after reaching the June high at $2.42 per pound, but the risk remains that it may push towards the 11-year high at $2.605 reached in February Industrial metals find support in China Industrial metals, led by steel, aluminum and zinc responded positively to news that the Chinese government has stepped up its efforts to support an economy damaged by repeated Covid lockdowns and a property market slump. China’s State Council announced a 1 trillion yuan ($146 billion) stimulus package with 300 billion going towards infrastructure projects, thereby doubling the amount the government has pledged towards project that will boost demand for industrial metals.Following a period of range trading between $3.55 to $3.73, High Grade Copper broke higher on Friday and may now target $3.85/lb next, but it will likely require a rally above $4/lb before speculators, having traded the metal with a short bias since April, start to reverse back to a net long. The primary focus remains on China and whether the mentioned stimulus measures will be strong enough to shore up enough support for the upside push to continue. Source: Saxo Group Gold trades steady despite fresh dollar and yield strength Gold managed a small bounce but overall, it continued its recent struggle amid headwinds from a stronger dollar and rising bond yields. Not least ahead of Friday’s Jackson Hole speech from Fed chair Powell with gold traders worried that a hawkish statement would provide additional strength to the dollar and yields, thereby further delaying gold's return to strength by potentially sending it below support at $1729. In a year where inflation has been surging higher, some investors may feel hard done by gold’s negative year-to-date performance in dollars but taking into account it had to deal with the biggest jump in real yields in more than 25 years and the dollar rising 10% against a broad basket of major currencies, its performance, especially for non-dollar investors remains acceptable. We maintain the view that the market is overly optimistic with the assumption that central banks can successfully bring inflation down to the levels currently being projected. Such a scenario would create a challenging outlook for interest rate and growth sensitive stocks, thereby raising the need for tangible assets such as gold and commodities in general to weather a period of low growth and high inflation. Natural gas, now the biggest component in the Bloomberg Commodity index The BCOM index together with the S&P GSCI and DBIQ Optimum Yield Diversified Commodity Index belongs to the heavy weights within the global investment industry for commodities. It tracks the performance of 23 major commodity futures targeting a one-third exposure in the main sectors of energy, metals and agriculture. The target weights are set once a year every January and if prices shift significantly during the year, a reweighting will not occur until the following January. However, an astonishing 160% year-to-date surge in US natural gas futures has more than doubled its weight to 17.2% from 8%, and made it the biggest component in the BCOM index for the first time ever – more than double that of WTI and Brent combined. From a sector perspective, it has helped lift the total energy exposure by 9.2% to 40.9%. All other sectors and sub-sectors have seen reductions with the biggest impacting industrial and precious metals by a combined reduction of 7.5%. These moves away from target weights will not be adjusted until next January. At which point, we may see some major activity as the rebalancing process would see selling of gainers, especially natural gas while the biggest losers will be bought.   Source: WCU: Weather woes and energy crisis lift commodities
Britain's Energy Industry Regulator Has Raised The Cap On Annual Electricity Bills. For What?

Britain's Energy Industry Regulator Has Raised The Cap On Annual Electricity Bills. For What?

Conotoxia Comments Conotoxia Comments 26.08.2022 16:55
Britain's energy industry regulator has raised the cap on annual electricity bills to keep up with the constantly rising cost of procuring electricity. The yearly bill will be capped at £3549 from October 1. That's a whopping 178% increase since last winter and an 80% increase from the current level.  An increase in the UK's price cap may occur in future quarters if demand is not met with a sufficiently large supply of fuels, especially gas.    According to estimates by consulting firm Auxilione, the price cap on electricity in the UK could rise to a staggering £7272 by April 2023. At the same time, Cornwall Insight estimates that a year from now, in August, the level could reach £6616.    Natural gas is a popular source of energy in Western Europe. Despite its small share in energy mixes, it is an essential source of heat in winter for most EU countries and helps quickly supply the electric grid when power generation from other sources drops. These two reasons are most likely behind such significant increases in electricity prices following the cut in Russian gas supply.  More quarters of record profits for energy companies?   BP and Shell are the most prominent Western European petrochemical companies in the natural gas market in terms of revenue. They rank No. 2 and No. 3 globally, respectively, and are among the most important suppliers of blue fuel to Europe, especially after the reduction of its supply from the East.   In the last quarter, BP and Shell announced record results, reporting $67.9 billion (85.9% year-on-year growth) and $100.1 billion (65.3% year-on-year growth) in revenue, respectively. However, it wasn't the strong sales growth that came as the biggest surprise to investors but the net profits, which amounted to $9.3 billion and $11.5 billion, respectively, due to significantly expanded margins.   The current market situation may indicate that the excellent performance will continue in the coming months due to the record price of natural gas and the stabilization of oil prices after the recent decline. Even if the consulting firms' estimates were halfway correct, this could mean a record price for fuel supplies for power generation and household heating.   BP and Shell, which serve much of the European market, may continue to face high demand. Despite the expected drop in production in the EU market and thus industrial demand, European countries still need to stockpile plenty of gas to fill their reserves for the upcoming winter.   European energy index prices have had their strongest week of increases in 2 months. In Germany alone, electricity prices have risen by 860% over the year. Even in France (which bases 74% of its power generation on nuclear power plants), energy prices have reached an annual increase of more than 950% after it was announced that some nuclear reactors would be temporarily halted for maintenance work. Rafał Tworkowski, Junior Market Analyst, Conotoxia Ltd. (Conotoxia investment service)   Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.   CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.   Source: Europe's energy crisis is getting worse every day - more record profits for the energy sector?
Analyst Favorites: Sunrun, Block, and Nvidia Lead the Pack Among Saxo's Top Traded Stocks with 17% Upside Potential

Global Recession Is Coming. Central Banks Want To Rein In Prices

Marc Chandler Marc Chandler 29.08.2022 12:26
The poor preliminary PMI readings, the ongoing European energy crisis, and the recognized commitment of most major central banks to rein in prices through tighter financial conditions are risking a broad recession. These considerations are weighing on sentiment and shaping the investment climate. Most high-frequency data due in the days ahead will not change this, even if they pose some headline risk.   What we have seen among some central bankers applies to market participants too  It is not so much that these central bankers are congenitally doves or hawks, but they are simply activists. Whether conditions warrant tighter or easier monetary policy, the activists lead the charge and are more aggressive than most of their colleagues in both directions. Similarly, some market participants are just extreme in their views. On the one hand, given that market returns are often characterized by fat tails, it makes sense that market views are not normally distributed. Hugging the median (there is rarely truly a consensus, despite the market jargon) draws little attention and is unlikely to promote sales of research products and newsletters.   On the other hand, depending on the corporate culture, there may be little incentive to take the risk of standing out from the crowd  It is as if some take Keynes to heart: "Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally." Sometimes, corporate culture is broad enough to accept either approach, allowing the idiosyncrasies of the economist/analyst wider latitude. However, some are conditioned to fear being wrong that they do not let themselves be right. For them, being part of the crowd is safe. Being part of the consensus nearly always gets less pushback than being an outlier.   II Three high-frequency economic prints next week will likely move the markets whether they meet expectations or not: China's PMI, the eurozone's CPI, and the US employment report  These are the three biggest economies, and each is struggling to put it mildly. The data are unlikely to change this view but could impact the policy outlook. In addition, extreme weather aggravates existing challenges, including the energy crisis, supply chain disruptions, and inflation pressures.   The US, Japan, the eurozone, and Australia's preliminary composite PMIs fell below the 50 boom/bust level  Ironically, the UK's held slightly above, though the Bank of England of a recession that will extend into 2024. Where is China?   Its July composite stood at 52.5. It had been below 50 due to the lockdowns associated with its zero-Covid policy from March through May. It reached a 15-month high in June of 54.1.    In the US, we argued that back-to-back quarterly declines in output were a bit of a statistical quirk stemming from the challenge of managing inventories in the current economic environment and trade, to a lesser extent  While recognizing that a sustained economic contraction was likely, we did not think it actually had begun and expected policymakers to act accordingly.   In China's case, the economic data is consistent with growth  The median forecast in Bloomberg's survey sees the world's second-largest economy expanding by 3.4% quarter-over-quarter after a 2.6% contraction in Q2. However, Chinese officials are acting as if it were in a recession or will be shortly. It unexpectedly shaved its benchmark one-year medium-term lending facility rate and allowed lending prime rates to be cut. The larger (15 bp) cut in the five-year rate clearly reflected the ongoing concerns about the housing market. Beijing is using command functions and coordinating capabilities to push lending from banks to the property sector and new local government borrowing for infrastructure projects. It has accepted a weaker yuan against the US dollar. It fell to a new two-year low last week. The softer the PMI, the more the market will look for further easing, including reducing required reserves.   On August 31, the eurozone publishes its preliminary estimate of the month's CPI  Headline inflation accelerated to 8.9% in July, surpassing the US 8.5% pace. The median forecast in Bloomberg's survey is for the pace to tick up slightly to 9.0%. In addition, the core rate is seen edging up to 4.1% from 4.0%.  Many EMU members are helping struggling households by cutting the VAT on energy or other subsidies, but the price of energy is rising even quicker  While there is some debate over whether US inflation has peaked, there is less debate in Europe. Prices are still rising. Seasonal patterns may be distorted, but July's monthly change has been less than June since 2003. August's monthly CPI has increased more than July's since 2000, with the one exception of 2020 when it matched July's 0.4% decline. This month's inflation is expected to rise by 0.4% after the 0.1% increase in July. The weakness of the euro also risks boosting prices. The single currency is off about 2.5% this month after falling roughly 4.8% in the previous two months.  The European Central Bank meets on September 8  The swaps market is confident that even though the flash PMI warns that output is contracting, the ECB will continue to hike rates. Following the half-point increase in July, the market expects another 50 bp hike next month. More than that, the swaps market has about a 50% chance of a 75 bp move. Press reports confirmed that several ECB officials want to discuss a three-quarter point hike. That said, they do not appear in the majority. Not to get too far ahead of the game, but the market is pricing in around 85 bp of tightening in Q4 (two meetings, October 27 and December 15). The latest Bloomberg survey found a median forecast for the euro to finish the year at $1.02. This seems increasingly optimistic. A one-standard-deviation band around the year-end forward suggests a mathematical range of about $0.9430 to $1.0675. While the median is in the upper third of the range, our subjective idea would put it in the bottom third.  That brings us to the US August employment report on September 3, just before the long holiday weekend (Labor Day, US markets closed)  Recall that nonfarm payrolls rose about twice as much as expected in July, 528k. That the average growth in the first seven months was slightly above 470k. In the Jan-July period last year, the US grew about 555k jobs a month on average. However, that appears to have underestimated US job growth. In the benchmark revisions announced last week. The US added 571k more private sector jobs in the year through March, which translates into around 47.6k more a month.   The median forecast in Bloomberg's survey has crept up in recent days to 300k  The unemployment rate, which slipped to a new low of 3.5%, is expected to remain unchanged, while a 0.4% rise in average hourly earnings could see the year-over-year pace ticked back to 5.3% year-over-year. It was at 5.2% in June and July. By nearly any reckoning, that would still be a solid report and one that will likely encourage the Fed to deliver another 75 bp hike when it meets in late September.    Market sentiment has swung back and forth a bit over the likelihood of a third consecutive 75 bp hike  Despite the poor housing sector data and the dismal PMI, the Fed funds futures market finished last week discounting a little more than a 2/3 chance of a 75 bp instead of 50 bp. Such a move would lift the target to 3.00%-3.25%. The pricing suggests that Fed will likely slow the hikes going forward. The market is pricing in a year-end rate between 3.50% and 3.75%. The market is pricing in a strong probability of a hike in Q1 23 (~80% chance). This was unchanged from before Powell's speech at Jackson Hole. In the middle of last month, the Fed funds futures market had priced in 60 bp of cuts next year. That was the gap between the implied yield of the December 2022 Fed funds futures and the December 2023 contract. It finished last week near seven basis points., about two basis points less than before Powell's speech. III The dollar's two-week rally that began August 10-11 may not be over despite the volatility spurred by position adjusting around Powell's Jackson Hole speech Powell specifically warned that some pain will be associated with efforts to rein in inflation, which the Fed is committed to doing. That seems to suggest some economic weakness will not interfere with its course until inflation convincingly moves back towards its target. Other major central banks, but the Bank of Japan, have implied pretty much the same thing.   Dollar Index:  DXY rallied from a six-week low near 104.65 on August 10 to slightly above 109.25 on August 23. However, it stopped short of the mid-July high of almost 109.30. The sell-off before the weekend took it briefly through 107.60 to set a new low for the week before recovering to almost 108.90. The MACD is rising albeit more gently, but the Slow Stochastic is overextended and suggests that this leg up is getting long in the tooth. Still, the prospect of another healthy job report at the end of next week may deter a significant retreat. The pre-weekend low approached the minimum (38.2%) retracement of the leg up (~107.50).  Euro:  The euro recorded a new 20-year low near $0.9900 on August 23, seeming to complete the leg down that began on August 10 at around $1.0370. However, the Jackson Hole-related position adjustment saw it recover to $1.0090, which marginally surpassed the (38.2%) retracement objective (~$1.0080). The next retracement (50%) and the 20-day moving average are found in the $1.0135-40 area. Yet, the euro continues to struggle and settled nearly cent off its session highs before the weekend. The MACD descent has slowed, and the Slow Stochastic is moving sideways in oversold territory. Selling into upticks continues to be the preferred strategy. A significant low does not appear to be in place. Potential next week to toward $0.9800, maybe.   Japanese Yen:  The greenback reached JPY137.70 on August 23 and settled into a narrow range in dull dealing for the remainder of the week. Although the dollar traded on both sides of Thursday's range ahead of the weekend, it remained mired in the range established on August 23 (~JPY135.80-JPY137.70). The MACD looks constructive, but the Slow Stochastic is poised to turn lower. The US 2- and 10-year yields reached their highest level in two months, which underpins the dollar. Above the JPY137.70 area, the next resistance may be encountered near JPY138.20-40, but there is little standing in the way of another run at the JPY140 area.   British Pound:  Sterling posted a bearish outside down the day before the weekend by trading on both sides of Thursday's range and settling below Thursday's low. The Jackson Hole-related position adjustment stalled at $1.19, shy of the $1.1930 (38.2%) retracement target. It reversed low and fell to $1.1735, just above the two-year low on August 23 (~$1.1720). The MACD is trending lower, but the Slow Stochastic is moving sideways in oversold territory. The 2020 low slightly above $1.14 beckons, and there is little on the charts to prevent it. Sterling cannot sustain upticks even though its discount to the US on two-year yields has fallen from around 135 bp on August 9 to 45 bp in the middle of last week before finishing around 60 bp.   Canadian Dollar:  The US dollar had given back about half of the gains scored since August 11 (~CAD1.2730 to almost CAD1.3065) before Powell spoke at Jackson Hole. That retracement and the 20-day moving average converged around CAD1.2895. The sharp sell-off of US equities ahead of the weekend saw the greenback jump to almost CAD1.3045. The MACD is rising gently, while the Slow Stochastic has begun moving sideways near its highest level in two months near overbought. The poor price action in the S&P 500, with the upside gap on the weekly charts left unfilled before the breakdown to the lowest level since August 2, warns that the US dollar could challenge the CAD1.31 area in the coming days. The nearly two-year high was set on July 14 at around CAD1.3225. That may be the next important chart area.   Australian Dollar:  Like the Canadian dollar, the Australian dollar has recovered half of the losses seen in the latest leg down that began from the August 11 high near $0.7135 and bottomed on August 23 around $0.6855. The Aussie staged a key reversal from that low and closed above the previous day's high. That retracement objective was near $0.7000 and the next (61.8%), and it was briefly surpassed before the weekend and Aussie's reversal back to $0.6900 to take out the previous session's low.   The MACD is not generating a strong signal, while the Slow Stochastic is curling higher after dipping into oversold territory. A return to the $0.6855 area looks likely, and below that could see $0.6800, though a return to the two-year low set in mid-July near $0.6680 cannot be ruled out.   Mexican Peso:  The dollar forged a bottom against the peso in mid-August around MXN19.81-82. That is also roughly where the dollar bottomed in late June. The greenback bounced to MXN20.2665 and retreated last week to around MXN19.85. The momentum indicators are not generating strong signals, but the floor looks strong. In the face of the sharp US equity losses, and the broader risk-off mood, the peso was surprisingly resilient.  It rose by about 0.65% last week. Initial resistance may be near MXN20.06 and then MXN20.11-13. Latam currencies generally outperformed within the emerging market space last week. Four of the top five emerging market currencies were from Latam, led by the Chilean peso's 5.9% rally. The current intervention program runs out on September 30 but could be extended. The intervention to support the Chilean peso after it fell to record lows last month has given the currency a reprieve but could exacerbate the current account deficit, which reached 8.5% of GDP in Q2.   Chinese Yuan: The Chinese yuan slumped to two-year lows last week as policy divergence grew more acute with the latest Chinese rate cuts. More easing of monetary policy is expected, and there is some speculation that another cut in required reserves could materialize in early Q4. China's discount to the US on 10-year bonds rose for the fourth consecutive week, and at 37 bp, was the largest weekly close since June. The PBOC has fixed the dollar weaker than expected over the last few sessions, and the magnitude seems sufficient to suggest a warning from Chinese officials not to get too carried away. That seems similar in spirit to the reports that the State Administration of Foreign Exchange called a few banks last week and warned them about large speculative yuan sales. We suspect the message is that while a weaker yuan is acceptable, the current pace is not. The next objective is around CNY6.90, but the risk of a move to CNY7.0, which did not seem so likely a couple weeks ago, seems more so now.      Disclaimer   Source: The Week Ahead: Dollar Bulls Still in Charge
Saxo Bank Members Talks About Commodities, Intervention From Japan And More

Commodities Condition After Fed Chair Powell's Speech

Ole Hansen Ole Hansen 29.08.2022 13:39
Summary:  Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to August 23. A week that saw financial markets trade increasingly nervous with stocks selling off while the dollar and yields rose ahead of Friday’s speech by Federal Reserve Chair Jerome Powell. Developments that triggered fund selling in precious metals while energy and grains was in demand due to a tightening supply outlook Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.   Link to latest report   This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to August 23. A week that saw financial markets trade increasingly nervous ahead of Friday’s Jackson Hole speech from Federal Reserve Chair Jerome Powell. Stocks sold off while the dollar and bonds yields rose in anticipation of a hawkish message. In the end that was exactly what Powell delivered on Friday when he cautioned about loosening monetary conditions prematurely while flagging the likely need for restrictive monetary policy for longer than the market had priced in to curb high inflation. Commodities The Bloomberg Commodity index rose 1.6% during the reporting week with concerns about the impact on demand from central banks hiking rates to curb economic growth being more than offset by concerns about a tightening supply outlook, especially across energy and key food commodities. Precious metals being the only sector struggling amid the mentioned dollar and yield strength. Overall hedge funds increased their exposure for a fourth consecutive week, this time by 13% to 1.1 million contracts, some 264k above the end of July low point.  Energy: Funds increased bets on rising crude oil prices for the first time in five weeks with the combined long in WTI and Brent being lifted by 22% to 338k lots. This in response to a near +8% rally during the week as the focus returned to a continued tight supply outlook with the gas-to-fuel switching providing an additional layer of support. While the combined gross long was increased by 20k lots, it was a 40k lots capitulation among short sellers that provided the main input to the change.Surging gas prices driving increased demand for diesel helped lift gas oil by 10% and the net long by 24% to 76.5k lots, still only half the 152k lots peak seen from last October. Natural gas traders cut their net short by 66% with the bulk of the change being driven by fresh longs being added. Metals: Precious metals saw renewed selling ahead of Jackson Hole with the stronger dollar and rising yields triggering a fresh round of short selling by funds. The result being a 34% reduction in the gold long to 30k while silver and platinum saw big increases in already established net short positions. Copper found support after China’s government announced fresh initiatives to support an economy struggling with Covid lockdowns and a property sector crisis. The result being a 71% reduction in the net short to -4.8k lots, an 11-week low. Agriculture: The grains sector, led by corn and soybeans, continued to recover from the June to July 25% correction. Buyers bought the sector for a fourth consecutive week with an improved fundamental outlook due to adverse weather in the US and China triggering fresh buying interest. The bulk of the 111k lots increase during this time has been driven by corn with the soybean complex also picking up steam while the two wheat contracts have seen net selling during this time.     Forex The forex market responded to a 1.6% increase in the Dollar index ahead of Jackson Hole by turning broad buyers albeit in small size of dollars against nine IMM currency futures. The two exceptions being GBP and CHF where short covering reduced the net short in both. The euro net short reached 44k lots or €5.5 billion, the highest since March 2020 when the market was in covid panic mode. Overall the gross dollar long reached a three week high at $18 billion, down 24% from last months peak and high for the year at $23.8 billion.   What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming   Source: COT: Crude oil and grains bought despite Jackson Hole jitters
Analysis Of The EUR/JPY Pair Movement

Forex: USD/JPY Is Up To 139! What Are The Possibilities?

Kenny Fisher Kenny Fisher 29.08.2022 14:57
The Japanese yen has started the week with sharp losses, with USD/JPY rising as high as 139.00 earlier today. In the European session, USD/JPY is trading at 138.52, up 0.75%. The month of August can’t end soon enough for the yen, as USD/JPY has climbed 4.0%. The yen fell 0.78% on Friday, as Fed Chair Powell delivered a clear, no-nonsense message to the markets from scenic Jackson Hole. Dollar soars after hawkish speech from Powell Powell’s speech essentially reiterated what the Fed has been saying for weeks, but the markets reacted sharply, with equities tumbling and the US dollar recording strong gains. Investors finally acknowledged that the Fed means business and will not U-turn on policy, even if inflation drops in one or two reports. Powell appeared determined to avoid any repeats of the market euphoria after inflation declined unexpectedly in July, which raised speculation that the Fed was set to make a dovish pivot. Powell reiterated that the Fed would continue to use all its tools to fight inflation, acknowledging that high interest rates would remain for some time, and the Fed would be careful not to ease policy prematurely. The highly-anticipated speech was unusually brief, which may have been an attempt to prevent investors from looking for some dovish remarks in the speech and ignoring the gist of the speech. Powell used strong language to get his message across – saying that Fed tightening would cause “some pain” to the economy, and avoiding soothing terminology, such as “soft landing”. The Fed plans to continue to raise rates until it’s convinced that inflation has peaked and is on the decline and judging by the market’s reaction, investors heard Powell’s message loud and clear. US Treasury yields have moved higher, with the 2-year yield rising to 3.445% today, up from 3.032% on Friday, prior to Powell’s speech. This upward movement is weighing on the yen, which is sensitive to the US/Japan rate differential. If the upward trend continues, we could see an assault on the symbolic 140 level. . USD/JPY Technical USD/JPY has broken above resistance at 1.3759 and 1.3822. Above, there is resistance at 1.3891. 1.3701 and 1.3632 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.   Source: Yen slumps as Powell pledges tighter policy
Copper Spreads Widen as Demand Pressures Continue Amidst Industrial Slowdown

Investors Are Exposing Themselves To Global Energy Crisis!

Peter Garnry Peter Garnry 30.08.2022 11:47
Summary:  Consumer discretionary stocks were part of the winners since the Great Financial Crisis, but with rising interest rates and soaring energy costs the consumer is getting taxed on credit and available income for discretionary consumption. These dynamics will intensify and worsen over the winter period in Europe and several sell-side firms are already cutting price targets on many consumer discretionary stocks. We identify the 10 largest global and European discretionary stocks so investors can understand their exposure to global energy crisis. Soaring energy costs are a massive tax on consumption In our recent equity note The tangible world is fighting back we highlighted how intangibles-driven industry groups had outperformed significantly since April 2008 until October 2020. Consumer discretionary stocks was part of this mega trend, but the global energy crisis and especially here in Europe is going be negative for consumer stocks going forward. Primary energy costs in percentage of global GDP has rising to 14% up from 6.5% in 2021 according to Thunder Said Energy. This is equivalent to 7.5%-points tax on GDP which must be offset by households by cutting down on other things. The most vulnerable parts of the economy are the activities that sits at the very top of the Maslow pyramid, so things such as media & entertainment and consumer discretionary. Global consumer discretionary stocks are down 13% after being down as much 20% in June this year relative to global equities since the peak in November 2021 when the Fed announced its pivot on monetary policy in the recognition that inflation was more sticky than initially thought. The initial underperformance was interest rate driven as the higher interest rates caused equity valuations to decline. Higher interest rates also impacts consumption through consumer loans etc., but the critical point to understand is that the energy crisis has not been fully priced into consumer discretionary stocks.  Consumer discretionary stocks have been one of the big winners since the Great Financial Crisis but with households under pressure we expect demand to cool dramatically and several sell-side firms have drastically cut their price targets on many European consumer discretionary companies. MSCI Consumer Discretionary / MSCI World | Source: Bloomberg Watch out for French luxury and the car industry When talk about which consumer discretionary companies that could be in trouble the European luxury industry is probably going to be the hardest hit industry. Next after is the global car industry where the big open question is whether the EV adoption is strong enough to shield Tesla from the demand destruction. The energy tax is bad for consumer stocks but good for global energy companies, so we have also highlighted the 10 largest energy companies in the lists below. The 10 largest global consumer discretionary stocks Amazon Tesla LVMH Home Depot Alibaba Toyota McDonald’s Nike Meituan Hermes International The 10 largest European consumer discretionary stocks LVMH Hermes International Christian Dior Volkswagen Inditex EssilorLuxottica Richemont Kering Mercedes-Benz BMW The 10 largest global energy stocks Exxon Mobil Chevron Reliance Industries Shell ConocoPhillips TotalEnergies PetroChina Equinor BP Petrobras   Source: Consumer stocks to be hit by historically high energy costs
The French Housing Market Is More Resilient | The Chance Of Republicans Winning The Senate Is Up

Energy Crisis In France: Higher Prices Than Anywhere Else!

Christopher Dembik Christopher Dembik 29.08.2022 13:25
Summary:  France is well-known for his strong resilience on nuclear energy (about 69 % of electricity generation). But France’s forward energy prices are currently higher than those of any other major European economies (Germany, for instance). This is puzzling. In today’s ‘Macro Chartmania’, we explain the current state of France’s electricity crisis, why the worst is yet to come and why it may last for more than a single winter. We also discuss the monetary policy implications of elevated energy prices in France and in the rest of the eurozone, in light of European Central Bank (ECB) Board Member Isabel Schnabel’s speech at Jackson Hole last week. Click here 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. France’s electricity prices are close to record highs. The baseload power price is above €900 per MWh – see below chart. Many other European countries face similar prices (Germany, Belgium, Italy, for instance). But tensions are higher in France. The French-1 year electricity forward is at the highest level among major developed European economies. Last Friday, it jumped to a historical record of €1,000 per MWh (versus €900 per MWh for Germany). This represents an increase of +1000 % compared with the long-term average of 2010-2020. This is also a clear signal that traders don’t expect prices to get back to normal anytime soon. Contrary to other European countries, France’s energy crisis has little to do with the Ukraine war and the European sanctions against Russian gas. This is mostly due to corrosion issues in nuclear reactors (this caused the shutdown of about half of France's fifty-six nuclear reactors.) and low water levels related to unusual heat during the summer (three nuclear reactors were shut down temporarily because of climate conditions this month). The country is highly dependent on nuclear energy. This represents about 69 % of electricity generation (this is a larger share than any other country). About 17 % of nuclear electricity is produced thanks to recycled materials. Summer heat will likely stop soon. But corrosion issues are partially structural and here to stay. In a statement a few months ago, the French nuclear energy regulator ASN mentioned that a restart of nuclear reactors closed due to corrosion could take up to several years. The risk of electricity shortage is therefore real this winter (no matter how the weather conditions are, actually). During the summer, electricity demand is around 45 GWh. During the winter, higher consumption will push electricity demand around 80-90 GWh on average. This will put under tension all France's electricity infrastructure, thus increasing the risk of a shortage. We think that France is certainly in a worse position than Germany when it comes to energy supply (at least, in the short-term). So far, the French government has mitigated the energy crisis by capping electricity and gas prices for households (gas prices were frozen at Autumn 2021’s levels and electricity price increase was capped at +4 % this year). This does not apply to corporations, however. This cannot last forever. The cap on energy prices will expire at the end of the year for gas and in February 2023 for electricity. The government is not planning to extend it further. It is too costly (about €20bn so far this year on a total of €44bn of various measures to support companies and households facing high inflation. This represents the total annual budget for education in France). From 2023, more targeted measures to help the low-income households to cope with higher energy prices is the most likely scenario. Will it be enough ? This is far from certain. A repeat of the 2018 Yellow Vest Movement (meaning massive demonstrations against the cost of living) is not out of the table, in our view. Eurozone monetary policy implications France is not the only European country in a very uncomfortable position, at the moment. The situation is worse than in its counterparts. But all the continent is facing the prospect of a difficult winter due to persistent high inflation. Contrary to the United States, we think the peak in eurozone inflation is ahead of us. The explosion of power prices is one of the three factors (along with a weak euro exchange rate and the easing of government measures to cap prices from 2023 onwards) which make us consider that inflation will remain elevated for a prolonged period in the eurozone. In terms of monetary policy, this means the ECB is likely to be more aggressive in the short term before potentially reviewing its policy stance if the recession materializes. The ECB Board Member Schnabel was very clear about it at last week’s Jackson Hole Symposium. In her speech, she argued that three arguments of why central banks should act with determination : 1) inflation uncertainty (there is no way to predict accurately the evolution of energy prices in such a volatile environment, for instance) ; 2) credibility ; and 3) the cost of acting too late (in some respect, the ECB certainly waited for too long between the February policy pivot and the July interest rate hike). In the short-term, this means there will be more weight on realized data (especially the preliminary release on Wednesday of the August eurozone CPI expected at a new record high of 9 % year-over-year). This increases the probability of a significant move of 75 basis points at the next Governing Council of 8 September.   Source: Chart of the Week : The energy crisis is hitting France
Hawkish Fed Minutes Spark US Market Decline to One-Month Lows on August 17, 2023

Fed Announced It Will Have No Pity For The Markets!

Swissquote Bank Swissquote Bank 30.08.2022 12:58
The US futures look better after the post-Powell selloff, but the market sentiment will likely remain morose after Powell’s clear declaration that the Federal Reserve (Fed) will have no pity for the markets, and continue tightening its policy until it puts inflation on a sustainable path toward its 2% policy target. At this point, it’s difficult to get a pricing that goes against the Fed. Happily for oil bulls, the Fed drama doesn’t concern the energy stocks, which had a good session yesterday thanks to firmer oil prices. The barrel of US crude advanced past the 200-DMA. The European nat gas futures however slumped 20% yesterday, as Germany said its gas stores are filling up faster than planned. But energy prices remain exorbitantly high, and governments are increasingly frustrated with the skyrocketing energy prices that hammer economies and households, while putting a lot of money in energy companies’ pockets. As a result, the European policymakers are now cooking new measures to stop the excessive rise in energy prices and decouple the price of gas from electricity. Investors will be watching how the energy companies will react to the measures. On the data front, Germany and Spain will release the latest inflation update today. The euro is making a great effort to throw itself above parity against the US dollar, and stronger than expected inflation figures could help boosting the European Central Bank (ECB) hawks, but the topside should remain limited. Special focus on Uber: is the company a good play in the long run, what are the short-term risks? Watch the full episode to find out more!   0:00 Intro 0:27 Equities under pressure 1:37 But energy stocks do well 2:17 European nat gas drops 20% on encouraging German news 2:48 European leaders will step in to bring energy prices lower 5:00 Eurozone inflation data in focus 7:59 Focus: Uber 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. #Energy #crisis #natural #gas #prices #crude #oil #energy #stocks #Exxon #OccidentalPetroleum #USD #EUR #inflation #ECB #hawks #Uber #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   Source: Europeans preparing to intervene in energy markets! | MarketTalk: What’s up today? | Swissquote
EUR: German IFO Data and Central Bank Hawkishness Impact Euro/USD Range Trade

The US Dollar (USD) Surrendered Earlier Gains And Remains Lower!

Marc Chandler Marc Chandler 30.08.2022 13:12
Overview: Corrective pressures were evident yesterday and they extended today in Asia and Europe but seem to be running their course now. Market participants should view these developments as countertrend and be wary of waning risk appetites in North America today. Most Asia Pacific equities rallied earlier today, save China and Hong Kong. Europe’s Stoxx 600 has retraced most of yesterday’s losses and US futures are trading higher. Benchmark bond yields are softer with the US 10-year note yield off about 3.5 bp to below 3.07%. European yields are mostly 3-5 bp lower, but UK Gilts are pressured by reports that foreign investors were heavy sellers last month. The US dollar surrendered earlier gains yesterday and is mostly lower today. The Australian dollar is leading the charge, despite a much sharper than expected fall in building approvals. Among emerging market currencies, only the Philippine peso and Taiwanese dollar are failing to push higher. Gold is soft, despite the weaker greenback and lower yields. It is nursing losses for the third session. After a sharp 4.25% gain yesterday, October WTI is pulling back by around 1.75% today toward $95. US natgas is off 2%, while Europe’s benchmark has extended yesterday’s 19.5% drop with a further 6.6% slide today. China’s property sector woes are weighing on the steel sector and iron ore prices have fallen 8% over the past two sessions and is below $100 for the first time this month. December copper is off 1% after falling 2.3% yesterday. December wheat is paring yesterday’s 4.6% gain.  Asia Pacific Japan reported that its unemployment rate was unchanged in July at 2.6%. The job-to-applicant ratio unexpectedly ticked up to 1.29 from 1.27. The upticks in the yen, however, are more related to the pullback in US yields than the developments in the Japanese economy. Tomorrow, Japan reports July industrial output, and after the 9.2% surge in June, related to the lagged response to re-opening in Shanghai likely eased a bit. Retail sales offer the opposite trajectory. They fell a whopping 1.3% in June and likely stabilized in July, allowing for a small gain. In June apparel and general merchandise purchases were particularly weak. Rising interest rates are squeezing Australia's property market more intensely than expected. Building approvals plunged 17.2% in July, six-times more than the median forecast in Bloomberg's survey. The drop was driven by the private sector apartments rather than houses. The number of private sector approvals was the lowest since January 2012. The disappointment did prevent the Australian dollar from recovering today, amid the general pullback in the US dollar, but the odds of a 50 bp hike next week were shaved to around 65% from 70% yesterday. Rains in Sichuan have eased the energy emergency allowing large-scale industry to result production this week. The provincial government downgraded the emergency to level-one from level-two yesterday and several companies (including Toyota, Honda, and Foxconn) indicated a resumption of production. Cooler weather was also helping reduce household demand for electricity. Yet, Sichuan has gone from drought to flood. Reports suggest that nearly 325 mines, including 60 coal mines, with 5000 workers have been asked to take shutdown for precautionary reasons. Meanwhile, the zero-Covid policy has led to lockdowns in parts of Shenzhen. Softer US rates and a downside correction in the US dollar after reaching JPY139 yesterday has seen the greenback ease toward JPY138.15. The JPY137.95 area corresponds to a (38.2%) retracement of the dollar rally since before Powell spoke at Jackson Hole at the end of last week. We suspect the corrective pressure have been exhausted or nearly so and expect North American traders to buy the dollar the on the dip. Yesterday's low was slightly above JPY137.35. The Australian dollar took out a neckline of what may be a potential head and shoulder top yesterday but recovered to close above it (~$0.6850). Follow-through buying today has lifted it to around $0.6955. Here too, we think the short squeeze has nearly run its course in the European morning. The $0.6965-70 area may offer the nearby cap. For the fifth consecutive session, the PBOC set the dollar's reference rate lower than the market (median in Bloomberg's survey) expected, and the gap today (~249 pips) was the most since the Bloomberg survey began four years ago (CNY6.8802 vs. CNY6.9051). The PBOC seemed willing to accept an orderly decline of the yuan, especially given the divergence of monetary policy, but wants to avoid a vicious cycle. This was underscored by its announcement of a consultation period as it considers a news policy to require prior approval for companies wishing to sell long-term debt in offshore markets. At the same time, we read the fixing as a type of affirmation through negation, i.e., the PBOC's action acknowledges the strength of the demand for dollars. The dollar rose to a two-year high yesterday, after rising nearly 2% over the previous two weeks. Today, it slipped less than 0.1%. Europe Attention turns to eurozone's August inflation, ahead of tomorrow's aggregate report. Spain began with a 0.1% month-over-month increase that saw the harmonized year-over-year pace ease for the first time in four months. It slipped to 10.3% from 10.7%. However, the core rate rose to 6.4% from 6.1%. German states have reported, and they all showed of the year-over-year rate, even as the month-over-month change moderated to 0.2%-0.4%. The median forecast in Bloomberg's survey sees a 0.4% increase in the harmonized rate for an 8.8% year-over-year increase (from 8.5% in July). The risk is on the upside. With the surge in energy prices, the Bundesbank chief Nagel warned that Germany inflation could rise to over 10%. The EU is holding an emergency energy ministers meetings on September 9 to consider efforts to coordinate a response. The focus appears capping gas prices and/or decoupling electricity prices from gas prices. EU countries have already "spent" and estimated 280 bln euros on tax cuts or subsidies for energy. Quietly, the German two-year yield has doubled in the past two weeks from 0.53% on August 15 to 1.10% yesterday. The German yield has risen faster than comparable US yield. As a consequence, the US 2-year premium has fallen below 240 bp for the first time since early July. It recorded a three-year peak on August 5 a little more than 277 bp. One of the spurs to the more than 22 bp increase in the German two-yield over the past two sessions has been the push from some of the hawks for a 75 bp move at next week's ECB meeting. While it is noteworthy that it was not done via leaks to the press this time, as sometimes is has appeared in the past, and the market seems to think it is likely. The swaps market shows it be a little more than a 60% chance of materializing, up from about a 20% chance a week ago. Our own subjective assessment is that a steady series of 50 bp hikes is more likely to achieve a consensus than a jump to 75 bp and a return to 50 bp or even 25 bp. Given the fragile economic condition, and with little to gain from a larger move than cannot be achieved through the ECB's forward guidance, a stable, predictable course is likely preferable. That said, the provocative tactics of the hawks seems to be an attempt to deliver a fait accompli to the ECB. If they deliver a 50 bp hike, they will appear as dovish versus expectations and could pressure the euro lower in disappointment. The short-covering bounce in the euro began yesterday when the $0.9900 area held. There are a little more than 3 bln euros in options struck there that roll-off today. The gains maybe spurring demand related to 1.55 bln in options struck at $1.00 that expire tomorrow. The euro is at its best level since Powell spoke. Just prior to the Fed Chair's speech last week, the euro spiked to $1.0090. This area should provide a cap now. Sterling's recovery off yesterday's two-year low (~$1.1650) seems less inspired and has not been able to push above yesterday's high (~$1.1785). And even if it does, the upticks will likely be limited to the $1.18 area, which is the (61.8%) retracement of the decline since the high set before Powell spoke (($1.1900). The intraday momentum indicators are stretched by the gains of a little more than half a cent in the European morning. Separately, the decision by the Hungarian central bank is awaited. It is expected to hike the base rate by 100 bp today after hiking by 300 bp last month. This move will bring the base rate to 11.75%. It was at 2.4% at the end of last year.    America The two-year breakeven has now fallen slightly more than 25 bp over the past three sessions to about 2.70%. Over the three sessions, the nominal two-year yield has risen by a grand total of three basis points to 3.42%. The odds of a 75 bp hike next has edged to about 75% from about 66% before Powell spoke at Jackson Hole and gave no signal besides saying it could be 50 bp or 75 bp move. The difference, the 25 bp is coming in addition to the other anticipated moves. What this means is the market now sees the year-end Fed funds target closer to 3.75% rather than 3.50%. The implied yield of the March 2023 Fed funds futures is pricing in about an 80% chance of a hike in Q1, unchanged for the third consecutive session. The market also continues to price in 7-9 bp of easing by the end of next year as it has for the past five sessions. Ahead of the US jobs data, which are the highlight of the week, with the ADP estimate tomorrow, house prices, the Conference Board's consumer confidence, and the JOLTS report on job openings are featured today. While the Fed's Kashkari's comments about the stock market and the Fed's objective of tightening of financial conditions are really revealing anything new, the undiplomatic expression seemed to set the chins wagging. Equity prices are part of the financial conditions but so are interest rates, ease of credit, and asset prices more generally. House price inflation appears to be slowing and this alongside weaker financial asset prices are part of the process. Canada reports its Q2 current account surplus, which is reflecting the positive terms-of-trade shock. Consider that in 2019, before Covid, Canada recorded a C$47 bln current account deficit. With a Q2 surplus of C$6.8 bln expected, it would mean Canada has recorded a nearly C$11 bln current account surplus in H1 22. Tomorrow, Canada reports Q2 GDP and it is expected to have accelerated to around 4.4% form 3.1% in Q1. Still, even with today's modest gain, the Canadian dollar is off about 2.7% this year against the US dollar. The broader risk environment is a more important driver of the exchange rate. Mexico reports its July unemployment rate. It is expected to have ticked up to 3.53% from 3.35%. The market does not appear sensitive to this time series. Tomorrow, the central bank's inflation report is due, but it’s unlikely to impact expectations for a 75 bp hike late September. The US dollar set a new high for August near CAD1.3075 before pulling back toward CAD1.2990. Follow-through selling today has been limited to the CAD1.2970 area, just above CAD1.2965 retracement objective. The momentum indicators suggest that losses below that will be limited and instead the greenback could recover toward CAD1.3025. The Mexican peso's resilience is evident. It continues to trade well within this month's range. The dollar has built a base around MXN19.81 and has not closed above the 20-day moving average (~MXN20.0735) since August 2. However, further dollar losses today look limited.     Disclaimer   Source: Turn Around Tuesday Began Yesterday, Likely Ends before Wednesday
The USD/JPY Pair Above Maximum. Long Positions Gain Profits

Japanese Yen Is Under Pressure As Japan Releases Retail Sales And Consumer Confidence

Kenny Fisher Kenny Fisher 30.08.2022 13:24
The Japanese yen is in positive territory today after starting the week with sharp losses. USD/JPY is trading at 138.22, down 0.34%. Japan releases a host of events on Wednesday, including retail sales and consumer confidence. Retail sales for July is expected to come in at -0.5% MoM, following a 1.4% decline in June. Consumer confidence remains weak, with a July estimate of 31.0, following the June read of 30.2. The Japanese consumer is in a sour mood and nervous about the economy, so it’s no surprise that she is holding tight to the purse strings as inflation continues to rise. Yen remains under pressure The yen remains under pressure and took it on the chin after Fed Chair Powell’s speech at Jackson Hole on Friday. Powell’s brief speech went straight to the point, pledging to continue raising rates until inflation was brought under control. Powell pointedly said that one or two weak inflation reports would not cause the Fed to U-turn on its tightening, a veiled reference to the market euphoria which followed the July inflation report, which was lower than the June release. With the equity markets taking a tumble after Powell’s speech, it appears that investors have finally gotten the Fed’s hawkish message. Powell’s speech removed any doubts about the Fed’s plans to continue raising rates, but the size of the increases will depend not just on inflation, but also on other economic data. Overshadowed by Jackson Hole, US Personal Income and Spending data was weaker than expected. As well, the Core PCE index, the Fed’s preferred inflation indicator, fell to 6.3%, down from 6.8% and below the forecast of 7.4%. If Friday’s non-farm payrolls report is weaker than expected, it would be a clear indication that the sharp increase in rates is having its desired effect and the economy is slowing. In such a scenario, Fed policy makers may be more inclined to raise rates at the September meeting by only 50 basis points, rather than 75bp. . USD/JPY Technical USD/JPY is testing support at 1.3822. The next support line is at 137.01 1.3891 and 1.4012 are 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.   Source: Yen stabilizes after hitting 139
Crude Oil Price: A Crucial Event Takes Place In The Week Ahead

Brent Crude Oil, WTI, Dutch TTF Gas And Henry Hub Situation. Shortly Gains And Long-Time Situation

Kim Cramer Larsson Kim Cramer Larsson 30.08.2022 14:04
Brent Crude oil has broken above its short-term falling trendline and seems to start reversing the down trend trading around the 0.382 retracement level at USD104.38. Next key resistance is 110.67-112.32, the latter is the 0.618 retracement of the June-August Bearish move. A close above those levels 120-125 is in the cards.If Brent oil drops back below the falling trend line the uptrend is likely to be reversed. If closing below 98.14 it is reversed and 90 is likely to be tested. RSI is still below 60 and needs to close above to underline the uptrend. Source: Saxo Group On the weekly chart we can see that Brent Oil retraced 0.382 of the bullish trend since 2020. RSI is testing its falling trend line and a close above is an indication of Brent resuming its medium- to long-term uptrend Source: Saxo Group WTI Lights Sweet Crude oil that broke out of its falling trendline last week is now in a confirmed uptrend (higher highs and higher lows). However, RSI has not yet confirmed the trend by closing above 60. Resistance at around USD100.23. If buyers can lift WTI above that level the big test is can it move above 55 and 100 SMA’s. If that scenario plays out a move to 0.618 retracement at around 109.18 is likely.If WTI closes below 91.13 the downtrend is likely to resume Source: Saxo Group WTI only retraced around 0.236 of the 2020 extreme low (where WTI oil went to minus 40.32) till (so far) 2022 peak. RSI is still above i.e. in positive sentiment and could test its falling trend line with in a week or so.If WTI loses steam and closes below 85.41 a bearish move to 75.27 and even 65.25 could be seen. Source: Saxo Group Dutch TTF gas has peaked out a few Euros below previous peak at EUR345 – at least short-term - and has since retraced. A correction down to around 240 which is the 0.382 retracement level and a test of the short-term rising trendline is likely. However, a correction down to test the medium-term (black) rising trendline is not unlikely before uptrend quite possibly resumes.RSI is at the time of writing below its rising lower trend line but there is no divergence indicating we could see higher price levels in coming weeks. Source: Saxo Group Henry Hub Gas is having trouble closing above USD10 and could be set for a correction. If breaking the steep rising trendline and drops below 8.87 a correction down to 8.23 is likely but could spike down to around 7.68-7.55 key support.RSI is at the time of writing breaking below its rising trendline and if closing below it support the correction picture. However, there is no divergence on RSI indicating higher levels after a possible correction. Source: Saxo Group   Source: Technical Update - Oil breaking falling trendline, building uptrend. Gas rejected at previous peaks but higher prices are in the cards
Canadian Dollar Falters as USD/CAD Tests Key Support Amidst Rising Oil Prices and Economic Data

"Fight Against Inflation Is Our Primary Concern..." Central Banks Predicate

Craig Erlam Craig Erlam 30.08.2022 16:05
Stock markets are bouncing back on Tuesday following a rocky couple of weeks as investors grew nervous about the economic impact of tightening. Fed Chair Jerome Powell could not have been more clear on Friday on the central bank’s tightening stance and unlike the warnings from his colleagues, the message appeared to have finally gotten through. Which makes today’s move all the more curious. It’s not the fact that we’re seeing a rebound as equity markets don’t move in straight lines, rather it’s the strength of it that is interesting. Prior to Friday’s speech, investors appeared determined to cast aside warnings in favour of the dovish pivot narrative and today’s moves may suggest the same could still be true after a brief pullback. With a 75 basis point rate hike now viewed as the more likely outcome from the Fed in a few weeks and ECB officials putting a similar move on the table ahead of its meeting next week, how strong of a recovery can we really expect in equity markets? Central banks have made it perfectly clear now that the fight against inflation is their primary concern and a hard landing may just be the price to pay. While that may change if we see any significant improvement on the inflation front over the coming months, the risks still appear more tilted to the downside for the economy. A big moment for bitcoin Bitcoin is enjoying a slight recovery today after surviving a brief dip below $20,000 over the weekend. The hawkish sentiment by Powell took its toll at the end of the week but crypto bulls are fighting back to defend what could be a key level. We may need to see more of the resilience displayed in recent months as a failure to do so could quickly see bitcoin retesting the June lows. 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.   Source: A curious rebound
The USD/CHF Pair Is All Set To Revisit The Monthly Low

Forex: USD/CHF Is Growing For The Third Day In A Row!

Kenny Fisher Kenny Fisher 30.08.2022 16:22
USD/CHF is up for a third straight day. In the European session, the pair is trading at 0.9717, up 0.36%. The US dollar continues to show strength against most of the majors. The Swiss franc has fallen sharply, with USD/CHF climbing 360 points since August 16th. KOF Economic Barometer falls again The KOF Economic Barometer continued its downward trend, declining for a fourth straight month in August. The index dropped to 86.5, down from 90.1 in July and shy of the estimate of 89.0. Much of the August decline was related to consumer consumption, but the manufacturing sector is also showing weakness. Similar to the situation in other major economies, manufacturing activity has been hurt by supply chain disruptions and a lack of employees. Switzerland will release the August inflation report on Thursday. The estimate for August CPI is 0.2% MoM, after a 0.0% reading in July. The Swiss central bank (SNB), which is not shy about intervening in currency markets, will be watching carefully. Higher inflation means the Swissie has less purchasing power, which suits the SNB as it has a paramount interest in the Swiss currency remaining weak so that Swiss exports are competitive. In the US, the markets continue to digest Fed Chair Powell’s hawkish speech on Friday. The “read my lips” speech in which Powell firmly stated that there would be no pivot in policy appeared to have hit its mark, as equity markets took a tumble on Friday and again on Monday, although we are seeing a rebound today. The Federal Reserve holds its next policy meeting on September 21st and we can expect plenty of discussions as to whether the Fed will hike by 50 or 75 basis points. CME’s FedWatch has pegged the likelihood of a 75bp move at 66.5%, with a 33.5% likelihood of a 50bp move. These numbers are sure to change in the coming weeks, as the markets hunt for clues as to the Fed’s plans. . USD/CHF Technical USD/CHF is testing resistance at 0.9720. Next, there is resistance at 0.9760 There is support at 0.9642 and 0.9524 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.   Source: Swiss franc falls to 5-week low
No To Hunger - Ships From Ukraine Arrived To Africa, Canada's Crops Feel Better

No To Hunger - Ships From Ukraine Arrived To Africa, Canada's Crops Feel Better

Saxo Strategy Team Saxo Strategy Team 31.08.2022 08:52
Summary:  US stocks move below the key 4,000 level for the first time since July, while also moving under the 50-day moving average, signifying the S&P500 could gain momentum to the downside and potentially retreat to the low set in June. Selling pressure in GBP ramps up, crude oil prices tumble from fresh highs, iron ore retreats below the key $100 level and could remain contained for the year ahead, meanwhile, coal prices remain in record territory. The first shipment of wheat out of Ukraine arrives in Africa. In company news, we cover the latest in the EV space, plus what the latest is from Crowdstrike, the cybersecurity giant. Here is what's happening in markets right now, and what to consider next. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) again on the back foot, being pressured lower US equities fell for the third straight day on Tuesday, with the S&P and the Nasdaq both falling 1.1%. Pressure fell upon equities last night for several key reasons; firstly the market had another reality check - rate rises will intensify. New York Fed President John Williams said on Tuesday restrictive policy will be needed to slow demand, and rate hikes have not achieved that yet. Over in Europe a policy makers said the ECB should make a 75 basis-point hike at its September meeting. All in all, this caused short-term rates, the US 2-year Treasury yield, to rise to its highest level in almost 15-years, as traders bet more rate hikes are coming. This pressured commodity prices, which pulled back on fears rate hikes will soften demand. On top of that OPEC+ didn’t discuss production cuts. So Oil fell ~6%. WTI settled around ~$91.64. As such, the Oil and Gas sectors fell 4%, adding the most weight to Tuesday’s drop. Secondly, equities were also pressured on fears that geopolitical tensions could escalate, after Taiwanese soldiers fired shots to ward off civilian drones flying close to islands near China. And Thirdly, equities are also facing end of month rebalancing; where investors typically take profits from top performers and buy laggards to bring their assets allocations into alignment. Noteworthy movers in US equities   Retailers Big Lots (BIG:xnys) and Best Buy (BBY: xnys) surged 11.8% and 1.6% respectively after reporting Q2 earnings that beat market expectations.  Big Lots’ narrower loss was attributed to margin improvements from cost controls. Likewise, Best Buy’s better-than-expected earnings was largely due to cost controls, as sales fell nearly 13% YoY in the quarter. The discount retailers indicated they’re copping the brunt of trade-downs, while they also warned about a pullback in consumer spending.  U.S. treasuries (TLT:xnas, IEF:xnas, SHY:xnas)   Treasury yields were little changed on Tuesday, with the 2-year yield rising modestly by 2bps to 3.44% as the market continued to price in a 75bp Fed hike at the September FOMC.  The stronger JOLT job openings data and consumer confidence data, plus Fed officials’ reiteration of determination to bring inflation back under control contributed to the bids to the front end of the curve. Hong Kong’s Hang Seng (HSIU2) and China’s CSI300 (03188:xhkg)   Hong Kong and mainland China equities pulled back moderately, Hang Seng Index -0.37%. Tech names were weak.  Hang Seng Tech Index plunged as much as 3% before bouncing off the low to finish the day only 0.5% lower.  The news of Shenzhen and other cities stepping up pandemic control measures fuelled the risk-off sentiment that has already been hanging over the market.  Share prices of Chinese developers were broadly lower as mortgage repayment boycott cases increased to 103 cities and 347 development projects.  According to the Ministry of Industry and Information Technology, smartphone sales in China fell 2.9% YoY in the period between Jan and July.  Despite reporting solid 1H results, China automaker, BYD (01211:xhg) slid 0.5% following an exchange filing showing that Buffett’s Berkshire Hathaway reduced its stake in the company. Auto retailer, Zhongsheng (00881:xhkg) plunged by 7%.  In A-shares, mining stocks, gas, electric equipment, and auto parts underperformed. In U.S. trading, Hang Seng Index Futures tumbled 2.3% in a confluence of factors including Taiwanese soldiers on front-line islands firing shots at civilian drones believed flying from mainland China, a newswire report saying the U.S. regulator, PCAOB, selected Alibaba (BABA:xnys/09988:xhkg) for audit inspection commencing in September, Berkshire Hathaway reducing holdings in BYD, Covid-related lockdown concerns, and the continuous decline of the U.S. equity markets.  Compared to their closes in Hong Kong, ADRs of BYD fell by 4.2%, and Alibaba by 3.3%. Selling pressure in GBP ramps up Despite a relatively stable USD, pessimism built in sterling after Goldman Sachs hinted that peak inflation in the UK could reach 22% in early 2023 and downgraded its GDP forecast. GBPUSD touched lows of 1.1622 before settling around 1.1660. EURUSD was stable-to-stronger given the stabilising gas situation and the hawkish ECB rhetoric pushing for a jumbo rate hike at the September meeting again. EURGBP pushed higher to 0.8600, its strongest levels since early July.   Crude oil prices (CLU2 & LCOV2)   Crude oil was down over 6% after recording the best day in six weeks on Monday when Brent traded above $105/barrel. The reversal yesterday came on the back of a general improvement in risk appetite as European gas prices plunged. This will likely lower diesel prices, reducing the demand for oil. Fresh lockdown announcements in key Chinese cities also raised demand concerns. Meanwhile the supply situation looked better in the near-term amid reduced Iraq supply disruptions risk and rumours of a potential Iran agreement. Oil inventories also surprised with 593k barrel rise. Reports that OPEC+ not considering a production cut supported price action in the Asian morning hours, and WTI futures reversed to inch back above$92/barrel. Further volatility can be expected in European gas prices today, and that could spill over to crude oil as well, as Nord Stream 1 goes into maintenance.  Gold (XAUUSD)   Gold continues to have trouble finding direction amid a hawkish Fed speak but rising geopolitical tensions. A host of Fed speakers were on the wires yesterday, and all of them focused on inflation, suggesting aggressive action from the Fed will continue. Meanwhile, Taiwanese soldiers fired shots to ward off civilian drones flying close to islands near China, spooking fears that tensions could escalate. Strong US economic data both from consumer confidence and JOLTS jobs opening also bumped up the US 10-year yields, and Gold was seen dipping below the key 1729 support on Tuesday, coming in sights of the one-month lows.  First shipment of wheat out of Ukraine arrives in Africa   The first export of wheat from Ukraine since the invasion of Russia in February has arrived in Djibouti, east Africa. The 23,000-ton shipment is bound for Ethiopia which is struggling with ongoing drought and conflict. A recent agreement between Russia and Ukraine, mediated by the UN and Turkey, has allowed 50 ships to resume shopping grain around the world. Wheat harvest was also seen picking up in Canada as yields improved amid better weather conditions, helping to ease supply worries in the key agricultural crop.  What to consider?  US consumer confidence and JOLTS data came in better-than-expected   US consumer confidence rose to its highest level in three months to come in at 103.2 in August from 95.7 previously. Both the expectation index and present situation index saw improvements, rising to 75.1 (prev. 65.6) and 145.4 (prev.139.7), respectively. This could be partly driven by lower pump prices, but also signals that a healthy job market report may be coming this week. The 1-year ahead inflation expectation fell to 7.0% (prev. 7.4%), which was a seven-month low. Meanwhile, US JOLTS rose to 11.239mln in July, above the expected 10.45mln and previous 10.698mln, hinting that the labor market remains tight.  German CPI’s upside surprise, ECB still leaning towards front-loading   Germany CPI came in higher than expected at 7.9% YoY (vs. 7.5% prev and 7.8% expected) while the MoM print was slightly softer at 0.3% (vs. 0.9% prev and 0.4% expected). Food and energy price gains underpinned, but fuel rebate helped to take some pressure off. Meanwhile, ECB speakers continued to push for more front-loaded rate hikes, in contrast to ECB’s Lane calling yesterday for more step-by-step increases and signaling recession concerns yesterday. ECB’s Knot however clearly said he’s leaning towards a 75bp hike in September but he is open to a discussion, as did Muller. Wunsch also vouched for rates in restrictive territory, and Vasle (non-voter) said the September rate hike should exceed 50bps.  The Chinese Communist Party will hold its national congress on Oct. 16   The politburo meeting held on Tuesday decided to propose to the Central Committee of the 19th National Congress to schedule the next once-every-five-year National Congress of the Chinese Communist Party (the “CCP”) for Oct 16, 2022.  The 2,300-odd delegates attending the National Congress will elect the CCP’s Central Committee which consists of 205 full (voting) members and 170 alternate (non-voting) members. The full members of the Central Committee will elect among themselves the 25 members of the Politburo and the members of the Politburo will then choose among themselves the seven members of the Politburo Standing Committee, who are the highest leaders of the CCP.  The National Congress will review the CCP’s work over the past five years and formulate policy directions and action plans for the next five years.   Taiwan shot at drones flying close to its offshore islands    Taiwan’s authorities said in a statement Taiwanese soldiers fired shots in three incidents on Tuesday to ward off drones flying close to small offshore islands controlled by Taiwan. The statement did not identify where these civilian drones were from but said that the drones flew away in the director of Xiamen, a coastal city of mainland China. Taiwan’s President Tsai Ing-wen previously urged Taiwan’s military force to take “appropriate by necessary” actions to drive away civilian drones having been buzzing Taiwan’s military installations on its front-line islands.   Iron ore falls below the key $100 level   The key steel ingredient fell below $100 for the first time in five weeks, on signs of China’s steel industry worsening. Steel production will fall by more than 8 million tons in the second half, due to plans to restrict output in the key hub of Tangshan. This is according to Minmetals Futures. That cut in production equates to a decline of 10%. China’s steel industry is reeling amid a property crisis, that’s showing no promise of turning around any time soon. Authorities in Tangshan, near Beijing also decided to cut production at a recent meeting, Meanwhile a major steel maker, Angang Steel says it sees tough conditions persisting through the end of the year. This backs up BHP’s comments last week, where BHP’s CFO told Saxo in an one-on-one interview, that iron ore demand will remain limited in the year ahead, not able to outpace supply. This means iron ore pricing will remain capped. Coal prices are back at record highs, amid the energy crisis   With global electricity prices skyrocketing and likely to worsen, and nothing being resolvable, the coal price is being bid again, pushing it once again back to record territory. For consuemrs, unfortunately this means higher power bills, especially in those regions dependent on coal for electricity (India, China, Australia). With the coal futures price, and the spot coal price moving to higher levels, this supports future earnings and cashflows in coal companies. As such, many coal stocks are trading at record highs. Shares in Australia’s largest pure-play coal company Whitehaven Coal (WHC) hit a brand-new record all-time high yesterday, A$8.15, but today is facing selling pressure (profit taking perhaps). Other stocks that make money from Coal include BHP in Australia. In Asia, Bayan Resources, and Yankunang Energy, as well as Shaanxi Coal. Alibaba has been selected for audit inspection by the PCAOB   According to Reuters, Alibaba (BABA:xnys/09988:xhkg) has been selected, together with some others, by the Public Company Accounting Oversight Board (the “PCAOB”) for audit work inspection commencing in September.  Buffett’s Berkshire Hathaway reduces its stake in the Chinese EV maker BYD   Warren Buffett’s Berkshire Hathaway sold around 1.33 million shares of BYD (01211:xhkg) at an average price of HKD277.10, bringing its stake in BYD to 19.92% of the total issued H shares or 7.51% of the total issued share capital on Aug. 24.  Comparing the ending balance after the sale to the ending balance as of June 30 revealed in BYD’s interim results announcement released earlier this week, Berkshire Hathaway had previously undisclosed sale of 4.95 million shares since July.  Assuming the 4.95 million shares were sold at the average closing prices in July and August, Berkshire Hathaway cashed out a total of about HK$1.8 billion from the sale of these 6.28 million shares over the past two months which was similar to the aggregate cost that Berkshire Hathaway had initially paid for the whole amount of 7.73% stake (or 20.49% of H shares) in BYD. Covid cases resurface in 31 provinces in China   China’s southern technology hub, Shenzhen shut down the world’s largest electronics retailing marketplace in response to a surge of Covid cases. The cities of Dalian, Chengdu, Yiwu, and Sanya are also under some sort of restriction. Baidu reported inline Q2 results   Baidu’s (BIDU:xnys/9888:xhkg) revenue fell 5% YoY to RMB 29.65 billion, largely in line with consensus estimates. Its operating margin came in at 22%, contracting 5 percentage points YoY, due to sluggishness in the high-margin ads business and a revenue mix shifting toward lower-margin non-ads business.  Q2 Non-GAAP EPS increased 2% YoY to RMB15.79, well above analysts’ RMB9.82 median forecast.      American companies have a downbeat outlook on doing business in China   The US-China Business Council’s annual member survey showed that a record 21% of the 117 multinational companies headquartered in the US said they were downbeat on their business in China for the next five years, (according to those surveyed). 90% of respondents said their businesses were affected by lost sales and uncertainty over reliable deliveries.   China is set to tighten scrutiny of companies seeking to raise funds through issuing offshore bonds   According to a consultative draft document on the portal of the National Development and Reform Commission, China is planning to require companies that seek to issue bonds offshore to register, report and receive approval from the authorities for debts that have tenors exceeding one year.   China’s official PMIs are scheduled to be released today   The median forecasts of economists surveyed by Bloomberg expect China’s official NBS manufacturing PMI to edge up to 49.2 in August from 49.0 in July, while firmly remaining in contractionary territory. Heatwaves and drought-induced power curbs have caused Sichuan and Chongqing to shut-down manufacturing activities for six days and eight days in August respectively. The stepping up of pandemic controls in some cities could also affect the survey negatively. The median forecast for August official NBS non-manufacturing PMI is 52.2, down from last month’s 53.8 but remains in expansionary territory.   Crowdstrike, the cybersecurity giant reported better than expected results   Crowdstrike shares were higher after hours in the US, following a 0.7% rise in the regular session after reporting second-quarter results that topped analysts expectations, while it raised its forecasts for the year. The cyber security giant reported revenue rose to $535 million, up from the $337.7 million in the year-ago quarter. Annual reoccurring revenue grew 59% to $2.14 billion compared to the same time last year. This is a somewhat of a testament that cyber security is a defensive industry that is able to do well, regardless of economic conditions weakening. For a global look at markets – tune into our Podcast. Source: APAC Daily Digest: What is happening in markets and what to consider next – August 31, 2022
ECB press conference brings more fog than clarity

🚨Oh My! Eurozone Inflation Shocks! Have A Look At These Numbers!

ING Economics ING Economics 31.08.2022 11:34
August inflation jumped to 9.1%, another leg up in inflation as supply shocks persist. Core inflation increasing from 4% to 4.3% will be the key concern for the ECB in the run-up to next week’s governing council meeting The gas supply crisis and droughts are adding to persisting supply-side pressures on inflation at the moment   The eurozone inflation rate ticked up from 8.9% to 9.1% in August. The increase was mainly seen in processed food and goods prices, but services also ticked up slightly. Energy inflation fell for the second month in a row on base effects and lower petrol prices, despite soaring gas and electricity prices. The main concern is the surprise increase in goods inflation. The increase from 4.5% to 5% was much larger than expected and fuels worries about second-round effects from the input cost shock lasting longer. Global supply-side pressures have been easing in recent months. Commodity prices have fallen, including food and oil, which has resulted in lower prices at the pump. Transportation costs have also moderated, and inputs are more widely available again. Still, specific European problems continue to push inflation higher. The gas supply crisis and droughts are adding to persisting supply-side pressures on inflation at the moment. Demand-side inflation remains weak in the eurozone. The output gap is still negative, household consumption is well below pre-pandemic levels and retail sales have in fact been on a declining trend since November. The latest negotiated wage growth data for 2Q came in at 2.1%, which means there is no evidence of a wage-price spiral at this point, but that the eurozone is mainly facing an unprecedented squeeze in real incomes. As the economy is slowing rapidly – and perhaps already contracting at this point – the question is how much the ECB needs to slam the brakes. Another hike of at least 50 basis points in September seems to be a done deal, with the hawks pushing for 75bp. The big question is how the ECB will respond after this, if indeed signs of economic distress become more apparent, and inflation remains highly driven by supply-side factors. 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
Navigating the New Normal: Central Banks Grapple with Policy Dilemmas

Risk Appetite Across Markets Taking A Hit After Fed Chair Powell's Hawkish Speech

Ole Hansen Ole Hansen 31.08.2022 14:10
Summary:  Crude oil’s bounce from a six-month low has faded fast with risk appetite across markets taking a hit after Fed chair Powell's hawkish speech once again raised concerns that the central banks aggressive stance towards combatting runaway inflation will drive down growth and demand for crude oil and fuel products. In addition, the energy market has to deal with long liquidation into a low liquidity market, reduce gas-to-fuel focus as EU gas prices drop as well as Iraq, Libya and Iran developments. Crude oil’s bounce from a six-month low has faded fast following Friday’s hawkish message from Jerome Powell, the Federal Reserve Chairman, which once again raised concerns that the central banks aggressive stance towards combatting runaway inflation would mean lower growth and with that lower demand for crude oil and fuel products. The battle between these macro concerns continues to battle with micro developments, the majority of which still point to tightness during the coming months. In Europe, the gas and power crisis continue with punitively high prices attracting substitution demand into fuel products like diesel and heating oil. In the short-term the price of gas into the autumn month will continue to be dictated by Russian flows, and not least whether Gazprom (and Putin) as announced will resume flows on the Nord Stream 1 pipeline following the three-day maintenance shutdown that ends at 0100 GMT on September 3. Other developments currently impacting the market: China’s continued battle with Covid infections which is currently found in 31 provinces, and which has led to fresh curbs being implemented, among others in two of southern China’s most economically vibrant areas. Deadly turmoil in Baghdad after Moqtada Al-Sadr, a prominent cleric, decided to resign from politics, thereby deepening a political crisis that has left the country without a government since last October’s election. For now, the clashes have not spread to oil-rich area and exports from one of OPEC’s biggest producers remain uninterrupted. Clashes in Libya’s capital Tripoli over the weekend which left at least 32 people dead have raised risks of a civil war in Libya, a very volatile producer which has seen its output swing between 0.7 and 1.2 million barrels per day during the past year. On the supply side, the market will be watching the impact of the EU embargo on Russian oil which will begin impacting supply from December and the 180-million-barrel release, at a rate of one million barrel per day, from US Strategic Reserves that look set to run until October 21. In the following months the US government plans to buy back 60 million barrels, a decision that is likely to be delayed given the prolonged war in Ukraine. Finally, an Iran nuclear deal has yet to be reached, but if successful it could lead to millions of barrels of on and offshore stored oil being released into the market. WTI Crude Oil: Following Monday’s short squeeze the subsequent sell-off has forced recently established longs to reduce their exposure. Developments that from a technical perspective have opened the risk of a return towards key support around the mid-August low at $85.5/b. Source: Saxo Group Lack of liquidity and speculative positions being wrongfooted have both added to the latest gyration which saw the biggest jump in six weeks on Monday being  followed by a near 9% two-day drop. In the week to August 23, hedge funds added 80k lots of crude oil and fuel exposure, the biggest weekly increase since January, and the latest tumble may have forced many too hastily exit those recently established and now loss-making positions.            With the summer holiday driving season winding up we are seeing gasoline refinery margins trading sharply lower while demand for diesel as a substitute for expensive gas has supported diesel margins, both in the US and especially in Europe. However, since Friday’s peak in EU gas prices we have seen softer but still elevated margins there as well.              The weekly oil and fuel stock report from the US Energy Information Administration will be watched closely given its frequency and with that the ability to provide an up-to-date snapshot of the current supply and demand situation across crude oil and fuel. Last night the API reported a 600k barrels increase in oil stocks and a combined 5.1 million barrels drop in gasoline and distillates stocks. The report will also provide the EIA’s assessment of production, which has been adjusted lower for the past two weeks to 12 million barrels a day, and somewhat short of the EIA’s latest end of year forecast of 12.45 million. Crude and distillates exports will also be watched after the combined figure hit a record last week. As per usual I will post the charts and tables on Twitter once the report has been released at 14:30 GMT.               Source: Oil drops as hawkish Fed drives fresh demand concerns
Analyst Favorites: Sunrun, Block, and Nvidia Lead the Pack Among Saxo's Top Traded Stocks with 17% Upside Potential

European Central Bank - There Is A Need To Strengthen Measures That Curb Inflation

InstaForex Analysis InstaForex Analysis 31.08.2022 15:18
Relevance up to 10:00 UTC+2 The more euro falls, the more often European policymakers say there is a need to strengthen measures that curb inflation. ECB board member Joachim Nagel even stated that the next rate hike should not be delayed for fear of a potential recession. Unsurprisingly, these comments fueled speculation on how much the European Central Bank needs to raise interest rates at its meeting next week to keep the balance between the economy sliding into recession and countering further inflation. With the figure already at a record 8.9%, markets are divided over whether policymakers will raise rates by 50 basis points straight away or resort to changing them by 75 basis points at once. If the ECB increases rates by 75 points, euro will correct upwards, which will allow buyers to keep parity under their control. However, there are policymakers calling for restraint in the tightening of monetary policy. Executive Board member Fabio Panetta recently said the current rate hike will ease inflationary pressures anyway, while Chief Economist Philip Lane pointed out that sustained economic growth is more important than the observed inflationary pressures associated with the energy crisis. Although much of the surge in inflation is due to energy problems, there are fears that it could spread to other areas. Nagel mentioned that he supported last month's decision to raise rates by 50 basis points because a larger move minimizes the risk of future price increases being out of control. In terms of the forex market, there is a risk of further sharp fall in EUR/USD. Buyers need to hold above 1.0000 because moving down will make it hard for the pair to recover. Meanwhile, going beyond 1.0050 will give confidence to buyers in pushing the quote to 1.0090 and 1.0130. If euro falls below 1.0000, the bear market will continue, which would push the quote to 0.9970, 0.9940, 0.9905 and 0.9860. Pound is currently below the 17th figure, which creates certain difficulties for buyers. There is very little chance of a strong upward correction, especially if sellers take control of 1.1650. If buyers fail to stay above this level, there will be another set of sell-offs towards 1.1590. Then, its breakdown will lead to subsequent declines to 1.1530 and 1.1480. Only a rise above 1.1720 will bring the pair to 1.1760 and 1.1840. 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. Source: Forex Analysis & Reviews: ECB members are calling for tighter monetary policy
USD/JPY Weekly Review: Strong Dollar and Yen's Resilience in G10 Currencies

The ECB Is Paying The Price For Its Decision. Risk Assets Are Struggling In The Aftermath Of Powell’s Speech.

Kenny Fisher Kenny Fisher 31.08.2022 15:34
Stock markets in Europe turned lower again on Wednesday while US futures are more mixed, similar to what we saw in Asia overnight. Conditions remain choppy in the aftermath of Jackson Hole last week. There’s clearly a lack of conviction in the markets following a lot of hawkish central bank commentary in recent days. The narrative that investors want to believe is that inflation has peaked and is falling in the US and that a soft landing is plausible. That doesn’t necessarily align with what we’re hearing. Add to that the increasingly hawkish language from other central banks amid severe economic headwinds and the reality of the situation is seemingly becoming impossible to ignore. With 75 basis point hikes now on the table for the US, EU and UK next month, among others, it may not be entirely surprising that investors are taking a more cautious stance. ECB paying the price for dragging its feet amid record inflation The inflation data from the eurozone this morning won’t have hurt the odds of a 75 basis point hike, that’s for sure. Inflation in the bloc rose 9.1% in August, up from the previous record of 8.9% in July. With core inflation also jumping to 4.3% from 4%, the pressure is seriously mounting on the ECB to be more aggressive. The central bank is paying the price for its decision to leave the deposit rate at -0.5% for as long as it did and may have to be much more forceful now as a result. Price pressures are becoming more widespread, with energy increases easing slightly but food, alcohol and tobacco inflation accelerating to 10.6%. The inflation situation is, unfortunately, going to get worse, perhaps much worse, before it gets better, considering what’s to come with energy this winter. Gas flows halted, nervy few days ahead Gas flows through Nord Stream One have now paused for the three-day maintenance period. While Europe is keen to stress its storage levels are well ahead of schedule, the failure of flows resuming on Saturday would be a massive blow ahead of what is already going to be a nervy and expensive winter. European gas prices are near their recent highs and will likely remain so over the coming days until flows resume. If they don’t, prices could rise much further. Can bitcoin hold out much longer? Risk assets are struggling in the aftermath of Powell’s speech at Jackson Hole, the only exception arguably being bitcoin which fell heavily in the immediate aftermath but has now found its feet. In fact, it’s posting gains of more than 1% today, bucking the trend we’re seeing elsewhere, with risk assets generally underperforming. Once more we’re seeing resilience in bitcoin around $20,000; the question is how long can it hold out if sentiment doesn’t improve? 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.
EUR/USD Faces Ongoing Decline Amid Budget and Market Turbulence

Avalanche (AVAX) Lost 12% After Being Accused Of Paying For Slander Reputation!

Conotoxia Comments Conotoxia Comments 31.08.2022 17:08
Avalanche (AVAX) on 29 August, lost almost 12% on a day when a new whistleblower accused it of paying lawyers to attack its competitors' reputations. Since the bottom two days ago, the cryptocurrency's price now seems to have recovered some of its losses, rising by around 10 per cent, presumably after the accusations lost credibility in the eyes of investors. CryptoLeaks is a young news site that aspires to become WikiLeaks - known for shedding light on the crimes of governments. Two days ago, the site published an article accusing Ava Labs of paying lawyers from the Roche Freedman law firm to damage the reputation of its competitors.  The alleged evidence was a statement by one of the insiders. However, the claims made in the article appear to be exaggerated, and the evidence is too weak to support allegations of a deliberate and paid legal battle against competitors.  According to Santiment data, Avalanche became the most searched token (by keywords) shortly after the article's release.   How did the AVAX price react? Most likely, as a result of CryptoLeaks, the AVAX token fell by a whopping 12%, but shortly after scepticism about the article began to gain traction, the listing rebounded. At the end of the day, the cryptocurrency had lost just 3.1%, and the token recovered all of its losses the following day. Furthermore, the price declines of 29 August coincided with a correction in other currencies, making it reasonable to believe that the accusations' impact on sentiment was much smaller.  Today on the Conotoxia MT5 platform at 11:00 GMT+3, AVAX is trading at $19.35, losing 1.4%. The price is below the 10, 20, 50, and 100-day moving averages. The MACD indicator may point to a potential trend reversal after the histogram started to turn back from negative territory. Although not yet in the overbought zone (below 30 points), the RSI signal line seems to be relatively low (less than 35 points), which could indicate a possible trend reversal. On the other hand, looking at the chart from a broader perspective, it seems that it may still be in a downtrend. It seems that there are still storm clouds looming over the cryptocurrency market in the form of a hawkish Fed, an economic slowdown, an energy crisis and a big unknown in the form of inflation.   Rafał Tworkowski, Junior Market Analyst, Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.   Source: Avalanche recovers after accusations against the project are met with scepticism
The EUR/AUD Pair May Have The Potential To Continue Its Decline

Forex: EUR/USD - The Euro Needs To Be Sold. Market Perceives The Tightening Of The ECB's Monetary Policy As A Direct Path To Recession

InstaForex Analysis InstaForex Analysis 31.08.2022 18:09
Relevance up to 12:00 UTC+2 Markets are often wishful thinking. And the media actively support them in this. Bloomberg's report that the euro could have its own rally amid record high inflation and the hawkish rhetoric of ECB officials was full of pathos but little sense. Without a decrease in gas futures quotes, the "high prices - aggressive increase in deposit rates" scheme does not work. As soon as the cost of blue fuel began to recover after a two-day decline, EURUSD quotes rushed down. Of course, the acceleration of German and European inflation to 8.8% and 9.1%, respectively, which in the first case is the maximum level in 40 years, and in the second—a new record, cannot please the ECB. Especially in the conditions of EURUSD sliding to the 20-year bottom. The Bundesbank says the recession should not stop Christine Lagarde and her colleagues from raising rates, while the futures market is 60% sure that they will rise by 75 bps in September. After such impressive inflation figures, I won't be surprised if it will be +75 bps in October and another +50 bps in December. Monetary restriction is clearly accelerating, and judging by the reaction of the euro to the previous "hawkish" surprises of the Governing Council, we can expect the growth of the euro on the 8th. Or on expectations before that date. Dynamics of European inflation However, as long as gas prices remain at elevated levels, the market perceives the tightening of the ECB's monetary policy as a direct path to recession. So, the euro needs to be sold. This strategy works very well on the news. Expectations of inflation acceleration in Germany and the Eurozone pushed EURUSD up, and then the sale on the facts began. At the same time, the shutdown of the Nord Stream for maintenance contributed to the growth in the cost of blue fuel and thus deprived the regional currency of its main trump card. Russia has suspended gas supplies to Engie SA due to disputes over payments. In France, storage occupancy is now over 90%, and the country is ready to survive this winter and next. Russia claims maintenance on Nord Stream will take about three days, but eurozone money markets only give a 30% chance that the pipeline will be operational by the deadline. Fears about the complete shutdown of the taps create a major obstacle on the way of EURUSD upward. Technically, on the 4-hour chart of the pair, the possibility of a Broadening Wedge reversal pattern is not ruled out. In this case, the return of euro quotes above the fair value of $1 will be the basis for purchases. On the contrary, a fall in EURUSD below 0.9915 will increase the risks of a continuation of the peak towards 0.97. 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. Source: Forex Analysis & Reviews: Euro sell on the news
EU Gloomy Picture Pointing To A Gradual Approach To Recession

Record Energy Prices Are Worrying The World - Emergency Energy Meeting In Brussels

Christopher Dembik Christopher Dembik 01.09.2022 08:47
Summary:  The Czech Presidency of the Council of the European Union (EU) announced an emergency energy meeting will be held on 9 September in Brussels (Belgium). This aims to discuss concrete measures to tackle the energy crisis while power prices continue to reach record high. Last week, France 1-year forward electricity prices crossed for the first time ever the level of €1,000 per megawatt-hour (MWh). Before the crisis, anything above €75-100 per MWh was considered as expensive. Three main options are on the table : targeted compensatory measures for low-income households, applying the ‘Iberian exception’ to the entire EU (temporarily decoupling the price of gas from that of electricity) and reforming more fundamentally the European electricity market. There is no easy answer. Each of these options has downfalls. In our view, the energy crisis is here to stay. The world of cheap energy is over. We have entered into a brave new world of high inflation and high energy prices. An unbearable cost : According to the calculations of the Brussels-based think-tank Bruegel, EU governments have allocated almost €280bn to help companies and households to cope with higher energy bills since September 2021. In nominal terms, the largest European economies allocated the most funding (Germany €66bn, Italy €49bn and France €44bn). In percentage of GDP (which is a better way to compare), the financial cushion deployed is the largest in Greece (3.7 %), Lithuania (3.6 %) and Italy (2.8 %). This cannot last forever. Several countries are looking to reduce financial support. They want to implement a targeted approach to mostly help low-income households. In France, the government capped energy prices in 2022 (gas prices were frozen at the levels of Autumn 2021 and electricity prices increased only by 4 % this year for households). But this is costly (around €20bn – this is about half of the annual budget of the French ministry of Education). Based on current energy prices, expect the cost to be close to €40bn for this year. In light of higher interest rates and risks that massive financial stimulus further fuels inflation, we believe that many European governments will follow the pace of the French’s. They will decide to downsize the financial package aimed to cushion the energy crisis. On top of that, several EU countries are embattled with the need to bailout utilities at risk of insolvency (Germany’s Uniper and two Vienna municipal utilities, for instance). This is only unfolding now. Electricity market intervention is back on the agenda : Yesterday, the president of the European Commission (EC), Ursula Gertrud von der Leyen acknowledged the EU electricity market is no longer functioning. This is an understatement. There are mostly two options on the table. Both will be discussed at the upcoming emergency meeting of 9 September. The first option is to propose that the entire EU apply the ‘Iberian exception’ to set electricity prices. In mid-April 2022, the EC agreed that Spain and Portugal create a temporary mechanism to decouple the price of gas from that of electricity for a period of 12 months. Concretely, the price of gas was capped to an average of €50 per megawatt-hour. This resulted in electricity bills being halved for about 40 % of Spanish and Portuguese consumers with regulated rates. This could be applied at the EU scale. This is supported by Germany, Austria, Belgium, Spain and Portugal especially. However, this is far from being perfect. It led to significant leakage – basically a surge in power exports to France. In other words, a lot of the subsidy actually ends up in France. In addition, prices continue to increase at a speedy rate for 60 % of consumers. The second option is to separate the wholesale power market into two segments : a mandatory pool for low-variable cost technologies (wind, solar, nuclear, for instance) and a conventional market for fossil condensing plants. This proposal is pushed forward by Greece. This is a more fundamental reform of the EU electricity market. But there are several downsides, especially regarding how existing long-term contracts will be treated. Much more emergency meetings will be required before a coherent approach will be approved. Don’t expect major decisions to be announced next week. The nuclear option : In our view, the European energy crisis is an opportunity to rethink policy stance on nuclear power. Last week, several non-partisan organizations launched a petition to prevent Switzerland from leaving nuclear power in 2027, as scheduled. This decision was initially taken in the aftermath of the 2011 Fukushima crisis (Japan). According to the July data from the World Nuclear Association, France and the United Kingdom are the two main European countries with the most nuclear capacity under construction. But others don’t seem to embrace this option. In Germany, the Greens prefer to restart coal-fired power stations rather than rethinking the nuclear exit plan. This is puzzling. Nuclear power is not without issues (see corrosion issues in France nuclear reactors). But it guarantees energy independence and lower energy prices in the long-run. While Asia is embracing nuclear power (South Korea is reversing nuclear phaseout and China is accelerating its huge buildout in reactors, for instance), we fear that the EU will still be reluctant to bet on nuclear for ideological reasons. Like it or not, nuclear energy is our best option at the moment to reduce dependence on expensive fossil energy and move forward fast with the green transition. On the spot side, electricity prices continue to remain close to record high in France and Germany, respectively at 641 and 604€ per MWh. In contrast, they remain comparatively low in Spain and Portugal, around 200€ per MWh. This is roughly 10 times more than before the Covid, however. Source: EU Emergency Energy Meeting : A Never Ending Story
Rising Interest Rates. How High Can They Rise?

Rising Interest Rates. How High Can They Rise?

Kamila Szypuła Kamila Szypuła 04.09.2022 10:36
Global inflation is higher, reflecting the impact of the Russian invasion of Ukraine, ongoing supply constraints, and strong demand. Many central banks are tightening monetary policy to combat inflation, and the resulting tighter financial conditions are moderating economic growth. Bank of Canada expected to raise interest rate In July, the Bank of Canada raised interest rates by 100 bp. It was the largest single rate increase since August 1998 after a series of hikes that began in March. Previously, the rate had been at 0.25 per cent where it sat since it was slashed to near-zero early in the pandemic.The BoC increased its target for the overnight rate to 2,5%, with the Bank Rate at 2,75% and the deposit rate at 2,5%. The Bank is also continuing its policy of quantitative tightening (QT). At press conference, Tiff Macklem - Governor explain what prompted your decision. The most important stimulus was that inflation in Canada was higher and more persistent than the Bank expected in its April Monetary Policy Report (MPR) and the fear of further growth as well as the lack of workers and many goods and services. Demand needs to slow down for supply to catch up and the price pressure to ease off. And the most important goal of monetary policy is to restore inflation to 2% and to achieve price stability. Source: www.bankofcanada.ca As shown by data from the Canadian bank, inflation slightly decreased. As inflation fell, the unemployment rate also fell in 22Q2. What could be positive news for the Canadian economy. According to the Bank's July speculation, inflation will fall to around 3% by the end of 2023 and will return to the 2% target by the end of 2024. Therefore, economists predict that there will be another rate hike in September. Some of Canada's major banks are forecasting the central bank will raise the key interest rate by three-quarters of a percentage point, bringing it to 3.25 per cent. The next scheduled date for announcing the overnight rate target is September 7, 2022. Some economists think Wednesday's hike could be the last for a while. The RBA will raise rate by 50 bp? At meeting at 2 August 2022, the Board of RBA decided to increase the cash rate target by 50 basis points to 1.85 %. In the simplest terms, the RBA cash rate is Australia’s official interest rate. It also increased the interest rate on Exchange Settlement balances by 50 basis points to 1.75 %. The Board places a high priority on the return of inflation to the 2–3% range over time, while keeping the economy on an even keel. The path to achieve this balance is a narrow one and clouded in uncertainty, not least because of global developments. Inflation in Australia is the highest it has been since the early 1990s. In headline terms, inflation was 6.1 % over the year to the June quarter; in underlying terms it was 4.9 %. Global factors explain much of the increase in inflation, but domestic factors are also playing a role. There are widespread upward pressures on prices from strong demand, a tight labour market and capacity constraints in some sectors of the economy. The Bank's central forecast is for CPI inflation to be around 7,75% over 2022, a little above 4 % over 2023 and around 3 % over 2024. Australia Inflation is expected to peak later this year and then decline back towards the 2–3 % range. The expected moderation in inflation reflects the ongoing resolution of global supply-side problems, the stabilisation of commodity prices and the impact of rising interest rates. Forecasts that the RBA will raise the monetary rate by 50 basis points at its meeting on September 6, raising rates to 2.35%. Not only the economic situation shows this, but also the analysis of previous decisions. The interest rate hypotheses will be confirmed or disproved at the Tuesday meeting. Source: www.bankofcanada.ca, www.rba.gov.au
EUR/USD Pair Has Potential For The Downside Movement Today

ECB Will Continue To Hike Rates To Slow Inflation?

Kamila Szypuła Kamila Szypuła 03.09.2022 15:10
The ECB's monetary policy meeting in Frankfurt is to be held on Thursday 8 September. What can we expect? The Governing Council normally meets twice a month at the premises of the ECB in Frankfurt am Main, Germany. The Governing Council assesses economic and monetary developments and takes monetary policy decisions every six weeks and bases its monetary policy decisions, including the evaluation of the proportionality of its decisions and potential side effects, on an integrated assessment of all relevant factors. This assessment builds on two interdependent analyses: the economic analysis and the monetary and financial analysis. At Thursday's meeting, a decision will be made whether interest rates will be raised again. When prices in European economy are rising too fast and when inflation is too high – increasing interest rates mey help bring inflation back down. The Governing Council may discuss another important step on the path to normalizing interest rates that was signaled at the previous meeting. This decision is based on the Governing Council's updated inflation risk assessment. Does economy data influence on hiking intrest rates? The European Central Bank has raised interest rates for the first time since 2011 in July '22 to tackle eurozone inflation that increased to 8.6% ta those oeriod. In a surprise move, the ECB pushed its base rate up by 0.5 percentage points, after economists had expected a smaller 0.25 point rise. The economy on the old continent is slowing down. This is due to high inflation, greater uncertainty and supply problems. These factors significantly obscure the prospects of our economy for this year and the following years. German Manufacturing PMI dipped to 49.1, down from 49.3 in July. It was a similar story for the eurozone Manufacturing PMI, which dropped from 49.8 to 49.6. After the publication of data from Germany the euro has weakened. The euro's fall to parity against the dollar for the first time in two decades also poses problems for the ECB – letting the currency fall exacerbates inflation, but the opposite approach could hit growth. Also, as of July 2022, the inflation rate in the European Union was 9.8 %. The current rate of inflation in the EU is higher than at any other time. High inflation has become the dominant concern of citizens in many countries. After this data, there is a high probability of an increase from 50bp to 75bp. Future interest rate decision will largely depend on the latest data. The initiative is aimed at helping to achieve the inflation target of 2% in the medium term. ECB’s Monteary Policy The pandemic and the war in Ukraine have fostered inflationary forces. So central banks have had to shift their focus from tackling low inflation to combating high inflation. The ECB’s monetary policy response to the higher inflation outlook can clearly be rationalised based on the new strategy – in particular its symmetric inflation target. The new ECB strategy has contributed to a more solid anchoring of inflation expectations at 2%. Monetary policy decisions taken by the ECB’s Governing Council since July 2021 have been firmly grounded in the strategy. In a rapidly changing world, the ECB’s monetary policy strategy will likely need to be reviewed and adapted more regularly. Source: Eurostat.com, Investing.com, ecb.europa.eu
The GBP/USD Pair's Traders Still Use Every Opportunity To Buy

UK Inflation Is The Highest In Decades!!! China Still Closing Factories, Toyota And Apple Are In Danger?

Saxo Strategy Team Saxo Strategy Team 18.08.2022 09:48
Summary:  U.S. equities took a pause from their week-long advance, with S&P 500 retreating before its 200-day moving average. Target’s Q2 results disappointed as the retailer suffered from high inventories and U.S. consumers shifted from discretionary to grocery items. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S.’s advance higher took a pause yesterday amid higher bond yields and disappointing results from Target (TGT:xnys), -2.7%. Target’s Q2 earnings fell sharply and missed consensus expectations on weaker gross margins due to slower sales in discretionary items and inventory impairments.  Lowe’s (LOW:xnys) reported mixed results, with earnings beating estimates but same-store sales growth weaker than expected. Higher U.S. bond yields triggered by a dramatic rise in U.K. bond yields and reported pension fund rebalancing-related selling added to the equity weakness.  S&P 500 dropped 0.7% and Nasdaq 100 shed 1.2%.  U.S. treasury yields rose from spilling over from a massive rise in U.K. Gilt yields and weak 20-year bond auction U.S. 10-year treasury yields jumped 9bps to 3.05%, taking cues from the sharp move higher in U.K. Gilts and European sovereign bond yields following white-hot UK CPI data. Long-end yields moved further higher on poor results from the 20-year auction.  Short-end yields fell in the late afternoon after the July FOMC minutes signaling that it “would become appropriate at some point to slow the pace of policy rate increases” which reaffirmed the market’s expectation of a 50bps, instead of 75bps on the September FOMC.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hang Seng Index bounced modestly by 0.5%; CSI399 gained 9.6%. Meituan (03690:xhkg) rallied 3.3% after a 9% drop yesterday due to a Reuters story suggesting that Tencent (00700:xhkg) plans to divest its 17% stake (USD24 billion) in Meituan. Tencent denied such a divesture plan last night.  Power tools and floor care equipment maker and a supplier to Home Depot (HD:xnys) and Wal Mart (WMT:xnys), Techtronic Industries (00669:xhkg) jumped more than 10% after better-than-expected results from the two U.S. retailers. China Resources Power (00836:xhkg) +5.7% after reporting weak 1H22 results but more wind and solar projects on the pipeline. Other Chinese power producers also outperformed amid power shortages. China Power (02380:xhkg) surged more than 8%. On Tuesday, China’s Premier Li Keqiang visited Shenzhen and held a meeting with provincial chiefs from Jiangsu, Zhejiang, Shandong, Henan, and Sichuan to reiterate the central government’s push for full use of policies to stabilize the economy. Hong Kong Exchanges (00388:xhkg) fell 1.6% after reporting lower revenues, higher costs, and a 22% YoY decline in EPS, worse than market expectations. After the market close, Tencent reported weak but in line with expectations revenues and better-than-feared earnings in Q2. Tencent’s ADR climbed 3.5% overnight from the Hong Kong close. AUDUSD eying the labor market report, GBP will see more pain ahead A mixed session again overnight for the US dollar with FOMC minutes and US retail sales failing to provide any fresh impetus to the markets. AUDUSD was the biggest loser on the G10 board, sliding below 0.7000 to lows of 0.6911 after real wage data for Q2 showed a massive slump. Labor market data due this morning could further weigh on RBA expectations, if it comes out softer than expected. The weakness seen in the commodity markets, especially iron ore and copper, weighed on the antipodeans. GBPUSD stays above 1.2000 despite a 40bps gains in UK 2-year yields after the double-digit UK CPI print. USDJPY tested the resistance at 135.50 but was rejected for now. Crude oil prices (CLU2 & LCOV2) Crude oil prices made a slight recovery overnight, with WTI futures getting back to over $87/barrel and Brent futures close to $94 after data showed US inventories fell sharply. Sentiment was also supported by comments from OPEC’s new Secretary-General, Haitham Al Ghais, who said that world oil demand will rise by almost 3mb/d this year. He also said there is a high chance of a supply squeeze this year, in part because fears of slowing usage in China are exaggerated. This helped to take the focus off the prospects of the Iran nuclear deal for now. What to consider? Stale FOMC minutes hint at sustained restrictive policy Fed’s meeting minutes from the July meeting were released last night, and officials agreed to move to restrictive policy, with some noting that restrictive rates will have to be maintained for some time to bring inflation back to the 2% target. Still, there was also talk of slowing the pace of rate hikes ‘at some point’, despite pushing back against easing expectations for next year. The minutes were broadly in-line with the market’s thinking, and lacked fresh impetus needed to bring up the pricing of Fed’s rate hikes. Chairman Powell’s speech at the Jackson Hole Symposium next week will be keenly watched for further inputs. US retail sales were a mixed bag July US retail sales are a little softer at the headline level than the market expected (0% growth versus the +0.1% consensus) but the ex-auto came in stronger at 0.4% (vs. -0.1% expected). June’s growth was revised down to 0.8% from 1%. The mixed data confirmed that the US consumers are feeling the pinch from higher prices, but have remained resilient so far and that could give the Fed more room to continue with its aggressive rate hikes. Lower pump prices and further improvements in supply chain could further lift up retail spending in August. UK CPI opens the door for another 50bps rate hike UK headline inflation hits 10.1%, the highest in decades and above the 9.8% expected and for the month-on-month reading of +0.6%, higher than the +0.4% expected. Core inflation hit 6.2% vs. 5.9% expected and 5.8% in Jun. That matched the cycle high from back in April. Retail inflation rose +0.9% MoM and +12.3% YoY vs. +0.6%/+12.0% expected, respectively. The Bank of England has forecast that inflation will peak out this fall at above 13%. While the central bank forecasted a recession lasting for five quarters at the last meeting, it will be hard for them to not press ahead with further tightening at the August meeting, and in fact the scope for another 50bps rate hike is getting bigger. Reserve Bank of New Zealand hikes 50 basis points to 3.00%, forecasts 4% policy rate peak The RBNZ both increased and brought forward its peak rate forecast to 4.00%, a move that was actually interpreted rather neutrally – more hawkish for now, but suggesting that the RBNZ would like to pause after achieving 4.00%. RBNZ Governor warned in a press conference that New Zealand home prices will continue to fall. This is actually a desired outcome after a huge spike in housing speculation and prices due to low rates from the pandemic response and massive pressure from a Labor-led government that had promised lower housing costs were behind the RBNZ’s quick pivot and more aggressive hiking cycle in 2021. Australian wages grew at their quickest pace in eight years, but less than expected Australia’s wage-price index gained 0.7% in the second quarter, just shy of estimates further pressuring the Aussie dollar back toward its 50-day moving average against the US dollar. Annual wage growth came in at 2.6% but real wages - adjusted for headline inflation fell 1% QoQ, and was 3.3% lower than a year earlier, eroding consumer spending power. What’s next. All eyes will be on Australia’s Reserve Bank which might be pressured to hike more than expected at its September meeting. Despite Australian wages growing slower than expected, the RBA estimates retail gas and electric prices to rise 10-15% in the second half of the year, so that will be a focus point when they consider their next move in interest rates. Tencent reported weak but in-line Q2 revenues and better-than-feared earnings Tencent reported a revenue decline of 3% YoY in Q2, weak but in line with market expectations.  Non-GAAP operating profit was down 14% YoY to RMB 36.7 billion and EPS fell 17% YoY to RMB2.90 but they beat analyst estimates.  Revenues from advertising, -18% YoY, were better than expected.  In the game segment, weaker mobile game revenues were offset by stronger PC game revenues. Disappointing results from Target and mixed results from Lowe’s Target reported EPS of USD0.39, missing estimates.  The company indicated strength in food and beverage, beauty, and household essentials but weaker in discretionary categories.  Gross margin of 21.5%, down from 30.4% year-ago quarter and below expectations. Lowe’s reported better than expected EPS of USD4.67 (vs consensus USD4.58) but a decline of 0.3% in same-store sales.  Lowe’s inventories grew 11.6% YoY, substantially lower than peer Home Depot.  With a 15% increase in product costs, the inventory volume was in effect down low-single digit. Power crunch in China shut factories Chongqing is limiting power supply to industrial users from yesterday to next Wednesday.  In Sichuan, Foxconn’s Chengdu factory is suspending operations for six days from August 15 to 20 due to a regional power shortage. The suspension is affecting Foxconn’s supply of iPad to Apple.  The company says the impact “has been limited at the moment” but it may affect shipments if the power outage persists.  The Chengdu government is imposing power curbs on industrial users to ensure electricity supply for the city’s residents.  Toyota and CATL are also suspending some operations in Sichuan due to a power shortage. Foxconn has started test production of the Apple watch in Vietnam Foxconn has started test production of the Apple watch in its factories in Vietnam. With the passage of CHIPS and Science Act earlier this month in the U.S., investors are monitoring closely if Taiwanese and Korean chipmakers as well as their customers may be accelerating the building up of production capacity away from China.  World’s biggest Sovereign Wealth fund posts its biggest half-year loss on record   Norway’s oil fund, the world’s biggest owner of public traded companies lost 14.4% in the six months through to June. In currency terms that’s $174 billion. The slump was driven by the fund’s loss in technology stocks with Meta Platforms (owning Facebook and Instagram) and Amazon, leading the decline. However, just like the market, the fund’s energy sector delivered positive share price performance, benefiting from a sharp rise in earnings in the oil, gas, and refined energy product sector. Meanwhile, investments in logistics property helped the fund’s unlisted real estate holdings gain 7.1%, though they account for 3% of its assets. Japan’s inflation will surge further Japan’s nationwide CPI for July is due to be reported at the end of the week. July producer prices came in slightly above expectations at 8.6% y/y (vs. estimates of 8.4% y/y) while the m/m figure was as expected at 0.4%. The continued surge reflects that Japanese businesses are waddling high input price pressures, and these are likely to get passed on to the consumers, suggesting further increases in CPI remain likely. More government relief measures are likely to be announced, while any little hope for a Bank of Japan pivot is fading. Bloomberg consensus estimates are calling for Japan’s CPI to accelerate to 2.6% y/y from 2.4% previously, with the ex-fresh food number seen at 2.4% y/y vs. 2.2% earlier. For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 18, 2022
USD/JPY: Japanese Authorities Signal Intervention Amid Rapid Currency Appreciation

The AUD/USD Currency Pair Trading At Its Lowest Level Since Two Years, Hang Seng Index Was Flat

Saxo Bank Saxo Bank 07.09.2022 09:54
Summary:  Good news to the US economy spells bad news to the bond markets and equities. Crude oil prices stumble on restricted movements in the city of Guiyang in China, while the Newcastle Coal price moves to its own beat roaring to a brand new record high. With this in light, Australian GDP data will be a focus today with Australian coal exports hitting $100 billion. USDJPY at record highs again, so what's next for that FX pair, plus why to watch the AUDUSD. Plus what to expect from the Bank of Canada today, and NIO earnings. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  Good news to the economy is bad news to the bond markets and the stock market.  The solid ISM Services data removed the little remaining hope of a soft landing from the mind of bond traders and pushed up yields and the higher bond yield in turn dragged down the stock markets.  After the end of the reporting season and companies headed for the blackout period, stock traders spent their days mulling over what the Fed is going to do next and turned deeper into the belief that the summer rally might end up being a bear market rally and decided to trim long positions amid low liquidity and lack of retail participation. The unfolding of an energy crisis across the pond in Europe added to the negative sentiment.    S&P500 was down 0.4% and Nasdaq100 declined 0.7% on Tuesday. Bed Bath & Beyond (BBBY:xnas) tumbled 18.4% following the news that the company’s CFO committed suicide, the announcement of firing 20% of its workforce and selling 12 million of new shares.  U.S. treasuries (TLT:xnas, IEF:xnas, SHY:xnas) After the much strong than expected ISM Services prints, treasuries were sold off, 2-year yields +12bps to 3.5%, 10-year yields +16bps to 3.35%; 30-year yields +16bps to 3.50%. The money market curve is pricing in over a 70% chance of a 75bp hike at the September FOMC and a terminal rate of about 3.90%. The long-end of the curve was also pressured by the announcement of 19 investment grade new issues with a total amount over USD35 billion.   Hong Kong’s Hang Seng (HSIU2) and China’s CSI300 (03188:xhkg) A-Shares in the mainland markets noticeably outperformed shares traded in the Hong Kong bourse.  CSI300 surged almost 1% but Hang Seng Index was flat. The escalated natural gas price in Europe cast doubts on the resilience of the European chemical industry to maintain its output level of basic chemicals and encouraged expectations of Chinese basic chemical makers to export more to Europe. The A-share basic chemical space gained over 3%.  Increases in lithium carbonate prices caused a rise in the share prices of lithium miners.  The National Energy Administration released a consultative paper that encourages the development of the national electric grid to enable the taking up of more solar power onto it.  The non-ferrous metal names gained after the Ministry of Industry and Information Technology issued draft guidelines on reaching the stage of intelligent manufacturing for the non-ferrous metal industry by 2025.  Intelligent manufacturing is solve optimization problems in production by utilizing real-time data analysis, artificial intelligence, and machine learning.   Shares of Chinese property developers listed in Hong Kong surged after Guangzhou R&F (02777:xhkg) sold a hotel for RMB550 million and CIFI (00884:xhkg) sold a Hong Kong site.  These asset disposals stirred up optimism about improving the balance sheet and liquidity of Chinese developers, Country Garden (02007:xhkg) +9.3%, Longfor (00960:xhkg)+5.8%, and China Resources Land (01109)+4.5%. Electric vehicle manufacturers rebounded from 1% to 3%, bringing the industry’s week-long meltdown in share prices to a halt.Newcastle Coal prices hit new record highsAs Europe is facing an energy crisis this winter, it will need to increase energy imports. So, in anticipation of such a scenario, this might explain why the Australian coal price trades at a record, along with the futures price. We already know the UK importing is Australian LNG, so consider Australian coal could be heading to Europe more broadly next. Australian energy supply is already likely to run low in 2023, which also supports coal prices running higher. But for coal companies, their earnings and free cash flow will likely increase. Coal companies have been the best performers in global equities this year, after delivering the most earnings growth, with some companies like Whitehaven Coal (WHC) seeing 1,500% earnings growth YoY. Coal loaded at Australia’s Newcastle port hit $436.71, an all-time high. And triple the price this time last year. Coal futures prices are $463, implying the coal price will move up.USDJPY at record highs againA run higher in US yields, with 30-year yields touching 3.5%, underpinned a further move lower in the Japanese yen. USDJPY inched higher to 143.55 this morning in Asia, printing a fresh 24-year high. The market is challenging the Bank of Japan’s yield-cap policy yet again, and with no resistance in sight, the move and volatility is set to rise further. While the FX weakness alone may not be enough for the BOJ to pivot in order to maintain its credibility, higher oil prices and weakness in yen is spelling immense trouble on the inflation story as well. That could feed some pressure from the government on the BOJ policy.    The offshore yuan weakened to 6.98 At the back of the spreading of pandemic lockdowns and the strong U.S. dollar, USDCNH rose to 6.9800 and is set to challenge the 7 handle. USDCNY fixing will be on watch today, as a sharp depreciation of the currency is unlikely to be accepted just ahead of the 20th party congress that starts on October 16.  Crude oil prices (CLU2 & LCOV2) Demand concerns seemed to take over the supply issues yet again with China’s lockdowns extending further. The city of Guiyang joined Chengdu in restricting movement by the public amid renewed outbreaks of COVID-19. WTI futures slumped below $87/barrel while Brent dropped below $93. Global demand slowdown concerns also picked up after rate hikes this week. The Reserve Bank of Australia announced a 50bps rate hike on Tuesday, with Bank of Canada expected to go today and European Central Bank on the cards for tomorrow. A fresh surge in dollar also weighed on commodity prices.    What to consider? US ISM services in further expansion While the S&P services index continued to signal weakness with a 43.7 revised print for August, the ISM services on the other hand expanded further to 56.9 from 56.7 in July and came in above expectations. Business activity accelerated to 60.9 from 59.9, while the prices paid component remained elevated at 71.5, in contrast to the decline we saw to 52.5 for the manufacturing sector. New orders rose to 61.8 from 59.9 and employment rose into expansionary territory at 50.2 from 49.1.  China’s exports in August are expected to have slowed China’s exports in August would probably come in weaker (Bloomberg consensus: 13% YoY vs 18.0% YoY in July) as container throughput data suggested. The resurgence of pandemic control restrictions, production disruptions due to power rationing, and a high base last year could have contributed to the deceleration.  Economists are expecting China’s imports in August to slow (Bloomberg consensus: 1.1% vs 2.3% in July). South Korea’s August export data released last week showed a 5.4% YoY decline in total exports and a 3.4% YoY decline in chip exports to China.  Slower commodity inflation could have depressed China’s import growth as well in August. Australian economic growth data is a big focus today down under. If weaker than expected AUD could weaken Australian economic growth is expected to show 1% growth q/q in the second quarter and 3.5% y/y. GDP will likely get a boost from record commodity exports (which will likely account for 1% of GPD YoY), record retail sales, and a pickup in overseas travel. However, construction costs and hampered residential construction activity could weigh on the headline GDP figure. AUDUSD is on watch with the currency pair trading at its lowest level since June 2020. If the figures today are better than expected, we could see a knee-jerk short-term rally up. However, over the medium to longer term, the fundamentals support the USD moving up and the AUD potentially continuing to lose out with the favored FX currency, the USD gaining momentum and strength amid the energy crisis and Fed hawkishness. The technical indicators suggest the AUDUSD could also retest the March 2020 low of 0.61380, which is the currency pairs lowest level in 19 years. Australia’s Reserve Bank rose rates 0.5% to 2.35%, but it will do little to slow inflation The RBA hiked rates by 0.5% as expected yesterday, in a bid to stave off inflation, taking Australia’s official cash rate to 2.35%. The only thing that the RBA has slowed after hiking rates 1.75% so far since May is the property market. Property prices have seen their biggest drop since the 80’s and construction made its biggest decline since 2016. This is a credit concern as Australia has one of the highest debt levels in the world (debt to GPD is 126%). If the RBA keeps rising rates as they suggest, debt-to-income levels could hit GFC highs. The RBA’s rate hikes have done nothing to slow inflation, and coal prices, which are the biggest contribution to Australian CPI. What you need to consider, is how can the RBA's hikes fix the commodities supply/demand imbalance. We also think coal momentum is likely to rise in anticipation of demand picking up with peak energy season around the world, and Europe is likely to tap on Australia's shoulder for energy.   Australia’s trade surplus surged up for the 13th month, propelled by coal exports  Australia’s trade surplus rocked up to A$18.3bn in the June quarter, bolstering Australia’s balance on goods and services to A$43.1bn, which is the highest level on record. This was fueled by commodity exports and Australia’s trade balance (exports less imports) rising to a record after commodity exports hit a record high, with coal exports exceeding A$100bn annually for the first time. Bank of Canada to hike rates today After a July rate hike of 100bps, Bank of Canada meets again today. The consensus is calling for a 75bps rate hike to bring rates to a restrictive territory, given that inflation continues to run well above target and economic demand is holding up well. The pace of tightening is however likely to slow down in October, and so the messaging will be key to watch at today’s meeting.  NIO earnings ahead While the earnings release date for NIO has been moved around multiple times it should be final now so tomorrow one of China’s largest EV-makers will report Q2 earnings. Investors will focus on the Q3 outlook for revenue growth and margins in order to gauge when NIO can break even on its operations. California’s blackout threat worsens, and the state keeps nuclear power on standby  Amid a massive heatwave and wildfires sweeping the state, power use in California has hit an all-time high and officials have again warned residents to prepare for rolling blackouts. We first wrote about this on Monday but now the state’s grid operator issued another round of warnings, calling on consumers to limit energy demand while the state issued a level-2 energy emergency alert. Officials expect to ratchet the emergency warning up to level 3, which would mean blackouts are imminent. The prospect of outages underscores how grids are becoming vulnerable amid extreme weather as they transition from fossil fuels to renewable energy.   For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – September 6, 2022 | Saxo Group (home.saxo)
FX Daily: Eurozone Inflation Impact on ECB Expectations and USD

Financial Conditions Look Quite Scary. How Central Banks Fight Inflation?

ING Economics ING Economics 04.09.2022 11:00
Market rates are set to rise as financial conditions are not tight enough in the US; the US 10yr yield could even go as far as topping 3.5% again. That will pull rates higher elsewhere, including those in the eurozone. Remarkably, financial conditions are significantly tighter in the eurozone than in the US. That heaps more pressure on the Fed than on the ECB In this article So, how do central banks fight inflation exactly? Eurozone financial conditions are already looking quite scary Remarkably, US financial conditions are still too loose A stark contrast So, how do central banks fight inflation exactly? Central banks impact the macroeconomy by finessing financial conditions. It’s not as simple as setting official rates though; it requires the wider financial system to push in the same direction. Most importantly, market rates need to be in tune with central bank thinking. Credit spreads are key too; wider credit spreads add to the all-in funding costs for corporates and households, amplifying the impact of higher market rates. And this together with other central bank liquidity management tools will broadly determine overall financial conditions. Not sure I'd recognise a financial condition if I saw one ...   Source: ING estimates Eurozone financial conditions are already looking quite scary In the eurozone, the Bloomberg measure of financial conditions has seen a virtual collapse from June through to August. At the beginning of June, conditions were moderately tight (about 0.25 of a standard deviation below normal). By the end of August, they were extremely tight (some 2.5 standard deviations below normal). This contrasts with extremely loose conditions at the beginning of 2022 (1.5 standard deviations above normal). The ECB of course hiked in mid-July, preceded by an end to bond buying (and targeted longer-term refinancing operation unwinds), which tightened eurozone financial conditions. Remarkably, lower market rates and tighter credit spreads through July did not prevent an overall tightening in eurozone financial market conditions. In fact, they're looking quite scary right now. They are practically back to the extreme briefly seen when the pandemic first struck, and the only periods where eurozone financial conditions were tighter were during the Great Financial Crisis of 2008 and the Sovereign Debt Crisis of 2011. This suggests that the ECB has less to do. All they need to do is sustain this, not intensify it. Super big hikes are not needed. Remarkably, US financial conditions are still too loose There is a remarkable contrast to be drawn with the US, where financial conditions tightened right through to the end of June (1.5 standard deviations below normal), driven by Fed hikes, rising market rates and wider credit spreads. But then it reversed. A notable fall in market rates and a tightening in credit spreads, which ran from mid-June to end-July, loosened US financial conditions quite considerably, pulling them practically back to almost normal by mid-August. Remember the US 10yr yield fell from 3.5% to almost 2.5% during this period, and risk assets rallied. Hence the easing in conditions. This easing was counter-productive to the Fed’s stated ambition to tighten financial conditions, and was a factor underpinning the crystal clear speech from Chair Powell at Jackson Hole: this Fed wants and needs to see tighter financial conditions, and will do its bit to tighten them by hiking the funds' rate at upcoming Federal Open Market Committee meetings. In fact, in the lead-up, and through the second half of August, market rates and credit spreads reverted and started to do what they should be doing at this stage of the cycle, rising and widening respectively. A stark contrast Currently, we find a stark contrast between the eurozone and the US. US financial conditions are just 0.35 of a standard deviation below normal, while eurozone ones are 2.5 standard deviations below normal; even though it’s the Fed that’s done most of the tightening. From the perspective of the US, a required objective is to re-tighten conditions considerably from here, which is code for rising bond yields and widening in credit spreads, to be capped off with a 75 basis point hike from the Fed on 21 September. For the eurozone, things are more opaque. There is a deeper energy-impacted macro crisis afoot, and financial conditions are already super tight. Higher market rates and wider credit spreads ahead can deepen this further. The ECB can cap this off with a decent hike in September but does not need to do as much cajoling as the Fed might have to do in the weeks ahead. And the ECB does not need to do as much aggregate hiking either, relative to the job the Fed still has to do.     Source: https://think.ing.com/articles/rates-for-monthly-heres-why-rates-will-keep-rising/?utm_campaign=September-01_rates-for-monthly-heres-why-rates-will-keep-rising&utm_medium=email&utm_source=emailing_article&M_BT=1124162492   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
A Bright Spot Amidst Economic Challenges

Real Wages Will Falling. Expected Actions Of The European Central Bank

ING Economics ING Economics 04.09.2022 09:21
The expanding negative energy shock is likely to initiate a recession from the third quarter and we're likely to see a GDP contraction. Rising natural gas prices are also keeping inflation higher for longer. A more hawkish ECB is likely to raise rates again in September and October, but the recession should put a - temporary - end to the tightening cycle In this article Recession is coming Energy shock erodes real incomes Inflation to come down only very gradually A more hawkish ECB Recession is coming After a relatively strong second quarter (+0.6% quarter-on-quarter) after Covid lockdowns were largely stripped away, the eurozone has now probably fallen into recession. The Composite PMI indicator fell in August to 49.2, the second month in a row below the 'boom-or-bust' level. With the forward-looking new orders component also declining again, it looks as if it is only going to be downhill in the coming months. And the strong inventory build-up will add to production cutbacks.  Survey indicators are at recession levels Source: Refinitiv Datastream Energy shock erodes real incomes The headwinds facing the eurozone are only increasing. The summer drought will not only hurt the agricultural sector, but the low level of the Rhine River is also distorting supply lines for German manufacturing, while in France the lack of cooling water is impacting nuclear power generation. This, however, is small fry compared to the breadth of the negative energy shock Europe is experiencing. Natural gas prices have more than tripled since June, pushing more energy-intensive companies to cut production or idle plants. The hit to household purchasing power is massive; real wages are falling more than 5% year-on-year. With consumer confidence hovering at very low levels, chances are slim that households will delve into their savings to uphold their consumption expenditures. And as companies are equally hit by the energy shock, final demand is faltering and financial conditions are tightening and we see business investment falling back in the coming quarters. As we expect the energy market to remain very tight (and prices therefore high) we pencil in three consecutive quarters of negative growth, starting in the third quarter of this year. This still results in 2.6% growth in 2022, mainly on the back of a strong carry-over effect, while for 2023 we now expect a 0.6% GDP contraction. Inflation to come down only very gradually As for inflation, the higher cost of natural gas is only partially compensated by slightly lower oil prices. On top of that, a natural gas levy in Germany will add to inflation from October onwards. This will keep headline inflation close to double-digit levels in the next three months. At the same time, underlying inflationary pressures are bound to soften on the back of the economic slowdown. In the business surveys, selling prices' expectations have now been moderating for a few months in a row, while supply chain tensions and shipping prices have also eased. And the second-round effects, popping up through higher wages, remain muted for now. As a matter of fact, negotiated wages only rose 2.1% year-on-year in the second quarter, according to the ECB. Putting it all together, inflation will only come down very gradually, although we see a return to the 2% level towards the end of 2023 as still feasible provided, of course, that energy prices don’t increase much further. Selling prices' expectations are moderating   A more hawkish ECB The European Central Bank has become somewhat more hawkish. In Jackson Hole, ECB Board Member, Isabel Schnabel, said that the uncertainty about inflation persistence requires a forceful policy response, a statement that was echoed by several members of the Governing Council. We therefore now expect a 50-basis point rate increase in September and another 25bp rise in October. Thereafter we still expect to see a long pause. Let’s be clear about this: if the ECB is consistent with the risk scenarios it published in June, it should already forecast a recession in its September staff forecasts. While the bank might still pull off a rate hike in October, the necessity of tightening further after that, in the midst of a worsening recession, will probably not appeal to the majority of the Governing Council members.   Inflation GDP Eurozone ECB   Source: https://think.ing.com/articles/monthly-eurozone-economy-set-to-shrink-in-2023/?utm_campaign=September-01_monthly-eurozone-economy-set-to-shrink-in-2023&utm_medium=email&utm_source=emailing_article&M_BT=1124162492   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
EUR: Testing 1.0700 Support Ahead of ECB Meeting

Singapore Expect Sales To Remain In Expansion. Austraila Expect A Very Strong Contribution To GDP From The Net Trade Side.

ING Economics ING Economics 03.09.2022 09:28
Next week's calendar is relatively light but we do have a key central bank decision and some inflation data out in the next few days In this article The week ahead Australia’s 2Q GDP report and the RBA meeting Price pressures continue to build in the Philippines Retail sales reports in Singapore   The week ahead Australia’s releases are in the spotlight this coming week as the Reserve Bank of Australia decides on policy while 2Q22 GDP data is also released. Within the rest of the region, the Philippines will report August inflation data that will likely show the continuation of the year-long upward trend. Meanwhile, Singapore's July retail sales data is expected to grow despite inflationary limitations. Australia’s 2Q GDP report and the RBA meeting We will get a day-ahead steer towards the GDP figure on 6 September, with the net export figures. The trade balance during 2Q22 was extremely strong relative to 1Q22, so we anticipate a very strong contribution to GDP from the net trade side. Domestic demand figures should also look pretty strong, though labour shortages may crimp this somewhat. A figure of 1.0% quarter-on-quarter seems possible to us, a bit stronger than the 1Q22 growth rate of 0.8%. Meanwhile, the Reserve Bank of Australia will probably not be swayed all that much by the GDP numbers, though they will likely be strong and tilt the balance a little towards larger rate increases. But the RBA will probably also have taken comfort in the 2Q22 wages price index, which showed a growth rate of only 2.6% year-on-year, softer than had been expected despite clear evidence of labour shortages and the record low unemployment rate. September will probably still deliver a 50bp rise in rates, taking the cash rate target to 2.35%, but there is a growing sense that the central bank may slow the pace of tightening from here on, and that may also add some downside risk to this meeting too.   Price pressures continue to build in the Philippines August inflation in the Phillippines will likely stay elevated given rising food prices and expensive energy. We predict inflation to settle at 6.4%YoY, flat from the previous month although still well above the central bank’s target. Transport fares are set to be adjusted higher, for the second time this year, which should ensure that inflation remains firmly on an upward trajectory in the coming months.  Retail sales reports in Singapore July retail sales will be reported next week. We expect retail sales to remain in expansion although the pace of growth should moderate from the previous month. Sales will be supported by the return of tourists although surging inflation should cap growth. Inflation recently hit 7%YoY, which should sap some consumption momentum.    Asia Economic Calendar   Source: Refinitiv, ING Asia week ahead Asia Pacific Asia Markets Asia Economics Source: https://think.ing.com/articles/asia-week-ahead-philippine-inflation-and-singapore-retail-sales/?utm_campaign=September-01_asia-week-ahead-philippine-inflation-and-singapore-retail-sales&utm_medium=email&utm_source=emailing_article&M_BT=1124162492   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
UK Inflation Expected to Slow Sharply in July: Market Analysis and Insights - August 16, 2023

Grantham: "My Bet Is That We're Going To Have A Fairly Tough Time Of It Economically And Financially"

InstaForex Analysis InstaForex Analysis 01.09.2022 14:36
Investor Jeremy Grantham who has been warning of a 'superbubble' says it is yet to pop despite turbulence in the stock market this year. The co-founder of Boston Asset manager GMO said on Wednesday in a research note that growth in the US stock market from mid-June to mid-August is in line with a rally in a bear market, which usually takes place after a sharp fall. The 83-year-old investor reckons that "the current superbubble features an unprecedentedly dangerous mix of cross-asset overvaluation [...], commodity shock, and Fed hawkishness." At the beginning of the year, Grantham predicted that underlying stocks would collapse by nearly 50%. The S&P 500 fell by 25% from its January peak in June. The index soared in the following two months. Nevertheless, US stocks have now been bearish for the fourth straight session. Well-known strategists, like Mike Wilson for Morgan Stanley, warn investors that the market is yet to bottom. "You had a typical bear market rally the other day and people were saying, 'Oh, it's a new bull market," Grantham said in the research note. "That is nonsense." "First, the bubble forms; second, a setback occurs, as it just did in the first half of this year, when some wrinkle in the economic or political environment causes investors to realize that perfection will, after all, not last forever, and valuations take a half-step back. Then there is what we have just seen—the bear market rally. Fourth and finally, fundamentals deteriorate and the market declines to a low." Grantham is known for having predicted Japan's asset price bubble in the 1980s, the dot-com bubble, and the US housing bubble that came before the 2008 financial crisis. Some of his other bearish warnings have been wrong, or at least premature. He mentioned some other short-term issues, such as the impact of the Russia-Ukraine conflict on food and energy crises in Europe, monetary tightening, and China's ongoing Covid woes. He also pinpointed how rising inflation was driving the stock market down in the first half of the year, and elaborated on how falling corporate profit margins would lead to new losses. "My bet is that we're going to have a fairly tough time of it economically and financially before this is washed through the system," Grantham said. "What I don't know is: Does that get out of hand like it did in the '30s, is it pretty well contained as it was in 2000, or is it somewhere in the middle?"       Relevance up to 10:00 2022-09-02 UTC+2 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/320553
Central Bank Policies: Hawkish Fed vs. Dovish Others"

Will The FED's Monetary Policy Affect Inflation?

InstaForex Analysis InstaForex Analysis 01.09.2022 14:13
Gold continues to trade under pressure, dropping to $1,700 an ounce. US Federal Reserve Chairman Jerome Powell's keynote speech last week had a sustained impact that continues to push US equities and precious metals lower. His speech was strong and clear, confirming that the Fed is determined to bring down inflation at all costs. According to the Evening Briefing by Bloomberg, Powell has given up on the possibility of a soft landing and is now aiming for something that could potentially cause much more suffering for US corporations and individuals. However, many analysts are convinced that the Fed's hawkish monetary policy will not be enough to achieve its intended goal. Further, the article states that analysts have called this economic scenario the paradoxical name of "growth recession." It differs from a soft landing in that it is defined as a protracted period of meager growth and rising unemployment. The belief that Chairman Powell is trying to reduce inflation with a "growth recession" to avoid an outright recession is similar to cutting out a picture to fit the frame. The simple truth is that a recession is most likely inevitable, and the question is how deep it will be and how much pain it will cause corporations and Americans in 2023. Achieving an inflation target of 2% when the latest data relative to PCE is above 6% is a pipe dream without an increase in interest rates or a gradual increase in rates with the understanding that this will be a multi-year process of fighting inflation. A historical perspective on how various Federal Reserve Chairmans have faced the challenge of bringing inflation to a manageable target shows that this has never been accomplished without raising interest rates to meet the inflation target.         Relevance up to 11:00 2022-09-02 UTC+2 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/320561
With High Inflation, Why Isn't Gold Rising?

With High Inflation, Why Isn't Gold Rising?

Jing Ren Jing Ren 05.09.2022 23:56
The sales pitch for gold is that it's a hedge against inflation, because it doesn't lose its value. It is a real commodity, unlike fiat currency. Yet, as inflation has skyrocketed around the globe this year, the price of gold has not. In fact, after peaking out in March, it has since trended lower. What gives? Prices are relative One of the things to keep in mind, first, is that gold is priced in dollars. So, sure, there has been inflation in many other currencies (with the notable exception of the yen, which is a whole different story). But the dollar has gotten relatively stronger, despite inflation. Partially, because inflation in other currencies has been even bigger. Take the EURUSD, for example, which popped down to the 0.9900 handle, the lowest in over 20 years. Since the start of this year, the Euro has depreciated over 13% against the dollar, well above the 8.9% annual inflation that was last recorded. In fact, the annual depreciation of the Euro has been almost 17%. That's almost 8% of net benefit for anyone who kept dollars over the last year, despite the highest inflation in the shared currency. Why does this matter? It means that Europeans (and Chinese, Indians, Turks, etc) don't need to buy gold to hedge against inflation in their own economies. Holding dollars was a much better investment than keeping money in the bank. So, what's happening to the price of gold really depends on what's going on with the dollar. But the dollar is worth 8.5% less than it was one year ago. Wouldn't buying gold be an even better option? If we were looking in the past, sure. But when investors decide what to invest in, they are looking to the future. What's the best asset to have in their portfolio going forward, while the inflation readings that we have are for the last year. It's all about expectations One of the reasons that the price of gold rolled around in March is because of increased geopolitical tensions. But the other that has been more long lasting is that's when the Fed started hiking rates. Sure, it was expected that inflation would rise for a while, as it takes some time for monetary policy to take effect. But, eventually, the Fed is going to get inflation under control. Meaning that inflation is expected to go down. More to the point, interest rates are expected to keep rising. People who invest in dollar-denominated fixed income (treasuries, bonds, other securities) would see increasing yields. What that means is that even though inflation is high, in fact, because it's high, there is an expectation of increasing returns for those who hold dollars. Meanwhile, gold doesn't pay dividends or interest. What about the hedge, then? In other words, as inflation rises, the more likely the Fed will be to raise rates and drive down that inflation. That makes the dollar get stronger, so in comparison the price of gold goes down. Gold is a hedge against inflation before it rises. But once there is high inflation, the picture turns around. Assuming the Fed does manage to control inflation. Basically, once inflation is high, it's too late to "hedge" against inflation that already happened.
EUR: Range-bound Outlook Amid Tightened Swap Rate Gap

The AUD/USD Lost After RBA Governor Remarks, The End Of An Era For The UK

Saxo Bank Saxo Bank 09.09.2022 09:11
Summary:  U.S. Treasury yields rose 6-7bps after the ECB hiked 75bps and Fed Chari Powell’s speech. U.S. equity markets were quiet and managed to finish the session moderately higher. Reserve Bank of Australia Governor Lowe said interest rates were not on a “pre-set path” as the economic outlook was uncertain. Crude oil bounced by 1%. In Japan, a meeting between the MOF, BoJ, and FSA sent signals that FX intervention remains on the cards. The European Union is holding an emergency meeting to discuss measures to tackle the energy crisis in Europe and China is scheduled to release CPI and PPI today. What is happening in markets?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. stock markets closed higher in a choppy session, S&P 500 +0.7%, Nasdaq 100 +0.5%.  Trading was quiet after the well-anticipated ECB 75bp hike and Powell’s now consistent hawkish script.  The 6-7bp rise in bond yield did not move stocks.  VIX edged down further to 23.6. On the corporate front, T-Mobile (TMUS:xnas) announced a buyback program authorization for 7.5% of the company’s market cap and expected to complete the buyback by Sep 2023. U.S. treasuries (TLT:xnas, IEF:xnas, SHY:xnas) Following a 75bp hike by the ECB and Fed Chair Powell sticking to his hawkish stance in a speech yesterday, U.S. treasury yield jumped 6 to 7 bps across the curve.  Money market rates are pricing in a 85% chance of a 75bp hike on September 22.  Chicago Fed President Evans said the Fed “could very well do 75 in September” but his mind “is not made up” yet. The Treasury Department announced the size of next week’s 3/10/30-year auction at a total size of USD91 billon.  Hong Kong’s Hang Seng (HSIU2) and China’s CSI300 (03188:xhkg) Hang Seng Index underperformed its major Asian peers which advanced more than 1% across the board to continue its multi-session decline since the beginning of September and finished the day 1% lower.  The weakness in Tencent (00700.xhkg), -3.1%, Chinese developers, and energy stocks dragged down the benchmark index in Hong Kong.  According to filings to the stock exchange, about USD7.6 billion worth, or 2% of the market cap, of Tencent shares have been transferred to CCASS, the Stock Exchange of Hong Kong’s clearing and settlement system.  Prosus, Tencent’s largest shareholder holding 27.99% of shares outstanding, confirmed that it has transferred 192 million shares of Tencent to CCASS and is selling Tencent shares.  In June, Prosus (PRX:xams) announced that the company was going to offload its stake in Tencent to raise cash to buy back its own shares and Naspers’ (NPN:xjse) shares (Prosus’ parent) at a discount to NAV. The Chinese developer space was once again under selling pressure.  CIFI (00884:xhkg) tumbled 13.6% following credit agency S&P downgraded the long-term rating of the company’s senior unsecured debts by 1 notch to BB- from BB. Country Garden (02007:xhkg) plunged by 6.8%.  Energy stocks declined on sharp fall in crude oil price, CNOOC (00883:xhkg) -3.6%, PetroChina (00857:xhkg) -1.9%.  The Chinese automaker space was sold, Great Wall Motor (02333:xhkg) -4.7%, Geely (00175:xhkg) -3.1%, BYD (01211:xhkg) -3.0%, Li Auto (02015:xhkg) -3.0%, XPeng (09868:xhkg) -2.6%. After the Hong Kong market close, Bilibili (09626:xhkg/BILI:xnas) reported a larger than expected loss in 2Q2022 on the deterioration of gross and operating margins.  The company’s ADR plunged 15%.     USDJPY paid little heed to Japan’s three-party meeting USDJPY stuck close to 144-levels on Thursday despite stronger signs of concern from the Japanese authorities. The meeting between Japan’s MOF, central bank and FSA ended with some strong verbal signals that direct intervention remains on the cards, but even if that was to happen, it will only increase the volatility in the yen and cannot possibly reverse the move as long as the monetary policies of the US and Japan continue to diverge. EURUSD gained some bids in early Asian morning to rise to 1.002, but the move remains fragile especially with the emergency meeting scheduled for today. GBPUSD reversed the overnight weakness to rise to 1.1540 with dollar losing some momentum in early Asian trading hours.  Crude oil prices (CLU2 & LCOV2)  A slight recovery was seen in crude oil prices overnight despite the hawkish Fed rhetoric and a further surge in the dollar. Supply side dynamics remained in focus, with the EIA saying that crude inventories rose by 8.85 million barrels last week, while supplies dropped in the largest storage hub of Cushing. Gasoline inventories also gained, but there was no change to oil production. Putin warned that Russia will not supply energy to any nation that backs a US-led price cap on its crude oil sales. However, with WTI futures now priced at ~$83/barrel and Brent futures below $90, eyes are again on OPEC+ which hinted earlier this week the intention was to keep crude oil prices around the $100-mark. Demand concerns have picked up since the OPEC meeting due to widening China lockdowns and more aggressive central bank rate hikes.   Copper (HGc1) Copper is showing signs of stabilizing despite demand concerns from China as Covid restrictions continue to be tightened. Copper rose above $3.50 per pound overnight, as supply concerns remain top-of-mind with mining companies continued to struggle to meet their production targets with top producer Chile has seen its exports slump to a 19-month low due to water restrictions and lower ore quality - while demand from China, surprisingly is showing signs of strengthening as infrastructure push ramps up. Having found support last week at $3.36/lb, after retracing 61.8% retracement of the July to August rally, copper is currently staring at resistance in the $3.54 area where recent lows and the 55-day moving average merges. For a real upside and trend reversal to occur the price needs to break above $3.78/lb while a break below $3.36/lb could see the metal take aim at $3/lb.  What to consider? The Queen of England has passed away and Charles has taken the throne  It’s the end of an era for the UK with the passing of Queen Elizabeth, age 96. Some of the Queen’s key moments since reigning from the 1980s to today include: in 1986 Elizabeth became the first monarch to visit China. It was an important piece of Britain’s diplomatic effort as it prepared to return Hong Kong to Chinese control. In 2011, The Queen became the first British monarch to set food in Ireland in 100 years, with the trip being widely praised as a historic moment of reconciliation. In 2012 the Queen celebrated 60 years on the throne and in 2022 Elizabeth became the first and only British monarch to reach 70 years on the throne. Politicians from the Commonwealth and across the world paid tribute to the Queen. UK Parliament will pay tribute to Queen Elizabeth on Friday and Saturday. Australian Parliament will not sit next week.   ECB’s 75bps rate hike As was generally expected, the European Central Bank went ahead with a 75bps rate hike on Thursday, taking the deposit rate to 0.75%. President Lagarde said risks to inflation are on the upside and growth are on the downside, but did not rule out further tightening. The ECB raised projections for inflation (5.5% in 2023 now vs 3.5% earlier), lowered growth for 2023 (0.9% vs 2.1%), and 2024 (1.9% vs 2.1%) while raising growth for 2022 by a notch. Lagarde said that 75 bps was not the norm, but “moves will not necessarily get smaller” as policy was dependent on data and on a meeting by meeting basis, echoing Lane’s comments from last week. ECB’s Lane was however noted to be more hawkish yesterday than what his previous comments suggested. This keeps the door for another 75bps rate hike still open.  Fed Chair Powell stays in the chorus Fed Chair Jerome Powell stuck to the tune that the Federal Reserve members have been singing, suggesting a 75bps rate hike at the September meeting as inflation reins. He noted that the labor market is “very, very strong” and wages are elevated, while also signaling that growth will likely fall below trend. On inflation expectations, a key concern for Fed officials, the Fed chair said that today they are well anchored over the long-term, but the clock is ticking and the Fed has more concerns that the public will incorporate higher inflation expectations in the short-term. Fed’s Evans also hinted at a 75bps rate hike for September. With the chorus on inflation getting louder and market pricing for September being very close to a 75bps rate hike, a softer headline inflation print next week likely has the potential to usher in a relief rally. If, however, inflation remains high, we could see another leg down in equities.   Australia’s trade surplus halves as coal and iron ore exports fall from record highs. What next? Australia’s trade surplus almost halved in July, plunging from A$17.1b to an A$8.7b surplus, when the market expected the surplus balance to fall to just A$14.5b. It comes as exports of coal and iron ore fell from their record highs, dragging down total exports by 10%. Coal export earnings fell 17% with the northern hemisphere in peak summer, while iron ore export earnings fell 15% tarnished by China’s slowdown. Australian imports (covering outbound tourists) rose 5% with Aussies escaping the record cold winter to enjoy the European sun. The market responded to the drop in exports, with the Coal futures price falling to a 3-day low, losing 1.7%, taking the two-day loss to 7%, which pulls the price away from its record. For investors it’s a timely reminder, energy commodity prices are seasonally impacted, and could remain volatile before picking up later this year when we think peak buying is expected. Australian bonds and equities price in the RBA will be less aggressive, so it’s risk-on again RBA Governor Phillip Lowe sees a slower pace of rate hikes while conceding a sharp slowdown in global growth will make it hard to avoid a soft landing. The AUDUSD lost 0.4% after his remarks. While short-term rates as measured by the 3-year Australian bond yield fell 0.17% - supporting the risk assets rally. As such, the Australian Technology Sector surged to its highest level in a week. But sophisticated Australian investors seem skeptical that the RBA will slow the pace of hikes. Australian interest rate futures suggest rates could peak at 3.6% by mid-next year. We think the market would also be especially rate rises will slow as Australia’s Resources Minster was tapped for the second time to restrict Australian energy exports, as the nation is tipped to run out of energy in 2023. EU proposes five measures to curb gas demand and prices Ahead of Friday’s emergency energy meeting, European Commission President Ursula von der Leyen proposed five radical steps to curb costs and demand: 1) Smart savings of electricity by mandatory targets to reduce peak hour demand for electricity; 2) Cap on revenues of companies producing electricity with from low-cost sources such as wind and solar with profits being re-channeled to vulnerable people and companies; 3) Solidarity contribution from fossil fuel companies; 4) Liquidity support for energy utility companies in order for them to cope with elevated market volatility; 5) Cap on Russian gas revenues on the remaining 9% Russia supplies to Europe, down from a pre-war level around 40%. China’s PPI is expected to have risen as CPI remained stable in August PPI is expected to fall sharply to 3.2% (Bloomberg consensus) in August from 4.2% in July.  Base effect and a decline in coal prices in August could be factors contributing to the deceleration in producer price inflation.  CPI, however, is expected to edge up to 2.8% in August from 2.7% in July.  Analysts suggest that favourable base effect was offset by vegetable price increases amidst the heatwave. Bilibili reported below expectation earnings on margin compression   Bilibili (09626:xhkg/BILI:xnas) reported a worse than expected adjusted loss per share of RMB4.98 (Bloomberg consensus: loss per share RMB4.37, 2Q2021: loss per share RMB2.23). Revenue came in at RMB4.91 billion, largely in line with analyst estimates. The larger-than-expected loss came from disappointing margins.  Gross margin contracted to 15.3% from 16.4% in 1Q2022 and 22.4% in 2Q2021 due to the weak performance of the mobile game business (segment revenue -15% YoY).  Operating margin deteriorated to -39.4% in 2Q2022 from -33.9% in 1Q2022 and -20.9% in 2Q2021 which are attributable to higher general and administrative expenses +44% YoY) as well as research and development expenses +68% YoY).   The company’s revenue guidance of RMB5.6bn-5.8bn for 3Q was below market expectations.  A lender appointed receivers to siege Evergrande’s Hong Kong headquarters premises The Financial Times said that a lender had appointed receivers to siege the headquarters building of China Evergrande (03333:xhkg, suspended) and looked to force a sale of the premises.  The distressed developer’s Hong Kong headquarter has been pledged to secure a loan from a syndicate of lenders led by China Citic Bank International.  Evergrande has previously been served a winding-up petition and is scheduled to have a hearing on the petition at the High Court on 28 Nov 2022. Separately, the Wall Street Journal reports that a consortium of Chinese state-owned banks and private enterprises agreed to pay USD1.05 billion in a court-arranged auction for Evergrande’s 14.6% in Shengjing Bank, a regional bank based in Shenyang, Liaoning province. For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.     Source: APAC Daily Digest: What is happening in markets and what to consider next – September 9, 2022 | Saxo Group (home.saxo)
For What It Is Worthy To Pay Attention Next Week 23.01-29.01

The United Kingdom's Anti­-inflation Plan, The ECB Doesn't Expect A Recession In The Eurozone

Saxo Bank Saxo Bank 09.09.2022 09:19
Summary:  The USD weakened sharply overnight, led by a tumbling USDJPY on comments from Bank of Japan governor Kuroda after he met with Prime Minister Kishida. Risk sentiment was buoyant yesterday and overnight on the weaker US dollar and after the ECB hiked by 75 basis points as most expected, the most in the central bank’s history. EURUSD has backed up well above parity again ahead of an EU Summit that will attempt to outline a common approach to soaring power/gas prices amidst limited supplies ahead of winter.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) US equities continued to rally yesterday with S&P 500 futures pushing above the 4,000 level to close at 4,005, and even more impressively momentum is extending this morning in early European trading hours. The rally still seems to be mostly technically driven, but there was some support for US equities in yesterday’s initial jobless claims data showing little negative pressures in the US labour market. After the US market close, DocuSign shares rose 17% as the technology company delivered a strong result and raised its outlook breathing some fresh optimism into the technology sector. The next big event for US equities is the US August CPI report on Tuesday. Hong Kong’s Hang Seng (HSIU2) and China’s CSI300 (03188:xhkg) Hang Seng Index soared 2.6% today, snapping a six-day losing streak, following August inflation data in China surprised on the downside and raised hope for more monetary easing to come from the Chinese policymakers. Mega-cap internet stocks strongly, Meituan (03690:xhkg) +5.5%, Netease (0999:xhkg) +4.8%, Baidu (09888:xhkg)+3.6%, Alibaba (09988:xhkg) +3.1%, Tencent (00700:xhkg) +1.7%. One notable underperformance in the internet space was Bilibli (09626:xhkg/BILI:xnas) which plunged nearly 17% after reporting a larger than expected loss in 2Q2022 on the deterioration of gross and operating margins. Ahead of the mid-autumn festival, catering stocks gains, Jiumaojiu (09922:xhkg) +6.7%, Haidilao (06862:xhkg) +2.6%. Chinese property names rallied, led by Country Garden (02007:xhkg) which jumped 14%. CSI 300 climbed 1.3%, led by property names, financials and dental services.  USD broadly weaker after ECB meeting and USDJPY correction overnight Bank of Japan Governor Kuroda commented on the undesirability of sharp JPY moves in comments overnight after meeting with PM Kishida. This took USDJPY back below 143.00 two days after it nearly touched 145 in its latest surge higher. The threat of intervention may not hold the JPY higher for long if global yields continue higher again. Elsewhere, the USD was sharply lower despite a solid bounce-back in US treasury yields and EURUSD traded well north of parity again after an initially choppy reception of the expected 75-basis point hike from the ECB and President Lagarde’s press conference. The action took EURUSD back to the cusp of important resistance in the 1.0100 area, which has been the resistance of note for more some three weeks. The move was supported by surging European short yields, although the energy/power situation will remain the focus for the euro. Crude oil (CLV2 & LCOX2) The oil price weakness seen this week following the break below $91.5 and $85 in Brent and WTI may still end up being a temporary development with the dollar weakness seen overnight, especially against the yen and euro, adding a bid back into the market. Dr. Copper meanwhile is recovering as demand from China show signs of improving. Potentially a signal to the energy market of not getting too carried away by a temporary lockdown related slowdown in Chinese demand. However, with US implied gasoline demand falling below 2020 levels last week, a potential recovery above the mentioned level is likely to be muted. Focus on Putin and his threat to cut supply to nations backing the US-led price cap on crude sales and OPEC+ which may intervene should price weakness persist. Copper (COPPERUSDEC22) Copper trades higher with the futures market signaling increased tightness, primarily due to a pickup in Chinese demand and imports, which despite lockdowns has seen the infrastructure push ramping up. In addition, a lower-than-expected August CPI and PPI may give the PBoC more room to ease conditions. Exchange monitored inventory levels has dropped to an 8-month low at a time where mining companies struggle to meet their production targets with top producer Chile seeing its exports slump to a 19-month low due to water restrictions and lower ore quality. Speculators have increased short positions in recent weeks as a hedge against recession and China weakness, and they are now increasingly exposed. Support at $3.54 and for a real upside and trend reversal to occur the price needs to break above $3.78/lb. Bitcoin This morning Bitcoin rose the most in more than a month, surpassing the psychological $20k level and now trading at around $20.5k. This is despite a report published by the White House Office of Science and Technology Policy yesterday, stating that cryptocurrencies make a significant contribution to energy usage and greenhouse gas emissions in the US, and that they recommend monitoring and potential regulation. It could have a significant impact on cryptocurrencies using the proof-of-work consensus mechanism such as Bitcoin. US Treasuries (TLT, IEF) US Treasury yields bounced back toward the top of the range after the previous day’s decline, keeping the attention on the cycle highs for the 10-year yield near 3.50%. The treasury sell-off was sparked around the time of Fed Chair Powell firm comments on fighting inflation, which sent 2-year treasury yields some 8 basis points higher. The latest weekly jobless claims figures was out around the same time and showed the lowest level of claims since late May. What is going on? The ECB hiked interest rates by 75 basis points This was a unanimous decision of the ECB governing council. This is a major signal sent to the market. The move was aimed to catch up with the neutral rate (though the ECB acknowledges they don’t know where the neutral rate is). The ECB also revised upward its inflation forecasts sharply (from 6.8 % to 8.1 % this year). Growth forecasts were also revised. But the ECB still doesn't expect a recession in the eurozone (GDP growth expected at 0.9 % versus prior 2.1 % this year). During the press conference, ECB president Christine Lagarde opened the door to further interest hikes. This is no surprise. She committed to keep hiking over 2, 3 or 4 meetings (including today’s). This implies further hikes until October, December or February, followed by a pause. Forward guidance is not dead, finally. Expect a 50 basis point hike in October, in our view. The German 2-year Schatz yield rose over 20 basis points to yesterday to close at new cycle high of 1.33%. The United Kingdom announces a massive anti­-inflation plan Yesterday, the new prime minister Liz Truss announced a major plan to fight the high cost of living related to energy prices. There are five major measures: 1) capping household bills at £2500 per month. 2) a new £40bn liquidity scheme with the Bank of England for energy firms who need it. 3) no further windfall tax (a tax levied on an unforeseen or unexpectedly large profit). 4) speeding up the deployment of clean energy but at the same time granting more oil and gas licenses for North Sea. and 5) commitment to net zero 2050. If this is successful, it means that the peak in UK inflation will certainly be lower (by 4-5 %). So far, the government believes that the peak could be between 13 and 18 %. This is a broad range. But it shows the level of uncertainty about the short-term economic outlook. Finally, Truss refused to evaluate the total cost of the new plan. Several experts believe it could be close to £150bn, over 6% of UK GDP. DocuSign shares up 17% in extended trading Q2 revenue was much better than expected but confirmed its fiscal year outlook on revenue which was better than the underlying consensus which was clearly below analyst estimates. The company sounded optimistic on the billing outlook, which is the key indicator for future growth, and as a result traders pushed shares 17% higher in extended trading. Apple warned by US government against using Chinese chips Congressional Republicans including Senator Marco Rubio of the Senate intelligence committee and Michael McCaul of the House foreign affairs committee expressed alarm at reports that Apple cited Yangtze Memory Technologies as one of its suppliers of flash memory chips used for phone storage.  “Apple is playing with fire”, said Senator Rubio, threatening scrutiny of the company. Apple said it would not sell iPhones using the chips outside China. What are we watching next? EU Summit today on emergency intervention in power markets and possibly to cap imported Russian gas prices The EU may be able to cap electricity prices, but this could mean a shortage of output relative to demand, i.e., forcing rationing over the winter period when demand surges. Russian leader Putin has called any plan to cap prices “another stupidity”. Swedish election this weekend Swedes go to the polls on Sunday, with the right populist Sweden Democrats expected to become the second-largest political party. In the past, the right-leaning main parties have been unwilling to consider alliances with the Sweden Democrats, as their positions were seen as too extreme, but this has made for very fragile left-coalitions in recent years because of the lack of a sufficient plurality in Parliament. Earnings to watch Today’s key earnings release is Kroger which is a large US supermarket chain with a strong competitive position in the current inflationary environment. Analysts are expecting revenue growth of 8.6% y/y in FY23 Q2 (ending 31 July) and lower operating margin expected due to rising input costs. Today: Kroger Earnings releases next week: Monday: Oracle Tuesday: DiDi Global Wednesday: Inditex Thursday: Polestar Automotive, Adobe Economic calendar highlights for today (times GMT) 0930 – ECB President Lagarde to speak 1230 – Canada Aug. Net Change in Employment / Unemployment Rate 1600 – US Fed’s Waller (Voter) to speak 1600 – US Fed’s George (Voter) to speak Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher         Source: https://www.home.saxo/content/articles/macro/market-quick-take-sep-9-2022-09092022
The UK Markets Remain Volatile, Possible Contraction Of The Eurozone Economy

British Pound (GBP) And UK Economy: Next Week Is Full Of Vital Releases - Inflation, GDP And Labour Market Data

ING Economics ING Economics 09.09.2022 15:38
Next week's US inflation numbers will need to be quite surprising for the Fed to deviate from a 75bp hike at its September meeting. The Bank of England's scheduled meeting has been postponed, and instead the focus will be on several pieces of key UK data In this article US: Core inflation likely to rise to 6.1% UK: Bank of England to stick to 50bp rate hike despite energy package Source: Shutterstock Article updated on 9 September to reflect the postponement of the Bank of England's scheduled meeting US: Core inflation likely to rise to 6.1% We have the last full week of economic data ahead of the September Federal Open Market Committee (FOMC) meeting, but it will take some surprising numbers to make the Fed deviate from a third consecutive 75bp rate hike. After all, the economy is posting decent growth, creating jobs in significant numbers, and Fed Chair Jerome Powell is arguing that “we need to act now, forthrightly, strongly as we have been doing and we have to keep at it until the job is done”. The data includes CPI, which should show headline inflation being depressed by lower gasoline prices, but core inflation is likely to rise to 6.1% from 5.9%. Retail sales should post flat growth, but remember this is a nominal figure and those falling gasoline prices will be a major drag. Real consumption is likely to be up in the third quarter. We also expect manufacturing output to grow further. The deteriorating global outlook and weakening domestic housing market combined with the cumulative impact of policy tightening and the strong dollar means we think the Fed will moderate its hiking to 50bp in November and 25bp in December. Weaker wage pressure and more limited month-on-month increases in CPI thanks to lower import and other input costs would certainly help this argument. UK: Bank of England to stick to 50bp rate hike despite energy package The United Kingdom will observe a period of mourning following Queen Elizabeth II’s death on Thursday, and Parliament will be adjourned during this time. The Bank of England's scheduled meeting has also now been postponed to the following week, but the ONS has confirmed that several pieces of important data will still be released. Here's what we expect: July GDP (Monday): Expect a large bounce-back from June, where the addition of an extra bank holiday artificially distorted the monthly GDP numbers. Depending on the arrangements during the period of mourning, the addition of an extra bank holiday in September is possible, and this would factor into the GDP numbers for the current month. We’ll therefore have to wait until the fourth quarter to get a clearer idea of how the economy is faring in GDP terms, and we suspect there’s still a risk of a negative growth figure. However, the announcement of an energy price guarantee by the government considerably reduces the risk of a deep downturn, and potentially also a technical recession. Jobs (Tuesday): Hiring demand is falling, though recent data and surveys have suggested that the worker shortages plaguing the jobs market have only improved slightly over recent months. The announcement of an energy price cap for businesses should help limit what otherwise could have been a more immediate rise in redundancies as firms’ costs increased. We expect the unemployment rate to remain stable next week, but we’ll also be watching closely for signs of a more pronounced return of inactive workers to the jobs market. Inflation (Wednesday): A 6% fall in petrol/diesel prices through August will drag headline inflation slightly lower. That doesn’t mean we’re past the peak, though the introduction of the energy price cap means inflation is less likely to materially surpass 11% in the autumn. Without the cap, we’d forecast inflation would go to 16% or above in January. This is a double-edged sword for the BoE. On one hand, the reduced the peak in headline inflation should ease concerns about consumer inflation expectations becoming even less anchored. That points to another 50bp rate hike when the BoE meets later in September, despite the Fed and ECB going more aggressively. The BoE has shown in past meetings that it isn’t pressured to follow those other central banks, albeit the hawks will be worried about the recent slide in sterling. They will also argue that the government’s action increases the risk of inflation staying elevated in the medium-term, given the reduced risk of recession, Some members are therefore likely to vote for a 75bp hike at the next meeting. But ultimately with a lot already priced into markets for the BoE, policymakers will be wary about adding fuel to the fire. As we saw with the ECB on Thursday, the decision to go with a 75bp hike saw markets price that as the default move at the next meeting. Key events in developed markets next week Source: Refinitiv, ING This article is part of Our view on next week’s key events View 3 articles   TagsUS Bank of England   Read this 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    
FX: The Gap Versus The FX spot Rate In Poland Is Already The Largest In The CEE Region

Czech Republic's Energy Prices, Russia's Rate And Inflation In Poland

ING Economics ING Economics 11.09.2022 09:34
We are anticipating a 25-50bp cut at the Central Bank of Russia meeting next Friday, as there's still growing inflationary pressure led by uncertainties around fiscal policies and the recovery in lending activities. For the Czech Republic, we are expecting the lowest month-on-month inflation rate this year at 0.6%, due to a drop in fuel and food prices In this article Russia: Rate cut cycle to continue Poland: exports deteriorate and inflationary pressure continues Czech Republic: Energy prices remain the main uncertainty for the CPI Source:Shutterstock Russia: Rate cut cycle to continue The current inflation trends seem to be tracing the lower border of the Central Bank of Russia’s (CBR's) forecast range for 2022 (12.0-15.0%) and 2023 (5.0-7.0%). This inflation trajectory, according to the CBR’s recent medium-term forecast, corresponds to an average key rate of 7.4% for August-December 2022 and 6.5% for 2023. Following this guidance, the key rate, currently at 8.0%, could be cut by 100bp until year-end, and by another 100bp next year. Our base case for the 16 September meeting is a restrained 25-50bp cut, reflecting growing seasonally-adjusted inflationary pressures, persistent elevated inflationary expectations by households, some recovery in lending activity, and ongoing uncertainties surrounding future fiscal policy (prospects of stimulus). At the same time, a more decisive 75-100bp cut, though less likely, is also not excluded – signalling the monetary authority's confidence in achieving longer-term inflationary targets. Poland: exports deteriorate and inflationary pressure continues Current account balance: We project that the current account deficit widened to some €2.6bn in July as the trade deficit increased towards €1.6bn amid easing exports and robust imports boosted by high prices of energy commodities. On a 12-month cumulative basis, the external imbalance increased above 4% of GDP and is expected to stabilise around 5% of GDP later this year as the outlook for European manufacturing and hence Polish exports deteriorate. CPI: The August flash estimate of 16.1% year-on-year is expected to be confirmed. Inflationary pressures continue and price growth is broad-based. Monthly increases in food and energy prices turned out higher than expected. What is more, core inflation, excluding food and energy prices, accelerated towards 10%YoY from 9.3%YoY in July. In the wake of the new 2022 CPI inflation high, the National Bank of Poland will continue its rate hikes in the short term. Czech Republic: Energy prices remain the main uncertainty for the CPI July inflation surprised with the lowest energy price rise this year despite the biggest price hike for households being announced. Further energy price rises are announced for August, however, the ratio of fix-float contracts and the approach of the CZSO remains unclear. Even so, we believe that energy price hikes will be reflected to some extent sooner or later. On the other hand, the massive 10% month-on-month drop in fuel prices, as well as the first food price decline this year indicated by surveys, are working to the downside. Overall, we expect the lowest month-on-month inflation rate this year at 0.6% from 1.3% last year, which should keep the annual rate steady at 17.5% YoY. However, this does not mean we have peaked. On the contrary, the effect of the drop in fuel is rather a one-off effect and energy prices should pass through to CPI in the coming months. The risk for this month is that energy prices from July will be reflected in August's number and inflation will surprise with a significant jump upwards. Key events in EMEA next week Source: Refinitiv, ING TagsRussia central bank Poland inflation Czech Repulbic   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
Britain's Rishi Sunak And EU's Ursula Von Der Leyen Will Meet Today To Finalize The Northern Ireland Drama

Can Prices Of The EUR/USD And The GBP/USD Pairs Stay Steady?

InstaForex Analysis InstaForex Analysis 13.09.2022 10:10
The only thing investors are worried about right now is the extent of the European Central Bank and Federal Reserve's rate hikes. That was the reason for the noticeable growth of the euro, which, due to its scale, pulled up other currencies as well—firstly, the pound. The reason for this was the words of ECB Vice President Luis de Guindos, who almost directly stated that the refinancing rate will be raised again by 75 basis points at the next board meeting. The reason for such aggressive actions of the European Central Bank is the growing inflation. Most likely, the dollar will continue to lose its positions today. The reason for this will be inflation. According to forecasts, US inflation should slow down from 8.5% to 8.1%. That is, inflation is slowing down for the second month in a row, which gives the Fed a reason to reduce the rate of interest rate growth. So there may be a situation where interest rates are rising quite strongly in Europe but much slower in the United States, if the American regulator does not stop this process at all. Just a few months ago, the situation was diametrically opposite, and it was the Fed that was actively raising the rate, and the ECB was only considering the possibility of tightening monetary policy. And this led to a serious rise in the dollar. Now it is quite possible to talk about a U-turn. Inflation (United States): The EURUSD currency pair locally jumped to 1.0200 during an intense upward movement. This move resulted in overheating of long positions in the short term, resulting in a technical pullback in the market. A stable holding of the price above 1.0150 allows the subsequent growth of the euro with a breakout of 1.0200. The GBPUSD currency pair has a similar dynamics, where the quote has firmly fixed above the level of 1.1650. With the upward mood on the market, a subsequent increase in the value of the pound sterling in the direction of 1.1800 is not excluded, where stagnation/pullback is already possible.   Relevance up to 20:00 UTC+2 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/321509
Philippines Central Bank's Hawkish Pause: Key Developments and Policy Stance

Podcast: Discussion On Market Sentiment, Silver And Inflation And More

Saxo Bank Saxo Bank 13.09.2022 10:29
Summary:  Today we discuss the extension of momentum in equities as the market is clearly positioning itself for a weaker than expected US August inflation figure later today. The risk-on sentiment is seen across many markets including the USD which continues to weaken against the EUR which might have got some tailwinds lately from the war success in Ukraine. We also talk about Silver, but more importantly the ongoing European energy crisis that has eased a bit lately with lower energy prices across the board. Finally, we go through stocks to watch with a focus on Ocado's horrible revenue miss and Inditex's earnings tomorrow, ending with a quick rundown of today's macro calendar. Today's pod features Peter Garnry on equities and Ole S. Hansen on commodities. Listen to today’s podcast - slides are found via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.     Source: https://www.home.saxo/content/articles/podcast/podcast-sep-13-2022-13092022
Rates and Cycles: Central Banks' Strategies in Focus Amid Steepening Impulses

As A Result Of The Fight Against Inflation, The Appetite For Risk Has Decreased

InstaForex Analysis InstaForex Analysis 14.09.2022 11:59
Euro and pound collapsed as inflationary pressure in the US jumped again. Risk appetite noticeably fell because the Federal Reserve is likely to continue its aggressive increase of interest rates in order to curb inflation. This may occur as early as next week, during the September meeting of the central bank. In fact, in the most recent speech of Fed Chairman Jerome Powell, another 75 basis point rate hike is said to be possible, following the increases in June and July. He said the decision will depend on the data collected. Chicago Fed chief Charles Evans, who in the past has been dovish, also noted that a soft landing could be achieved for the economy without triggering a recession. He reasoned that unemployment is now 3.7%, so the central bank will be able to meet the targets and keep it at about 4.5% by the time the fight against high inflation is finished. He added that the danger of excessive tightening of policy will increase only when rates reach 3.5%. Of course, rising inflation is not only a concern for the Federal Reserve, but also for the Biden administration as his Democratic Party moves closer to the midterm congressional elections. High gas and food prices earlier in the year have seriously undermined the president's popularity and the Democrats' prospects for maintaining control of Congress. Talking about the forex market, a collapse was seen in EUR/USD, which forces buyers to cling to 1.0010. Only its breakdown will lead to a rise towards 1.0040 and 1.0090, or to 1.0120. In case of a further decline, sellers will become more active in the market, which will result in a price decrease towards 0.9880 and 0.9810. In terms of GBP/USD, quotes fell below the 15th figure, indicating the sellers'persistence to return to the September lows. Only the return to 1.1560 will prompt a rebound towards 1.1610 and 1.1660, or possibly 1.1720. If pressure continues, the pair will drop below 1.1460 and head towards 1.1405.     Relevance up to 09:00 2022-09-15 UTC+2 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/321656
The Forex Market Is Under Strong Pressure From Geopolitical Events And Statistics

Podcast: Comments To US CPI Report, Discuss About Next The FOMC Meeting, Look At Crude Oil, Metals And Stocks

Saxo Bank Saxo Bank 14.09.2022 12:34
Summary:  Today we discuss the August US CPI shocker yesterday, as the core inflation reading on the month rose at twice the expected pace, taking even headline inflation into positive territory month-on-month despite the huge drop in energy prices. The market tanked and the USD soared as investors are forced to consider whether the FOMC meeting next week will bring a 100 basis point hike. Crude oil, metals, stocks to watch and a preview of Adobe and more also on today's pod, which features Peter Garnry on equities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.     Source: https://www.home.saxo/content/articles/podcast/podcast-sep-14-2022-14092022
The Recent Rally Of Bitcoin Had Been Capped, The Digital Yuan (eCNY) Has Received Upgrades

Litecoin Remained Stable And Bitcoin Continues Downward Trend

InstaForex Analysis InstaForex Analysis 14.09.2022 13:16
Contrary to many expectations, Bitcoin successfully spent the second part of last week. The asset managed to defend the $18.5k–$19k level and resume its upward movement. The formation of the largest green candle in the last three months gave hope for a strong bullish momentum. Along with Bitcoin, stock indices grew, including the S&P 500 and NASDAQ. The US dollar index corrected after reaching another high, which gave high-risk assets time to rise. Analysts at State Street report that institutional investors remain confident in the prospects and value of cryptocurrencies. Their main focus is on Ethereum before the merger, which is why Bitcoin falls out of the investment agenda. According to Santiment, the local undervaluation of BTC provoked a strong rebound to the $22k level. The publication of CPI and the reaction of the crypto market Most factors indicated a high probability of BTC reaching a local high at $25k. The publication of the dynamics of the consumer price index put a bold dot on market expectations. The indicator decreased from 8.5% to 8.3%, with a forecast of a fall to 8.1%. The rate of decline in the inflation rate was below forecasts. The cryptocurrency market and Bitcoin reacted sharply negatively. As of September 14, of the top 30 cryptocurrencies, only Litecoin managed to maintain stability. The capitalization of the industry fell by 6.6% to $900 billion, and Bitcoin lost 9% in a few hours. As of 08:00 UTC, BTC/USD has consolidated near the $20.2k support level. Stock indices also fell, with the S&P 500 down 4.3% overnight, the biggest drop since June 2020. BTC/USD Technical analysis In technical terms, the cryptocurrency has reached a local support zone in the $19.8k–$20.2k area. Following the results of the past 24 hours, Bitcoin has formed a bearish engulfing pattern, which indicates a continuation of the downward trend. Selling volumes continue to grow, but technical metrics signal a local reversal. The RSI and Stochastics bounced off the 35–45 area and are starting to move flat, which indicates consolidation. Bullish scenario Bitcoin needs to hold above the $20k level in order to maintain the opportunity to resume the upward movement. If the round mark is maintained, the price of BTC will rush to the $20.4k–$20.9k resistance area. Successful passage of this segment and consolidation above $21k opens up prospects for movement to $22k before the cryptocurrency. Bitcoin will most likely be in the consolidation stage in the coming days after the negative news. Bearish scenario The shock state of the market will be replaced by awareness of the difficulties of fighting inflation. Most likely, this will lead to a decrease in investment activity in the cryptocurrency market and a reorientation of investors to USD products. In the shorter term, this will be reflected in the price movement towards the key support area of $19.5k–$19.9k. Given the effect of the ETH update, it can be assumed that this zone will be the final one before the reversal. But in case of aggravation of the bearish movement by additional negative factors, the price will meet support at the final level of $18.5k–$19k. Results Summing up the results of the CPI publication, we can say that the situation with liquidity and tightening of monetary policy will not change in the coming months. Powell stated that the Fed's actions would depend on the fact, which turned out to be undervalued alarming. Inflation is falling, but very slowly, and therefore an increase in the key rate by 75 basis points in September is a settled issue. In the coming weeks, the market will prepare for a rate hike, as well as adapt its investment strategy to the deterioration of the financial environment. Earn on cryptocurrency rate changes with InstaForex Download MetaTrader 4 and open your first trade Relevance up to 10:00 2022-09-15 UTC+2 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/321668
The UK Markets Remain Volatile, Possible Contraction Of The Eurozone Economy

United Kingdom: Inflation Is Expected To Hit 11% As Energy Price Cap Is Set To Be Applied

ING Economics ING Economics 14.09.2022 13:37
Headline inflation will rise a little further having eased back below 10% in August, and it's likely to stay around 11% into early next year before falling back more dramatically. However, the Bank of England is watching wage growth more closely, as the hawks worry that worker shortages could lead to core inflation staying more persistently above target The introduction of a government cap on household energy prices means that we should now be fairly close to the peak in these headline figures The absence of another upside surprise to UK inflation this month takes a bit of pressure off the Bank of England to move even more aggressively when it meets next week. Headline CPI came in a touch lower than both consensus and last month’s level, at 9.9%, and that’s largely because of a near-7% fall in petrol/diesel prices during August. We expect another 2% decline in next month’s figures. The introduction of a government cap on household energy prices means that we should now be fairly close to the peak in these headline figures. The fact that electricity/gas bills won’t be rising by around 80% in October and a further 30-40% in January means that the peak in CPI should be around 5 percentage points lower. With the government due to cap the average household energy bill at £2500, up from around £2000 now, we expect a peak in the region of 11% in October. That's compared to 16% in January which is what we’d forecasted before the support was announced. UK inflation now set to peak at around 11% after energy price support Source: Macrobond, ING forecasts   We’d expect inflation to stay around there until early next year, before cooling more quickly as energy base effects kick-in. We think it could be more-or-less back to the Bank of England’s 2% target by the end of next year, crazy as that currently seems. But what policymakers are more interested in is core inflation – or to put it more accurately, the more persistent parts of the inflation basket. Here the news is mixed. On a month-on-month price basis, the increases we saw in August do seem fairly broad-based. However, there are signs that ‘core goods’ inflation is easing off, linked perhaps to the rise in retailer inventory levels relative to sales. That’s a function of supply chains beginning to improve, and in some cases commodity prices having fallen, which is coinciding with reduced demand for goods. Higher inventories and lower sales reducing pressure on goods prices Source: Macrobond, ING   However, the Bank is more focused on wage growth, and as we noted yesterday, the worker shortages that have plagued the jobs market for several months now don’t appear to be resolving themselves very quickly. The BoE’s hawks are concerned that this will translate into persistent pressure on wage growth. We aren’t totally convinced this will be enough to swing the pendulum in favour of a 75 basis-point rate hike next week, despite both the ECB and Federal Reserve going down this path. It’s a pretty close call, not least because the hawks will be worried about the recent slide in sterling, and markets are closer to pricing a 75bp move than a 50. But for now, we think another 50bp move next week is the most likely outcome, followed by another such move in November. 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
UK Budget: Short-term positives to be met with medium-term caution

The Bank of England (BOE) And Public Inflation Expectations

TeleTrade Comments TeleTrade Comments 15.09.2022 12:41
The quarterly survey conducted by the Bank of England (BOE) showed that the public's expectations in Britain for inflation over the coming surged. Key takeaways   UK public inflation expectations for the coming year 4.9%. UK public inflation expectations for 12 months after that are 3.2%. UK public inflation expectations for 5 years' time are 3.1%. Net public confidence in BOE-7% vs -3% in May. UK public's year-ahead inflation expectations highest since the survey began in 1999.   Market reaction The pound fails to pay any heed to the BOE survey, with GBP/USD keeping its range around 1.1525, down 0.07% on the day.
Oanda Podcast: US Jobs Report, SVB Financial Fallout And More

Headline Consumer Price Index- Summary Of The US Inflation Report

TeleTrade Comments TeleTrade Comments 15.09.2022 12:52
UOB Group’s Senior Economist Alvin Liew and Rates Strategist Victor Yong review the latest release of US inflation figures. Key Takeaways “US headline consumer price index (CPI) inflation was off from recent highs but still elevated at 8.3% y/y (from 8.5% y/y in Jul), above Bloomberg estimates of 8.1% (but in line with our forecast). On a m/m basis, the headline CPI picked up pace, increasing 0.1% m/m  (versus flat at 0% in Jul) and faster against Bloomberg estimate of a decline by -0.1% m/m.” “A bigger concern was the core CPI inflation (which excludes food and energy) which raced higher sequentially, reflecting unabating underlying momentum for price pressures. On a m/m basis, core inflation rose by a faster 0.6% in Aug (up from 0.3% in Jul, and above Bloomberg estimate of 0.3%). Compared to a year ago, it rose to 6.3% y/y in Aug, from 5.9% in Jul, and above Bloomberg estimate for 6.1%.” “Goods inflation eased further, coming in at -0.8% m/m, 12.1% y/y in Jul (from -0.5% m/m, 12.1% y/y in Jul), but services inflation – a bigger and thus more important component of CPI – continued to increase and the pace re-accelerated, up by 0.7% m/m, 6.8% y/y (from 0.3% m/m, 6.2% y/y in Jul), matching the previous high of Oct 1982 (6.76% y/y). The sustained increase in services inflation in recent months is a clear indication that wage growth is having a meaningful transmission to price pressures.” “While the latest US headline inflation was below the 9.1% recorded in Jun, this reflected mainly the decline in gasoline prices but the cost of living is still materially high as shown by the persistent rise of food and shelter costs and services inflation is getting hotter amidst strengthening demand. We maintain our headline CPI inflation forecast to average 8.5% and our core CPI inflation forecast at 6.5% for 2022. Subsequently, we still expect both headline and core inflation to ease in 2023, but it will likely average higher at 3.0% (from previous forecast of 2.5%). The balance of risk on inflation remains on the upside.”    
Binance Academy summarise year 2022 featuring The Merge, FTX and more

US Inflation Report And Its Impact On The Cryptocurrency Market

InstaForex Analysis InstaForex Analysis 15.09.2022 13:03
While the whole world is discussing the Ethereum Merge update, it is important to finally deal with the consequences of slowing down the rate of decline in the inflation rate. CPI reporting had a negative impact on the crypto market and caused a reduction in total capitalization to the level of $998 billion. However, this is only an impulsive reaction of investors to bad news. The consequences of this process in the medium term may be more disastrous. Inflation, the position of the Fed and the crypto market In the summer, Fed Chairman Jerome Powell said that the agency was changing its strategy for raising the key rate. The regulator abandoned the predictive indicator planning model and decided to focus on actual data. The Fed also said that it plans to end the current year with a neutral rate. Powell's statements removed the element of surprise, made Fed policy more transparent and gave investors hope. Markets took the theses of the head of the Fed as a transitional moment to the gradual easing of monetary policy. The peak of such sentiments occurred at the beginning of August, when the inflation rate fell above expectations. A glimmer of hope amid the endless fog of the liquidity crisis provoked other positive rumors. One of the initiators of the positive statements was Arthur Hayes, who believes that as we approach the November Senate elections, the markets will pump up the money supply. The slowdown in the rate of decline in the inflation rate put a bold dot on the likelihood of a change or easing of the Fed's current policy. After the publication of the CPI for August, an increase in the key rate by 75 basis points in September is a settled issue. In addition, the current order of movement of the price of Bitcoin and other financial instruments remains. New Rules for Bitcoin Price Movement Insufficient rates of inflation reduction are forcing the Fed to maintain the current level of influence on world markets. The withdrawal of liquidity and the increase in the key rate to strengthen the USD will continue. Considering this index, DXY remains the main financial instrument for the coming months. Bitcoin continues to maintain a close correlation with stock indices. Considering the macroeconomic situation, high-risk assets remain a single category of low-value investments at this stage. It follows that with active trading of BTC/USD, other cryptocurrencies and stock indices, the rule of mandatory DXY analysis remains. With a high degree of probability, when the US dollar index rises, Bitcoin and other cryptocurrencies go down or move flat. The publication of CPI reports caused opposite reactions from BTC and DXY. The inverse correlation of the two assets is obvious and should be a key element of active BTC/USD trading. BTC/USD Technical analysis Bitcoin managed to hold on to the $20.1k–$20.2k support area. The cryptocurrency successfully defended the $19.1k line following the results of yesterday's trading day, and moved to the stage of consolidation. In the coming days, we should expect a stabilization movement in the BTC/USD price without significant impulse movements. Technical metrics confirm this scenario. On the daily chart, the RSI index and the stochastic oscillator made a sharp reversal to the side. The MACD indicator has also completed an upward spurt and started moving in a flat direction. The publication of the CPI had a significant negative impact in both the short and medium term. Given the successful upgrade of Ethereum, we can soon expect a decrease in investment activity and a drop in the level of Bitcoin dominance. The main focus of the market will be on the altcoin, which may cause BTC to be undervalued. Demand and scarcity After a short consolidation, Bitcoin may resume its upward movement due to its growing scarcity in the market. Long-term investors continue to actively buy up BTC coins, reducing their volumes in the public domain. In addition, Bitcoin mining difficulty peaked at 32.045 trillion hashes. This means that mining a BTC block has never been so difficult. Accordingly, in the coming weeks, we can expect a local upward movement of Bitcoin to the $24k–$25k area due to its underestimation and growing scarcity. Medium-term prospects for Bitcoin Despite the rising inflation, the situation will begin to improve closer to winter. Most likely, the reason for this will be a significant reduction in liquidity and the aggravation of recession in the US economy. The combination of these factors will force the Fed to resume filling the markets with money, which will positively affect Bitcoin. Earn on cryptocurrency rate changes with InstaForex Download MetaTrader 4 and open your first trade   Relevance up to 10:00 2022-09-16 UTC+2 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/321796
FX: The Gap Versus The FX spot Rate In Poland Is Already The Largest In The CEE Region

Poland: Final August CPI Print And Prediction For The Rest Of 2022

ING Economics ING Economics 16.09.2022 13:25
Core inflation in Poland rose again last month due to pressure from the weak zloty, rising wages, and high energy prices   According to the Central Statistical Office of Poland's final estimate, CPI inflation rose to 16.1% year-on-year in August from 15.6% YoY in July, in line with the flash reading. The year-on-year growth in both the CPI and core continue to rise. CPI in year-on-year terms accelerated, as increases in the prices of food (+1.6% month-on-month), energy carriers (+3.8%MoM) and core (+0.8%MoM) overshadowed a significant fall in transport fuel prices (-8.3%MoM). The large increase in food prices is not only due to the jump in sugar prices but also in other categories (meat, bread, dairy). There was also no typical seasonal drop in the total food price (-0.8%MoM average in the last decade). In August, food and beverages grew 1.6%MoM, as discounts for fruit and vegetables were dominated by growth in other categories. The large jump in energy prices was mainly driven by heating fuel (+12%MoM) – making it the largest single contribution to the August CPI increase – and municipal heating. Both increases have come earlier than usual from a seasonal perspective, and show the impact of the energy shock and the shortage of coal for domestic purposes of households. The details of August inflation show price pressures in many categories of goods and services. This is the effect of rising wages, high gas and electricity prices (as shown by jumps in categories such as paper, chemicals, and cosmetics), and the weak zloty. The strong holiday season has pushed up the prices of tourist and catering services, compared to last year. CPI drop in the coming months seems unlikely We are less optimistic than the National Bank of Poland (NBP) about the evolution of inflation in the coming months. It will be difficult to see a decline in the year-on-year CPI before the end of the year. The economy still has to absorb the energy shock over the next few months. We expect price rises in categories that escape regulation (such as fuel, bottled gas etc), but also await new price lists for the turn of 2022-23, which will determine what level inflation will peak at in February 2023. We also note that the annual inflation rate (CPI, %YoY) may fall over the course of 2023, on base effects, among other things, or thanks to large-scale measures to rein in energy prices. However, our models show persistent high core inflation, which is more domestic in nature. We see very high inflation expectations of firms and households, which are triggering strong second-round effects (firms are passing most of the new costs on to retail prices, and this effect will be seen in the coming months because the slowdown in domestic demand is too small). In turn, a significant increase in the minimum wage acts as a wage-price spiral. There may be no more interest rate hikes However, the cycle of interest rate hikes is coming to an end. Recent comments show that the NBP is rather targeting a decline in annual CPI (possibly by the end of 2023) and a 'soft landing' of the economy, while a “de jure” target of CPI at 2.5% YoY is seemingly forgotten. An important factor that reduces the effectiveness of the rate hikes is fiscal expansion. Currently, the total policy mix is only slightly restrictive despite inflation at 16.1% YoY. With such a definition of NBP targets, we can envisage rate cuts in 2023. With that in place, we should face another cycle of rate rises in 2024. The way to fight inflation differs from the approach of other countries, where central banks and governments communicate that what is needed is to cool down the economy, and the labour market, with slower wage growth than the rate of inflation. All of this is to avoid a repeat of the 1970s scenario in the US when it took three cycles of interest rate hikes to fight inflation. The ultimate cost of this fight was much greater than the cost of cooling the economy at the start of a period of high inflation. Read this article on THINK TagsPoland inflation National Bank of Poland 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 US Has Again Benefited From Military Conflicts In Other Parts Of The World, The Capital From Europe And Other Regions Goes To The US

The Fed Is Ready To Sacrifice Growth And Employment To Bring Inflation Back To Its Target

ING Economics ING Economics 24.09.2022 08:51
US housing numbers will be the main focus next week. The Federal Reserve's aggressive hiking cycle has already sent the market into recession and more pain lies ahead. In the eurozone, we expect higher inflation at 9.6% while unemployment should remain unchanged In this article US: Housing numbers in focus after Fed's 75bp hike Eurozone: Higher inflation and unemployment rate expect to remain at 6.6% Source: Shutterstock US: Housing numbers in focus after Fed's 75bp hike After the Federal Reserve's 75bp rate hike this week and Jerome Powell's commentary that the Fed is prepared to sacrifice growth and jobs to ensure inflation comes back to target, we will be hearing from many more officials over the coming week. Given the strong clustering of near-term forecasts for rates and the economy, the hawkish comments hinting at another 75bp hike in November are likely to come thick and fast. The data calendar is fairly light with housing numbers the main focus. With mortgage rates now firmly above 6%, more pain is coming in the housing market where a recession is already underway. Eurozone: Higher inflation and unemployment rate expect to remain at 6.6% Inflation figures will be the main focus in the eurozone. Expect higher prices partly due to Germany's decision to end cheap public transport tickets as of 31 August. The key will be to see how much other categories have continued to rise. Separately, unemployment data is out on Friday. We expect the labour market to have remained very tight with the unemployment rate stable at a historic low of 6.6% despite business hiring expectations sliding in recent months. Key events in developed markets next week Source: Refinitiv, ING This article is part of Our view on next week’s key events   View 3 articles TagsFederal Reseve 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
Saxo Bank Podcast: The Risk Of An Escalation In The US-China Confrontation, The Risk Of An Escalation In The US-China Confrontation And More

Market Focus Will Likely Be On Putin’s Warnings To The West, Nike (NKE) Reported Slightly Better Revenues And More

Saxo Bank Saxo Bank 30.09.2022 08:37
Summary:  Fresh lows return in US equities with more hawkish Fed comments and fear of earnings downgrades picking up as the Q3 earnings season draws closer. Cable extended its rally despite UK PM’s commitment to fiscal plan and weakening BOE hike expectations, while the EUR gained strength on the back of hot German CPI and uptick in ECB rate hike expectations. Talks of OPEC+ production cuts are gaining momentum, and focus today will be on China PMIs. Also watch for Eurozone CPI, US PCE data as well as Putin’s speech in the day ahead. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) fall to 22-month lows US stocks sank to their lowest levels since November 2020 after another round of Fed speakers continued with hawkish remarks, while oil maintained gains on expectations of OPEC+ cuts. Nasdaq 100 was down almost 4% at one point, but trimmed the losses before closing 2.9% lower, while the broader S&P500 met a similar fate nearing 3,600 before ending 2.1% down. All 11 sectors of the S&P 500 dropped, with Utilities falling the most and followed by Consumer Discretionary. Retail favorites Tesla (TSLA) and Apple  (AAPL)  led the declines falling 6.8% and 4.9% while chip makers followed with AMD (AMD) down 6.2% with PC demand falling away. On the upside, oil stocks like Devon Energy (DVN), and Diamondback Energy (FANG) and Occidental (OXY) moved higher. Separately the European Commission announced an eight package of sanctions that would include a price cap on Russia’s oil exports. U.S. treasury yields (TLT:xnas, IEF:xnas, SHY:xnas) climbed again After plunging sharply the day before on the Bank of England move, yields of U.S. treasury securities rose, with the 10-year note yields rising 6bps to 3.79% on Thursday.  Yields initially crept higher on bounces of U.K. Gilt yields and higher German regional CPI data, but paring their rise in the afternoon.  Hong Kong’s Hang Seng (HSIU2) and China’s CSI300 (03188:xhkg) Hong Kong and mainland equity markets opened higher on Thursday and pared the gain through the day and settled moderately lower, with the Hang Seng Index down by 0.5%, and CSI300 little changed. The news of the imposition of a 3-day mandatory PCR test in the financial district, Lujiazui in Shanghai due to one new Covid-19 case triggered some fears among investors. In spite of PBoC’s supportive statement coming out from its quarterly monetary meeting saying that the central bank will expand its special lending program to ensure the delivery of delayed housing projects, Chinese developers declined, with Country Garden (02007:xhkg) plunging 11.6%, Longfor (00960:xhkg) down by 7.5%, and CIFI (00884:xhkg) tumbling 16.3%.  Chinese EV maker, Zhejian Leapmotor (09863:xhkg), tumbled 33.5% in its first day of trading after an IPO priced at the bottom of a guided range.  XPeng (09868:xhkg) dropped 5.3%.  Trading in the China Internet space was mixed with Alibaba outperforming (+2.9%). Australia’s ASX200 (ASXSP200.1) likely to follow Wall Street lower: futures suggest a 0.3% fall today, aluminum stocks to be bright spark As above, on the ASX today, it’s worth keeping an eye on aluminum related stocks on the ASX including Rio Tinto (RIO) and Alumina (AWC). Meanwhile, diversified miners including the major retail favorites, like BHP (BHP) are worth watching after the Iron Ore (SCOA) price remains supported with China ramping up housing support. This morning the iron ore price (SCOA, SCOV2) pushed up ~1.1% to US$96.50. In NY BHP closed 0.6% higher, implying the ASX primary listing of BHP will likely move up, especially after the aluminum and iron ore prices rose. Cable stays bid and Euro follows The US 10-year yields as well as the dollar could not catch a strong bid on Thursday, which helped other G10 currencies gain some ground. Sterling was the strongest on the G10 board, with GBPUSD now testing 1.12 in early Asian hours. BOE’s emergency bond-buying measures however hints at a push lower in gilt yields, and GBP will likely come back under pressure if the surge in global yield resumes. This will need a focus shift back on Fed tightening as we think there is still some room for upward repricing of terminal rate Fed expectations and higher-for-longer rates. Meanwhile, expectations for an ultra-aggressive BOE hike in November cooled slightly. EURUSD also surged above 0.98 with ECB rate hike expectations for October meeting picking up after the hot German inflation, and with the ECB downplaying the chance of an emergency move to prop up Italian bonds. EURGBP was however lower from 0.8950 to 0.88. Aluminum and aluminum stocks on watch It’s worth watching aluminium related shares across the Asian-Pacific region today after the record jump in Aluminum price on the LME after Bloomberg reported plans to discuss a potential ban on new Russian metal supplies. The metal jumped 8.5% (its biggest intraday jump in record) before paring back. Crude oil (CLU2 & LCOV2) prices maintain gains Crude oil prices maintained the momentum with OPEC+ production cuts becoming a key factor going into the next week’s meeting. OPEC+ commenced discussions around an output cut with one saying it a cut is “likely”, according to Reuters sources. This comes after previous reports that Russia will likely propose OPEC+ reduces output by around 1mln BPD. Demand conditions are likely to weaken as global tightening race heats up, and this has prompted expectations for a supply cut as well. Brent futures touched $90/barrel mark but reversed slightly later, while WTI futures rose to $83/barrel before some decline later in the session.   What to consider? German inflation sparks EZ inflation fears German inflation touched double digits, as it came above consensus at 10.9% YoY for September from 8.8% YoY previously. Germany is also preparing to borrow an additional €200 billion to finance a plan to limit the impact of soaring energy costs, which could keep consumption high even as shortages loom. Up today will be the September eurozone inflation print. Expect a new record which will increase the pressure on the European Central Bank to hike interest rates by at least 75 basis points in October. The economist consensus expects that the headline harmonized index of consumer prices (HICP) will reach 9.7% YoY against 9.1% in August. The core rate is expected to climb to 5.6% YoY against 5.5% previously. The spread between the headline and the core inflation figures is mostly explained by a decrease in oil and natural gas prices in recent months. However, this is clear that inflation is becoming broad-based, including in the services sector. This means that inflation is here to stay for long. The HICP is likely to continue increasing in the coming months. A peak in inflation in the eurozone is possible in the first quarter of 2023, in our view. This is much later than in the United States. Fed speakers push for more hikes Loretta Mester remains more hawkish than the Fed’s median dot plot, and said that rate are not in restrictive territory yet and more rate hikes will be needed. No signs of concern on economy or dollar strength were noted, while inflation remained the key point of concern for her. James Bullard also made some key comments on ‘bad idea to mess’ with the inflation target while the labor market conditions remain tight and recession is only a risk. Mary Daly was more cautious, saying officials should work to avoid "inducing a deep recession." However, she still raised the bar on expectations on the Fed funds rate saying that she is comfortable with median Fed rate path projection of 4%-4.5% by year end, 4.5%-5% in 2023 (pointing to upside risks as the dot plot suggested 4.6%, or 4.5-4.75% if we talk in ranges). US initial claims come in strong again Initial claims came in lower than expected at 193k with last week’s also revised lower to 209k from 213k. Continued claims cooled to 1.347mln from 1.376mln despite the expected rise to 1.388mln. The data shows how tight the labour market is in the US and Fed's Bullard labelled today's claims metric as "super low". Meanwhile, the third estimate of Q2 GDP was confirmed to decline 0.6%, notably with consumer spending revised higher to 2% from 1.5% previously. Australian inflation rose 7% in the year to July, based on new monthly CPI At this rate it doesn’t appear CPI will peak at just shy of the 8% the RBA forecasts, given price pressures have resumed this month from the largest inflation contributors. Based on the ABS’s new monthly CPI print, some of the largest price jumps year-on-year to July were in fuel (+29.2%) and fruit & vegetables (+14.5%). The concern is that, with La Nina set to hit Australia and population growth continuing, food and housing (rent) prices will continue to rise apace. In September alone, contributors to food prices have risen markedly, as the global supply outlook has weakened amid poor crop conditions. This could tilt the RBA back toward a more hawkish stance. Australian rents to drive higher, adding to inflation woes Australia’s population growth resumed after borders reopened and business employment remains strong for the time being, at 50-year highs. New office and residential supply is expected be subdued in 2023 as interest rates rise; which supports the notion of falling vacancy rates. According to Colliers and the ABS, Sydney CBD rents rose 3.6% to $5.22 per square foot in the June quarter, driven by competition for top-quality office space. China’s manufacturing PMIs are expected to stay in the contractionary territory China’s September official NBS Manufacturing PMI and Non-manufacturing PMI as well as the Caixin China Manufacturing PMI are scheduled to release today. The median forecast of, economists surveyed by Bloomberg for the NBS Manufacturing PMI is 49.7 for September, a modest improvement from August’s 49.4 but remains in contraction territory.  Economists cite the lockdown of Chengdu and restrictive measures in some other cities during most part of the month and the weak EPMI released earlier as reasons for expecting the NBS Manufacturing PMI to stay below 50.  The Caixin Manufacturing PMI, which has a larger weight in coastal cities in the eastern region, is expected to remain at 49.5 as export-related manufacturing activities and container throughput were weak.  The consensus estimate for the NBS Non-manufacturing PMI is 52.4, staying in the expansionary territory, supported by infrastructure construction but slowing slightly in September from August’s 52.6 due to weakness in the housing sector.  On the other hand, steel production and demand data in September suggest the PMIs may potentially surprise the upside. Buying activity up in food and Agricultural instruments, stocks and ETFs Food prices are supported higher as the global crop outlook dampens for 4 reasons; concern lingers over Ukraine’s exports being cut off, South America has been hit by rains and frosts, the US has been plagued by drought and dry conditions and as Hurricane Ian made landfall in the, US conditions are likely to go from bad to worse. And lastly - La Nina is expected to hit Australia for the third year in a row. So we are seeing clients buy into Wheat and Corn. Both prices are up 20% off their lows. Secondly, buying has been picking up in agricultural stocks like General Mills (GIS) and GrainCorp (GNC). And lastly, clients are biting into agricultural ETFs like Invesco DB Agriculture Fund (DBA) and iShares MSCI Agricultural Producers ETF (VEGI). Fed preferred inflation measure, US PCE, on the radar today The Fed’s preferred inflation measure, the PCE is due today, and it will likely echo the same message as given by the last strong CPI number which has made the Fed even more hawkish in the last few weeks since the Jackson Hole. Headline numbers may be lower due to the decline in gasoline prices, but the price pressure on services side will likely broaden further. Last week, the Fed also raised its forecasts for inflation, with the central bank now seeing core PCE at 4.5% by the end of this year (it previously projected 4.3%), moderating to 3.1% next year and at 2.1% at the end of its forecast horizon in 2025, but thinks that headline PCE prices will be at its 2% target by then. Putin's speech due today after Russia annexed parts of Ukraine Vladimir Putin will address legislators after Russia signs treaties today to absorb four occupied regions, with Ukrainian forces threatening to encircle a pocket of the Donbas region. There is also growing resistance to Putin’s decision to call up 300,000 reservists. Market focus will likely be on Putin’s warnings to the West about any potential threats of using nuclear weapons, which may mean risk aversion getting another leg up. Nike sank on concerns about inventory build-up and margins Nike (NKE) reported slightly better than expected revenues and inline earnings but below expectation gross margins and a 65% surge in inventories for the North American market.  In the earnings call, the company’s CFO pledged to take “decisive action to clear excess inventory” and such efforts will have “a transitory impact on gross margins this fiscal year”.  Investors took note of the implication on demand and profitability and sold stock to more than 9% lower in the extended hour trading. Apple fell on analyst downgrade After being sold on the company’s announcement to back off plans to increase iPhone production this year on the day before, Apple’s shares fell another 4.9% yesterday after an analyst downgrade from a U.S. investment bank.  In this Market Daily Insights piece yesterday, we mentioned the warnings from Peter Garnry, Saxo’s Head of Equity Strategy, about the likelihood that Apple’s revenue could slip into negative growth for the current quarter ending Sep 30 and you can find more details of his analysis from here. In his note, Peter also warns that analysts may be way off in their estimates for the S&P 500 for Q3 and it is highly probable that there will be significant misses to the downside followed by gloomy comments from company management about the outlook on margins.     For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast. Source: https://www.home.saxo/content/articles/equities/market-insights-today-30-sept-30092022
Inflation Rising Again In The Eurozone, Positive GDP In The Great Britain

Inflation Rising Again In The Eurozone, Positive GDP In The Great Britain

Craig Erlam Craig Erlam 30.09.2022 14:17
Stock markets are bouncing back on Friday, although I don’t think anyone is getting excited by the moves which pale in comparison to the losses that preceded them. This looks like nothing more than a dead cat bounce after a steep decline over the last couple of weeks as investors have been forced to once again accept that interest rates are going to rise further and faster than hoped. Double-digit eurozone inflation Inflation in the eurozone hit 10% in September ahead of schedule, with markets expecting a jump to 9.7% from 9.1% in August. In normal circumstances that may have triggered a reaction but these are anything but normal. Markets are still pricing in a more than 70% chance of a 75 basis point rate hike from the ECB next month with an outside chance of 1%. The euro is slightly lower following the release which also showed core inflation rising a little higher than expected to 4.8%. Sterling recovers as the UK is revised out of a potential recession We’re seeing the third day of gains for the pound which has now recovered the bulk of the losses sustained after the “mini-budget” a week ago. This is not a sign of investors coming around the new Chancellor’s unfunded tax-cutting, but rather a reflection of the work done since to calm the market reaction. That includes the emergency intervention from the BoE, talk of measures to balance the cost of the tax cuts, reported discussions with the OBR and rumoured unrest within the Tory party. We’ll have to see what that amounts to and sterling could certainly react negatively again to inaction or the wrong action. GDP data this morning brought some good news, although as far as positive updates go, this is surely towards the more insignificant end. The UK is not in recession after the second quarter GDP was revised up from -0.1% to +0.2%. While all positive revisions are welcome, the technical recession wasn’t really significant in the first place. The important thing was that the UK is struggling to grow and facing a probable deeper recession down the road and today’s revision doesn’t change that. ​ Disappointing Chinese surveys China’s PMIs highlighted the widening gulf between the performance of state-owned firms versus their private competition. It goes without saying that being backed by the state in uncertain times like this carries certain advantages and that has been evident for some time. Private firms have been more sensitive to Covid restrictions and have therefore been heavily hampered this year. Still, even with those state-backed benefits, the headline PMI was far from encouraging rising to 50.1 and barely in growth territory. With the non-manufacturing PMI also slipping from 52.6 to 50.6, it’s clear that the economy still faces enormous headwinds and the global economy stalling around it will only add to them. BoJ ramps up bond purchases amid higher yields The Bank of Japan ramped up bond purchases overnight as it continues to defend its yield curve control thresholds in volatile market conditions. Rising global yields have forced the central bank to repeatedly purchase JGBs in order to maintain its target. There has been a growing expectation that the BoJ could tweak its 0% target or widen the band it allows fluctuations between in order to ease the pressure on the currency but that’s not been forthcoming, with the MoF instead intervening in the markets for the first time since 1998. The intervention doom loop continues. RBI rate hike and credit line The Reserve Bank of India hiked the repo rate by 50bps to 5.9% on Friday, in what will likely be one of its final tightening measures in the fight against inflation. The decision was widely expected and followed shortly after by guidance to state-run refiners to reduce dollar buying in spot markets through the use of a $9 billion credit line. The strength of the dollar is posing a risk to countries around the world, as we’ve seen very clearly in recent weeks as mentioned above, and measures like this will seek to alleviate those pressures. Much more will be needed to make any significant difference though. A period of stability is what bitcoin needs It’s been a very choppy week in bitcoin which has failed to make a sustainable run in either direction despite attempts at both. Perhaps we are seeing a floor forming a little shy of the early summer lows around $17,500, although that will very much depend on risk appetite not plummeting once more which it very much has the potential to do. I keep using the word resilience when discussing bitcoin and that has very much remained the case. It did also struggle to build on the rally earlier this week, even hold it into the end of the day, so perhaps a period of stability is what it needs. 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.
Asia Market: Optimistic Headlines From Regional Leaders China And Japan

Data From Asia And Australia Will Be In Focus For The Coming Week

ING Economics ING Economics 01.10.2022 08:42
A key central bank meeting and regional inflation and trade figures are in focus next week In this article The week ahead RBA meets to discuss policy Most regional inflation readings to accelerate Korea and Taiwan trade data PMI readings from Indonesia, Philippines and Singapore All about reserves Source: Shutterstock The week ahead In the coming week, we'll get readings on inflation, trade and PMI reports from the region. Also, with FX markets battered, data on dollar reserves will be in focus. Lastly, the Reserve Bank of Australia (RBA) meets to discuss policy, with the chance of a 50bp hike increasing.  RBA meets to discuss policy Following some reasonable August labour market data, and stronger-than-expected retail sales figures, recent hints from the Reserve Bank of Australia that it may soon start to tighten rates at a slower pace are looking a bit less credible right now. With a strong and unified hawkish chorus from US Fed officials, the apparent ruling out by the US White House of a plaza-style currency agreement, and a further sliding of the Australian dollar, the odds are swinging back towards another 50bp RBA move at the coming meeting. Most regional inflation readings to accelerate Price pressures are likely to kick into high gear for both the Philippines and Indonesia which should keep their respective central banks on notice.   Indonesia's inflation has remained relatively subdued of late, but a recent price hike for subsidised fuel should push headline inflation past 6% year-on-year. Philippine inflation should also edge higher after a brief pause.   Meanwhile, the sharp depreciation of the Japanese yen should add pressure to inflation, with Tokyo CPI inflation expected to rise to 2.9%YoY in September. Inflation in Korea will also likely move higher, up 5.7%. Gasoline prices may have declined but food prices climbed quite sharply for the month. Lastly, Taiwan's inflation should have a strong correlation with its trade data. Our outlook is for a slowdown in trade due to fading purchasing power for US and European markets. The weakness in the trade sector suggests softer demand in Taiwan given its dependence on external trade. Thus we expect lower CPI and WPI inflation for Taiwan. Korea and Taiwan trade data Korea's September trade data will also be in focus for the coming week. Set for release over the weekend, we expect export growth to slow to 2%YoY given the unfavourable calendar day effect. Semiconductors exports should rebound marginally after a sudden drop in August, but automobile exports are likely to turn negative as suggested by a recent industry report. Import growth is also expected to decelerate as the drop in oil prices overwhelms the weak Korean won.   Taiwan will also release trade figures in the coming days. Both exports and imports should be softer than in August, as high inflation in the US and Europe has led to a fall in purchasing power and thus weaker demand for Taiwan's exports.  PMI readings from Indonesia, Philippines and Singapore Next week will feature the latest readings for PMI manufacturing. We can expect declines in PMI indices for both the Philippines and Singapore due to slower export demand although both indices are likely to remain in expansion. Indonesia on the other hand should see a modest improvement in activity tracking surging exports.   All about reserves The ongoing rout in currency markets has central banks dipping into reserves to slow the depreciation of their currencies. Reserve levels are likely to fall in the coming months and both the Philippines and Indonesia could see lower levels given depreciation pressure for their respective currencies.   Asia Economic Calendar Source: Refinitiv, ING TagsTaiwan Reserve Bank of Australia 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
The Turkish Central Bank Cut Its Policy Rate by150bp | Credit Suisse Outflows Benefit UBS

Expectations Of Another Rise In Inflation In Turkey

ING Economics ING Economics 01.10.2022 08:52
Turkish inflation is expected to increase to 83.5% in September due to significant price hikes in electricity and natural gas fees. In Hungary, we see the manufacturing PMI jumping to 58.2, as order books remain filled and supply chain issues have gradually recovered In this article Turkey: Annual inflation to increase further Hungary: Retail sales to slow, industrial production to jump Source: Shutterstock Turkey: Annual inflation to increase further In September, we expect annual inflation to increase to 83.5% (3.1% on monthly basis) from 80.2% a month ago, given significant administrative price hikes in electricity and natural gas fees. Pricing pressures will likely remain broad-based on the back of a largely supportive policy framework along with a less supportive global backdrop leading to currency weakness. Hungary: Retail sales to slow, industrial production to jump The calendar for Hungary contains some activity data from August. We see retail sales slowing as prices rise quickly and households are increasingly conscious about their spending. On the other hand, industrial production will jump as the month of August this year contained two more working days than in the last year, boosting the unadjusted growth figure. When it comes to the September outlook for industry, the manufacturing PMI will give us some clues and we expect this to suggest expansion as orders books remain filled and supply chain issues have become less severe. Key events in EMEA next week Source: Refinitiv, ING TagsTurkey Hungary   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 Softer Labour Market In Australia And Its Possible Consequences

Will The RBA To Raise Rates Again And How Many Percentage Points This Time?

Kamila Szypuła Kamila Szypuła 01.10.2022 11:48
Inflation is expected to peak later this year and then decline back towards the 2–3 per cent range. The expected moderation in inflation reflects the ongoing resolution of global supply-side problems, recent declines in some commodity prices and the impact of rising interest rates. The outlook for global economic The path to achieving this balance is a narrow one and clouded in uncertainty, not least because of global developments. The outlook for global economic growth has deteriorated due to pressures on real incomes from high inflation, the tightening of monetary policy in most countries, Russia's invasion of Ukraine, and the COVID containment measures and other policy challenges in China. The outlook for global economic growth has worsened and represents a key uncertainty. Central banks in several major advanced economies have expressed continued determination to tighten monetary policy to prevent the consolidation of high inflation, which would likely trigger a period of much lower growth. High inflation also put pressure on real incomes, especially in Europe, as the impact on energy markets worsened following Russia's invasion of Ukraine. The last decision Inflation in Australia is the highest it has been since the early 1990s and is expected to increase further over the months ahead. The Board is committed to returning inflation to the 2–3 per cent range over time. At its last meeting, the Board decided to increase the cash rate target by 50 basis points to 2.35 per cent. It also increased the interest rate on Exchange Settlement balances by 50 basis points to 2.25 per cent. The expectations The Council expects a further increase in interest rates in the coming months, but it is not on a predetermined path given the uncertainty about the outlook for inflation and growth. The behavior of household spending remains a significant source of uncertainty. Higher inflation and higher interest rates put pressure on household budgets. The RBA started its rate rise cycle in May during the federal election campaign. The market may expect the RBA to raise rates again. The question remains only by how many percentage points this time? The Reserve Bank of Australia (RBA) will be deciding between a 0.25 and a 0.50 percentage point hike. Some experts expect the Australian central bank to raise interest rates another half a point in its most aggressive tightening cycle to contain red-hot inflation. As at 30 September, the ASX 30 Day Interbank Cash Rate Futures October 2022 contract was trading at 97.305, indicating a 79% expectation of an interest rate increase to 2.85% at the next RBA Board meeting. Although many well-known economists such as Ben Jarman, the chief economist of JPMorgan, swear that on Tuesday the central bank will decide on the fifth consecutive "undersized" increase by 50 bp, the chances are that the RBA will decide to tighten monetary policy more slightly by 25 bp. The official decision will be announced on Tuesday, October 4. The rates market is even more hawkish. The Board is still resolute in the need to ensure inflation returned to target, but mindful that the path to achieve this needed to account for the risks to growth and employment. The Board is seeking to return inflation to target while keeping the economy on an even keel. The path to achieving this balance remains a narrow one and clouded in uncertainty. The size and timing of future interest rate increases will still depend on the incoming economic data and the assessment of the outlook for inflation and the labor market.
Philippines Central Bank's Hawkish Pause: Key Developments and Policy Stance

A Gloomy Outlook For The Global Economy, Do We Have To Prepare For The Worst?

InstaForex Analysis InstaForex Analysis 03.10.2022 11:20
Key reports published in both US and Europe show that inflation continues to spiral and is at staggering levels. This prompted Credit Suisse to issue a gloomy outlook for the global economy, saying the worst is yet to come. The Department of Commerce released the latest inflation data, indicating that core PCE jumped 0.6% in August. This suggests that inflation is still intense and increasing, and may even be higher in the next months. Core labor costs, which excludes food and energy costs, also rose 4.9%, up 4.7% from forecasts. In Europe, inflation hit a new record high of 10% in September. CPI for the Eurozone differs from that of the US as year-on-year energy prices in the region were up 40.8%. In the US, there is a slight decline from 8.5% to 8.3%. To address inflation, the Fed has implemented five consecutive interest rate hikes, but from last week's report, it is obvious that the aggressive measure is yet to bring inflation down. Vice Chairman Lael Brainard said the risk of additional inflationary shocks cannot be ruled out, so the central bank is trying to avoid a premature retreat. "Monetary policy should be tight for some time to be sure that inflation returns to its target level," she stated.   Relevance up to 10:00 2022-10-05 UTC+2 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/323234
A Bright Spot Amidst Economic Challenges

Enrico Tanuwidjaja: "We Maintain Our Inflation Forecast For 2022 At 4.9%"

TeleTrade Comments TeleTrade Comments 05.10.2022 13:06
Economist at UOB Group Enrico Tanuwidjaja reviews the latest release of inflation figures in Indonesia. Key Takeaways “Sep’s headline inflation rose sharply, but not unexpected, by 1.2% m/m or 6% y/y (4.7% in Aug) while core inflation rose to 3.2% y/y (prior 3%).” “Inflation in Sep was mainly driven by the effects of fuel price hike on transport prices and on higher food prices.” “As we have alluded to in our latest quarterly publication, we keep our 2022 inflation forecast (average) at 4.9%. We also maintain our view for BI to hike rates to reach 5% by year-end.”
Philippines’ central bank hikes rates after blowout CPI report

Inflation In Philippines Is Expected To Break Above 7.0% In October

TeleTrade Comments TeleTrade Comments 07.10.2022 09:41
UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assess the recently published inflation figures in Philippines. Key Takeaways “Headline inflation reverted higher to 6.9% y/y in Sep, affirming our view that the blip in Aug (at 6.3% vs 6.4% in Jul) was temporary. It marked the highest reading since Oct 2018, in line with our estimate (7.0%) and Bloomberg consensus (6.9%). Costlier food, electricity bills, passenger transport services and housing rental were key factors pushing up headline inflation amid a sharp depreciation in Peso (PHP) and higher interest rates during the month.” “We expect the national consumer price pressures to intensify further and surpass the 7.0% level in Oct as a result of an approved fare hike for public transports from 3 Oct and persistent weakness in PHP. Based on the current global commodity price and currency outlook, the Philippines’ headline inflation is also expected to remain above 7.0% for Nov and Dec this year before gradually inching down back to the BSP’s 2.0%-4.0% medium-term target range in 2H23. This will result in a full-year inflation rate of 5.5% for 2022 (BSP est: 5.6%) and 4.5% for 2023 (BSP est: 4.10%), in our projection.” “Given that BSP’s primary goal is to achieve a target-consistent inflation path amid an even faster pace of Fed tightening, we stick to the view that BSP will roll up its sleeves to hike again at the two remaining monetary policy meetings this year. We project the overnight reverse repurchase (RRP) rate to be raised by another 50bps in Nov and 25bps in Dec, bringing the RRP rate to 5.00% by year-end. Thereafter, we expect the BSP to press the rate pause button at 5.00% through 2023 unless the global and domestic landscape warrants a change.”
The Commodities Feed: Stronger Oil Prices Boost US Oil Production and Supply

What Would Be The Best Cocktail Of US Job Data Today That Investors Wish For

Swissquote Bank Swissquote Bank 07.10.2022 10:21
Equities retreated, the US yields and the US dollar rebounded as more Federal Reserve (Fed) members threw hawkish comments to defend their fight against inflation. Shell warns of weak Q3 The S&P500 closed 1% lower, while Nasdaq slid 0.68% despite being more sensitive to rate hikes. The US short-term yields rose, and the dollar index gained. Gold eased, while oil extended gains. Yet the rising oil prices fuel inflation and Fed expectations and certainly don’t do good to the overall market mood. Also, Shell warned investors that the Q3 results won’t be as breathtaking as the Q2, as the weaker gas trading and weaker refining will be reflected in the latest quarter earnings. Today, the US will announce its latest jobs data in a tense and volatile environment of energy crisis, persistent inflation, Fed members insisting that what they are doing is right, and markets crying that what they are doing is maybe a bit too much.   A mix of soft data Investors will be watching three main elements. The NFP data, the unemployment and participation rates, and the wages growth. Expectation for today is a NFP read of around 250K, unemployment rate at 3.7%, and wages growth of around 0.3% over the month. A mix of soft data will likely see a bullish kneejerk reaction, as investors are turning more concerned about the aggressive Fed tightening and are ready to bet that the rate hikes would slow down in the next few meetings and even stop, while a strong data could trigger a further selloff, as it would fail to keep the aggressive Fed hawks at bay. Watch the full episode to find out more! 0:00 Intro 0:34 Market update 2:00 Shell warns of weak Q3 2:54 Twitter jitters weigh on Tesla, but… 4:06 What’s the tasty mix of US jobs data look like? 9:03 BoFA thinks S&P500 valuations remain high 10:12 And the rising sovereign debt levels? 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. #US #jobs #data #NFP #unemployment #wages #Fed #USD #Gold #XAU #crude #oil #Shell #XOM #OccidentalPetroleum #Twitter #Tesla #ElonMusk #GBP #UK #gilt #LizTruss #BoE #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
Nasdaq 100 Faces Bearish Breakdown Below Ascending Wedge and RSI Momentum Indicator

Podcast: Eyes On US Job Report, US Treasury Yields Rose And The US Dollar (USD) Roared Back Higher

Saxo Bank Saxo Bank 07.10.2022 12:46
Summary:  Today we note a fresh weakening in sentiment as US treasury yields rose and the US dollar roared back higher, particularly against the smaller currencies. Also, a look at today's US jobs report and whether it can move the needle much, given the drumbeat of Fed rhetoric staying on the unified tightening-and-not-pivoting message, which will likely require many months of weakening inflation and a weakening jobs market to drive a shift. That means the surprise side is a very strong jobs and earnings report today. Discussion of AMD's shock revenue miss for Q3 reported after hours yesterday, the week ahead in earnings as earnings season get under way, the macro calendar points of note next week and more also on today's pod, which features Peter Garnry on equities, with John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean engraver If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com. Source: https://www.home.saxo/content/articles/podcast/podcast-oct-7-2022-07102022
Bank of Japan to welcome Kazuo Ueda as its new governor

Asia's Economic Calendar Is Full Of Reports And Another Decisions To Raise Rates

ING Economics ING Economics 08.10.2022 13:20
Inflation is in the spotlight in Asia next week while the Bank of Korea considers another rate hike In this article The week ahead Inflation readings from India and China Bank of Korea to hike another 50bp China and Philippine trade reports Japan and India’s industrial data Other important data reports: China loan data and Singapore’s GDP Source: Shutterstock The week ahead In the coming week, several regional economies will report their inflation figures while the Bank of Korea meets to discuss policy. On top of prices and central bank decisions, we also get trade data from China and the Philippines. Inflation readings from India and China India’s September inflation numbers are likely to be lifted by higher food prices, in particular, tomatoes, which jumped to almost INR44/kg in September from INR35/kg in August. That will help push food prices up by about 1.7% from the previous month and take the headline inflation rate to 7.8% year-on-year from its current rate of 7.0%. There is some seasonality at work in these price increases, and the effects of this price spike on inflation will likely dissipate quickly, taking inflation back to the low 7s by the following month, enabling the Reserve Bank of India to adopt a more gradual tightening path at its December meeting. Meanwhile, China’s inflation should see a slight pick-up to 2.7%YoY in September (2.5%YoY previous) as the economy gradually recovers. Bank of Korea to hike another 50bp The Bank of Korea (BoK) holds a meeting next Wednesday to discuss policy. We expect the BoK to raise interest rates by 50bp, given the faster-than-expected rate hike by the Fed coupled with persistently high domestic inflation. China and Philippine trade reports The coming week also features trade data from China. External demand for China’s exports has been weaker due to elevated global inflation and therefore we should only expect mild growth for both exports and imports. In the Philippines, recent trends in trade activity will likely continue. Exports will likely manage only a modest gain while imports are expected to post another month of double-digit gains. The trade deficit should test historic lows once again and put pressure on the Philippine peso in the near term. Japan and India’s industrial data Industrial production data is also on the data calendar although India’s industrial production data for August is a bit lagged. In Japan, machinery orders data will be released and we expect a continuous recovery thanks to manufacturers catching up with previously unmet existing vehicle orders and the economic reopening. Other important data reports: China loan data and Singapore’s GDP China will release loan data next week that should show another strong month of loan growth which is unusual towards the end of the year. The strong performance is likely due to more lending to SMEs and the agricultural sector. We do not expect any change for the 1Y Medium Term Lending Facility rate (currently at 2.75%). The central bank has stated several times that the current interest rate level is about the neutral level.    Lastly, growth in Singapore may settle at 3.0% YoY with quarter-on-quarter growth almost flat. Retail sales have held up decently in the quarter as have non-oil domestic exports.  Asia Economic Calendar   Source: Refinitiv, ING TagsAsia week ahead 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  
Market Insights with Nour Hammoury: S&P 500 and Bitcoin Projections for H2 2023

Inflation Report Ahead, What Might It Look Like In The United States (U.S. CPI)?

Kamila Szypuła Kamila Szypuła 08.10.2022 15:52
Recently, we have been watching prices rise every month. Inflation has also hit the US economy. How this time the change in the price of goods and services from the perspective of the consumer can and what it looked like with the last reading. Forecast In August, the Consumer Price Index (CPI) for All Urban Consumers increased 0.1 percent, seasonally adjusted, and rose 8.3 percent over the last 12 months, not seasonally adjusted. The annual inflation rate in the US eased for a second straight month in August of 2022, the lowest in 4 months, from 8.5% in July but above market forecasts of 8.1%. Forecasts for September are the same as for August, ie 8.1%. On Wednesday, September 12, we will know the official results. We can expect that also in September food and energy will become more expensive. Source: investing.com The data presented above shows a general picture, while the division into selected categories is presented in the table below. 12-month percentage change, Consumer Price Index, selected categories, August 2022, not seasonally adjusted Source: https://www.bls.gov/cpi/ Source: U.S Bureau Of Labor Statistics Energy It may be noted that energy prices in August 2022, compared to the same month last year, increased by 23.8%. It was the highest increase among the categories. Crude oil and natural gas prices were already high entering 2022 as rebounding global demand for energy commodities occurred faster than supplies have been able to keep up. But on Feb. 24, prices spiked further following Russia’s invasion of Ukraine. Russia is a major producer and exporter of crude oil and natural gas for Europe. Subsequent sanctions against Russia drove energy prices higher as countries looked elsewhere to purchase their crude oil. In the U.S., crude oil accounts for about 54% of the cost of gasoline at the pump, according to Energy Information Administration data (EIA). The limited supply of this commodity thus drove up the national average for gasoline in the U.S. to over $4/gallon, according to EIA data. This situation mainly affects European consumers, but also American consumers bear costs such as the costs of distillation and transportation. Moreover, it may affect the results of the economic growth of the American economy. Food Compared to August 2021, food prices increased significantly in August this year. For many of us, going to the grocery store is where we really feel this crushing inflation. We see a big price for our groceries lining up at the checkout and then do some calculations in our heads to determine what other things we can sacrifice financially as we have just been hit by a high food bill. For lower-income Americans, the situation is particularly worrying. Soaring food prices are regressive and particularly damaging to them, as they spend more of their after-tax income on food compared to higher-income Americans. In such a situation, they will decide to buy more modest groceries and may not even go to the cinema or not go out to dinner in the city, which may have worse consequences for such people, for example not going to the doctor or not turning on the air conditioning. The increase in prices not only negatively affects consumers, but also manufacturers and entrepreneurs. Food prices also exacerbate labor shortages and government interventions that discourage work and increase labor costs. Summary This is a difficult time for all Americans. The current inflation is acting like a tax on all of us and is damaging our quality of life. Policy makers at all levels of government should be focused on eliminating the many government interventions that drive up prices, including food prices. Instead of fueling inflation, policymakers must remove the policies that contribute to it.
FX Markets React to Rising US Rates: Implications and Outlook

News For A Potential Slowdown In US Inflation

ING Economics ING Economics 09.10.2022 09:39
This has been a disappointing year for the US economy with two consecutive quarters of falling output. It will be worse in 2023. Consumer spending and business capital expenditure look set to fall and unemployment will rise in response to the rapidly tightening financial conditions caused by dollar strength, rising rates and widening credit spreads In this article Tougher conditions ahead for consumers and businesses Housing market set for sustained weakness Labour market shows signs of softening Inflation will soon turn lower Fed rate hikes to give way to cuts in the second half of 2023 Source: Shutterstock Tougher conditions ahead for consumers and businesses The Federal Reserve’s delayed response to the obvious inflation threat means it is playing catch-up and raising interest rates faster than at any time since the late 1980s. This is contributing to considerable dollar strength while prompting rapid rises in borrowing costs throughout the economy. This significant tightening of financial conditions is a clear headwind to growth and comes at a time when consumer and business confidence is already under immense pressure from the rising cost of living and falling equity, bond and real estate prices. Housing market set for sustained weakness Unfortunately, our worst fears about falling transactions and the prospect of sharp price falls in the US residential property market appear to be coming true. Mortgage rates have doubled since the start of the year leading to a 44% collapse in mortgage applications for home purchases while the supply of new and existing homes is up 64% and 50% from their respective lows. Ratio of US existing home prices to median household income ratios (1999-2022) Source: Macrobond, ING   This rapidly changing dynamic means the 45% jump in home prices since the start of the pandemic looks unsustainable. After all, the median house price-to-income ratio is more stretched than at the peak of the 2005/06 housing bubble. Consequently, July’s first monthly price fall in more than 10 years looks set to be the start of many with even Fed Chair Jerome Powell publicly acknowledging the need for a correction. This will be bad news for construction activity as well as spending on furniture, furnishings, electronics and building supplies. Labour market shows signs of softening Consumer weakness is already spreading beyond the property market. We had hoped the plunge in gasoline prices would free up cash that would translate into stronger consumer activity elsewhere. There was a temporary lift to restaurant dining numbers, air passenger traffic and google mobility data, but it hasn’t shown up in consumer spending more broadly. On top of this, we are seeing a growing number of firms freeze hiring plans with job vacancies falling by more than one million in August. The one consolation is that most firms are experiencing labour shortages so there will be a reluctance to fire staff. The Fed is predicting a 0.9ppt rise in the unemployment rate over the next year, which would work out as 1.2 million people losing their jobs assuming the labour supply remains unchanged. Inflation will soon turn lower While core inflation rates have been moving higher recently, we are increasingly confident in our call that we could see inflation head towards 2% by the end of 2023 as recessionary forces erode corporate pricing power. The chart below of the National Federation of Independent Businesses’ price plan series is already offering very encouraging news for a potential slowdown in US inflation with fewer firms anticipating price hikes due to weakening sales growth and rising inventories. Corporate pricing power appears to be weakening: NFIB price plans and the core PCE deflator inflation measure Source: Macrobond, ING   Moreover, weightings for shelter costs and vehicle prices are far, far higher in the US inflation calculation than in Europe – a combined 40% for the US basket of goods and services versus 12% for Europe. With the US housing rent components lagging house price changes by around 12-14 months, we expect to see shelter go from contributing more than 2ppt to the headline inflation rate to contributing nothing next year. Meanwhile, auction prices for used cars are down 15% from their peak and are set to fall sharply as the supply of new vehicles ramps up now as supply chain strains are easing. Fed rate hikes to give way to cuts in the second half of 2023 We are forecasting that the Federal Reserve will raise the policy rate by another 75bp in November, but the intensifying economic headwinds look set to result in a more modest 50bp hike in December which will mark the peak at 4.25-4.5%. This would mean real interest rates turning positive in the second quarter based on our inflation forecast – a key metric that the Fed wants to achieve. Once the Fed has hit the pause button on rate hikes the market will swiftly move to anticipate rate cuts. We expect them to start coming through from the third quarter of 2023 as the Fed seeks to prevent a more prolonged downturn that could result in inflation falling well below 2% over the medium term. Robust household balance sheets and a still-tight labour market offer hope that once lower borrowing costs materialise and risk assets stabilise, the recovery can come relatively quickly and vigorously. TagsUS Recession Housing Federal Reserve   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Nasdaq 100 Underperforms and Faces Key Resistance - Technical Analysis and Market Outlook

Illusory ECB's Assessment That Households Will Reduce Their Savings

ING Economics ING Economics 09.10.2022 09:48
After a deceleration in economic growth over the summer months, eurozone indicators strongly deteriorated in September, suggesting the start of a recession. Meanwhile, inflation has reached double-digit figures, setting the European Central Bank on a more aggressive tightening path In this article Headwinds intensify Negative growth in 2023 Double-digit inflation A more hawkish ECB Headwinds intensify The challenges that the eurozone economy has been facing over the last few months have not disappeared. If anything, they have got worse. The war in Ukraine seems to be far from over with Russia deciding on a partial mobilisation after a rather successful Ukrainian counter-offensive. Natural gas exports from Russia to the European Union have been cut further and the sabotage of the Nord Stream 1 and 2 pipelines has created some fears regarding the safety of the gas pipelines from Norway. Unfortunately, according to the latest weather analyses, the risk of a cold winter has risen. We continue to expect very tight natural gas markets over the winter months, keeping prices at uncomfortably high levels. Moreover, because of the lack of natural gas imports from Russia, prices are not likely to fall significantly in 2023. This will hurt the supply side of the economy, with a growing number of European companies reducing production. And while governments have stepped up their support for households and businesses, we still believe that consumption will contract. At the same time, increasingly tight financial conditions are another headwind for growth. European natural gas prices are likely to remain at historically high levels   Source: Refinitiv Datastream Negative growth in 2023 While the deceleration of economic activity seemed to be limited during the holiday season, the September data now clearly screams recession. The Composite PMI indicator stood at 48.2 in September, clearly below the 50 boom-or-bust-level. With inventories building on the back of slowing sales, eurozone manufacturers reduced their purchases of inputs for the third month in a row. Consumer confidence fell in September to the lowest level since the survey started, with households especially worried about their financial situation over the next 12 months. The ECB’s assessment that households will reduce their savings to maintain their level of consumption looks illusory to us, as European consumers tend to save more in times of great uncertainty. The Eurocoin indicator, a gauge of the underlying growth pace, perfectly illustrates the strong deterioration of the economic environment in September: it fell from 0.23% to -0.73%. We therefore stand with our forecast of a small negative growth figure for the third quarter of 2022 and a deeper downturn over the winter months. With the ECB in a tightening mode, we also anticipate a more subdued recovery over the course of 2023. For next year, we now anticipate a 0.8% GDP contraction, after a 2.9% expansion in 2022. Eurozone consumer confidence falls to a very low level Source: Refinitiv Datastream Double-digit inflation Meanwhile, the inflation rate has hit double-digit figures: it rose to 10% in September. Energy prices remain the main culprit, but core inflation also rose to 4.8%. However, according to the models of the national central banks, the indirect effects of higher energy costs are currently contributing around one-third to core inflation. This means that once energy prices stabilise, core inflation will also come down. That said, this is likely to be a very gradual process. We still expect 5.6% headline inflation for 2023 and we believe it will take until the second half of 2024 before inflation reaches the ECB’s 2% target.   Falling real wages will weigh on aggregate demand, says @Isabel_Schnabel at @ForoLaToja. But today’s crisis is damaging potential output, and firms’ efforts to protect their profit margins imply that inflationary pressures may remain high.Read the speech https://t.co/gvHhkWGhwW pic.twitter.com/doBkug1TqX — European Central Bank (@ecb) September 30, 2022 A more hawkish ECB Since the Jackson Hole conference in August, the ECB has become more aggressive. As it seems to have lost confidence in its medium-term inflation forecast, it is now focusing much more on current inflation. Quite a change! That explains why the bank now wants to get rates back to neutral as fast as possible and is even willing to go a bit further, as long as the recession is not creating too much unemployment. We therefore see a 75bp hike in October, followed by 50bp in December and 25bp in February 2023, bringing the deposit rate to 2.25%. The ECB might also decide to stop the reinvestment of its asset purchase programme (APP) portfolio somewhere in the first half of next year. However, the pandemic emergency purchase programme (PEPP) portfolio is likely to be reinvested until the end of 2024. As for bond yields, some further limited upward potential is still on the cards, but around the turn of the year, the yield curve is very likely to invert in the wake of the significant economic downturn. 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
French strikes will cause limited economic impact

Villeroy De Galhau: “We Are Far From Reaching The 2% Aim In Eurozone.”

TeleTrade Comments TeleTrade Comments 10.10.2022 10:58
European Central Bank (ECB) policymaker and the Bank of France head Francois Villeroy de Galhau expressed his take on the bloc’s inflation outlook while speaking on France Culture radio on Monday. Key quotes “ECB engaged in bringing down inflation to 2 pct aim in "two to three years" from now.” “Right inflation target is around 2%.” “We are far from reaching the 2% aim in eurozone.” “Monetary policy measures take time before having a full effect, which is why it will take 2 to 3 years to bring inflation back down to target.” “Inflation expectations are key, but it is positive they still are close to our target.” Market reaction EUR/USD is shrugging off the above comments, down 0.18% on the day at 0.9722, as of writing.
Analysis Of Tesla: A Temporary Corrective Rally Should Not Come As A Surprise

Tesla's China Sales Hit Record And Selloff In Treasuries Continue

Swissquote Bank Swissquote Bank 11.10.2022 11:42
Risk sentiment is morose this week with the escalating tensions in Ukraine, rising Covid cases in China, mounting tensions between US and China, the selloff in US and other treasuries, the relentless appreciation in the US dollar and the drop in safe haven currencies. Situation on forex market The Swiss franc lost ground against the greenback and the USDCHF rose above parity. The Japanese yen continued its historic fall as well, the dollar yen advanced to 145.80. Gold fell for the fifth day to $1660 per ounce, and is set to dive deeper toward the $1600 level on the back of a relentless rise in the US yields and the dollar. And the US yields press higher on the back of hawkish Federal Reserve (Fed) pricing, despite a couple of less hawkish comments from some Fed members at the start of the week. Marcoeconomy events The US 2-year yield advanced to 4.35%, and activity on Fed funds futures price 77.5% chance for a 75bp hike at next FOMC meeting. Even the UK yields shot higher despite the Bank of England’s (BoE) announcement of more measures to calm down the Truss-hit gilt market. At least, the avalanche of bad global news has been successful in pulling oil prices lower yesterday. The barrel of American crude eased to $90 this morning, after having flirted with $94 a barrel on Monday. US earnings season kicks off in a dark and depressed environment. According to data from FactSet, the EPS growth of the S&P500 companies should fall by 2.6% to below 10% in the Q3. Watch the full episode to find out more! 0:00 Intro 0:34 Ukraine war, rising Chinese Covid cases & US-China tensions 1:48 Chip stocks do poorly 2:33 Even safe havens are not safe 4:22 And selloff in Treasuries continue at full speed 5:50 Oil bounced lower 6:51 Earnings probably grew slower in Q3 7:32 BoE tries hard, but Truss govt is just… a disaster 9:10 Tesla's China sales hit record! 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. #Ukraine #Russia #war #China #Covid #chip #stocks #Nvidia #AMD #Tesla #earnings #season #Fed #BoE #USD #GBP #gilt #intervention #Gold #XAU #CHF #JPY #crude #oil #Bitcoin #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
UK PMI Weakness Supports Pause in Bank of England's Tightening Cycle

Inflation Data Will Be An Additional Stimulus For The Fed To Further Raise Interest Rates

InstaForex Analysis InstaForex Analysis 11.10.2022 12:49
Analysts at Goldman Sachs say it is too early to assess a dovish turn in Fed policy as the economic outlook is not bad enough yet and the rate markets remain too volatile. They added that significant rate fluctuations mean that expectations of higher stock returns over relatively safer assets are likely to be lowered. Speculation that the Fed's policy would become more equity-friendly has led to the S&P 500 rising from time to time over the past 12 months. But those rallies have all been sold out and the indicator hit new lows each time. The central bank also appears to be on track to fulfill its fourth straight 75 bp rise at its November meeting. Now, the US stock market is just a few points away from closing at its lowest level since November 2020. It has already fallen 24% this year. Tighter financial conditions, a potential escalation in geopolitical risks, and the current mix of economic growth and inflation have increased downside risk for the stock. Meanwhile, 2-year Treasury yields rose to 4.35% on Tuesday, its highest level since 2007. The reason is fears that US inflation data this week will add more incentive for the Fed to keep raising interest rates. There is also a possible government split in the US midterm elections, but this could lead to stocks performing well after the event as political uncertainty subsides.   Relevance up to 09:00 2022-10-12 UTC+2 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/323963
The Drop In German Inflation Is Welcome News, But It Is Mean That Can We Say That Inflation Has Peaked?

Inflation Expectations Of The German Government

TeleTrade Comments TeleTrade Comments 11.10.2022 13:30
According to a German business newspaper, Handelsblatt, the country’s federal government expects a significant drop in inflation in 2023. The government expects inflation at 7% next year, the paper said. Meanwhile, the daily reported that the German government sees the 2022 inflation rate at 8%.  Market reaction EUR/USD is defending gains just above 0.9700 amid a quiet session so far this Tuesday.
CHF/JPY Hits Fresh All-Time High in Strong Bullish Uptrend

Cheaper Netflix Is Here!| Jim Cramer Comments On The Shares

Kamila Szypuła Kamila Szypuła 14.10.2022 10:02
Today we take a look at real estate risk in UBS the 2022 Global Real Estate Bubble Index, the ecosystem situation and other news. We will also look at the expert commentary Head of Global Thematic and Public Policy Research Michael Zezas and U.S. Equity Strategist Michelle Weaver.  In this article: Companies' stocks rising Biodiversity Situation 2022 Global Real Estate Bubble Index Thoughts by Jim Cramer New Netflix's plan Post-pandemic problems of companies Morgan Stanley tweets about companies' inventory rising. The discussion was attended by Head of Global Thematic and Public Policy Research Michael Zezas and U.S. Equity Strategist Michelle Weaver.   As consumption of goods slows post COVID, companies are experiencing a build up in inventory that could have far reaching implications. Head of Global Thematic and Public Policy Research Michael Zezas and U.S. Equity Strategist Michelle Weaver discuss. https://t.co/cYXO15cG0n pic.twitter.com/XZbanoplvX — Morgan Stanley (@MorganStanley) October 13, 2022 The pandemic situation negatively affected many industries, individuals and the entire economy. Also, the current post-pademic situation is not positive. Currently, the global problem is blowing inflation, which negatively affects the situation of companies. Another problem is the increase in inventories in warehouses. Product stored for a long time may lose its substance, and the inability to travel causes a reduction in production. Firms will begin to struggle with higher maintenance costs, which can result in job cuts and, in the worst case, even closings. Eyes on biodiversity Credit Suisse in its last tweet addresses the topic of the poor condition of the biosphere.   Biodiversity is being increasingly threatened, with up to one million species at risk of extinction. The reasons include climate change, pollution and deforestation. Read more about why climate change matters for biodiversity: https://t.co/C1UDMqGsap pic.twitter.com/2CNYsuypox — Credit Suisse (@CreditSuisse) October 13, 2022 Biodiversity is important to the entire ecosystem. This ensures that the float chain is in balance and that the ecosystem situation is also stable. We have been struggling with a significant climate change for several decades, many species are already extinct. Humanity that has caused this must take action to prevent an ecological catastrophe. Raising awareness about this is very important, because making individuals aware that action, even small, can save the ecosystem. Which cities may be at risk of a real estate bubble UBS in its tweet informs about the 2022 Global Real Estate Bubble Index.   Our 2022 Global Real Estate Bubble Index is out. Read the full report and find out if your city is at risk of a property bubble. https://t.co/b4s39M0nGz #GREBI #ShareUBS pic.twitter.com/g6hINxpLPI — UBS (@UBS) October 13, 2022 The economic situation in the world is tense. Inflation causes economies to lighten or fall into recession. The staggering state of economies affects individual industries, sectors including the real estate sector. Indeed, the property market has long been supported by central banks. Ultra-low financing conditions and demand outpacing construction have led to increasingly optimistic price expectations among buyers. Current rise of Interest rates—and in turn, financing costs—have climbed in recent months to combat elevated inflation. Consequently, the willingness to pay for owner-occupied homes is likely to take a hit. In its report, UBS makes it possible to get acquainted with the situation on the real estate market in individual cities. Expert opinion on several shares Mad Money On CNBC tweets Jim Cramer's thoughts on Tellurian, Zoetis, and more.   .@JimCramer also gave his thoughts on Tellurian, Zoetis and more. https://t.co/vpuGg6Y6vq — Mad Money On CNBC (@MadMoneyOnCNBC) October 13, 2022 The expert looks at the shares of several companies and expresses his opinions. Knowing an expert's opinion on share prices is important for investors in the current climate. This allows you to give a fresh perspective on these companies. Netflix's plan with ad FXMAG on its Twitter feed informs about CNBC's comment about the ad-powered Netflix's plan.   @CNBC has just commented on the “ad-powered” $6.99/mo @netflix’s plan #StockMarkets https://t.co/fMTV5tigCF — FXMAG.com (@FXMAG24) October 13, 2022 Netflix is very popular. It offers three possible plans. Recently, he announced that there will be a plan powered by advertisements. This plan may turn out to be cheaper. The question arises whether it will enjoy popularity, whether people will opt for the cheaper version of the ad, and whether they prefer to pay more to avoid advertising. Doing so can also be a trick for subscribers to decide to pay more for ad-free viewing comfort, but it can also be an option for people who prefer to save money and watch their favorite games on a platform.
The Commodities Digest: US Crude Oil Inventories Decline Amidst Growing Supply Risks

The US Inflation Has Once Again "Upturned The Markets" | US Dollar (USD) Will Continue To Strengthen

InstaForex Analysis InstaForex Analysis 14.10.2022 11:58
Euro and US Dollar The US currency showed a powerful breakthrough after the release of impressive data on inflation in the US. Later, however, the greenback "slowed down" a bit, evaluating the results. This took advantage of the euro, which grew slightly. However, in the future, the chances of the EUR faded away, as the USD rallied again. A new round of upward  A new round of the greenback's upward spiral was recorded after the release of strong US inflation reports. On Thursday, October 13, the US Department of Labor released data on the Consumer Price Index (CPI) for September. Note that this indicator increased by 0.4% m/m, although it was expected to increase by only 0.2% m/m. At the same time, consumer prices in America soared by 8.2% in September, exceeding the forecast by 8.1%. The increase in consumer prices reflects the rising cost of housing, food and medical care, experts emphasize. At the same time, the increase in this indicator is partially offset by the fall in gasoline prices. US inflation data According to the report, the core consumer price index (Core CPI) in the US, excluding the cost of food and energy, rose by 0.6% in September. At the same time, analysts expected it to increase by 0.5% m/m. Note that the annual growth rate of Core CPI rose to 6.6%. An increase in the base CPI demonstrates an increase in the cost of housing, cars and medical care, as well as an increase in education fees. The US Department of Labor report focuses on the spread of high inflation in all areas of the national economy. In this situation, the standard of living of Americans plunged sharply. Against this background, citizens have to use their savings and credit cards to make ends meet. At the same time, experts expect a slowdown in consumer prices in the US. However, the current situation is unlikely to affect the Federal Reserve's plans for a further increase in the key rate. Following strong US inflation data, USD and Treasury yields surged, while US stock futures plummeted. Against this backdrop, expectations of another increase in the Fed's interest rate intensified. At the moment, the central bank is pursuing a hawkish strategy aimed at combating galloping inflation. At the same time, despite the slowdown in the US labor market, the department intends to continue to raise interest rates. At this rate, according to Commerzbank analysts, in the first quarter of 2023, the Fed rate will peak at 5%. EUR/USD Against this background, the dollar is confidently leading, habitually pushing the euro away from key positions. According to DBS Bank economists, the greenback will continue its upward trend until the end of 2022, and by 2023 it will reach the level of consolidation. The dollar is supported by a long-term increase in Fed rates, the bank emphasizes. As a result, on Friday, October 14, the EUR/USD pair was trading near 0.9784. Against this background, the greenback remained calm, and the euro tried to gain a foothold in the conquered positions. At the same time, the pair remained within the current range. Earlier, Credit Suisse economists believed that after strong US inflation data, the EUR/USD pair would test the 0.9500 mark, but this did not happen. Fed's reaction to inflation According to analysts' estimates, the current inflation in the US has once again "upturned the markets", threatening a new wave of tightening of the Fed's rhetoric. In the current situation, traders and investors expect the next rate hikes, as high inflationary inflation rates do not give a respite to the Fed. As a result, the central bank is forced to be "in an aggressive tightening mode," experts emphasize. According to analysts at Oxford Economics, by the end of 2022, the Fed will raise rates "by at least 125 bps". Most analysts (98%) are convinced that the central bank will raise the rate by 75 bps in November, up to 3.75-4% per annum. Recall that such an increase in rates could be the sixth in a row. Earlier, after three meetings of the Fed, it was raised by an additional 75 bps. At the same time, many investors are confident that core inflation will soon fall, and the Fed will soften its rhetoric a bit. However, this is unlikely, experts say. Against this background, the US currency is stabilizing, reacting to a short-term surge in risk sentiment, recorded at the end of the week. At the same time, large hedge funds still bet on the further growth of the USD. Geopolitical turmoil and fears of an economic downturn have further strengthened the greenback, prompting investors to abandon European assets. Many of them still consider the dollar the safest asset to protect their savings. According to analysts at Citigroup Global Markets Inc, the US currency will continue to strengthen until the global economic slowdown stops. If its growth accelerates, the dollar will give up its positions, experts are certain. However, now this is far away, and the benefits of owning USD outweigh the current risks, Citigroup notes.   Relevance up to 09:00 2022-10-17 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. Read more: https://www.instaforex.eu/forex_analysis/324316
Bank Of England Will Probably Be Unable To Avoid A Significant Easing Of Policy

What CPI Reading In Great Britain Can We Expect This Time?

Kamila Szypuła Kamila Szypuła 15.10.2022 08:07
Throughout all the months of this year, inflation remains in the candlestick. Every month we notice a change in the consumer price index (CPI), which informs about the annual or monthly change the price of a weighted average market basket of consumer goods and services purchased by households. Why are prices rising so fast? Once again our eyes will be on the UK reports. Other countries are also experiencing a cost of living squeeze. Many of the reasons are the same: increased energy costs, shortages of goods and materials and the fallout from Covid. According to the Governor of the Bank of England Andrew Bailey, the cause of inflation in the UK is "a shock in Russia" After all, as stated by the Governor of the Bank of England, there are many other factors, such as: energy bills that have risen sharply due to high oil and gas prices. gasoline and diesel prices, partly because the war in Ukraine has increased the price of crude oil. food prices as the war in Ukraine reduces grain production and costs increased drastically Not all prices behave the same way. The cost of some other goods and services have increased only slightly or stayed the same. What inflation looked like and what can it look like in the UK? As we can see from the horse of last year, inflation in Great Britain continues the upward trend. There was a sharp increase in April as it rose from 2%, from 7.0% to 9.0%. In the collections it grew slowly, only by a tenth of a percent. In July, it exceeded the 10% threshold, amounting to 10.1%. Then it unexpectedly fell to 9.9% in August. It is projected to rise from this level to 10.0% in September. Investment bank Goldman Sachs now says inflation could peak at 10.8% in October, and slow to 2.4% by December 2023. Lower inflation does not mean prices will go down. It just means they will stop rising at their recent faster pace. Source: investing.com Inflation in the last reading depending on the sector The annual inflation rate for transport was 12.4% in August 2022, down from 15.1% in July. Food and non-alcoholic beverage prices rose by 13.1% in the 12 months to August 2022, up from 12.7% in July. The annual rate for the miscellaneous goods and services category was 4.6% in August 2022, up from 4.0% in July. The rate is the highest recorded since September 2005. The annual rate for clothing and footwear was 7.6% in the year to August 2022, up from 6.6% in July. And this time, in the September post office, we can expect growth in these sectors. The actions of the British central bank in the fight against inflation The Bank is under pressure to put rates up because it has a target to keep inflation at 2%, but prices are currently rising at about five times that level. The Bank of England's traditional response, as other cental banks, to rising inflation is to raise interest rates. On 22 September, the Bank of England raised rates by 0.5 percentage points to 2.25% - the highest level for 14 years. This can encourage people to save, but means some people with mortgages see their monthly payments go up. How it affects ? When interest rates rise, about two million people on tracker and variable rate deals see an immediate increase in their monthly payments. Their monthly payments may not change immediately, but with lenders now anticipating higher rates, any new deals will be more expensive. That means new house buyers - or anyone seeking to remortgage - will also have to pay more. Raising interest rates also makes borrowing more expensive and - it is hoped - people have less money to spend. As a result, they will buy fewer things and prices will stop rising as fast. Bank of England interest rates also influence the interest charged on things like credit cards, bank loans and car loans It also has negative effects on savings because the value of cash savings is falling in real terms. Source: investing.com, ons.gov.uk
The Gold Rally Is Continuing To Stall, This Could Be A Good Year For Crude Oil

Podcast: Business News, Oil Had A Bad Week And Analysis Of The Coming Week

Ed Moya Ed Moya 16.10.2022 09:20
Jonny Hart looks back on the week’s business and markets news with OANDA Senior Market Analyst Ed Moya in New York.  This week they talk about another hot inflation report, JPMorgan Earnings, University of Michigan inflation expectations, crude’s bad week, and crypto resilience.  They also discuss what the week ahead has in store for financial markets. 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.
Bank of Japan to welcome Kazuo Ueda as its new governor

Inflation Stabilized In Japan | Another Decision Of The Bank Of Indonesia About Interest Rates Is Ahead

ING Economics ING Economics 17.10.2022 11:41
China’s 20th Party Congress is the main event in the region in the coming week, followed by China’s GDP report In this article The week ahead China data and 20th Party Congress in focus Trade reports from India and Indonesia Australia’s jobs figures Japan’s inflation to stabilise at 2.7% Bank Indonesia to stay hawkish, but will we see another surprise? Source: Shutterstock The week ahead In the coming week, we get a relatively limited number of reports from the region, although we have a flurry of data from China and the much-anticipated 20th Party Congress will be held on 16 October. There should be a lot of buzz and market talk following the congress meeting. China data and 20th Party Congress in focus The major event in the coming week will be the 20th Party Congress to be held this Sunday. There will be a lot to talk about this event in the market. Meanwhile, China will release its 3Q22 GDP report and activity data for September on Tuesday. We expect improvements in GDP growth from 0.4% year-on-year to 4.4%YoY given that fewer lockdowns were implemented in the third quarter.  Retail sales, industrial production and fixed assets investments should grow slightly faster in September compared to a month ago. However, property investments and home prices should continue to be in a dire situation with buyers still adopting a wait-and-see approach, although we did note more home transactions by the first week of October. We expect policy rates for the Medium-term Lending Facility (MLF) to be released on Monday and the Loan Prime Rate (LPR) on Thursday. We expect both rates to stay the same as the People's Bank of China seems to be injecting funds into policy banks rather than into commercial banks to help local governments address problems associated with uncompleted residential projects. Traditional monetary policy accommodation of interest rate cuts may not the best solution for now. Trade reports from India and Indonesia In India, September trade figures will have benefited from the drop in crude prices that saw brent crude falling below $90/bbl at times in the month. The US$28bn trade deficit for August will probably fall to something closer to $26bn. Meanwhile, Indonesia reports August trade numbers next week. We expect both exports and imports will sustain double-digit gains. Exports will continue to benefit from elevated commodity prices while imports should rise further on improving domestic demand. The overall trade surplus will remain substantial, settling at around $5.5bn for the month.  Australia’s jobs figures Australia releases September labour market data. The August figures were pretty solid apart from a small uptick in the unemployment rate to 3.5%, and firm labour data will make it awkward for the Reserve Bank of Australia, which scaled back the pace of its rate hikes at the October meeting – though this may be even tougher after third-quarter inflation is released a week later on 26 October. Japan’s inflation to stabilise at 2.7% Consumer inflation in Japan is expected to stabilise to 2.7% YoY in September (vs 3.0% in August) and the monthly gain should have slowed mainly due to the decline in global oil prices. Also, we expect the trade deficit to narrow in September with imports growth slowing at a faster pace than exports. Bank Indonesia to stay hawkish, but will we see another surprise? Bank Indonesia meets next week and will likely tighten monetary policy again. Accelerating inflation and depreciation pressure on the Indonesian rupiah will likely convince Governor Perry Warjiyo to hike aggressively and increase policy rates by 50bp. Asia Economic Calendar   Source: Refinitiv, ING TagsAsia week ahead Asia Pacific Asia Markets Asia Economics
The Commodities Digest: US Crude Oil Inventories Decline Amidst Growing Supply Risks

The Worrying Lack Of A Signal About Weakening Inflation

InstaForex Analysis InstaForex Analysis 17.10.2022 11:50
Latest data The release of the CPI inflation report last week showed that inflation rose 0.4% for September, according to the Bureau of Labor Statistics. The report also showed that the consumer price index in September tanked 0.1% at 8.2% YoY from the previous month's 8.3% YoY. However, the main CPI attracted the most attention. The core consumer price index increased from 6.3% in August to 6.6% in September. Interest rate Interest rate hikes are lagging behind to have any real impact on inflation, and the underlying inflation rate is the preferred data that the Federal Reserve uses to shape its monetary policy. At the same time, the surge in core inflation after the Fed aggressively raised interest rates from almost zero to 300–325 basis points during the last five FOMC meetings this year, including three consecutive rate hikes of 75 basis points each: in June, July and September, clearly shows that the recent rate hike has a nominal the impact on reducing inflation. However, they had a strong impact on the growth of US debt yields. The yield on the 10-year Treasury passed 4% on Friday, and with Friday's gain of 1.68%, it is currently 4.02%. The 30-year US bond yield is not far behind the 3.997% yield. The simple truth is that inflation is showing no signs of easing, and this is worrisome as expectations rise in financial markets that the Fed will raise its domestic federal funds rate to 5% or higher by March next year. According to the CME FedWatch tool, there is a 96.7% chance that the Fed will make another 75 bps rate hike in November and a 66.7% chance they will raise another 75 bps in December, leading to a federal funds rates by the end of 2022 to 450–475 basis points. The aftermath of the recent series of rate hikes has caused extreme volatility in the markets and rising bonds. The speed with which the Fed is trying to catch up is the main mistake of not raising rates in 2021. Inflation in 2021 started at 1.4% in January and was 7% by December, and the Federal Reserve did nothing to curb inflation until March 2022. It is clear that if the regulator implemented a small rate hike in 2021, inflation would be far from its current level. The Federal Reserve has painted itself into a corner, forcing them to reconsider the extremely aggressive rate hikes we are currently experiencing. According to the vast majority of economists, a federal funds rate of 5% or higher will have a devastating effect on the economy. This would have a negative impact on stocks and earnings and lead to more bond sell-offs. In effect, this can make it impossible to make loans from individual loans, such as mortgages or loans to corporations. Even more worrying is that some economists expect federal funds rates to rise to 6% at some point. The consequences could easily exacerbate and accelerate a global recession scenario, causing a severe disruption to the global economy. The sad truth is that this scenario could have been avoided had the Federal Reserve acted in response to rising inflation in 2021. They are certainly not responsible for the pandemic that led to the recession, but they are fully responsible for not acting in a timely and sensible way when it was clear in 2021 that inflation was starting to spiral out of control.     Relevance up to 09:00 2022-10-22 UTC+2 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/324465
New Zealand Dollar Lost 8.5% In September And Current Circumstances May Not Play In Favor Of NZD

New Zealand And Interest Rates In The Fight Against Inflation

TeleTrade Comments TeleTrade Comments 18.10.2022 09:10
With inflation continuing to run hot, economists at Westpac have revised up their forecast for the Official Cash Rate. They now expect the cash rate to peak at 5%. Inflation refuses to die, activity holding firm “We now expect the OCR to reach a peak of 5% for this cycle (previously 4.5%).” We expect a 75 basis points hike to 4.25% at the upcoming November Monetary Policy Statement, a step up from the 50 bps increases in the last few reviews.”  “Inflation is continuing to run red-hot across the economy, and core inflation is yet to show signs of easing despite the sharp rise in interest rates over the past year.” “We are also seeing ongoing firmness in domestic economic conditions, including a drum-tight labour market and resilience in household demand.”  
Wage agreement may be game-changing in a way. First meeting of the new BoJ Governor Ueda takes place on April 28th

A Member Of The Board Of The Bank Of Japan Believes That Inflation May Accelerate

TeleTrade Comments TeleTrade Comments 19.10.2022 09:13
The Bank of Japan (BOJ) board member Seiji Adachi is back on the wires this Wednesday, noting that “recent yen fall are very rapid,” which “could heighten uncertainty for firms planning capex.” Additional comments “Japan's consumer inflation may accelerate quite rapidly in Oct.” “Japan's inflation to remain high for some time early next year.” “Don't see immediate need to take additional steps to address worsening functioning of JGB market.” Market reaction These comments have little to no impact on the Japanese currency, as it resumes its drop versus the US dollar in early Europe. The pair is trading modestly flat at around daily highs of 149.30, as of writing.
UK Budget: Short-term positives to be met with medium-term caution

Some Excessive Rate Hikes Are Looming In The United Kingdom

Kenny Fisher Kenny Fisher 19.10.2022 12:32
GBP/USD is in negative territory today. In the European session, the pound is trading at 1.1261, down 0.48%. Inflation rises to double-digits UK inflation rose to 10.1% in September, up from 9.9% in August and above the consensus of 10.0%. It was a similar story from Core CPI, which edged up to 6.5%, up from 6.4% and higher than the forecast of 6.3%. A return to double-digit inflation is certainly not something the Bank of England wanted to see. Inflation is not showing any signs of peaking, which leaves no doubt that the BoE will have to continue to raise interest rates. The cash rate remains relatively low at 2.25% in comparison with the Federal Reserve (3.25%) and other major central banks. The cash rate will likely hit 4% or even higher by mid-2023, which means some oversize rate hikes are on the way. The BoE meets next on November 3rd and policy makers will need to deliver a hike of 0.75% or a full point in order to maintain credibility. The recent political maelstrom, in which Chancellor Hunt has abolished most of the planned tax cuts and signalled spending cuts instead, means that the BoE may not have to act as aggressively as anticipated just a few weeks ago. A key point in the fiscal U-turn provided by Hunt is the energy cap plan. The cap, which was supposed to remain in place for two years, has been scaled down to just six months. Higher energy bills for households will mean higher inflation unless energy falls substantially in the winter. The economic outlook for the UK does not look all that bright, which will likely be reflected in a weaker British pound. Goldman Sachs has downgraded its UK growth outlook, with the economy expected to decline by 1% in 2023, worse than the previous estimate of -0.4%. . GBP/USD Technical GBP/USD faces resistance at 1.1373 and 1.1455 There is support at 1.1214 and 1.1085 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.
At The Close Of The New York Stock Exchange 728 Securities Closed In The Red

Netflix's Results Will Be A Hit On The Wall Street | The Bank Of England (BoE) Will Have To Be Very Aggressive

Craig Erlam Craig Erlam 19.10.2022 14:34
Trading is mixed in Europe on Wednesday, with Wall Street eyeing a slightly stronger open amid bumper Netflix earnings. Netflix is a hit Netflix results are expected to be a hit on Wall Street when the bell rings on Wednesday, with pre-markets pointing to a more than 13% rally in the stock. The streaming company reported revenues and earnings that comfortably surpassed expectations, while subscriber growth more than doubled forecasts. That was largely driven by the Asia-Pacific region which will become increasingly important for growth in the coming years. The company will continue to crack down on password sharing going forward, while the ad-supported plan will hope to draw in additional subscribers. After a tough year, things may be looking up for Netflix. UK inflation back in double-digits Inflation in the UK surpassed 10% again in September, slightly beating market expectations and further fueling concerns about the cost of living crisis and the role of the Bank of England in reining in rapid price increases. Naturally, all of this has been complicated by the political soap opera over the past few weeks, something the new Chancellor, Jeremy Hunt, has sought to calm by abandoning almost the entire controversial mini-budget. But inflation is still a problem, regardless, and the BoE will have to be very aggressive at upcoming meetings in order to try and get a grip of it. Markets are now undecided between a 75 and 100 basis point hike on 3 November but are quite confident that Bank Rate will end the year at 4% either way. With inflation now broad-based and fuel even offsetting some of the larger price increases, the worry is that these forecasts may prove too optimistic. ​ Intervention talk ramps up as USDJPY nears 150 Japan remains in focus as the dollar closes in on 150 against the yen. The threats of intervention have been coming thick and fast and many are wondering if 150 could be the point at which the Ministry of Finance pushes back once more. The last intervention wasn’t particularly successful, with the benefits unwinding in a matter of days. The question now is when they’ll jump back in and how forceful they’ll be. The message is clearly falling on deaf ears at the moment. Continuing to fluctuate Bitcoin continues to consolidate, with the recent rebound failing once more around $20,000. That level was once believed to be hugely significant as support but the reality is that it has simply become the point at which the price fluctuates around. That will change eventually but we’re now two months into that broadly being the case so there’s little to suggest it’s imminent. 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.
Bank of England survey highlights easing price pressures

There Is Nothing Stopping The Bank Of England From Hitting The Rate Sharply

InstaForex Analysis InstaForex Analysis 20.10.2022 11:34
Deputies quarrel, ministers are leaving, Truss' chair is shaking, inflation is rising. The pound has started a black streak again, although the presence of a white one can be questioned. The burden of problems hangs over the British currency and it does not get better, on the contrary, there are new reasons to think about the potential achievement of parity for the GBP/USD pair. The dollar gaining strength, the equally rapidly growing inflation in the UK, which the Bank of England continues to ignore, the specter of a recession. All this is happening during a possible change of power in Britain. The new prime minister has not had time to settle in the chair, as MPs want to send her after Boris Johnson. The government's twists and turns are not at the right time, but apparently there is no other way out. Inflation The pound fell for a moment after the release of inflation data. The new indicator turned out to be disappointing, the price index in the UK continued to accelerate, reflecting, among other things, the passivity of the local central bank. In September, inflation moved to double digits, increasing from 9.9% to 10.1% against the consensus of economists of 10%. More importantly, the core inflation rate rose just as quickly, amounting to 6.5% compared to 6.3% in the previous month. The highest figure in four decades, but succeeding figures are expected to be higher. "The overall inflation rate will rise to almost 11% in October, primarily due to a 27% increase in energy prices. But in the first quarter, the overall figure should decrease to 9%, since the peak of growth in food and motor fuel prices has probably been reached," Pantheon Macroeconomics economists comment. High inflation could be made an argument for strengthening the pound due to the aggressive rhetoric of the BoE, which, in theory, should have followed after another record price increase. Now nothing is keeping the central bank from raising the rate sharply at the November meeting, which was raised to 2.25% in September and is expected to rise to about 4% by the first months of the new year. In practice, things may be different. However, some economists say this may now be less likely after recent scenes in the government. Most of the September budget plan was canceled this week in favor of a return to "austerity." This leaves the economy on the path to a barely mitigated recession, which, according to the August monetary policy report, could last for about a quarter. Everything is too complicated, and the authors of this confusion are British politicians. Downing Street The inflationary picture in the UK has been erased by reports of new layoffs in the ranks of high-ranking political officials. Following the sudden departure of former Chancellor Kwasi Kwarteng, who was forced to resign on October 14, Interior Minister Sewelluella Braverman left her post. The pound tried to grow amid large-scale losses on Wednesday. This movement, apparently, was a reaction to the departure of another high-ranking member of the government, followed by a decline in the yield of UK government bonds, which did not correspond to the internal inflationary picture. Braverman was replaced by Grant Shapps, whom the prime minister had previously pushed to the back of the government. Who's next? What other reshuffles are waiting for Britain and will this save the country from collapse? Anyway, the pound likes what is happening with the change of the main characters. The drop in yields on Wednesday did not correspond to the global background against which US bond yields were pushing other countries higher. Dollar Government reshuffles have a short-term impact on the pound. The reality is that the British currency lags behind not only the strong dollar, but also the weak euro. The pound continued its downward trend, despite extremely high inflation and the rates of the financial markets on the increase in US bond yields after even more hawkish comments from the Federal Reserve representatives. The pound's illogical reaction to the consumer price index data highlights that the currency is "trading in a structural, not cyclical way. In a cyclical world, higher inflation will be accompanied by higher yields and a stronger currency," HSBC noted. When markets are most concerned about structural risks, "higher inflation and higher yields are seen as symptoms of a broader problem," the economists explain. The pound is likely to continue trading structurally until the country's authorities make more efforts to contain the domestic budget deficit or until inflation reaches a peak. In this case, stabilization of the bond market and the pound is possible. In the meantime, the downward trend is the main one. Sterling is waiting for a difficult few months, during which the GBP/USD exchange rate risks falling to 1.0800 and below. The dollar rally, fueled by even more aggressive Fed rhetoric, will put more pressure on the lifeless pound. Traders are revisiting US interest rate hikes closer to 5%. In November, the rate can be raised immediately by 100 bps. The dollar rally in the middle of the week followed statements from Minneapolis Fed chief Neel Kashkari. The official signaled that he had "very little confidence in what inflation will be in six months" and argued that the central bank should keep raising rates until there was "convincing evidence" that the inflationary peak had passed. As for rates, September forecasts suggested an upper limit of 4.5% by the end of the year. Concerns were also raised about a rise to 4.75% early next year. Core inflation rose from 6.3% to 6.6% y/y in September, while the official or headline inflation rate remained stubbornly elevated at 8.2%. After the reversal of the dollar index, expectations about reaching new highs again became more active. The current range is 112.00-114.00. These notes will remain relevant until the next FOMC meeting. If bulls manage to break above 114.00, gains will accelerate to a 2022 peak at 114.80.   Relevance up to 09:00 2022-10-21 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. Read more: https://www.instaforex.eu/forex_analysis/324821
Key Economic Events and Earnings Reports to Watch in US, Eurozone, and UK Next Week

Deutsche Bank Continues To Grow | A Look At The US Public Debt

Kamila Szypuła Kamila Szypuła 21.10.2022 11:37
Inflation is the main topic not only in reports, but also in tweets. It affects the cost of living, the situation of economies and even the statements of famous people.So could Elon Musk be right about the recession? In this article: Household spending The US public debt Online payment The impact of the family environment Elon Musk comment economic situation Growing household spending JP Morgan tweets about the impact of inflation on household spending.   Inflation is running red-hot and putting pressure on household budgets. J.P. Morgan Research explores how rising costs are impacting spending on consumer staples. — J.P. Morgan (@jpmorgan) October 19, 2022 There is no doubt that the cost of living has increased recently due to high inflation. Households are particularly affected. Everyone wanted to know how much this situation affects the basket of goods and services of an average person. JP Moegan took a closer look at this topic and shared the results on a tweeter, among others. Why and how public debt metters Morgan Stanley in his tweet discusses the subject of the US public debt.   As U.S. Public Debt continues to break records, should investors be concerned by the amount debt has risen? Or are there other, more influential factors at play?Read more about this episode: https://t.co/LBpeoHRz8s pic.twitter.com/ZLJKEtbqLl — Morgan Stanley (@MorganStanley) October 19, 2022 Public debt is important for investors because it includes the total amount of debt of the public finance sector, which includes the general government sector. Growing public debt, regardless of its amount, must be controlled and skillfully managed. After exceeding a certain threshold, there is a greater risk of a financial crisis, the consequence of which may be increasing unemployment, lower wages or reducing the amount and scope of social benefits. High public debt also affects investors. How it affects and why it is important is presented by the author of the tweet. Online payments is important for Deutsche Bank Deutsche Bank informs in its tweet about cooperation with Smart with online payment.   Deutsche Bank and @smart_worldwide are cooperating on online payment for the new smart #1 https://t.co/YXudU16uRn pic.twitter.com/JGtvuK1s2K — Deutsche Bank (@DeutscheBank) October 17, 2022 The development of online payments is important not only for customers, but especially for banks that offer such services. Competition in the market is high and the continuous development of measures in this direction is of great importance to banks. Deutsche Bank is continuing its strategy of establishing itself as a comprehensive financial service provider for digital marketplaces. Sharing such information has a positive impact on the image. The environment we live in is important In its tweet, UBS raises the topic of the impact of the environment, including family environment, on an individual and its development.   A family’s customs, values and ethics shape its identity. And influence the next generation. Having the right resources and guidance can make all the difference when building and communicating a shared view of enduring success. #SuccessToSuccession #shareUBS pic.twitter.com/lUrgd4krDD — UBS (@UBS) October 20, 2022 The family is the basic unit of human life. In it he grows and develops. As a basic environment, it has a significant impact on the shaping of the individual. Family values ​​or ethnic affiliation have a great influence on the worldview and decision-making. Raising awareness on this topic will help to understand that a properly shaped environment will help an individual to achieve some success and thus allow the entire society to develop. How long can take place the recession Reuters Business quotes Elon Musk's words on the recession.   Musk says recession could last until 2024 https://t.co/g7htSUI4IX pic.twitter.com/aKFHCABQMn — Reuters Business (@ReutersBiz) October 21, 2022 Economies around the world are realizing that they are facing a severe recession. The fight against inflation does not bring about the expected reforms, and on the contrary, the situation seems to be almost the same. According to Elon Musk, such a situation may last even until 2024. After the recent statements of the businessman, many people may be skeptical about it, and others may entrust this argument.
Saxo Bank Podcast: The Bank Of Japan Meeting And More

The Depreciation Of The Japanese Yen Will Not Cause Any Changes In The Policy Of The Bank Of Japan

ING Economics ING Economics 22.10.2022 08:35
The coming week features several inflation readings, a Bank of Japan meeting, and Korea's third-quarter GDP report In this article Inflation reports out from Australia, Singapore and Japan Korea’s growth to decelerate while sentiment indices point to challenging outlook The BoJ to keep rates unchanged despite JPY weakness Taiwan industrial production likely stable Source: Shutterstock Inflation reports out from Australia, Singapore and Japan Australia is expected to release its 3Q22 CPI inflation data next week.  We don’t think the 6.1% inflation reading in 2Q22 was the peak, and look for the inflation rate to increase to 6.4%YoY, following a 1.0% QoQ increase.  The Reserve Bank of Australia has already stated that it expects inflation to rise further, so this doesn’t necessarily imply any deviation from their recent slower pace of tightening at forthcoming meetings, or for that matter, the outlook for the AUD. Singapore's inflation will be reported on Tuesday and we expect both headline and core inflation to heat up further.  Headline inflation could hit 7.6% while core inflation will likely accelerate to 5.2% which should keep pressure on the Monetary Authority of Singapore (MAS) to stay hawkish in the near term.  In Japan, CPI inflation excluding fresh food is expected to climb to 3% in October as the weak JPY translates to domestic inflation.  Unlike other major economies, Japan’s PMI and labour market report are expected to show continued recovery, aided by the reopening boost and government stimulus packages. Korea’s growth to decelerate while sentiment indices point to challenging outlook We expect 3Q22 GDP in Korea to decelerate to 0.1%QoQ sa (vs 0.7% in 2Q). The trade component should contribute negatively to growth for 3Q, mainly due to high commodity prices, while private consumption likely lost its steam after purchasing power faded.   Meanwhile, the consumer and business sentiment surveys will provide a bleaker outlook for the current and coming quarters. Weakness in asset markets, such as housing and equity, likely hurt consumer sentiment while businesses should be cautious given the slowdown in global demand and the weak KRW. The BoJ to keep rates unchanged despite JPY weakness Next week also features the Bank of Japan policy meeting and we expect them to stand pat despite the recent JPY weakness. Governor Kuroda could however warn that the recent currency movements would have a negative impact on the nation’s economy but we doubt the JPY depreciation will trigger any changes in the BoJ’s policy stance. Taiwan industrial production likely stable Taiwan industrial production growth should be fairly stable at around 3.5%. Further weakness of demand for semiconductors might not have reflected in this data but we might see weaker growth later in the year. Asia Economic Calendar Source: Refinitiv, ING This article is part of Our view on next week’s key events   TagsAsia week ahead 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
ECB press conference brings more fog than clarity

Acceleration Of Inflation In The Eurozone Is Inevitable

TeleTrade Comments TeleTrade Comments 25.10.2022 09:29
“Core inflation in the eurozone continues to rise, reaching 6% year-on-year in August 2022. Its acceleration is inevitable. The European Central Bank (ECB) will therefore have to decide whether to tolerate core inflation remaining high into 2024 or switch to a far more restrictive monetary policy than is currently expected, analysts at Natixis report. Core inflation lingers “The ECB can no longer claim that core inflation will rapidly subside, because of its inertia. If core inflation is higher than 6% in early 2023, the inertia of this inflation forces will lead it to at least around 6% at least in early 2024.”  “Econometric analysis shows that core inflation is perfectly inert (core inflation has an eigenvalue of 0.98). The ECB will therefore have to accept: Either core inflation of around 6% at least in 2024; Or a more restrictive monetary policy than is currently expected.”
John Hardy to FXMAG: The UK economy faces significant head-winds from supply side limitations

We Know The Successor Of Liz Truss | Asia's Economy Is Plummeting Into Public Debt

Kamila Szypuła Kamila Szypuła 25.10.2022 11:12
UPS reports its positive results. Negative news is pouring in from Asia. And also we met the new UK prime minister. In this article: The next UK prime minister Summary of Q3 Electric-vehicle market Asia’s economic outlook FedEx problems Rishi Sunak to become the next UK prime minister CNBC Now tweets about the new prime minister of UK BREAKING: Rishi Sunak set to be Britain's new prime minister as rival Penny Mordaunt drops out https://t.co/sNXCUoAvtq — CNBC Now (@CNBCnow) October 24, 2022 Rishi Sunak is set to become Britain’s new prime minister, succeeding Liz Truss who resigned Thursday. Liz Truss was the shortest reigning prime minister in the UK, the current situation has surpassed her. After Liz Truss' resignation, there were voices that Boris Johnson would again take over the British government. But as we know, these were only false guesses. Current information that Sunak will take over this position. He will not become prime minister immediately because, according to the ritual, the outgoing prime minister, in this case Truss, must first resign in favor of King Charles. After that, the king will appoint another prime minister, Sunak, in the coming days. The question is whether the new prime minister will cope with the challenges that await him and restore stability to the British economy? UBS results UBS in its tweets shares the results for the third quarter. Particularly noteworthy is the tweet with the statement by CEO Ralph Hamers. Hear from our CEO Ralph Hamers on the progress we made over the third quarter as well as the trends we saw for client activity. pic.twitter.com/OjEAeb5WeV — UBS (@UBS) October 25, 2022 UBS Group AG, as an international investment bank and financial services company, enjoys popularity and high profits. Along with the end of a certain period, in this case of the third quarter, the company summed up its achievements. The situation on the markets is diversified, and the observation of new trends may prove very helpful for the functioning of the instance. In the author's post, you can find out about the situation of UBS, which can affect its prominence and positions in financial services. Toyota and electric-vehicle Reuters Business tweets about electric-vehicle. On @Breakingviews: Toyota is mulling its third electric-vehicle reboot in 13 months. Frequent rejigs can mean bigwigs are flailing for ideas. But its latest overhaul implies boss Akio Toyoda is addressing missteps with more speed, says @AntonyMCurrie https://t.co/ayxtHq1ZAC pic.twitter.com/OuHPhkGTLQ — Reuters Business (@ReutersBiz) October 25, 2022 There is no doubt that electronic vehicles have become something desirable. Many car manufacturing companies try to modernize their products. One of them is Toyota, which is trying to match the giant in the production of electronic cars, Tesla. Some people may take away from trying to look for new ideas, and for some it means growing their business. Public debt in Asia has increased The IMF in its post addresses the topic of economic problems in Asia. Amid Asia’s dimming economic outlook and rising inflation, public debt has risen substantially in Asia over the past 15 years—particularly in the advanced economies and China. https://t.co/gDWrrRU0uD pic.twitter.com/YvJDzyAM7c — IMF (@IMFNews) October 25, 2022 Economies around the world struggle with the problems of rising inflation and its negative impact on the functioning of economies. China as Asia's largest economy is also struggling. Despite yesterday's positive results (Read more : Growth In China's Trade Balance. Significant Declines In Major Sectors Of Europe And Great Britain| FXMAG.COM), there is a bigger problem of public debt. Public debt is growing rapidly, which means that the governments of Asian countries are indebted to power. Despite positive reports, such a situation may have negative consequences for the economy. This may mean that a financial crisis is approaching, and as we know from history, dealing with this problem can be laborious and very expensive. Companies face problems Bloomberg Terminal tweets about the market loses of the FedEx shipping company. FedEx lost $11 billion in market value last month, wiping out two years of stock gains, after it pulled its forecast, feeding into fears of a global demand slowdown.https://t.co/OthLH3tipw — Bloomberg Terminal (@TheTerminal) October 24, 2022 The economic slowdown and rising inflation affect the situation of shipping companies. The prognosis is not very good. FedEx and UPS expect to see dramatic drops in US and global shipments. Which will have a negative impact on the financial result of these companies, and thus may cause a reduction in employment.
It Is Quite Possible That The Australian Dollar Is Tired Of Growth

The Australian Government Does Not Expect Significant Changes In Inflation Forecasts

InstaForex Analysis InstaForex Analysis 26.10.2022 13:54
The Australian dollar, paired with the US currency, is storming the 64th figure, reacting to the release of data on inflation in the country. The report turned out to be "unipolar": all components came out in the green zone, surpassing even the most daring expectations of experts. At the same time, the greenback is still under pressure: the US dollar index fell to the 110th mark, amid increased interest in risky assets. In other words, the situation is in favor of the upward scenario in AUD/USD, at least in the context of a large-scale correction. To confirm their ambitions, buyers of the pair will have to consolidate above the intermediate resistance level of 0.6450, which corresponds to the Kijun-sen line on the daily chart. But the main target is slightly higher—at 0.6540, which is the upper line of the Bollinger Bands indicator on the same timeframe. Above this target, Aussie rose for the last time at the end of September, so this price barrier has a psychologically important significance. But back to Australian inflation. According to published data, the consumer price index in the third quarter jumped to 7.3% YoY (with a forecast of growth to 7.0% and the previous value of 6.1%). In quarterly terms, the indicator rose to 1.8% with a growth forecast of up to 1.6%. On a monthly basis, the CPI also came out in the green zone, reaching 7.3%. Again—all components of today's report exceeded the expectations of most analysts. On the one hand, this fundamental factor really supported the Australian dollar, and not only paired with the US currency, such crosses as AUD/JPY and AUD/NZD demonstrate upward dynamics. But on the other hand, the published inflation report is unlikely to be able to keep buyers of the AUD/USD pair in good shape for a long time. As soon as the first emotions settle down, Aussie will again focus on the dynamics of the greenback. Indeed, by and large, today's release, despite its "green color," has not changed anything significantly. Representatives of the RBA may, to some extent, toughen their rhetoric, but at the same time, the regulator will continue to raise the interest rate in 25-point increments. Yes, inflation is growing at a faster pace, but it should be remembered that, according to the forecasts of the RBA, the CPI by the end of the year will be 7.8%. Therefore, the current growth of the index may be caused by "excessive concern" among RBA members, but no more. Australian Treasurer Jim Chalmers said that the government does not expect a significant change in the inflation forecast. According to him, the Treasury expects inflation to peak at the same level at the end of the year (that is, at around 7.8%). It is also worth recalling the comments of RBA Governor Philip Lowe, who, following the results of the October meeting, made it clear that members of the central bank are afraid of the negative consequences of aggressive tightening of financial conditions for consumer spending. According to him, the simultaneous increase in inflation and an increase in the rate "put a lot of pressure on consumers' budgets." In addition, members of the Reserve Bank were concerned about the state of affairs in the labor market. Whereas the latest "Australian Nonfarm" were quite contradictory – for example, the indicator of the increase in the number of employed came out at around 0.9k with a forecast of growth of 25k. Therefore, in my opinion, the positive effect of today's inflation release will be short-term. In the medium term, the Aussie will move in the wake of the US currency, which is weakening ahead of the November Fed meeting and against the backdrop of weak macroeconomic reports. In particular, the consumer confidence index dropped to 102 points, and the index of manufacturing activity from the Federal Reserve Bank of Richmond to -10 points. Such weak results have increased traders' concern about the Fed's next steps. Rumors have spread in the market that the Fed would demonstrate a less hawkish attitude at the November meeting against the background of further signs of economic weakness in the United States. It is noteworthy that experts are discussing the possible results of the December meeting, and not the November one (at which the Fed is 97% likely to raise the rate by 75 points). The probability of a 75-point rate hike in December is gradually decreasing, and this fact puts pressure on the US currency. Thus, the AUD/USD pair retains the potential for further corrective growth, but rather due to a temporary weakening of the greenback. Australian statistics supported the Aussie "at the moment," but this fundamental factor will not be able to keep the AUD/USD pair afloat if dollar bulls strengthen their positions again. The first and so far the main target of corrective growth is the mark of 0.6540—this is the upper line of the Bollinger Bands indicator on the D1 timeframe. Overcoming this target will open the way for buyers to the 66th figure, but it is too early to talk about it. Indeed, to date, the RBA has already slowed down the pace of tightening monetary policy, while the Fed is guaranteed to raise the rate by 75 points at least in November. All other assumptions are still speculation and cannot serve as a basis for a steady growth of AUD/USD.   Relevance up to 10:00 2022-10-27 UTC+2 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/325371
Italian headline inflation decelerates in January, courtesy of energy

Energy Prices Fueled The Rise In Inflation In Italy

ING Economics ING Economics 28.10.2022 14:49
The energy component was the driver of the surprisingly strong leap in headline inflation. Possible government interventions could increase volatility in inflation numbers over the rest of the year In this article Highest inflation reading since June 1983 An energy driven inflation acceleration More inflationary volatility ahead and the government may intervene Highest inflation reading since June 1983 According to preliminary Istat data, Italy's headline inflation figure shot up to 11.9% (from 8.9% in September), widely beating expectations, and marking the highest level since June 1983. The harmonised measure reached 12.8% (from 9.4% in September). An energy driven inflation acceleration The upwards surprise was mainly due to the energy component (+73% in October from +44% in September), with both the regulated and non-regulated components shooting up. The transmission to electricity bills of past gas increases went well beyond expectations. Beyond energy, the other inflation driver was food (+13.1% from 11.4% in September), which confirmed its recent trend. Interestingly, we note a widening gap between goods inflation (+17.2% from 12.5% in September) and services inflation (+3.7% from 3.9% in September), and that looks to be some evidence of the re-opening/tourism effect finally ending. The energy bias is confirmed by the contained increase in core inflation to 5.3% (from 5% in September). Core inflation remains a reason for concern, but its deceleration is tentatively encouraging and will have to be assessed over the coming months. On the one hand, it is possible that demand concerns will limit the scope for future accelerations; on the other, there remains ample scope for pass-through in the pipeline. This is confirmed by September producer price data, also released earlier today, which also points to inflation increases in the non-energy component.   In the October business confidence survey, businesses (with the exception of manufacturers) revealed non-declining expectations of future prices, again suggesting that the pass-through might not be over. All this will very much determine the degree of stickiness of inflation as the energy peak is passed. More inflationary volatility ahead and the government may intervene Looking ahead, conditions don't seem to be there yet to call the inflation peak. What we will likely see is more volatility in headline numbers over the next few months. Recent declines in gas prices might already be partially reflected in the November inflation release, possibly bringing about a softer inflation print. Furthermore, after such a shocking inflation release, the Italian government will likely feel compelled to speed up the launch of a new package of dedicated compensating measures. We tentatively expect inflation to average 8.1% in 2022, and upgrade our forecast for 2023 to 6.3% on the back of a higher statistical carryover.   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
German labour market starts the year off strongly

The Peak Of German Inflation Will Probably Come At The Turn Of The Year

ING Economics ING Economics 28.10.2022 14:57
German inflation increased once again in October. We are still a few months away from the peak  The German inflation shocker has entered the next round as headline inflation just came in at 10.4% year-on-year in October, from 10.0% YoY in September. The HICP measure increased to 11.6% YoY, from 10.9% YoY in September. The fact that monthly inflation (0.9% month-on-month) is still far above the historical average for October illustrates how inflation is spreading across the German economy. Peak not reached, yet The available regional data suggest that the increase in headline inflation was not only driven by higher food, energy and commodity prices. Inflationary pressure is actually spreading across the entire economy with prices for clothing and other apparel, and leisure and packaged holidays further increasing. Looking ahead, the peak of German inflation will probably come at the turn of the year but it will take until next spring before inflation drops into single-digit territory again. The recent drop in wholesale gas prices will hardly affect the short-term inflation outlook and may only bring relief later in 2023. Today’s German inflation data once again underlines that no central bank in the world can bring down actual inflation. This is why the ECB’s own narrative will increasingly shift toward inflation expectations and longer-term inflation outlooks. With this in mind, after yesterday’s jumbo rate hike, the December meeting could indeed deliver a dovish pivot. ECB president Christine Lagarde was more vocal than ever regarding a looming recession yesterday and the ECB’s staff projections in December will very likely show inflation structurally coming down to 2% during 2024 and 2025. Enough to stop the rate hiking cycle at the latest in February and shift from rate hikes to gradual quantitative tightening at the start of the second quarter of 2023. TagsMonetary policy Inflation Germany Eurozone ECB   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The German Purchasing Managers' Index, ZEW Economic Sentiment And More Ahead

The New Czech National Bank (CNB) Leadership Meeting Ahead | Inflation In Poland And In Turkey Continued Trending Upward

ING Economics ING Economics 29.10.2022 08:21
The third monetary policy meeting under the new Czech National bank will take place next Thursday. We believe interest rates will remain unchanged, as inflation is expected to be revised downward. On the other hand, Turkish and Polish inflation has continued to trend upward, and we see no signs of it levelling off soon In this article Turkey: Annual inflation expected to increase further Poland: No signs of polish inflation levelling off soon Czech Republic: CNB rates set to remain unchanged, again Source: Shutterstock Turkey: Annual inflation expected to increase further In October, we expect annual inflation to further increase to 86.2% (4.1% on a monthly basis) from 83.5% a month ago, given continuing broad-based pricing pressures on the back of a largely supportive policy framework along with less gradual currency weakness weighing on TRY-denominated import prices. Poland: No signs of polish inflation levelling off soon October CPI: 18.1% year-on-year Our forecasts indicate that CPI inflation increased further in October and probably slightly exceeded 18% year-on-year on the back of a sharp monthly increase in petroleum prices and further growth of energy and food prices. At the same time, we expect that core inflation continued trending upward. There are no signs of inflation levelling off soon and the momentum of core inflation remains high. October Manufacturing PMI: 42.2 percentage points Following a surprising upswing in manufacturing PMI in September, we expect the assessment of conditions in the domestic industry by purchasing managers to deteriorate again in October. Although supply-side bottlenecks eased recently and the energy outlook for the European industry is less challenging, elevated prices and softer global demand (decline in new orders) are projected to continue weighing on manufacturing activity in the coming quarters.  Czech Republic: CNB rates set to remain unchanged, again The third monetary policy meeting under the new Czech National Bank (CNB) leadership will take place on Thursday. We expect interest rates to remain unchanged. Thus, the central bank's new forecast will be the main focus. Compared to the August forecast, we see the biggest deviation in inflation, which surprised to the downside. In September, this deviation came in at 2.4 percentage points. Therefore, here we can expect the biggest downward revision in the new forecast. Nevertheless, the interest rate forecast can be expected to remain roughly similar to the CNB's summer version, indicating a rate cut in the next quarter due to the nature of the central bank's model. On the FX side, we don't expect much change in the forecast weakening trajectory of the koruna under the pressure of the declining interest rate differential. However, we don't see much implication for FX interventions, which are fully decoupled from the CNB forecast and depend only on the discretionary decision of the board. But, at the moment, we see the CNB in a comfortable position with no reason to change anything about the current regime. In the long run, we do not expect any further CNB rate hikes. Despite the board's highlighting of the wage-inflation risk, we believe that the stability or decline in annual inflation combined with a weaker economy will be enough in the coming months for the CNB to confirm the end of the rate hike cycle at future meetings. Read our full CNB preview here. Key events in EMEA next week Source: Refinitiv, ING TagsTurkey Poland PMI Czech Repulbic   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  
All Eyes On Capitol Hill, Jerome Powell Will Appear Before The Senate Banking Committee

The Fed Would Follow Other Central Banks And Rein In Their Aggressiveness

ING Economics ING Economics 30.10.2022 11:02
The Fed's favoured measure of inflation is heading higher, rather than lower while employment costs continue to rise at double the rate experienced over the past 15 years. The market is probably right to expect the Fed to slow the pace of rate hikes from December, but this is by no means guaranteed In this article Underlying inflation still heading higher Labour costs still running hot Better spending momentum, but GDP growth is still likely to slow in the fourth quarter 5.1% Annual rate of core inflation   Underlying inflation still heading higher US market interest rate hike expectations have been scaled back in recent days as caution on the economic and market outlook have heightened expectations that the Fed would follow other central banks and rein in their aggressiveness. Yet, while we may well get a “step down” in the pace of tightening from December onwards it is clear that inflation is far from defeated and the risks are that rate hikes could continue for longer. That view has been backed up by today’s data which show the Fed’s favoured measure of inflation rose 0.5% month-on-month in September, the same as in August (although it was revised downwards from 0.6%). This leaves the year-on-year up at 5.1% versus 4.9% previously. Remember that to get the annual rate of inflation trending back down to the 2% target we need to see MoM figures closer to 0.2%, so there is little sign of us heading in that direction yet. Nonetheless we are hopeful that it will slow next year. The chart below shows the relationship between the National Federation for Independent Business’ data series on price plans – the proportion of companies looking to raise their prices in the next three month and the core PCE deflator. It hints that weakening demand, the deteriorating economic outlook and rising inventory levels are making businesses more cautious and suggests pricing power is waning. If so this indicates inflation could slow rapidly through the first half of the year. Core PCE deflatior and the NFIB survey of corporate price plans   Source: Macrobond, ING Labour costs still running hot That said, the Fed appears focused on the here and now with another of their favourite indicators highlighting the strength in near-term inflation pressures. The Employment Cost Index showed that labour market inflation pressures remain strong, rising 1.2% quarter-on-quarter in the third quarter after a 1.3% increase in the second quarter. This is double the 0.6% QoQ average over the past 15 years, indicating that this is still going to be an issue for the Fed given its increase prominence in how the central bank is assessing the risks. Wages rose 1.3% while benefits increased 1% with government labour cost increases outstripping private sector costs for the first time in several years – government wages rose 2.1% QoQ versus 1.2% in private industry. Better spending momentum, but GDP growth is still likely to slow in the fourth quarter Meanwhile, the personal spending numbers have seen some quite big revisions so that after a contraction in real consumer spending in July we got some pretty firm figures for August and September with 0.3% MoM growth. As such this positive momentum heading into the fourth quarter makes us a little more optimistic on fourth quarter GDP than we had been. But even so the intensifying headwinds from the downturn in the housing market, high borrowing costs and the strong dollar mean that we think it will slow to something around the 1.5% mark. TagsUS Inflation Federal Reserve Board Federal Reserve   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
US Inflation Forecasted at 3.3%, UK GDP Projections at 0%, Fed Member Harker's Views on Rates

Inflation In Eurozone Higher Than Forecast | Retail Sales Reports

Kamila Szypuła Kamila Szypuła 31.10.2022 11:15
We start the beginning of the new week with data on inflation in the European Union. Apart from important data from Strego Kontunet, the market does not expect important data from America. Japan Industrial Production In Japan, despite the positive results in August, Industrial Production fell below zero to -1.6%. The decline was expected but not that low. The result was forecast at -1.0%. Such a situation means weakening demand in this sector. For investors, this means a significant slowdown and is not beneficial for the image of the Japanese currency or its entire economy. Japan Retail Sales Another important report for the Japanese economy is the report on retail sales. The result turned out to be positive. The 4.1% level was expected to hold this time as well, but the reading was higher. The current level of retail sales in Japan is 4.5%. Since the fall in July, sales in Japan started a new pattern trend, which, as we can observe, continues. Retail sales are seen as a stand-in for consumer spending and its growth can be considered positive for the development of the Japanese economy. Source: investing.com Austrailan Retail Sales Australia also shared the results on retail sales. The result was neither positive nor negative. The positive fact is that it has met expectations and has not fallen. This is the third reading in a row when the retail sales level is 0.6%. According to this indicator, the Australian economy is stagnating. China Manufacturing PMI The China Manufacturing Purchasing Managers Index fell below 50 again. The current reading shows that the index reached the level of 49.2 against the previous one (50.1), it is a negative reading. Also, this reading did not meet the forecast level (50.0) The China Non-Manufacturing Purchasing Managers Index (PMI) also fell. The spatula trend continues. The gauge has dropped from level 50.6 to level 48.7. The current value and movements of the PMI and its components can provide useful information for business decision makers, market analysts and investors .We can expect that poor performance in both sectors will have negative effects on market decisions. Important economic data from Europe The core CPI reached the level of 5.0% against the forecasted 4.8%. On the other hand, the overall CPI reached the level of 10.7% and was higher by 0.5% than forecasted. As we can see, the situation in the euro zone has not changed despite the actions of the ECB. Read more: Forecasts Of The Situation In The Eurozone Are Not Very Good| FXMAG.COM ECB’s member is set to speak After today's important economic data from the Eurozone, a speech by Philip R. Lane, member of the Executive Board of the European Central Bank will take place at 16:00 CET. The speech that will take place after important reports will be helpful for investors in taking further decisions and thus contain indications on the future possible direction of monetary policy. Summary Despite the fact that only the European Union released data important for the markets, during the week there will be more reports that will have a significant impact on the market situation. This week we should focus on next decisions of central banks regarding interest rates (Fed, RBA, Bank Of England). 0:50 CET Japan Industrial Production (MoM) (Sep) 0:50 CET Japan Retail Sales (YoY) (Sep) 1:30 CET Austrailan Retail Sales (MoM) (Sep) 2:30 CET China Manufacturing PMI (Oct) 11:00 CET EU CPI 11:00 CET EU GDP 11:00 CET EU Core CPI 12:25 CET BCB Focus Market Readout 16:00 CET ECB's Lane Speaks Source: https://www.investing.com/economic-calendar/
From UFOs to Financial Fires: A Week of Bizarre Events Shakes the World

A Rate Hike By Fed By 75 bp Seems To Be Well Expected

Saxo Bank Saxo Bank 01.11.2022 09:35
Summary:  While a 75bps rate hike is baked in for the November meeting, it’s the pivot expectations that need to get a make-or-break acknowledgement from the Fed. This means focus will be on whether the Fed keeps the door open for another 75bps rate hike at the December meeting (hawkish), pushing out of Rate cut expectations from next year (hawkish) or concerns from global financial stability (dovish). The US dollar has reversed 3-4% lower from its cycle highs, suggesting room for gains if we see a hawkish surprise. The bar isn’t too high. Market participants are looking beyond the November rate decision for this week’s FOMC policy meeting. A fourth consecutive 75bps rate hike seems to be well expected, but the hopes of a pivot have seen markets rally in October and is really the key debated issue this week. There have been hopes that the Fed will signal smaller hikes from December and prepare the ground for rates to peak and pause at 4.5-5.0% in 1Q23. Reasons behind this include some softening of stance from other global central banks such as the Reserve Bank of Australia (RBA), Bank of Canada (BOC) and the European Central Bank (ECB). Liquidity stress emerging in the Treasury market has also been touted as one of the reasons for the expectations. The US Treasury Department plans to issue USD550bn in debt in 4Q22, more than the USD400bn estimated in August. We think the following key points will be key at the November policy meeting from a markets perspective: December rate hike talk Dovish expectations that have been set in currently include Powell clearly guiding for a 50bps rate hike in December rather than a 75bps. We believe this will be premature, and at best what we can get is Fed to become data-dependent. Anything that even keeps the possibility of another 75bps rate hike open at the December meeting will be a hawkish surprise. Terminal rate projections Terminal rate forecasts are currently the largest driver of US yields. As expectations of terminal rates surged above 5% at one point in October, 10Y US yields tested cycle highs. That probably was a trigger for the Fed to use the whisperer and convey peak hawkishness in an October 24 WSJ article which first mentioned the idea of the Fed downshifting to a path of smaller rate hikes. But easing of financial conditions since then has possibly again made the central bank uneasy. This gives us a sense that the Fed is uncomfortable with an over 5% terminal rate being priced in, and we are still close to that level at 4.96% currently. But we still have more than two full rate cuts priced in by the markets for 2023, and that is where the Fed can still push back. If the Fed makes a clear case of rates staying at the peak until late 2023, that will be considered hawkish in our view, and result in risk off again. Concerns around financial stability With the economy still holding up well, there is little concern yet that Fed’s rate hikes will break anything in the domestic US economy. Instead, any risk of breaking things is still in the global financial markets. Too much focus on financial stability also risks shifting expectations to a Fed pause, and may be considered dovish. Inflation and unemployment There would be no update to the dot plot at the November meeting. It is right to consider that the Fed will have to slow the pace of rate hikes at some point. But is a softer inflation a necessary condition to reach that stage? Or we need to just wait for inflation to stop getting worse, even if it takes time to actually go lower. The core CPI and PCE data reported recently continues to show that inflation remains uncomfortably high, and any indication of commitment to still bring that down to much below 3% might potentially require a much higher unemployment rate and possibly much more pain in the financial markets. Market impact The US dollar is 3-4% off its highs amid these Fed pivot expectations. With dovish expectations having set in, there is potentially room for the USD to surprise on the upside. That would mean EURUSD back below 0.98 and USDJPY taking another go at 150. USDCNY also would be poised for a move to 7.40 unless these rumours of China considering an exit from its Zero Covid policy by March 2023 prove to be true. However, if these dovish expectations were to materialize, we could see EURUSD heading to 1.02 and USDJPY down at sub-145 levels. While the Japanese yen may sustain these gains as yield differential pressures start to ease, EUR may have a tougher time holding on to the recovery as room for ECB rate hikes is also decreasing and the energy crisis can only get worse from where we are in this winter. The most ideal reaction for the equity markets will be to stay in a sideways trend. With markets eager for any bullish trends, the risk of a technical rally remains if the Fed clearly closes doors for any more 75bps rate hikes from here. However, if the markets rally too hard on any Fed communication, we will likely see a host of Fed speakers in the coming weeks trying to clarify and assert that the Fed maintains a hawkish stance, as easing of financial conditions isn’t what the Fed wants right now. The market moves need to remain orderly for the Fed to achieve its inflation goal, else any hopes of a Fed pivot will continue to be smashed.     Source: https://www.home.saxo/content/articles/macro/fomc-november-meeting-preview-markets-holding-their-breath-for-a-fed-pivot-01112022
The German Purchasing Managers' Index, ZEW Economic Sentiment And More Ahead

The Euro Bloc Economy Lost Its Growth Momentum

InstaForex Analysis InstaForex Analysis 01.11.2022 11:20
The US currency has once again bypassed the European one, which is seriously puzzled by a new batch of news about inflation. At the same time, the dollar draws confidence in the Federal Reserve's actions, which allows the completion of the current cycle of rate hikes. The greenback significantly strengthened at the beginning of this week, restoring some of the positions lost over the past month. This was largely facilitated by the expectation of another interest rate hike from the Fed, whose two-day meeting is scheduled for November 1-2. According to preliminary calculations, on Wednesday, November 2, the central bank will raise the key rate by 75 bps, to 3.75-4.00%. This will be the fourth step on the Fed's part in raising rates. However, many analysts and market participants doubt the continuation of the Fed's harsh rhetoric. According to experts, after the fourth rate hike by 75 bps, the central bank will take a less aggressive position on this issue. Michael Wilson, currency strategist at Morgan Stanley, is sure of this. He believes that the Fed's rate hike cycle is nearing completion. In support of his words, Wilson cites the inversion of the yield curve of ten-year and three-month US Treasury bonds. Recall that this is one of the key indicators indicating the need for a reversal of the central bank's tight monetary policy to a softer one. However, some experts do not share the optimism of the Morgan Stanley representative. Currency strategists at UBS Global Wealth Management are confident that a reversal in the Fed's policy is unlikely, since the inflation rate in the US remains high. Against this background, the central bank will have to raise the rate until inflation recedes, the bank emphasizes. The current situation puts pressure on the dollar, which, despite the current tension, is gradually strengthening. Against this background, the EUR/USD pair has been declining for the third consecutive day, continuing to struggle with the pull of the downward trend. On the morning of Tuesday, November 1, the EUR/USD pair was cruising near 0.9911. This is a difficult situation for the euro since it has to resist negative macro data. Recall that reports on inflation in the eurozone were published on the evening of Monday, October 31, which again demonstrated its sharp rise. As a result, the inflation rate in the region soared to a new historical high, and the euro bloc economy lost its growth momentum. According to analysts, consumer prices in the EU rose by 10.7% in October 2022 compared to October 2021, exceeding forecasts. In the third quarter of this year, the volume of production in the eurozone decreased to 0.2% compared to the same period last year. According to experts, the current situation is aggravated by a sharp increase in the European Central Bank's interest rates. At the same time, many analysts believe that the central bank should continue to actively fight inflation, which includes raising rates. It is possible that after the recent rate hike, the ECB will raise it again by 75 bps at the next meeting, which is scheduled for December 15. However, such a scenario is still in question, as well as a possible pause in the process of raising rates by the Fed. Some analysts do not expect dovish decisions from the US central bank, although the current situation requires revision. According to experts, the aggressive tightening of the monetary policy contributes to the early onset of a recession in the United States, as well as a large-scale drop in treasury state bonds and stocks over the past few years. Take note that as rates rose and the economic downturn that followed the tightening of the monetary policy, the markets were gripped by a crisis. It was followed by an increase in the number of defaults, which seriously hit investors. In the current situation, the leading central banks will have to solve the issues that provoked such problems. The current situation significantly affected the dynamics of the EUR/USD pair, provoking a correction at the end of September. However, the pair is gradually returning to a relatively stable course. According to experts, a new round of risk appetite in the markets will save the EUR/USD pair from further decline. At the same time, experts expect a New Year rally on the US stock market and the growth of risky assets in the near future.   Relevance up to 07:00 2022-11-03 UTC+1 Company does not offer investment advice and the analysis performed does not guarantee results. Read more: https://www.instaforex.eu/forex_analysis/325874
Equity Markets Rise, VIX at 12 Handle After ECB Rate Hike and US Economic Resilience

Economic Indicators - ZEW, PPI And Central Banks' Minutes Explained By FXMAG.COM

Kamila Szypuła Kamila Szypuła 22.10.2022 11:54
The market is full of reports on various macroeconomic indicators and we can hear from experts how they affect the economic situation. But how exactly are they calculated and what do they represent? This article will help you understand ZEW Indicator of Economic Sentiment and Producer Price Index (PPI) better. In addition, we will find out what central bank's minutes are and why they are important to the markets.     Central bank’s minutes Decisions on monetary policy are taken by central banks. Recently, the decision on interest rates has been largely heard. Such decisions are made at meetings of bank members. The market, if you want to know the details, can use the central bank minutes. By definition, this is summarise the bank's current outlook on the economy and explain the reasoning behind its chosen actions. In the publication, we get acquainted with the course of the meeting. Consequently, with the topics discussed, the discussion and the decisions that were made. The decisions made there affect borrowing, spending, and savings rates. One of the practical advantages is that the publication of minutes helped markets to predict the monetary policy decisions of the bank.   ZEW Indicator of Economic Sentiment On Tuesday, we were able to see the current data on the ZEW economic sentiment in Germany and in Europe. ZEW stands for Zentrum für Europäische Wirtschaftsforschung, which translates to the Center for European Economic Research. The indicator focuses on exploring the future of Germany. Economic sentiment indicators are a popular way to measure and forecast trends in an economy. This indicator examines the sentiment of 350 economists and analysts. These experts come from the banks, insurance companies and financial departments of selected corporations. They are asked about their expectations for the coming six months regarding the economy in general, inflation rates, interest rates, stock markets, exchange rates and oil prices.   How to calculate it? It is the difference between the percentage share of analysts that are optimistic and the share of analysts that are pessimistic for the German economy in six months. For example: If 45% of participants expect the economic situation in Germany to improve in the next six months, 20%expect no change, and 35% expect the economic situation to worsen, the index will be 10. A positive number means that the share of optimists outweighs involving pessimists and vice versa. The ZEW Indicator of Economic Sentiment is calculated from the results of the ZEW Financial Market Survey. These two reports were discussed in a practical example in the my previous article: The Economic Outlook In Euroland And Germany Is Getting Worse| FXMAG.COM   What is Producer Price Index (PPI)? The PPI is somewhat similar to the CPI except that it looks at price increases from the producer's rather than the consumer perspective. The PPI determines the change in output prices faced by producers. Sometimes it is omitted when assessing the pace of price changes. As stated in the definition and practice the index can be measured on raw (iron ore, aluminum scrap, soybeans and wheat), intermediate (leather, paper and basic chemicals) and finished products. When calculating the base PPI, variable items such as energy and food prices are excluded from the base calculation. Calculating the PPI is done in the same way as the CPI, but from the producer's basket side i.e. Current price of basket/Base price of basket. Tracking the PPI is just as important as the CPI because it allows you to identify the cause of changes in the CPI. For example, if the CPI is rising much faster than the PPI, this may indicate that factors other than inflation may be causing retailers to increase prices. Read more about US PPI: Great Britain’s CPI Lower Than The Expected, Eyes On US PPI| FXMAG.COM Source: zew.de,investopedia.com
The Bank of Korea Is Likely To Respond With A Rate Cut In The Second Half Of 2023

The Bank Of Korea (BoK) Will Continue To Hint At Further Fightening

ING Economics ING Economics 02.11.2022 11:22
Headline inflation picked up again in October due mainly to increases in the price of city gas and electricity, but stayed below the recent peak. Despite upside risk factors such as the weak KRW and rebounding food prices, we expect inflation to decelerate from now on, though we still think that the Bank of Korea (BoK) will raise rates 25bp in November Source: shutterstock.com 5.7% CPI inflation %YoY  As expected Headline inflation is expected to decline from now on, but core inflation has more room to rise Consumer price inflation rose 5.7% YoY in October (vs 5.6% in September), in line with the market consensus. As city gas and electricity rates began to rise from October, utility prices (power, gas, and water) jumped 23.1%. This also pushed up core inflation excluding agricultural and oil products to 4.8% (vs 4.5% in September).   We believe that headline inflation will decelerate from now on. Ahead of the winter kimchi-making season in November, fresh vegetable prices, including cabagge (-31.2% MoM nsa), declined sharply (-13.1% MoM nsa) with better harvests than expected. Gasoline prices are expected to stabilize a bit more by the end of the year. Rent prices have stayed on the rise so far but market-observed rent prices began to drop from mid-year, which will soon be reflected in the CPI.  To be clear, there are still several upside risks to inflation in the near future. First, utility prices are expected to rise again next year as utility service providers respond to their operating deficits. And the recent credit crunch will also make it harder for such firms to issue additional corporate bonds in the near future. Second, global commodity prices have rebounded recently as unstable supply conditions have continued. And lastly, the weak KRW is likely to broaden inflationary pressure on other goods prices.   Considering both down and upside factors, we expect headline inflation will decelerate but will remain above 5% until early next year. If our current projections are right, then we will see inflation at around 4% in February next year, followed by a more rapid deceleration until the end of next year.  Inflation rose in October mainly due to higher utility prices Source: CEIC Market observed rental prices declined since May Source: CEIC The BoK outlook The Bank of Korea will hold its last policy-rate decision meeting of the year on 24 November. And although inflation rose again in October, we think the BoK will pay more attention to the fact that inflation is down from its peak. The BoK will continue to hint at further tightening and inflation risks in its forward guidance. But, as the signs of a recession are becoming more evident - weak activity data, declining housing prices, and volatile financial market conditions - we believe that the BoK will slow the pace of additional rate hikes. Thus, we maintain our view that the BoK will return to its more usual 25bp hike pace in November.  TagsCPI inflation Core inflation 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
US Inflation Forecasted at 3.3%, UK GDP Projections at 0%, Fed Member Harker's Views on Rates

FXMAG.COM Explains Consumer Price Index (CPI), Core CPI And Unemployment Rate

Kamila Szypuła Kamila Szypuła 22.10.2022 16:30
Indicators help us determine the state of the economy, find out the scope and scale of problems, and whether we have sufficient resources to solve the problem. Thanks to the indicators, we can learn whether the economy is making progress or just the opposite. This year, the most important indicator on which markets, economies and ordinary people focus is the indicator of inflation. In economics, inflation is a general increase in the prices of goods and services in an economy. And what is it measured? And how indicator can it affect?     CPI The previous article talked about the Producer Price Index (PPI), which is ignored when indicating the level of inflation. Key indicator in this situation is the Consumer Price Index (CPI). According to the definition, the indicator measures the change in the price of a weighted average market basket of consumer goods and services purchased by households. The main categories of the basket of goods and services are: housing, raw materials, food, energy, healthcare, transport, education and other expenses CPI can be calculated for a given month or for an annual period. For example, the annual change is calculated using the formula: This indicator has many uses. The most important application is to measure inflation. It is also an important factor that central banks use to adjust their monetary policies, for example to set interest rates. Moreover, since the CPI measures the change in consumers' purchasing power, it is often a key factor in wage negotiations. It also helps consumers to make informed economic decisions. We recently looked at the CPI reports mentioned in another article. While the CPI is a convenient way of calculating the cost of living and the relative price level over time, it does not provide a completely accurate estimate of the cost of living. Three problems with CPI deserve attention: substitution error, introduction of new items and quality changes. The first problem can be explained simply by saying that since the prices of goods and services fluctuate from year to year, not all of them fluctuate by the same amount. As time passes, new items are added to the basket of goods and services purchased by the average consumer. CPI only uses a fixed basket of goods, the introduction of a new product cannot be reflected. A third problem with CPI is that changes in the quality of goods and services are not well handled. When an item in the fixed basket of goods used to calculate the CPI increases or decreases in quality, the value and attractiveness of the item changes. Read next: Economic Indicators - ZEW, PPI And Central Banks' Minutes Explained By FXMAG.COM | FXMAG.COM Core CPI Another indicator is the Core CPI. The main difference between Core CPI and CPI is that Core in its basket of goods and services does not include the food and energy sectors. Food and energy prices are excluded from this calculation because their prices may be too volatile or subject to sharp fluctuations. Food and energy are basic commodities, which means that the demand for them doesn't fluctuate much even as prices go up.   Unemployment rate The relationship between inflation and unemployment has traditionally been an inverse correlation. This means that when inflation rises, unemployment drops. However, this relationship is more complicated than it appears at first glance. The definition of the unemployment rate says that she measures the percentage of the total labor force that is unemployed. Despite the fact that this group is unemployed, it must meet the condition of people actively looking for a job or they express such a desire, it measn that they have taken specific steps to find work. The unemployment rate is one of the primary economic indicators used to measure the health of an economy. Investors and the general public use the unemployment rate to understand the state of the economy and as a measure of how well the government manages the country. The high unemployment rate makes the economy unable to generate enough jobs for jobseekers. High unemployment not only causes deeper social problems, but also reduces the attractiveness of the country. However, policymakers and central banks are wondering how much unemployment has risen during a particular recession in order to assess the impact of the recession on the economy and decide how to adjust fiscal and monetary policy to mitigate its negative effects. Source: investopedia.com, A Dictionary of Economics
Conflict Over Taiwan Would Trigger A Huge Global economic Shock

Inflation In Both China And Taiwan Is Expected To Slow

ING Economics ING Economics 05.11.2022 08:17
In the coming week, we'll get trade data from China and Taiwan which should indicate that global trade is slowing In this article China and Taiwan reports could highlight slowing global trade Third-quarter GDP from Indonesia and Philippines India’s industrial production China’s loan data Other important releases: Korea’s employment figures and price data from China and Taiwan Source: Shutterstock China and Taiwan reports could highlight slowing global trade China and Taiwan will release trade data next week. We expect both to report slower export growth with Taiwan possibly even posting a contraction. Import growth should however slow even faster than exports resulting in larger trade surpluses, which would help GDP growth. Third-quarter GDP from Indonesia and Philippines Indonesia and the Philippines report third-quarter GDP figures next week. Indonesia is expected to post a 5.5% year-on-year expansion, helped by strong exports and robust manufacturing activity.  In the Philippines, third-quarter GDP will likely settle at 5.2%YoY, a slowdown from the previous quarter after the boost from the May presidential election fades. Surging inflation likely capped household spending although the recent pickup in bank lending could offset the consumption slowdown.  India’s industrial production India’s September industrial production figure should show some improvement from the -0.8%YoY pace registered in August, as manufacturing PMI indices point to a modest improvement in output from the previous month, which should translate into about a 2%YoY increase. China’s loan data China will release loan data sometime next week. After the unexpectedly strong growth posted in September, overall lending could show a smaller monthly increase. This should still be strong compared to the previous years’ fourth-quarter loan growth as the Chinese government urges banks to support the economy. Other important releases: Korea’s employment figures and price data from China and Taiwan Korea will release the latest job numbers with expectations for the jobless rate to rise with health/social work jobs declining, coupled with potential job cuts stemming from sluggish manufacturing activity. Meanwhile, inflation in both China and Taiwan is expected to slow. The PPI inflation report from China could be a market mover as it could post a contraction, reflecting the weakness of the economy. Asia Economic Calendar Source: Refinitiv, ING TagsAsia week ahead 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
Hungarian inflation peak is behind us

Hungary Is Expecting A Significant Surplus |The Romanian National Bank (NBR) Will Announce Its Rate Decision

ING Economics ING Economics 05.11.2022 08:22
Two central bank meetings will take place next week. For the National Bank of Poland, we see a 25bp hike to 7%, however it is a close call between that and there being no change in the policy rate. For the Romanian National Bank, we expect a reduction in the tightening pace, taking the key rate to 6.75% with a 50bp hike In this article Czech Republic: Inflation accelerates due to fuel prices, while energy remains uncertain Poland: Baseline scenario is a 25bp hike to 7.00% Romania: End of the tightening cycle is close Hungary: Slowdown, adjustment and rationalisation Source: Shutterstock Czech Republic: Inflation accelerates due to fuel prices, while energy remains uncertain We expect inflation to accelerate again in October from 0.8% to 1.3% month-on-month, which translates into an acceleration in the annual rate from 18.0% to 18.2% year-on-year. The main reason for this is the significant increase in fuel prices in October (5.0% MoM) and food prices. On the other hand, we see a seasonal downward movement in clothing prices. The main issue as always in recent months is energy prices. These were largely behind September's surprise, but the main question in October may be the impact of the saving tariff as a government measure that should affect household prices throughout the fourth quarter. As in previous months, the statistical office’s approach is unclear and therefore inflation could surprise either way. Poland: Baseline scenario is a 25bp hike to 7.00% The November Monetary Policy Council (MPC) decision will be a close call between 25bp and no change in the National Bank of Poland (NBP) policy rate. On the one hand, headline inflation continues to trend upward and is increasingly broad-based, as indicated by rising core inflation. The peak is still ahead and bringing inflation back to the NBP target in the foreseeable future will require additional policy tightening. On the other hand, the Polish zloty firmed recently and the majority of the Council is increasingly eager to refrain from further rate hikes as it claims that monetary policy has almost reached its limits in containing demand factors. Our baseline scenario is a 25bp rate hike, but we do not rule out a scenario where rates remain unchanged. The Council will receive new macroeconomic projections and some policymakers indicated that the mid-term outlook for CPI inflation may trigger additional fine-tuning with respect to interest rates. Romania: End of the tightening cycle is close The Romanian National Bank (NBR) will announce its latest policy rate decision on Tuesday. We expect a reduction of the tightening pace to 50bp, taking the key rate to 6.75%. An open-end press release leaving the door open for another hike in January is to be expected. The NBR will also approve its latest inflation report and we should see another upwardly revised inflation forecast. The year-end estimate could flirt with the 17.0% area, though our own estimate currently sits closer to the 16.0% handle. Nevertheless, upside surprises in inflation prints versus estimates are still persistent, and forecasts should be taken – as usual lately – with a lot more than a pinch of salt. Perhaps more important than the rate hike itself will be any hint of an alteration in the tight liquidity management stance. We see little to no chance of this being changed for now. Read our full preview here. Hungary: Slowdown, adjustment and rationalisation Next week will be extremely busy in Hungary. We start the week with September economic activity data with an expectation of a general weakening in businesses. Retail sector growth will be limited by rising inflation thus decreasing real wage growth. Industrial production is a bit of a black box now with the wildly volatile manufacturing PMI, but we think we will see a slowdown here as well as adjustment and rationalisation continue as manufacturers face rising energy bills. The October inflation readings might draw a lot of interest, too. Our calls are higher readings in headline and core inflation. The common drivers here will be rising processed food and services prices with some extra pressure coming from durables as well as the forint hitting its weakest level versus all the majors during October. We might see a bit better trade balance data as energy prices have been moving lower in general, supporting the reduction of the monthly deficit via the energy-related goods balance. Speaking of balances, we are about to see the October budget balance as well. Here we are expecting a significant surplus, thanks to the revenue side as a huge chunk of windfall tax payments were first due in October. Key events in EMEA next week   Source:  Refinitiv, ING TagsNational Bank of Poland Hungary   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 Purchasing Managers' Index, ZEW Economic Sentiment And More Ahead

Tentative Signs By Central Bankers On Both Sides Of The Atlantic Ocean

ING Economics ING Economics 05.11.2022 08:26
There are tentative signs that central bankers on both sides of the Atlantic are considering a pivot to more modest interest rate hikes. But this could be months away In this article A difficult road ahead Signs of a slowdown Central banks: A waiting game Share    Download article as PDF   As we approach the end of the year, many of us are waiting. Waiting for the end of the war, waiting for inflation to finally peak, waiting for the Christmas holiday season to begin. For financial markets, the wait is on central banks and whether they will pivot. “Pivot” is probably not the correct term to use as a pivot would imply a real turning point in central bank policies, while what markets - and we - are actually looking for are signs of a slowdown and an eventual end to the current rate hike cycles. A difficult road ahead Getting to this pivotal moment is easier said than done. Major central banks are still facing high and, in some cases, increasing inflation, while signs of economic slowdowns and recessions are growing. It will be too little too late for central banks to simply bet that weaker demand will break down inflation and inflation expectations, as long as inflation largely remains a supply-side issue. Admittedly, given the importance housing costs play in the US inflation measure, the Federal Reserve is in a better position to bring down inflation (via higher mortgage rates depressing the costs of shelter) than, for example, the European Central Bank. What complicates central bankers’ decisions is the fact that they have now rushed so much toward policy normalisation that they cannot see the full impact of their decisions yet. It typically takes at least six to nine months before monetary policy changes have found their full way into the real economy. This time lag increases the risk of overshooting. At the same time, however, the stickiness of inflation over the last two years has also increased the risk that a too-premature end to tighter monetary policy will be insufficient in returning the inflation genie to the bottle. It’s not easy being a central banker these days. Signs of a slowdown Still, we have seen tentative signs by central bankers on both sides of the Atlantic Ocean suggesting that a slowdown, or even an end to rate hikes, is being considered an option. It will not necessarily be an explicit end to hikes but rather conveyed as a "taking stock pause". As the looming economic slowdowns and recessions will be more visible in December, we expect major central banks to slow down their tightening efforts and eventually end them in the first quarter of next year. Don’t forget that balance sheet deleveraging can easily be a substitute to rate hikes in 2023. In Europe, in particular, the inflation shock will dominate next year’s headlines. While government price caps can limit inflationary pressure in the short run, they will push up headline inflation immediately when they are lifted again. Government subsidies which offset the negative effects of higher energy prices on households and consumers do actually extend inflationary pressures. Also, the energy crisis won't disappear after this winter but will last until the winter of 2023/24 as national gas reserves will start the next year at lower levels than in the spring of 2022, putting upward pressure on the demand for natural gas. Whether they like it or not, the worsening economic backdrop has brought many central bankers closer to the moment of slowing tightening efforts, and eventually even pausing rate hikes. Financial markets waiting for the pivot might not be like waiting for Godot, but for a real pivot, headline and core inflation will first need to come down significantly. This is a scenario we definitely do not foresee before next summer. TagsInflation Central banks
Equity Markets Rise, VIX at 12 Handle After ECB Rate Hike and US Economic Resilience

ING Scenarios For The Growth Of Economy And Inflation

ING Economics ING Economics 05.11.2022 08:35
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
The Commodities Digest: US Crude Oil Inventories Decline Amidst Growing Supply Risks

Inflation In The USA Has A Chance Of Cooler

Kamila Szypuła Kamila Szypuła 05.11.2022 11:05
Inflation is at the top of the world worry list in 2022. The situation in the United States proves that inflation is a global problem. Although the local market is in better shape than, for example, the European one, the level of inflation in the US has not been so high for over 40 years. Undoubtedly, the most anticipated macroeconomic data in the world will be those on the behavior of the CPI and the "base" (core) version of this indicator that does not take into account energy and food prices in the USA. Previous reading Data provided by the Bureau of Labor Statistics (BLS)show that inflation in the country is now 8.2% according to the latest publication. The CPI data were perhaps not that bad, although economists expected a drop to 8.1%. but it was the third consecutive month of decline in this indicator. Core inflation (CPI) in September 2022 was 6.6%. y/y versus 6.3% in August and forecasts at 6.5 percent. Month-on-month was 0.6%, against the forecast of 0.5%. Expectations Inflation data, especially on core inflation, are to be of key importance when it comes to the next decisions of the US central bank concerning interest rate hikes. CPI data are scheduled to be released on November 10, 2022. Inflation is expected to reach 8.0% y/y against the previous reading of 8.2%. This may mean that the Fed's actions are paying off. The monthly CPI change is forecast to be 0.7%. However, if it turned out to be higher, the market could take it very badly. It would be a strong argument for the Fed to continue to aggressively tighten monetary policy. Source: investing.com Core inflation also expects a decline of 0.1% from 6.6% to 6.5%. This inflation is of particular importance as it does not take into account price changes excluding food and energy, which are the main factors influencing the overall CPI. Fed's fight with inflation and its price For the past year and a half, consumer inflation in the world's largest economy has been spinning out of the control of central bankers. The Fed is trying at all costs to bring inflation back to a stable 2% level. The Fed started a cycle of interest rate hikes in March, raising the cost of money by 25 bp to 0.25-0.5%. In April, FOMC members decided to move by 50 bp. up. At subsequent meetings it is already by 75bp. With today's rate increase, the benchmark federal funds rate is a range of 3.75% to 4%. Rates are expected to peak at 4.5% to 4.75% in 2023, according to the U.S. central bank's own projections. In simple terms, the Fed's approach can be described as an attempt to destroy demand while encouraging businesses and individuals to save. At every opportunity, business owners will cut back on their expenses, which can result in the employment rate stagnating, leaving workers' wages unchanged and discouraging them from spending more. Inflation in the USA is a major problem for the markets The more the American central bank tightens its monetary policy in 2022, the more the dollar strengthens, and this is painfully felt by other currencies in the world, e.g. the euro (EUR), the Japanese yen (JPY) or the British pound (GBP). The rate hikes cycle in the US turned out to be a difficult period for assets. The main indices of American stock exchanges, as well as markets practically all over the world, have been recording drastic drops since the end of 2021. In the bond market, for the first time in 40 years, we have a bearish market, and cryptocurrency rates were losing by 50 to 90 percent in the first half of 2022. your worth. On the other hand, assets like gold have gained significant importance as a hedge against inflation. Cryptocurrency has also proved to be an ideal option compared to gold as an investment against severe inflation. Source: investing.com, www.federalreserve.gov/data.htm, www.bls.gov/cpi/
The China’s Covid Containment Continued To Negatively Impact The Output At The End Of 2022

China Is The Biggest Consumer Of Such Commodities

Saxo Bank Saxo Bank 07.11.2022 09:04
Summary:  The October US CPI release this week will be key to watch after Fed’s hawkish shift last week. Market pricing for December’s Fed rate hike is closer to 50bps for now, but a stronger than expected core print could move that towards another 75bps expectation. Midterm elections could also cause some volatility given the risk of policy paralysis if Democrats lose control of the Congress. More economic data is due, from UK’s Q3 GDP to China’s credit update and inflation, but a key driver of volatility will likely be further developments on China’s reopening story. In the commodities space, this means industrial metals, iron ore, copper, gold, energy and cotton are key to watch. The earnings calendar cools down, but keep Walt Disney and Adidas on your radar. components Bloomberg consensus expects US October CPI to drop below the 8% mark and come in at 7.9% YoY from 8.2% previously, but still higher at 0.6% MoM from 0.4% in September. The core measure is also expected to ease slightly to 6.5% YoY, 0.5% MoM (prev. 6.6% YoY, 0.6% MoM) but still remain elevated compared to historical levels. Key to watch also will be the drivers of inflation, particularly the stickier shelter and services costs, which if stuck higher could move the December Fed funds future pricing more towards another 75bps rate hike, resulting in another round of selloff in equities and dollar gains. However, with another CPI report due before the next Fed meeting in December, market impact of this week’s report will likely remain restrained unless a major deviation from expectations is seen. For this week’s CPI data, we will be watching the USD, and bond yields, which may be expected to rally up if the data is hotter than expected. What next for the China reopening chatter, and what does that mean for commodity markets? Last Saturday, China’s National Administration of Disease Control and Prevention reiterated China’s adherence to the dynamic zero-Covid policy but at the same time pledged to improve the implementation of the policy so as to avoid massive and protracted lockdowns. Investors will focus on if subtle relaxation of implementation will gather momentum in the coming weeks. This will be key not just for mainland/HK markets, but also for commodity markets. The biggest impact will be seen on industrial metals (watch Copper, Iron ore) and energy prices, as China is the biggest consumer of such commodities. HG Copper broke through several resistances last week, but is seen lower back at $3.60 on Monday morning after Chinese officials hinted at adherence to the zero covid policy. Crude oil prices also remain on watch especially with OPEC+ production cuts set to take effect this month and upcoming EU sanctions against Russian oil, all leading to a tight market. Gold (XAUUSD) reversed its post-FOMC slump on China reopening optimism at the end of last week, and remains supported above $1670 for now. Will it break the short-term downtrend? Also worth watching Cotton, which bounced more than 20% from their low on signs of China’s improving yarn production, but still remains down on a YTD basis. US mid-term elections this Tuesday Pundits suggest that the Republicans have very strong odds of flipping the House of Representatives in their favour, while the odds look finely balanced for whether the Senate ends retaining the slimmest of Democratic majorities. Republicans taking both houses has few immediate ramifications, as US President Biden has the presidential veto, but a stronger than expected Democratic showing that somehow sees them retaining the House and strengthening their Senate majority would be a game changer – opening for more policy dynamism from the US over the next two years rather than the expected lame-duck presidency. Uncertainty is high as pollsters have had a hard time gathering accurate indications for the election results since Trump’s victory in 2016. China is scheduled to release credit data, CPI, PPI, and trade data Among the data scheduled to release this week, investors are likely to focus on the new RMB loans and aggregate financing numbers. After a very strong September in which banks were urged to lend, new RMB loans were expected to decelerate to RMB800 billion in October from RMB2,470 billion in September. New Aggregate Financing was forecasted to fall to RMB 1,600 billion in October from RMB 3,530 billion in September. On the inflation front, China’s PPI is expected to fall 1.6% Y/Y in October, due to the high base last year resulting from increases in material and energy prices. Unlike other major economies, CPI in China is expected to slow to 2.4% in October. On trade, while export growth in RMB terms is forecasted to rise to +12.7% YoY in October from +10.7% in September, exports in US dollar terms are expected to decelerate. China’s Singles’ Day this Friday, Nov 11 Investors will watch closely Alibaba, JD.com, and other online retailers’ sales on Singles’ Day this Friday to gauge the strength of China’s private consumption. Analysts are expecting slower sales growth as recent data indicated slower user growth across online shopping platforms. UK GDP to confirm the onset of a recession On Friday, UK’s Q3 GDP is released and the first negative print of the current cycle is expected to be seen. Consensus forecast is seen at 2.1% YoY, -0.5% QoQ, significantly lower than the second quarter print of 4.4% YoY, 0.2% QoQ. August GDP data had already begun to show a negative print with -0.3% MoM and the trend will only likely get worse in September, exacerbated by a one-off factor relating to Queen Elizabeth II’s funeral in the month, which was a national holiday. The economy is already facing a cost of living crisis, and both fiscal and monetary policy have to remain tight in this very tough operating environment. Technically, a recession may still be avoided as activity levels picked up in October, but still it will remain hard for the UK to dodge a recession going into 2023. This suggests more downside for the sterling may be in store, especially as the market refuses to cater to the Bank of England’s warning that the current expectations of terminal rate may be too steep. Key Earnings to watch Saxo’s Head of Equity Strategy, Peter Garnry, wrote the following, for key focus areas for corporate earnings this week. On Monday our focus is Activision Blizzard which is struggling with negative top-line growth like the rest of the gaming industry as the pandemic boom is over. Analysts are expecting revenue growth of -17% y/y and EPS of $0.50 down 39% y/y. Walt Disney is next week’s biggest earnings release scheduled on Tuesday with analysts expecting Q4 (ending 30 September) revenue growth of 15% y/y but EBITDA at $3bn down from $3.86bn in Q3 highlighting the ongoing margin pressure. Adidas, reporting on Wednesday, is also key due to its size in consumer goods but also because of its costly partnership breakup with Ye; analysts estimate revenue growth up 13% y/y but EPS at €1.24 down 47% y/y due to one-off items. On Thursday, we will focus on ArcelorMittal, because Europe’s largest steelmaker is an important macro driver, and analysts are getting increasingly negative on the steel industry expecting ArcelorMittal to announce a 14% drop in Q3 revenue and a 66% drop in EPS. The week ends with Richemont expected to see revenue growth coming down fast to just 7% y/y in Q3.   Key company earnings releases Monday: Westpac Banking, Coloplast, Ryanair, Activision Blizzard, BioNTech, Palantir Technologies, SolarEdge Technologies Tuesday: Bayer, Deutsche Post, KE Holdings, Nintendo, Walt Disney, Occidental Petroleum, Lucid Group, DuPont Wednesday: National Australia Bank, KBC Group, Genmab, Siemens Healthineers, E.ON, Adidas, Honda Motor, Coupang, Rivian Automotive, Roblox, DR Horton, Trade Desk Thursday: Brookfield Asset Management, Fortum, Engie, Credit Agricole, Allianz, Merck, Hapag-Lloyd, RWE, SMIC, Nexi, AstraZeneca, ArcelorMittal, Siemens Gamesa Renewable Energy, Becton Dickinson, NIO Friday: Richemont Key economic releases & central bank meetings Monday 7 NovemberChina (Mainland) Trade (Oct)Germany Industrial Production and Output (Sep)Eurozone S&P Global Construction PMI (Oct)Indonesia GDP (Q3) Tuesday 8 NovemberJapan BOJ Summary of Opinions (Oct)Japan All Household Spending (Sep)Eurozone Retail Sales (Sep) Wednesday 9 NovemberJapan Current Account (Sep)China (Mainland) CPI and PPI (Oct)United States Wholesale Inventories (Sep) Thursday 10 NovemberUnited States CPI (Oct)United States Initial Jobless ClaimsChina (Mainland) M2, New Yuan Loans, Loan Growth (Oct) Friday 11 NovemberNew Zealand Manufacturing PMI (Oct)Germany CPI (Oct, final)United Kingdom monthly GDP, incl. Manufacturing, Services and Construction Output (Sep)United Kingdom Goods Trade Balance (Sep)United Kingdom GDP (Q3, prelim)United Kingdom Business Investments (Q3)United States UoM Sentiment (Nov, prelim)     Source: https://www.home.saxo/content/articles/macro/saxo-spotlight-7-nov-2022-07112022
The German Purchasing Managers' Index, ZEW Economic Sentiment And More Ahead

Maersk Expects The Eurozone Enter Into A Recession | iPhone's Demand Is Coming Down

Saxo Bank Saxo Bank 07.11.2022 09:12
Summary:  Traders witnessed a wild session on Friday as the market decided that the US data would not add any further risk of a hawkish Fed for now, helping risk sentiment to rebound sharply as US treasury yields eased a bit lower. The US dollar was pummeled for sharp losses, particularly against commodity currencies that rebounded on chatter of China moving to ease Covid restrictions, only to see those hopes dashed over the weekend. Focus this week on US October CPI release this Thursday.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) US equities are holding up pretty well given the remarks on Wednesday from Fed Chair Powell and assessment by Larry Summers that the terminal rates probably should be closer to 6% than 5%. S&P 500 futures are trading around the 3,767 level with the index futures likely trying to attempt again to move to the 3,800 level, but our view is that tighter central bank policy will begin to impact US equities negatively again and the 3,600 level is our shorter-term target for S&P 500 futures. Euro STOXX 50 (EU50.I) European equities are up 13% from late September as European earnings have been better than expected and the energy situation has eased. But this optimistic view might be premature as the economic activity in the euro area is slowing down fast and the winter has not even started, so we do not know the true strength of the European energy market. Also, the idea that ECB will begin pausing is not credible as the inflationary pressures are very high and will force ECB to continue being more aggressive on policy rates. STOXX 50 futures are trading just above the 200-day moving average this morning at the 3,680 level, with some potential to move higher if the index futures can close above Friday’s close. But overall, we maintain that it is more likely that equities will begin to roll over here as central bank hawkishness on terminal rates will sink in. Hong Kong’s Hang Seng (HSIX2) and China’s CSI300 (03188:xhkg) While China’s National Administration of Disease Control and Prevention reiterated its adherence to the dynamic zero-Covid policy at a press conference last Saturday, the health officials added that local governments should not unreasonably double down on the implementation and must ensure people’s livelihood and economic activities remain normal.  Investors took note of the above and recent signs of incremental flexibility in the implementation of pandemic control measures in China and saw the Hang Seng Index more than 3% higher as of writing. The resumption of large-scale sports events including the Beijing Marathon last Sunday, multinational sports events scheduled for 2023 such as Shanghai F1 and Hangzhou Asian Games, relaxation of PCR test requirements, increases in international flights, cancellation of circuit breaker for international flights, and approval of BioNTech vaccine for foreigners living in mainland China are among the factors cited by investors who anticipate gradual reopening in the coming months. Mainland A-shares’ reactions were more modest, with CSI300 climbing only 0.2%. FX: USD bounces back as China reasserts Zero Covid commitment after Friday’s huge sell-off The market absorbed Friday’s US data without further punishing US treasuries, as yields were capped and eased back. This saw the former USD strength reversing sharply to pronounced weakness Friday as risk sentiment also rebounded. Chatter late last week about China’s reopening added to brightening of sentiment. Commodity currencies had been supported with NZD leading the gains against the USD and being up over 2%. AUDUSD also surged above 0.6450 into the end of the week on hopes of a recovery in commodities demand. However, weekend reports from China’s Health Ministry confirmed that China will maintain its present zero-Covid regulations but improve the pandemic control measures, hinting that protracted lockdowns will be avoided. This has sent dollar back higher overnight, with AUD and NZD leading the declines, but this still appears merely a small consolidation of Friday’s weakening move. Focus this week on US CPI release on Thursday (more below). Gold (XAUUSD), silver (XAGUSD) and copper (HGZ2) … all raced higher on Friday, before giving back some of those gains overnight. The China reopening story gained its own momentum last week and while the official line has not changed, the tone has softened (see HK and China update above).  The extended rally despite a stronger-than-expected US report was driven by copper which recorded its best day since 2009, rallying close to 8% and in the process breaking through several key levels of resistance, thereby triggering some extra buying momentum from traders, not positioned for a bounce. The strong surge fed through to silver, up 7% on day, which found its own momentum above $20 and finally also Gold which had its biggest jump since March 2020. It may still be too early to call for a reversal given continued worries about the global economic outlook and Fed action, but Friday’s action will force a rethink of whether the sell-into-strength strategy is still valid. China developments, the dollar and incoming US data will provide most of the answers to this question.  Crude oil (CLZ2 & LCOF3) Crude oil trade lower following Friday’s strong gains with the market responding negatively to weekend headlines about zero-Covid policies being maintained in China. However, looking a bit deeper there is no doubt a softening approach is happening. The People’s Daily in an article on November 3 told people not to worry too much about “long Covid” ie the aftermath health problems from Covid while the health officials told local government not to make measures over stringent. With demand in China potentially starting to recover, the ill-timed OPEC+ production cut and EU sanctions against Russian crude is likely to keep the price risk focused to the upside, but with Brent failing to break above $98.75, and WTI above $93.65, the October highs, the market may spend the start of the week consolidating last week’s strong gains. US treasuries (TLT, IEF) US Treasury yields dropped back slightly on Friday as the US data was not seen stoking additional fears of the Fed intensifying its hawkish stance further for now, with this Thursday’s CPI weighing more in the balance than the mixed jobs report Friday. Focus is on the 4.32% top in the US 10-year treasury benchmark yield and the 3.90% low-water mark of the recent consolidation lower. What is going on? Mixed US jobs report US NFP headline gains of 261k were above expectations of 200k but slowed from last month’s 315k which was revised higher from 263k. Job gains were broad-based with strong gains in healthcare, professional and business services and manufacturing. Wage growth also held up strongly, coming in at 0.4% MoM in October from 0.3% MoM previously although a tad softer on a YoY basis at 4.7% from 5.0% YoY previously. However, the unemployment rate ticked up to 3.7% from 3.5% (exp. 3.6%) on a rather weak Household Survey although it was met with a 0.1% decline in the participation rate to 62.2%. However, with layoffs rising recently, especially in tech, it will be interesting to see how that impacts the headline NFP and the Fed tightening path in the months to come. Apple lowers iPhone output by 3mn units The demand for iPhones is coming down and Apple is now announcing a cut of 3mn units as consumers are under pressure from inflation and might be extending the life of their old phones. Apple has recently hiked prices on some of its services aiming to offset the weakness in its hardware business. Meta to start layoffs according to WSJ Investors have been frustrated with Meta following the Q3 earnings release as Mark Zuckerberg has reinforced the image that he does not listen to the concerns of investors that Meta is spending too much capital on its metaverse bets. According to Wall Street Journal, Meta might have listened after all as the technology company is expected to begin laying off thousands of employees. Ryanair lifts passenger target If there is an airliner that can do well during a recession in Europe it is Ryanair and the first half result this morning is a bit better than expected and the airliner expects net income of €1-1.2bn in the FY23 (ending 31 March). The Danish shipping giant Maersk sees the world entering a recession Maersk cut its forecasts for container demand this year. The drop is expected to reach minus 2 to 4 %. This matters because the company is often seen as a barometer for global trade. This is explained by well-known factors we have mentioned several times here: high inflation across the board, structural energy crisis in Europe, the geopolitical tensions and higher cost of capital. All of this weighs on consumer purchasing power and can potentially cause a global recession. Maersk expects the eurozone to be already or to enter into a recession, and potentially the United States as well. At Saxo Bank, we share this view, especially regarding the recession risk in the eurozone. Last week, ECB governor Martins Kazaks (which is seen as a hawk) acknowledged that the eurozone recession is now the baseline. This was the first time that an ECB governing council member said that officially.  The number of penny stocks is increasing on Euronext Paris With the significant equity drop that started earlier this year, many stocks are now close to zero. In Euronext Paris, the number of listed companies with stock value below 0.01 euro has jumped in recent months. For instance: Pharnext (biopharmaceutical company), NFTY (NFT and blockchain marketing services), Safe (specialized in the design and manufacture of medical devices) etc. Retail investors need to be very careful regarding small caps investment (especially when the valuation of the company is below 100 million euros). There are a lot of stocks that are not liquid enough and can represent a high risk of losses. What are we watching next? US inflation to test the 8% level, watch core and stickier components Bloomberg consensus expects US October CPI to drop below the 8% mark and come in at 7.9% YoY from 8.2% previously, but still higher at 0.6% MoM from 0.4% in September. The core measure is also expected to ease slightly to 6.5% YoY, 0.5% MoM (prev. 6.6% YoY, 0.6% MoM) but still remain elevated compared to historical levels. Key to watch also will be the drivers of inflation, particularly the stickier shelter and services costs, which if stuck higher could move the December Fed funds future pricing more towards another 75bps rate hike, resulting in another round of selloff in equities and dollar gains. However, with another CPI report due before the next Fed meeting in December, market impact of this week’s report will likely remain restrained unless a major deviation from expectations is seen. For this week’s CPI data, we will be watching the USD, and bond yields, which may be expected to rally up if the data is hotter than expected. US mid-term elections tomorrow Pundits suggest that the Republicans have very strong odds of flipping the House of Representatives in their favour, while the odds look finely balanced for whether the Senate ends retaining the slim Democratic majorities. Republicans taking both houses has few immediate ramifications, as US President Biden has the presidential veto, but a stronger than expected Democratic showing that somehow sees them retaining the House and strengthening their Senate majority would be a game changer – opening for more policy dynamism (and inflation from fiscal stimulus) from the US over the next two years rather than the expected lame-duck presidency. Uncertainty is high as pollsters have had a hard time gathering accurate indications for the election results since Trump’s victory in 2016. Earnings to watch The Q3 earnings season is slowing down this week but there are still important earnings releases to watch in certain industries or equity themes. Today our earnings focus is Ryanair, Palantir, and SolarEdge. Palantir is part of the technology segment that has been hit hard on valuations and with revenue growth slowing down and a negative EBITDA in Q2 the pressure is on Palantir to deliver a credible path to profitability; analysts expect 21% y/y revenue growth. Solar panel growth is still high and SolarEdge is enjoying this tailwind with revenue expected to grow 57% y/y and EPS up 57% y/y to $1.46. Monday: Westpac Banking, Coloplast, Ryanair (see earnings review above), Activision Blizzard, BioNTech, Palantir Technologies, SolarEdge Technologies Tuesday: Bayer, Deutsche Post, KE Holdings, Nintendo, Walt Disney, Occidental Petroleum, Lucid Group, DuPont Wednesday: National Australia Bank, KBC Group, Genmab, Siemens Healthineers, E.ON, Adidas, Honda Motor, Coupang, Rivian Automotive, Roblox, DR Horton, Trade Desk Thursday: Brookfield Asset Management, Fortum, Engie, Credit Agricole, Allianz, Merck, Hapag-Lloyd, RWE, SMIC, Nexi, AstraZeneca, ArcelorMittal, Siemens Gamesa Renewable Energy, Becton Dickinson, NIO Friday: Richemont Economic calendar highlights for today (times GMT) 0700 – Germany September Industrial Production Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app:   Source: https://www.home.saxo/content/articles/macro/market-quick-take-nov-7-2022-07112022
FX Daily: Upbeat China PMIs lift the mood

Disappointment Of Chinese Data | Disney, Occidental, Rivian Earnings

Swissquote Bank Swissquote Bank 07.11.2022 10:11
Week starts with blurred sentiment on the back of mixed US jobs data, and soft Chinese trade figures. Previous data Chinese exports and imports unexpectedly shrank in October; this was the first synchronized drop since May 2020. US jobs data was mixed, and triggered mixed market reaction, a rally that may not last long into the inflation data. US events ahead This week, US midterm elections & latest CPI update will be the major talking point. Earnings On the corporate calendar, Disney, Occidental Petroleum and Rivian are among companies that are due to go to the earnings confessional this week. Watch the full episode to find out more! 0:00 Intro 0:31 Chinese trade data disappoints 1:59 Over-optimistic reaction to the US jobs data’ 6:50 What to expect from US midterm elections? 8:39 Corporate calendar: Disney, Occidental, Rivian earnings 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. #US #midterm #election #2022 #NFP #jobs #wages #inflation #data #Fed #hawks #Disney #Occidental #Petroleum #Rivian #earnings #China #trade #data #Covid #zero #policy #Foxconn #Apple #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
Apple May Surprise Investors. Analysts Advise Caution

China's Covid Situation Negatively Affects The Iphone Market| Record Results Of India's SBI

Kamila Szypuła Kamila Szypuła 07.11.2022 11:57
Although the problem with the coronavirus pandemic has become a significant concern in global markets, it is still a problem for the Chinese economy. Inflation, although it is the main problem of economies around the world, has not had a significant impact on some companies. One such company turns out to be the Indian SBI lender. In this article: China And Covid Apple warns Twitter is the topic India's SBI What Chinese Goverments Will Do? Jim Cramer asked the question about Chinese covid situation. We have no idea what China is going to do with Covid so why do so many keep pretending they do? — Jim Cramer (@jimcramer) November 7, 2022 The situation in China is still serious. The media is flooding with information on how the government is fighting the virus. Recently, there has been information about covid camps where thousands of people stayed. Everyone wonders what action the Chinese government will take, many are sure, but are they sure? And paying attention to this situation may turn out to be instinctive for a global situation. Covid restrictions in China and their impact on Apple CNBC Now also touches upon the covid situation in China, but highlights its impact. BREAKING: Apple warns Covid restrictions in China are hurting iPhone production, and the company now expects “lower iPhone 14 Pro and iPhone 14 Pro Max shipments than we previously anticipated” https://t.co/4q6RqhwHQd pic.twitter.com/fEsIurFTEN — CNBC Now (@CNBCnow) November 6, 2022 China as the second largest economy in the world is watched by market participants. The current situation in China not only affects the financial markets but also the manufacturing markets of companies such as Apple. As can be seen from the available information, Apple may have a problem satisfying the needs. Production of the iPhone 14 has been temporarily reduced due to Covid-19 restrictions at the main iPhone factory. So far, there have been warnings, but the possible deterioration of the situation in China may make the smartphone manufacturer's circuits real. Twitter and idea of monthly fees *Walter Bloomberg tweets about conclusion about twitter in The New York Times TWITTER SAID TO DELAY CHANGES TO CHECK MARK BADGES UNTIL AFTER MIDTERM ELECTION - NYT — *Walter Bloomberg (@DeItaone) November 6, 2022 After Elon Musk took control over Twitter and dismissed key directors, it seems that the discussions around the platform are endless. There is information that Musk wants monthly fees of $8 for using the site. This resulted in a lot of comments, including even Stephen King. Of course, there are two sides of the idea's supporters and opponents. But the information posted in The New York Times and then quoted in the post *Walter Bloomberg suggests that this idea was postponed for later discussions. Could this turn out to be a tactical action or a reaction to the current situation? The answers to these questions can only be known when discussions are resumed. Positive results of India's SBI Reuters Business tweets about the very positive results of India's SBI. Indian lender SBI's stock hits record high on "best-in-class" results https://t.co/HIWDsC2WYj pic.twitter.com/R01paWCJMG — Reuters Business (@ReutersBiz) November 7, 2022 Inflation causes that nowadays credit products are not readily used. Banks around the world are trying to cope with this difficult situation where the main source is crisis. The largest banks may be in a better position. One bank in India said they are doing pretty well. SBI announced a "best-in-class" quarter with higher-than-industry credit growth. Positive information from banks may also affect its image and share price, in other words, improve its situation on the market.
UK Budget: Short-term positives to be met with medium-term caution

Sunak (UK Prime Minister) May Have Won Back Investor Confidence

ING Economics ING Economics 06.11.2022 11:34
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
The German Purchasing Managers' Index, ZEW Economic Sentiment And More Ahead

No Longer Dismisses The Possibility Of A Recession In The Eurozone

ING Economics ING Economics 06.11.2022 11:27
The eurozone economy expanded in the third quarter, but most recent data suggests that the recession has already started. Double-digit inflation is keeping the ECB in tightening mode, though substantial progress has been made in withdrawing stimulus. That means we're unlikely to see any more rate hikes after February next year In this article Growth surprises positively in the third quarter Consumption is likely to cave in Horror inflation Substantial progress in withdrawing stimulus Growth surprises positively in the third quarter The eurozone registered an unexpected 0.2% Quarter-on-Quarter expansion in the third quarter. Not surprisingly Spain, Italy and France did see growth on the back of a good tourism season, but Germany also performed much better than expected with 0.3% QoQ growth. However, it is striking to see that economic data has started to deteriorate strongly after the summer holidays. The eurozone composite PMI flash estimate fell to a lower-than-expected 47.1 in October. This is just a near 2-year low but also the fourth consecutive month that the PMI is hovering below the 50 boom-or-bust levels, clearly suggesting negative GDP growth. We get the same story from the European Commission’s economic sentiment indicator: it fell in October for the eighth month in a row to the lowest level since November 2020. The forward-looking components of the business surveys such as hiring intentions and new orders are heading south, a signal that the downturn is likely to intensify in the coming months. Consumption is softening Source: Refinitiv Datastream Consumption is likely to cave in Admittedly, consumer confidence improved slightly in October, but it remains close to the historical low reached in September. As households are expecting higher unemployment in the next 12 months, their intentions to make major purchases, renovate their homes or purchase a house, are all at very low levels. This strong cooling of consumption is also seen in high-frequency data such as hotel bookings, which are showing a post-summer dip. To be sure, in most countries there is budgetary support to alleviate the energy bills, but we don’t expect this to be sufficient to generate positive consumption growth in the coming quarters. With the significant rise in interest rates, accompanied by tighter credit standards, the real estate market is starting to cool rapidly in several countries, putting downward pressure on house prices. This is likely to impact construction activity negatively over the coming year. We're reiterating our forecast of a GDP contraction in the fourth quarter of this year and in the first of 2023. But there's more. The ECB's current tightening policies and the still difficult energy transition away from Russian gas will restrain the recovery thereafter. On the back of the better third-quarter numbers, we've revised our 2022 eurozone growth forecast up to 3.1%. For 2023 we are now pencilling in -0.7% growth and for 2024 1.3%. Horror inflation The October inflation data, published on Halloween, was another shocker: 10.7% headline inflation and 5.0% core inflation. The good news is that upstream in the supply chain there finally seems to be some moderation in price pressures. Supply chain delays eased to the lowest level for over two years, with shipping and material prices now clearly coming down. With inventories of finished products rising rapidly, pricing power is also likely to wane. On the back of the mild October weather, natural gas prices have also softened significantly, though we expect prices to rise again over the coming months when more normal winter temperatures set in. But even then, the contribution of energy to headline inflation is likely to diminish gradually. For 2022 we are now looking at 8.4% inflation and for next year, 5.6%. High inventories are likely to depress pricing power Source: Refinitiv Datastream Substantial progress in withdrawing stimulus The European Central Bank no longer dismisses the possibility of a recession, though we will have to wait for the December staff forecasts to know whether it will become the base case. For the time being the bank is still in tightening mode. But at the same time, it acknowledges that substantial progress has been made in withdrawing monetary stimulus. While the Bank's president, Christine Lagarde, didn’t want to put a figure on the neutral or the terminal interest rate during the press conference after the last rate hike, Banque de France President, Villeroy de Galhau, stated on several occasions that the neutral nominal interest rate is believed to be close to 2%. We, therefore, maintain our forecast of a deposit rate of 2% in December and a final rate hike of 25bp in February. The ECB is also likely to announce the conditions that will trigger the start of Quantitative Tightening. We believe that it will begin in the second quarter of 2023 at the earliest, basically through no longer fully reinvesting the Asset Purchase Programme portfolio. This will only have a minor impact on excess liquidity and bond yields next year. TagsMonetary policy Inflation 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
Belgian housing market to see weaker demand and price correction

The Residential Real Estate Market Is Suffer The Most

ING Economics ING Economics 05.11.2022 09:20
The Federal Reserve is focused on defeating inflation, whatever the economic cost. Nonetheless, after four consecutive 75bp rate hikes the pace is set to slow. We look for Fed funds to peak at 5%, but with nascent signs that inflation will fall sharply next year and the likelihood that recession will bite hard, the chances of a policy reversal in 2023 are high In this article Recession risks rise as the Fed stays focused on inflation Fed set to step down to 50bp from December Inflation is set to slow in 2023 2023 rate cuts remain our call Recession risks rise as the Fed stays focused on inflation The Federal Reserve has now raised interest rates by 375bp this year, the fastest pace of policy tightening since Paul Volker led the Fed in the late 1970s/early 80s. The danger is that the harder and faster a central bank moves into restrictive territory – to get a grip on inflation – the less control over the outcome and the greater chance of a recession. That is now our big fear. The residential real estate market is where the pain is currently most acute with surging mortgage rates prompting a plunge in mortgage applications and falling housing transactions. Home prices have fallen for two months in a row, but we feel this is just the start. To return house price-to-income ratios back to 30-year averages it would require prices to fall more than 20%. This would be dire news for residential investment and the construction sector more broadly while retail activity that correlates with home sales – household furniture, furnishings and home appliances – will also be heavily hit. House price-to-income ratios 1999-2022 Source: Macrobond, ING   The corporate sector is also now facing some strains as demand slows, yet cost pressures remain intense. This deteriorating profit outlook is forcing boards to dial back their expansion plans with falling capital goods orders pointing to declining investment, while the trending lower in the number of job openings signals increased caution. A cooling jobs market comes at a time when household spending power is squeezed by high inflation with confidence under additional pressure from broad asset price falls. Fed set to step down to 50bp from December Unfortunately, there will be no let-up in interest rate hikes until the Fed is confident inflation is coming under control. Currently, both the core CPI (ex-food and energy) and personal consumer expenditure deflator are reporting monthly price rises of 0.5% or 0.6%, but to get inflation to average 2% over time we need numbers closer to 0.2% month-on-month. In the very near term, we are not hopeful that momentum will slow, but it does appear that the Fed, like other central banks, is looking to moderate the pace of future hikes as recession fears spread. We continue to expect a 50bp rate hike in December, but given the stickiness in core inflation we now look at a final 50bp hike in February, which would take the Fed funds target range up to 4.75-5%. We don’t think the Fed will keep hiking into the second quarter though. Despite the near-term stickiness, there are encouraging signs that suggest inflation could slow quite quickly through the first half of next year. Inflation is set to slow in 2023 Normally house price moves lead to changes in the housing CPI components by a year, but there is evidence to suggest actual rents are already falling, as reported by rent.com and realtor.com, amongst others. If so, the heavy 32% weighting of housing within inflation can contribute to a steep CPI slowdown more quickly than would typically be the case. Furthermore, the Manheim used car data points to used vehicles (4% CPI weight) falling 15% over the next couple of months, which can make a big dent in annual inflation rates. NFIB survey suggests fewer companies are looking to raise prices, meaning core inflation could plunge     Source: Macrobond   The most interesting guide though is from the National Federation of Independent Businesses, whose price plans series, which shows the proportion of companies looking to raise their prices in the next few months, suggests that corporate pricing power is rapidly weakening. This is highly correlated with the Fed's favoured measure of inflation – the core PCE deflator (see chart above). A recession will only intensify competitiveness pressures as businesses fight for customers. 2023 rate cuts remain our call We now forecast three quarters of negative GDP growth in 2023 as the deteriorating domestic backdrop is compounded by a weakening external environment and ongoing dollar strength. But we also believe inflation will fall to close to 2% by the end of next year. With the Republicans likely to gain control of Congress after next week’s mid-term elections, this will severely curtail President Joe Biden’s ability to offer any support from fiscal policy. This means the onus will be on the Fed to promote a return to growth. We feel that in the second half of 2023 it will be in a position to do so with rate cuts. TagsUS Recession Inflation Federal Reserve   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
Czech National Bank Prepares for Possible Rate Cut in November

Some Comments On Inflation Expectations By John Williams (Fed)

TeleTrade Comments TeleTrade Comments 09.11.2022 09:54
New York Federal Reserve  (Fed) President John Williams made some comments on inflation expectations in the text of a speech to be delivered to an audience in Zurich. Additional quotes “Relatively stable long-term inflation expectations are good news.” “Surprising how much of the public expects deflation.” Market reaction The above comments failed to move the needle around the US Dollar when compared with six major currencies. The US Dollar Index is trading almost unchanged on the day at 109.65, at the time of writing.
Inflation Reports In Australia And New Zealand Were Higher Than Expected

Inflationary Momentum In New Zealand Remains Strong

InstaForex Analysis InstaForex Analysis 10.11.2022 10:24
Risk appetite noticeably fell this Thursday morning. The S&P 500 already lost more than 2% the previous day, while stock markets in Asia-Pacific countries traded in the red zone. Europe is also likely to open lower, which can not be said to government bond yields as it showed somewhat higher stability. 10-year US Treasures stayed above 4%, confidently indicating an increase in the risk of stagflation. Part of the reason why risk appetite decreased is the preliminary results of the US elections, according to which the Republicans will receive a majority in the House of Representatives and thus be able to influence the government's budgetary policy. There is still no clarity on the Senate, as the state of Georgia will hold a second round, scheduled for December 6. The second factor is the increase in the number of Covid patients in China, which reduces the likelihood of lifting restrictions. Today, the focus will be on the US inflation report, which has a base rate forecast of +6.5%, slightly below September's 6.5%. It is very important because if inflation does not show at least some signs of slowing down, then Fed rate forecasts could rise to 6% for 2023, which will increase panic and push up demand for dollar. Conversely, a data release of 6.5% or lower could dampen anti-risk sentiment slightly and boost demand for commodity currencies. NZD/USD Inflationary momentum in New Zealand remains strong and there is no slowdown yet. But the labor market is very stable, thanks to the very large decrease in the number of workers dropping out of the labor force. Another record performance for the 3rd quarter is the growth in average hourly wages, which in the private sector grew by 8.6% y/y. It is expected that by the end of the year, this figure will exceed 9%, which leaves the RBNZ no choice but to raise rates higher. The latest RBNZ survey on inflation expectations showed that inflation is expected to reach 5.08% in 1 year versus 4.86% in September. Then, it will return to 3.62% in 2 years versus 3.07% earlier. Obviously, inflation expectations continue to rise even though the RBNZ is raising rates quite aggressively. The ANZ Bank predicts that the rate will be raised to 5% in February, then peak in the end of 2023, which looks more aggressive than the Fed's policy, and will contribute to the growth of the yield spread in favor of the kiwi. But if prices for dairy products continue to drop, NZD will halt growth. That, however, is quite unlikely as a peak in stocks of dairy products has been formed and a reduction in production is expected, which will help support prices. According to reports, NZD net short position decreased for the second week in a row. There is a bearish advantage of -0.22 billion, but the estimated price turned up, increasing the probability of a bullish correction. Kiwi broke through the resistance level of 0.5866. In case of a rebound, support will be found in 0.5810/20, while resistance will be in 0.5960 (23.6% retracement level of the fall since February 2021). AUD/USD The consumer sentiment index reportedly fell 6.9%, from 83.7 in October to 78.0 in November. Obviously, inflation in Australia continues to grow, reaching 7.3% in the 3rd quarter against 6.1% earlier. Forecasts suggest further inflation growth. This is why the Australian government is very careful in making changes to tax policy. Rate forecasts are also rising to a higher level, which leads to a drop in consumer spending. There is also a marked decrease in labor market confidence, as well as in the possibility of buying a home. In terms of positioning, the latest data says net short position in AUD decreased by 0.1 billion over the reporting week. The bearish advantage remains, with the estimated price being below the long-term average and is directed downwards. Although the trend is bearish, there will be attempts of upward correction. Support is at 0.6320/30, while resistance is at 0.6510/30. But trading will move into a side channel, the exit from which is more likely down. When trying to grow to 0.6510/30, traders must sell first in order to return the quote to 0.6320/30. However, there is no reason yet to expect a full-fledged bullish reversal.   Relevance up to 07:00 2022-11-15 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/326725
The Commodities Digest: US Crude Oil Inventories Decline Amidst Growing Supply Risks

A Reaction In Equities Will Likely Remain Worth Noting

Saxo Bank Saxo Bank 10.11.2022 10:30
Summary:  A potentially weaker US CPI print today doesn’t seem to have much of a power to change anything for the Fed or the markets. The focus for equity markets has gone beyond interest rates to earnings/recession risks and liquidity risks. Meanwhile, the dollar’s safe-haven bid may remain in play. The bigger risk remains on the upside surprise, which can turn things more ugly with a number of simultaneous risks playing out. Markets face a big test ahead with the release of US inflation figures later today. While some may still be hoping for a Fed pivot if we see a softer print, it is probably time for them to wake up and smell the coffee. There is no doubt that some indicators are pointing towards some easing of price pressures. That has to happen – maybe today, maybe in another 1-2 months. This month, we have had the price paid component of ISM manufacturing dip below 50, which marks the dividing line between expansion and contraction. Still, ISM services hinted at further gains in prices for the services sector, which continue to point towards stickier and broader price pressures. Meanwhile, commodity prices have once again remained in a range in October, while China reopening has not materialised in any substantial way. The wave of tech layoffs that we have seen over the last few weeks also suggests there will be some downward pressure on wages in the coming months. Expectations take this into account, with the headline CPI print for October seen softer at 7.9% YoY from 8.2% YoY previously. Core is expected at 6.5% YoY and 0.5% MoM, still way too high from the 0.2% MoM levels needed to bring inflation close to the Fed’s 2% target. However, any softness, if seen today, is unlikely to change the Fed path. The Fed has already communicated a downshift in its rate hike trajectory without exiting its hawkish bent. Could there be room for them to pursue more dovishness despite inflation being still far from its target? I would doubt that. December Fed rate pricing is currently closer to a 50bps rate hike, there is no way we will get a smaller hike than that. A poor showing of the Republicans in the US midterms has also given the Fed more ammunition to remain focused on inflation, rather than the markets. The biggest risk, therefore, is still a beat of expectations, as that could mean further higher terminal rate pricing and a move towards 75bps in terms of December rate hike pricing. An upside surprise in inflation and a move in US 2-year yields back towards 4.7% could be USD positive and move the yield-sensitive Japanese yen. But its better to still be wary of too much pressure on the USD, beyond a knee-jerk reaction, even if we see a softer CPI print because we are going into today’s release with a very weak risk sentiment on the back of the crypto turmoil and the tech sector layoffs sounding a louder alarm on recession concerns, suggesting the safe-haven reputation of the US dollar may come into play. A reaction in equities will likely remain worth noting. A core print of below 0.5% could spark a relief rally, but eventually the focus will turn back to Fed’s terminal rate target which will still be above 5%, mounting earnings pressures and liquidity woes stemming from the crypto crash and other financial risks in the markets. Also, a number of Fed officials are scheduled to speak after the CPI release, including the Fed's Daly, Mester and George – and they would potentially be ready to up their hawkish stance if we see a CPI miss. But a higher print, together with the risk mood we are in, can be quite painful for equities. We also have a 30Y treasury auction due, and such long duration supply could well extend a push towards higher yields.   Source: https://www.home.saxo/content/articles/macro/macro-insights-a-softer-us-cpi-expectation-does-not-materially-change-the-fed-path-10112022
Positive Shift in Inflation Structure: Core Inflation Falls in Hungary

RICS House Price Balance Is Below Zero | Inflation Data From Both Americas Are Ahead

Kamila Szypuła Kamila Szypuła 10.11.2022 11:30
Today there are no major economic events than the result of the US CPI report. In addition, there will be important speeches by members of the FOMC and other central banks, including the Bank of England of Canada. RICS House Price Balance The Royal Institution of Chartered Surveyors (RICS) House Price Balance was published early in the day. The result showed that the index fell sharply below zero. The current reading is at -2%. A drop from 30% to 20% was forecast, but the current figure has turned out to be more drastic. This means that house prices in the designated area have dropped drastically. There has been a decline in prices since May, and the present one signifies a significant deepening of this trend. The first speeches The first speech of the day took place at 2:45 CET. The speaker was Michele Bullock serves as an Assistant Governor of the Reserve Bank of Australia (RBA). The next speech was from America. Fed member Christopher J. Waller spoke at 9:00 CET More speeches Ahead Today also representatives of European banks will take the floor. Andrea Maechler serves as Governing Board Member of the Swiss National Bank (SNB) is set to speak at 14:30 CET. At the same time will be speak Andrea Enria, Chair of Supervisory Board of the European Central Bank. Speech by representatives of the Bank of England is scheduled for 15:00 CET and 15:10 CET. Speakers in turn: David Ramsden, Deputy Governor of the Bank of England and Silvana Tenreyro, a member of the Monetary Policy Committee (MPC). Another Fed speech and one from the Bank of Canada are also planned. Bank of Canada Member Governor Tiff Macklem will speak at 6:50 PM CET. After the published reports, the following will speak: Federal Reserve Bank of Philadelphia President Patrick Harker, Federal Open Market Committee (FOMC) Member Mester and Federal Reserve Bank of Kansas City President Esther George. All speeches can provide valuable information about the future of monetary policy actions of the banks concerned. ECB Economic Bulletin At 11:00 CET the ECB published a Bulletin. The Economic Bulletin provides a comprehensive analysis of economic and monetary developments and interim updates on key indicators. Which can help investors to assess the future development of this region, as well as summarize the effectiveness of ECB's work South Africa Manufacturing Production Today, South Africa will also publish a report on Manufacturing Production. The shift from Y / Y of output produced by manufacturers is forecast to decline from 1.4% to -2.4%. A smaller index in this sector may indicate serious problems which the country's economy is struggling with, which will hinder the growth. Brazil CPI Brazil as well as the United States will publish inflation data. In South America's largest economy, Y/Y inflation is expected to decline from 7.17% to 6.34%. It is very likely as the CPI has been in a downward trend since July. Meanwhile, the CPI m/m is expected to increase from -0.29% to 0.48%. US CPI Expectations for US inflation are positive. Slightly dropping is expected. Read more: Inflation In The USA Has A Chance Of Cooler| FXMAG.COM Initial Jobless Claims The number of individuals who filed for unemployment insurance for the first time during the past week is expected to increase by 3K weekly report. The last reading was at 217K and it was a positive reading as the level persisted for another week and the forecasts will increase to 220K. At 15:30 CET it will turn out if the reading is positive this time. Summary: 2:01 CET RICS House Price Balance 2:45 CET South Africa Assist Gov Bullock Speaks 9:00 CET Fed Waller Speaks 11:00 CET ECB Economic Bulletin 13:00 CET RPA Manufacturing Production 14:00 CET Brazil CPI 14:30 CET SNB Gov Board Member Maechler Speaks 14:30 CET ECB's Enria Speaks 15:00 CET MPC Member Ramsden Speaks 15:10 CET MPC Member Tenreyro Speaks 15:30 CET US CPI 15:30 CET Initial Jobless Claims 16:00 CET FOMC Member Harker Speaks 18:50 CET BoC Gov Macklem Speaks 19:30 CET FOMC Member Mester Speaks 20:30 CET FOMC Member George Speaks Source: https://www.investing.com/economic-calendar/
It Is Quite Possible That The Australian Dollar Is Tired Of Growth

Further Volatility Of The AUD/USD Pair In Today Session Is Expected

Kenny Fisher Kenny Fisher 10.11.2022 12:13
The Australian dollar has extended its losses today. AUD/USD is trading at 0.6412, down 0.29%. The US dollar has rebounded after a 3-day slide, which saw the Australian dollar climb over 200 points. The Aussie has coughed up half of those gains since Tuesday, and we could be in for further volatility in today’s North American session, as the US releases the October inflation report. Investors are somewhat confused, thanks to mixed signals from both the Federal Reserve and last week’s US employment report. The Fed meets next in mid-December, and it’s close to a toss-up as to whether the Fed will raise rates by 0.50% or 0.75%. At the last meeting, at which the Fed hiked by 0.75%, Fed Chair Powell hinted at easing up on rates but also said that the terminal rate would likely be higher than previously expected – this mixed message makes it difficult to peg the Fed as being hawkish or dovish. US inflation expected to remain hot Last week’s employment report was mixed, as unemployment and wage growth climbed, while nonfarm payrolls fell but still exceeded expectations. This makes today’s inflation report all the more important for the Fed ahead of the December meeting. A hot inflation report would likely boost the likelihood of a 0.75% hike, which would be bullish for the US dollar. CPI is expected to dip to 8.0%, down from 8.2%, which although a slight improvement, would indicate that inflation remains very high. Australia is also dealing with high inflation, and Melbourne Institute Inflation Expectations for October reinforced concerns that inflation is yet to peak. Inflation Expectations rose to 6.0%, up sharply from 5.4% in September, and the first acceleration in four months. The economy is showing signs of slowing down, and a report from the National Australian Bank on Wednesday projected that GDP would fall to 0.8% in 2023 and interest rates would peak at 3.6% next year. The cash rate is currently at 2.85%, which means that the RBA is likely to continue raising rates into 2003.   AUD/USD Technical AUD/USD is testing resistance at 0.6411. Above, there is resistance at 0.6549 There is support at 0.6239 and 0.6196 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.
Rates and Cycles: Central Banks' Strategies in Focus Amid Steepening Impulses

If US CPI Meets The Expectations, The Us Yields Will Increase

InstaForex Analysis InstaForex Analysis 10.11.2022 12:27
Traders are focused on the upcoming US consumer price data this Thursday, but the inflation data due out a day later could be even more important in determining the short-term outlook for global markets. While the expected fall in the consumer price index is likely to be welcomed by investors, Friday's 5 to 10-year inflation expectations from the University of Michigan will resonate with Fed officials who fear a further increase in prices. The index rebounded to 2.9% in October, so another gain could put pressure on the bank and force it to raise rates even higher than expected. That would reduce risk appetite, from equities to bonds. On Thursday, Richmond Fed President Thomas Barkin vowed that the central bank would not back down from a slow return to normal inflation levels, which could threaten the stability of inflation expectations. US yields could rise if the consumer price index is in line with forecasts. 5-10 year inflation expectations may surge to the highest since 2011, said Prashant Nyunaha, a senior rate strategist at TD Securities. A decline in the expected consumer price index should not provoke a significant market reaction, but retesting the January and June highs, according to the University of Michigan, will confirm that the rate hike to date has not had the expected impact on inflation Relevance up to 10:00 2022-11-11 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/326771
Crude Oil Ended Higher | Initial Jobless Claims Rose Marginally

Crude Oil Ended Higher | Initial Jobless Claims Rose Marginally

Saxo Bank Saxo Bank 11.11.2022 08:26
Summary:  A softer US CPI print sent the equity markets skyrocketing in an extreme reaction, but there was some pushback against dovish expectations from Fed speakers and WSJ’s Timiraos, highlighting that a 50bps rate hike at the December Fed meeting is still in play. Dollar weakness fueled gains across the metals space, but oil market remained volatile on concerns around China’s covid cases even as the authorities urged targeted measures will remain in place. UK GDP due in the day ahead before focus turns to G20 meetings next week. What’s happening in markets? The S&P 500 (ESZ2) jumped 5.5% and Nasdaq 100 (NQZ2) soared 7.5%, staging the biggest rally in two years US equities surged the most since 2020 on a softer-than-expected CPI report. S&P 500 gained 5.5% and Nasdaq 100 soared 7.5%. The gains were board-based. All 11 sectors of the S&P 500 rose, with the information technology, real estate, and consumer discretionary sectors leading the charge higher. Semiconductor names surge, Marvel Technology (MRVL) up 16.1%, Nvidia (NVDA:xnas) up 14.3%, and Advanced Micro Devices (AMD:xnas) up 14.3%.  Amazon (AMZN:xnas) surged 12%, Meta (META:xnas) gained 10.3% and Apple (AAPL:xnas) climbed 8.9%. The shift of sentiment from risk-off to risk-on saw the crypto stabilize and Bitcoin rally 13%. US treasury (TLT:xnas, IEF:xnas, SHY:xnas) soared, yields tumbling 22 to 30bps across the curve Treasuries jumped in price and yields plunged on slower-than-expected CPI data. Large buying first concentrated on the 2-year and the 5-year notes. The yield curve bull-steepening in initially, with the 2-10 spread narrowed 8bps to minus-41bps at one point. However, the long ends rallied strongly in the afternoon following a strong 30-year bond auction. The curve reversed and became more inverted with 2-10-year finishing the session at minus-52 bps. At the close, 2-year yields fell 25bps to 4.33% and 10-year yields tumbled 28bps to 3.81%. On Fedspeak, Cleveland Fed President Mester said “services inflation, which tends to be sticky, has not yet shown signs of slowing” and she views “the larger risks as coming from tightening too little”. San Francisco Fed President Mary Daly remarked “it was indeed good news that inflation moderated its grip a bit” but “one month of data does not a victory make”. Hong Kong’s Hang Seng (HSIX2) China’s CSI300 (03188:xhkg) retreated on Covid outbreaks Hong Kong and China stocks retreated on Thursday as China’s daily new domestic Covid cases came in above 8,000 second day in a row and Guangzhou extended lockdown in one of its districts. Hang Seng Index dropped 1.7% and CSI 300 lost 0.8%. China Internet and EV stocks underperformed. NIO (0988:xhkg) fell 13.2% on a bigger-than-expected loss in Q3 and a Q4 guidance below analysts’ expectations. Overnight in U.S. hours, Hang Seng Index futures jumped 4.6% after U.S. stocks soared on softer CPI data. ADRs of Alibaba (09988:xhkg), Meituan (03690:xhkg), and Tencent (00700) surged around 7% to 9% in New York hours. FX: Massive dollar selloff in the aftermath of the US CPI release The Dollar Index saw its greatest losses in a single day since 2009, falling to lows of 107.7 after the release of that softer-than-expected US CPI. The biggest gainer on the G10 board was JPY, no surprises there, given its yield-sensitive nature and the plunge in US yields. USDJPY broke below 141 although it has rebounded to 141.68 in the Asian morning. If we do see hawkish Fed comments in the coming days/weeks, some of this rally in the JPY is likely to be unwound but overall the trend in USDJPY remains biased to the downside now with most of the interest rate expectations already in the market. GBPUSD was also a big gainer as it surged to the 1.17 handle, but a test lies ahead with UK GDP release today likely to confirm the onset of a recession (read preview below). Crude oil (CLZ2 & LCOF3) volatile amid dollar weakness and China's Covid concerns Crude oil ended higher in a volatile session as earlier concerns of weak demand were overtaken by the broader market rally in response to lower inflation and the weakness in the US dollar. Concerns however remain on China’s Covid cases with Beijing reporting its highest number of cases in a year, which kept the gains restrained. WTI futures rose above $86/barrel while Brent went above $94 before retreating later. Cooler US inflation prompts gains across metals The weaker USD eased pressure on the base metals complex, with copper rising more than 2%. This was boosted by reports coming out of a Politburo Standing Committee meeting that suggest Beijing would take more targeted measures to avoid damage to the economy. If China’s Zero covid measures remain targeted, this could shift focus back to supply issues and dollar weakness. Copper (HGZ2) broke the September high of $3.6925, and is now testing resistance at $3.78. Gold (XAUUSD) also broke above the double top at 1730, likely suggesting that the bottom is in place. Silver (XAGUSD) rose to $21.83 but has since returned to the resistance turned support at $21.50.   What to consider? Softer US inflation, but what does it mean for the Fed? US CPI was softer than expected across the board, as headline M/M and Y/Y printed 0.4% (exp. 0.6%, unchanged) and 7.7% (exp. 8.0%, prev. 8.2%), respectively, while the core metrics came in at 0.3% M/M (exp. 0.5%, prev. 0.6%) and 6.3% Y/Y (exp. 6.5%, prev. 6.6%) on a Y/Y basis. Shelter prices still remained hot while the used vehicle prices declined by 2.4% M/M. While the inflation still remains high and far from Fed’s 2% target, it can be expected that the trend is lower. Markets cheered the release, expecting a downshift in Fed’s rate hike trajectory which has already been communicated at the last FOMC meeting. December Fed rate hike pricing is still close to 50bps, while the terminal rate projections have slid lower to 4.9% for May 2023. However, it is worth noting that there is one more labor market report and another CPI report due before the FOMC’s Dec 13-14 meeting. Fed speakers pushed back on the market rally The kind of market reaction we have seen to the soft CPI print in the US yesterday confirms that investors still remain on edge expecting a Fed pivot. This can prove to be counterproductive, as easing of financial conditions can derail this downtrend in inflation and reverse the less hawkish path that Fed is expected to take in the coming months. The Cleveland Fed’s Loretta Mester said that, while she was encouraged by October’s data, she sees bigger risks from tightening too little than too much. Kansas City Fed President Esther George said monetary policy “clearly has more work to do”, while the Dallas Fed’s Lorie Logan said earlier that inflation has a long way to go before it reaches the central bank’s target. They also noted it may be time to slow down the pace of hikes, however, but that it shouldn’t be interpreted as easing policy. Equally importantly, WSJ's Timiraos tweeted, "The October inflation report is likely to keep the Fed on track to approve a [50bps rate hike] next month. Officials had already signaled they wanted to slow the pace of rises and were somewhat insensitive to near-term inflation data". Easing financial conditions will likely drive the Fed speakers to a further hawkish tilt in the coming days. US jobless claims still underscore a tight labor market Initial jobless claims rose marginally to 225k from 218k, and above the expected 220k. Meanwhile, continued claims also exceeded consensus to print 1.493mln (exp. 1.475mln) from, the revised higher, 1.487mln. While this still continues to show a tight labor market in the US, it may be worth watching how it moves in the coming months especially after the wave of tech sector layoffs that we have seen in the past few weeks. The latest in the Crypto space Bloomberg reports a balance sheet hole of $8bn for FTX. Likewise, the Wall Street Journal reports that Alameda Research owes FTX about $10bn. Reuters says that the loan to Alameda Research was equal to at least $4bn. Sam Bankman-Fried (SBF), however, went to Twitter to give an explanation. He goes on to talk about two major mistakes that he has made, one being that he underestimated the demand for sudden liquidity by clients withdrawing funds. In terms of liquidity, SBF further says that: “FTX International currently has a total market value of assets/collateral higher than client deposits (moves with prices!). But that's different from liquidity for delivery--as you can tell from the state of withdrawals. The liquidity varies widely, from very to very little.” Remember, that this is contrary to the story by Bloomberg and likely the Wall Street Journal and Reuters story. It now seems plausible that FTX has a serious hole in its balance sheet”, though, hard to judge anything at this stage given the amount of rumors and unconfirmed information floating around. What remains clear is that any liquidity event will unlikely remain isolated as cascading margin calls and contagion effects are likely to be felt beyond the crypto space. UK GDP to confirm the onset of a recession UK’s Q3 GDP is scheduled for release today and the first quarterly negative print of the current cycle is expected to be seen. Consensus forecast is seen at 2.1% YoY, -0.5% QoQ, significantly lower than the second quarter print of 4.4% YoY, 0.2% QoQ. August GDP data had already begun to show a negative print with -0.3% MoM and the trend will only likely get worse in September, exacerbated by a one-off factor relating to Queen Elizabeth II’s funeral in the month, which was a national holiday. The economy is already facing a cost of living crisis, and both fiscal and monetary policy have to remain tight in this very tough operating environment. Technically, a recession may still be avoided as activity levels picked up in October, but still it will remain hard for the UK to dodge a recession going into 2023. This suggests there maybe some downside for the sterling, especially as the market refuses to cater to the Bank of England’s warning that the current expectations of terminal rate may be too steep. Credit growth in China slowed in October China’s new aggregate financing fell to RMB908 billion in October, much lower that the RMB1,600 billion expected in the Bloomberg survey and the RMG3,527 billion in September. The growth of outstanding aggregate financing slowed to 10.3% in October from 10.6% in September. New RMB loans declined to RMB615 billion in October, below the 800 billion consensus estimate and much smaller than the RMB2,470 billion in September. New RMB Medium to long-term loans to corporate fell to RMB462 billion as loan demand was weak. China’s Politburo Standing Committee met to discuss pandemic control policies  On Thursday, President Xi and the rest of the Politburo Standing Committee had a meeting to discuss its policies on pandemic control. While the statement from the meeting reiterated adherence to the dynamic zero-Covid policy, it also highlighted the push for vaccination and treatments and called on government officials to implementation of control measures more scientifically targeted and precise and to avoid doubling down on each layer of execution.   China’s Singles’ Day this Friday, Nov 11 Investors will watch closely Alibaba, JD.com, and other online retailers’ sales on Singles’ Day this Friday to gauge the strength of China’s private consumption. Analysts are expecting slower sales growth as recent data indicated slower user growth across online shopping platforms.   For our look ahead at markets this week - Listen/watch our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: https://www.home.saxo/content/articles/equities/market-insights-today-11-nov-2022-11112022
Serious liquidity crisis? According to Franklin Templeton, a massive, but unlikely deposit flight from Credit Suisse would have to happen

Swiss National Bank (SNB) Policymaker: "Swiss inflation remains too high"

TeleTrade Comments TeleTrade Comments 11.11.2022 08:54
Swiss National Bank (SNB) policymaker Andrea Maechler said on Friday, “further rate hikes are not out of the question.” Additional quotes   Swiss inflation remains too high. Further rate hikes may be necessary to ensure price stability in the medium-term. Really important to make overall assessment with the figures we will have in December.    
The China’s Covid Containment Continued To Negatively Impact The Output At The End Of 2022

Visitors To China Will Have To Undergo A 5-Day Quarantine

TeleTrade Comments TeleTrade Comments 11.11.2022 08:56
After the US Consumer Price Index (CPI)-led risk rally, markets witnessed another boost to risk sentiment in Friday’s early European trading after China reduced its quarantine period for travelers while the system penalizing airlines for bringing virus cases into the country will also be scrapped, per Bloomberg. “Travelers into China will be required to spend five days in a hotel or government quarantine facility,” followed by three days confined to home, the country’s National Health Commission said in a statement Friday. Market reaction The US S&P 500 futures jumped 0.50% in reaction to the China headlines, as the move is seen a big pivot to Beijing’s strict zero-Covid policy. AUDUSD built on the rebound above 0.6600, currently trading at 0.6636, adding 0.30% on the day.  
Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

Forecast For The Eurozone Are Not Optimistic, Inflation Can Reach A Record High

Kamila Szypuła Kamila Szypuła 12.11.2022 10:40
The euro zone has been battling against surging inflation for about a year, with Russia’s invasion of Ukraine accentuating those inflationary pressures. The European Central Bank has meanwhile raised interest rates three times this year to tackle the rising prices. Expectations According to the autumn economic forecast of the European Commission, in the last quarter of 2022, the euro area and most EU countries will be in economic recession. Prices are expected to fall in 2023, but inflation is projected to remain at 7% in the EU and 6.1% in the euro area before falling to 3% in the EU and 2.6% in the euro area in 2024 r. The EU forecast was based on the assumption that geopolitical tensions, such as the war in Ukraine, would not normalize or escalate and sanctions against Russia would remain in place. EU labour markets are expected to react to the slowing economy. Unemployment rates in the EU were projected to be at 6.2% in 2022, 6.5% in 2023, and 6.4% in 2024. GDP growth will be around just 0.3% in the EU and euro area in 2023, the European Commission predicted. Inflation The new percentages were revised up from the European Commission's last economic outlook, which predicted that inflation would reach an average of 7.6% in the eurozone this year and 8.3% in the EU. Inflation in the eurozone reached a record high. Eurozone inflation is expected to hit a new record high of 10.7% in October. Eurostat's October estimates predict that the prices of food, alcohol and tobacco, non-energy industrial goods and services will rise from August and September, when annual euro area inflation was expected to be 9.1 percent and 9.9 percent respectively. Official figures will be released on Thursday, November 17 Energy prices were again the main driver of inflation with a 41.9% increase year-on-year, compared with 40.7% in September and 38.6% in August. Euro area #inflation up to 10.7% in October 2022: energy +41.9%, food, alcohol & tobacco +13.1%, other goods +6.0%, services +4.4% - flash estimate https://t.co/b9t9sOMDLM pic.twitter.com/NbsakF4eVe — EU_Eurostat (@EU_Eurostat) October 31, 2022 Every corner of the continent is facing rising prices and the expected economic recovery in Europe after the coronavirus pandemic is hampered by a number of factors. The Baltic countries remain the hardest hit, with annual inflation above 20%. Estonia leads in comparison with estimates of 22.4%. This is mainly because they are particularly vulnerable to fluctuations in the energy markets. According to Eurostat, the price of natural gas for households increased by 154% and 110% respectively in Estonia and Lithuania between the first half of 2021 and the first half of this year. Meanwhile, France maintained its position as the country least affected by the crisis, although annual inflation in October was 7.1%. The European Central Bank (ECB) raised interest rates Central banks use their interest rates to make money more expensive or cheaper to increase or reduce spending as they directly affect the interest rates offered to households and businesses by commercial banks. Following in the footsteps of its counterparts elsewhere in the world, in July the European Central Bank (ECB) raised interest rates for the first time in 11 years by more than expected as it pursues persistently high inflation. This was followed by another record rate hike in September, raising new questions about whether the rush to increase credit costs and keep inflation in check will plunge major economies into recession. On October 27, the ECB raised interest rates again, increasing the deposit rate by another 75 basis points to 1.5 percent. – the highest level in over a decade. Further such increases are expected in the coming months as "inflation remains far too high and will remain above the [2%] target in the extended version." Source: ec.europa.eu/eurostat/en
Czech Republic: Tax Revenues Should Be Higher Than MinFin Expects

Core Inflation In Czech Republic Shows The Opposite Picture

ING Economics ING Economics 12.11.2022 11:08
October inflation showed the first price decline in almost two years thanks to government measures against high energy prices. The surprise of the market and the central bank stems from the unclear approach of the statistical office. Inflation should remain at only slightly higher levels until the end of the year, but January remains a question In this article Savings energy tariff pushed inflation down Clear outlook for the end of the year, but January brings back uncertainty 15.1% October inflation (YoY)    Lower Savings energy tariff pushed inflation down Consumer prices decreased by 1.4% month-on-month in October, the first MoM decrease since December 2020. This development primarily reflected the government savings tariff and waiver of fees for supported energy sources for electricity prices and on the other hand higher food prices. The year-on-year growth of consumer prices amounted to 15.1% in October, which was down 2.9 percentage points on September. The result is 2.3pp below the Czech National Bank's new forecast and 2.8pp below market expectations. On the other hand, core inflation shows the opposite picture with an acceleration from 0.3% to 1.2% MoM, translating to 14.6% YoY, which is basically the same level as in the last five months, surprising the CNB forecast on the upside by 0.3pp. The main topic here is government energy measures that are effective from October to December and from January the type of measures will change again from the savings tariff to price caps. Therefore, we can expect weaker CPI prints in November and December as well, but in January the uncertain approach of the statistical office comes into play again, just like in the case of today's number. According to the CNB's calculation, the impact of the government measures reduced inflation by 3.5pp, otherwise inflation would have been 18.6% YoY. Contributions to year-on-year inflation (pp)   Clear outlook for the end of the year, but January brings back uncertainty For the coming months, we can expect inflation to be only slightly higher in YoY numbers, but January remains the big question. On the one hand, based on energy supplier announcements and other anecdotal reports, it seems that a massive new year's repricing upwards can be expected. On the other hand, the government's price cap comes into play, which unevenly affects households depending on their contract. Moreover, here again it is unclear how the statistical office will approach this. At the moment we are leaning towards the view that we should see just slightly higher household energy prices from January compared with the October number under effect of the savings tariff, so January inflation will be driven mainly by new year repricing but still lead to a lower number due to base effects. 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
Middle Distillates: Strong Market Support Expected

The Host Of The G20 Meeting (Indonesia) Invited Russia's Putin And Ukraine's Zelenskyy

Marc Chandler Marc Chandler 13.11.2022 09:37
Policymakers have often said that exchange rates should reflect fundamentals. What does that really mean? Can they do anything but that? It begs the question of which fundamental factors they should reflect. Therein lies the rub.  We are still struck by the latest Bank for International Settlements figures. Their survey found that the average daily turnover in the foreign exchange market was $7.5 trillion a day. World trade last year was about $22.5 trillion. The foreign exchange market sees that every three days. Nevertheless, many still see trade as the factor that exchange rates should bring into balance. Many observers are surprised when the Chinese yuan depreciates, as it has this year, despite a huge trade surplus ($730 bln through October, a 43% increase from the first 10 months of 2021). At the same time, most accounts of the dollar's strength since January 6, 2021 (yes, that January 6 when the Dollar Index bottomed and the euro peaked) say little, if anything, about the US trade deficit. Through September this year, the deficit was nearly $746 bln (up from $620 bln in the same period last year). Instead, the dollar's strength seems most often attributed to the aggressive tightening, real and anticipated, by the Federal Reserve. Given the relative size of the market for capital and the market for goods and services, we tend to emphasize drivers of capital to understand and anticipate exchange rate movements. Put this in concrete terms. That $730 bln trade surplus China recorded this year through October is swamped by the Chinese yuan's $500 bln a day turnover. Moreover, Chinese exports are not the same as the demand for the yuan. This is because most of China's trade is not conducted in yuan. From a different but consistent perspective, Antonia Foglia (from Belgrave Capital and Banco del Ceresio) argued in the Financial Times recently that hedging the dollar exposure of the some $14 trillion of US bonds owned by foreign investors, is an important, even if overlooked, driver of the dollar's exchange rate. However, given this year's precipitous decline in US bonds, the dollar hedges need to be reduced, which entails buying the dollar and selling the local currency. He estimates that roughly half of the US Treasuries are in official hands and are not likely hedged, and he conservatively estimates that half are owned by the private sector and half again are hedged. The 20% decline in the value of Treasuries this year translates into around $700 bln of hedge-related dollar buying. We have made a parallel argument regarding the Japanese yen's so-called safe haven status. Observers have often seen that the yen strengthens risk-assets decline. However, it is difficult to know the difference between buying to go long and buying to cover a short. We argue that the yen has often been used as a funding currency. With near-zero interest rates, it is borrowed, and the proceeds are used to buy higher-yielding and/or more volatile assets. When that higher-yielding or volatile asset goes south, the funding currency is bought back, and the position is unwound. This gives the illusion of a safe haven when something entirely different is taking place. II Last week was a watershed. The softer-than-expected US CPI figures and the inversion of the 3-month-18-month bills, a part of the curve that Fed Chair Powell had drawn attention are part of the macro developments that helped mark the end of the dollar's historic rally. We thought it had already topped against sterling when the pound plummeted to record lows at the end of September, and our conviction was growing that the greenback had peaked against the Canadian dollar when CAD1.35 gave way. Position adjustment may trump fundamentals in the near term, but the dollar looks oversold for the first time in months.   While US producer prices may draw some attention, the focus in the week ahead will be on the real sector. Helped by stronger auto sales (14.9 mln, best since January and nearly 15% above Oct 2021), retail sales are expected to rise by around 1% after a flat report in September. The core measure, which excludes autos, gasoline, building materials, and food services, is rising by 0.3%. Retail sales pick up about 40% of consumption, which has been softening. It averaged 1.2% a month in Q1, 0.8% in Q2, and 0.3% in Q3. On the other hand, industrial production is expected to have slowed from 0.4% in September to 0.1% in October. Such a print would bring down the three-month moving average to about 0.14%, its lowest since last September. Yet, industrial capacity utilization remains at elevated levels. In September, it was slightly above the last cyclical high set in August 2018. Indeed, it has not been this high (80.34%) since the Great Financial Crisis, when it peaked a little above 81%. It is the interest-rate-sensitive housing market that the tightening of financial conditions is being felt most acutely. Housing starts look to break the sawtooth pattern of alternating between increases and decreases this year with back-to-back declines. On average, starts have fallen 1.9% a month on average this year through September. In the Jan-Sept period last year, housing starts fell by an average of 0.2%. As a result, existing home sales likely fell for the ninth consecutive month in October. It is the most prolonged slump since the Great Financial Crisis, though inventory levels were around four times higher back then. Limited inventory now compounds the problem of higher mortgage rates.  China reports October, industrial production, retail sales, investment, and surveyed jobless rate on November 14. The economy appears to be stabilizing at what is historically considered soft levels. The median forecast in Bloomberg's survey sees the world's second-largest economy expanding by 1.5% quarter-over-quarter in Q4. It is expected to begin a streak of quarterly increases of 1.0%-1.2%. The market is more interested in modifications of its Covid regime, especially given the flare-up of cases, but also additional efforts to support the economy. If the one-year Medium Term Lending Facility rate (2.75%) is not reduced and/or the volume is not increased (from CNY500 bln), speculation of a cut in reserve requirements will likely be heightened. The fact that the UK economy is set to contract for the next several quarters may remove some of the market sensitivity of the UK's high-frequency data. At the same time, it may heighten the focus on the inflation reports. The BOE expects CPI to peak shortly but is still committed to tightening financial conditions. The central bank meets in the middle of December. The swaps market has a 50 bp hike discounted and a little bit more, perhaps conditional on the fiscal statement due November 17. An austere budget of tax increases and spending cuts is likely, though, at this late date, there still seem to be several unresolved issues. The latest talk suggests that the tax rate of the top bracket may be increased or its threshold lowered. There has also been talk that the National Health Insurance tax on employers may be raised. An increase in the inheritance tax may be under consideration, as well. The eurozone's September trade deficit is a good reminder of the deterioration in its external balance this year. With Q3 GDP already released and set to be updated, the trade balance may be short of practical importance. The eurozone recorded a trade deficit of almost 229 bln euros through August. In the first eight months of 2021, the trade surplus was about 124 bln euros. With the largest economy in the eurozone, Germany, headed for recession, the ZEW survey may not be very interesting. The expectations component fell to its lowest level in August since the Great Financial Crisis, a ticked up slightly in October. The assessment of the current situation has continued to deteriorate. It has risen twice since September 2021. At -72.2 in October, it was the poorest assessment since August 2020. While existing home sales in the US through September have fallen by about 23% this year, existing home sales in Canada have slowed by more than 35%. They have slowed for seven consecutive months. Canadian housing starts have fared considerably better. They rose a modest 2.5% last year and are up by a quarter this year. Housing starts rose by the most this year in September, with a 10.8% surge. Typically, a pullback the following month is recorded after such a significant increase. Yet, the highlight of the week will be Canada's October CPI reading. The headline has slowed since peaking in June at 8.1%. It stood at 6.9% in September. It is likely to have decelerated again last month, helped by a favorable comparison to last October when Canada's CPI rose by 0.7%. Looking forward, the base effect is less friendly in November and December. The underlying core measures have been stickier. The Bank of Canada has three, averaging 5.3% in August and September, which is 0.2% off the peak seen in June and July. In the US, average hourly earnings slipped below 5% year-over-year for the first time since last December, and average pay (permanent workers) in Canada rose 5.5% in October. After the Bank of Canada hiked rates by half a point instead of 75 bp on October 26, the market immediately anticipated a 25 bp hike at the last meeting of the year (December 7). However, the strength of the employment report and wages prodded the market into thinking a 50 bp hike was more likely. A firm CPI report would likely push the market more in that direction. Australia reports its October employment figures. The job market down under was fairly steady until Q3. In Q4 21, and the first two quarters of this year, Australia grew full-time positions by 54.0k to almost 57k a quarter. In Q3, it lost full about 1k full-time jobs. This probably overstates the case and was largely the result of a sharp drop in July, the first loss of full-time positions since last October. Indeed, an average of 34k full-time people were hired in August and September. The Reserve Bank of Australia meets on December 6. The swaps market does not have a quarter-point hike fully discounted. Yet it sees the terminal cash target rate around 4% in a year compared with the 2.85% prevailing now.  Lastly, two international gatherings will attract attention in the coming days. The first is the Asia Pacific Economic Cooperation (APEC) which meets in Bali November 14-15. US President Biden will likely miss it due to a granddaughter's wedding, but the highlight may be a meeting between Japan's Prime Minister Kishida and China's Xi. They have not met since Kishida become prime minister. Former Prime Minister Abe visited Beijing in 2019, and there were plans for Xi to come to Japan in 2020 but were disrupted by Covid. Regional security is a crucial issue for Japan. Its own security is seen at risk if China were to move on Taiwan. Tokyo appears close to a defense agreement with the UK and possibly the Philippines. The G20 meets in Bangkok November 18-19. The host, Indonesia, is neutral and invited Russia's Putin and Ukraine's Zelenskyy. Recall that earlier this year, Biden called for Russia to be removed from the G20. Ukraine is not a member of the G20, and Zelenskyy said he would not attend if Putin did. The latest reports suggest Putin will not attend. Reports suggest Biden intends to meet with Xi at the G20 meeting. Taiwan and trade are obviously the two most salient issues. It would be the first face-to-face meeting since Biden was elected two years ago. Biden may hope to repeat Nixon's tactic of putting more space between Moscow and Beijing, and Putin's invasion of Ukraine has done Xi no favors. NATO is stronger, Europe is tied more tightly to the US via energy and defense,  and Japan and Australia, to name two, are even more wary of China's regional ambitions. Still, given what appears to be a bipartisan consensus in the US of the strategic challenge posed by Beijing, it is not clear what the US can offer China to induce a change in behavior.   The statement issued afterward will likely demonstrate the old adage that a camel is a horse made in committee. With several countries not wanting to take sides on key issues, judging from the voting patterns at the UN, the G20 may be downgraded by the US in favor of the G7 again.  Disclaimer Capital Flows Outstrip Trade Flows and that is Where to Look for Drivers of FX
Soft PMIs Are Further Signs Of A Weak UK Economy

October's Inflation Print May Be Market Moving

Kamila Szypuła Kamila Szypuła 13.11.2022 12:30
Every month a team of specialists in UK collects around 180,000 separate prices of over 700 items covering everything a typical family might buy, such as milk, bread and bananas. The results of analysis is published evry month as CPI report. The October reading report will be published on November 16. Previous data The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 8.8% in the 12 months to September 2022, up from 8.6% in August and returning to July’s recent high. The largest upward contributions to the annual CPIH inflation rate in September 2022 came from housing and household services (principally from electricity, gas and other fuels, and owner occupiers’ housing costs), food and non-alcoholic beverages, and transport (principally motor fuels). On a monthly basis, CPIH rose by 0.4% in September 2022, compared with a rise of 0.3% in September 2021. The Consumer Prices Index (CPI) rose by 10.1% in the 12 months to September 2022, up from 9.9% in August and returning to July’s recent high. Rising food prices made the largest upward contribution to the change in both the CPIH and CPI annual inflation rates between August and September 2022. Inflation Returning to double-digit inflation will be difficult for ministers and the Bank of England. It shows that price increases have not yet reached their peak, despite the energy price guarantee that will reduce gas and electricity bills this winter. September's inflation figures highlight the severity of the UK's inflation crisis and comes as the country is going through a period of economic instability. The central bank will assess rising price pressures against the government's recent changes to unfunded tax cuts, which could help ease inflation in the coming months. Double-digit inflation is expected to continue. And it will increase again to the level of 10.6%. The monthly change is also forecast to increase by 1.2%. Source: investing.com The Outlook Inflation has been on an upward trajectory, and since May this year the pace has accelerated to double digits. Gross domestic product fell 0.2% from the second quarter, a slightly better outcome than the 0.5% decline feared. Overall in the third quarter, service sector output was flat, driven by a fall in consumer-facing services. Retail sales volumes in particular fell 1.9% in the period. The negative data adds to the country’s dampened economic outlook and already depressed consumer sentiment. Some model predicts the UK to enter a recession as early as this year. This is largely due to surges in inflation as the cost of living crisis impacts all demographic groups. The central bank of England expects GDP to continue falling through 2023 and into the first half of 2024. Expectatiosn Here are few reasons why we expect inflation in the UK to fall sharply from the middle of next year. First, the price of energy won’t continue to rise so quickly. The Government has introduced a scheme that caps energy bills for households and businesses for six months. Second, Bank Of England don’t expect the price of imported goods to rise so fast. That’s because some of the production difficulties businesses have faced are starting to ease. Third, there can be less demand for goods and services in the UK. That should mean the price of many things will not rise as quickly as they have done. Source: https://www.ons.gov.uk/, investing.com
Easing In Chinese Covid Measures | Crypto Distress Continues | Markets Trade Joyfully

Easing In Chinese Covid Measures | Crypto Distress Continues | Markets Trade Joyfully

Swissquote Bank Swissquote Bank 14.11.2022 10:25
It has been an ugly weekend for cryptocurrencies, even though the selloff remained relatively contained in the sector giants like Bitcoin, compared to the size of the bad news that flew in last Friday. Market mood Market mood outside crypto is extremely joyful after last week’s inflation data surprised investors to the downside and China announced to relax Covid measures, and boost its shattered property sector. US And China Although the US inflation remains relatively high to contain a perhaps premature bull run on dovish Fed expectations, news from China could help keeping the mood nice and sweet. We will yet discover if the latest news will be enough to get international investors back on board of a Chinese dream that has been shot to the ground by the very Xi Jinping. Joe Biden and Xi Jinping  Joe Biden and Xi Jinping will talk today on the sidelines of the G20 summit in Bali. Talks could go either way; they could either boost, or hit risk appetite in Chinese, and global assets. China retailers & Nvidia earnings Other than that, investors will watch the Q3 earnings from Nvidia, and some US and Chinese retail giants throughout this week! Watch the full episode to find out more! 0:00 Intro 0:32 FTX goes bankrupt, crypto distress continues 4:40 Traditional markets trade joyfully post-US CPI… 6:49 And easing in Chinese Covid measures! 8:26 Investor attention shifts to US, China retailers & Nvidia earnings 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. #FTX #bankruptcy #Bitcoin #Ethereum #Solana #crypto #selloff #USD #inflation #data #Fed #expectations #China #Covid #measures #market #rally #retailer #Walmart #Target #Alibaba #JD #earnings #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      
From UFOs to Financial Fires: A Week of Bizarre Events Shakes the World

The Soft US Inflation Report Has Raised Expectations About Fed's Decision

Kenny Fisher Kenny Fisher 14.11.2022 12:33
After a huge rally last week, the Japanese yen has reversed directions today. USD/JPY is trading at 140.21, up 0.99%. On the economic calendar, Japan releases GDP for the third quarter. There are no economic events in the US today. A week to remember The US dollar dropped like a stone last week, courtesy of a soft inflation report that saw both the headline and core readings fall in October. Both readings were lower than expected, and investors pounced on the news, as stock markets soared and the US dollar took a tumble. The yen made the most of the dollar’s misery, as USD/JPY slumped by a massive 5.3% last week and dropped to a 10-week low. The market reaction to the inflation data looks a bit extreme, and this explains the dollar’s comeback today. The soft inflation report has raised expectations that the Fed will put the brakes on its tightening, after pushing full speed ahead with four straight jumbo hikes of 0.75%. Fed policy makers aren’t bandying around the magical word “peak” to describe inflation just yet, but we are now seeing a change in terminology, such as “gradual” and “measured”. What is interesting is that the markets have gone giddy over a drop in inflation but appear to be ignoring the Fed’s warning that rates could end up higher for longer than expected. I don’t detect any signs of the Fed going dovish, but the markets are expecting a pivot, as there is already talk in the markets of the Fed cutting rates in H2 of 2023. The dollar is dusting itself off after last week’s disaster, and the yen may have trouble holding onto last week’s impressive gains. The Fed will almost certainly raise rates in December by at least 0.50%, and with the Bank of Japan maintaining a cap on JGB yields, the US/Japan rate differential will continue to widen. That spells trouble for the yen, which has lost about 20% against the dollar this year.   USD/JPY Technical USD/JPY is testing resistance at 139.91 and 141.61 There is support at 137.34 and 135.90 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.
RBI's Strategic INR Support: Factors Behind India's Stable Currency Amidst Global Challenges

Warren Buffett's Investing Tips | New Clear Regulations For Crypto Market

Kamila Szypuła Kamila Szypuła 14.11.2022 12:12
Inflation, and thus economic growth, remains an unchanging topic. Thus, market reactions are monitored even more closely. With UBS Investor Sentiment you can find out about the situation from the perspective of investors. In addition, the cryptocurrency market is also becoming an important topic recently. The CEO of Binance’s call at the G20 meeting is a perfect example of this. In this article: Global growth Regulations in cryptocurrencies Warren Buffett's tips U.S. House Speaker statement Concern among investors Global economic is not doing well IMF tweets about slowdown in global growth, to helps to illustrate the situation, chart is added. High-frequency economic indicators show that the slowdown in global growth is increasingly evident. See our latest Chart of the Week blog for a snapshot of the data and factors at play. https://t.co/YGDi9m8MFB pic.twitter.com/F79l7zYq0M — IMF (@IMFNews) November 14, 2022 This year shows what difficulties the economy is facing. Global economic growth prospects are confronting a unique mix of headwinds, including from Russia’s invasion of Ukraine, interest rate increases to contain inflation, and lingering pandemic effects such as China’s lockdowns. Every economy tries its best to avoid a crisis, but the faces of a recession are more likely. In particular, if the world's major economies are struggling, smaller economies may feel the effects even more. They will be aware of the possibility of an even more difficult situation, you can start adventures, e.g. reduce expenses. Binance's chief executive called for new clear regulations Reuters Business in post addresses the topic of cryptocurrencies and highlights the call of Binance's chief executive Changpeng Zhao. Dominant cryptocurrency exchange Binance's chief executive Changpeng Zhao called for new but stable and clear regulations for the industry, in light of recent developments and participants ‘cutting corners’ https://t.co/2DVdiDFzmK — Reuters Business (@ReutersBiz) November 14, 2022 The cryptocurrency market is still young. Its unfolding is taking place before our eyes. Despite the great interest among investors and other market participants, there are uncertainties that must be regulated. Each state strives to meet the expectations of citizens and enable them to use new forms. Cryptocurrencies are still not limited by strict legal regulations, but as the current situation on this market shows, they may be more needed than previously thought. The CEO of Binance himself urges to define such regulations. His statements may initiate actions in this direction. How to achieve a investing success Morningstar, Inc. tweets about Warren Buffett's tips for investing success. Warren Buffett has a simple recipe for investing success. Here's what it boils down to. https://t.co/DTUm8j3BLD — Morningstar, Inc. (@MorningstarInc) November 14, 2022 Warren Buffett is undoubtedly one of the most respected investors of all time. Not only novice investors draw from his tips. His advice, or at least getting acquainted with it, becomes crucial in this market. Provided in a simple and accessible and understandable for everyone. Of course, what's simple in theory can be less so in execution. U.S. House Speaker wnats to current U.S President stay *Walter Bloomberg in his post U.S. House Speaker Nancy Pelosi quotes. U.S. HOUSE SPEAKER PELOSI: BIDEN SHOULD SEEK RE-ELECTION -ABC NEWS INTERVIEWU.S. HOUSE SPEAKER PELOSI: I DON'T HAVE ANY PLANS TO STEP AWAY FROM CONGRESS -ABC NEWS — *Walter Bloomberg (@DeItaone) November 13, 2022 From the statements we can learn about the opinion of an American politician. Her job is to see the current president running for re-election. Elections in the states will certainly attract attention, and the possible re-election of Joe Biden becomes more likely. The support he received in the speech may work to his advantage. Of course, there may be conflicting moods. There may be voices that someone so old wants an older person to seek reelection and that is time for over 75 years olds to retire and let a younger group of leaders take over. Impact of the economic situation on US investors UBS tweet about investors moods. Nearly two-thirds of US investors are highly concerned about politics and inflation. In fact, half of investors have already cut spending due to inflation. So which party do most investors favor on the economy? Check out the latest #UBSInvestorSentiment. #shareUBS pic.twitter.com/iLr4SY5tw1 — UBS (@UBS) November 13, 2022 The economic situation has a negative impact on investors. Everyone is trying to cut losses. And the economic picture is not satisfactory, so the spending cuts are not unexpected. Find out more about current investor sentiment at UBS Investor Sentiment.
The German Purchasing Managers' Index, ZEW Economic Sentiment And More Ahead

The ECB Should Consider The Interests Of All EU Members

InstaForex Analysis InstaForex Analysis 15.11.2022 08:00
The EUR/USD currency pair moved very calmly on Monday. We admit that we expected a noticeable correction on the first trading day of the week and throughout the week, but so far, our calculations have yet to be justified. So far, there is a clear upward trend for the euro/dollar pair, and, from a technical point of view, everything now speaks in favor of further growth of the euro currency. Recall that on the 24-hour TF, the price managed to overcome all the important lines of the Ichimoku indicator, so finally, we can witness a reversal of the long-term downward trend. At the same time, the "foundation" and geopolitics can break the entire "raspberry" of the European currency at any moment. After all, it is not the euro that is growing but the dollar that is falling. Let's read more: the dollar has been growing for almost two years, and traders have been busy buying American currency. And now they are reducing purchases, reducing the demand for the dollar, so the pair is growing, but this does not mean that the demand for the euro currency is growing. COT reports If we talk about the demand for a particular currency, it is best to turn to COT reports. However, they do not give a clear answer to what is happening in the minds of traders and investors. The net position on the euro among professional traders has long been "bullish," and the euro currency began to grow only in the last couple of weeks. Moreover, according to the logic of things, this "bullish" position should increase for the European currency to continue growing. Or it should decline against the US dollar. As we can see, there are certain reasons for the pair's growth in the future, but they still need to look more convincing as the factors for the growth of the US dollar at the beginning or middle of this year. We rely on technical analysis when we make forecasts and recommendations, so now we need to look more toward purchases. But at the same time, we must keep in mind that the current growth of the euro is quite doubtful from a fundamental background point of view. The EU inflation report will be quite formal. Industrial production The current week began with the publication of a report on industrial production in the EU. It turned out to be slightly better than predicted, which could support the euro on Monday. However, this is different from the scale of inflation or central bank meetings, so count on a long and strong market reaction. Let's go through the other events of the week in Europe. GDP The second estimate of the GDP report for the third quarter will be published today. The market is waiting for a slowdown in the growth rate of the European economy to 0.2% q/q. Still, in principle, all indicator estimates do not have much significance for the market. Some reactions may follow this report, but it is too "stretched" in time to "see" a reaction to it. Recall that three estimates are always published for GDP, which rarely differs much from each other. And in any case, the market is more interested in the ECB's monetary policy, which directly impacts GDP. The speech of ECB President  Thus, a much more important event will be the speech of ECB President Christine Lagarde on Wednesday. The ECB seems to have decided to raise the rate "to the bitter end" or at least "significantly" to lower inflation in the Eurozone as much as possible. This is good news for the euro, but the market needs to understand to what level the regulator will be ready to raise the key rate. We have already said earlier that not all member countries of the alliance can bear the high cost of borrowing relatively smoothly for their economies. The ECB should consider the interests of all EU members, so the rate will not rise to 5%, as, for example, in the USA. EUR/USD Christine Lagarde can refute this assumption or confirm it. She may want to do this, but her comments may dissuade traders from continuing to buy the euro currency (if they even have a place to be). So far, the euro is growing more on the fact that the Fed will stop raising its rate in a few months, and since traders had plenty of time to work out all the tightening of monetary policy, now the actions of the ECB, which is behind schedule from the Fed, are more important. The average volatility of the euro/dollar currency pair over the last five trading days as of November 15 is 168 points and is characterized as "high." Thus, we expect the pair to move between 1.0177 and 1.0513 on Tuesday. The reversal of the Heiken Ashi indicator downwards signals a new round of downward correction. Nearest support levels: S1 – 1.0254 S2 – 1.0132 S3 – 1.0010 Nearest resistance levels: R1 – 1.0376 R2 – 1.0498 R3 – 1.0620 Trading Recommendations: The EUR/USD pair continues to move north. Thus, we should stay in long positions with targets of 1.0498 and 1.0513 until the Heiken Ashi indicator turns down. Sales will become relevant again by fixing the price below the moving average line with targets of 1.0010 and 0.9888. Explanations of the illustrations: Linear regression channels – help to determine the current trend. The trend is strong if both are directed in the same direction. The moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction in which trading should be conducted now. Murray levels are target levels for movements and corrections. Volatility levels (red lines) are the likely price channel in which the pair will spend the next day, based on current volatility indicators. The CCI indicator – its entry into the oversold area (below -250) or into the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.       Relevance up to 01:00 2022-11-16 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/327095
Bank Of England Will Probably Be Unable To Avoid A Significant Easing Of Policy

The Value Of The Cable Makret (GBP/USD Pair) Is Very High

InstaForex Analysis InstaForex Analysis 15.11.2022 08:03
The GBP/USD currency pair also showed no desire to move volatile on Monday. The price continues to be above the moving average line, and at least one linear regression channel is already directed upwards. As in the case of the euro currency, the pound overcame the important lines of the Ichimoku indicator on the 24-hour TF, so it has technical grounds for continuing growth in the medium term. However, there are a lot of questions about the "foundation" and geopolitics. What will happen if the conflict in Ukraine escalates with renewed vigor? What will happen if the Bank of England stops raising the rate in the near future? Recall that the military conflict between Ukraine and Russia has not been completed or frozen, and peace talks are not even "smelling" now. The APU is gradually moving forward, but this hardly means that the Russian army will turn back, which would end the conflict. New rocket attacks on Ukrainian cities are not excluded, the use of new weapons is not excluded, and the intervention of third countries directly into the conflict is not excluded. I don't even want to talk about sanctions because the parties have already introduced almost everything that could have been introduced. We can assume that the worst is over, but the probability of this is not 100%.  Bank of England The same is true with the Bank of England and its monetary policy. The British regulator has already raised the rate eight times in a row, and inflation has been growing and continues to grow. The key rate at the moment is already 3%; this is the value at which it is possible to expect at least a slight slowdown in price growth. However, this week, the next inflation report will be published and judging by the forecasts, there is no point in expecting something good from it. Currently, inflation in the UK is 10.1%, and forecasts for October indicate a new increase to 10.7–11.0%. Consequently, the Bank of England can be expected to tighten monetary policy by another 0.75% in December, but to what extent can it raise the rate? After all, its economy is also going through hard times. The British government So far, it is unclear how the British government will close the "hole" in the budget by 50 billion pounds. The corresponding financial plan from Jeremy Hunt and Rishi Sunak will be presented only on November 17. Most likely, taxes will be raised, which may cause serious discontent among the British population and significantly lower the ratings of the Conservative Party. Therefore, the BA does not have the opportunity, like the Fed, to raise the rate as much as it wants. British inflation British inflation is the most important report of the week. Unemployment rate In the UK, the unemployment rate, changes in average wages, and retail sales will also be published this week. Of course, these reports do not match the inflation report, so we associate the main market reaction with this report. A new increase in the consumer price index can support the pound, as it will likely mean a new increase in the BA rate in December by another 0.75%. But this is just a theory and an assumption, and the market can react as you like. And also, no one can know if this report has not already been worked out because it is very easy and simple to expect a new acceleration of inflation in Britain now. UK Data In the US, retail sales, industrial production, and data on applications for unemployment benefits will be released this week. Also, quite secondary are the reports. With such a macroeconomic background, it will be difficult for the pair to continue growing, which now largely depends on traders' expectations for the Fed and BA rates. We expect a tangible correction after the "take-off" last week. The pound has recovered from its absolute lows by 1400 points and is regularly adjusted downwards. Therefore, this week is a good time for a rollback. As for the longer-term prospects, the pound may continue to grow, but we do not expect a rapid recovery after losses over the past year and a half. Most likely, periods of growth and rather deep corrections will alternate. The pound still needs to look like a stable and safe currency. GBP/USD The average volatility of the GBP/USD pair over the last five trading days is 222 points. For the pound/dollar pair, this value is "very high." On Tuesday, November 15, thus, we expect movement inside the channel, limited by the levels of 1.1516 and 1.1954. The upward reversal of the Heiken Ashi indicator signals the resumption of the upward movement. Nearest support levels: S1 – 1.1719 S2 – 1.1597 S3 – 1.1475 Nearest resistance levels: R1 – 1.1841 R2 – 1.1963 Trading Recommendations: The GBP/USD pair has started a minimal correction in the 4-hour timeframe. Therefore, at the moment, buy orders with targets of 1.1841 and 1.1960 should be considered in the case of a reversal of the Heiken Ashi indicator upwards. Open sell orders should be fixed below the moving average with targets of 1.1475 and 1.1353. Explanations of the illustrations: Linear regression channels – help to determine the current trend. The trend is strong if both are directed in the same direction. The moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction in which trading should be conducted now. Murray levels are target levels for movements and corrections. Volatility levels (red lines) are the likely price channel in which the pair will spend the next day, based on current volatility indicators. The CCI indicator – its entry into the oversold area (below -250) or into the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.       Relevance up to 01:00 2022-11-16 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/327097
Rates Spark: Discussing the Potential of 4.5% and its Impact on Markets

China Could Be The Next Hit To Global Inflation | Donald Trump's Announcement

Swissquote Bank Swissquote Bank 15.11.2022 09:52
Equities saw some profit taking in last week’s post-US inflation rally, as some Federal Reserve (Fed) officials reminded investors that the 7.7% inflation is still high and that the Fed would continue fighting to bring it lower. G20 In geopolitics, yesterday’s meeting between Jow Biden and Xi Jinping went well. US-listed Chinese stocks extended gains. Crude Oil In energy, American crude dived on the news that OPEC cut its oil demand outlook and warned of uncertainties around global growth. Earnings In earnings, big US retailers Walmart and Home Depot are due to release earnings today Donald Trump And in fun news, Donald Trump will make an important announcement! Whoo! Watch the full episode to find out more! 0:00 Intro 0:41 Fed members warn of premature optimism 2:54 US inflation expectations go up 4:31 China could be the next hit to global inflation 5:05 Crude oil down on OPEC demand outlook cut 6:20 Biden, Xi meeting went well! 7.49 Crypto selloff cools 8:53 What to watch today? 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 #US #inflation #expectations #G20 #Biden #Xi #meeting #US #China #crude #oil #FTX #bankruptcy #Bitcoin #Ethereum #selloff #Binance #recovery #funds #Walmart #HomeDepot #earnings #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
Bank of Japan to welcome Kazuo Ueda as its new governor

The Results Of Japanese GDP Is Negative | US PPI Ahead

Kamila Szypuła Kamila Szypuła 15.11.2022 11:10
It is busy day. Reports will be from many economies CPI from European countries and PPI from America. And also Asian countries shared their GDP and Industrial Production reports. Japan GDP Events on the global market started with the publication of GDP in Japan. The results turned out to be negative. GDP fell from 1.1% to -0.3% quarter on quarter, while GDP y/y fell even more sharply, from 4.6% to -1.2%. Both results were below zero, which proves that the recession is starting in this country. RBA Meeting Minutes From Australia came a summary of the economic situation, i.e. Minutes of the Monetary Policy Meeting of the Reserve Bank Board. Members commenced their discussion of international economic developments by observing that inflation abroad. Members also noted that Australian financial markets had followed global trends. Such a summary can help to assess the condition of the country and its sub-sectors and determine next steps. Industrial Production in China and Japan China and Japan have published reports on their Industrial Production. Comparing October this year to October last year, a decrease was recorded in China. The current Industrial Production level was 5.0%, down 1.3% from the previous reading. In Japan there was also a decline, but in Industrial Production M/M. The indicator fell from 3.4% to -1.7%. Which means that the change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities has dropped drastically. This is a consequence of high inflation and, as far as China is concerned, the fight against the Covid pandemic. UK data The UK released the reports at 9am CET. Two of them were positive. Only the unemployment rate turned out to be negative as it increased slightly from 3.5% to 3.6%. The change in the number of unemployed people in the U.K. during the reported month fell. U.K. Claimant Count Change dropped from 3.9K to 3.3K. This may turn out to be a slight decrease, but in the face of the forecasts of 17.3K, it turns out to be very optimistic. Average Earnings Index +Bonus, although it fell from 6.1% to 6.0%, is a positive reading as it was expected to fall to 5.9%. Which may mean that despite the forecasts, the decline is milder and personal income growth during the given month was only slightly lower, which is good news for households. CPI Two Western European countries, France and Spain, published data on CPI. In France, CPI y/y increased from 5.0% to 6.2%. The opposite was the case in Spain where consumer inflation fell from 8.9% to 7.3%, moreover meeting expectations. Despite high inflation, which is still higher than the expected level of 2%, these European countries, can be said, are doing well and their economies are not facing recession. Speeches Today's attention-grabbing speeches will be from the German Bundesbank. The first one took place at 10:00 CET, and the speaker was Dr. Sabine Mauderer. The next speeches will take place in the second half of the day at 16:00 CET. The speakers will be: German Bundesbank Vice President Buch and Burkhard Balz ZEW Economic Sentiment Economic sentiment in Germany rose once again. Currently, they have risen to the level of -36.7. Previously, they rose from -61.0 to 59.2. Although ZEW have increased but are still below zero, which means that the general mood is pessimistic US PPI The most important event of the day is the result of inflation from the producer side in the US, i.e. U.S. Producer Price Index (PPI). The previous level of 0.4% is expected to hold. This may mean that from the producers' point of view, the situation in price changes tends to stabilise, which may have a positive impact on the dollar as well as on the US economy in general. Canadian data Canada will release its Manufacturing Sales and Wholesale Sales reports at 15:30 CET. Both are expected to be below zero. Manufacturing Sales is projected to increase from -2.0% to -0.5%. This means that progress in this sector is expected. The wholesale sales level is forecasted at -0.2% vs. the previous 1.4%. Summary 1:50 CET Japan GDP (Q3) 2:30 CET RBA Meeting Minutes 4:00 CET China Industrial Production (YoY) 6:30 CET Japan Industrial Production (MoM) (Sep) 9:00 CET UK Average Earnings Index +Bonus (Sep) 9:00 CET UK Claimant Count Change (Oct) 9:00 CET UK Unemployment Rate (Sep) 9:45 CET French CPI 10:00 CET German Buba Mauderer Speaks 10:00 CET Spanish CPI 12:00 CET German ZEW Economic Sentiment (Nov) 12:00 CET EU ZEW Economic Sentiment (Nov) 15:30 CET US PPI (MoM) (Oct) 15:30 CET Canada Manufacturing Sales (MoM) (Sep) 16:00 CET German Buba Balz Speaks 16:00 CET German Buba Vice President Buch Speaks Source: https://www.investing.com/economic-calendar/
Philippines Central Bank's Hawkish Pause: Key Developments and Policy Stance

Poland: Rapidly Rising Core Inflation Confirms That The Impulse From Energy Shock Is Strong

ING Economics ING Economics 15.11.2022 14:29
The StatOffice confirmed its estimate of October CPI at 17.9% year-on-year. We estimate that core inflation rose to 11.2% from 10.7% YoY in September. Our concerns about high core inflation are shared by economists at the National Bank of Poland. Despite this, the MPC has decided to essentially end the rate hike cycle We already knew from the flash CPI estimate that the significant increase in food and fuel prices was mainly responsible for the increase in inflation last month relative to September. On the other hand, there was slightly less pressure from energy carriers, as prices grew at a slightly slower rate (1.9% month-on-month) than in August and September, mainly due to the deceleration of coal price increases. This does not change the fact that energy carriers are now more than 40% more expensive than a year ago, despite the Anti-Inflation Shield (VAT and excise tax cuts) covering electricity, gas, thermal energy prices, and the freeze on regulated prices through 2022. CPI increase in October vs. September mainly stemmed from upswing in food prices % YoY, percentage points.   Source: GUS, ING.   We are now seeing the effects of the energy shock (more expensive fuel and energy carriers), but the most worrying phenomenon is the propagation of this shock in the economy and the increasing spillover of price increases due to secondary effects. Rapidly rising core inflation confirms that the impulse from this side is strong, and its impact on prices may be long-lasting. Based on the CPI structure data in October, we estimate that core inflation rose by about 1.1% MoM to 11.2% from 10.7% YoY in September.   Our concerns about the high core inflation and the spillover of price increases across the economy are shared by economists at the central bank. In its November projection, the National Bank of Poland said that high inflation expectations of companies and households translate into increased acceptance of price increases in many sectors of the economy, increasing its persistence. At the same time, the minutes of the October meeting noted that in light of the inflation expectations of companies, households, and professional forecasters, the level of real interest rates remains negative. Despite this, the MPC has decided to essentially end the cycle of interest rate hikes and has adopted a wait-and-see attitude. Policymakers prefer a gradual and slow decline in CPI to the target. In our view, such solutions mean that ultimately, the cost of fighting inflation will be higher. 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
Middle Distillates: Strong Market Support Expected

The G20 Leaders' Declaration : Central Bank Independence Is Crucial To Achieving Price Stability

TeleTrade Comments TeleTrade Comments 16.11.2022 09:16
The G20 leaders' declaration published on Wednesday, stated that “G20 central banks are strongly committed to achieving price stability, in line with their respective mandates.” Additional takeaways     Central banks will continue to appropriately calibrate the pace of monetary policy tightening in a data-dependent and clearly communicated manner while limiting cross-country spill-overs. Central bank independence is crucial to achieving price stability, and buttressing monetary policy credibility. Countries must take temporary and targeted measures to help sustain purchasing power of most vulnerable, cushion the impact of commodity price increases.   Market reaction The US Dollar Index was last seen trading modestly flat at around 106.50.  
Soft PMIs Are Further Signs Of A Weak UK Economy

The Bank Of England Is Undoubtedly Worried About Inflation

ING Economics ING Economics 16.11.2022 13:10
With the government fixing energy prices until at least April, it looks like October's 11.1% inflation rate could mark the peak. But it's unlikely to fall below double-digits until early next year, and the Bank of England is undoubtedly worried about inflation linked to the tight jobs market. Still, a pivot back to a 50bp hike in December looks likely The latest rise in household energy costs was enough to take UK inflation up to 11.1% in October. That’s a bit higher than was expected, and seems to be partly explained by another punchy 2% month-on-month increase in food prices, and a little bit of upside at the core level. All of this is marginally hawkish for the Bank of England in that its closely watched measure of ‘core services’ inflation, which excludes some volatile components and the impact of VAT changes, came in a few percentage points higher than they’d pencilled in. By our calculation, that sits slightly above 6% YoY, compared to a forecast of 5.7% by the BoE a couple of weeks ago.   As we noted yesterday, worker shortages are proving to be a persistent issue for firms, and that potentially points to stickier inflation rates for service-sector firms where pay is a key pricing input. Still, with hiring demand falling, we suspect we’re near the peak for wage growth. In fact – famous last words – it looks like UK headline inflation is at its peak too, or there or thereabouts. The fact that the government is effectively fixing electricity/gas unit prices below wholesale costs until next April means this is probably as high as it will get, though admittedly we expect headline rates to stay in double-digits until at least February next year. From there, we think there are compelling reasons to expect headline inflation to drift lower through the year, ending up closer to the Bank of England’s 2% target by early 2024. That’s especially true of goods categories, where lower input/shipping prices, stalling consumer demand and rising inventory levels not only point to lower inflation rates, but potentially also outright price falls in certain areas as retailers are forced to become more aggressive with discounting. The story, as we discussed earlier, is less clear-cut for services inflation. UK inflation in 2023 will depend a lot on how energy support evolves after April   Source: Macrobond, ING   The 2023 inflation outlook will also heavily depend on how the government adapts energy support next year. We’re still awaiting detail, but one possibility is that the majority of households switch back to paying the Ofgem regulated price from April. Based on our latest estimates using wholesale energy costs, the average household would pay £3300 in fiscal-year 2023 without any government support, compared to £2500 if prices remain capped. That would initially bump up inflation rates after April by roughly 2pp. While it’s tempting to say that higher headline inflation rates in that scenario would be hawkish for the Bank of England, in practice the opposite is probably true. Reduced energy support would amplify the UK recession that most, including ourselves, now expect. That would imply lower core inflation further down the line. With signs that inflation – both in core and headline terms – is close to or at a peak, and signs of recession mounting, we think the Bank of England is likely to pivot back to hiking in 50bp increments in December. Assuming another 25-50bp hike in February, we think the peak for Bank Rate is likely to be around 4%, a little below what markets are now pricing.   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
Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

European CPI Reached 10.6% | UK Budget Ahead

Kamila Szypuła Kamila Szypuła 17.11.2022 11:54
At the beginning of the day positive data came from Australia. GBP traders eyes will be on the UK budget release. Behind the assessment, there will also be important reports and speeches that may affect the situation on the currency market. Australian Labour Market In October, there was an improvement in the employment sector. The number of people employed increased from a negative level (-3.8K) to 32.2K. The unemployment rate also turned out to be positive. The reading was lower than expected and will reach 3.4% against the previous 3.5%. Strong employment data may help the Australian currency (AUD) and also influence the RBA's future monetary policy decisions. EU CPI Inflation in Eurozone turned out to be slightly lower than expected. The current reading showed that inflation rose from 9.9% to 10.6%. It was expected to reach 10.7%. Core inflation reached the expected level of 5.0%. Read more: Forecast For The Eurozone Are Not Optimistic, Inflation Can Reach A Record High| FXMAG.COM Autumn UK Forecast Statement Chancellor Jeremy Hunt will deliver the statement to MPs. The government is set to announce tens of billions of pounds worth of spending cuts and tax rises. It is expected about 55% of the measures will be spending cuts, but confirmation of this will appear at 14:30 CET. The Autumn Statement will affect the take-home pay and household budgets of millions of people, as well as money for key public services. Some of the Autumn Statement will affect the whole of the UK. However, the governments of Scotland, Wales and Northern Ireland also make some tax and spending decisions independently. UK Speeches In connection with the publication of budget data, speeches from the UK are also expected. The first speech will take place at 14:30 CET with MPC Member Huw Pill as the speaker. The next speaker will be Silvana Tenreyro, his speech is scheduled for 16:30 CET. US Building Permits Building permits are a key indicator of demand in the housing market. The change in the number of new construction permits issued by the government last time increased to 1,564M. It is expected that there will be no further increase and the number of permits will fall to the level of 1,512M. Observing the data from the beginning of the year, we see that the downward trend continues, and the few rebounds from the trend suggest better temporary periods. Source: investing.com Initial Jobless Claims The weekly report on he number of individuals who filed for unemployment insurance for the first time during the past week will appear today. Previously, this number increased significantly from 218K to 225K. The figure from the previous reading is expected to hold. Philadelphia Fed Manufacturing Index The Philadelphia Federal Reserve Manufacturing Index rates the relative level of general business conditions in Philadelphia. We have been seeing negative results since May. And the last two readings were below zero, and it is expected that this time the level will be below zero, but will increase slightly. Forecasts show that the indicator may increase from -8.7 to -6.2. This may mean that a bad situation may slowly improve. Source: investing.com FOMC speeches Fed officials will also speak today. The first speeches will take place at 15:00 CET. The Federal Reserve Bank of St. Louis President and Federal Open Market Committee (FOMC) voting member James Bullard. At 16:15 CET, Michelle W. Bowman, member of the Board of Governors of the Federal Reserve System, will speak. U.S. Federal Open Market Committee (FOMC) Member Mester also speaks at 16:40 CET. Summary: 2:30 CET Employment Change 2:30 CET Unemployment Rate (Oct) 12:00 CET EU CPI (YoY) (Oct) 14:30 CET Autumn UK Forecast Statement 14:30 CET BoE MPC Member Pill Speaks 15:00 CET FOMC Member Bullard Speaks 15:30 CET US Building Permits (Oct) 15:30 CET Initial Jobless Claims 15:30 CET Philadelphia Fed Manufacturing Index (Nov) 16:15 CET FOMC Member Bowman Speaks 16:30 CET MPC Member Tenreyro Speaks 16:40 CET FOMC Member Mester Speaks Source: https://www.investing.com/economic-calendar/
Unveiling the Hidden Giant: The Growing Dominance of Non-Bank Financial Institutions

Major Layoff Announcements From The Tech Sector, From The Real Estate

Saxo Bank Saxo Bank 18.11.2022 08:56
Summary:  Our ‘Macro Chartmania’ series collects Macrobond data and focuses on a single chart chosen for its relevance. This week, we focus on the U.S. Employment Cost Index. It shows that inflationary pressures are finally fading on Main Street but not good for reasons. Click to download this week's full edition of Macro Chartmania. The market narrative machine is fascinating. In 2022, the bear market narrative was « inflation shock, rates shock and recession shock ». For 2023, the market narrative is rather bullish. Analysts expect that inflation will move lower but will remain sticky, that a mild recession will affect most of the developed economies and that central banks will hike a little further (probably until the start of the second quarter) before pausing for the rest of the year. It is certainly too early to know the steepness of the recession and whether the United States will manage to avoid it. This is an ongoing debate among economists. But there are early signs inflation is finally receding, at least in the United States. This is not the case in the United Kingdom where the October CPI reached 11.1% year-over-year, for instance. In the United States, higher wages reflecting Covid unbalances, worker shortage and tight labor market partially explained the increase in prices. This is now reversing. In just the last several weeks, we have seen major layoff announcements from the tech sector (Meta, Stripe, Paypal, Microsoft, Amazon etc.). But this is not just a technology story. We have seen layoffs in other sectors of the economy, from the real estate promoter Redfin and the trucking giant C.H. Robinson among many others. To understand why layoffs are starting now, we need to first understand the sequence of the economy. Employment is a well-known lagging indicator. In the past, it has already happened that job losses started only with a lag of several months after the economy entered into a recession (job losses started 8 months after the official start of the 1974 recession, for instance). But some sectors of the economy are more sensitive than others to higher interest rates, which can help predict whether or not we will face massive layoffs. This is the case of the housing market especially (we used to say that the housing market is the business cycle in the United States). With the cooling of the housing market which started in early 2022, the consumption of things associated with home buying are also going down - with a lag. Think home appliances, home-building tools etc. The housing slowdown is spreading into the rest of the economy. This puts pressure on big durable goods and thus on the industry that moves these goods around the world. This explains why C.H. Robinson fired 650 employees one week ago. This is only the beginning, in our view. Mass layoff to come means that the drop in wage increases, which has just started, will continue in the coming months. In the below chart, we have plotted the National Federation of Independent Business (NFIB) compensation plans and the Employment Cost Index. Only a net 23 % of small businesses plan to raise compensation in the next three months. This is much lower than a few months ago (when it was at a cycle peak of 32 %). Compensation practices of small businesses tend to lead to broader wage and salary growth. Therefore, we can expect that the Employment Cost Index, which has started to decelerate recently, will continue moving downwards, likely well below 4% going into 2023. This could ultimately ease inflationary pressures and open the door to a slower pace of Fed rate hikes. This echoes comments from Fed Vice Chair Lael Brainard earlier this week : “It will probably be appropriate soon to move to a slower pace of increases.” Source: https://www.home.saxo/content/articles/macro/chart-of-the-week--us--employment-cost-index-18112022
Bestway Might Have Larger Designs On The UK's Second Biggest Supermarket

UK Yields Rose Yesterday | The Chinese Electric Vehicle Market Showing Strong Growth

Saxo Bank Saxo Bank 18.11.2022 09:01
Summary:  Market sentiment managed to bounce mid-session yesterday in the US and was steady overnight, with the USD back lower but still very range bound and US treasury yields rising off their lows, with a new extreme for the cycle in the yield-curve inversion, suggesting the market remains worried that the Fed’s tightening will lead to recession. The market shrugged off yesterday’s budget statement from UK Chancellor Jeremy Hunt as most of the measures were flagged ahead of his speech.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures extended their declines yesterday to the 100-day moving average at around the 3,916 level driven by comments from Fed’s Bullard saying the sufficiently restrictive zone on policy rate was in the range 5-7% spooking markets. It is obvious, that the Fed is out trying to dampen expectations following the rally on the lower than estimated US October inflation print. S&P 500 futures are bounced back after the initial shock but closing lower for the session and this morning they are trading around the 3,950 level. Hong Kong’s Hang Seng (HSIX2) and China’s CSI300 (03188:xhkg) Hang Seng Index snapped a two-day decline and bounced about 0.3% as of writing. China interest stocks led the charge higher following Alibaba reporting earnings beating expectations and adding to its share repurchase programme. The Chinese authorities’ grant of a new round of 70 online game licences to firms including Tencent and NetEase also help the market sentiment. Hang Sent Tech Index climbed 2%. In mainland bourses, healthcare shares gained as new Covid cases surged to above 25,000, a new high since April. Online gaming stocks rose on the new game license approval. Financials however continued to trade weak as investors are troubled by recent incidents of retail investment products losing heavily as bond yields rising in China. CSI 300 gained 0.2%. FX: USD rally eases on risk sentiment bounce of the lows yesterday The US dollar eased lower after a bout of weak risk sentiment was turned mid-session yesterday in New York and despite US treasury yields lifting all along the curve (with a new multi-decade low in the yield curve inversion suggesting the market remains concerned that the Fed’s tightening regime will lead to a recession. After the very sharp move lower off the back of the October CPI data, the USD has traded in a rather tight range in most places, with EURUSD bottled up near the 200-day moving average (currently 1.0414) and GBPUSD still hugging the 1.1900 area after the market shrugged off the autumn budget statement yesterday. Next week has the Thanksgiving holiday in the US, which usually sees light trading from Wednesday through Friday and the first key data is not up until the week after, so upcoming catalysts are not readily evident. Crude oil (CLZ2 & LCOF3) Crude dropped sharply yesterday to multi-week lows, trading as low as 89.53 in January Brent and 81.40 in December WTI. Concerns of weakening demand in China are purportedly behind some of the weakness yesterday, but with a new extreme in the yield curve inversion yesterday, rising market anticipation of an incoming recession is likely weighing on sentiment in oil. For the December WTI contract, the 81.30 level is the last significant pivot low ahead of the 75.70 September low for that contract. For January Brent, the  87.52 level is the last pivot low ahead of the 80.94 September low for that contract. Gold (XAUUSD) Pushed a bit lower yesterday on the rise in US treasury yields, trading above 1,760 this morning after the 1,786 high earlier this week. The 200-day moving average is near the important 1,800+ area. An extension of the recent rally likely requires further declines in yields and the US dollar or some other catalyst that sees a run to safety. US treasuries (TLT, IEF) US yields surged across the entire yield curve with yields rising the most in the front end. The 2-year yield jumped 10bps to 4.45% and the 10-year climbed 8bps to 4.77%. The 2-10 year spread inverted further hitting a new low of minus 71bps. Selling concentrated on the front end as St. Louis Fed President James Bullard referred to the “sufficiently restrictive level” being “5% to 5.25%” and “that’s a minimum”. In addition, Bullard showed a chart that suggested a range of terminal rates from 5% to 7%. Meanwhile, Minneapolis Fed President Kashkari said the Fed is “not there yet” to pause and it is an open question of how far the Fed needs to go. What is going on? Japan’s CPI increased more than expected in October Japan released its national CPI data which came in hotter than expected. Headline CPI grew 3.7% Y/Y (consensus: 3.6%, Sep: 3.0%). CPI excluding Fresh Food was 3.6% higher than last year (consensus: 3.5%, Sep: 3.0%) and CPI excluding Fresh Food and Energy increased 2.5% Y/Y in October (consensus: 2.4%, Sep: 1.8%). UK budget statement sees little market reaction, but huge Gilt issuance set for next year The mix of measures was more or less as anticipated, with many of the specific larger moves well flagged ahead of yesterday’s speech on the budget from UK Chancellor Jeremy Hunt. After a strong surge in UK gilts (sovereign bonds), UK yields rose yesterday, as the Debt Management Office in the UK project that issuance of gilts in the 2023-24 financial year will rise almost 50% to £305 billion, with net issuance at £255 billion, almost double the previous high from 2011. Near term issuance to the end of the current fiscal year to April is expected somewhat lower than prior estimates. China urges local authorities to strike a better balance in pandemic control measures China’s National Health Commission urged local authorities to avoid “irresponsible loosening” of pandemic control measures. In a press briefing, health officials said local authorities “must continue to rectify the practice of excessive measures such as lockdowns and oppose the irresponsibility of evading a solution by loosening up”.The world’s second biggest lithium producer, SQM, sees lithium prices staying higher in 2023.SQM sees the Chinese electric vehicle market showing strong growth, buttressing solid demand for lithium. In its third quarter result, SQM’s income beat analyst estimates, rising by more than 10 times to $1.1 billion. The surge was fueled by the lithium price more than tripling over the past year, and rallying over 1,200% since 2020, amid tight supply and rising demand from EV makers. SQM sees the lithium market staying tight and higher prices for the rest of 2022 and into 2023. BHP (BHP) raised its takeover offer for copper giant, Oz Minerals (OZL) The offer was raised to $6.4 billion as global miners are hungry to boost copper production. Copper is a vital metal in electricity networks, electric vehicles, housing and renewable energy. BHP currently makes about 48.7% of its revenue from iron ore, 26.7% from copper, and 24.6% from thermal coal.What are we watching next? Earnings to watch today: JD.com Today’s earnings calendar is light with only the Chinese e-commerce giant JD.com reporting results. Analysts expect revenue growth of 11% y/y and EPS of $4.46 up 194% y/y on expanding EBITDA margin, but given the results from other Chinese companies we find it a bit unlikely that JD.com can deliver those types of results. Options expiry today in US to hit new record Options expire today on a notional $2.1 trillion in underlying instruments today as this month looks likely to set the record for options volume, with 46 million contracts in daily trading on average, up 12% from last month. Increasingly popular are contracts that expire within 24 hours, a phenomenon that may have driven the extreme volatility around the Thursday October CPI release last week. Economic calendar highlights for today (times GMT) 0830 – ECB President Lagarde to speak 1315 – UK Bank of England’s Catherine Mann to speak 1330 – Canada Oct. Home Price Index 1340 – US Fed’s Collins (non-voter) to speak 1500 – US Oct. Existing Home Sales 1500 – US Oct. Leading Index Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: https://www.home.saxo/content/articles/macro/market-quick-take-nov-18-2022-18112022
The Drop In German Inflation Is Welcome News, But It Is Mean That Can We Say That Inflation Has Peaked?

A Lot Of Attention On German Wage Settlements Across The Eurozone

ING Economics ING Economics 18.11.2022 10:25
A regional wage agreement in Baden-Wuerttemberg yesterday will pave the way for broader wage developments and shows the European Central Bank that second-round effects will kick in next year but should be dampened Last night, employers and unions in the metal and electronics industry in Baden-Wuerttemberg reached a new wage agreement. Wages will be increased by 5.2% in June 2023 and by 3.3% in May 2024. There will also be a one-off payment of €3,000, exactly the amount the German government had offered to exempt from tax and social security contributions. While this is "only" a regional wage agreement, it will have knock-on effects on other regional and sectoral wage negotiations. Almost four million people in Germany work in the metal and electronics industry. Traditionally, there has been a lot of attention on German wage settlements across the eurozone. The takeaway for German wage developments and the risk of second-round effects is that last night's deal shows what a compromise can look like. It won’t be enough to fully offset the drop in purchasing power caused by higher inflation, but it softens the damage. For the ECB, it signals that second-round effects remain dampened and that a lower, subdued inflationary pressure can last for longer than markets currently think. TagsInflation Germany Eurozone ECB   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Kuroda Stayed On The Sidelines And The Yen Responded With Losses

High Inflation Print In Japan | Most Fed Members Remain Relatively Hawkish

Swissquote Bank Swissquote Bank 18.11.2022 10:57
Inflation in Japan soared to the highest levels in more than 30 years, to 3.7% in October, up from 3% printed a month earlier. High inflation print sure revived the Bank of Japan (BoJ) hawks, and the calls for a policy rate hike, and kept the dollar-yen below the 140 level, but it’s unsure whether the BoJ will give up on its ultra-soft policy stance. Therefore, if the US dollar picks up momentum, which will certainly be the case, the USDJPY could easily rebound back above its 50-DMA, which stands near 145. US And the reason I think the US dollar will recover is because most Fed members remain relatively hawkish regarding the Fed’s policy tightening. Plus, option traders are building topside structure over the one-month tenor that covers the next US inflation report and the Fed’s next policy meeting in December. Stock market So, the ambiance in the stock markets is not as cheery as it was at the end of last week. UK In the UK, the autumn budget statement went happily eventless. Gilts rallied, pound saw limited sell-off, while energy companies’ reaction to windfall taxes remained muted. Watch the full episode to find out more! 0:00 Intro 0:30 Japan inflation soars, Mr. Kuroda! 1:34 Should you prepare for another USD rally? 3:32 Market mood turns… meh. 4:01 The retail roundup 6:11 The happily eventless UK budget 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.   #hawkish #Fed #USD #recovery #US #retail #sales #Walmart #Target #Macys #HomeDepot #Lowes #Alibaba #earnings #UK #Budget #GBP #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
US CPI Surprises on the Upside, but Fed Expectations Unchanged Amid Rising Recession Risks

Layoff In Amazon | Japan's Inflation Highest In 40 Years

Kamila Szypuła Kamila Szypuła 18.11.2022 12:29
Changes keep happening. Payments keep evolving. Inflation is also increasing, even in Japan. Layoffs at larger companies like Amazon are also on the rise. In this article: The 100 People list Transforming Business Business owners' Amazon Cross-border payments Japanese economy Goldman Sachs Chief Information Officer is in Top100 Goldman Sachs tweets about the 100 People list Transforming Business by Insider. .@BusinessInsider's 2022 list of Top 100 People Transforming Business recognizes our Chief Information Officer, Marco Argenti, among other game-changing leaders! Read more about how Marco is breaking new ground on Wall Street through technology: https://t.co/qDGLAooKCq — Goldman Sachs (@GoldmanSachs) November 17, 2022 Every year, Insider surfaces 100 leaders across 10 industries who are driving unprecedented change and innovation. The T100 does more than highlight career milestones. Goldman Sachs Chief Information Officer, Marco Argenti is on this list. Recognition of one of the directors in the field of finance is important for personal positioning and thus also for the company. Business owners' optimism UBS tweets about business owners' optimism. Despite recession fears, business owners continue to fill post-COVID labor gaps and are still optimistic about their businesses for the next year. #UBSInvestorSentiment #shareUBS — UBS (@UBS) November 17, 2022 There is no doubt that from 2020, companies, markets and entire economies are struggling. The pandemic has had a negative impact on employment, and the current inflation is also not encouraging. Despite the fear and all the difficulties, companies are getting ahead of it and are still hiring new employees. According to UBS bananas, business owners are very optimistic about the future. This is of particular importance for the labor market, as it affects not only the situation of households but also entire economies. Layoff in Amazon CNBC Now quotes the statement of Amazon CEO Andy Jassy. BREAKING: Amazon CEO Andy Jassy says layoffs will continue into next yearhttps://t.co/QEL5Diikjs — CNBC Now (@CNBCnow) November 17, 2022 The employment situation at Amazon is unstable. The company began informing workers this week that they were being let go. CEO Andy Jassy said this will continue next year. The cuts are being made as Amazon reckons with a worsening economy. Amazon isn't the only one struggling. Other giants also decided to reduce staffing. Cross-border payments IMF tweets about possible developments in cross-border payments. Cross-border payments are on track to be transformed by digital money. Learn how in F&D. https://t.co/uXmnOnQd8g pic.twitter.com/PwRn2wW1ki — IMF (@IMFNews) November 18, 2022 The development in this sector is very fast, but cross-border payments are still the Achilles' heel. We have all felt the frustration of sending money abroad. It takes time. It’s expensive. It turns out that there may be development in this payment sector. For people who love to travel or those who live in several countries, such a possibility may be very desirable. Japan CPI Reuters Business discusses the situation in Japan in its post. Japan's core consumer inflation accelerated to a 40-year high in October, driven by currency weakness and imported cost pressures that the central bank shrugs off as it sticks to a policy of ultra-low interest rates. Read more: https://t.co/AoJ6rkjSBw pic.twitter.com/DGaEal1df9 — Reuters Business (@ReutersBiz) November 18, 2022 Many economies around the world have been struggling with high inflation since the beginning of this year. Japanese inflation has been low for a long time. In October, it rose for the first time, reaching its highest level in 40 years. The activities of the Bank of Japan were dovish, which largely translates into the yen (JPY) exchange rate and the economic situation of the country. The Bank of Japan has made several interventions in the foreign exchange market, but economists do not expect the BOJ to join a global trend of raising interest rates. The more the question arises, will there be another intervention?
Asia Morning Bites - 14.02.2023

Asia Events: A Rate Hike By The Bank Of Korea (BoK)

ING Economics ING Economics 18.11.2022 14:58
A rate hike by the Bank of Korea, and inflation data from Tokyo and Singapore are just some of the highlights in the region next week In this article BoK to hike rates but expect a slower pace of tightening Inflation remains elevated in Japan and Singapore Export and manufacturing data for Taiwan Other important data reports: Loan rates in China steady and growth downgraded in Singapore Source: Shutterstock BoK to hike rates but expect a slower pace of tightening The Bank of Korea (BoK) will meet next Thursday and we expect it to carry out a 25bp hike. Consumer prices edged up in October but inflation appears to have passed its peak.  The recent FX market move probably would be one factor for BoK to adjust its pace of tightening after its recent jumbo increase. However, given that financial market stresses remain high, the BoK will need to consider market stability for its policy decision.  Inflation remains elevated in Japan and Singapore Next week, Japan will release November CPI inflation for Tokyo. We expect Tokyo inflation to accelerate to 3.6% year-on-year, from 3.5% in October. The travel voucher programme probably cooled down some of the service price pressures although other commodity prices rose to offset this decline. In Singapore, inflation is expected to remain elevated for both headline and core, although the headline number may dip from last month. Evident price pressure should keep the Monetary Authority of Singapore hawkish to close out the year as it monitors the impact of recent tightening.    Export and manufacturing data for Taiwan Taiwan will release data on export orders and industrial production. We project both figures to post a YoY contraction due to softer demand for semiconductors. Demand for electronics has been dampened by a mix of high inflation data in some economies and slower growth for others. More upside however could be anticipated in next month’s data as China’s Covid-19 measures have been eased. Other important data reports: Loan rates in China steady and growth downgraded in Singapore China will release its Loan Prime Rate next Monday and we expect no change from the current 3.65% for 1Y and 4.3% for 5Y. Loan prime rates will likely be untouched as the Medium Lending Facility Rate was put on hold by the People's Bank of China.   Lastly, Singapore will report revised third-quarter GDP figures and we expect a downward revision to the earlier report. Both retail sales and non-oil domestic exports have shown signs of moderation as higher inflation and slowing global trade appear to be taking their toll on the growth momentum. Asia Economic Calendar Source:Refinitiv, ING TagsAsia week ahead 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
The German Purchasing Managers' Index, ZEW Economic Sentiment And More Ahead

Recession Fears In The Global Economy

ING Economics ING Economics 19.11.2022 10:27
Executive summary 1)Following the Russian invasion of Ukraine in 2022, European and Polish economies are experiencing a huge energy shock due to record-high prices and the risk of energy supply disruptions. 2)Due to the dependence on energy from Russia and the structure of energy balances, it is mainly a gas problem for the EU and a coal problem for Poland. This applies less to power plants as it does to households and district heating units which rely heavily on imported coal from Russia. The source is not only high prices, but also the risk of natural gas and coal shortages over the coming winter. 3)Higher energy prices on wholesale markets have contributed to a significant increase in producer and consumer prices, but this is not an automatic pass-through. It is stretched over time. Producer prices depend on previous contracts, competitive conditions and the substitutability of energy carriers. 4)The pass-through of higher costs to the end user depends on both demand and fiscal policy. Energy prices for households are largely influenced by the decisions of the government (e.g., the anti-inflation shield) and the regulator (Energy Regulatory Office tariffs). On average, consumer electricity prices increased by about 5% in 2022, following increases of 12% in 2020 and 10% in 2021. 5)Our survey of 300 small and medium-sized companies shows that: •70% of companies are concerned about access to energy in the upcoming heating season. •Companies have generally only partially passed on higher energy costs to buyers and are actively reducing other expenses. •High energy prices are increasing SMEs' interest in investing in energy efficiency and renewable energy sources (RES), especially in industrial companies. •The anti-inflation shield alone is not enough support but should be maintained at least until the end of 2023. •Companies are rather sceptical about the effectiveness of EU policy support. Energy Shock 2022: On the back of an economic rebound following the pandemic in 2021 and thereafter due to Russia's invasion of Ukraine in 2022, the prices of energy carriers in Europe have remained in a clear upward trend and fluctuated strongly. They shot up in the summer of 2022 following the initial threat and again after Nord Stream 1 completely halted gas supplies to Europe. By the end imports to Europe were about threeof September, daily Russian gas quarters lower year Gazprom manipulation from mid2021:onyear. Prices of energy carriers have been on an upward trend since mid2021. Russia's gas manipulations led to a jump in prices later that year, with energy prices rising further after the outbreak of war in Ukraine. Local maximum in midAugust: In midAugust 2 022, energy prices were many times higher than the average in January 2021. Prices for natural gas rose more than 15 times, electricity (wholesale market) by 7 times, coal by almost 5 times, and oil almost twice. The explosion in gas prices was due to volu me restrictions imposed by Gazprom. Shipments through Nord Stream 1 fell to 40% in June 2022, then to 20% in July August preceding the complete suspension of supplies through this pipeline in early September. September correction: When the European Commission and EU member states responded to Russia's gas manipulation, prices fell sharply. The correction in oil prices was largely due to recession fears in the global economy and also driven partly by monetary tightening. In early October, following fluctuati ons due to the Nord Stream leaks and the EU Council's decision to control rising energy costs, price increases were eight times higher for natural gas, almost three times for electrici and 1.5 times for oil. Prices of energy carriers: January 2021 =100 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 Bright Spot Amidst Economic Challenges

The Government Has Actively Used Instruments To Mitigate Energy Price

ING Economics ING Economics 19.11.2022 10:28
Energy prices are driving up CPI inflation: The increase in energy carrier prices in 2022 strongly impacted the acceleration of consumer inflation. In August, the contribution of fuels in transportation and home energy carriers was 6.0 percentage points inflation at 17.2% YoY. Neverthel, with CPI ess, the initial impetus for higher energy prices was also translated through socalled secondround effects on price increases for food and other goods and services in the core inflation basket CPI inflation and its sources (% change YoY) It’s not only energy responsible for the acceleration of inflation: In our view, the high price increase is a combination of cost inflation (pandemic, war in Ukraine) and demand inflation (consumption boom for a few years, tight labour market). These factors will continue to bring about high inflation as a result of the o ngoing energy crisis. Core inflation will rise with a peak in early 2023 because of the delayed pass producer price increases to retail prices. We forecast double-- through of digit CPI price growth in 202324. The anti-inflation shield and energy prices for households: Since the beginning of 2022, the government has actively used instruments to mitigate energy price increases by introducing indirect tax cuts as part of the antiinflation shield. These solutions have now been extended until the end of 2 022. Thanks to the reduction of the VAT rate on electricity (from 23% to 8%) in January 2022, the increase in this component of the CPI was about 5% rather than 24%, which would have otherwise been the result of Energy Regulatory Office’s hike in tar the 6 iffs for households. Prices of energy carriers in Poland - components of the CPI index (%ch YoY) Increases despite the anti-inflation shield: While the government has announced a freeze on the price of electricity, energy and gas for early 2023, consumers are still expected to face solid fuel (coal) price increases in autumn. Upward pressure on the price of food and other goods and services (second-round effects) will also persist. 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
Reducing The Risk Of A Gas Shortage In Poland In The Upcoming Heating Season

Reducing The Risk Of A Gas Shortage In Poland In The Upcoming Heating Season

ING Economics ING Economics 19.11.2022 10:28
EU response to Russian invasion of Ukraine: In response to the Russian invasion of Ukraine, the EU has introduced economic sanctions on Russia, including a full coal embargo (since August), an oil embargo (with exceptions) and a two-thirds reduction in gas imports by the end of the year. Substitution of Russian gas in the EU: EU measures (more LNG and network gas from other locations, fuel substitution, and energy efficiency) leave a gap of around 20bcm. The EC has proposed voluntary (and forced if necessary) consumption cuts of 15% in EU countries. This is roughly equivalent to the additional gas consumption that occurs during a cold winter in Europe. Re-Power EU: EU policy, in particular the May 2022 Re-Power EU program, has remained consistent with the long-term goal of climate neutrality and the Green Deal strategy. In addition to diversifying gas supplies, it envisions accelerating the low-carbon transition, mainly through support for RES and energy efficiency. EU shields package from high energy prices: On 14 September, EC President Ursula von der Leyen announced the following: •A target to reduce gas and electricity consumption by 10% and by 5% during the peak winter season to a 5-year average •A tax on excess profits of energy producers •A €180/MWh price cap on low-cost technologies (mainly nuclear, lignite and RES) for the wholesale market in all segments and bilateral contracts •A €3 million investment in hydrogen The gas shock has already caused a significant reduction in natural gas consumption in EU countries, although market prices have not been passed on to the end user. In January-July 2022, gas consumption in the EU was 10% and in Poland 15% YoY lower than in 2021. Natural gas consumption in JanuaryJuly 2022 (%YoY) In the context of deep declines in gas consumption this year, the mechanism proposed by the EC in July to reduce consumption by 15% by member countries does not seem to be a major challenge for Poland. Twelve EU countries, including Poland, have already re duced gas consumption by 15% YoY in January-July 2022. High storage fills, the launch of the Baltic Pipe pipeline from late September and new interconnectors with Lithuania and Slovakia reduce the risk of a gas shortage in Poland in the upcoming heating season. High prices are being boosted by negative events related to the war in Ukraine, including sabotage at Nord Stream. Record high prices encourage gas substitution and directly affect the decline in demand and production in gasintensive sectors. Househ olds and the service sector are generally protected; hence price increases are most severe for producers of the chemical (including fertilisers), mineral and metal smelting industries. 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
Rates Spark: Discussing the Potential of 4.5% and its Impact on Markets

Energy Prices And Their Impact On Marekts And Consumer Price

ING Economics ING Economics 19.11.2022 10:28
Energy price shock for producers in 2022 Translation of wholesale market prices into Producer Price Index (PPI) and Consumer Price Index (CPI) prices: Producer prices typically respond quickly to changes in wholesale energy market prices, which are driven by global developments. In Europe, they are largely impacted by the EU’s energy and climate policy and the EU’s energy market design. However, for individual companies, price changes are often indexed to market prices and occur with some delay. While stock market transactions are transparent, we have limited insights into bilateral contracts between energy utilities and individual manufacturers. Finally , the transmission of shifts in wholesale and 4 producer prices on consumer prices in Poland is constrained by the Energy Regulatory Office, which is responsible for electricity and gas tariffs to households, as well as government decisions on taxes and bene fits. Energy prices what and what does it depend on? Postrecession rebound 2021 and rising oil prices: The upward pressure on industrial output in 2021 was a rebound from the 2020 pandemic recession steadily. In January 2021, PPI growth was 1% built up quickly and YoY, and by December was already at 14.4%, largely driven by price increases in the coke a nd refined petroleum products While January 2021 saw a 6.9% . YoY decline in this category, while December 2021 price growth was 64.3% YoY. This category accounts for 5.2% of the PPI index basket in 2022. Producer price index (PPI) and its energy categories (%ch YoY) A rapid buildup of cost pressures in 2022 and increases in gas and electricity prices: Throughout 2022, water incre prices in the generation and supply of electricity, gas, steam, and hot ased systematically . Price increases in this category reached 30% January 2022 and accelerated to nearly 80% YoY in YoY in August. This category accounts for .8% 7.5% of the PPI basket in 2022. Increases in energy and other categories moved the PPI index from 14 YoY in January to 25.5% in August At the starting point ( before the energy shock ) , 2022 . energy prices for companies in Poland were generally close to the EU average: for companies (including taxes) average in Poland in the second half of 2021. They the past According to Eurostat data, electricity prices were about a quarter lower than the EU27 have increased by a total of about 25% over four years (between the second half of 2021 and of 2018). The price of natural gas for companies saw a total increase of 30% in four years, close to the EU average . Electricity prices for companies in the EU in second half of 2021 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
Commodities: EU Members Manage To Agree On Price Caps For Russian Oil

Companies Are Looking For Cheaper Materials And Suppliers

ING Economics ING Economics 19.11.2022 10:29
The quantitative survey was conducted by GFK Polonia on behalf of ING Bank Slaski in August 2022, using the Computer Assisted Telephone Interviewing (CATI) method. The sample consisted of 300 small and medium enterprises (SME). Research questions In the survey, we searched for responses to the following questions: 1) How are companies coping in times of an energy shock, mainly for natural gas? How does expensive energy affect their business? Do companies have problems with access to energy? Are they worried about energy access problems in the coming year? 2) How have they responded so far? What are their plans for investing in energy- efficient technologies or perhaps their own sources like photovoltaics, windmill, heat pump, and energy storage? 3) Does the anti-inflation shield (including the reduction of VAT and excise taxes on energy) help them? 4) Given the context of the current climate crisis, do they feel pressure/identify a need to switch to clean energy in the near future? 5) Are they aware of EU climate policy and opportunities to support clean energy and energy efficiency? Types of energy used One in five companies has its own power generator, and 17% of companies say they have their own sources of electricity. Own boilers/furnaces as heat sources are used by almost half of the companies - that's as often as heat from the grid. 10% of companies declare using electric-powered vehicles, although this result is likely inflated. According to local automotive associations PZPM and PSPA there are only about 50,000 pure electric and plug-in hybrid cars in Poland. Natural gas is twice as popular as electricity in company vehicles. Share of energy in total costs About two-thirds of all companies indicate a share of energy (all carriers, including transport fuels) making up more than 10% in company costs. Larger companies declare a larger share of energy in their costs, most often between 10% and 30% (for more than half of the companies over PLN 10 million in turnover last year). About half of the companies with higher turnover are industrial companies, which are generally more energy-intensive than the service or construction industries. Average share of energy costs in the company's costs Perception of the energy situation Companies perceive energy and fuel price increases differently. Most (26%) believe that prices have already risen between 50% and 80%. Perception of past increases in fuel and energy costs - by how much? (%) Expectations for future increases are slightly more consistent, with 32% of companies predicting that prices will still rise between 30% and 50% further. Predicting further increases in fuel and energy costs - by how much? (%) The vast majority of companies (nearly 70%) are concerned about problems with access to energy and fuels. Concerns about access to fuel and Energy Responses to increased energy and fuel costs Almost all companies have reacted to rising energy and fuel costs by increasing the price of products or services. Only 5% have avoided this so far. The second most common way to cope with the situation is looking for cheaper materials and suppliers (recorded by 77% of companies), followed by cutting other costs (60%) and halting R&D investments (41%). More than one in three companies intend to invest in solutions that will help save energy in the future. Responses to increased energy and fuel costs Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
German Export Weakness In The Fourth Quarter Suggests That Recession Fears Are Real

German Economy Can Avoid Recession? GDP Forecast

Kamila Szypuła Kamila Szypuła 19.11.2022 11:26
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
A Bright Spot Amidst Economic Challenges

German PPI And Hong Kong CPI Significantly Decreased

Kamila Szypuła Kamila Szypuła 21.11.2022 10:46
The beginning of the week is quite calm when it comes to reports. Today, attention may be drawn to the events from the second half of the day, ie reports from New Zealand. German PPI In Germany, there was a report on inflation from the manufacturer. For Europe's largest economy, it turns out that the reading was positive/negative. The current reading has reached the level of -4.2% , which is what was expected. In September, the PPI m/m peaked at 7.9% for the year and then dropped dramatically to 2.3%. Today's reading may suggest a negative trend. PPI YoY has been on an upward trend since the beginning of the year. The current reading is at 34.5% and it is a drop from level of 45.8%. Hong Kong CPI The Hong Kong Consumer Price Index has reached 1.8% and thus increased/decreased. Since the beginning of the current year, it has remained at low levels to a maximum of 2.5%. A sharp increase in inflation took place in September and reached the level of 4.4%. Source: investing.com Speeches Today, the market awaits three speeches from the European continent, including one from Great Britain. The first speech was at 10:00 CET, The European Central Bank Supervisory Board Member Edouard Fernandez-Bollo. This speech can clarify certain aspects of the financial regulation in the eurozone. The speeches of the ECB's officials often contain references to possible future monetary policy objectives, assessments and measures Bank of England (BOE) Monetary Policy Committee (MPC) Member Sir Jon Cunliffe will speak at 11:05 CET. His speeches often contain indications on the future possible direction of monetary policy. Deutsche Bundesbank President and voting member of the ECB Governing Council Joachim Nagel is set to speak at 19:30 CET. He may drop subtle clues regarding future monetary policy. BCB Focus Market Readout The Central Bank of Brazil will publish a report on market expectations regarding the economic performance of the country's economy, i.e. Focus Market Readout. Expectations are important because they will determine what mood prevails in the economy, whether the country is developing and what the further economic situation in Brazil may look like. US 2-Y and 5-Y Note-Auction Yield fluctuations should be monitored closely as an indicator of the government debt situation. Investors compare the average rate at auction to the rate at previous auctions of the same security. US Treasuries have maturities of two to ten years. Governments issue government bonds to borrow money to cover the gap between the amount they receive in taxes and the amount they spend refinancing existing debt and/or raising capital. The interest rate on government bonds reflects the return an investor will receive by holding the bond for its life. When it comes to 2Y and 5Y bonds, yields are increasing, which means that investors rate the risk associated with US debt high. And they want the highest possible rate of return to decide to buy US bonds. The last reading for 2Y was 4.460% and if the trend continues you can expect a drop of 4.5%. The situation for 5-Y bonds is better as the ongoing uptrend has not gone that high and the last reading was down. The decrease took place from the level of 4.228% to the level of 4.192% New Zealand Trade Balance At the end of the day, reports on imports and exports, and thus on the trade balance, will come from New Zealand. This country is expected to import more than it exports and its trade balance will remain negative. The trade balance is forecast at -1.715M, this is the expected decline from the previous reading which was at -1.615M. It can mean that a country with a large trade deficit borrows money to pay for its goods and services. Even though the beginning of the week was calm, watch out for the next days. There may be important reports for the markets. Summary: 3:15 CET China New Loans 9:00 CET German PPI (Oct) 10:00 CET ECB Supervisory Board Member Fernandez-Bollo Speaks 10:30 CET Hong Kong CPI (YoY) (Oct) 11:05 CET BoE MPC Member Cunliffe Speaks 13:25 CET BCB Focus Market Readout 18:30 CET US 2-Year Note Auction 19:30 CET German Buba President Nagel Speaks 20:00 CET US 5-Year Note Auction 23:45 CET New Zealand Trade Balance Source: https://www.investing.com/economic-calendar/
At The Close On The New York Stock Exchange Indices Closed Mixed

The Minutes Of Fed May Help Shape The Upcoming Week On Wall Street

InstaForex Analysis InstaForex Analysis 21.11.2022 13:21
The minutes of the November meeting of the Federal Reserve are expected to help shape the upcoming week on Wall Street, which is shortened due to the holidays. U.S. stock and bond markets will be closed Thursday, Nov. 24, due to the Thanksgiving holiday. Also, on Black Friday, trading will close early. The report on the discussions at the U.S. central bank meeting earlier this month, due out Wednesday, will be the highlight of the economic calendar in the coming days. The earnings calendar will also be relatively sparse as the third quarter reports come to a close. Stocks posted a loss last week despite a modest gain on Friday after hawkish statements from the Federal Reserve dampened optimism. The S&P 500 fell 0.7% last week: Nasdaq Composite lost about 1.6% as central bank members said they intend to continue aggressive policy tightening. The Dow Jones Industrial Average remained virtually unchanged over the week: Minutes from the latest meeting of the Federal Open Market Committee (FOMC) show that officials are planning a half-point rate hike at their December meeting. Fed Chairman Jerome Powell said at a press conference that he and his colleagues have some avenues to mitigate rising prices, acknowledging that the inflation picture has become more complex. An aggressive increase in interest rates could lead to a recession in the U.S. economy, and Fed officials have recently become more open about this risk. Goldman Sachs raised its Fed rate forecast to a range of 5% to 5.25%, adding another 25 basis point hike in May, noting that the investment bank's exposure to its Fed outlook has turned up. "Inflation is likely to remain uncomfortably high for a while, and this could put pressure on the FOMC to deliver a longer string of small hikes next year," economists led by Jan Hatzius said. Wall Street is nearing the end of its reporting season, but the results from Dell (DELL), J.M. Smucker (SJM), Zoom Video (ZM) and Dollar Tree (DLTR) will be some of the key corporate updates in the report. According to FactSet Research, fewer companies are expressing recession fears in the third quarter compared to the second quarter. Of the S&P 500 companies that reported earnings between Sept. 15 and Nov. 16, 26% fewer companies mentioned the term "recession," with 179 mentioning the word, compared with 242 in the reporting period for the most recent quarter. Still, according to FactSet, this quarter still ranks third among companies stressing fears of a potential economic downturn, at least since 2010.     Relevance up to 10:00 2022-11-26 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/327652
Tight Monetary Policy Is Already Weighing On The Swedish Housing Market

2023 FX Outlook: Swedish Krona (SEK) Remain Vulnerable On The Back Of European And Global Risk Factors

ING Economics ING Economics 21.11.2022 14:22
For now, higher-than-expected inflation data trumps the mounting concerns about the housing market for the Riksbank. A 75bp rate hike looks likely on Thursday, and we expect one final 50bp increase in February In this article The Riksbank is likely to hike faster than signalled in September Riksbank is keen to stay ahead of the ECB, but housing is a risk A stronger SEK still unlikely in the near term The Riksbank is likely to hike faster than signalled in September When the Riksbank hiked its policy rate by a full percentage point back in September, it was coupled with a message that this was unlikely to happen a second time. The bank’s forecasts pointed to a peak policy rate of 2.5% in April, effectively setting the stage for a 50bp hike this week. But in what has become a familiar tale for central banks, core inflation has since come in higher than the Riksbank had anticipated, and a more aggressive move now looks likely. The Riksbank's September rate hike projection Source: Riksbank, ING   At 7.9%, core CPIF is half a percentage point above the central bank’s September forecast. The jobs market still looks strong, too, even if we saw an unexpected rise in the unemployment rate in the latest set of data (these numbers are fairly volatile). Together with the weak krona, it looks like policymakers will opt for a 75bp rate rise on Thursday. We’re forecasting that rates peak at 3% in February. Core inflation rose from 7.4% to 7.9% in October Source: Riksbank, ING Riksbank is keen to stay ahead of the ECB, but housing is a risk All of this is reinforced by the recent messaging we’ve had from Swedish policymakers. Among the Riksbank’s hawks, Governor Stefan Ingves has stressed the importance of staying a “comfortable distance” ahead of the European Central Bank. Don’t forget that Thursday’s meeting is the last before February, and the ECB will meet – and presumably hike rates – twice before then. Ingves said in the last set of meeting minutes that the Riksbank would need to “follow along upwards at the same pace” at the very least. However, there are good reasons to think the Riksbank is not very far away from the end of its tightening cycle, and the most obvious of these is the housing market. It’s no secret that Sweden’s economy is among the more interest-rate sensitive, and there are already signs that tighter policy is weighing on the housing market. Transaction volumes have fallen sharply, and by some measures, property prices have already started to fall. The headline Valueguard HOX housing index fell a further 3% in October alone, and the Riksbank has projected more declines to come. Much of Sweden’s mortgage market is either fixed for short periods or not at all. Housing market is declining at a faster pace than expected Source: Macrobond, ING   In short, there’s a growing trade-off for the Riksbank between taming inflation and exposing debt fragilities – a challenge that’s far from unique to Sweden. We expect the Riksbank’s new rate projections to factor in a further 25-50bp of tightening next year, and much will depend on the outcome of wage negotiations in the spring. A stronger SEK still unlikely in the near term The SEK OIS curve is embedding around 60bp of tightening this week, so a 75bp move would likely come as a hawkish surprise. However, we believe a greater focus will be on the new rate projections, which are (unlike in Norway) hardly ever followed to the letter by investors, but will provide an indication of how much appetite there is for further tightening. Implicitly, the projections will also show how much the focus is shifting from the mere inflation-fighting exercise to domestic concerns – in particular on housing. This is important because it will shape how SEK rates react to future data releases. On the FX side, despite the Riksbank’s constant protests against a weak krona, the implications of monetary policy remain rather limited for the near term, where we see EUR/SEK trading around 11.00 and facing upside risks. The RB’s hawkishness has been ineffective at lifting SEK in an unstable risk environment, especially in Europe, and we doubt this will change any time soon. The actual implications may emerge in the longer run. If the RB ends up hiking substantially more than the ECB by the time both central banks’ tightening cycles come to an end, then EUR/SEK may face some downward pressure next year, but only under the condition that risk sentiment stabilises. As discussed in our 2023 FX Outlook, we expect SEK to remain vulnerable on the back of European and global risk factors, and only expect limited downside risks for EUR/SEK into end-2023 despite a widening in the Riksbank-ECB rate differential. We currently forecast 10.40/50 for the pair in 2H23. TagsSwedish krona Sweden 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  
Unlocking the Future: Key UK Wage Data and September BoE Rate Hike Prospects

Rates Spark: Reasons For The Bond Rally To Extend In The Near Term

ING Economics ING Economics 22.11.2022 09:34
We see a case for the bond rally to extend in the near term but we expect the move to run our of steam ahead of the next weeks’ inflation and employment data In this article Drift lower in yields to continue for a few days but is increasingly running on fumes Today’s events and market view   Drift lower in yields to continue for a few days but is increasingly running on fumes We didn’t have a potential OPEC output increase on our list of reasons why bonds should continue to rally this week but it clearly doesn’t hurt. Our reasoning had more to do with classic bond fundamentals. Even if winter has proved mild so far, and this may well change, we expect PMIs’ gradual slide lower to drive home the message that Europe is headed for a recession. What’s more, the Federal Open Market Committee minutes to be released tomorrow night are likely to paint a less hawkish picture than Powell’s press conference did after the meeting. Both would be supportive for bonds, and help them extend their already impressive rally. The odds of a snapback higher in yields are rising There is one problem, however. We think this is the wrong macro move and the odds of a snapback higher in yields are rising. For one thing, the all-important batch of employment and inflation releases that starts next week could well  trigger a wave of position-squaring from short-term longs. More importantly, volatility in economic releases, and the solid performance of US employment data so far in this cycle, means the bar for a further bond rally is higher and less likely to be met. Finally, as bond real rates drop, the odds of a pushback from central banks increases. In the case of 10Y German Bund, this means any dip below 2% in yields is unlikely to last past the end of this week in our view. In the case of US Treasuries, any test of 3.75% to the downside is likely to set up another jump back towards 4%. The drop in real rates is a headache for central banks fighting inflation Source: Refinitiv, ING Today’s events and market view Today’s European economic releases consist of the eurozone current account figures, as well as consumer confidence. The latter is expected to edge up slightly after its spectacular fall earlier this year. The UK Office for Budget Responsibility (OBR) testimony will also be closely watched by sterling investors given the controversy surrounding the government’s budget and economic forecasts. The European Central Bank speakers list features Robert Holzmann, Olli Rehn, and Joachim Nagel. Germany will make up today’s supply slate with a €3bn 5Y sale. The US Treasury will sell $35bn 7Y T-notes. The UK will sell 50Y inflation-linked gilts. The US economic calendar brings an update to the Richmond Fed manufacturing index. Fed speakers are likely to have a hawkish tone thanks to Loretta Mester, Esther George, and James Bullard all due to make public comments. TagsRates Daily   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 Crypto, You Could Prove You Own A Private Key Without Revealing It

Stress In Crypto Market Continue | Global Recession Fears

Swissquote Bank Swissquote Bank 22.11.2022 10:30
Market sentiment is fragile on uncertainty regarding whether China would make a U-turn on its Covid reopening plans. Oil Recession fears were already weighing on fragilized oil on Monday morning, when news that OPEC+ would increase oil production by half a million barrels per day on the upcoming December 4th meeting wreaked havoc yesterday. The barrel of US crude tanked to $75 per barrel, below the September dip. Later, Saudi denied the report and we are back to $80 this morning. Forex In the FX, the US dollar index bounced higher after getting very close to the 38.2% retracement level on 2021-2022 rally, and mixed Fed comments tilt the balance to the upside for the greenback. Cryto In cryptocurrencies, news that Genesis warned investors that it could file for bankruptcy further weighed on sector sentiment. Watch the full episode to find out more! 0:00 Intro 0:22 China Covid worries fuel global recession fears 1:53 Oil dips on China worries, OPEC rumour 3:57 US dollar gains, equities fall 5:14 Should you sell Tesla because you don’t like Elon Musk? 7:39 Disney up as ex-CEO returns 8:30 Bitcoin slips below $16K on FTX contagion, Genesis warning 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. #Twitter #Tesla #Elon #Musk #China #Covid #selloff #crude #oil #EUR #USD #hawkish #Fed #FTX #contagion #Genesis #Bitcoin #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
Russia's Active Production Cuts Could Be Grounds For A Bullish Shock

Russia's Active Production Cuts Could Be Grounds For A Bullish Shock

InstaForex Analysis InstaForex Analysis 22.11.2022 10:40
Against the backdrop of a tense market situation, any unexpected news may lead to sharp price movements. The Wall Street Journal insider said that OPEC+ would be discussing a 500,000 bpd increase in oil production at a meeting in early December, pushing futures on the North Sea crude to a 10-month low. Only a rebuttal from Saudi Arabia allowed Brent to recover. Was that a fake? The decision to cut production would mean reversing the previous OPEC+ decree to increase it by 2 mln bpd. However, insiders cited four reasons why such a reverse could take place. Firstly, a day after the meeting, the EU embargo on Russian oil and the G7 price cap on it will come into effect. According to the IEA, these restrictions will lead to a reduction in Russian oil production by 2 mln bpd, to 9.6 mln bpd by the end of March 2023, as Moscow will find it difficult to find new markets. Changes in oil production in Russia Second, Saudi Arabia may have made compromises to the US that called for lower oil production after the White House told a federal court that Crown Prince and Prime Minister of Saudi Arabia Mohammed bin Salman should have sovereign immunity from a lawsuit in the United States over the murder of a Saudi journalist. Third, OPEC forecasts that oil demand will increase by 1.69 million bpd in the first quarter, to 101.3 million, and a production ramp-up is needed to balance the market. Finally, the UAE and Iraq have a huge desire to increase production. The former has a quota of just over 3 million bpd, while its production capacity is estimated at 4.45 million bpd, and the country intends to increase it to 5 million bpd by 2025. The reasons are certainly weighty but in the current conditions, the increase in supply will drag the Brent quotations to the bottom, which is not beneficial both for OPEC+ and Saudi Arabia. Its statement that the Alliance's production cuts of 2 million bpd will be valid until the end of 2023 and no one is going to cancel it, has calmed the oil market. It returned to its usual drivers: the COVID-19 outbreak in China and the assessment of risks associated with squeezing Russia out of the market. The number of coronavirus cases in China rose to 27,307 per day, which is close to the April peak. The fatalities increase the risks of the economic shutdown, which has a negative impact on demand and prices. On the other hand, Russia's active production cuts could be grounds for a bullish shock. From the technical point of view, a pin bar with a long lower shadow was formed on Brent's daily chart. If the price manages to reach above the high near $88 per barrel, it may create an opportunity to open short-term longs with the target at the pivot level of $89.4 and the resistance level in the form of the MA at $91. If the price rebounds from these levels, bears may return to the market and drag the price to the downside.     search   g_translate     Relevance up to 08:00 2022-11-27 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/327778
Singapore's non-oil domestic exports shrank 20.6% year-on-year

Singapore Inflation Dipped Below Expectations

ING Economics ING Economics 23.11.2022 09:00
Inflation dipped below expectations after global crude oil prices slipped in September  Source: Shutterstock   5.1% Core inflation for October (year-on-year)  Lower Core inflation dips to 5.1% Price pressures eased slightly in October with both headline and core inflation slipping below market consensus. Headline inflation dipped to 6.7% YoY, down from 7.5% and much lower than expectations for a 7.0% increase. Core inflation was also lower than consensus, settling at 5.1% YoY from 5.3%. The downside surprise for inflation was traced to slower price gains for utilities and transport, both moderating as global crude oil prices edged lower in September.  Slower inflation was also recorded for clothing & footwear and recreation & culture, possibly as consumers adjust to tighter liquidity conditions and elevated prices. Food inflation, however, was higher at 7.1% YoY compared to the previous month’s 6.9%.  Start of the turn? MAS monitors impact of recent aggressive tightening Source: Singapore Department of Statistics Some breathing room but MAS likely to remain hawkish Today’s lower-than-expected inflation report gives the Monetary Authority of Singapore (MAS) some breathing room after core inflation finally eased after seven months of acceleration. The inflation reading also validates MAS’s view that the recent string of aggressive tightening would feed through the economy and lower price pressures over the next few months. Despite the apparent turn in inflation, MAS will likely remain vigilant, maintaining its hawkish tone while monitoring the trajectory of core inflation.    TagsSingapore inflation Monetary Authority of Singapore   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/USD Faces Pressure Amid PMI Releases: Is More Downside Ahead?

The OECD Warns That The Fight Against Inflation Will Take Time | Credit Suisse May Lose $1.6bn In Q4

Saxo Bank Saxo Bank 23.11.2022 09:12
Summary:  Market sentiment bounced yesterday on little news, with sentiment steady in Asia overnight. Long US treasury yields dipped, and short yields were steady ahead of today's FOMC minutes release from the November 2 meeting, taking the US yield curve inversion to a multi-decade low of -75 basis points. The focus in Europe today will be on preliminary November PMI for a sense of how badly the EU is tilting into recession.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures rallied 1.3% yesterday closing at the 4,010 level, the highest close since 9 September, suggesting bulls are in control as bears are already sitting on strong profits for the year and therefore has little incentive to take bigger positions before yearend. The next big level on the upside is the 200-day moving average at around the 4,060 level. Today’s key events are preliminary US PMI figures for November and later this evening the FOMC Minutes which could provide more clues into the thinking of policymakers. Hong Kong’s Hang Seng (HISX2) and China’s CSI300 (03188:xhkg) According to Reuters, the Chinese regulators may be close to a decision to impose a fine of over $1 billion on Jack Ma’s Ant Group. Since its IPO was halted by the Chinese authorities in 2020, the group has been under regulatory overhaul. While the amount of the fine is substantial, initial reactions from the investment community to the news were positive as the fine could set the stage for the conclusion of the regulatory overhaul. Alibaba (09988:xhkg) jumped more than 4% on the news. China internet stocks gained, led by Kuaishou Technology (01024:xhkg) as the social media platform company surged 6.2% on better-than-expected Q3 results. After rising 25.5% yesterday, China Aluminum (02068:xhkg) continued its advance, rising 18% on Wednesday. Overall market sentiment remains cautious as the number of new cases reached 28,883 on Tuesday, just a touch below the April high of 29,317 cases. Hang Seng Index gained 1.2% and CSI 300 climbed 0.5%. In mainland A shares, infrastructure names surged while pharmaceutical and biotech stocks retreated. FX: Dollar drops as risk sentiment rebounds Softer long US treasury yields also pushed the US dollar lower as the US yield curve inverted to a new cycle low. Still, the big dollar has done very little after the huge, but brief sell-off move on the October CPI release nearly two full weeks ago, with today’s large data dump and FOMC minutes the last hope this week for providing a spark of volatility in either direction ahead of the long holiday weekend (tomorrow, US markets are closed, with most workers also out Friday). The FOMC minutes late today are not highly anticipated, but could surprise if there is more consensus on a hawkish stance than anticipated. EURUSD has carved out a 1.0222-1.0479 range now. Crude oil (CLF3 & LCOF3) Crude oil closed higher on Tuesday supported by a general recovery in risk appetite as the dollar softened and recent short sales in response to false production hike rumor were paired back. Crude oil prices have traded lower this month in response to a drop in demand from China as Covid cases surge to near a record with restrictions of movements currently impacting 48 cities. Ahead of today’s weekly EIA report, the API reported a 4.8 million barrel drop in US crude stocks. The data also showed that gasoline inventories declined by about 0.4m barrels last week, and distillate stocks increased by 1.1M barrels. EU diplomats will discuss and potentially approve a price cap on Russian seaborne oil sales today (see below), and if implemented Russia may retaliate by refusing to sell its crude to nations that adopt the cap. WTI resistance at $82.25 followed by $84.50 Gold (XAUUSD) Gold trades nervously around the $1735 support level for a second day as the market awaits the release of FOMC minutes. The yellow metal managed a small bounce on Tuesday as the dollar softened after Fed officials indicated they were open to implementing less aggressive hikes going forward. In the short-term the direction will be determined by fund activity and whether they need to make further reductions in recently established, and now under water, long positions. An extension of the recent rally likely requires further declines in yields and the US dollar driving fresh demand for ETFs or some other catalyst that sees a run to safety. US treasuries (TLT, IEF) US treasury yields were steady at the short end and dipped at the long end yesterday, driving a new extreme in the 2-10 yield curve inversion of –75 basis points. Traders are awaiting incoming US data today and the FOMC minutes for next steps, although more heavy hitting data awaits next week with Wednesday’s November PCE inflation data and next Friday’s November US jobs report. The key upside swing area for the 10-year treasury yield is near 4.00%, while the major downside focus beyond the 3.67% pivot low is the 3.50% cycle high from June. What is going on? New Zealand’s RBNZ hikes 75 basis points to 4.25% The market was divided on whether the bank would go with the larger rate hike after a string of 50 basis points moves prior to the meeting overnight. NZ two-year yields jumped back toward the cycle highs overnight as the market participants raised the anticipated peak in the policy rate by mid-year next year to almost 5.50%, up about 30 basis points after the decision. Fed’s Mester and George keep the focus on inflation As investors continue to try and gauge the path of Federal Reserve rate hikes, Cleveland Fed President Loretta Mester reiterated on Tuesday that lowering inflation remains critical for the central bank, a day after supporting a smaller rate hike in December. Kansas City President Esther George said the central bank may need to boost interest rates to a higher level and hold them there for longer in order to temper consumer demand and cool inflation. Russian oil price cap in the works The Wall Street Journal is reporting that Western countries are set to agree on Russian oil price cap around $60 per barrel. However, it could be as high as $70 per barrel on oil loaded after the December 5 start date. The sanctions that the G7, EU and Australia will set, will ban the provisions of maritime services for shipments of Russian oil unless the oil sells below the cap price. The aim is to reduce petroleum revenues for Russia's war machine while maintaining flows of its oil to global markets and preventing price spikes. Russian Urals crude oil already trades at around a 25-dollar discount to Brent, so the impact on Russia’s revenues at current international prices would be limited. Credit Suisse warns of big loss in Q4 The Swiss bank is stating in a press release this morning that it could lose $1.6bn in Q4 driven by losses in its investment banks. In addition, the bank says that it has seen net outflows of 6% relative to AUM in Q3. To improve profitability the bank is one-third of all investment banking employees in its Chinese subsidiary following a recent staff expansion in the country. HP cuts 6,000 employees as PC demand weakens The technology company reported Q4 results yesterday in line with estimates but its FY2023 (ending 31 October 2023) outlook was below estimates with adj. EPS guidance of $3.20-3.60 vs est. $3.61. Over the next two years the company expects to reduce staff level by 6,000 to improve profitability. The OECD revised downward its 2023 growth forecasts Yesterday, the OECD published its latest Economic Outlook. There is not much surprise. Global growth is expected to slow down significantly in 2023 to 2.2 % and to rebound modestly in 2024 at 2.7 %. This will be a long and painful economic crisis. Asia will remain the main engine of growth in the short-term. But the zero Covid policy in China will likely limit the country’s contribution to global GDP growth. Before Covid, China represented about 30 % of global growth impulse. It is now down to roughly 10 %. The OECD warns that the fight against inflation will take time. But several countries are successful. For example, in Brazil, the central bank moved swiftly, and inflation has started to come down in recent months. In the United States, the latest data also seem to suggest some progress in the fight against inflation. Nevertheless, a pause in monetary policy is unlikely in most countries in the short-term. Read the full report here. The increase in the ECB’s TLTRO funding costs for European banks came into effect Until today, European banks’ outstanding borrowings from the ECB’s Targeted Long-term Refinancing Operations III (TLTRO III). LTRO III has been funded at as low as 50bps below the average of the ECB’s Depository Facility Rate (DFR) over the entire life of those borrowings. The DFR, which is currently 1.5%, has been kept at minus 50bps from Sept 2019 to July 2022. It has been a large subsidy from the ECB in the form of below-market funding costs to European banks. Some banks are depositing these monies back into the ECB and arbitraging the interest rate differential. Last month, the ECB announced to change the calculation of the applicable DFR index with effect from Nov 23 to over the current period as opposed to the whole life of the borrowings. The move will reduce European banks’ net interest income and withdraw liquidity from the banking system. Currently, the TLTRO III balance is EUR 2.1 trillion.     JD.COM cut senior management pays while increasing benefits for all employees JD.Com announced that the company is slashing the pay for about 2,000 managers by 10-20% and using some of the savings from the move to fund planned increases in staff benefits, including health and housing benefits, for all employees including hundreds of thousands of delivery staff. Founder Richard Liu will also donate 100 million yuan of his own money towards staff benefits. Under the quest for “common prosperity” of the top government leadership, Chinese tycoons are mindful of doing their share in redistributing income. What are we watching next? Flash PMIs on the radar for US, UK and EU The S&P flash PMIs for the US, EU and UK will be released in the week, and will likely test the soft-landing rhetoric that has been gaining traction. We will likely see further broad-based easing in the metrics from the October prints, as consumer spending remains constrained amid high inflation and a rise in interest rates. While expectations for December remain tilted towards a downshift in rate hikes for the Fed, ECB and the BOE, the upcoming data point will be more key in determining the terminal rate pricing. Markets are now back at pricing 5% levels for the Fed, but the ECB’s pricing for the terminal rate is still sub-3% while UK’s is 4.7% with fiscal austerity being delayed. Copper demand growth shifting from China to Europe and the US At the FT Commodities Asia Summit in Singapore, Jeremy Weir, the CEO of Trafigura said demand for copper is shifting away from cooling building activities in China to energy transition demand, especially in Europe and the US. Weir said demand for copper has remained strong despite recent global headwinds. “We’re seeing for example very strong copper demand in Europe through electrification and even through the pandemic,” he said. “Even the current crisis and conflict in Ukraine is not reducing the demand for copper.” Following a recent rally, that got rejected ahead of key resistance at $4 per pound, HG copper has dropped back and currently trades near the middle of its established range around $3.55 FOMC minutes to be key for terminal rate pricing The FOMC minutes from the November 2 meeting are scheduled to be released on Wednesday, just ahead of the Thanksgiving holiday. The key message delivered by Powell at this meeting was that the pace of rate hikes will slow down as needed, and that will likely remain the highlight of the minutes as well. However, Powell managed to deliver this hawkish message at the press conference, but the risk from the minutes remains tilted to the dovish side. There is likely to be little consensus about whether the rates are in restrictive territory or there’s still room for that, and the divide within the committee remains key to watch as investors remain on the edge to expect a Fed pivot sometime in 2023. Earnings to watch Today’s US earnings focus is Deere, the US manufacturer of agricultural and forestry equipment, with analysts expecting FY22 Q4 (ending 31 October) revenue growth of 18% y/y and EPS of $7.09 up 72% as momentum and pricing power remain strong due to high commodity prices on agricultural products. Today: Xiaomi, Prosus, Deere Friday: Meituan, Pinduoduo Economic calendar highlights for today (times GMT) 0815-0900 – Eurozone Nov. Preliminary Manufacturing and Services PMI 0930 – UK Nov. Preliminary Manufacturing and Services PMI 1330 – US Oct. Preliminary Durable Goods Orders 1330 – US Weekly Initial Jobless Claims 1445 – US Nov. Preliminary Manufacturing and Services PMI 1500 – US Nov. Final University of Michigan Sentiment 1500 – US Oct. New Home Sales 1530 – EIA's Weekly Crude and Fuel Stocks Report 1700 – US Weekly Natural Gas Storage change 1905 – US FOMC Meeting Minutes 1905 – New Zealand RBNZ Governor at Parliament committee 2130 – Canada Bank of Canada Governor Macklem to testify to parliament committee Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: https://www.home.saxo/content/articles/macro/market-quick-take-nov-23-2022-23112022
The Reserve Bank Of New Zeeland Is Likely To Deliver 50bps Rate Hike

RBNZ Interest Rate Reached 4.25% | Singapore CPI Drop | US Reports Ahead

Kamila Szypuła Kamila Szypuła 23.11.2022 11:39
Today is full of important statistics from the USA. The first will be a report on durable goods orders, which will reflect the state of the industrial sector and consumer demand. In addition, there will be PMI reports from the European Union and the UK. RBNZ Interest Rate Decision Undoubtedly, Wednesday is a very busy day. The first important information came from Noerj Zealand. As expected, Reserved Bank Of New Zealand raised rates by 75bp. Thus, interest rates are the highest since 2008. RBNZ Interest Rate reached 4.25%. CPI data Singapore At the beginning of the day, information about the level of inflation in Singapore also appeared. CPI and Core CPI reached lower than expected levels. CPI for October will amount to 6.7% against the last reading of 7.5%. Core CPI decreased by 0.2% and reached 5.1%. This may mean that inflation is heading to decline and reach a stable 2% level. South Africa The opposite movement of inflation took place in South Africa. CPI Y/Y increased to 7.6% and Core CPI Y/Y reached 5.0% PMI data French Manufacturing PMI (Nov) rose from 47.2 to 49.1. Services PMI (Nov) fell to 49.4. German A similar situation took place in Germany. The Manufacturing PMI (Nov) rose to 46.7 and the Services PMI (Nov) fell 0.1 to 46.4. Both readings were greater than expected. EU PMI In the European Union, PMIs were higher than expected. The Services PMI (Nov) held its previous level of 48.6 against expectations of a decline to 48.0, and the Manufacturing PMI rose from 47.3. In Europe, the manufacturing PMI improved while services declined or remained flat. UK PMI In the UK, declines were expected, but the Manufacturing PMI And Services PMI remained at its previous level. The Manufacturing PMI remained at 46.2 and the Services PMI at 48.8. US PMI In the US, PMI reports will appear at 16:45 CET. The manufacturing PMI is expected to decline while the services PMI is expected to increase slightly. US Reports Ahead of Thanksgiving, the US will release a broad package of reports. Weekly reports as well as reports from the real estate sector may have an impact on the situation in this and other economies. Read more: Important US Reports Ahead, The Services And Manufacturing Projected Under 50| FXMAG.COM Speeches There will also be a lot of speeches today, especially from the Bank of England. At 11:45 CET, David Ramsden, Deputy Governor of the Bank of England took the floor. His public engagements are often used to drop subtle clues regarding future monetary policy. At 12:30 the Bank of England Monetary Policy Committee (MPC) Member Pill took the floor. Dr Catherine L Mann serves as a member of the Monetary Policy Committee (MPC) of the Bank of England to speak at 15:45 CET. The last speeches from the islands will be at 5:30 pm CET and Huw Pill will speak again. Representatives of the German bank will also take the floor. Two speeches are scheduled for 14:30 CET, Prof. Dr. Johannes Beermann and Professor Joachim Wuermeling are set to speak. At 16:00 CET Prof. Dr. Johannes Beermann will be speak again. FOMC Meeting Minutes The minutes are arrived today. The minutes offer detailed insights regarding the FOMC's stance on monetary policy, so currency traders carefully examine them for clues regarding the outcome of future interest rate decisions. Summary: 3:00 CET RBNZ Interest Rate Decision 7:00 CET Singapore CPI (YoY) 10:00 CET South Africa CPI (MoM) (Oct) 10:15 CET French PMI (Nov) 10:30 CET German PMI 11:00 CET EU PMI 11:30 CET UK PMI 11:45 CET MPC Member Ramsden Speaks 12:30 CET BoE MPC Member Pill Speaks 14:30 CET German Buba Beermann Speaks 14:30 CET German Buba Wuermeling Speaks 15:00 CET US Building Permits 15:30 CET US Core Durable Goods Orders 15:30 CET US Initial Jobless Claims 15:45 CET BoE MPC Member Mann 16:00 CET German Buba Beermann Speaks 16:45 CET US PMI 17:00 CET US New Home Sales 17:00 CET US Crude Oil Inventories 21:00 CET BoE MPC Member Pill Speaks 21:00 CET FOMC Meeting Minutes Source: https://www.investing.com/economic-calendar/
Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

Eurozone: Inflation Pressures Are Fading On The Back Of Easing Supply Problems

ING Economics ING Economics 23.11.2022 11:48
The eurozone composite PMI came in at 47.8 in November, slightly better than in October but nonetheless confirms a contraction in the business economy. The good news is that inflation pressures are fading on the back of easing supply problems and the imminent recession The slight increase in the November PMI was mainly driven by the manufacturing PMI     American economist Robert Solow famously said that the computer age was everywhere but in the productivity statistics. At the moment, we can say that the recession is everywhere except for in the GDP statistics. While the eurozone economy still eked out positive growth in the third quarter, it seems inevitable that a recession has started in the current quarter and today’s PMI figures confirm that. The slight increase in the PMI was mainly driven by the manufacturing PMI, which saw an uptick from 43.8 to 45.7. This is still showing a sharp contraction, but slightly less than last month. New orders continue to decline, meaning that current production is coming from a lot of previously built-up backlogs. The pace of decline in services was similar to October and fierce by historical standards. New orders continue to decline here too, and businesses are becoming increasingly reluctant to hire on the back of sluggish economic activity. The upside to the clearly recessionary environment is that inflationary pressures are fading. Weaker demand, lower energy prices than in August, and easing supply-side problems are all contributing to a softening of price pressures. While energy prices remain volatile and businesses are likely to still price through some of the higher costs incurred, these factors do point to a turning point in the inflation rate around the turn of the year. 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
The Bank Of England Has Warned That Negative Growth Will Extend All The Way

The Bank Of England Has Warned That Negative Growth Will Extend All The Way

Kenny Fisher Kenny Fisher 24.11.2022 11:33
The British pound has steadied on Thursday, after soaring 1.4% a day earlier. In the European session, GBP/USD is trading at 1.2074, up 0.17%. The pound has enjoyed a splendid November, gaining 5.3%. The upswing has been impressive but is more a case of a broad pullback in the US dollar rather than newfound strength in the pound. The UK economy is likely in a recession, and the outlook is as gloomy as a rainy November day in London. The October Manufacturing and Services PMIs remained mired in negative territory, pointing to contraction. The labour market has been a bright spot but that could soon change, with the Bank of England projecting that unemployment will double to 6.5%. The UK economy declined by 0.2% in Q3, and the BoE has warned that negative growth will extend all the way to the first half of 2024. With these formidable economic headwinds, it’s difficult to make a case for the pound continuing its upswing. Inflation has hit a staggering 11.1%, despite the BoE raising the cash rate to 3.0%. The bank pressed harder on the rate pedal at the last meeting, raising rates by 75 basis points. The BoE expects rates to peak at 5%, which means there’s a lot more tightening on the way. The bank will have to tread carefully in order not to choke off economic growth as it continues to tighten in order to curb red-hot inflation. Fed says pace of hikes will ease The Fed minutes reiterated what the Fed has been telegraphing for weeks; namely, smaller rates are on the way. Fed members agreed that smaller rate increases would happen “soon”, as they continue to evaluate the impact of the current policy on the economy. Members also noted that inflation was yet to show any signs of a peak. The markets aren’t completely convinced that we’ll see lower rates at the December meeting – the odds of a 75 basis point move are at 65%, with a 35% chance of a 50 bp increase. GBP/USD Technical 1.2040 and 1.1875 are the next support levels There is resistance at 1.2192 and 1.2357 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 Bank of Korea Is Likely To Respond With A Rate Cut In The Second Half Of 2023

The Bank Of Korea Is Close To Its Final Destination In Raising Interest Rates

ING Economics ING Economics 24.11.2022 11:49
The Bank of Korea raised its policy rate by 25bp today with a hawkish tilt, expecting inflation to remain higher than its target of 2% throughout next year. But, given the falling pipeline prices and growing concerns over growth, we believe that the BoK is close to its final destination in raising interest rates Source: Shutterstock   3.25% BoK's 7-Day Repo Rate    As expected Terminal rate debate will be continued The Monetary Policy Board unanimously decided to raise rates by 25bp today. Compared to the previous month, volatility in the FX market has calmed significantly and the credit squeeze in the short-term money market has worsened, thus the BoK returned to a normal rate hike pace. However, the board seems to have quite different views on the terminal rate - one for 3.25%, three for 3.5%, and two for 3.5%-3.75%, not including Governor Rhee Chang-yong's own opinions. Regarding future policy decisions, Governor Rhee mentioned that as CPI inflation over the next two months is expected to fall due to the high base last year, the BoK will be cautious about reading into those figures and will wait to see whether inflation rebounds again in January and February. Also, the Korean won has appreciated meaningfully but external factors such as the Federal Reserve's December rate hike and China's Covid policy stance are uncertain, so FX moves in the coming months are another factor to consider in future policy decisions.  We are maintaining our call for a 25bp increase in 1Q23, and now see a better chance of a rate hike in February rather than January unless the Fed surprises the market with another large step in December. As inflation is expected to slow in the future, we believe that financial market stability and growth should be the focus of the BoK from now on. Also, the BoK is expected to adjust its hiking pace as there is limited room for further rate hikes.    The BoK has downgraded its 2023 GDP and CPI inflation forecasts The BoK revised down quite meaningfully its GDP forecast for 2023 from 2.1% to 1.7%. Most of the downward adjustments come from the external demand component, with growth in major trading partners such as the US (0.3%), the EU (-0.2%) and China (4.5%) expected to slow down in 2023.  Meanwhile, the BoK forecast that next year's inflation would be only marginally lower, at 3.6% from 3.7%. The accumulated pressure to raise prices is expected to continue until next year, offsetting much of the weakening pressure on the demand side due to the economic slowdown. For the next couple of months, base effects will play a major role in inflation thus CPI inflation is expected to fall to the 4% level temporarily but rebound to the 5% level in January. The BoK expects prices for gas, electricity, and manufactured food to rise further early next year, thus headline inflation is expected to stay above 4% in the first half of next year. What we see similarly to BoK's outlook First, Korea's growth is largely dependent on the external demand condition. Both ING and BoK have a cloudy global outlook, which is expected to negatively affect Korea's growth next year.  Second, the semiconductor cycle is expected to bottom out in the second half of next year. The recent slump in exports is mainly driven by sluggish semiconductor exports, but exports should rebound in the second half of next year.  Third, investment is expected to fall due to tight financial conditions and the bleak outlook for the construction sector. Fourth, although credit tightening in the short-term money market and some market jitters will likely continue, this shouldn't threaten the overall financial system. We think some losses are expected in the Project Financing and construction industry, but the shock is expected to be contained within the sector. (Please see "South Korea: corporate debt is a concern for the economy). What we see differently to the BoK's outlook First of all, ING's 2023 GDP forecasts for the US and the EU are -0.4% and -0.7% year-on-year, respectively, which is weak compared to the BoK's own forecasts of 0.3% in the US and -0.2% in the EU. As mentioned earlier, considering Korea's high dependency on external demand, we see a bigger negative impact on Korea's exports and overall growth.   Second, private consumption is expected to shrink in the first half of next year as the debt service burden increases, while the BoK expects consumption to continue to recover. More than 70% of household debt is based on floating interest rates and more than 65% of households are indebted. We have been seeing the deleveraging of household debt mostly in personal loans for several months which is a good sign for long-term growth but, in the short term, the propensity of households to spend should weaken. In addition, the wealth effect of Korean households is expected to weaken as real estate prices will likely continue to adjust further. These are the reasons that we foresee sluggish private consumption in 1H23. Third, we believe that inflation will decline faster than the BoK's forecast. It is true that there have been accumulated price pressures in utilities and other service prices and Korea's CPI is more sensitive to supply-side inflation factors. But, we think the price declines in rent and housing should have a bigger impact in leading to a sharp decline while price hikes from reopening will likely dissipate as well.  ING vs BoK's outlook BoK, INGBoK releases bi-annual %YoY forecasts only. ING estimates quarterly growth based on the BoK's bi-annual numbers Forward-looking price components point to further deceleration in coming months In a separate report, the BoK announced its Producer Price Index for October. Headline PPI inflation slowed to 7.3% YoY in October (vs 7.9% in September) with goods prices down the most. Goods prices such as fresh food (4.1% vs 7.1% Sept) and industrial products (7.7% vs 9.6% Sept) all declined due to good harvesting of winter vegetables and the drop in gasoline prices. Meanwhile, utility (32.4% vs 25.2% Sept) and services prices (3.4% vs 3.3% Sept) continued to rise, reflecting the recent gas/electricity rates hike. The utility rate hike will have some lingering effects, pushing up service prices in a few months, but we believe that headline prices will continue to decelerate as demand-side pressures are expected to turn weak with higher interest rates.  We expect CPI inflation to decline quite sharply to 5.1% YoY in November (vs 5.7% in October) for the following reasons. The Korean won significantly stabilised compared to October, gasoline prices continued to decline, and fresh vegetable prices came down meaningfully during the month. Also, we believe that inflation will likely decelerate to the 4% level in 1Q23 although there will be additional utility rate hikes next year. Pipeline prices continued to drop since early summer CEIC TagsMonetary Policy GDP CPI inflation 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
South Korea Hopes To Achieve Carbon Neutrality By 2050

South Korea Hopes To Achieve Carbon Neutrality By 2050

ING Economics ING Economics 24.11.2022 12:19
South Korea hopes to achieve carbon neutrality by 2050 by expanding its renewable energy sources, namely nuclear power. In this article, our senior economist in Seoul looks at South Korea's journey to net-zero, and how this has been impacted by the war in Ukraine In this article Korea's electricity supply and demand South Korea’s efforts to achieve its net-zero 2050 target The Transition Committee’s five policy guidelines How has the war impacted the energy market? The Kori nuclear power plant in South Korea is the world's largest fully operational nuclear generating station    Korea's electricity supply and demand South Korea wants to pursue reliable and cheaper energy sources. In the following charts, we look at the reliability of South Korea's current energy supply. Industry (manufacturing) consumes more than half of electricity/energy Industry depends on more reliable and cheaper energy sources IEA, Kepco (LHS). KEEI as of 2020 (RHS)World as of 2019, Korea as of 2020 (LHS) This is to do with the structure of the Korean economy/industry Top electricity consumer shifted from Heavy Industry to IT. Both require a steady/reliable supply of electricity KEPCO Thus, Korea has been highly dependent on 'reliable' conventional energy Electricity generation heavily depend on coal, LNG, and nuclear Renewable facilities have grown fast to 14.5%. Power generation accounted 6% as of 2020 KEPCO   In the next set of charts, we look at how inexpensive power is in Korea. Inexpensive power: electricity consumption per capita ranked 13th Electricity is an important factor in the Korean economy, supporting the activities of industry and households BP statistical review of World Energy 2021 Almost 100% overseas dependence & isolated national power grid system The economy heavily depends on energy imports and households are more sensitive to energy prices KEEI and CEIC Higher energy prices affect Korea’s macro economy: inflation Households are more sensitive to energy prices and pay for electricity on a progressive rate KEEI, CEIC Higher energy prices affect Korea’s macro economy: trade balance CEIC Production of renewable energy (calorific unit) Renewable production increased steadily Korea Energy Agency, as of 2020Non-renewable waste data has been excluded since 4Q19 Inexpensive power: power purchasing unit cost by energy source Unit cost of renewable has lowered and has reached comparable levels for coal and hydro (if excluding RPS) KEPCOFore renewable, excluding RPS (Renewable Portfolio Standard) South Korea’s efforts to achieve its net-zero 2050 target Where does it want to be? South Korea has become the 14th country in the world to legislate a carbon target, aiming for a 40% reduction in emissions from 2018 levels by 2030 to achieve carbon neutrality by 2050 What has it been doing to get there? Since its formation in May 2021, the 2050 Carbon Neutrality and Green Growth Commission has implemented several measures in an effort to gradually move towards total carbon neutrality. The Carbon Neutrality Act, for example, became effective in March 2022 and aims to facilitate the transition to a carbon-neutral society and increased green growth. Alongside legislative changes, the government has also increased its 2022 carbon neutrality budget to KRW 12 trillion from the previous year’s KRW 7.3 trillion, with a newly established KRW 2.5 trillion climate fund. Following a change of government in early 2022, progress on energy policy has come to a halt. Although the previous administration was criticised for setting overly ambitious goals and disregarding corporate voices, the new government has confirmed that it intends to stick to the original plans, with details set to be reviewed more closely moving forward. The Ministry of Trade, Industry and Energy (MTIE) announced on 5 July that the government will resume the construction of Shin Hanul Units 3 and 4 nuclear reactors and maintain the current level of reactor capacity if safety is ensured. As a result, nuclear will be responsible for more than 30% of power by 2030, up from 27.4% last year. In addition, the Korean government plans to create a new law for disposing of high-level radioactive waste in order to reduce potential hazards, organising a team exclusively for nuclear waste management. The revised outline, including the target for renewables, will be detailed in the 10th Basic Plan on Electricity Demand and Supply due in the fourth quarter of 2022. The Transition Committee’s five policy guidelines 1. Feasible Carbon Neutrality Plan and energy mix No change for the internationally committed carbon neutrality objectives, but the implementation plans should be amended by embracing nuclear energy in its decarbonisation efforts. 2. Market-Based demand efficiency A market-based initiative to promote energy demand efficiency, and foster market principles and market competition. 3. Energy policy as a new growth engine Invest in nuclear power technology and export the K-nuclear plants. as well as foster renewable technologies such as solar, wind, and hydrogen as new growth engines 4. Strengthen resource security Secure a reliable supply chain of energy and core minerals and reinforce resource security. 5. Strengthen energy welfare policy Provide energy welfare policies for low-income households and reduce coal power generation, under the consideration of jobs and the local economy. How has the war impacted the energy market? Similar to other energy importers, South Korea is suffering from the ongoing war due to high inflation and worsening trade conditions. However, as a major refining/petrochemical exporter, South Korea has significantly reduced its oil imports from Russia and this trend is likely to continue. Meanwhile, LNG and coal imports have fallen but at a slower pace due to the high dependence on power generated by fossil fuels. South Korea plans to expand its renewable energy sources, with the anticipated gap likely to be filled by nuclear power. Given its value as a reliable and affordable renewable energy source, nuclear power is expected to become an increasingly critical point of focus for the government moving forward. What’s happened since the Ukraine war? South Korea’s imports of oil, coal, and LNG (in volume terms) CEIC Oil has seen the most dramatic change KITA (Korea International Trade Association) LNG: total imports volume declined -2.6% YoY due to high price Russia’s LNG import share significantly declined in 2022 and diversified imports sources 80% of LNG is provided under long-term contract KITA (Korea International Trade Association) Coal: Russian import share actually increased in 2022 KITA (Korea International Trade Association) TagsHydrogen Energy crisis Energy 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 China’s Covid Containment Continued To Negatively Impact The Output At The End Of 2022

Asia Market: Inflation Reports Will Be The Highlight

ING Economics ING Economics 24.11.2022 13:29
Regional PMI readings and inflation reports will be the highlight for the coming week In this article Regional PMIs Inflation from Australia, Indonesia and South Korea Growth numbers from India Other key data releases   Shutterstock   Regional PMIs Both official manufacturing and non-manufacturing PMIs for China should be in deeper contraction in October as the number of Covid cases increased, affecting both factory and retail activities. This should also be reflected in the Caixin manufacturing PMI numbers which could show a bigger contraction, as smaller factories are more adversely affected given the challenging logistical situation.  Meanwhile, PMI indices for both South Korea and Taiwan should edge lower due to stalling demand for semiconductors from the US, Europe and China. Inflation from Australia, Indonesia and South Korea Next week we have Australia's October CPI inflation. Inflation data has typically only been released quarterly so this provides us with much more insight into the evolution of prices and provides much more timely updates than we have been used to. We think the outcome will probably be close to the recent month-on-month rate of increase, which would keep it roughly in line with the same period last year and leave inflation at about 7.3%. That could be interpreted as the peak, so markets may respond positively to that. Inflation in Indonesia will likely pick up further, with core inflation likely accelerating to 3.5% year-on-year while headline inflation should settle at 5.9% YoY.  Elevated price pressures have kept Bank Indonesia busy lately with the central bank recently tightening by 50bp. We expect inflation to inch higher in the coming months which could ensure that BI will stay hawkish going into 2023.  Meanwhile, inflation in Korea is expected to decelerate quite sharply to 5.1% YoY, mainly due to base effects. Fresh food and gasoline prices stabilised during the month while pipeline prices suggest a further deceleration in the coming months. Growth numbers from India India releases 3Q22 GDP data next week. The 2Q figure was buoyed by base effects and came in at 13.51%, which although admittedly very high, was a disappointment, and led us to downgrade our GDP forecasts. We have 6.3% YoY pencilled in for the third quarter, as well as for the full calendar year 2023. Deficit data for October is also due, and will likely show that a modest improvement in India’s debt to GDP in 2022/23 remains on track. Something in the region of INR40,000 crore would be in line with recent deficit trends. Other key data releases In Korea, November exports will likely be disappointing as suggested by preliminary data reports. We expect a contraction of 10.5% YoY in November as semiconductor exports and exports to China remain sluggish. Slowing export activity should translate to industrial production contracting for a fourth straight month. Semiconductor and steel production will likely be a drag, but auto production should rebound. In Japan, the jobless rate may edge up to 2.7% (vs 2.6% in September), but overall labour market conditions remain healthy. However, given the disappointing 3Q GDP report, September industrial production is expected to drop 1.0% MoM, seasonally adjusted, with weak external demand pressuring manufacturing activity. TagsAsia week ahead 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
The Drop In German Inflation Is Welcome News, But It Is Mean That Can We Say That Inflation Has Peaked?

German GDP Showed Favorable Results | Switzerland Employment Level Keeps Its Trend

Kamila Szypuła Kamila Szypuła 25.11.2022 12:03
The end of the week is quiet due to America's lack of activity due to Thanksgiving. The market's attention will be focused mainly on the Asian and European markets. Today, an important report turns out to be the result of the German GDP. Tokyo CPI At the beginning of today, Japan, and more specifically Tokyo, published its inflation report. In this city, Core CPI increased from 3.4% to 3.6% and it was a higher than expected reading (3.5%). The upward trend of this indicator has been going on since the beginning of May, but since May Core CPI has been above 1.0%. Also CPI increased significantly from 3.5% to 3.8%. The consumer price index only in Tokyo excluding fresh food and energy prices held its previous level of 0.2%. In this city, the rate peaked this year in May (0.4%), and then fell twice. After that, from July to September it held the level of 0.3%. Singapore Industrial Production Singapore Industrial Production MoM increased significantly. Comparing October to September, the change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities was 0.9%, which is a good result as another decline was expected. The same index comparing the result from October 22 to October 21 has fallen. The fall was expected. The current reading is -0.8%, it is the first result in a year that was below zero, but it was higher than the expected -0.9%. This means that the change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities has decreased significantly, but not as much as expected. Source: investing.com German GDP In Germany, both the quarterly and annual change in gross domestic product turned out to be a positive surprise. GDP Q3 YoY was 1.2%. Unfortunately, it was a decrease in comparison to the previous period, the reading of which was at the level of 1.8%. This time it was expected to score 0.1% lower. A very positive result for the German economy as well as for the euro zone turns out to be the reading of GDP Q3 q/q. The index increased by 0.3% compared to the previous period and reached the level of 0.4%. An increase to 0.3% was expected, but the result higher than expected may raise some optimism. German GDP figures show the country’s economy has grown slightly more in the third quarter than anticipated on the back of consumer spending. Switzerland Employment Level The Employment Level measures the number of people employed during the previous quarter. As the current reading shows, the exemplary trend is successively maintained. Employment increased this time to the level of 5,362M. The previous reading was about 46M than (5,316M). Such results show the good condition of the economy, because employment increases household income, and thus these households are able to spend more, which drives the economy because money remains in constant circulation. ECB’s speeches Markets expect only two speeches at the end of the week, and this time only from the European Central Bank (ECB). The first speeches took place at 9:50 CET. The European Central Bank Supervisory Board Member Kerstin af Jochnick spoke. The second and final speech of the day will take place at 18:00 CET, with Luis de Guindos, Vice-President of the European Central Bank The speeches of the ECB's officials often contain references to possible future monetary policy objectives, assessments and measures. What's more, statements can give strength to the euro (EUR), or set it in the opposite direction. Summary: 0:30 CET Tokyo CPI 0:30 CET CPI Tokyo Ex Food and Energy (MoM) (Nov) 6:00 CET Singapore Industrial Production MoM 8:00 CET German GDP (Q3) 8:30 CET Switzerland Employment Level 9:50 CET ECB's Supervisory Board Member Jochnick Speaks 18:00 CET ECB's De Guindos Speaks Source: https://www.investing.com/economic-calendar/
A Better-Than-Expected US GDP Read, Nvidia Extends Rally

The Outlook For The US Economy | US GDP Ahead

Kamila Szypuła Kamila Szypuła 26.11.2022 18:26
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
RBA Governor Announces Major Changes at RBA Board as US Inflation Expected to Decline

Elon Musk Introduces Verified Accounts On Twitter

Saxo Bank Saxo Bank 28.11.2022 08:57
Summary:  A pivotal post-holiday week ahead kicked off with risk-off due to protests in China over the Zero covid policy, and China PMIs due this week could potentially signal demand weakness as well. The week is also key for US data and Fed as financial conditions are the easiest since May and more pushback may be on the cards with the most hawkish members of the Fed board, Powell and Bullard, on the wires this week before the FOMC quiet period kicks in. We also get ISM manufacturing, PCE inflation and jobs data that will be key for the dollar. Eurozone inflation may soften, but that won’t be enough for the ECB to take the foot off the pedal, while Australian CPI will pressure the RBA to continue with its steady rate hikes. An important week ahead for incoming US data: ISM manufacturing, PCE inflation and jobs data to be key for the dollar This week will offer an interesting test for markets, including the US dollar, which trades at pivotal levels, as we have a look at the next important data macro data points out of the US, especially the PCE inflation data and the Friday November jobs report. Core PCE is forecast to rise 0.3% MoM in October from 0.5% previously. In addition, we’ll have a look at the ISM manufacturing survey for the month on Thursday, which is also expected to slip into contraction after the decline in S&P flash PMIs last week resulted in further easing of Fed tightening expectations. The question for the run-up into the December 14 FOMC meeting and in the month or so beyond is how long the market can continue to celebrate the Fed easing off the accelerator, when the reason it is doing so is that economic slowing and an eventual recession threaten. Normally, a recession is associated with poor market performance as profits fall and credit risks mount. Bullard and Powell speak – pushback against easing financial conditions? While the economic data continues to slow, and markets continue to cheer on that, it will key for Fed members to bring the focus back to easing of financial conditions and consider what that means for inflation. Chicago Fed national financial conditions index eased further in the week of November 18, bringing financial conditions to their easiest levels since May. Most of the Fed members that have spoken since that soft CPI release for October have pushed back against pivot expectations, but it hasn’t been enough. Further pushback is still needed if the Fed is serious about bringing inflation under control, and only the most hawkish members of the committee Bullard and Powell may be able to deliver that. Both will be on the wires this week. Bullard speaks on Monday while Powell discusses the economic outlook and labor market on Wednesday. Other Fed members like Williams, Bowman, Cook, Logan and Evans will also be on the wires. China PMIs likely to show demand weakness, Asia PMIs also due China’s NBS manufacturing PMI is expected to decline to 49.0 in November, further into the contractionary territory, from 49.2 October, according to the survey of economists conducted by Bloomberg. The imposition of movement restrictions in many large cities has incurred disruption to economic activities. High-frequency data such as steel rebar output, cement plants’ capacity utilization rates, and container throughputs have weakened in November versus October. Likewise, the Caixin manufacturing PMI is expected to drop to 49.0 (Bloomberg survey) in November from 49.2 in October. Economists surveyed by Bloomberg expect the NBS Non-manufacturing to slow to 48.0. in November from 48.7 in October, on the enlargement of pandemic containment measures. PMIs for other Asian countries are also due to be reported this week, and the divergence between the tech-dependent North Asian countries like Taiwan and South Korea vs. more domestic-oriented South Asian countries like India and Indonesia will likely continue, with the latter outperforming. EUR may be watching the flash Eurozone CPI release Eurozone inflation touched double digits for October, and the flash release for November is due this week. The headline rate of the harmonized index of consumer prices (HICP) is expected to ease slightly to 10.4% YoY from 10.7% YoY last month. The core rate that excludes food and energy prices is forecast to however remain unchanged at 5% YoY. This print will be key for markets as the magnitude of the ECB’s next rate hike at the December meeting is still uncertain, and about 60bps is priced in for now. But even with a slight cooling in inflation, which will most likely be driven by lower energy costs, there is a possibility that inflation will likely remain high in the coming months as winter months progress and cost of living gets worse. Australia’s economy continues to weaken. Retail slides. CPI data is the next catalyst Australia has continued to receive mostly weaker than expected economic data, that support the RBA’s dovish tone. Today Australian retail trade data unexpected fell, showing sales dropped 0.2% from the prior month. This reflects that consumers are feeling the strain of inflation and rising interest rates. As a house, Saxo thinks further weakness in spending is likely ahead in 4Q and into 2023, with the full impact of rate hikes passing through households, and increasing amount of Australian in financial duress. This view is somewhat supported by the RBA’s thinking. The data the RBA will be watching next is ; Australian inflation data for October, released Wednesday 30 November. Inflation is likely to have fallen over the month, however consensus expects inflation to have increase year on year, up 7.6% year on year. If the market thinking comes to fruition, this would show Australian inflation rose from the prior reading (whereby CPI rose 7.3% yoy). Regardless, if inflation does rise, we think the RBA will likely save face, and keep hiking rates by 0.25%, with its next hike due December 6. Twitter to launch its ‘Verified’ service After Musk acquired Twitter last month for $44 billion, he plans to "tentatively" roll out its verified service on December 2, with multiple colours for different types of users. Blue checks will be allotted to people, while verified company accounts will get gold checks and grey marks will be given to governments. Musk said all verified accounts will be manually authenticated, before the check activates, which will be cumbersome. Twitter recently halted the launch of its $8 verified service, as it failed to cease impersonation issues the company has been having. Key earnings to watch this week Peter Garnry highlights earnings results to watch in his note. Pinduoduo on Monday is the key earnings focus in China with analysts expecting Q3 revenue growth of 44% y/y and the EBITDA margin staying at healthy levels around 21.2%. The main menu next week is on Wednesday with earnings from US technology companies Salesforce and Snowflake. Analysts expect Salesforce FY23 Q3 (ending 31 October) revenue growth to decline to 14% y/y down from 27% y/y a year ago and analysts expect Snowflake to report FY23 Q3 (ending 31 October) revenue growth of 61% y/y down from 110% y/y a year ago. Expectations for both companies highlight the slowdown in technology enterprise spending that we have seen from other technology companies including Intel, HP etc. Key economic releases & central bank meetings this week Monday, Nov 28 Eurozone M3 (Oct)UK CBI Retail Sales (Nov)U.S. Fed Bullard at MarketWatch Live Event Tuesday, Nov 29 U.S.  Conference Board Consumer Confidence (Nov)U.S. St. Louis Fed President Bullard speechJapan Unemployment Rate (Oct)Japan Retail Sales (Oct) Wednesday, Nov 30 U.S. ADP Private Employment (Nov)U.S. JOLTS Job Openings (Oct)U.S.  Fed Chair Powell speechEurozone HICP (Nov, flash)Germany Unemployment Rate (Nov)Japan Industrial Production (Oct)Japan Housing Starts (Oct)China NBS Manufacturing PMI (Nov)China NBS Non-manufacturing PMI (Nov)India Real GDP (Q3)Thailand Bank of Thailand policy meeting Thursday, Dec 1 U.S. PCE (Oct)U.S. ISM Manufacturing (Nov)U.S. Initial Jobless Claims (weekly)Eurozone Unemployment Rate (Oct)Japan Capital Spending (Q3)Japan Consumer Confidence (Nov)China Caixin China PMI Manufacturing (Nov) Friday, Dec 2 U.S. Nonfarm Payrolls (Nov)U.S. Unemployment Rate (Nov)Eurozone PPI (Oct)   Key earnings releases this week Monday: Pinduoduo, Capitaland, H World Group Tuesday: Li Auto, DiDi Global, Bank of Nova Scotia, Intuit, Workday, Crowdstrike, HP Enterprise, NetApp, Shaw Communication Wednesday: Royal Bank of Canada, National Bank of Canada, Salesforce, Synopsys, Snowflake, Splunk, Hormel Foods, KE Holdings Thursday: Canadian Imperial Bank of Commerce, Bank of Montreal, Toronto-Dominion Bank, Marvell Technology, Veeva Systems, Ulta Beauty, Zscaler, Dollar General, Kroger     Source: https://www.home.saxo/content/articles/macro/saxo-spotlight-28-nov-2022-28112022
Belgium: Core inflation rises, but the peak is near

Belgians Are Looking For Savings To Cope With The Rising Cost Of Living

ING Economics ING Economics 29.11.2022 11:27
A new ING survey on a representative panel shows that nine in ten Belgians are reducing their energy consumption and six in ten are even saving on daily expenses. Over the next six months, they plan to step up their efforts. Online spending is also under pressure, even more so than in other countries. This will adversely impact economic activity In this article High inflation prompts six in ten Belgians to save on daily expenses Four in ten Belgians see energy bill more than doubling in last six months Decline in online purchases for all spending categories Belgians are much more cautious than their neighbours when it comes to budgeting Belgian economy dives into the red     High inflation prompts six in ten Belgians to save on daily expenses Belgians are looking for savings to cope with the rising cost of living. An international ING survey, conducted in early November in Belgium, the Netherlands, Germany, Romania, Poland, Turkey and Spain, shows that almost six in ten Belgians are saving on fresh food and groceries (see chart 1). A slight majority of Belgians also cut their clothing expenses. The Belgian urge to save is also slightly higher than in Germany for most product categories. While in Belgium, 58% already save on daily expenses, in Germany this is 'only' 50%. Remarkably, about half of Belgians also cut back on their spending on catering, travel and leisure activities, sectors that benefited greatly from the end of the pandemic. Compared to the results of the same survey in March 2022, the number of households cutting back on their consumption has risen sharply. In addition, many households plan to reduce their spending further in the coming months. While this was only 44% in March, 57% of Belgians say they are already saving on daily expenses and 60% expect to do so in the next six months. More and more Belgians are cutting back on their spending Due to rising prices, I try to save on... (% of respondents) ING consumer survey November 2022 Four in ten Belgians see energy bill more than doubling in last six months The extreme caution of households is obviously due to the energy crisis. According to the survey, the energy bill has more than doubled for four out of ten Belgians over the last six months. For almost one in ten, it has increased more than fivefold. In this context, the number of households taking measures to save energy and try to reduce the impact of the price increase has risen sharply, from 77% in March to 86% today. More than six out of ten Belgians say they are cutting back on heating, while four out of ten respondents say they are more economical with the use of electrical appliances, such as dishwashers (see chart 2). Six in ten Belgians turn down heating In what ways do you try to reduce your energy bills? (% of respondents) ING consumer survey November 2022 Decline in online purchases for all spending categories During the pandemic, Belgians appeared to be very active online shoppers, but the unusually sharp increase during the pandemic seems to be normalising somewhat. Almost a quarter (23%) of respondents say they have been buying online less often since the end of the pandemic, compared to only 15% who say they are buying online more often. When asked whether they expect to spend more online during the holidays than last year, one in four Belgians (25%) said they would spend less. The survey results show that the decline is mainly due to a general deterioration in the economic climate and not to consumers buying more in physical shops since the relaxation of health restrictions. Indeed, the percentage of respondents saying they spend relatively more in physical shops than online (21%) is balanced by the percentage saying they buy relatively more online than in physical shops (23%). Moreover, a significant proportion of the households also say they plan to further reduce their online purchases in the coming year. For instance, only 9% of respondents plan to buy more clothes online in the coming year, while 28% plan to buy less (see chart 3). Although the decline seems stronger for electronics and clothing, the trend is clearly felt across all product categories. It is therefore likely that the decline in online spending will be widespread in the coming months. No sector seems to be able to escape the economic downturn. Lots of families plan to further cut online budgets next year Do you plan to purchase more online in the coming months (% of respondents)? ING Consumer Survey November 2022 Belgians are much more cautious than their neighbours when it comes to budgeting The share of households planning to reduce their online spending is significantly higher in Belgium than in the Netherlands and Germany, and this is true for almost all product categories (see chart 4). While, for example, 28% of Belgian respondents said they would like to buy fewer clothes and shoes online, this is only 14% in the Netherlands and 23% in Germany. Although Belgians' purchasing power is much better protected compared to other eurozone countries thanks to the automatic indexation of wages, the crisis seems to have a greater impact on consumption patterns in Belgium than in other countries. Belgians seem much more cautious and willing to economise more to get through this difficult period. More Belgians cut online budget than neighbouring countries Do you plan to buy less online in the coming months (% of respondents)? ING Consumer Survey November 2022 Belgian economy dives into the red Belgians are massively looking to save money to cope with the rising cost of living. This will have an impact on economic growth in Belgium. The Belgian economy has already contracted slightly (-0.1%) in the third quarter, and this is expected to continue in the coming quarters. We expect economic growth to be negative in 2023. The full study is available in Dutch and French. TagsGDP Eurozone Energy crisis Consumption 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
Spain: Price Pressures Higher Up The Production Chain Are Starting To Ease

Spain: Price Pressures Higher Up The Production Chain Are Starting To Ease

ING Economics ING Economics 29.11.2022 11:32
Spain's inflation figure fell again sharply in November and is now already four percentage points below its peak level in July. The decline will continue in the coming months In this article Spanish inflation falls for the fourth month in a row Spanish inflation now significantly below eurozone average The light at the end of the inflation tunnel is getting brighter     Spanish inflation falls for the fourth month in a row Spanish inflation was 6.8% year-on-year in November, down from 7.3% in October. Over the month, consumer prices fell by 0.1%. The harmonised index was 6.6%, down from 7.3% in October. This development was mainly due to a fall in fuel prices last month, while they rose in November last year. Also, price increases for clothing and footwear were more moderate last month than in November 2021. Spanish inflation now significantly below eurozone average Spanish inflation has generally been above the eurozone average since the beginning of the year, but has fallen sharply since peaking at 10.7% in July. The weight of food in Spain is much higher than the eurozone average, which turbocharged the sharp price increases within this component. Hospitality also contributed more to price increases than the eurozone average, through a combination of faster rising prices but also a greater weight in the inflation basket. After its peak level, Spanish inflation has fallen sharply, making it unique in the euro area. Energy inflation has fallen sharply and is well below the eurozone average. Energy prices in Spain rose sharply in autumn 2021, making the year-on-year comparison much weaker this year.  Also the VAT cut on gas and electricity eased energy inflation. Details by component for November are not yet available, but October data showed that electricity inflation already turned negative last month (-15.4%) while also gas inflation fell sharply to 13.3% in October from 24.3% a month earlier. This decline will manifest itself further in the coming months. Spain’s inflation slowdown has set in earlier INE, Eurostat The light at the end of the inflation tunnel is getting brighter Price pressures higher up the production chain are starting to ease. Both commodity prices, freight costs for transport and factory prices are starting to fall sharply from their recent peak levels. Last Friday, Spain's statistics office INE announced that producer prices fell again in October. While producer price inflation was still 42.9% in August, it fell to 26.1% in October, its lowest level since September 2021. Moreover, it is also becoming increasingly difficult for companies to implement new price increases as demand has fallen and inventories have risen sharply. Inflation will gradually continue to normalise in 2023, but it will probably take until 2024 before inflation hovers around 2% again, the ECB's target. The development next year will depend on several factors, such as the prices of energy and other inputs on international markets, the fall in demand, the euro-dollar exchange rate and the speed at which falling prices higher up the production chain lead to lower prices for consumers. We expect inflation to reach 4.4% on average next year. TagsSpain Inflation 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
RBA Pauses Rates, Australian Dollar Slides 1.3% on Economic Concerns; ISM Manufacturing PMI Expected to Remain Negative

Switzerland Gross Domestic Product (GDP) And Spanish CPI Fell Sharply

Kamila Szypuła Kamila Szypuła 29.11.2022 12:09
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 ECB Has Made It Clear That Rates Will Remain High Until There Is Evidence That Inflation Is Falling Toward The Target

Eurozone: The Recession Is Becoming More Apparent

ING Economics ING Economics 29.11.2022 12:26
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
The Melbourne Institute Inflation Gauge For Australia Rose More Than Expected

Asia: October CPI Data For Australia Surprised

ING Economics ING Economics 30.11.2022 08:13
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
Assessing 'Significant Upside Risks to Inflation': Insights from FOMC Minutes

Rates Spark: Market Participants Await Nervously Powell’s Speech (Fed) This Evening

ING Economics ING Economics 30.11.2022 08:25
Back in August, the Fed pushed back against an easing of financial conditions and triggered a sizeable sell-off in Treasuries. Markets will be wary of a repeat of this pushback in today’s speech by Fed Chair Powell In this article The Treasury market is nervous about a repeat of the August hawkish Fed pushback Closer to the end of this cycle but the 5Y is most at risk of cheapening today Today’s events and market views   The Treasury market is nervous about a repeat of the August hawkish Fed pushback Market participants await nervously Powell’s speech this evening after the October CPI report sent bond yields lower and riskier asset prices higher. Even if the surprise slowdown in inflation is good news, it is only the first in a long series of conditions the Fed needs to see before it pauses its hiking cycle. Longer-term, the direction of travel is indeed towards lower inflation and an end to this tightening cycle but we expect the Fed to take Fed Funds rates some 100bp higher than currently, just under 5%, before this is the case. The Fed will be wary of markets undoing some of the painstakingly-delivered tightening of financial conditions There is just over two months to go before the last hike in this cycle in our view. In the meantime, the Fed will be wary of markets undoing some of the painstakingly-delivered tightening of financial conditions. There is a precedent. In June to August of this year, 10Y Treasuries rallied 90bp peak to trough, helped by a lower-than- expected inflation report. This prompted a strong pushback from Fed officials in August, culminating in Powell’s Jackson Hole speech. Treasuries went on to sell off 167bp. The drop in nominal and real Treasury yields prompted a pushback by the Fed Refinitiv, ING Closer to the end of this cycle but the 5Y is most at risk of cheapening today Where this phase is different is that the Fed is having a harder time delivering its hawkish message as it signalled in no uncertain terms that the pace of hikes will soon reduce from 75bp to 50bp per meeting. There is still one employment and one inflation report before the December 14th meeting, but the burden of the proof is on those calling for another 75bp hike. Still, the 50bp drop in nominal 10Y Treasury yields, and 26bp in real yields, is a headache for the Fed. So is the aggressive flattening of the term structure, meaning that even if markets continue to expect the Fed to deliver hikes, the effect of these hikes do not feed through to longer borrowing costs. With Treasury yields over 100bp below where we expect the Fed funds rate to peak, we think the market is vulnerable to a sell-off around Powell’s speech. The 50bp drop in nominal 10Y Treasury yields, and 26bp in real yields, is a headache for the Fed Curve flattening is an inevitable effect of markets seeing the end of the Fed’s cycle, but we think this makes the sectors that rallied the most into today’s speech most at risk of a retracement. Rather counter-intuitively, this should mean a re-steepening of the 2s10s slope on the Treasury curve. If Powell is successful in delivering his hawkish message, the 5Y point on the curve should retrace its recent outperformance, which will be visible in a richening of the 2s5s10s butterfly. The curve flattening and richening of the 5Y point are at risk of retracing around Powell's speech Refinitiv, ING Today’s events and market views The eurozone HICP inflation looms large on today’s agenda. Spanish and German releases yesterday came on the low side of expectations, although this was less visible in the EU-harmonised measure that is most relevant for today’s HICP print. Still, a confirmation that other member states are also seeing inflation ease off, however slightly, is welcome news for markets that looked overstretched after their November rally. German unemployment figures complete the list of European releases. In bond supply, Germany will auction 10Y debt. Fed Chair Jerome Powell is due to speak this evening. We expect him to push back against the tightening of financial conditions that occurred in the wake of the lower- than-expected CPI report. US releases feature the second reading of US third quarter GDP, including core PCE. This will complete the ADP employment report, Chicago PMI, job openings, and pending home sales. 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 Downside For The AUD/USD Pair Is Likely To Remain Cushioned

Drop In Inflation Vindicates The Reserve Bank Of Australia's (RBA) Dovish Pivot

ING Economics ING Economics 30.11.2022 08:49
Monthly inflation data not only provides a more timely look at Australia's inflation than the old quarterly series, it has also ushered in some welcome lower numbers 6.9% October inflation (year-on-year) Back to school effect?  Lower Both headline inflation and core rates fall in October Against expectations for an increase, both headline and core inflation rates for Australia's monthly inflation series fell in October. The headline inflation rate fell from 7.3% year-on-year in September to only 6.9% YoY in October. The monthly trimmed mean index inflation rate also fell slightly, to 5.3%YoY from 5.4%.  When we examine the components of the index, we can see that most of the current rate of inflation is being driven by housing components (in particular house purchase costs), food and beverages, and transport. However, this month, it was smaller increases in recreation as well as some moderation in the high rates of food price inflation that led to the lower-than-expected figure for October.  The particular recreation sub-component that provided the biggest impact to the headline rate was holiday accommodation and travel. The Australian Bureau of Statistics (ABS) says of this component "The monthly fall in holiday travel and accommodation was driven by the conclusion of the school holiday period and the end of the peak tourist season for travel to Europe and America".  Contributions to year-on-year inflation rate (pp) CEIC, ING What now for the Reserve Bank of Australia? This drop in inflation vindicates the Reserve Bank of Australia's (RBA) dovish pivot some months ago when it decided to only increase rates at a 25bp per meeting pace. At 6.9%, inflation is still way too high for comfort, but we believe that the RBA will see this as confirmation that it is on the right track, and that further declines could lead them to entertain thoughts of a pause in rates.  We are currently forecasting a fairly low peak in the cash rate target at only 3.6% in 1Q23 next year. But while there remains considerable uncertainty about the future path of both inflation and rates, today's numbers provide us with some encouragement that we are not too far off the right track.  TagsRBA rate policy Australia inflation Australia 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
FX Daily: Asymmetrical upside risks for the dollar today

The US Dollar (USD) Is Rising Right And Market Is Awaiting For Fed President Jerome Powell's Speech

InstaForex Analysis InstaForex Analysis 30.11.2022 09:10
The current wave markup is quite clear, and the news background is complex. The US dollar is rising right now. However, the market is unwilling to increase demand for it in any way, so even if one downward correction wave is constructed, there are still significant issues. Recalling the numerous FOMC members who have spoken on the state of the economy in recent weeks, their rhetoric has become even more strident. Although the market is anticipating a slowdown in the PEPP's rate of tightening, Fed officials' rhetoric indicates that it is still getting tighter, so this is a good time for the US dollar to resume its upward trend. But as I've already mentioned, the market is unimpressed with the dollar and is unwilling to purchase it for some reason. What exactly is causing the market's fear? The rate will increase in the US for at least a few more meetings. After that, it will stay high for at least 1.5 years. How many more shocks to the world economy can there be in the next 1.5 years? How many more geopolitical conflicts and escalations will we witness during this period? And the US dollar continues to be a reserve currency, with rising demand in challenging times. Therefore, I wouldn't conclude that the market has lost faith in the dollar and is now disillusioned with it. Market players are watching for a significant event to restart its increasing demand. What incidents can be called iconic? First, Fed President Jerome Powell will deliver today's speech. Although Mary Daly's and James Bullard's opinions are undoubtedly noteworthy and carry significant weight, Powell's rhetoric is still far more significant. The market may not take Daly or Bullard at their word, but it is much more likely to listen to what the FOMC chairman says. Additionally, Powell's rhetoric no longer raises any concerns. Powell is also expected to discuss the necessity of maintaining the rate above 5% for a considerable time. What additional "hawkish" elements does the market require? A new nonfarm payroll report for the US will be made public on Friday. Although this indicator's value has been declining in recent years, it is still at levels that cannot be considered weak. Please remind me that the Federal Reserve and Congress think the labor market is still in excellent shape and that it is inappropriate to discuss a recession in the American economy. The market may increase demand for US currency if Friday's payrolls again show a respectable value. The fact that the rate is rising and the labor market is holding steady is just a fantastic alignment for the American economy. A new report on US inflation will be released in mid-December, and that report will serve as the foundation for the decisions made at the FOMC meeting that same month. If inflation resumes its insignificant slowdown, the FOMC members' rhetoric may become more constrictive. Any of this will not harm the US dollar. The market itself is still the problem. I conclude that the upward trend section's construction is complete and has increased complexity to five waves. As a result, I suggest making sales with targets close to the estimated 0.9994 level, or 323.6% Fibonacci. There is a chance that the upward section of the trend will become more complicated and take on an extended form, but this chance is currently at most 10%. The construction of a new downward trend segment is predicated on the wave pattern of the pound/dollar instrument. Since the wave marking permits the construction of a downward trend section, I cannot advise purchasing the instrument. With targets around the 1.1707 mark, or 161.8% Fibonacci, sales are now more accurate. The wave e, however, can evolve into an even longer shape. Relevance up to 06:00 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/328530
Decarbonizing Steel: Contrasting Coal-based and Hydrogen-based Production Methods

Forex Market: The Inflation Print Will Be Key For The Polish Zloty (PLN)

ING Economics ING Economics 30.11.2022 09:20
Fed Chair Jerome Powell will remind the market of the central bank's hawkish determination today, supporting the dollar. Meanwhile, softer inflation is trimming expectations in the eurozone. Polish inflation will test the central bank's decision not to raise rates. And the EC will publish a statement on Hungary and its rule-of-law progress In this article USD: Holding pattern EUR: Inflation plays second fiddle to Powell GBP: Lack of domestic drivers CEE: Polish inflation will test central bank dovish camp   Federal Reserve USD: Holding pattern Despite geopolitical challenges to the East, it has been a quiet start to the week for FX markets. The trade-weighted dollar index DXY is tracing out a relatively narrow range in the 105.30 to 108.00 area. The next clear catalyst on the agenda is a speech by Fed Chair Powell tonight at 1930CET discussing the economy and the labour market. This comes at a time when the buy-side report two of their top three tail risks as: i) inflation staying high and ii) central banks staying hawkish. (The third being geopolitics.) We would say that Chair Powell has recently shown to be at the more hawkish end of the spectrum and that tonight’s event risk is a positive one for the dollar. Dollar price action after Chair Powell’s speech should also tell us something about FX positioning. If the dollar fails to rally on a hawkish speech it may continue to tell us that the market is caught long dollars at higher levels and that some further consolidation may be due into December. For the time being, however, we think the macro environment continues to favour the dollar and see Powell’s speech, the October PCE price data (Thursday) and November jobs data (Friday) as upside risks to the dollar. Chris Turner EUR: Inflation plays second fiddle to Powell Spanish and German inflation came in lower than expected yesterday. The German CPI fell 0.5% to 10.0% in November, thanks primarily to the energy base effect and lower prices for leisure and entertainment following the autumn holiday period, while food prices continued to rise. Our economics team remains sceptical that this is the series' peak, and we expect inflation to accelerate again in December. Yesterday’s numbers mean that markets are expecting a lower reading in the eurozone-wide CPI today. However, some impact on European Central Bank rate expectations has already occurred, as markets have trimmed around 7bp from December pricing, which is now at 54bp. President Christine Lagarde is scheduled to speak at least twice more before the 15 December policy announcement, but she may not change markets' expectations of a 50bp hike. The impact of the inflation story on the EUR/USD has been, predictably, limited. External factors and dollar dynamics continue to drive the pair's performance, and we see downside risks today given that Fed Chair Powell is scheduled to speak later. A break below 1.0300 could fuel more bearish momentum, bringing EUR/USD back to the 1.0200/1.0250 levels seen earlier this week. This morning, Norges Bank will publish daily FX sales for the month of December. Higher-than-expected NOK sales in 3Q22 contributed to NOK weakness, but the Bank unexpectedly reduced them in November from NOK 4.3 billion to 3.7 billion. Any further reductions may support the currency today. Francesco Pesole GBP: Lack of domestic drivers Yesterday’s testimony by Bank of England Governor Andrew Bailey did not yield any market-moving headlines. Today we’ll hear from Chief Economist Huw Pill, who recently pushed back against a 75bp hike and may therefore keep BoE rate expectations in check. Cable to test 1.1800 as Powell’s speech may support the dollar today. Francesco Pesole CEE: Polish inflation will test central bank dovish camp Today's calendar offers November inflation in Poland, the first print in the CEE region. We expect inflation to be unchanged at 17.9% year-on-year, close to market expectations. However, as usual, the range of surveys is wide, and in addition, Polish inflation has by far posted the biggest surprise in the region over the past three months. Given the pause in the National Bank of Poland's hiking cycle, we can expect a lot of market attention. We will also see the second release of Poland's 3Q GDP, which surprised positively in the flash reading (0.0% vs 0.9% quarter-on-quarter) a few weeks ago. In Hungary, PPI for October will be published and later today the European Commission is expected to release a statement on the progress made in the rule of law dispute and Hungary's access to EU funds. The statement should have been published last week; however, the EC requested more time. Reports from journalists suggest that the EC will recommend freezing part of the cohesion funds with conditions to be met by Hungary but will also recommend approval of the Recovery Plan. Yesterday's reports also suggest that the Ecofin decision will be postponed from 6 December to 12 December, but Hungarian officials remain optimistic about the final decision. In the Czech Republic, the Czech National Bank will publish its semi-annual Financial Stability Report including possible changes to macroprudential tools. We do not expect significant changes to the current mortgage rules or capital requirements for the banking sector, but we will see a press conference later today, which should be attended by the governor, who has not been seen in public very often in recent months. In the FX market, the inflation print will be key for the Polish zloty, which could revive market expectations and support the zloty in the short term. However, unchanged inflation would leave the zloty under pressure from a stronger dollar, moving back above 4.70 per euro, in our view. The Hungarian forint should benefit from the normalisation of EU relations and the end of the risk of a permanent loss of EU money. This should help the forint below 405 per euro. Frantisek Taborsky 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 strikes will cause limited economic impact

France: Stabilisation Of Inflation Can Be Seen As Good News

ING Economics ING Economics 30.11.2022 10:26
Inflation stabilised at 6.2% in France in November, but it has not reached its peak. Inflationary pressures are likely to intensify further in 2023 We expect French inflation to be around 5% for the whole of 2023   Consumer price inflation stood at 6.2% in France in November, unchanged from October. The monthly variation in prices was +0.4% against +1% in October. The less dynamic evolution of the price of petroleum products, after October was marked by fuel shortages, made it possible to compensate for the drop in the fuel rebate, which went from €0.30/litre to €0.15/litre in mid-November. As a result, energy inflation stood at 18.5% compared to 19.1% in October. A considerable level, but still much lower than in other European countries. The various measures taken by the government, including the tariff shield on the price of gas and electricity, have removed 2.5 points from inflation. In addition, food prices continue to accelerate, by 12.2% over one year, against 12% in October, as do those of manufactured goods (4.4% against 4.2% the previous month). Services inflation is stable, and comparatively low, at 3%. The harmonised index, important for the European Central Bank (ECB), remained stable at 7.1%. Overall, while this stabilisation of inflation can be seen as good news, it does not mean that inflation has peaked. On the contrary, the peak of inflation in France is still to come. A further acceleration of prices for December It is likely that inflation will rise again in December, probably reaching 6.5%. Indeed, the fuel rebate will be less important during the whole month of December than it was on average in November. In addition, past sharp increases in producer prices will continue to be passed on to consumer prices for manufactured goods and food. According to statistics published today by INSEE, the national statistics bureau of France, producer prices rose at a slower pace in October, with an annual increase of 21.4% compared to 26% in September. Although producer prices appear to have peaked, producer price inflation remains historically high, and this should continue to be reflected in the consumer price index in the coming months. Inflationary pressures will intensify further in 2023 Inflation in France is expected to rise further in early 2023. Indeed, due to regulations and contracts, many price revisions can only take place once a year, usually at the beginning of the year. This is particularly the case in the transport sector. These price revisions will significantly boost inflation in the first quarter of 2023. Moreover, companies seem confident in their ability to pass on past cost increases to their prices. In November, according to the European Commission's survey, companies' expectations regarding selling prices rose again, both in industry and in the services sector, despite the context of slowing demand. Strong inflationary pressures therefore still seem to be on the cards and core inflation is likely to rise further in early 2023. Furthermore, the energy inflation faced by households in 2023 will be influenced by the tariff shield, which foresees a 15% increase in the price cap for gas and electricity (compared to a 4% increase in 2022). The revision of the cap and the end of fuel rebates could add up to one percentage point to French inflation from January. As a result, energy inflation in France will continue to rise sharply next year, while it will start to fall in other European countries due to more favourable base effects. The peak of inflation in France should therefore only be reached later in 2023, and French inflation will fall much less rapidly than in neighbouring countries. The "delayed" peak in French inflation is bad news for the ECB, as average inflation in the euro area is likely to fall less quickly than expected. We expect French inflation to be around 5% for the whole of 2023, after 5.3% in 2022.  TagsInflation 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
Spanish economy picks up sharply in February

Spaniards Are Looking To Save On Energy Consumption

ING Economics ING Economics 30.11.2022 10:33
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
Nuclear Power Emerges as Top Theme for 2023, Bubble Stocks Under Pressure

Alberto Gandolfi Statement About Renewables Energy Sources| What To Expect From 2024?

Kamila Szypuła Kamila Szypuła 30.11.2022 11:35
Markets are constantly changing, economic and political situations exert influence on them. Understanding them is very important, and getting acquainted with important events or statements about their team can help in making decisions. In this article: What can bring 2024? UBS Year Ahead 2023 Renewables in Europe The housing market The price of energy insecurity 2024 ahead and what else? Morgan Stanley tweets about the difficulties facing Europe next year. As we head into a new year, Europe faces multiple challenges across inflation, energy and financial conditions, meaning investors will want to keep an eye on recession risk, the ECB, and European equities. https://t.co/0Wtj18Dmbj pic.twitter.com/ImPUGRiuhd — Morgan Stanley (@MorganStanley) November 29, 2022 The new year is approaching. Everyone plans changes, makes resolutions. However, this does not change the fact that the economic situation or the economy will change so suddenly. Therefore, when making their plans, especially Europeans, they should take into account how the geopolitical and economic situation may affect them. And to make this possible, it is worth getting acquainted with the possible scenarios for the next year. We can expect that the fight against inflation will continue, and difficulties on the energy market will also be an important aspect of economic decisions of countries. Stocks and bonds UBS discusses stocks and bonds in their tweet. Is the worst over for stocks and bonds? Or will the years ahead remain challenging? Find out what we think will drive markets in the decade ahead in our UBS Year Ahead 2023: https://t.co/pro4XIuBiG#shareUBS pic.twitter.com/dzcbPOfp7f — UBS (@UBS) November 30, 2022 There is no doubt that the stock and bond markets have had a crazy year. Investors, analyzing the situation, wonder whether the stock and bond markets can expect an improvement or rather a deterioration of the situation. UBS analysts are also looking at this. Their opinion is presented in UBS Year Ahead 2023, and getting to know its results can help investors. Renewables in Europe Goldman Sachs tweets about renewables in Europe. Our head of European utilities research, Alberto Gandolfi, discusses Europe's headstart when it comes to renewables in the utility sector at our #Carbonomics Conference. Listen here: https://t.co/6r5Au9dZ70 #GSsustainability — Goldman Sachs (@GoldmanSachs) November 29, 2022 Alberto Gandolfi, head of utilities at Goldman Sachs, speaks to CNBC’s Steve Sedgwick at the Goldman Sachs Carbonomics event in London mostly about renewables in Europe. According to him, Europe has great potential in this area. The fight for a better tomorrow for future generations is still going on. Renewable energy sources are an important aspect of this. While all non-renewable energy sources: coal, gas or oil, will eventually run out and their further extraction will be impossible, energy obtained from renewable sources is a permanent and reliable source that will never run out. Thanks to this, we can count on safe and predictable energy supplies, without risk. Real estate market Morningstar, Inc. tweets about the real estate market. As the housing market moves into uncharted territory, advisors can help clients feel more comfortable making big financial decisions like buying their first home or refinancing their current one. Join us on December 8th: https://t.co/t5cDNyfB3G #AdvisorPracticeAccelerator pic.twitter.com/ZQ5daEeAJu — Morningstar, Inc. (@MorningstarInc) November 29, 2022 The housing market is important not only for the economy but also for potential buyers. Getting acquainted with it, better understanding it may help in making investment decisions. As the value of the property changes, opportunities arise and advisers can put this knowledge into practice. The price of energy insecurity IMF tweets about the price of energy insecurity. Europe is learning the hard way what happens to an economy tethered and dependent on fossil fuels, writes Bob Keefe. Read our latest Finance & Development for more on the price of energy insecurity: https://t.co/CqabcSqcQw pic.twitter.com/ZpfCi22opn — IMF (@IMFNews) November 29, 2022 Climate change is an environmental issue. This is also clearly an economic issue, and at the heart of the economics of climate change is energy security. The rippling impacts of climate change and the effects of energy security have been sweeping through the global economy throughout 2022, leaving few safe havens from the climate-related economic storm. especially when the supplies are controlled by the Russian dictator. Of course, energy insecurity – and the economic disasters it causes – is just one of the countless side effects of climate change hitting our wallets. How to fix it? Are renewable energy sources the answer? Find out from this tweet.
Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

Eurozone: November CPI Fell Sharply To 10.0%

Kenny Fisher Kenny Fisher 30.11.2022 15:09
It continues to be a quiet week for the euro. In the European session, EUR/USD is trading at 1.0363. Eurozone inflation falls to 10.0% The ECB’s number one priority has been bringing down inflation, which has hit double-digits. ECB policy makers are no doubt pleased that November CPI fell sharply to 10.0%, down from 10.6% a month earlier. This beat the consensus of 10.4%, and the euro has responded with slight gains. The drop in eurozone inflation was the first since June 2021, and investors will be hoping that this indicates that inflation is finally peaking. On Tuesday, German CPI showed a similar trend, falling to 10.0%, down from 10.4% (10.3% est). Still, eurozone Core CPI remained unchanged at 5.0%, matching the forecast. One inflation report is not sufficient to indicate a trend, and with inflation still in double digits, nobody is declaring victory in the battle against inflation. Still, the drop in German and eurozone inflation increases the likelihood of a 50 basis-point increase at the December 12th meeting, following two straight hikes of 75 basis points. With market direction very much connected to US interest rate movement, a speech from Fed Chair Jerome Powell later today could be a market-mover. Powell is expected to discuss inflation and the labour market, and his remarks could echo the hawkish stance that Fed members have been signalling to the markets over the past several weeks. The market pricing for the December meeting is 65% for a 50-bp move and 35% for a 75-bp hike, which means that the markets aren’t all on the Fed easing rates. Even if the Fed does slow to 50 bp in December, it will still be a record year of tightening, at 425 basis points.   EUR/USD Technical EUR/USD is testing resistance at 1.0359. Above, there is resistance at 1.0490 There is support at 1.0264 and 1.0131 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.  
India: Reserve Bank hikes and keeps tightening stance

India: Trouble Has Been Stored Up For The Final Quarter Of The Year

ING Economics ING Economics 01.12.2022 09:13
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
The ECB Has Made It Clear That Rates Will Remain High Until There Is Evidence That Inflation Is Falling Toward The Target

The ECB Members Also Remain Broadly Hawkish | US Payrolls Rose This Month

Saxo Bank Saxo Bank 01.12.2022 09:46
Summary:  The US equity market exploded higher yesterday in the wake of a Fed Chair Powell speech that outlined the Fed’s view on inflationary risks and the preferred course of monetary policy. Powell confirmed the market view that the Fed willl downshift to a smaller 50-bp hike at the December FOMC meeting. Weak US data added to the sense that an economic slowdown is underway, taking long US treasury yields to new local lows.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) US equities exploded higher yesterday after Fed Chair Powell’s speech failed to push back against easing financial conditions and as US yields dropped further. This gives the impression that further soft data from the US (see preview below) that takes yields lower still will see an extension of this market squeeze higher, despite the implications from softer data that a recession draws nearer. The Nasdaq 100 index closed clear of the important 12,000 level for the first time since September yesterday and may extend its rally to the 200-day moving average, currently near 12,550 for the cash index. The S&P 500 spiked to new highs since September as well and cleared its 200-day moving average at 4,050, closing at 4,080 on the day. This is the first time that moving average has fallen since the March-April time frame. THe next major resistance there is the pivot high near 4,325 from August. Hong Kong’s Hang Seng (HISX2) and China’s CSI300 (03188:xhkg) Hang Seng Index climbed 1.7% and CSI300 Index gained 1.5% following the less-hawkish-than-feared speech from the U.S. Fed Chair Powell overnight and China’s Vice-Premier Sun Chunlan, who oversees containing the spread of Covid-19, acknowledged in a pandemic control export workshop that the Omicron variant is less deadly. Mega-cap China internet stocks surged 4-5%. EV maker XPeng (09868:xhkg) jumped 13% after reporting Q3 earnings. Caixin China PMI Manufacturing came in at 49.4 in November, above the consensus estimate of 48.9 and October’s 49.2. USD blasted after Fed Chair Powell’s speech craters US treasury yields, sparks risk-on rally Fed Chair Powell failed to make any notable pushback against easing financial conditions in his speech yesterday (more below), and US Treasury yields downshifted sharply all along the curve after he confirmed the likely downshift to a 50-basis point hike at the December FOMC meeting, with weak US data also pushing US yields lower. The US dollar was lower across the board: EURUSD rushed back higher, and trades this morning not far below the pivotal 1.0500 area, which could open up for 1.0600+, while the action in US yields was a particular tailwind for USDJPY bears, as that pair fell to new local lows well south of the former 137.50 low water mark, hitting 136.21 overnight and possibly on its way for a test of the 200-day moving average near 134.50. Gold trades higher supported by a breakout in silver Silver’s impressive 16% rally last month extended overnight following Powell’s speech in which he signaled a slowdown in the pace of future rate hikes. It trades around $22.25, the 50% retracement of the March to September selloff, and a close above could see it challenge $23.35 next. In addition, the recent dollar and yield slump, the metal has also been supported by improved supply and demand fundamentals.  Gold has built on last month's impressive 8% gain and has now returned to challenging a key area of resistance between $1788 and $1808. Focus on the dollar and incoming US data starting with today’s ISM and Friday’s job report. Crude oil (CLF3 & LCOF3) supported by weaker USD and lower US inventories Crude oil’s three-day recovery has been supported by a weaker dollar and traders assessing signals that China may soften its Covid Zero policy after China’s Vice Premier in charge of fighting Covid acknowledged the Omicron variant is less deadly. Developments that have forced a reduction in recently established short positions ahead of Sunday’s OPEC+ meeting. A meeting that is likely to be strong on words but low on actions, not least considering the unclear impact of an EU embargo on Russian oil starting next week. In addition, US crude stocks fell by 12.6mbbl last week, the biggest decline since June 2019, while the net crude and product export hit a record, highlighting continued strong demand amid Russian sanctions. US treasury yields recovered after dip to local lows. (TLT:xnas, IEF:xnas, SHY:xnas) With Fed Chair Powell confirming a likely downshift to a smaller hike in December and not pushing back against easing financial conditions, the entire US Treasury yield curve fell sharply yesterday, with treasury buying also encouraged by weak US data, including a terrible Chicago PMI and weak ADP private payrolls growth number. The 10-year treasury yield benchmark hit a new local low near 3.60% and is now only 10 basis points above the pivotal 3.50% area, which was the major pivot high from June. What is going on? Jerome Powell sticks to the script Fed Chair Powell repeated his comments from the November FOMC and what we have heard more generally from the Fed speakers over the course of the month. He said it makes sense to moderate the pace of interest rate hikes and the time to moderate the pace of hikes may come as soon as December, while he added it seems likely that rates must ultimately go somewhat higher than what was thought in the September FOMC projections. Powell also said they have made substantial progress towards sufficiently restrictive policy but have more ground to cover and they will likely need to hold policy at a restrictive level for some time. While his comments still tilted towards the hawkish side, there was no specific hawkish pushback against the markets pricing of significant rate cuts in 2024 that the markets feared. His comment that he does not want to over-tighten but cutting rates is not something to do soon was a slight contrast to his earlier acceptance that risk of tightening insufficiently is greater than the risk over-tightening. The Fed's Cook (voter) also said it is prudent for the Fed to hike in smaller steps as it moves forward and how far the Fed goes with hikes depends on how the economy responds, overall sticking to the consensus. US economic data broadly weaker, focus now on PCE prices and ISM manufacturing The private ADP jobs report showed US payrolls rose 127,000 this month, the slowest pace in nearly two years, as wage gains moderated. Job openings also fell in October to 10.334mln from September's 10.687mln, reversing a surprise jump in the prior month but remaining elevated, according to the JOLTS report. The biggest downside surprise came in Chicago PMI for November which came in at 37.2 against an expected 47.0, falling from a prior 45.2. While monthly surveys can be noisy, but this one is now flirting with pandemic lows and puts the focus on ISM manufacturing due today. The only ray of positive news came from the Q3 GDP release which was upwardly revised by to 2.9% from 2.6% previously. Softer EU CPI weakens hawkish ECB bets Euro inflation slowed for the first time in 1.5 years to 10% in November from 10.6% YoY in October. ECB officials have highlighted the data will be key for their next rate decision, suggesting lower chance of another 75bps rate hike at the December 15 meeting. Still, it remains hard to say that inflation in the Eurozone has peaked. ECB members also remain broadly hawkish and suggest that the commitment to bring inflation back to target will stay Guangzhou lifted the lockdown of several districts as a sign of easing restrictions even as new cases at elevated levels  Guangzhou, the third largest city in China and the capital of the southern province of Guangdong, removed the “temporary control areas” restrictions of several districts even though the city’s daily new cases of Covid-19 stayed at nearly 7,000. It was an encouraging sign pointing to China’s willingness to continue the fine-tuning measures that it had recently started despite the surge in new cases across the country.   China’s Vice Premier in charge of fighting Covid acknowledged the Omicron variant is less deadly Speaking at a pandemic control policy workshop, Vice Premier Sun Chunlan emphasized the optimization measures of the pandemic control were supported by a lower fatality rate caused by the Omicron variant, an increasing vaccination rate, and the accumulation of experience in containing the spread of the virus. She called for the acceleration of vaccination and preparation of therapeutic drugs and the news report did not quote her mentioning the dynamic zero-Covid policy What are we watching next? Melt-up in risk if US data remains tepid or worse? The reaction to Fed Chair Powell’s speech yesterday and soft US data comes ahead of a string of US data through tomorrow’s November US jobs report. If the data is in-line or especially if it is a bit softer than expected, the market may continue to celebrate the implications of a lower peak for the Fed policy rate, as well as for the impact on valuations if longer US treasury yields also continue falling. Despite Chair Powell specifically indicating that peak Fed rates next year are likely set to rise above the Fed’s own forecasts from the September FOMC meeting, the market dropped its forecast for peak rates yesterday by several basis points in the wake of his speech. Eventually, market may begin to fret the impact of an incoming recession on asset valuations, but for now, the one-dimensional focus on the monetary policy outlook and rates persists. For the risk-on to continue, we would likely need to see a benign PCE Core inflation data point today, in-line or below expectations of +0.3% MoM and +5.0% YoY (vs. +5.1% in September and Feb. peak of 5.4%). The ISM Manufacturing survey today (expected: 49.7, which would be first sub-50 reading since 2020) is less important than Monday’s ISM Services, but the jobs report tomorrow is important, as a slackening US jobs market will be a key ingredient to confirm a slowdown (and the weekly jobless claims usually give off a warning for many weeks before the evidence shows up in the monthly report – the latest weekly number is up today and it will take some time for this indicator to point to weakness in the US jobs market. The market will be in for significant churn if we get a hotter core inflation reading and a strong jobs report. Earnings to watch A heavy focus on Canadian banks today, as three are reporting, including the largest of them all, Toronto-Dominion. Marvell Technology is a significant semiconductor company with 5G solutions and has been on the comeback trail, up some 30% from its lows ahead of today’s report after the market close, as will Veeva Systems. Today: Canadian Imperial Bank of Commerce, Bank of Montreal, Toronto-Dominion Bank, Marvell Technology, Veeva Systems, Ulta Beauty, Zscaler, Dollar General, Kroger Economic calendar highlights for today (times GMT) 0815-0900 – Eurozone Final November Manufacturing PMI 0930 – UK Final November Manufacturing PMI 1000 – Eurozone Oct. Unemployment Rate 1230 – US Nov. Challenger Job Cuts 1330 – US Oct. PCE Inflation 1330 – US Weekly Initial Jobless Claims 1420 – US Fed’s Logan (Voter 2023) to speak 1500 – US Nov. ISM Manufacturing 1530 – US Weekly Natural Gas Storage Change 1645 – ECB Chief Economist Lane to speak Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: Financial Markets Today: Quick Take – December 1, 2022 | Saxo Group (home.saxo)
Korea: Consumer inflation moderated more than expected in February

The Bank Of Korea Will Likely Consider Easing Policies

ING Economics ING Economics 01.12.2022 10:16
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
Rates Reversal: US Long Yields on the Rise as Curve Dis-Inverts

Increases In European And Chinese Manufacturing PMI

Kamila Szypuła Kamila Szypuła 01.12.2022 12:36
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
Oanda Podcast: US Jobs Report, SVB Financial Fallout And More

Saxo Bank Podcast: The Fed Chair Powell Speech, The US Equity Market Rallied And More

Saxo Bank Saxo Bank 01.12.2022 13:19
Summary:  Today we look at the market exploding higher in the wake of the Fed Chair Powell speech on inflation and the labor market yesterday, as we note that Powell failed to specifically push back much against the current easing of financial conditions and market expectations that Fed policy will be loosening already by late next year and especially in 2024. But we also caution that, while the US equity market rallied through key resistance yesterday, the market has a tendency to react strongly to event risks on the day without notable follow through in following sessions. On that note, we also have important incoming data that can test yesterday's reaction in the form of the October US PCE inflation indicator ahead of tomorrow's US jobs report. We also look at the commodities market reaction to Powell's speech, particularly precious metals and discuss copper in the context of the drumbeat of news pointing to China easing up on Covid policy, as well as crude oil. Today's pod features Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are available via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.     Source: https://www.home.saxo/content/articles/podcast/podcast-dec-1-2022-01122022
The Bank of Korea Is Likely To Respond With A Rate Cut In The Second Half Of 2023

Korea: A Temporary Slowdown In CPI Inflation Would Not Change The BoK's Inflation Outlook

ING Economics ING Economics 02.12.2022 09:37
The sharp slowdown in consumer price growth in November was largely due to stable gasoline and fresh food prices, but also to a high base last year.  But we believe that today's outcome is not enough to dispel concern within the Bank of Korea (BoK) about inflation. And we expect the BoK to maintain its hawkish tone until early next year  Source: Shutterstock.com 5.0% Consumer price inflation YoY Lower than expected Food and energy prices were the main reasons for the decline. Consumer price inflation eased more than expected in November, with headline inflation declining to 5.0% YoY in November (vs 5.7% in October, 5.2% market consensus). The main cause of November's inflation decline was a fall in agricultural prices (-2.0%), and gasoline prices returned close to pre-Ukraine-war levels. However, service price inflation remained at an elevated level, with core inflation up 4.8%. Eating-out prices rose the most (8.6%) in November while other service prices gradually stabilized. We believe that rents will continue to slow down as market-observed rentals declined in November. Since Korea's lease contracts are usually for two-year terms, the degree to which falling rents will be reflected in the CPI is limited. However, the recent rapid decline in Jeonse prices is expected to be visible in the price index with about a 6-month time lag.  Rentals will decline gradually over the coming months Source: CEIC BoK outlook Today's lower-than-expected inflation is unlikely to change the BoK's policy stance. Governor Rhee Chang-yong had already mentioned last month that base effects leading to a temporary slowdown in CPI inflation would not change the BoK's inflation outlook. Also, core inflation is still high. Consequently, we expect the BoK to stay on a hiking path until early next year. We believe that rate increases in power and gas will follow early next year, but rent and service price growth should slow down. As a result, inflation will likely soften further throughout next year. We maintain our view that the BoK will take a pause until 2Q23 after raising 25bp in February.  Read this article on THINK TagsHousing Prices 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
The Gold Rally Is Continuing To Stall, This Could Be A Good Year For Crude Oil

Saxo Bank Podcast: Reports From Yesterday, The Crude Oil And Natural Gas Outlook And More

Saxo Bank Saxo Bank 02.12.2022 12:07
Summary:  Today we look at a slight divergence in reaction patterns across markets after a weaker than expected core PCE inflation reading and ISM Manufacturing survey in the US pushed treasury yields and the US dollar lower, but failed to support further equity market upside. Elsewhere, we round up interesting earnings reports from yesterday, discuss silver technicals and the crude oil and natural gas outlook, today's November US jobs report and more. Today's pod features Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are available via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: https://www.home.saxo/content/articles/podcast/podcast-dec-2-2022-02122022
Turbulent Times Ahead: Poland's Central Bank Signals Easing Measures

An Encouraging NFP Report Could See Markets End The Week On A High

Craig Erlam Craig Erlam 02.12.2022 12:27
A tentative start to trading on Friday as we wrap up another action-packed week with the US jobs report in a couple of hours. Jerome Powell’s comments on Wednesday made clear the direction of travel that Fed policymakers are keen to undertake but ultimately, the data must allow for it. So far, that has very much happened with inflation falling more than anticipated in October, the manufacturing sector softening, supply chains improving and labour market performing less well. US nonfarm payrolls expected to fall to 200K Today’s jobs report will offer further insight into whether this last point continues to be the case. Jobs growth around 200,000 would continue the trend since earlier this year and, alongside rising jobless claims, point to a cooling in the labour market. But it’s the wages that the Fed cares most about. A moderation in earnings growth is essential to get policymakers on board and perhaps even bring down the terminal rate over the coming months. It’s not just about putting inflation on a better trajectory, it’s about ensuring it can return to target on a sustainable basis and that requires earnings to rise at a more modest rate to ensure inflation doesn’t become entrenched. Read next: If ECB policymakers should make a decision between fighting inflation and avoiding recession, they will likely choose fighting inflation says Ipek Ozkardeskaya| FXMAG.COM Considering the data we’ve seen since the last meeting, it would take something truly shocking for the Fed to change course now, I feel. And perhaps even that would need to be backed up by a nasty shock from the inflation data a day before they announce their next rate decision. Of course, at this point, the terminal rate is what matters most so an encouraging report today would be very welcomed and could see markets end the week on a high. 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 RBA Raised The Rates By 25bp As Expected

Markets Expect A Softer Move From The RBA

Kamila Szypuła Kamila Szypuła 03.12.2022 16:00
In the first half of December we will have a litany of central bank meetings. The ball will start rolling with Reserve Bank of Australia and Bank of Canada next week, both of which are set to raise interest rates, albeit at a slower pace. The Outlook Economic development since the last RBA meeting has been favorable. The labor market remains extremely tight and the unemployment rate has fallen to its lowest level in half a century. Meanwhile, wage growth accelerated in the last quarter, which is usually a sign of strengthening inflationary forces. The problems with the COVID-19 in China and the closure of this economy because of COVID situation, hits Australia. There is no doubt that Australia, the world's most dependent economy on China, is shaken by the shock wave of the virus. Accounting for one-third of Australia's total exports, it has caused significant economic problems across huge swaths of the Australian economy in recent times. Inflation Against expectations for an increase, both headline and core inflation rates for Australia's monthly inflation series fell in October. The headline inflation rate fell from 7.3% year-on-year in September to only 6.9% YoY in October. How the RBA fight against inflation? The RBA is working very hard to cool economic growth. It raised interest rates extremely quickly, from 0.1% to 2.85% in six months. They are expected to raise them more. Interest rate hikes slow down the economy and fight inflation in a number of ways: households pay more for a mortgage, leaving less for discretionary spending; the australian dolar (AUD) appreciates, driving down imports and discouraging people from buying local produce; The return on savings is higher, which encourages people to save rather than spend, the cost of borrowing is high, which makes businesses less likely to borrow and spend. Interest rate hikes are designed to divert money from spending to local businesses, making those businesses feel like they can't raise prices and wages. The RBA's job is to keep inflation an average of 2 to 3% a year and currently inflation is well above that target. Expectations The latest inflation figures might provide a reprieve for mortgage holders from ongoing escalating interest rate rises when the Reserve Bank meets on December 6 to decide on the official cash rate. The Australian economy continues to run at full capacity, setting the stage for another interest rate hike. Investors say that the cycle of monetary policy tightening may be stopped as soon as this month. This is mainly because inflation fell unexpectedly in October, fueling hopes that the worst was over. With house prices also falling and external threats intensifying as the Chinese economy loses momentum, there are solid arguments for a slowdown in the RBA. Markets currently rate a 75% probability of a quarter point rate hike and a 25% chance of no change at all. Westpac chief economist Bill Evans still believes the RBA needs to raise interest rates by 0.25 percentage points both in December and at its next meeting in February to quell continued inflationary pressures. The RBA said it would watch the data to see how many more rate hikes are needed to cool inflation without crushing the economy. The problem is that most of the data is from a few months ago, before rate hikes became popular. It takes some time for interest rates to take effect.
Sterling Slides as Market Anticipates Possible Final BOE Rate Hike Amidst Weakening Consumer and Housing Market Concerns

What Is A Recession And What Are Its Consequences?

Kamila Szypuła Kamila Szypuła 03.12.2022 18:09
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
European Markets Await Central Bank Meetings After Strong Dow Performance

The Phases Of The Business Cycle - Economic Growth And Stagnation

Kamila Szypuła Kamila Szypuła 03.12.2022 18:39
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
Equity Markets Rise, VIX at 12 Handle After ECB Rate Hike and US Economic Resilience

Final PMIs, Revised GDP, CPI And Retail Sales Ahead

Craig Erlam Craig Erlam 04.12.2022 10:16
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.  
The Commodities Digest: US Crude Oil Inventories Decline Amidst Growing Supply Risks

US Inflation Is Clearly On A Path Towards Reaching The Fed’s Target

ING Economics ING Economics 07.12.2022 08:39
Appetite for high beta fixed income has allowed the ECB to reduce its overweight in peripheral bonds. There is no sign of US curve dis-inversion yet - we think this is most likely to occur with a long-end sell off. ECB reduces its peripheral bond overweight The ECB didn’t use the flexibility offered by the PEPP’s redemption to lean against wide sovereign spreads in the months of October and November. On the contrary, data show that it increased its holding of core (eg Netherlands and Germany) and reduced its holding of periphery (eg Spain, Portugal and Italy). The changes may be explained in part by different timing between redemption and reinvestment of the proceeds but there seems to be a trend here: the overweight in peripheral countries is at least being partially unwound. The higher-beta sovereign bond markets require less of the ECB’s support Looking at market moves of late, this is understandable. Spreads have been on a tightening spree, suggesting the higher-beta sovereign bond markets require less of the ECB’s support. This is good news, until it isn’t anymore. As long as the ECB retains the flexibility to lean against volatility in the sovereign bond markets all should be well. The looming QT announcement is one key risk to this. So far, spreads have tightened alongside the improvement in global risk sentiment. That tightening cannot be entirely explained by the rally in core rates, and suggests instead genuine risk appetite for high beta fixed income. The ECB has partially unwound its summer intervention in peripheral markets Source: Refinitiv, ING No sign of re-steepening yet If the bond rally has stalled, which itself is still unsure, there is no sign yet of curve re-steepening. In the US in particular, where the Fed has presumably the most room to cut rates, the curve remains as inverted as ever. Dis-inversion can occur for two reasons. Firstly, front-end rates can drop on expectations of imminent Fed easing. In our view, this is only realistic once inflation is clearly on a path towards reaching the Fed’s target, and the economy is near a recession. We think these conditions will only be met by mid-2023. It is not yet clear that the Fed is near the end of its cycle The other reason for a curve dis-inversion is if long-end rates reverse some of their November rally. This looks a more realistic scenario in the near-term. Risk appetite, from stock to credit, has received a boost once it became clear that the Fed was easing off on the pace of hikes. This has also boosted demand for duration on the Treasury curve as investors look more kindly to any kind of investment risk. The problem is that it is not yet clear that the Fed is near the end of its cycle. Fed Funds forwards are steeply inverted from late 2023, implying the odds of a rate cut are rising. We think this is right but that pricing may be reversed soon if data doesn’t worsen quickly. The rally in long-end bonds has come with Fed Funds forwards pricing rate cuts in 2024 Source: Refinitiv, ING Today's events and market view The headline Q3 Eurozone is less liable to surprise markets, this being the third and final release but the details of the report, including employment, will be of interest. The EU has mandated banks for the sale of a new 15Y bond for €6.5bn. The same deal will also features a smaller tap of a 30Y bond. The deal may weigh on bonds but supply this week is otherwise light. Today is the last day before the start of the pre-ECB meeting quiet period. Fabio Panetta and Philip Lane, both doves, are scheduled to speak. Any hawkish comment would catch the market off guards and push yields higher. The US Q3 unit labour cost publication is also a final release but, as it is key to the Fed’s decision-making, any revision will be of importance. Read this article on THINK TagsRates Daily 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 Ninth Straight Month of Gold Holdings Increase; Oil Resilient Despite Russian Tanker Incident; Dollar Supported by Bond Supply Concerns

The USD/INR Pair Pays Little Heed To The Firmer Oil Price

TeleTrade Comments TeleTrade Comments 09.12.2022 09:11
USD/INR takes offers to refresh intraday low as riskier assets cheer US dollar weakness. Recovery in Crude Oil fails to challenge Indian Rupee buyers amid cautious optimism at home and abroad. US consumer sentiment, inflation expectations should be watched for fresh impulse. USD/INR cheers the US Dollar weakness as it drops to the lowest level in three days, around 81.15 during early Friday. In doing so, the Indian Rupee (INR) pair pays little heed to the firmer Oil price, which generally has inverse relations with the INR moves. Although the weekly prints tease the greenback buyers, the US Dollar Index (DXY) prints a three-day downtrend near 104.60, down 0.21% intraday as traders brace for the next week’s busy schedule comprising the Federal Reserve (Fed) monetary policy meeting and the inflation data, not to forget today’s consumer-centric figures. In doing so, the greenback’s gauge versus the six major currencies traces the US Treasury bond yields while justifying the downbeat US data. Talking about the latest data, US Initial Jobless Claims matched 230K market consensus for the week ended on December 02, versus the upwardly revised 226K prior. Further, the four-week average also printed 230K figure compared to 229K in previous readings. Earlier in the week, the US Goods and Services Trade Balance deteriorated to $-78.2 billion versus $-79.1 billion expected and $-73.28 billion prior. Further, the final readings of the Unit Labour for Q3 eased to 2.4% QoQ versus 3.5% first estimations. On the other hand, WTI crude oil prints the first daily gain in six, up 1.08% intraday near $72.35 by the press time, as geopolitical fears join hopes of more demand from China to favor the energy buyers. Even so, the black gold remains near the yearly low marked the previous day. Against this backdrop, S&P 500 Futures and stocks in the Asia-Pacific zone print mild losses while the US 10-year Treasury bond yields remain pressured around the three-month low marked on Wednesday. Moving on, intraday USD/INR traders should pay attention to preliminary readings of the Michigan Consumer Sentiment Index for December, expected 53.3 versus 56.8 prior. Also important to watch will be the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations for the said month, 3.0% previous readings. Technical analysis USD/INR justifies the failure to cross a seven-week-old resistance line, around 82.65 by the press time, as bears approach 50-DMA support, at 81.95 as we write
Rates Spark: Discussing the Potential of 4.5% and its Impact on Markets

In Poland Lower Inflation In November Is Not Yet A Sign Of A Turnaround In The Inflation Trend, CPI In the Czech Republic Continue To Rise Rapidly

ING Economics ING Economics 10.12.2022 09:46
Inflation data is in focus next week. In the Czech Republic, surveys suggest food prices continue to rise, and we believe fuel will be the only item to show deflation in November. Thus, we expect inflation to accelerate to 0.9% month-on-month. In Poland, core CPI grew to 11.3% year-on-year, and we see it peaking above 20% in February 2023 In this article Poland: No turnaround in inflation yet Czech Republic: Inflation accelerates again   Shutterstock Poland: No turnaround in inflation yet Current account (€-263mn) We forecast that the current account deficit narrowed substantially in October even though the trade deficit in goods was at a similar level as in the previous month. The main improvement is projected to come from an improvement in the primary income balance. For 2022 as a whole, we project a current account deficit of about 4% of GDP, declining further to 3.2% in 2023 on the back of weak domestic demand and a moderate increase in foreign sales. CPI (17.4%YoY) According to the flash estimate, CPI declined to 17.4% year-on-year in November from 17.9%YoY in October, as an expected month-on-month drop in gasoline prices was accompanied by an unexpected fall in energy prices due to cheaper coal. Still, core CPI grew to 11.3%YoY from 11.0%YoY in the previous month. Lower inflation in November is not yet a sign of a turnaround in the inflation trend. We see consumer inflation peaking above 20%YoY in February 2023 before declining to around 10%YoY in the fourth quarter of next year. You can read more in our 2023 economic outlook here. Czech Republic: Inflation accelerates again Surveys suggest that food prices in the Czech Republic continue to rise rapidly. While they rose by 3.0% in October, we expect a 2.1% month-on-month jump for November, which is still significantly higher than in the months leading up to October. On the other hand, we expect fuel prices to have fallen (1.7%). However, we believe this is the only item in the consumer basket that shows deflation in November. The main issue, as always, is energy prices. In October, the statistics office surprised with its aggressive approach to including the energy-saving tariff in the CPI, which led to a massive drop in inflation. This effect will last until December and will be replaced in January by the price cap, which we believe will have a similar effect on inflation. Unlike the price cap, the savings tariff allows energy prices to rise further. Therefore, we expect a slight increase in energy prices in November, but again, this is the main CPI item that may surprise. Thus, overall, we expect inflation to accelerate from -1.4% to 0.9% month-on-month, which should translate into a headline number rising from 15.1% to 15.9% year-on-year. Key events in EMEA next week Refinitiv, ING Read the article on ING Economics TagsEMEA Czech Repulbic 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
Equity Markets Rise, VIX at 12 Handle After ECB Rate Hike and US Economic Resilience

Reviewing The Past 12 Months: Concerns Over A Potential Recession Shifted Market Sentiment Negative

Franklin Templeton Franklin Templeton 10.12.2022 11:40
While 2022 was a challenging year for the muni-bond market, 2023 is setting up for more positive momentum, according to Franklin Templeton Fixed Income Municipal Bond Director Ben Barber. Read the team’s views on the year ahead. 2022: A persistently volatile year Reviewing the past 12 months, municipal bond (muni) investors will be hard pressed to find a more persistently volatile market time since the global financial crisis of 2008. At the beginning of the year, the US Federal Reserve (Fed) maintained its fed funds rate at the zero-lower-bound, and concerns over rising inflation were muted as many thought that these forces were “transitory.” But as the year progressed and inflation marched higher, the Fed entered a period of rapid rate hikes at a pace and magnitude not seen since the 1980s. The fed funds rate moved to an economically restrictive 3.75%–4.00% range. Consequently, US Treasury (UST) yields moved much higher, particularly on the front end of the yield curve. Increased market volatility negatively impacted most fixed income sectors as concerns over a potential recession shifted market sentiment negative. Munis were not exempt, as the sector saw large continuous outflows of funds throughout much of the year, driving down valuations. This, coupled with rising UST yields, led to poor absolute performance for munis—the Bloomberg Municipal Bond Index has declined 9.32%1 year-to-date, and yields rose from 1.12% to 3.65%.2 The selloff was broad-based over most sectors and rating classifications. Despite the negative technical tone, there have been several short periods of strong positive performance, which indicates the market’s resilience and investors’ appetite to return to the asset class. These factors speak to a technically driven selloff, rather than one driven by poor credit fundamentals. Fundamentals remained strong throughout 2022, and we have observed many more rating upgrades than downgrades. Many muni issuers have been operating at surpluses for the better part of the past 12 months and have been able to increase their contributions to “rainy-day” funds. New-issue supply has been lower for most of the year in both the tax-exempt market and taxable muni market. At the beginning of 2022, muni valuations were considered “expensive;” however, they cheapened aggressively as fund outflows increased by mid-April. This trend carried on for most of the year. Only in the latter part of November did we start to see shorter-maturity bonds become expensive relative to historical averages as investors moved out of their cash holdings into less interest-rate sensitive positions, while still capturing a strong yield pickup. Technicals Driving Selloff Exhibit 1: Long-Term Mutual Fund Net New Cash Flow in Millions, US DollarsAs of November 30, 2022   Source: Investment Company Institute. Estimated Long-Term Mutual Fund Net Cash Flow “Release: Estimated Long-Term Mutual Fund Flows | Investment Company Institute (ici.org).   Despite the poor performance relative to previous years, the municipal bond sector remains in a fundamentally stable position with valuations cheaper than those of 2021 where the sector saw record inflows. Muni momentum looking more positive in 2023 Looking forward into 2023, there are a few key themes that we believe could provide strong momentum for munis. First, the technical environment may be shifting more positive as tax-loss harvesting and fund redemptions slow. As the Fed cuts back its pace of interest rate hikes, this could provide a path for a more stable yield environment, which would bolster investor confidence in the sector. Munis can be valuable for investors looking to find an attractive yield, especially considering the after-tax equivalent options available. Fundamentals remain strong as surpluses have accumulated over the past several years, and prudent fiscal budgeting will continue to provide a ballast to balance sheets. With the threat of a recession still an overhang on the market, we are paying particular attention to several sectors as we progress through 2023. We feel security selection will become even more critical in 2023, with deep credit research proving vital to investment returns. We believe opportunities will continue to present themselves up and down the credit quality spectrum in 2023. Moving into 2023, valuations will need to be closely watched. The shorter end of the maturity curve has been extremely active in late 2022, and its yields have moved lower more aggressively than longer-maturity bonds. Investors seem to be nervous about the Fed’s rate-hiking cycle and may continue to favor a shorter-duration positioning. That being said, the longer-maturity end of the muni yield curve looks attractive to us on a historical basis. Additionally, the potential carry from higher muni yields further solidifies the opportunity for investors to take advantage of better valuations available on the longer end of the curve. Endnotes Source: Bloomberg as of November 25, 2022. Source: Bloomberg as of November 25, 2022. WHAT ARE THE RISKS? All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Because municipal bonds are sensitive to interest rate movements, a municipal bond portfolio’s yield and value will fluctuate with market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the portfolio’s value may decline. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value.    
Kiwi Faces Depreciation Pressure: RBNZ Expected to Hold Rates Amidst Downward Momentum

Raising Policy Rate By The Fed, The ECB, The Bank Of England And The SNB Ahead, China Is Facing A Potential Surge In Cases As COVID Rules

Craig Erlam Craig Erlam 10.12.2022 11:47
US Two blockbuster events will have Wall Street on edge as the disinflation trade may have gotten ahead of itself. The last major piece of economic news before the Fed meets will be the November inflation report which is expected to show pricing pressures are decelerating.  The headline reading from a month ago is expected to rise 0.3%, a tick lower from the pace in October.  On a year-over-year basis, inflation is expected to decline from 7.7% to 7.3%. There is still a lot more work that needs to be done with bringing inflation down, but for now, it seems the trend is headed in the right direction.  The FOMC decision will be “Must See TV” as the Fed is expected to downshift to a half-point rate-hiking pace and yet still reiterate that they are not done raising rates.  The Fed will likely show that rates could rise anywhere from 4.75-5.25%, which will be very restrictive and should lead to a quicker cooling of the labor market.   EU  The ECB meeting next week promises to be a defining moment in the bloc’s fight against inflation. It was late to the party, very late in fact, but once it arrived it quickly started playing catch up culminating in a 75 basis point rate hike last week. The belief is that it won’t have to go as far as others in raising rates, with the terminal rate currently believed to be around 3%. That means the central bank is expected to already slow the pace of tightening on Thursday, with a 50 basis point hike, followed by another 100 over the first three meetings in the new year.  It’s not just the decision that investors will be focused on. The press conference and new macroeconomic projections will tell us everything we need to know about where the central bank sees itself in the tightening cycle and whether it is aligned with the markets. UK It’s all going on in the UK next week. The third week of the month brings a variety of major economic indicators including inflation, employment, retail sales, GDP and PMIs. This month has the added spice of the BoE meeting, the central bank that is arguably most stuck between a rock and a hard place among its peers. The economy is suffering and probably already in recession, inflation is 11.1% – although that is expected to drop slightly ahead of the meeting – and the cost-of-living crisis in squeezing those households least able to cope with it most. And yet the BoE is of the belief that the only policy response is to keep hiking rates. Markets expect another 50 basis points on Thursday and a further 100-125 in the first half of next year. The central bank has previously pushed back against market positioning and we may see language to the same effect in the statement, not to mention more dovish dissent.  Russia A week of no change is on the cards, it would appear. The CBR is expected to leave the Key Rate unchanged at 7.5% on Friday, the second consecutive hold after many months of hikes and then cuts following the invasion of Ukraine. On Wednesday, the third quarter GDP reading is also expected to be unchanged at -4% annualized.  South Africa The political environment appears to have cooled a little but President Ramaphosa isn’t necessarily safe yet. The focus will remain on this but there’s also inflation and retail sales data in the middle of the week that will be of interest. Turkey A few notable data releases next week although maybe not anything that will move the needle under the circumstances. Unemployment and industrial production stand out. Switzerland The SNB is expected to raise its policy rate by 50 basis points to 1% next week as it attempts to get a grip of inflation. It’s currently running at 3%, above its target of below 2% and the SNB has been clear in its determination to bring it down.  China China is facing a potential surge in cases as COVID rules are loosened. Following the protests over the zero-Covid policy in several Chinese cities last week, the Chinese government is pivoting its policy.  The elimination of key tenets of its virus elimination plan suggests they will try to learn to live with the virus. It will be a busy and not-so-good week of Chinese economic data. At some point this week we will see the release of aggregate financing, new yuan loans, and money supply data.  On Thursday, industrial production, retail sales, fixed assets, and the surveyed jobless rate will be released, with most expecting a softer print. The PBOC is also expected to hold its 1-year medium-term lending facility rate at 2.75% as volumes (CNY) could decline from 850 billion to 500 billion.     India All eyes will be on the November inflation report which could show a deceleration in pricing pressures coming closer to the upper boundaries of the RBI’s 2-6% target. Given the growth slowdown that is forming, inflation could continue its decline next quarter which should help finish the job of bringing it back to target.  India is also expected to see industrial production drop from 3.1% to -0.6%.   Australia & New Zealand Following the recent RBA rate decision, investors expect the bank to be nearing the end of its tightening cycle.  The focus for Australia now shifts to business conditions/confidence and the labor market.  The Australian economy is expected to add 15,000 jobs, a slower gain than the 32,000 seen in the prior month.   New Zealand’s GDP growth will quickly cool as the latest tourist boom eases. Third quarter GDP on a quarterly basis is expected to soften from 1.7% to 0.8%.   Japan Investors will have to be patient until the spring when the new leadership team has been created. The BOJ policy review could lead to the end of a decade-long ultra-loose monetary policy. The upcoming week is filled with economic data releases. The main highlights include the BOJ’s Tankan report which will show big manufacturers are struggling and non-manufacturing activity got a boost on easing covid rules. The November PPI report will show minimal pricing relief, while the trade deficit is expected to narrow.  The preliminary PMIs could show both manufacturing and service activity are weakening.     Singapore It could be mostly a quiet week for Singapore with the exception of the release of non-oil domestic exports.    Economic Calendar Saturday, Dec. 10 Economic Events The annual Bund Summit continues in Shanghai The International Coffee Organization conference takes place in Vietnam Sunday, Dec. 11 China FDI, Aggregate Financing, Money Supply, and New Yuan loans expected this week Monday, Dec. 12 Economic Data/Events India CPI, industrial production Japan PPI, machine tool orders Kenya GDP New Zealand net migration Mexico industrial production Turkey current account UK industrial production Brazil’s presidential election is expected to be certified Tuesday, Dec. 13 Economic Data/Events US November CPI M/M: 0.3%e v 0.4% prior; Y/Y: 7.3%e v 7.7% prior Australia consumer confidence, household spending Germany CPI, ZEW survey expectations Hong Kong industrial production, PPI Israel trade Italy industrial production Japan Bloomberg economic survey New Zealand home sales, food prices Philippines trade South Korea money supply Turkey industrial production UK jobless claims, unemployment The Bank of England releases its financial stability report US House Financial Services Committee holds an initial hearing on FTX’s collapse US President Joe Biden hosts the US-Africa Leaders Summit New Zealand’s government releases its half-year economic and fiscal update Wednesday, Dec. 14 Economic Data/Events FOMC Decision: Expected to raise the target range by 50bps to 4.25-4.50% Eurozone industrial production India trade, wholesale prices Japan machinery orders, industrial production Mexico international reserves New Zealand current account GDP ratio, BoP Russia GDP South Africa CPI, retail sales South Korea jobless rate Spain CPI UK CPI EIA crude oil inventory report The European Union and the Association of Southeast Asian Nations will celebrate the 45th anniversary of their partnership at a summit in Brussels US Senate Banking Committee holds a hearing on FTX’s collapse The US-Africa Leaders Summit continues with keynote remarks from Biden The Bank of Japan will announce the outright purchase amount of Japanese government securities RBA Gov Lowe delivers an address at the 2022 AusPayNet Annual Summit Thursday, Dec. 15 Economic Data/Events US Retail Sales, cross-border investment, business inventories, empire manufacturing, initial jobless claims, industrial production ECB Rate Decision: Expected to raise Main Refinancing rate by 50bps to 2.50% BOE Rate Decision: Expected to raise rates by 50bps to 3.50% Switzerland rate decision: Expected to raise rates by 50bps to 1.00% Norway rate decision: Expected to raise rates by 25bps to 2.75% Mexico rate decision: Expected to raise rates by 50bps to 10.50% Australia unemployment, consumer inflation expectation Canada existing home sales, housing starts China medium-term lending, property prices, retail sales, industrial production, surveyed jobless Eurozone new car registrations France CPI Japan tertiary index, trade New Zealand GDP Nigeria CPI Poland CPI Spain trade Friday, Dec. 16 Economic Data/Events US deadline for a new funding deal to avert a federal government shutdown US markets observe “Triple witching”, which is the quarterly event where the expiry of stock and index options occur with those of index futures US preliminary PMIs Australia preliminary PMI readings  European flash PMIs: Eurozone, Germany, UK, and France   Hong Kong jobless rate Italy CPI, trade Japan PMIs, department store sales New Zealand PMI Russia rate decision: Expected to keep rates steady at 7.50% Singapore trade Thailand foreign reserves, forward contracts, car sales Bank of Finland Governor Rehn speaks on the Nordic nation’s economy South Africa’s governing party begins its five-yearly elective conference in Johannesburg Sovereign Rating Updates Luxembourg (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.  
ECB's Tenth Consecutive Rate Hike: The Final Move in the Current Cycle

The Fed And Slowing Down The Pace Of Rate Hikes On Last Meeting This Year?

Kamila Szypuła Kamila Szypuła 10.12.2022 16:14
There are 3 weeks left till New Year, but the situation in the financial markets is not becoming less tense. Next week it seems to be the most importan of these 3. 2022 has been a dramatic year for rate hikes from the U.S. Federal Reserve (Fed), and there is still one meeting to go. Read next:Monetary Aggregates - Money Supply In The Economy| FXMAG.COM Data There’s lot of economic data came before the meeting, this will shape the December decision. The main things to watch are inflation and employment. The Producer Price Index, which measures the prices companies pay for goods and services before they reach consumers, rose 7.4% in November from a year earlier, the Bureau of Labor Statistics said on Friday. This is less than the revised 8.1% increase recorded in October.US stocks fell immediately after the report was released. The PPI report generally receives less attention than the corresponding Consumer Price Index, which measures the prices US consumers pay for goods and services. However, it is a rare month that the PPI report comes ahead of the CPI report due out on Tuesday. It is expected to decline again and reach 7.3%. The downward trend in inflation has been maintained since August, which may be a sign that the Fed's actions are bringing results. Source: investing.com The number of Americans filing new unemployment claims rose moderately last week, pointing to a still tense and strong labor market despite growing fears of a recession, economists have warned against reading too much as data is volatile at this time of year. Tensions and labor market resilience mean the US central bank is on track to continue raising interest rates for some time. Claims tend to be volatile at the start of the holiday season as businesses temporarily close or slow down hiring, which can make it difficult to get a clear picture of the job market. Forecast The Fed is widely expected to slow down to raise its benchmark rate by half a percentage point, slower than four 0.75 point rate hikes since June. This will put the Fed reference rate in the range of 4.25%-4.5%. While some economists argued that November's strong jobs report brought back a 0.75 point hike. Overall, economists are expecting a hawkish Wednesday. The key question here is how high the Fed wants rates to go in 2023. If December sees a 0.75 percentage point increase, that’s a signal that interest rates may top out at 5.5% or higher. However, if the December decision is a 0.5 percentage point hike or lower, then peak rates for this cycle may come in closer to 5%. Fed Chairman Jerome Powell During the Federal Reserve’s last battle with high inflation in the 1970s and 1980s, Fed officials didn’t talk much at all publicly. Forty years later, there is no sign of a lack of comment from the central bank when Fed Chairman Jerome Powell holds a press conference after the meeting. And investors and economists will get plenty of information, not just smoke, from the central bank. At his press conference in November, Powell said that if the Fed tightened policy, "we could use our tools to support the economy." Markets then picked up a dovish signal from Powell's comment from a week ago that the central bank did not want to tighten policy. Source: investing.com
Czech National Bank Prepares for Possible Rate Cut in November

Inflation Will Continue To Be One Of The Key Themes Of 2023

ING Economics ING Economics 11.12.2022 09:37
Rarely have predictions for an upcoming year been so difficult and wide-ranging. But we are sure of some things, and we are doing our best to help you navigate this unprecedented uncertainty  In this article Goodbye to all that Different shades of recession The widest range of possible outcomes and forecasts 3 calls for 2023: Recession, inflation and central banks Carsten Brzeski on what he's expecting in 2023 Goodbye to all that 'May he live in interesting times' is a Chinese proverb that many of us have heard, perhaps a little too often in recent times. The list of unprecedented crises gets longer by the year. 2022 was supposed to be the year of post-pandemic and post-lockdown reopenings. But it became the year of war, inflation, energy and commodity price crises, drought and floods. It was also a year which saw a paradigm shift at major central banks, trying to fight inflation at all costs. It's where we said goodbye to low interest rates for longer and that easing bias. Central banks got all of us used to jumbo-size rate hikes and, at least in the US, the policy rate is almost back at levels last seen prior to other financial crises. 2022 was also the year of what the Germans call 'Zeitenwende' or 'game changer', at least for Europe: a war in the EU’s backyard, which is still ongoing with no end in sight; an end to cheap energy, and an end to globalisation as we knew it. Combined with the well-known longer-term challenges of population ageing, a lack of international competitiveness, and the never-ending debate on further European integration, Europe's to-do list is long. The chances are very high that the continent will have a hard time returning to a pre-crisis growth trajectory any time soon.  Different shades of recession So what will 2023 bring? A natural reflex of many forecasters is to simply extrapolate recent trends and developments into the new year. And, indeed, many of this year's issues will also be prominent in the next: war, the energy crisis, inflation, trade tensions and even Covid are likely to affect the global economy significantly. This is not the moment to identify potential new black or grey swans... nor even pink ones. Our predictions and calls for 2023 reflect our base case: median forecasts backed by this year’s events and assumptions. We expect to see several different shades of recession in 2023. We should get a rather textbook-style recession in the US with the central bank hiking rates until the real estate and labour markets start to weaken, inflation comes down, and the Fed can actually cut policy rates again.  Expect a recession that feels but doesn’t read like a recession in China with Covid restrictions, a deflating real estate market and weakening global demand, bringing down economic activity to almost unprecedented low levels. And finally, look forward to an end to the typical cycle in the eurozone, where a mild recession will be followed by only very subdued growth, with a risk of a 'double dip', as the region has to shoulder many structural challenges and transitions. These transitions will first weigh on growth before, if successfully mastered, they can increase the bloc’s potential and actually add to growth again. The widest range of possible outcomes and forecasts Inflation will continue to be one of the key themes of 2023. We expect it to come down quickly in America, given the very special characteristics of the US inflation basket, allowing the Fed to stop rate hikes and eventually even cut before the end of the year. In the eurozone, inflation could turn out to be stickier than the European Central Bank would like and also perhaps afford. Still, with interest rates entering restrictive territory in early 2023, the looming loss of economic wealth and a large need for investment, the bank will be forced to stop earlier than it perhaps might like. Or, alternatively, it could commit a policy mistake if it hikes rates far beyond mildly restrictive levels. In any case, we are entering a year with the widest range of possible outcomes and forecasts in years. And this is not even taking into account potential blind spots such as the start of a pandemic or a war in Europe that markets simply did not have on their radar screens at the end of 2019 or 2021. It is both interesting and challenging, for the economy, for financial markets, for companies, for households but also for economists like us. 'May he live in interesting times'. A friend of mine just told me that this is actually not a Chinese proverb but more a curse. We shall see. In any case, Merry Christmas and a Happy New Year.   This article is part of ING’s Economic Outlook 2023: ‘May he live in interesting times’ 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   View 21 articles
Gold's Hedge Appeal Shines Amid Economic Uncertainty and Fed's Soft-Landing Challenge

Inflation Rates In Asia Look To Be Peaking Out, Picture Of The CEE Region For Next Year Is A Shallow Recession Driven Mainly By A Fall In Household Consumption

ING Economics ING Economics 11.12.2022 09:48
The global economy at a glance In this article US: Markets doubt the Fed’s intent Eurozone: Lower energy prices have temporarily stopped the downturn UK: Calmer markets and delayed fiscal pain not enough to stop recession China: Still dire from rising number of Covid cases Rest of Asia: No recession, but certainly slowdown CEE: Geopolitical misfortune  Rates: To reverse higher first, and then collapse lower as a theme for 2023 FX: Everyone is asking whether the dollar has topped   Shutterstock The World Reimagined globes in London, UK - 20 Nov 2022   1US: Markets doubt the Fed’s intent The economy is experiencing a strong second half of 2022. Jobs are being created in significant number, wages continue to rise and household keep spending as the Fed signals a step down to 50bp incremental rate hikes, but with a higher ultimate rate than they indicated was likely back in September. Officials suggest they may not cut rates until 2024 given their concern about stickiness in key service sector components of inflation, but their forward guidance needs to be taken with huge handfuls of salt given their recent track record. The “hawkish” rhetoric is likely the result of concern that the recent steep falls in Treasury yields and the dollar, coupled with a narrowing of credit spreads is loosening financial condition – the exact opposite of what the Fed wants to see as it battles to get inflation lower. Nonetheless, the softer core inflation prints seen in October, combined with bad housing market data and weaker business confidence has led the market to anticipate rate cuts from second half of 2023 – in line with our long-held view. 2Eurozone: Lower energy prices have temporarily stopped the downturn With lower natural gas prices on the back of the unusual warm autumn weather the downturn in sentiment has been temporarily halted, though most indicators are still weak. With retail sales falling sharply in October a recession over the winter quarters still looks very likely, albeit perhaps not as deep as we previously pencilled in. Thereafter, growth will be subdued at best, as higher interest rates will start to bite, energy prices are likely to remain at elevated levels, while budgetary stimulus is bound to peter out in the course of 2023. Headline inflation fell back in November to a still high 10%, while underlying inflation remains stuck at 5%. The ECB is therefore likely to lift the deposit rate to 2% in December, considered by some members of the Governing Council as the neutral rate. The first quarter might see another 50 bp further tightening, as well as the start of gradual reduction of the balance sheet, though at a very slow pace in the beginning. 3UK: Calmer markets and delayed fiscal pain not enough to stop recession Calmer financial markets and some fresh tax rises allowed the Chancellor to put off some of the painful spending cuts until after the next election in 2024/25 in his Autumn Statement. Nevertheless, energy support will become considerably less generous for most households from April, and the housing market is showing very early signs of faltering. Despite the sharp fall in swap rates since September’s mini-budget crisis, mortgage rates have fallen much more gradually. A recession now looks virtually inevitable, though it might not be until the first quarter until we see more material signs of slowing. The Bank of England has begun to talk down market rate hike pricing, and investors have taken the hint, but are still probably overestimating what is to come. We expect the BoE to pivot back to a 50bp hike in December, and expect one further 50bp move in February, which is likely to mark the top of this tightening cycle. 4China: Still dire from rising number of Covid cases Even the government offers property developers to increase funding channels, uncompleted home projects are yet to be finished. Most of those projects are left in the hands of local governments to find a private company to finish the construction work. This takes time to finish. The housing market is therefore quiet as home price continues to fall. On Covid, more local governments have subtly changed to slightly softer practices to implement Covid measures. But the higher number of Covid cases means that there is limitation on how fine-tuning can benefit the economy. Sporadic lockdowns would continue and still affect retail sales and production adversely. We have already seen retail sales fell into yearly contraction in October, and PMIs showed that could easily repeat for the rest of 4Q22. More, exports should continue to show weaknesses due to high inflation in US and Europe. The only support to the economy is now fiscal spending, which has been in the area of advanced technology and new energy. 5Rest of Asia: No recession, but certainly slowdown On the positive side, inflation rates in Asia look to be peaking out, and at levels well below comparable rates in Europe and the US. And this has also meant that although central banks across the region have been raising policy rates, they have not gone up alarmingly, and it feels as if in many cases, we are nearing a peak after the next one or two hikes. On the negative side, Asia is highly geared to global growth through global trade, and so with Europe contracting, China in as weak a state as we have seen it, and the US slowing, it is not surprising to see Asia export figures swinging sharply negative, with Korea and Taiwan the bellwethers for the North Asia, and Singapore’s Non-oil domestic export declines performing the same barometer role for SE Asia. Not entirely independently, the global semiconductor downturn is heaping further downward pressure on the region, which is the key production centre for most global technology hardware, weighing on industrial production and exacerbating the export downturn. 6CEE: Geopolitical misfortune  In addition to the global story of high energy prices and headline inflation, the CEE region is suffering from its own problems. The common denominator is the region's unfortunate geographic location in the current geopolitical landscape and historically strong labour market. The result is significantly higher inflation than in Western Europe, but also high and persistent core inflation, underpinned by a still massively tight labour market that shows no signs of easing despite the coming recession. Moreover, in response to the energy and migration crises at the same time, governments across the region have come up with another wave of household support spending, resulting in massive twin deficits. However, this has been countered by central banks tightening monetary conditions through interest rate hikes, well above global peers, but also often through the FX channel. The resulting picture of this wild mix for next year is thus a shallow recession driven mainly by a fall in household consumption, only gradually slowing inflation with a possible upside surprise, and cautious central bank foot-dragging around the timing of the start of monetary policy normalisation.  7Rates: To reverse higher first, and then collapse lower as a theme for 2023 2022 is shaping up to be the biggest bear market for bonds in modern times. This might help explain why market rates have reversed lower in recent weeks. But it’s also to do with position squaring, as a decent rump of investors square up on bear market positions taken in 2022. That requires the buying of both duration and risk. However, this stores up problems for the turn of the year. Arguably, financial conditions (especially in the US) are prone to loosening too much, driven there by falls in market rates. But the Fed is still hiking and needs tighter financial conditions. That should force market rates back up first. But the biggest narrative for 2023 will be one of big falls in market rates. The Fed and the ECB will peak in the first quarter, and once there, market rates will have a carte blanche to anticipate future cuts. 8FX: Everyone is asking whether the dollar has topped At top of everyone’s minds in the FX market is the question as to whether the dollar has topped. Softer US inflation data and some hints of softer Covid policy in China have combined to knock the dollar some 8% off its late September highs. Those arguing for a continued dollar decline are wholly focused on the Fed story and the extension of a Fed pivot into a full-blown easing cycle. We certainly agree that a dovish turn at the Fed – a turn that finally sees short-dated US yields start to fall – is a necessary condition for a drop in the dollar. But a sufficient condition requires investment destinations in Europe and Asia being attractive enough to pull funds out of dollar deposits yielding 4%+. It remains questionable whether either of these necessary or sufficient conditions are met in 2023 and we remain sceptical that EUR/USD will be able to sustain gains above the 1.05 level. Elsewhere, sterling has recovered after November’s fiscal U-turn – a sign that policy credibility has a big role to play in FX markets. And finally, Japanese policy makers will be looking at back at some incredibly effective FX intervention to sell USD/JPY in September and October. 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 Influence of Rising Oil Prices on Fed Rate Expectations and the US Dollar

An Overview Of ING Current Base Case: What Could Be Next For The Global Economy?

ING Economics ING Economics 11.12.2022 09:55
An overview of our current base case alongside potential upside and downside scenarios of what could be next for the global economy     Energy and commodity prices have taken over from Covid lockdowns as a key driver for the global economy and inflation developments across the world. Needless to say that at the current juncture, all forecasts are surrounded by unprecedented uncertainty. Therefore, we're continuing with our tradition of stress testing assumptions and central forecasts. What follows is an overview of our base case alongside both upside and downside scenarios for growth, inflation and central bank policy. Three scenarios for energy prices Macrobond, ING Three scenarios for the US economy Macrobond, ING Three scenarios for the eurozone economy Macrobond, ING Three scenarios for the UK economy Macrobond, ING Three scenarios for China's economy Macrobond, ING TagsInflation Energy 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
ECB's Potential Hike Faces Limited Rate Upside as Macro Headwinds Persist

Manufacturing Firms Across Developed Markets Are Reporting Lower Orders And Rapidly Rising Inventory Levels

ING Economics ING Economics 11.12.2022 10:06
Inflation – it's complicated. And it has dominated headlines for the past two years. Here's what we think is going to happen next In this article A complicated story The long road towards lower inflation Longer-term factors likely to push up inflation again   Industrial unrest has been increasing as workers demand higher wages to match inflation. 'For our wages' reads this banner at a recent protest in France A complicated story The drivers behind inflation have been discussed extensively. Lockdowns and reopenings, supply chain frictions, the war in Ukraine and an energy crisis pushed up headline inflation in most industrialised economies into double-digit levels this year. While inflation in Europe is still mainly driven by higher energy, commodity and food prices, it's become much more domestically driven in the US. At the end of the year, headline inflation in the States had started to come down significantly, and it seemed to have approached its peak in the eurozone. The big question for 2023 is whether headline inflation will retreat further and, if it does, how fast will the fall be? As we've seen over the past couple of years, the inflation outlook varies between regions.  The long road towards lower inflation Generally speaking, manufacturing firms across developed markets are reporting lower orders and rapidly rising inventory levels. Coupled with lower input prices for many commodities and also shipping, this points not only to lower inflation but also potentially to outright price falls in some durable goods categories; we already see that with used cars. That’s consistent with history, too: Goods inflation, particularly consumer durables, tends to be more volatile, but trends are also less persistent than services inflation. Just as goods price inflation surprised higher during Covid, it also has the potential to do the same on the downside. In the US, the latest ex-food and energy inflation readings are undershooting expectations, with some evidence that weakening corporate pricing power is spreading as businesses become more cautious about the outlook and see their inventory levels rise. However, Federal Reserve officials have signalled concern about services excluding housing (around 25% of the inflation basket) with the latest strong wage data set to keep them cautious.  We believe that the high share of shelter and used cars in the inflation measure (more than 40% of the basket) could push down headline inflation faster than many policymakers currently expect. After all, they reflect assets, so there is greater scope for outright price falls than for services. In the eurozone, however, headline inflation could prove to be a bit stickier, certainly if our house view is correct and gas prices stay high into winter 2023. Also, the pass-through from higher wholesale gas prices to consumers comes in waves and is likely to continue far into next year. As a consequence, headline inflation will just gradually come down and will only reach the ECB’s 2% target in 2024. Labour markets pose more of a conundrum but are crucial for the outlook for core inflation. While there’s little doubt hiring appetite is weakening as recession sets in - and that will continue - structural labour shortages suggest firms have an incentive to ‘hoard’ staff more than in past recessions. Given that demographics are less favourable in Europe than in the US, labour hoarding could be more accentuated in Europe. That suggests wage growth may also not slow as much. In any case, let’s not forget that wage growth is one of the most lagging indicators and even with a looming recession, wage negotiations at the start of 2023 will still be highly impacted by the inflation developments of the past two years and less by the looming recession. Remarkably, the UK faces a unique situation of an uptrend in the proportion of adults neither employed nor actively seeking a job, a situation exacerbated by healthcare problems. Longer-term factors likely to push up inflation again Our base case scenario remains that inflation in the developed economies will return to around 2% in 2024. However, this is no reason for relief and could be a very short-lived experience. In the longer term, structural shifts in the global economy are likely to push up costs and hence inflation. Deglobalisation - the restructuring of supply chains but also new trade barriers - presents new costs for corporates. Climate change and the transition to net zero will also initially push up costs for energy and commodities and will lead to more volatile inflation over the coming years. While 2022 saw higher gas prices due to the Ukraine war, those prices were already volatile in 2021, which was partly linked to periods of poor renewables' output. Until advances in energy storage become more widespread, the switch to zero-carbon electricity - and the associated volatility in output - implies periods of more volatile European power prices. Extreme weather also points to more volatility linked to supply chain pinch-points, as we saw with the drought-affected river Rhine in the summer. Demographic change, already leaving its mark on labour markets, will only grow and add to upside pressure on wages unless jobs are automated. Against this background of gradually declining but structurally higher inflation, the key question is what central banks will do if core inflation doesn’t return fully to target over the next 12 to 18 months. One option would be to keep policy rates high or higher for longer. The other option could be to become more flexible once inflation falls much lower. But it does suggest a return to consistently below-neutral interest rates is less likely in the medium-term. TagsInflation 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 ECB Has Made It Clear That Rates Will Remain High Until There Is Evidence That Inflation Is Falling Toward The Target

A Slowdown In The Pace Of Rate Increases By The ECB May Be Coming

Kamila Szypuła Kamila Szypuła 11.12.2022 18:52
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
Asia Morning Bites - 14.02.2023

Asia Market: One More Hike Early Next Year Should Do It For The RBI

ING Economics ING Economics 12.12.2022 08:49
India inflation reading out tonight but the highlight for the week will be US inflation and the Fed policy decision later in the week  Source: shutterstock Macro outlook Global Markets: At times, markets simply see what they want to see in the data to justify the direction they intended to go anyway, and Friday’s trading looked a lot like that. US data (on which more below) put in a mixed performance on Friday. On balance, the data still pushed in the direction of moderating inflation, but there were some upside misses (PPI) and some downside (University of Michigan inflation expectations) misses too.  Neither of these has all much relevance for this week’s CPI data, save to confirm that it will probably also show a moderation, though exactly how much, and what split between headline and core rates remain uncertain. Yet markets had been longing to correct, which is exactly what they did. The S&P500 lost 0.74%, rounding off a poor week, while the NASDAQ lost 0.7%. Chinese stocks finished in better form, still buying into the China reopening story. The CSI rose 0.99% on Friday, the Hang Seng rose 2.32%. US equity futures remain a little downbeat about today’s opening prices. US Treasury yields added a little more gloom to the market story, with yields rising, though only by 3.7bp for the 2Y, while the 10Y yield rose 9.6bp taking the yield to 3.578%.  EURUSD remains above 1.05, pulling back from just below the 1.06 level on Friday and settling slightly lower. The AUD is a little stronger at 0.6788, the same as Cable at 1.2246, and the JPY is more or less unchanged at 136.71.  Most Asian FX made small gains on Friday, but there aren’t many clues as to their direction today. For choice, it’s probably looking a bit more negative for Asian FX than positive today. G-7 Macro: As mentioned above, the news flow out of the US on Friday supported the moderating inflation theme. University of Michigan inflation expectations for one year ahead dropped to 4.6%YoY from 4.9%, against expectations for no change, but the PPI index for November showed producer price inflation dropping less than expected at both headline and core levels, and this was probably what markets zoomed in on when selling Treasuries and stocks on Friday. It’s a big week for macro and probably therefore markets this week, with US CPI on Tuesday, and the FOMC Wednesday (3am SGT Thursday), not to mention NFIB and retail sales. UK production and construction data dominate the G-7 calendar today, and while this may have implications for Gilts and sterling, probably won’t do too much to alter the broader market picture. India: November CPI inflation is expected to come in at 6.36%YoY by the Bloomberg consensus, though we think there is a bit of downside risk to that figure (ING f 6.2%YoY). Falling vegetable prices and stable gasoline prices will drive a weak month-on-month increase and help deliver the lower inflation print, which will then be only just above the RBI’s 4%+/-2% target and suggests that they may be getting close to a peak in rates with the policy rate in line with projected inflation at 6.25%YoY.  Probably one more hike early next year should do it for the RBI. What to look out for: Inflation reports and central bank meetings later in the week Japan PPI inflation (12 December) India CPI inflation and industrial production (12 December) Australia Westpac consumer confidence (13 December) Philippines trade balance (13 December) US CPI inflation (13 December) South Korea unemployment rate (14 December) Japan Tankan survey and industrial production (14 December) US MBA mortgage applications and import price index (14 December) FOMC policy meeting (15 December) New Zealand GDP (15 December) Japan trade balance (15 December) Australia labor report (15 December) China industrial production and retail sales (15 December) Indonesia trade balance (15 December) BSP policy meeting (15 December) Taiwan CBC policy meeting (15 December) ECB policy meeting (15 December) US retail sales and initial jobless claims (15 December) Singapore NODX (16 December) Japan Jibun PMI (16 December) Eurozone CPI inflation (16 December) 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
The China’s Covid Containment Continued To Negatively Impact The Output At The End Of 2022

China’s New Aggregate Financing May Bounce | Monetary Policy Decisions Ahead

Saxo Bank Saxo Bank 12.12.2022 09:07
    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. Why volatility in equites could pick up this week and what we learnt from prior inflationary out outs Will the inflation read show CPI fell to 7.3% in November as the market expects, down from 7.7% YoY? The risk is that inflation doesn’t fall as forecast, and that may likely push up bond yields and pressure equites lower. We saw this set up play out on Friday. November’s producer price index showed wholesale prices rose more than expected, which spooked markets that this week’s CPI could be bleak. As such bonds were sold off on Friday, pushing yields up; with the 10-year bond yield rising 10bps to 3.58%, while equities were pressure lower. Consider over the past six months, the S&P 500 has seen an average move of about 3% in either direction on the day US CPI has been released, according to Bloomberg. We haven’t seen these moves since 2009. Also consider, the S&P 500 has fallen on seven of the 11 CPI reporting days this year. December FOMC and dot plot may have little new to offer, so focus remains on Powell’s press conference The Fed is expected to lift its Federal Funds Rate target by 50bps to 4.25-4.50%, according to the consensus as well as the general commentary from Fed officials signalling a downshift in the pace of rate hikes. The updated economic projections will also be released, and are expected to show a higher terminal rate than the September projections (4.6%), as has been alluded to by Chair Powell at the November FOMC and in remarks made in December. But that means little room for market surprise as the Fed funds futures are pricing in a terminal rate of 4.96% in May 2023. Easing financial conditions and expected China stimulus could mean Fed continues to chase the inflation train from the back into the next year as well, so Powell’s press conference remains key to watch. There will have to be a lot of focus on pushing out the rate cuts of ~50bps that are priced in for next year, and emphasise that the Fed will not ease prematurely if Powell and committee want to avoid further easing of financial conditions. China is expected to convene the Central Economic Work Conference this week The Chinese Communist Party is expected to have its annual Central Economic Work Conference this week to formulate the macroeconomic policy framework for 2023. Investors are expecting supportive initiatives including measures to ease the stress in the ailing property sector. The conference will set out directions and blueprints but short of releasing key policy targets which will be for the National People’s Conference to be held next March. A weak set of Chinese activity data is expected Economists surveyed by Bloomberg are forecasting that China’s retail sales shrank sharply by 3.9% Y/Y in November. The potential weakness is likely attributed to poor performance of auto sales, dining-in activities, and sales during the “double-11” online shopping festival in the midst of Covid-19 lockdowns during the best part of November. November auto sales in China fell by 9.2 %Y/Y and by 10.5% M/M. Courier parcels processed on Nov 11 fell 20.7% Y/Y. The growth in industrial production is expected to fall to 3.7% Y/Y in November from 5% to 3.7%, following a weak November NBS manufacturing PMI and soft high-frequency data of steel production. Year-to-date fixed asset investment is expected to edge down to 5.6% from 5.8%, dragged by stringent pandemic control practices. ECB also likely to downshift to a smaller rate hike The European Central Bank (ECB) is also expected to slow down its pace of rate hikes to a 50bps increase this week. Headline inflation eased slightly in November, coming in at 10.0% YoY (exp. 10.4%), but was overshadowed by an unexpected rise in core inflation 6.6% YoY (exp. 6.3%, prev. 6.4%). While there is likely to remain some split in ECB members at this week’s meeting, the central bank’s Chief Economist Lane remains inclined to take into account the scale of tightening done so far. There is also uncertainty on the announcement of quantitative tightening. Bank of England may remain more divided than the other major central banks The Bank of England is also expected to follow the Fed and the ECB and downshift to a smaller rate hike this week, but the decision will likely see a split vote. A host of key data, including GDP, employment and inflation will be due this week in the run up to the BOE decision, and significant positive surprises could tilt the market pricing more in favour of a larger move which also creates a bigger risk of disappointment from the central bank. Headline annualised inflation advanced to 11.1% Y/Y in October, while the core rate remained at an elevated level of 6.5%. Consensus expects inflation to cool slightly to 10.9% Y/Y in November, but the core to remain unchanged at 6.5% Y/Y. Wage pressures are also likely to be sustained, and the cooling in the labor market will remain gradual. In Australia, this week the focus will be on consumer confidence and employment data There are a couple of economic read outs that could move the market needle, the ASX200 (ASXSP200.1) this week. Weakening confidence is expected; starting with Consumer Confidence for December (released on Tuesday), followed by Business Confidence for November. Employment reports are due on Thursday for November, and likely to show employment fell; 17,000 jobs are expected to be added, down from the 32,200 that were added in October. So focus will be on the AUD and a potential pull back if the data is weaker than expected. Iron ore equites to see volatility China reopening talk vs shut downs pre lunar new year The iron ore (SCOA) trading at four month highs $110.80 rallying as China has been easing restrictions, plus there are whispers Chinese property developers could get more support, which would support demand for iron ore rising. However we mentioned on Friday, why iron ore could pull back, as buying volume appears slowing. So be mindful of potential pull back in iron ore pricing and mining equities. Secondly, consider seasonable halts of Chinese steel plants ahead of the Lunar New year holiday. Restocking typically occurs 5-8 weeks before the holiday, but plants could be closed earlier, due to poor profits and weaker demand. This could cause volatility in iron ore and iron ore equities. So, keep an eye on iron ore majors, Vale, Fortescue Metals, Champion Iron, BHP and Rio as they could see profit taking after rallying ~25-55% from October.   China’s new aggregate financing and RMB loans are expected to have bounced in November Market economists, as surveyed by Bloomberg, are expecting China’s new aggregate financing to bounce to RMB 2,100 billion in November from RMB 907.9 billion in October and new RMB loans to rise to RMB 1,400 billion in November from RMB 615.2 billion as People’s Bank of China urged banks to extend credits to support private enterprises including property developers. Less bond issuance by local governments and corporate and weak loan demand however might have weighed on the pace of credit expansion in November. Key earnings to watch: Adobe (ADBE:xnas), Trip.com (TCOM:xnas) In his note for key earnings this week, Peter Garnry highlights Adobe and Trip.com. The past five earnings releases have all led to a negative price reaction in Adobe shares as growth has come down while the cost of capital has gone up. Can Adobe buck the trend next when the company reports earnings? Another question investors will be asking is an update on the company’s $20bn acquisition of the industry challenger Figma, which was delayed due to a US Department of Justice investigation of the deal. Adobe reports FY22 Q4 (ending 30 November) earnings on Thursday with revenue growth expected at 10% y/y and EPS of $3.50 up 36% y/y as cost-cutting exercises are expected to improve profitability. Adobe is expected to end the fiscal year with revenue of $17.6bn and strong free cash flow generation of $7.3bn which translates into 5% free cash flow yield. Recently the Chinese government has chosen to move ahead with reopening the economy taking on the associated Covid risks and this could be good for the outlook for travel activity and thus Trip.com. The Chinese online travel agency platform is expected to report earnings on Wednesday with analysts expecting revenue growth of 22% y/y. Analysts expect revenue to increase 50% y/y in 2023 to CNY 29.6bn. •          Monday: Oracle•         Tuesday: DiDi Global•          Wednesday: Lennar, Trip.com, Nordson, Inditex•          Thursday: Adobe•          Friday: Accenture, Darden Restaurants   Key economic releases & central bank meetings this week Monday 12 December United Kingdom monthly GDP, incl. Manufacturing, Services and Construction Output (Oct)United Kingdom Goods Trade Balance (Oct)India CPI and Industrial Output (Nov)China (Mainland) M2, New Yuan Loans, Loan Growth (Nov) Tuesday 13 December Germany CPI (Nov, final)United Kingdom Labour Market Report (Oct)Hong Kong Industrial Production, PPI (Q3)Germany ZEW Economic Sentiment (Dec)United States CPI (Nov) Wednesday 14 December Japan Tankan Survey (Q4)United Kingdom Inflation (Nov)Eurozone Industrial Production (Oct)United States Fed Funds Target Rate (14 Dec) Thursday 15 December New Zealand GDP (Q3)Japan Trade Balance (Nov)South Korea Export and Import Growth (Nov)Australia Employment (Nov)China (Mainland) Industrial Output, Retail Sales, Urban Investment (Nov)Philippines Policy Interest Rate (15 Dec)Switzerland SNB Policy Rate (Q4)Norway Key Policy Rate (15 Dec)United Kingdom BOE Bank Rate (Dec)Eurozone ECB Deposit and Refinancing Rate (Dec)United States Initial Jobless ClaimsUnited States Retail Sales and Industrial Production (Nov)Taiwan Discount Rate (Q4) Friday 16 December Australia Judo Bank Flash PMI, Manufacturing & ServicesJapan au Jibun Bank Flash Manufacturing PMIUK S&P Global/CIPS Flash PMI, Manufacturing & ServicesGermany S&P Global Flash PMI, Manufacturing & ServicesFrance S&P Global Flash PMI, Manufacturing & ServicesEurozone S&P Global Flash PMI, Manufacturing & ServicesUS S&P Global Flash PMI, Manufacturing & ServicesUnited Kingdom GfK Consumer Confidence (Dec)Singapore Non-Oil Exports (Nov)United Kingdom Retail Sales (Nov)Eurozone Total Trade Balance (Oct)Eurozone HICP (Nov, final)   Sign up for our Outrageous Predictions 2023 webinar - APAC edition: Wed, 14 Dec, 11.30am SGT Source:Saxo Spotlight: What’s on the radar for investors & traders for the week of 12-16 Dec? A flurry of central bank meetings from Fed to BOE to ECB, US/UK CPI, China’s reopening and Adobe earnings | Saxo Group (home.saxo)  
BRICS Summit's Expansion Discussion: Impact on De-dollarisation Speed

Big Week Ahead: Focus For This Week Will Still Be The US CPI And The Fed Decision

Saxo Bank Saxo Bank 12.12.2022 09:19
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)
Rates Spark: Discussing the Potential of 4.5% and its Impact on Markets

Czech Republic: Year-On-Year Inflation Would Have Reached A Record High Of 19.8%

ING Economics ING Economics 12.12.2022 12:56
Inflation accelerated again in November and would have been at a new record high without government measures. Prices will rise further but the key question is the January number. This is heading towards 19% in our estimates. Even so, this will not be a reason for the central bank to hike rates. However, the risk is a later rate cut than our forecast 16.2% November inflation (YoY)   Higher than expected Inflation is back Consumer prices rose by 1.2% month-on-month in November, a re-acceleration from the 1.4% decline in October. Of course, in the previous month, the main reason for the fall in prices was the introduction of government measures against high energy prices. Thus, inflation has rather returned to the normal of recent months. Month-on-month growth was mainly driven by higher prices of housing, food and clothing. By contrast, the only item that fell in November, as we expected, was fuel. In year-on-year terms, consumer prices rose by 16.2% in November, which was 1.1pp higher than in October. The higher year-on-year figure is partly due to the comparative base from last year when VAT on energy prices was waived. In terms of year-on-year contributions to the CPI, only energy prices (from 3.1pp to 4.5pp) and transport prices (from 1.7pp to 1.4pp) showed a significant change from the previous month. Contributions to year-on-year inflation (pp) Source: Macrobond, ING Without measures, inflation would be at a new record high Year-on-year inflation would have reached a record high of 19.8% without the effect of the energy-saving tariff. Thus, with the inclusion of government measures, inflation is below the central bank's forecast, while without the inclusion of measures it is well above the forecast. On the other hand, core inflation slowed from 1.2% to 0.6% MoM and from 14.6% to 13.6% year-on-year, according to our estimates. The Czech National Bank (CNB) will release commentary later today including core inflation. If our estimate is confirmed, the overall picture for the fourth quarter would show headline inflation significantly higher than the CNB forecast if we exclude government measures, while core inflation is roughly in line. January revaluation will push inflation even higher Our fresh estimate for December points to a further rise in inflation to 16.9% YoY, but the more interesting question is January inflation. We expect January's change in government measures from the savings tariff to the price cap to have about the same impact on CPI. Thus, the main upside risk is the new year's repricing. A number of large companies have already announced significant price increases for January, on the other hand, the already high comparative base from this year should come into play. However, ultimately this means inflation will move close to the 19% YoY level, more than we previously expected. Given that the CNB's summer forecast expected inflation to be above 20% by this time, and even that was not a reason to raise rates, we believe that this outlook will not be a reason for the central bank to raise rates either. We do, however, see a risk of a slower inclination to discuss rate cuts next year compared to our forecast, which currently expects the first rate cut in the second quarter of 2023.  Read this article on THINK TagsCzech Republic 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
India: Reserve Bank hikes and keeps tightening stance

Asia Market: In India November Inflation Dropped Far More Sharply Than Had Been Expected

ING Economics ING Economics 13.12.2022 08:48
Indian inflation comes in below policy rates...the pattern for others? US November inflation later Source: shutterstock Macro outlook Global markets: US stocks snapped their losing spell yesterday with some solid gains. The S&P500 rose 1.43% and the NASDAQ rose 1.26%. But with no macro releases to speak of and no Fed speakers during the blackout period before this week’s FOMC meeting, it is hard to see what drove yesterday’s moves higher. It certainly wasn’t falling bond yields, as US Treasury yields made further, albeit small gains. 2Y and 10Y UST yields both rose about 3bp. The 10Y yield now stands at about 3.61%. EURUSD looks almost unchanged from this time yesterday but has tested both ends of the 1.05 level, sitting at 1.0541 currently. Other G-10 pairs are a mixed bag, with the AUD and JPY looking soft, while GBP mirrored the EUR moves and ended roughly unchanged from a day ago. Most Asian FX sold off against the USD yesterday with the PHP at the bottom of the non-G-10 pile, followed by the KRW. The VND made small gains.  G-7 Macro: Today will be dominated by the US CPI release for November. The consensus expects the headline inflation rate to decline to 7.3% from 7.7%YoY, following a 0.3%MoM increase in the price level. And the core rate of inflation is expected to decline to 6.1%YoY from 6.3%, again on a 0.3%MoM gain in the core price level. The US NFIB survey is also released today, which provides a lot of price and wage-setting intentions for smaller firms, which have a strong track record predicting actual inflation, so well worth a look. Outside the US, Germany’s ZEW survey has registered small improvements recently, though from an extremely low base, and more of the same is anticipated for the latest data. India: November inflation dropped far more sharply than had been expected, with the headline inflation rate dropping to only 5.88%YoY (consensus 6.35%, ING f 6.20%).  The main culprit for the fall was a larger-than-expected fall in food prices, but the housing component was also weaker, as were the transport, and recreation sectors. With inflation now below the RBI’s policy rate (repo rate is 6.25%) there is a strong case to be made for at least easing back on further tightening, and possibly even considering a pause/peak in rates. That would certainly be welcome news for the economy, which registered a 4.0% decline in industrial production in October and could do with a boost. China: Aggregate finance increased CNY1990 bn in November from CNY908 bn a month ago, while new yuan loans rose CNY1210 bn, almost double the amount in October. The data is in line with expectations that loan growth increased in November after a quiet month in October. Over 70% of new yuan loans went to corporates. This should help the corporate sector to keep business running as the government eases Covid measures, and could keep employment stable. Household long-term loans, most of which will be mortgages, increased CNY210 bn in November from CNY33 bn the previous month. Though not comparable to pre-Covid level, this shows some home buyers started to find bargains in the home market. Government bond issuance increased by CNY652 bn, which should continue to increase in the coming months to finance infrastructure investment in 2023. Philippines:  The October trade report should show exports sliding back into contraction after posting a surprise expansion in the previous month.  The electronics subsector should revert to a contraction, dragging down the export sector for the rest of the year.  Meanwhile, imports should sustain their double-digit expansion, resulting in a still sizable trade deficit to keep some depreciation pressure on the PHP.   What to look out for: US inflation Australia Westpac consumer confidence (13 December) Philippines trade balance (13 December) US CPI inflation (13 December) South Korea unemployment rate (14 December) Japan Tankan survey and industrial production (14 December) US MBA mortgage applications and import price index (14 December) FOMC policy meeting (15 December) New Zealand GDP (15 December) Japan trade balance (15 December) Australia labor report (15 December) China industrial production and retail sales (15 December) Indonesia trade balance (15 December) BSP policy meeting (15 December) Taiwan CBC policy meeting (15 December) ECB policy meeting (15 December) US retail sales and initial jobless claims (15 December) Singapore NODX (16 December) Japan Jibun PMI (16 December) Eurozone CPI inflation (16 December) 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
ECB's Tenth Consecutive Rate Hike: The Final Move in the Current Cycle

Rates Spark: The Predominant View Remains That Inflation Is On Its Way Down And Should Allow The Fed To Slow

ING Economics ING Economics 13.12.2022 08:55
The US November CPI report released today will skew the way markets deal with the Fed’s communication tomorrow. A higher print would be most market-moving. Source: Shutterstock US CPI to skew the way the market reacts to the Fed tomorrow The upside to yields we expected into this week’s US CPI release and central bank meetings is materialising, but it is still limited and unlikely to amount to much of a change in market narrative. The predominant view, judging by market moves in recent weeks, remains that inflation is on its way down and should allow the Fed to slow, and eventually stop, its hiking cycle at the coming meetings. Data on that front is encouraging. Consumer inflation expectations in the University of Michigan and New York Fed surveys is, globally, on its way down, and the price components of surveys such as the ISM are also suggesting the direction of travel is lower. There is no guarantee that inflation continues to converge on a linear path towards the Fed’s target The problem of course is that there is no guarantee that inflation continues to converge on a linear path towards the Fed’s target. One key worry, for instance, is that after an initial drop, inflation upside resumes. In that context most, including us, expect the Fed to continue striking a cautious tone at this and subsequent meetings. Since the summer, this has resulted in the Fed pushing back against instances of easing of financial conditions. Lately, that pushback has been less effective, due to more encouraging data. Today’s CPI release should be no exception. A core monthly print at 0.3% could take the edge off Powell’s hawkish tone, but we think it is a higher reading that would have the most market impact, as it would wrong-foot almost two months’ worth of bond rally. It is still too early to talk about a change in the market’s economic outlook. Most telling market moves, the richening of 5Y on the curve and the flattening of the 2s10s slope, have merely stopped, rather than reversed. In addition to the uncertainty about the sign of the inflation surprise today, and about the strength of the Fed’s pushback, one needs to add uncertainty about the market’s reaction. The speed of the moves since October make a retracement most likely, before rates converge lower and before the curve re-steepens in the course of 2023. Consumer inflation expectations support the current dovish narrative Source: New York Fed, ING Today's events and market view Italian industrial production and Germany’s Zew surveys are the two main releases in the European morning. Consensus is for the expectations component of the latter to continue its bounce back from very depressed levels. Italy will auction 2Y, 3Y and 7Y debt. The US Treasury will sell 30Y T-bonds. Both headline and core US CPI are expected at 0.3% MoM which is an improvement on the 2021 and 2022 average but still too high to be consistent with inflation at 2% annualised. Any deviation to consensus is likely to skew market expectations ahead of tomorrow’s Fed meeting but the bar is high for market to price a 75bp hike in our view. NFIB small business activity completes the list of releases for today. Read this article on THINK TagsRates Daily 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
FX Daily: Upbeat China PMIs lift the mood

China’s New Aggregate Financing Increased Less Than Expected | Tesla And Rivian Shares Fell

Saxo Bank Saxo Bank 13.12.2022 09:09
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)
BRICS Summit's Expansion Discussion: Impact on De-dollarisation Speed

The Fed Does Not Fear A Recession Or Prolonged Bear Market In Equities

Saxo Bank Saxo Bank 13.12.2022 09:19
Summary:  The Fed is moderating the pace of rate hikes into 2023 but inflation is likely to be stubbornly elevated. The combination of these creates an environment in which Treasury Inflation-protected securities (TIPS) could potentially be an attractive investment option. Declines in real interest rates will see TIPS prices higher and their principal value and coupon amounts (while the coupon rates are constant) will rise together with the consumer price index. The Fed is poised to downshift as it believes that it must have got to somewhere after running so fast As our previous Fixed Income Update suggests, the modus operandi of the Fed has arguably shifted to risk management which aims at balancing the risks of inflation and the yet-to-be-fully-felt impact of monetary tightening on the real economy. Fed Chair Powell signals in his speech at the Brookings Institution on November 30. 2022 that being sufficiently restrictive, in his mind, is likely just “somewhat higher” than the 4.50%-4.75% (mid-point 4.625%) terminal rate in the FOMC’s September projections and he argues for “moderating the pace” of rate increases and “holding policy at a restrictive level”, not keep hiking, “for some time”. Powell acknowledges the fact that the employment, wage growth, and core services ex-housing inflation are all too strong to confidently foretell a victory in fighting inflation anytime soon and admits that the Fed has “a long way to go in restoring price stability”. Nonetheless, resorting to the notion of impact lags of monetary policy, Powell argues that it “makes sense” to downshift rate increases. This may mean that after a 50bp increase this Wednesday, as being well telegraphed and fully priced in, and probably another 50bps to 75bps in total in the February and March 2023 meetings. Powell has apparently on purpose been preparing the market that the Fed may pause even without seeing inflation falling significantly towards the 2% target as he and the November FOMC minutes emphasized the time lags of monetary policies and the importance of financial stability. Since August 2020, the Fed has adopted a new set of a new monetary policy framework that redefines its 2 percent inflation goal not as a ceiling but as inflation averaging 2 percent over time, and the unspecific “average over time” gives the Fed room to maneuver. The Fed may remain behind the inflation train for a prolonged period Alice looked round her in great surprise. “Why, I do believe we’ve been under this tree the whole time! Everything’s just as it was!” “Of course it is,” said the Queen, “what would you have it?” “Well, in our country,” said Alice, still panting a little, “you’d generally get to somewhere else—if you ran very fast for a long time, as we’ve been doing.” “A slow sort of country!” said the Queen. “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!” “I’d rather not try, please!” said Alice."  Lewis Carroll, Through the Looking-Glass. After running as fast as it can with 375bp hikes including four 75bp hikes, since March 2022, the Fed ends up in a situation where inflation rates are not accelerating further but stay at elevated levels and are not coming down. Inflation rates as represented by the key measures on which the Fed is focusing are more or less at the same place as when the Fed started raising rates nine months ago (Figure 1). In his Brookings Institution speech, Powell highlighted the personal consumption expenditure core services ex-housing index being a key indicator for the future path of inflation because he is least confident for this component to fall, as opposed to prices of core goods and costs of housing services.   Figure 1. U.S. inflation rates; Source: Saxo, Bloomberg Likewise, the three measures of wage growth to which the Fed refers are at basically the same place as the Fed start raising the Fed Fund target rate in March 2022 (Figure 2). Elevated wage growth rates tend to fuel inflation, and high inflation raises demand for higher wages. Figure 2. U.S. wage growth; Source: Saxo, Bloomberg While the Fed may not have yet caught up with the runaway inflation train even after running very fast since March this year, it is signaling that it wants to switch to a low gear and hope that the cumulative rate hikes working through the proverbial impact lags, plus the ongoing quantitative tightening will work their wonder in bringing down inflation. The 2-year yield has hit a floor and may bounce As inflation remain elevated, the Fed can downshift the pace of rate hikes but does not have room to pause or cut rates in the next few meetings. Therefore, three-month T-bill rates (currently at 4.23%) will become a floor to the 2-year yield. Unless the Fed’s next move is a rate cut, which will not be the case, 2-year yields will unlikely fall below the yield of 3-month Treasury bills. As illustrated in Figure 3, during the five times over the past 30 years when 2-year yields fell below 3-month yields, the next move by the Fed was cutting rates. When the Fed was not about to cut rates, yields on the 2-year notes did not fall below those of the 3-month bills. When 2-year notes are yielding only 4.33%, they offer little investing value. While we are expecting bonds to be a valuable asset class to have in a portfolio in 2023, we caution investors to be patient and look for a better entry level. Figure 3. 3-month T-bills vs 2-year T-notes spread; Source: Saxo, Bloomberg Without a recession, the value at the long end of the yield curve is stretched At Saxo, it is our view that the U.S. is not entering into a recession. Without a recession that drags down inflation and pushes up unemployment rates substantially and therefore brings about a series of rate cuts, the term premium is unlikely to stay so negative. In other words, investors will demand higher yields to compensate for the risks of owning long-term bonds. This is particularly true when the interest rate volatility is high. Higher implied volatility of treasury yields demands higher term premiums, i.e. higher long-term yields relative to short-term yields. Figure 4 plots the 3-month Treasury yield versus the 10-year Treasury yield spread against the ICE BofA Merrill Lynch Option Volatility Estimate (MOVE) Index. The divergence between the inversion of the yield curve and the elevated level of the MOVE index is unusual and may point to pressure for yields on 10-year notes to go up. Figure 4. 3-month T-bills vs 10-year T-notes spread, Implied volatility of Treasury yields; Source: Saxo, Bloomberg Powell does not want to see bond yields rising too fast and too much from here The Fed does not fear a recession or prolonged bear market in equities. It may welcome both as they help the Fed strive to dampen the development of a wage-price spiral and tighten financial conditions. It is the functioning of the Treasury market that is the elephant in the room and keeps Powell up at night. In the Fed’s own words in its November FOMC minutes, the U.S. Treasury market is important “for the transmission of monetary policy, for meeting the financing needs of the federal government, and for the operation of the global financial system. The FOMC participants noted that “the value of resilience of the market for Treasury securities was underlined by recent gilt market disruption.” In its Global Financial Stability Report Oct 2022, the IMF warns about poor market liquidity in government bond markets as quantitative tightening “leaving more of these bonds in private hands, which could translate into a shallower pocket to absorb shocks and therefore higher liquidity premiums and lower market liquidity.” As the total amount of outstanding Treasury securities has surged by seven times from USD3.2 trillion in 2002 to USD23.7 trillion in November 2022, the average daily turnover of the Treasury market has less than doubled during the same period.  As a result, the average daily turnover as a percentage of the amount of outstanding Treasury securities has declined from 11.6% to 2.6% over the past 20 years (Figure 5). Figure 5. Average daily turnover of Treasury securities as % of outstanding Source: Saxo, Securities Industry and Financial Markets Association Using the deviation of the quoted prices of individual securities from the fair-value curve as a proxy for market liquidity (Figure 6), the liquidity of the Treasury market has drastically deteriorated and stays currently at an elevated level similar to those in March 2020 when the Fed decided to come to the rescue and start a new round of open-ended buying of Treasury securities, i.e. quantitative easing.   Figure 6. Bloomberg U.S. Government Securities Liquidity Index; Source: Saxo, Bloomberg Both the Fed and the Treasury Department will do yield curve control if needed What if inflation does not come down and raising interest rates not “somewhat higher” but much higher, together with quantitative tightening, risk draining market liquidity and breaking the Treasury securities market? Not speculating on the political dynamic between the Fed, the White House, and Congress, the Federal Reserve Act of 1913, under which the Fed operates, provides that: The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.                                                                           Section 2A. of the Federal Reserve Act The notion of moderate long-term interest rates is a goal imposed on the Fed by law, though the Fed has certain leeway to decide on what “moderate” is. The Fed usually talks about a “dual mandate” of monetary policy without mentioning the third one because the Fed considers that “an economy in which people who want to work either have a job or are likely to find one fairly quickly and in which the price level (meaning a broad measure of the price of goods and services purchased by consumers) is stable creates the conditions needed for interest rates to settle at moderate levels”, without the need to define what “moderate levels” are. It may not be the case when bond investors become fed up with the elevated inflation rates and a Fed not willing to run any faster than what it has done to keep up with inflation in a liquidity-strained Treasury market. It was alarming when Treasury Secretary Janet Yellen warned publicly about “a loss of adequate liquidity in the [U.S. Treasury securities] market” in October. As the Fed is busy trimming its holdings of Treasury securities at a pace of USD95 billion a month as qualitative tightening, Secretary Yellen is worried enough to prepare to open her wallet and buy back Treasury securities. In October, the Treasury Borrowing Advisory Committee asked around primary dealers about their responses if the Treasury Department putting in place a debt management program to buy back long-term treasuries and said in its report in November 2022 that the Treasury Department “should continue to gather information as to the benefits and risks” of bond buybacks. The move highlights the Treasury Department’s concern about its costs and even abilities to fund the U.S. Federal Government’s budget deficits through issuing Treasury securities and the amount of federal debt held by the public as a percentage of U.S. GDP has ballooned to nearly 100% this year and is heading towards 110% by 2032 (Figure 7), surpassing the peak at the end of the Second World War. It was noteworthy to remind our readers that from 1942 to 1951, the Fed implemented yield curve control and capped the Treasury long-term bond yield at 2.5% to help the Treasury Department finance the federal government at low interest rates and bring debt down. Figure 7: U.S Federal Debt Held by the Public; Source: Congressional Budget Office (2022) Options for Reducing the Deficit, 2023 to 2032. P.12. file:///C:/Users/WENW/OneDrive%20-%20Saxo%20Bank%20AS/Documents/research/bonds/58164-budget-options-large-effects.pdf Elevated inflation and Fed downshift: TIPS may do well in this environment The total return on Treasury inflation-protected securities (TIPS) tends to outperform that of nominal bonds when real yields are falling and the Consumer Price Index for All Urban Consumers (CPI-U) is rising or simply stays at elevated levels higher and more persistently than previously expected. TIPS are quoted and traded in real yields that can be positive or negative. When the real yield rises, the price of TIPS falls; when the real yield falls, the price of TIPS rises. The most unique feature of TIPS is the principal value varies and is indexed to the CPI-U. The index ratio is calculated by the CPI-U index value published three months before the settlement date divided by the CPI-U index value as of the issuance date of the TIPS. For days during the month, linear interpolation of the monthly CPI-U indices is used. The Treasury Department publishes the updated index ratios for all TIPS issues on its website. When the CPI-U index value rises, i.e. inflation is positive, the principal value of TIPS will rise by the same percentage. When the CPI-U index value falls, i.e. inflation is negative, the principal value of TIPS will fall. The coupon rate of a TIPS is constant and does not change over the life of the bond. However, the coupon payment will change over time proportional to the change in the principal value. Therefore, the principal and coupon cash flows, that the investor receives, are protected from inflation. What is not protected is a rise in the real yield of TIPS that reduce the quoted price of the bond. When inflation is positive and even increasingly positive but the real yield is rising fast, the increase in the inflation-indexed principal may not be sufficiently large to offset a decline in bond price and the investor ends up with a loss in total return. From March, the month the Fed started raising rates, to October 2022, the TIPS yield swung dramatically from negative to positive as the Fed raised interest rates aggressively. The 10-year TIPS yield soared from minus-1.0% on March 1, 2022, to positive 1.6% on October 31, 2022, a 2.6% or 260bp movement which caused the 10-year TIPS to fall 21.4% in price. The rise in principal value contributed 5%. The net loss over that eight months was 16.5%. Rising inflation is not enough to generate a positive return for TIPS investors if the Fed aggressively pushes up real interest rates like it did this year. Many investors asked why TIPS lost money in most of 2022 through October and the 260bps rise in the real yield is the answer. The investment environment has become more favorable for TIPS since November 2022 when the Fed signaled to the market that it will downshift the tightening pace even before inflation falls substantially. In Figure 8, the green, light blue, and dark blue lines are breakeven inflation rates implied by the difference between yields on nominal Treasury note yields and the yields on TIPS, which are real yields. The bond market is pricing in future inflation at very near to the Fed’s 2% target as investors believe that the Fed will be able to bring down inflation towards 2%. In a combination of stubbornly high inflation and the Fed’s downshift in the pace of tightening, the line of least resistance for breakeven inflation is going upward, approaching the elevated actual inflation and away from 2% rather than falling below 2%.  Figure 8. Breakeven inflation rates implied versus CPI-U % change Y/Y; Source: Saxo, Bloomberg The breakeven inflation is the difference between nominal Treasury yields and TIPS yields. As inflation turns out to be more persistent into 2023, nominal bond yields are likely to bounce from this current trough level and rise to test the October 4.34% high in yield. However, given the Fed is mindful of the liquidity in the Treasury securities market and not to disrupt its smooth function, the rise in yields will be measured and much behind the rate of inflation. The aggressive pace of raising interest rates was something for 2022 and will unlikely be repeated in 2023. In this environment, for the breakeven inflation to rise, TIPS yields will probably need to fall. That will give TIPS a sweet spot of elevated inflation and at the same time declining real yield. Currently, 5-year TIPS are at 1.44% and 10-year TIPS are at 1.31% (Figure 9) and have room to fall in yield and rise in price. On top of that, the principal of TIPS is rising at the same rate as inflation as it is indexed to the CPI-U. Current inflation assumptions used for index factor calculation are around 8% p.a. Figure 9. Yields on 5-year and 10-year TIPS; Source: Saxo, Bloomberg In Figure 10 below, a list of TIPS is shown for illustration purposes.    Figure 10: Examples of TIPS on the Saxo trading platform for illustration purposes, not as recommendations; Source: Saxo Key Takeaways: Inflation is not coming down as much as the market is hoping for in 2023 Despite elevated inflation, the Fed is going to moderate its tightening pace The Fed and the Treasury Department are mindful of keeping long-term interest rates at moderate levels Nominal bond yields may bounce from the current low levels but be slower than inflation TIPS benefit from a fall in persistently higher-than-expected inflation and a fall in real yields Elevated inflation and a cautious Fed in low gear may present a sweet spot for TIPS   Source: Fixed Income Update: Elevated inflation and Fed downshift could potentially be a sweet spot for Treasury Inflation-protected Securities (TIPS) | Saxo Group (home.saxo)
The Commodities Digest: US Crude Oil Inventories Decline Amidst Growing Supply Risks

Focus On US CPI | In Cryptocurrency Market The Drama Continues With Binance

Swissquote Bank Swissquote Bank 13.12.2022 10:37
European equities traded in the red at the start of the week, but equities in the US rebounded as investors are hanging on to hope of slower inflation and reasonably hawkish Federal Reserve (Fed) by their fingernails. US CPI Today and tomorrow will tell whether they are right to be optimistic or not. If, by any chance, we see a softer CPI figure, then the S&P500 could easily jump above its 200-DMA, and even above the ytd descending channel top. But, but, but… today’s US CPI data, unless there is a huge surprise, will probably not change the Fed’s plan to hike the interest rates by 50bp this week. Therefore, even if we see a great CPI print and a nice market rally today, it may not extend past the Fed decision on Wednesday. US In energy, US nat gas prices jumped more than 30% since last week due to a powerful Pacific storm bringing cold and snow to the norther and central plains in the US. UK In the UK, power prices hit another ATH yesterday. European nat gas futures Happily, we haven’t seen a significant rise in the European nat gas futures, which in contrary kicked off the week downbeat. Crude Oil But crude oil rallied as much as 2.60% on Monday on several factors that could however not lead to sustainable gains in the mid-run. Watch the full episode to find out more! 0:00 Intro 0:29 US CPI: possible scenarios 2:50 But the Fed may not care much about the data 4:10 Opportunity to sell the latest crude oil rally? 6:17 Is it time for Chinese stocks to recover… sustainably? 8:03 UK grows more than expected, but… 8:43 Binance may have processes $10bn illegal funds. Bitcoin stable. 9:11 Amgen buys Horizon Therapeutics, Microsoft takes 4% stake in LSE 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. #USD #CPI #inflation #data #FOMC #Fed #rate #decision #dotplot #enery #crisis #natgas #crudeoil #Russia #China #Covid #reopening #HangSeng #Alibaba #Amgen #HorizonTherapeutics #Microsoft #LSE #acquisition #Bitcoin #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      
Romanian retail sales confirm economic slowdown

Romania: Headline Inflation Might Hit 17%

ING Economics ING Economics 13.12.2022 11:51
At 16.8%, the November 2022 inflation print is the highest it has been in Romania in almost 20 years. We are reasonably confident that December 2022 will mark the peak of this cycle at around 17.0%. Nevertheless, price pressures in the service sector are becoming more prominent and could nudge the central bank into another 25bp hike to 7.00% in January  16.8% November headline inflation   Higher than expected   While we have attempted to call the peak in inflation already twice this year, we now have a stronger reason than ever to believe that November-December will mark the summit: there are no more months left in the year to see higher prints. November inflation accelerated well beyond the 16.1% Bloomberg consensus but relatively close to our 16.6% estimate. The forecast error on our side came entirely from the service sector where broad price pressures are beginning to surprise to the upside. Inflation (YoY%) and components (ppt) Source: NSI, ING   Headline inflation might inch a little bit higher this month, probably touching 17%. Starting in January 2023, strong base effects should push the headline inflation back around 16.0% while the end of the first quarter could see inflation closer to 15.0%. A gradual descent towards low double digits will follow, but getting back below 10% might not be achievable until the fourth quarter of 2023.    With core inflation already above 14.0%, there is mounting pressure for the National Bank of Romania (NBR) to deliver another hike at the January 2023 policy meeting. While we narrowly opted for the end of the hiking cycle at the current 6.75% key rate, we underlined that a final 25bp increase in January was still a strong possibility. Based on today’s data, the balance might be now tilted toward the latter option. Read this article on THINK TagsNational Bank of Romania 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 RBA Raised The Rates By 25bp As Expected

Australia's Economy Is Showing Clear Signs Of The Possibility Of Further Contraction In 2023

ING Economics ING Economics 13.12.2022 12:10
Australia's economy is showing clear signs of slowing and will drop further in 2023. House price growth appears to be on the cusp of turning negative and provides a rationale for a peak cash rate at the relatively low level of 3.6%. We believe the economic slowdown will be accompanied by a similarly rapid decline in inflation Macroeconomy: inflation outlook turning down A lot has changed in the last year. In October 2021, the Reserve Bank of Australia (RBA) was still maintaining that the inflation target would not be sustainably met until 2024. A month later, it was abandoning its yield curve control in the face of market pressures. By May of this year, the RBA was hiking rates, throwing in the towel on its previous stance that concluded inflation would not sustainably be up to the RBA’s target until wage growth exceeded 3.5% (it still isn’t based on the 3Q22 wage price index). Inflation hit 7.3% year-on-year in the third quarter of this year, with rises also in core measures, although the October monthly series has raised hopes that inflation may already have peaked, dropping to 6.9%YoY. We think it will now slow quite rapidly. Policy rates nearing a peak Source: CEIC, ING Inflation is mainly due to goods, not services Most of Australia's inflation comes from goods rather than the service sector. But this is not simply an imported phenomenon. Inflation in the tradeable sector is no higher than in the non-traded sector. However, what this does mean is that this is less likely a labour-cost-driven event than a discrete price-level shock (or series of shocks), and as such, is probably easier to squeeze out of the economy. Inflation by source (goods vs services and tradeable vs non-tradeable) Source: CEIC, ING Don't blame inflation on wages growth, which remains negative in real terms By sub-component, there are few inflation standouts. Certainly, the transport sub-component was swollen earlier in the year by high oil prices, although with Brent crude now back below $90/bbl, oil is no longer contributing to higher inflation, and may even be a slight drag in the near future. Widespread flooding this year across many parts of the country has also pushed up food prices at times. Everything from cereals to dairy was looking more expensive. Though even this looks to be normalising.  In the near-term, inflation is likely to remain the focus for policy-setters and the investment community. But on the assumption that energy prices remain roughly where they are now and do not re-accelerate upwards from here, we look for inflation to rapidly subside over 2023 and could be as low as about 3.0%YoY by the end of 2023.  One thing that policymakers obsess over is second-round price effects – wage-price spirals for example. RBA anecdotes point to a pick-up in wages, which fills in the gaps left by the wage-price index, which is only released quarterly and with long lags. That is only showing a growth rate of 3.1%YoY (3Q22). The wage price index inflation rate will surely rise further, but the large current gap between wages and prices shows that wages are being dragged higher, rather than driving prices higher. In the end, the wage component of the economy is becoming less of a cost issue than other components. We do not need to worry unduly about the cost implications of this. The labour market as a whole is not squeezing margins, though admittedly there will be pockets of the service sector where it is. Employment growth by sector Source: CEIC, ING Household spending is running out of sources of growth So far this year, consumer spending has by far contributed to the bulk of GDP growth. And that is not just because consumer spending accounts for the bulk of GDP. It has also been growing unlike most other parts of GDP.  Underpinning that real spending growth – which as we have determined is not a function of wages (which are falling in real terms) – is employment growth. The last 12 months have seen Australia adding around 400,000 jobs to a labour force of just over 14 million. More than half of these jobs were full-time (generally better-paying) jobs. Comparing employment against its values four quarters ago, we see that the gains are not in manufacturing or agriculture. Lately, jobs in the hospitality industry have been on the rise (some of which may be part-time), as well as in the wholesale and retail sectors. Construction jobs have also gained ground recently. Within the other service sector jobs, not surprisingly in the wake of the Covid-19 pandemic, healthcare-related jobs, as well as professional and scientific jobs, rose consistently, although growth in these areas is now beginning to slow. Jobs growth in public administration is also slowing down now after rising in the previous three quarters, and so too are jobs in finance. In the three months since July, the number of employed has stagnated at just over 13.6 million. It looks like the boost to spending likely to come from employment growth is slowing. And with wages negative in real terms, the only way household spending is going to continue to boost economic growth in the quarters ahead is if households draw down savings (e.g. borrow more). That doesn’t look as if it is going to happen to any large extent. Household balance sheets received a big boost during the pandemic, mainly from markets juiced up by easing monetary policy pushing up equity prices and reserves held in superannuation accounts. Liquid savings in the form of currency and deposits also picked up. But household balance sheets peaked at the turn of the year and have since begun to decline. And while liquid assets will provide a solid buffer, the household savings ratio has now fallen to 6.9%, well below the post-war historical average of 9.5%, so further declines are probably going to be limited unless they are a response to crisis conditions. And if that is the cause, then it probably won’t matter all that much. Rising interest rates will also deter discretionary dis-saving. Savings ratio and personal income growth (YoY%) Source: CEIC, ING Rent-reset shocks should be modest in 2023 Another factor that could weigh on household spending is that a sizeable number of Australian households will be facing much higher mortgage payments shortly after the New Year. The latest Financial Stability Review by the Reserve Bank has a detailed chapter on the impact of rising interest rates and inflation on indebted households’ cash flows. Households that are owner-occupiers with variable-rate mortgages account for about two-fifths of outstanding housing credit. Many of these are making sizeable prepayments on their mortgages, which they could trim back as rates rise. Some (about 15% according to the RBA) might see their spare cash flow turn negative, requiring a drawdown of savings buffers, with the possibility that some owners might even fall into arrears. Using scenario analysis based on market expectations for the likely further increase in the cash rate, the RBA analysis noted that: “Just over half of variable-rate owner-occupier borrowers would see their spare cash flows decline by more than 20% over the next couple of years, including around 15% of households whose spare cash flows would become negative as the combined burden of higher interest payments and the higher cost of essential goods and services exceed their initial spare cash flows.” Mortgage rates to reset Source: Reserve Bank of Australia House price inflation likely to turn even more negative in 2023 Around 35% of outstanding household credit is for fixed-rate mortgages (including split-rate loans). And around two-thirds of these are due to expire by the end of 2023. The RBA estimates that most fixed-rate borrowers will face a discrete rise of 3-4 percentage points in their mortgage rates when they re-set. Some will face this re-set as early as January 2023. That being said, the current household finance ratio is still close to all-time lows at around 5-6% of disposable household income, so this would only take it back to historical norms.   The rate of quarterly increase in mean house prices peaked in the third quarter of 2021 at 6.7% quarter-on-quarter, but it has been slowing ever since. In the second quarter of this year, house prices registered a small (-1.8%QoQ) decline, which was followed by a larger decline in the third quarter (-4.0%QoQ). Annual house price growth has now dropped to only 1.1 %YoY.  We anticipate this price decline continuing through at least the first half of 2023 before prices begin to stabilise and then slowly turn around again. Year-on-year house price growth will turn negative in the first quarter of 2023 and could show something close to a 10%YoY decline at its worst in the second quarter before starting to stabilise. Year-on-year house price declines will likely persist until early 2024, and while they do, they should put a further dampener on household spending. House price inflation already dropping sharply Source: CEIC, ING Business investment: not coming to the rescue Business investment is a much smaller proportion of Australian GDP than consumer spending, but its importance for the business cycle is not to be underestimated, since it is the variance of GDP components, as well as their absolute size that provides the impetus to cyclical swings. Business investment Source: CEIC, ING   Gross fixed capital formation is the official GDP term for such business investment, and this grew by 0.7%QoQ in the third quarter of this year, however this wasn't enough to prop up the year-on-year growth rate, which showed a contraction of 0.3%YoY. As rates continue to rise, the domestic economy slows, and Australia's main trading partners skirt recession, it is hard to believe that there won't be a further slowdown in the pace of business investment. Construction by type (contribution to GDP YoY%) Source: CEIC, ING Construction going nowhere For the subset of business investment that falls under the generic term “construction”, there has not been any contribution to GDP from this sector for several quarters. Residential construction (on dwellings) has been a recent underperformer, dragging on year-on-year GDP growth by more than 0.2pp in the last two quarters. This could well deteriorate further given what is happening to the housing market. There is a marginally less dour story emerging on engineering construction. This comes mainly from electricity generating expenditure and roadbuilding, and less from the extraction industries, where spending is softening. Extraction exploration: no longer following the money Normally, we would expect exploration expenditure in the extraction industries to follow the price of the underlying commodity. That would support spending on coal extraction, and maybe natural gas. Instead, what we see is that the liveliest investment part of this industry in recent years relates to gold, though this too is beginning to peak out. It is possible that this mix of exploration spending reflects new attitudes to fossil fuels and the financing of their extraction. Indeed, we also see relatively muted exploration expenditures in onshore and offshore petroleum (including natural gas) which would tie in with that hypothesis. In short, while there remain some pockets of resilience, business investment overall is flat to slightly down, and we anticipate the going getting even tougher during 2023 before recovering in a more supportive lower rates environment in 2024. Extraction exploration (AUDm four quarter moving average) Source: CEIC, ING Trade is already dragging on growth, but this should slow One bright spot in the economy has been international trade. Thanks in part to some extremely helpful swings in Australia’s terms of trade (the ratio of export prices to import prices), what was once a long-standing deficit and leakage from the economy has provided a consistent surplus since late 2016. The 12-month average trade surplus is now more than AUD10bn and is still trending higher, though more slowly than it was. That slowdown in trade surplus expansion means that the contribution to year-on-year GDP growth from net exports actually turned to a small drag at the end of 2021, and has subtracted from year-on-year growth in three out of the last four quarters. That contribution could change as the domestic economy, in particular household consumption, slows further, causing import growth to decelerate. Though it may have to slow quite a lot if it is to outweigh the slowdown in external demand likely to stem from the US, Europe and China all effectively going into recession in 2023 and weighing on exports. The external environment could begin to turn around in the second half of 2023. But that's not a foregone conclusion.   Contributions to Australian GDP (QoQ%) Source: CEIC, ING Terms of trade have helped create Australia's external surplus The upswing in Australia's terms of trade implies a much stronger AUD/USD exchange rate than has actually been the case, and this will also have helped to keep Australia’s exports very competitive. The fact that the currency has not absorbed more of the terms of trade shift owes a lot to the RBA’s seemingly conscious decision to always pitch monetary policy on the dovish side of the US Federal Reserve and will have helped keep the AUD weaker and more competitive than it would otherwise have been.  Considering how important China has been to Australia’s export success, it is perhaps even more surprising that Australia’s trade surplus has held up so well. Digging into the data, after China closed some export avenues with Australia following political disagreements, export flows into China seem to have been steadily improving again. It may be that given China’s domestic economic weakness and the stresses following the Russia-Ukraine war, the authorities have decided to take a more pragmatic approach to trade with Australia. We think this will continue, however China's domestic weakness remains a concern, and it is not clear that recent efforts at re-opening will bear fruit quickly – though in time this approach is probably the right way forward  Terms of trade and trade surplus Source: CEIC, ING Financial markets: a more positive outlook despite the economic slowdown The Reserve Bank of Australia successfully adopted what might be described as a "dovish pivot" at its October meeting, slowing the pace of tightening from 50bp to only 25bp, and taking greater account of the current level of rates and the absolute change in the policy rate from its pandemic low. Following the latest 25bp rate hike at the December meeting, the current cash-rate target is 3.10%, up 300bp from its pandemic low of 0.1%.  This finessing of the tightening that the RBA is implementing has been vindicated by subsequent inflation data and also the slowdown becoming more apparent in GDP growth and the housing market.  Recent RBA statements still claim that policy will respond to the flow of data. However, it looks more like policy is not particularly data-dependent, but is instead, “state-dependent”. And the current "state" is that policy may now be in mildly restrictive territory and has already tightened a lot. We don’t, therefore, expect policy tightening to deviate on the upside from the current 25bp per meeting approach over the next few months, whatever the data delivers, and look for rates to get up to no more than 3.6% in the first quarter of next year. At this point, with inflation clearly on its way down, we think the RBA will opt to keep rates on hold.  Australian bond yields Source: CEIC, ING   This approach to monetary policy is considerably less hawkish than that suggested by the Federal Reserve. And so while longer-dated Australian government bonds are very heavily influenced by US treasuries (correlation coefficient of 0.98 over the last two years) Australian 10Y yields have recently traded lower than their US counterparts, following a long period of trading above them. This looks set to continue and the negative spread could even widen further – though we have to add that the actual path of both US Treasuries and Australian government bonds is subject to considerable uncertainty.  That Fed/bond yield view is also likely to play a large role in the outlook for the AUD. You can do lots of fancy analysis about iron ore futures, terms of trade, trade surpluses and relative producer prices and rates of productivity. But in the end, like the importance of Treasury yields for AUD government bond yields, the direction of EUR/USD is likely to explain most of the variance of the AUD over the next 12 months. A sense of peak Fed funds and bond yields is likely to correlate with a shift out of the USD and into everything else. It is possible this has already started, though there is still a tail risk of a further down leg in sentiment as the global recession is priced into risk assets more fully than it currently is.   The year ahead for Australia is likely to exhibit considerably slower growth, but also a peak in inflation, which raises the prospects of a shift in domestic and foreign monetary policy. And it is this elimination of inflation and turning rate cycle that will usher in an eventual improvement in market sentiment and eventually the real economy. Even with growth slowing, we still look for growth to come close to (but below) 2% for the full-year 2023 (and not much more in 2024). On paper, that is still a fairly soft landing, though we concede that it could be harder, especially if we get a more violent correction in real estate prices than we are anticipating, or if financial markets fall more heavily. In this respect, the RBA's recent caution seems much better suited to the economic backdrop than a more hawkish "higher for longer" approach.  Summary forecast table Source: CEIC, ING Read this article on THINK TagsRBA rate policy Australian inflation Australian house prices 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
German Economy Faces Setback as Ifo Index Plunges in June

According to Orbex's analyst the US inflation is expected to reach 7.7%, declining from 7.7%

Jing Ren Jing Ren 13.12.2022 11:29
Usually, we have all the key data points ahead of an FOMC decision to make a better evaluation of what could happen. But this time, the most important data for the Fed will be released during the first day of their meeting, later today. Then tomorrow the FOMC releases its decision. Depending on what the data says, there might be a significant reevaluation of what the Fed will do tomorrow, and what it might signal for the start of the new year. Both factors are expected to be determinate for the market's reaction, as it prices in expectations for where the rates will be in the coming months. Another CPI surprise? We should remember that last time around, the US CPI (for October) came in well below expectations. A look at the components showed that economists hadn't considered just how much the price of housing had fallen that month. Since then, there hasn't been a recovery in this item. Even the largest element to drive inflation, energy costs, has been sliding downward in the meantime, as crude prices come down over fears of a recession. Read next: What’s more worrisome is the fact that we will continue to learn of all of the contagion and aftereffects of the FTX collapse in the coming weeks and months. | FXMAG.COM But, no one can say what the future will hold. Inflation coming in lower than expected is unlikely to change what the markets are expecting of the Fed. Even if there were a major miss on expectations (similar to last time), inflation would still be way above target. What kind of surprises? On the other hand, if inflation were to come in hotter than expected, but below the prior level, then the downward trend would still be intact. The Fed would still need to hike, because inflation is still too high, but slowing down the pace is understandable. Where things could get interesting is if inflation were to come in above the prior level. The headline number doesn't matter so much as the core figure. That would imply another break in the downward trajectory, and could lead to a reevaluation of Fed expectations. Both in terms of what the Fed could decide tomorrow, and what could come after that. What to expect Annualized headline inflation is expected to keep falling to 7.3% from 7.7% prior, aided by growth of 0.3% in monthly inflation. The key core inflation rate is expected to fall to 6.1% from 6.3% prior, and a beat by 3 decimals here could be what shakes up expectations. 75% of economists think the Fed will raise rates by 50bps at the next meeting. The remainder are betting on 75bps. But, Powell pretty much foreshadowed that it would be the smaller number - unless there is surprise in the data. The key issue for the markets is where the Fed sees the "terminal rate" going. That is the maximum rate they will raise to during this cycle. Currently the market is expecting it to reach 5.0% sometime early next year. If the Fed implies the rate will be higher than that, it could lead to the dollar getting stronger. Read next: Cathie Wood's ARK Innovation (ARKK) Exchange-Traded Fund Loses Investor Confidence| FXMAG.COM
Bank of England Confronts Troubling Inflation Report; Fed Chair Powell's Testimony Echoes Expected Path

The Pound (GBP) Is Relatively Steady After The Release Of The UK Jobs Data

Craig Erlam Craig Erlam 13.12.2022 12:28
Stock markets are tentatively higher in Asia while Europe and the US are poised for a similarly modest start to trade in what is the start of a hectic 72 hours in the markets. For so many weeks now, the December Fed decision has dominated the minds of traders, while sentiment in the markets has been dictated by how small changes in various data points influence the outcome of the meeting. When a meeting or event generates this much hype, it can often disappoint and be something of an anticlimax but I’m not sure that will be the case this time. It’s not so much the decision itself but what accompanies it that will set the stage for next year. For so long the question has been will the Fed hike into a recession. In that time it’s remained convinced that a soft landing can be achieved and the resilience of the economic data has supported that but unfortunately, the same resilience has also supported the case for more hikes and a higher terminal rate. Last month’s CPI release gave investors real hope that in much the same way that inflation’s acceleration higher this year blew expectations out of the water, the path lower may also not be as gradual as feared. Unfortunately, some of the data since then hasn’t been so favourable – most notably the wages component of the jobs report – so a lot is now hanging on today’s release. Another number below forecasts of around 7.3%, year on year, could get the excitement flowing once more. Jobs data keeps pressure on BoE The pound is relatively steady after the release of the UK jobs data that was in line with market expectations. Unemployment rose marginally to 3.7% while wages rose by 6.1%. While the data does indicate some additional slack in the labour market, the wages number – despite falling well short of inflation – will be of concern to the BoE and ensure its foot remains firmly on the brake in the short term. Steady despite FTX developments and Binance concerns Bitcoin continues to trade around $17,000, undeterred by reports of Sam Bankman-Fried’s arrest and possible charges for money laundering against Binance. Withdrawals on the platform highlight the uncertainty and shattered confidence in the space, a desperation not to be caught up in another FTX event. Even when the situation looks very different. But that’s what fear does, especially in a situation where confidence has been so severely damaged, as it has in recent 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.  
Bestway Might Have Larger Designs On The UK's Second Biggest Supermarket

The Bank Of England Is Likely To Continue Raising Rates Despite Weak Economic Conditions

Kenny Fisher Kenny Fisher 13.12.2022 13:35
The British pound remains calm this week and is trading at 1.2286, up 0.20%. It is a busy week on the economic calendar, but GBP/USD isn’t showing much interest. Today’s UK employment data was within market expectations, which resulted in a muted reaction from sleepy sterling. The unemployment rate ticked upwards to 3.7%, up from 3.6%. Wage growth climbed to 6.1%, up from 5.9% and above the consensus of 5.8%. Wages remain well below the inflation level of 11.1%, but will still be of concern to Bank of England policy makers, who will want to avoid the spectre of a wage-price spiral, which would make the battle against inflation that much more difficult. This may not be something that the BoE can control, with the threat of public workers going on strike to demand more pay. The BoE is likely to continue raising rates, despite weak economic conditions, as defeating inflation remains its first priority.  The BoE meets on Thursday and is expected to raise rates by 50 basis points, which would bring the cash rate to 3.50%. US CPI expected to dip All eyes are on the US inflation report for November, which will be released later today. The consensus stands at 7.3%, following a 7.7% gain in October. The timing of the report is interesting, as it comes just one day before the Federal Reserve meeting on Wednesday. Inflation fell in October and was softer than expected, and the US dollar took a plunge, as the markets became hopeful of a dovish pivot from the Fed. If inflation is again lower than expected, the dollar could find itself under pressure, although the markets could be more cautious with a Fed meeting just around the corner.   GBP/USD Technical 1.2240 and 1.2136 are the next support levels There is resistance at 1.2374 and 1.2478 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.  
Worrisome Growth Signals in Eurozone PMI: Recession Risks Loom Amid Persistent Inflation Pressures

Saxo Bank Podcast: Market Speculators And Hedgers Are Revving Up For Another Blast Of Volatility

Saxo Bank Saxo Bank 13.12.2022 13:41
Summary:  Today, we highlight the absurd levels of volatility around recent US CPI releases ahead of today's US November CPI data point, noting signs that market speculators and hedgers are revving up for another blast of volatility in the wake of today's release. At the same time, we suggest that the reaction function may be difficult as the FOMC meeting follows hot on the heels of this release the following day. Elsewhere, we look at precious metals and copper levels, whether regulators will (or should) approve mergers like the Novozymes-Christian Hansen attempt, earnings to watch for the rest of the week and more. Today's pod features Peter Garnry on equities, Ole Hansen on commodities, with John J. Hardy hosting and on FX. Listen to today’s podcast - slides are available via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: https://www.home.saxo/content/articles/podcast/podcast-dec-13-2022-13122022
Saxo Bank Podcast: A Massive Collapse In Yields, Fed's Tightening Cycle And More

Rates Spark: A Hawkish 50bp Hike Is Still Expected From The Fed Today

ING Economics ING Economics 14.12.2022 10:41
While US CPI seems to have collapsed, a lot of this is from exceptional factors. The real underlying number is closer to 0.4% MoM in services. Bond yields will test further lower, but there is a limit to that (c.3.25%). A reversion higher (to 3.75%) remains a risk as we move into the first quarter. Look for 50bp from the Fed today, and more to come in Q1. US inflation not as straightforward as seems Falls in real rates and inflation expectations were seen post the CPI number. This solidifies the remarkable recent move in the 10yr from 4.25% to 3.5%, and now approaching 3.4%. The terminal fed funds rate discount has also been shaved lower. It was comfortably discounting a peak at 4.75-5%. It is still in that range, but now toying with pulling that lower, to 4.5-4.75%. The 10yr is more than100bp below this still, which is quite a yield discount. It limits the room for a big move to the downside from here. The marketplace has done a remarkably good job at anticipating this number It feels like the marketplace has done a remarkably good job at anticipating this number, but as always we need to see some repeats before we can conclude that the inflation fighting job is done. The 20bp fall in the 2yr yield to sub-4.2% reflects the same theme, and is now at a sizeable 75bp discount to the market discount for the terminal funds rate. The bond market is trading as if the Fed delivers 50bp today, and then they are done. In all probability the Fed is not done, but if this number proves to be the beginning of a theme of low inflation prints, its increasingly likely that any hikes in the first quarter will be insurance ones, a far cry from the panic stations of previous months that saw consecutive 75bp hikes. Real yields have led the move lower in USD rates Source: Refinitiv, ING Downside to 10Y yields is more limited from here The market has been increasingly sensing this, with the 5yr trading remarkably rich to the curve now, and the 2/10yr segment showing the beginning of a tendency to steepen / dis-invert (from a state of deep inversion). Despite all of this, it is questionable how much room there is to the downside for yields. Anything below 3% for the 10yr looks too low here.  Market rates could still decide to trend higher. Yesterday’s 10yr auction did suggest some resistance to buying at these levels. It will be interesting to see whether the Fed might frustrate things with any suggestion of bond selling (hard QT) going forward. The rationale would be to limit the ability for long yields to go too low too fast, and to downsize it's balance sheet. The inflation flight is still on On the CPI report itself, the 0.2% MoM outcome was largely pulled there by exceptionally large moves in certain components (e.g. used car prices). 60% of the index is "services less energy services", and that is running at a steady 0.4% MoM (which annualises to 6% inflation). That will be tougher to shift lower fast. The inflation flight is still on, the Fed is set to hike, and the bond market could well get a fright at a CPI report not too far from here. For that reason, a hawkish 50bp hike is still expected from the Fed today. They could even contemplate some discussion of bond selling, or even simply entertaining that posibility. That would reverse things quite quickly, allowing the Fed to get more value from the delivered hike. Leaving the market braced for another hike in February 2023 is also probable. European rates have less room to fall, with domestic inflation still not under control Source: Refinitiv, ING European rates struggle to join the US party A striking feature of the post-US CPI bond rally is how sterling-denominated bonds struggled to follow their USD peers higher (lower in yields). The underperformance of EUR bonds relative to Treasuries was less spectacular but speak to an important theme as we head into 2023: it looks like the Fed is getting a grip on inflation much earlier than its European peers, and so US rates are in a better position to outperform until more tangible evidence of lower inflation emerges in the UK and eurozone. It is much less clear European inflation has seen a peak yet In the case of UK bonds, their underperformance was made worse by stronger labour and GDP data this week, and by a warning from Andrew Bailey against second round inflation effects. We see hawkish risk at both the Bank of England (BoE) and European Central Bank (ECB) meetings on Thursday. The difference with the US is that there is a greater chance that these hawkish warnings have a market impact as it is much less clear that European inflation has seen a peak yet. Today's events and market view The main release this morning is eurozone industrial production although this comes on the back of national measures which have taken the surprise out of the eurozone-wide measure. Spain’s CPI reports is a final reading, and Italian unemployment completes this list. US data has a few interesting releases too, including import prices and mortgage applications, but it is the FOMC meeting that will attract the most attention, especially after the second consecutive surprise slowdown in CPI in November (see above). With regards to primary markets today the German debt agency will announce its issuance plans for 2023. There is a significant upside risk to this year’s 230bn in bond issuance. To what degree the higher funding needs feed through to the bond target also depends on what other sources the agency will tap into, i.e. bills, repo or cash reserves. In any case, the market should expect more collateral. Read this article on THINK TagsRates Daily Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
It Was Possible That Tesla Would Move Closer To Resistance

Tesla Trades At Cheapest, Crude Oil Rallied More Than 2.50%

Swissquote Bank Swissquote Bank 14.12.2022 11:19
Yesterday’s inflation report in the US filled investors with joy and further hope that inflation in the US may have peaked this summer and we will be heading lower from here, and that the Federal Reserve (Fed) will adopt a softer monetary policy stance and hike, yes, by 50bp today, but certainly not more than another 25bp in February. Powell  But Powell could also stress the fact that inflation remains significantly high compared with the 2% policy target, and that relaxing the tightening measures prematurely is not a good idea. US Dollar In the FX, the US dollar index fell following the softer-than-expected CPI print, and hit a fresh low since summer. Markets The softer US dollar, and stronger euro sent the European indices to fresh highs since summer. The DAX flirted with the June peak, and the Eurostoxx50 traded at the highest level since FebruaryCrude oil rallied more than 2.50% yesterday, on hope that the Fed could slow down the rate hikes, and not push the US into a deep recession to fight inflation. The FTX drama In cryptocurrencies, the FTX drama continues with the arrestation of Sam Bankman-Fried in the Bahamas, news that investors withdrew $3.7 billion worth of funds from Binance since last week, and that Binance reportedly stopped the stablecoin USDC withdrawals. Bitcoin But Bitcoin couldn’t care less. The price of a coin advanced more than 3% yesterday, showing that the FTX drama has been priced in and out and further drama should not hit the coin harder. Watch the full episode to find out more! 0:00 Intro 0:27 How does the Fed will about falling US inflation? 5:24 US dollar falls, majors & global equities rally 6:45 Crude oil tests short-term resistance 7:35 Bitcoin up despite unideal sector news 8:33 Tesla trades at cheapest ever PE 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. #FOMC #Fed #rate #decision #dotplot #USD #CPI #inflation #data #EUR #GBP #JPY #XAU #crudeoil #DAX #EU50 #Bitcoin #SamBankmanFried #FTX #Binance #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
USD/JPY Weekly Review: Strong Dollar and Yen's Resilience in G10 Currencies

The Market May Have Moved On To A Cool Calculation

Conotoxia Comments Conotoxia Comments 14.12.2022 11:27
Yesterday, financial markets seemed to rejoice at the fact that inflation in November in the US was less than expected. Although CPI is still above 7 percent, and was previously a level rather favorable for falling stock prices, the opposite is now true. Why? It seems to be because of, for the time being, a permanent reversal of price growth dynamics. Following the release of yesterday's data, the dollar index seems to have weakened this morning after falling to around 104 points. Today, investors seem to be awaiting the Federal Reserve's decision on interest rates. The market expects the Fed to scale back its aggressive monetary tightening campaign, but may point to a higher peak for rates in the future, i.e. the hikes may be smaller (interest rate volatility may decrease), but they may last longer and end up not at 4.75-5 percent, but at least at 5-5.25 percent. As a result, uncertainty may have already set in on Wall Street, where after yesterday's first strong upward reaction, the indexes then turned back. After the euphoria, the market may have moved on to a cool calculation that while the pace of hikes may be slower, in the end it is probably better to have a lower interest rate than a higher one. It indicates the level of the investment risk-free rate, and the higher it is, the lower stock valuations could be. Source: Conotoxia MT5, US500, Daily Conference and projections in focus Today, traders will be closely watching Fed Chairman Jerome Powell's press conference after the decision announcement for clues on future rate hikes. The Fed's latest macroeconomic projections may also provide additional information. Going back to yesterday's data, the annual U.S. inflation rate slowed to 7.1% in November 2022, down from 7.7% in October and below market expectations of 7.3%. Other central banks on target Later in the week, we will learn the decisions of equally important central banks. Investors thus may remain cautious in their actions, as the European Central Bank, the Bank of England and the Swiss National Bank would take the stage, with monetary policy decisions to be made as early as Thursday. 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.     search   g_translate    
Analysis Of Tesla: A Temporary Corrective Rally Should Not Come As A Surprise

Saxo Bank Podcast: Look At Tesla Posting New Cycle Lows, Equity Market Upside Fading Quickly And More

Saxo Bank Saxo Bank 14.12.2022 13:06
Summary:  Today we look at yesterday's reaction to the softer than expected US November CPI data, with equity market upside fading quickly even as the reaction in US yields and the US dollar was stickier. We also discuss today's upcoming FOMC meeting, with the Fed facing a tough task if it wants to push back against easing market conditions and policy expectations today. We also look at Tesla posting new cycle lows and concerns for the stock and EV market, Apple, Inditex, crude oil, precious metals, and more. Today's pod features Peter Garnry on equities, Ole S Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are available via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: Podcast: FOMC will have a hard time moving the needle today | Saxo Group (home.saxo)
French strikes will cause limited economic impact

The Picture Of The French Economy Looks Stable From The Point Of View Of The Business Climate Indicator

ING Economics ING Economics 15.12.2022 10:37
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
Serious liquidity crisis? According to Franklin Templeton, a massive, but unlikely deposit flight from Credit Suisse would have to happen

The SNB will want further nominal appreciation in 2023

ING Economics ING Economics 15.12.2022 12:27
  The Swiss National Bank (SNB) raised its key rate by 50bp as expected, bringing the total monetary tightening to 175bp. The upward revision of medium-term inflation forecasts signals a further rate hike in March A 50bp hike As widely expected, the SNB decided to raise its key rate by 50bp to 1% – following the 75bp increase in September and the 50bp increase in June – to combat the spread of inflationary pressures. The total monetary tightening in Switzerland will therefore have been 175bp in 2022, compared with probably 250bp in the eurozone and 425bp in the United States over the same period. The SNB also indicated that it is prepared to continue to be active in the foreign exchange market. In recent months, the SNB has sold foreign currencies, which has helped to strengthen the appreciation of the Swiss franc and limit imported inflation.  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 Inflation expectations are above the medium-term target After years of fighting deflation with a very accommodating monetary policy, the SNB remains very uncomfortable with the current level of inflation, despite the stabilisation at 3%, down from the peak of 3.5% reached in August. It believes that "inflation remains well above the range that the SNB equates with price stability", which is between 0% and 2%, and that "while developments are pleasing, it is too early to let our guard down". Thanks to a more favourable energy mix, a lower share of energy in consumption, and above all the appreciation of the Swiss franc, which limits imported inflation, inflation in Switzerland is nevertheless much lower than in neighbouring countries. That said, the SNB considers that the risk of second-round effects is still present, which is why "it cannot be ruled out that further rate hikes will be necessary to ensure price stability in the medium term". The SNB's inflation forecast shows inflation at 2.1% at the end of its forecast horizon, the third quarter of 2025. It believes that "increased inflationary pressure from abroad and the spread of price increases to the various categories of goods and services in the consumer price index will push this forecast higher in the medium term". The SNB now expects inflation to average 2.9% in 2022, 2.4% in 2023 and 1.8% in 2024. These above-target inflation forecasts for the end of the forecast horizon signal that the SNB is not done with monetary tightening. We believe that a further 50bp rate hike could take place at the next meeting in March 2023, taking the rate to 1.5%. Rates will then remain stable for an extended period. Indeed, we expect price growth to decelerate gradually but slowly over the year. This will make it more comfortable for the SNB to intervene in the foreign exchange market afterwards, without changing the interest rate further. FX: SNB confirms it has been selling FX reserves recently In today’s communication, SNB President Thomas Jordan confirmed that the SNB had been intervening in FX markets to sell FX over recent months. This has got nothing to do with the SNB wanting to downsize its FX reserves for financial stability reasons, but everything to do with monetary policy. Here Jordan confirmed that a stronger Swiss franc has helped ensure that less inflation has been imported from abroad. This is all in keeping with this year’s policy of wanting to keep the real Swiss franc stable. To achieve that – and given that Swiss inflation is substantially lower than that overseas – the SNB requires nominal Swiss franc appreciation. The SNB confirmed the nominal franc has appreciated 4% this 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 On the assumption that inflation differentials between Switzerland and its trading partners do not immediately narrow, we assume that the SNB will want further nominal appreciation in 2023. The big question is through which channels this occurs. The recent sharp fall in USD/CHF has taken the pressure off the EUR/CHF axis to make the adjustment. But if we are right with our call for the dollar to strengthen into the first quarter of 2023, then EUR/CHF will have to come lower – helped in part by SNB intervention. Our call is that EUR/CHF continues to struggle to hold any gains over 0.99 and heads back to the 0.95 area into next spring. Read this article on THINK TagsSwitzerland SNB Inflation CHF 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 ECB Has Made It Clear That Rates Will Remain High Until There Is Evidence That Inflation Is Falling Toward The Target

EU Inflation Will Put More Pressure On Corporates And Ultimately Credit Markets In 2023

ING Economics ING Economics 16.12.2022 08:41
Tapering of the CSPP and CBPP3 is the next ingredient in the credit cocktail and is more severe than expected. Markets reacted to yesterday's ECB event with a mix of higher rates and a widening of CDS spreads. Credit spreads remained steady, but what will dominate? Is this a bear trap or will the bulls swim in higher yields? Faster tapering than previously expected Tapering reinvestments of the asset purchase programme (APP) will begin in March 2023, thus we will see lower reinvestments under the corporate sector purchase programme (CSPP) and third covered bond purchase programme (CBPP3). The tapering will be in the form of a decline of €15bn per month as of March until the end of the second quarter, with the subsequent pace to be determined later. Many details, such as the breakdown of which programme will see what decline in reinvestments, and the choices between bonds, have been left very unclear, but more information will come in February.   The €15bn reduction in holdings is a much faster tapering than previously expected, averaging at just 50% of reinvestments. On the back of this, we have seen some small spread widening, but nothing substantial. The big moves in rates have made yields more attractive with many buyers stepping in. However, this may be the setup of a bear trap, as fundamentally credit is looking slightly weaker. The hawkish stance of the European Central Bank (ECB) makes it clear that it is still concerned about inflation, so we could see inflation putting more pressure on corporates and ultimately credit markets in 2023. Combined with the more severe tapering, we could see some spread widening from these levels. Although long term, any widening will add more value to credit in our view, adding more magic into the credit markets, as we remain constructive on credit for the full year 2023. This of course will also be added to the list of risks and drivers of increased volatility in credit, alongside the recessionary environment, high inflation, the Russia/Ukraine war, the energy crisis and supply chain shortages. Covered bonds may be under a bit more pressure from this tapering if Bund asset swap spreads normalise further, as they are still relatively tight to begin with. As we highlighted in our report 'Tapering could be the next ingredient in the credit cocktail'. We foresee the following: The lower level of support will add to the turbulence and increase volatility, as well as reprice spreads wider, ultimately adding more value to credit. More pressure and spread widening in the case of an even faster tapering come July or an abrupt stop as the market becomes more exposed, with a large number of participants no longer active at all. Selling of holdings will have much more negative implications on spreads. Based on current oversubscription levels, deals can still get done even with lower CSPP participation. Thus, primary market activity shouldn’t struggle to price, meaning less pressure on spread widening. An indirect implication may be supply indigestion, as many corporates may push to issue earlier in the year for a better chance of having the ECB involved in the deal (this may mostly be seen in January). This will add some extra volatility and perhaps underperformance. The tapered CSPP reinvestment levels in the chart below illustrate how low reinvestments will likely be assuming an equal ratio of tapering for each programme, and assuming a continuation of a €15bn reduction. Initially, reinvestments would pick up in 2023 and support with between €2-4bn per month. Now reinvestments will be notably lower between €1-2bn per month, offering very little support from March onward. Therefore, if the ECB continues to reduce the holdings by €15bn per month, CSPP reinvestments will total no more than €11bn for the year. Forecasted CSPP reinvestments Source: ING, ECB   A pro-rata distribution of the lower reinvestments of redemptions across the different purchase programmes under the APP means that the CSPP3 will only reinvest €21bn in 2023 instead of €35bn in the event of full reinvestments. We assume here that the €15bn will remain stable from March until year-end. If reinvestments were to drop to 0 after June, CSPP3 reinvestments will sum to €16bn in the first half of 2023. At our estimate of €118bn supply in 2023 by eurozone issuers, €21bn represents 18% of the total supply by eurozone banks expected for next year. Most reinvestments are centred in the first quarter of the year when most supply is also expected. Nonetheless, reinvestments will still make up about a quarter of the amount of eligible covered bonds we expect to be brought to the market in that quarter. If 40% is reinvested via the primary market, the order size of the CBPP3 in the primary could still be around 15% in that quarter. It will likely decline to 5-10% from 2Q23 onwards. The impact on spreads will consequently likely become more meaningful from the second quarter onwards. The biggest impact on covered bonds will still come from the indirect effect on sovereign asset swap spread levels, more so than from the direct effect of the CBPP3 being less present in the primary and secondary markets. CBPP3 reinvestments of redemptions (at €15bn lower APP reinvestments divided pro-rata per programme for Mar-Dec '23) Source: ING, ECB Read this article on THINK TagsMonetary policy Inflation ECB Tapering ECB Credit 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
Azerbaijan’s External Trade Benefited From 2022 Geopolitical Turmoil Through Higher Oil And Gas Prices

Azerbaijan’s External Trade Benefited From 2022 Geopolitical Turmoil Through Higher Oil And Gas Prices

ING Economics ING Economics 17.12.2022 08:05
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
The Price Stability Criteria Is Obviously Not On Track For Bulgaria

The Price Stability Criteria Is Obviously Not On Track For Bulgaria

ING Economics ING Economics 17.12.2022 08:22
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
Croatia: The Recovery From The Pandemic Was Extremely Fast, Mainly Due To The Impact Of A Good Tourist Season

Croatia: The Recovery From The Pandemic Was Extremely Fast, Mainly Due To The Impact Of A Good Tourist Season

ING Economics ING Economics 17.12.2022 08:22
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
The Overall Picture Is Positive For The Czech National Bank

Czech Republic: Minfin Approved An Increase In The State Budget Deficyt, For Next Year, The Plan Expects A Deficit Of CZK295bn

ING Economics ING Economics 17.12.2022 08:23
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
Monitoring Hungary: Glimmering light at the end of the tunnel

Hungary’s Trade Balance Of Goods Has Been On A Downtrend Because Of Energy Crisis

ING Economics ING Economics 17.12.2022 08:35
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
Soft PMIs Are Further Signs Of A Weak UK Economy

Is The UK At Risk Of A Long-Term Recession? GDP Is Forecast For Economic Contraction

Kamila Szypuła Kamila Szypuła 17.12.2022 20:29
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
Analysis Of The CAD/JPY Commodity Currency Pair - 06.02.2023

The Bank Of Japan Will Remain Unchanged, Can Canada's Economy Face A Recession?

Kamila Szypuła Kamila Szypuła 18.12.2022 09:10
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
Twitter And Elon Musk Faced A Growing List Of Claims

Elon Musk Has Reinstated The Twitter Accounts Of Several Journalists | According To Jim Cramer, Caterpillar Stocks, Illinois Tool Works And CSX Are Noteworthy

Kamila Szypuła Kamila Szypuła 18.12.2022 20:34
With the end of the year, I look at what may happen in 2023. JP Morgan looks at finance from the economic side and what affects it, and Jim Cramer traditionally focuses on the stock market. In this article: Outlook Of 2023 by JP Morgan Jim Cramer’s look at stock market Elon Musk And Twitter Outlook 2023 Most of the things that could go wrong for investors happened in 2022, driven by high inflation, an aggressive cycle of interest rate hikes around the world, and the war in Ukraine. Remarkably, both stocks and bonds suffered heavy losses in 2022 – one of the worst years in the history of a balanced portfolio. Lower stock valuations and higher bond yields offer investors the most attractive entry point into a traditional portfolio in more than a decade. All this will be reflected in the new year. JP Morgan takes into account key economic and market factors in this year's forecast - the consequences of monetary policy tightening, the weakening of the global economy, market prices and valuation resets Higher rates. Weaker growth. Valuation resets. Explore what these key economic and market forces may mean for investors. — J.P. Morgan (@jpmorgan) December 16, 2022 Read next: Rise Of The Attractiveness Of Living In Cities – Urbanization| FXMAG.COM Jim Cramer’s look at stock market Jim Cramer looks at market action, this time specifically industrial stocks. The specialist looks at the situations of individual companies and assesses their attractiveness. His tips can be helpful for investors, especially those who are starting their adventure with this market. Jim Cramer on Friday identified three industrial stocks that he believes are worth owning next year “CAT has much more exposure to infrastructure, and I think they’ve got a boost from the oil and gas industry coming,” Cramer said. According to a specialist, companies such as Caterpillar, Illinois Tool Works and rail operator CSX are noteworthy. Here is why @JimCramer sees more upside ahead for Caterpillar in 2023. https://t.co/CmEl3RctII — Mad Money On CNBC (@MadMoneyOnCNBC) December 17, 2022 Elon Musk And Twitter For the past two months, Elon Musk's attention has been focused on the development of Twitter, which he purchased in late October. Since then, his activities on this social networking site have been watched with special attention. Not only on Twitter, but also after it. One such action was blocking the accounts of journalists. The suspensions stemmed from disagreements over a Twitter account called ElonJet that tracked Musk's private jet using publicly available information. On Wednesday, Twitter suspended the account and others that tracked private jets, despite Musk's earlier tweet saying he would not suspend ElonJet in the name of free speech. Soon after, Twitter changed its privacy policy to prohibit the sharing of "live location information." Then on Thursday night, several journalists, including those from the New York Times, CNN and the Washington Post, were suspended from Twitter without notice. The episode, which one high-profile security researcher called a "Thursday night massacre," is regarded by critics as new evidence that Musk considers himself a "free speech absolutist," eliminating speech and users he personally dislikes. Now it has been reported that Elon Musk has reinstated the Twitter accounts of several journalists who had been suspended for a day in connection with the controversy over publishing public data about the billionaire's plane. The reinstatement came after unprecedented suspensions prompted heavy criticism on Friday from government officials, advocacy groups and journalistic organizations in several parts of the world, with some saying the microblogging platform threatened press freedom. Elon Musk reinstated the Twitter accounts of several journalists that were suspended in a controversy over publishing public data about the billionaire' s plane https://t.co/MPaQFmEp3Q pic.twitter.com/V6ipgraOpY — Reuters Business (@ReutersBiz) December 18, 2022
Bank of Japan to welcome Kazuo Ueda as its new governor

The Bank Of Japan Is Expected To Keep Rates Unchanged At -0.1%

Saxo Bank Saxo Bank 19.12.2022 09:05
Summary:  Quieter markets ahead as we head into the year-end, but focus will remain on US PCE data which is the Fed’s preferred inflation gauge. China’s reopening may continue to be the bigger focus as holiday season sets in with Chinese New Year in January, likely raising concerns of a wider Covid spread. China’s loan prime rate fixing on watch this week and RBA minutes will likely confirm the bank’s dovish bent, but bigger focus will be on Bank of Japan’s possible hints of a policy review in 2023. On the earnings front, Nike (NKE:xnys), FedEx (FDX:xnys), and Carnival (CCL:xnys) will be the key ones to watch. This is the last Saxo Spotlight for 2022. Our first edition for 2023 will be on 9 January. We would like to wish all our readers a safe and enjoyable festive season.   US November PCE may be on course for further easing for now US inflation is cooling, but we argue that the debate at this point needs to move away from peak inflation to how low inflation can go and how fast it can reach there. Fed’s preferred inflation gauge, the Core PCE, will continue to remain in focus especially after Powell has highlighted it a key metric recently at both the Brookings Institute and the December FOMC press conference. However, PCE may now slow as rapidly as CPI with the two key restraining components – goods and energy – likely to play a smaller part in PCE. Expectations are for a November reading of 4.7% YoY reading vs a previous reading of 5.0% YoY while core is expected to come in at 5.5% YoY from 6% YoY in October. Still, risks to inflation remain tilted to the upside going into 2023 as financial conditions have been easing and China reopening brings a fresh wave of inflation risks. Therefore, despite a soft PCE, it will remain hard for the Fed to part with its hawkish stance. The first of 2023 will bring December ISM prints, which will be key to watch after the flash S&P PMIs indicated quickening economic concerns. The FOMC minutes from the December 14 meeting will also be due on January 5. The focus of China’s economic data during the three festive weeks will be on PMIs The economic calendar is light in the three festive weeks ahead in China and the primary focus will be on the official NBS Manufacturing PMI and Non-manufacturing PMI scheduled to release on Dec 31, 2022, Caixin China PMI Manufacturing on January 2, 2023, and Caixin China PMI Services on January 4, 2023. These reports cover the month of December 2022 when China across the country has substantially exited from stringent Covid containment restrictions. As high-frequency data are yet to show meaningful pick-ups in economic activities, these December PMI readings are expected to stay in the contractionary territory.  Watch for Bank of Japan’s policy review hints, Japan CPI also due later in the week The Bank of Japan is set to meet on Tuesday this week, and no change is expected in its monetary policy stance. The BOJ is expected to keep rates unchanged at -0.1% while maintaining its cap on the 10-Year JGB at 0.25%. Even as inflation increased to 3.6% YoY in October, the BOJ remains focused on achieving wage inflation before it considers a shift in policy stance. However, keep an eye out for any comments about a monetary policy review, which can trigger a strong JPY correction. There have been some mentions by BOJ members regarding a review of how monetary policy is conducted, they have generally been dismissed. While the timeline is still expected to be closer or after Governor Kuroda’s retirement in spring, any notes on who will succeed him or what policy change can be expected would be critical. Japan will also release November’s CPI on Friday. Expectations are for an uptick in core to 3.7% YoY while the headline gets closer to 4% YoY. RBA minutes remain on watch to confirm a dovish bias Despite the major global central banks maintaining their hawkish stance last week, the minutes from the Reserve bank of Australia’s December meeting will likely confirm a dovish bent. This comes despite a strong labor market report last week, that showed strong hiring demand and record low unemployment rate may continue to fuel more inflationary pressures especially as China’s reopening and policy stimulus gathers further traction in 2023. This could mean an environment for underperformance for Aussie assets for now, after AUD was the weakest G10 currency against the USD last week. Key earnings this week Earnings to focus on this week are Nike (NKE:xnys), FedEx (FDX:xnys), and Carnival (CCL:xnys). As Peter Garnry highlighted in his note, with recent sell-side analyst upgrades, the pressure is on Nike to deliver on the outlook for 2023. For FedEx, the situation is completely opposite as revenue expectations have come down to zero growth over the two next quarters suggesting a hangover for the logistics company following the boom days of the pandemic. Monday: HEICO Tuesday: Nike, FedEx, General Mills, FactSet Research Systems Wednesday: Toro, Micron Technology, Cintas, Carnival Thursday: Paychex, CarMax Friday: Nitori   Key economic releases & central bank meetings this week Monday 19 December Malaysia Trade (Nov) Germany IFO surveys (Dec) US NAHB Housing Market Index (Dec) EU Energy Ministers Meeting Tuesday 20 December China Loan Prime rate 1Y/5Y Germany PPI (Nov) Japan BOJ Interest Rate Decision Taiwan Export orders (Nov) US Building Permits, Housing Starts (Nov) Wednesday 21 December South Korea 20 Days exports and imports (Dec) Canada CPI (Nov) US consumer confidence (Dec) Thursday 22 December Bank Indonesia meeting Taiwan Unemployment rate (22 December) UK GDP (Q3 F) US Initial jobless claims (Dec 17) and 3Q GDP Final Friday 23 December Japan CPI inflation (Nov) Taiwan Industrial output (Nov) Singapore CPI inflation (Nov) US Durable goods orders, personal Income, Core PCE price index, and new home sales (Nov) Source: Saxo Spotlight: What’s on the radar for investors & traders for the week of 19-23 Dec? US PCE, China LPRs, RBA minutes, possible hints of BOJ policy review and earnings focus on Nike and FedEx | Saxo Group (home.saxo)
The China’s Covid Containment Continued To Negatively Impact The Output At The End Of 2022

China’s Macroeconomic Policy Frameworks For 2023, Focus On Domestic Consumption

Saxo Bank Saxo Bank 19.12.2022 09:10
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)
Monitoring Hungary: Glimmering light at the end of the tunnel

The National Bank Of Hungary's Unchanged Polisy Rates Is Unlikely To Affect The Forint (HUF)

TeleTrade Comments TeleTrade Comments 20.12.2022 09:36
The National Bank of Hungary is expected to maintain policy rates unchanged. The decision is unlikely to affect the Forint, in the view of economists at Commerzbank.  MNB’s rate decision a non-event “A rise in the Hungarian inflation rate to 22.5% in November is no doubt unfortunate – this is the highest level since 1996. But the Hungarian central bank (MNB) will nonetheless keep its key rate unchanged at 13% today, which consensus is also expecting.”  “Initially inflation in December is likely to rise further after the fuel price cap was abolished. As a result, HUF might get a battering in mid-January when the December inflation data is published. Today’s rate decision is likely to be a non-event for the market though, thus not having much effect on the exchange rates.”
Bank of England: Falling Corporate Price Expectations May Signal Peak in Rate Hike Cycle

Voluntary Extradition Of Sam Bankman-Fried | The Inflation Reduction Act (IRA) Is A Path To Net Zero

Kamila Szypuła Kamila Szypuła 20.12.2022 11:53
For several weeks, the world has been watching events related to the scandal around FTX. Today there was information about the development of the situation. Moreover, the American law may have more advantages than it might seem. In this article: Just take the chances – story of Lenny Pyrrhus IMF in Africa Extradition IRA Just take the chances Nearly 20 years ago, most of Lenny Pyrrhus' immediate family fled Haiti after his uncle, the popular musician known as Ti Pierre, was killed during a political protest against the repressive military-led government in 1991. Pyrrhus felt "drawn into a new world" when he arrived in the United States as a child. Pyrrhus says he was lucky to be enrolled in a school that did not hold back immigrant students by placing them in remedial classes. For Pyrrhus, this meant taking advantage of educational opportunities in the United States, where his mathematical talent led to a successful career. Today, he earns $130,000 as an infrastructure developer for JPMorgan Chase in Philadelphia. This seemingly simple story shows that a sudden change turned out to be a chance for a young man. The hero of this story himself can become an inspiration for many people to act, especially when the conditions are not favorable or this story simply teaches how to see opportunities. This 26-year-old fled violence in Haiti as a child — now he makes $130,000 working for JPMorgan. Here’s how he spends his money. https://t.co/CFaaO5zWTT (via @CNBCMakeIt) pic.twitter.com/gozJdBIDue — CNBC (@CNBC) December 20, 2022 Read next: The FCC Seeks More Than $200 Million From Four Cellphone Carriers| FXMAG.COM IMF in Africa The IMF's structural reform program in Kenya is progressing, albeit with some delays. In the areas of governance and transparency, the authorities have completed and published audits of COVID-19 vaccine spending and started publishing information on the beneficial owners of successful bidders in new contracts. However, progress on addressing the financial vulnerabilities of state-owned enterprises and the planned overhaul of the fuel pricing mechanism has been delayed during the political transition. The IMF Executive Board completed the fourth review of the EFF/ECF arrangements with Kenya, granting the country access to SDR 336.54 million As the data shows, the Kenyan economy remains resilient to difficult global conditions and is projected to grow by 5.3% in 2022. Inflation surpassed the Central Bank of Kenya (CBK) target range in June and is expected to peak in early 2023. The IMF Executive Board today approved the disbursement of $447.39 million (includes $215.81 million in additional low-cost financing) to Kenya under the current arrangement with the IMF to support the country’s reform program. https://t.co/HVi8q7sy2p pic.twitter.com/1OKWJnYy4P — IMF Africa (@IMFAfrica) December 19, 2022 Extradition Bankman-Fried was given the chance to speak to his U.S. counsel over the phone and then remanded back to the Caribbean nation's Fox Hill prison. He has decided to agree to be extradited to the United States to face fraud charges. Watch: Sam Bankman-Fried has decided to agree to be extradited to the United States to face fraud charges, a person familiar with the matter said, just hours after the FTX founder's lawyer told a Bahamas judge he was not ready to consent https://t.co/GSUFofn5OV pic.twitter.com/s2gyr94tTf — Reuters Business (@ReutersBiz) December 20, 2022 IRA For saving climate According to estimates by the US Congressional Budget Office, over 10 years energy and climate spending will amount to more than $390 billion, of which approximately $270 billion in the form of additional tax incentives for companies and individuals to seek and invest in cleaner and more efficient energy sources. Globally, we need $1.8 trillion in higher annual spending this decade to be on track to net zero by 2050. The Inflation Reduction Act (IRA), which aims to put the United States on an accelerated path to net zero The IRA also encourages concrete action. In August, First Solar, a U.S. solar technology company, announced $1 billion in additional U.S. investments to expand production capacity. It is expected that there will be more of these types of investments after an IRA is passed. While the IRA does a lot to attract and accelerate investment in decarbonizing the economy, it is not enough to drive the energy transition.   The U.S. Inflation Reduction Act is “shifting the worldview on the art of the possible” when it comes to investing in the country’s climate transition, according to our senior leaders. https://t.co/h0FX3sItN8 — Goldman Sachs (@GoldmanSachs) December 19, 2022
Asia Morning Bites: Inflation Data in Focus, FOMC, ECB, and BoJ Meetings Ahead

Poland: Domestic Manufacturing Once Again Confirms Solid Resilience To External Shocks

ING Economics ING Economics 20.12.2022 13:39
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
Given the peculiarities of the US labor market and the high labor mobility, the acceptable unemployment rate is considered to be 5.0%

Given the peculiarities of the US labor market and the high labor mobility, the acceptable unemployment rate is considered to be 5.0%

Aleksandr Davidov Aleksandr Davidov 14.12.2022 15:01
When choosing the monetary policy stance, central banks from all over the world take into account just two main factors. These are changes in the general price level in a particular economy and labor market conditions. Both of them are perfect indicators of the overall economic situation. What is more, these indicators allow analysts to predict future economic trends. By altering the key interest rate, monetary authorities attempt to shape these trends so that they develop according to a more favorable scenario. Interest rates have a significant influence on markets. There are several reasons for that. Most large investors, namely various banks and funds, trade by means of the funds received from their depositors and clients. In other words, they use borrowed money instead of their own savings. Notably, both in the US and Europe, such agreements are made at floating interest rates instead of fixed ones. Floating interest rates are based on the key rate. For example, a bank has attracted its client’s funds at the 2.00% interest rate, whereas the benchmark rate totals 3.00%. If the central bank raises the key interest rate to 3.50%, the bank will have to return the funds to its client at an interest rate of 2.25%-2.75%. In other words, the bank’s cost of funds will increase, thus forcing it to reevaluate its positions and reduce or even close some of them. That is why changes in the key interest rate have a considerable influence on all the markets, including the currency, stock, and even commodity ones. Thus, there is no wonder that the upcoming FOMC meeting is of vital importance. Notably, the Federal Reserve is planning to slacken the pace of the key interest rate hike. This decision will have long-term consequences for markets. Now, the likelihood of a soon end of the monetary policy tightening could become even higher. This is how most traders see the current situation. However, there are several peculiarities. Let us start with the fact that inflation began surging in March of 2021. Then, it jumped to 2.6% from 1.7%. However, the US regulator ignored this. In May, the inflation rate reached 5.0%. Fed policymakers explained the inflation growth by tough quarantine measures in China and supply disruptions, which led to shortages. What is more, the regulator reassured people that high inflation was just a short-lived phenomenon.   Such explanations somehow alleviated concerns. In addition, inflation remained stable for another five months. However, in October, it climbed to 6.2%, whereas at the end of 2021, it jumped to a stunning 7.0% by American standards. It was last autumn when the Fed started preparing markets for the key interest rate hike and long-lasting monetary policy tightening, which has begun this year. 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 Interestingly, aggressive rate hikes did not help the Fed cap soaring inflation. It remained stubbornly high. In June 2022, consumer prices accelerated to a 4-decade high of 9.1%. After reaching that all-time high, inflation started gradually declining. For this reason, analysts believe that the regulator could slow down the monetary tightening cycle as there have been signs of a drop in the CPI. Some of them suppose that the Fed might completely abandon a hawkish stance, which would be great news for investors. However, there has been no steady decline in consumer prices. They are still unacceptably high. Therefore, the central bank keeps raising the key rate. Naturally, a slowdown in inflation may lead to smaller rate hikes but that’s it. This is why the regulator will continue to tighten monetary policy at least until the middle of next year. When assessing economic prospects, analysts pay greater attention to inflation, completely overlooking the labor market. However, the situation with the labor market is rather curious.  Despite galloping inflation and a looming recession, the unemployment rate is almost at its lowest level in fifty years. It clearly signals an overheating of the labor market, which may lead to devastating consequences. The Fed has been strongly committed to ultra-loose monetary policy for quite a long period of time. It bolstered a surge in investment, enabling companies to expand thanks to low borrowing costs. Businesses also took loans and invested, among other things, in the creation of new jobs. The problem is that such investments have a fairly long payback period. If there is a labor shortage, which happens at an extremely low unemployment rate, businesses face a very serious challenge. Companies have attracted the necessary funds for their development but they need to return them later. If they want to get profit from their investment, they should hire more workers. However, it is rather taxing given that it is almost impossible to find suitable employees. Of course, firms can lure employees from other companies with higher salaries. Such an approach increases costs and reduces profits. The payback period becomes even longer. As a result, companies cannot generate profit. At some point, it will be easier for a business to deduct losses and start cutting costs. Otherwise, they will go bankrupt. In turn, it will result in job cuts and mass layoffs. It might become another reason for a protracted and rather deep recession. Thus, the regulator needs to raise rates to avoid such a scenario. Given the peculiarities of the US labor market and the high labor mobility, the acceptable unemployment rate is considered to be 5.0%. Currently, it stands at 3.7%. There are also no signs of its steady growth. It means that there is still a chance that the central bank could hike the interest rate by 75 basis points. Such an increase may catch many market players off guard.  Apparently, investors’ hopes for a pause in the monetary tightening cycle look more like a fantasy. They are constantly looking for dovish signals. Traders still believe that the Fed could move away from aggressive tightening and return the cash rate to the zero level in the near future. However, judging by the labor market situation, there will hardly be any shift from aggressive rate hikes at least until the middle of next year. They will remain at a relatively high level until the labor market stabilizes and there is no risk of overheating. At the start of next year, the Fed may adjust its medium-term plans for monetary policy. Those who have been betting on a dovish stance could be rather disappointed. The comments of Fed policymakers also point to such a scenario. They have mentioned quite often the current situation in the labor market when speaking about monetary policy prospects.
Rising Tensions in Japan Amid Currency Market Concerns and BOJ Insights

The Outlook 2023: Which Scenarios For 2023 On Stocks And Indices?

Swissquote Bank Swissquote Bank 21.12.2022 12:42
2022 has been a volatile year for stock markets worldwide: with a 10-month decline and a recovery in the last two months, we are a long way from the highs. So what can we expect for 2023 on stocks and indices? Enjoy the viewing! 0:00 Intro 00:39 How severe is the 2022 bear market compared to previous bear markets? 1:35 How do our feelings change through an equity market cycle? 2:41 Being in drawdown is not unusual 4:23 Bear market comparisons: are we close to a bottom in equities, or do we have more to suffer? 5:29 The era of easy money is over! 7:16 What to expect next year regarding monetary policy and interest rates? 8:00 Why has inflation been so sticky? What could make inflation persist in 2023? 11:12 Best and worst sectors in case of a recession in 2023 14:05 Best trade idea for 2023   The second part of Outlook 2023: forex and commodities: https://youtu.be/kod851_Yx2Y Glenn began his investment management career in 1997 and has managed private client and family office wealth ever since. Glenn is the Founder & Managing Director of Harver Capital, an active macro investment manager at www.harvercapital.com. Ipek Ozkardeskaya has begun her financial career in 2010 at 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 at the London Capital Group in London and in Shanghai. She returned to Swissquote Bank as a Senior Analyst in 2020. #swissquote #investing #stockmarket #indices #bearmarket #inflation #tradingideas #spx #outlook #outlook2023 #recession _____ 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
Saxo Bank Podcast: The Bank Of Japan Meeting And More

The Rally In The Japanese Yen (JPY) Will Help Moderate The Relative Inflation Risks For Japan

Saxo Bank Saxo Bank 22.12.2022 08:57
Summary:  Risk sentiment bounced yesterday after December US Consumer Confidence came in far stronger than expected, jumping to an eight-month high. And yet, US Treasury yields fell gently all along the curve yesterday, in part as the same US confidence survey showed inflation expectations dropping more quickly than expected and on a strong 20-year US treasury auction. In FX, the Aussie has rebounded sharply on hopes for stimulus measures in China and a friendly diplomatic tone in recent talks between Australian and Chinese leaders.   Note: This is the final Saxo Market Quick Take until Monday January 2, 2023. What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures rallied 1.5% yesterday closing above the 50-day moving average as positive earnings from Nike helped lift sentiment yesterday and provided a positive assessment of the US consumer. Equity trading will slowly enter hibernation as the holiday period approaches so expect little price action today and tomorrow. Hong Kong’s Hang Seng (HIZ2) and China’s CSI300 (03188:xhkg) rallied on stimulus rhetoric and talk of shortening quarantine The Hang Seng Index rallied 2.4% and CSI 300 climbed 0.4% as of writing, after China’s State Council, the People’s Bank of China, and the China Securities Regulatory Commission separately released meeting readout or statements to pledge to implement the decisions from the recent Central Economic Work Conference to boost the economy, support the property sector, and the internet platform companies. Adding to the risk-on sentiment is market chatter about the shortening of quarantine to three days. Mega-cap China internet stocks surged 3% to 6%. Leading retail and catering stocks jumped by 2% to 11%. FX: choppy markets as USD starts day on a weak footing Some gentle back and forth in FX yesterday as the USD put on a show of rallying, while most of the action has been in the crosses and the greenback has eased back lower after a strong session for risk sentiment yesterday and lower US treasury yields helping USDJPY back lower after its traumatic sell-off and broad JPY rally on Tuesday’s surprise tweak of BoJ policy. The biggest mover to the upside has been the Aussie, which is enjoying the more friendly diplomatic tone with China and has suddenly rallied in the crosses, especially in AUDNZD, on more rhetoric overnight from China on its intent to boost growth. Crude oil (CLG3 & LCOG3) rally extends on US inventory data Crude oil closed at the highest level since December 5 after the US DoE inventory reports showed a nearly 6M barrel draw on crude oil stocks, while gasoline inventory levels rose nearly 2.5M barrels, a half million more than expected, and distillates inventories fell –242k vs. A rise of 1.5M barrels expected. Gasoline and distillate stocks have been generally building of late, but the latter remains slightly below the inventory range of the past 5 years. Gold (XAUUSD) and silver (XAGUSD) remain near recent highs ... after surging in the wake of the Bank of Japan policy tweak on Tuesday and despite yields easing lower yesterday in the US. BOth 2020 and 2021 saw gold ending the year on a strong note and then sharp follow-on rallies in January were quickly reversed. Yields on US Treasuries (TLT:xnas, IEF:xnas, SHY:xnas) remained subdued despite surge in US Consumer Confidence US Treasury yields eased lower all along the curve yesterday despite a large and unexpected surge in US Consumer Confidence as that same survey’s drop in inflation expectations may have received more attention. Later in the day, a strong US 20-year auction, where bidding metrics were the firmest since this spring. End-of-year portfolio rebalancing may obscure the next bigger move for treasuries until we roll into the New Year. What is going on? Mixed U.S. data: weaker home sales, higher consumer confidence, lower inflation expectations Economic data were mixed. The 1-year-ahead inflation expectation in the Conference Board Consumer Confidence survey softened from 7.1% in November to 6.7% in December, the lowest since September of 2021. On the other hand, Headline consumer confidence as well as the present situation and expectations components rose in the Conference Board Consumer Confidence survey. The headline consumer confidence improved to 108.2, (vs consensus 101.0; Nov: 101.4), the highest level since April this year. Elsewhere, the annualized rate of existing home sales fell -7.7% in November, the 10th consecutive month of declines as the historic surge in US mortgage rates this year continues to pressure the US housing market. Micron shares down 2% as glut in memory chips continues The US memory chip manufacturer delivered last night a positive surprise on FY23 Q1 (ending 1 December) adjusted EPS at $0.04 vs est. $-0.88 and announced a 10% headcount reduction to reduce costs. The real negative surprise was the Q2 revenue outlook of $3.6-4bn vs est. $3.9bn and the Q2 adjusted gross margin of 6-11% vs est. 17.8% suggesting significant pricing headwinds compared to market expectations. Micron is also drastically reducing its 2024 capex plans. China and Australia seek to improve the relationship between the two countries During a phone call to mark the 50th anniversary of the official diplomatic relationship between China and Australia, China’s President Xi told Australian Prime Minister Anthony Albanese that China would seek to “promote a sustainable development of the China-Australia comprehensive strategic partnership”. Meanwhile, Australian Foreign Minister Penny Wong told reporters that China and Australia agreed to continue high-level dialogue on issues including the removal of China’s trade sanctions on Australian goods. What are we watching next? Japan’s November Inflation data up tonight After an historic move in the JPY this week, the market will be watching the latest batch of Japan’s CPI data, which has surged to multi-decade highs recently and is expected in at +3.9% YoY for the headline and +2.8% YoY ex Fresh Food and Energy. The rally in the JPY by some 12% from its lows of two months ago will help moderate the relative inflation risks for Japan. US PCE inflation data for November out tomorrow This is arguably the last interesting macro data point out of the US until the first week of the New Year. The PCE data is expected to show that core inflation will drop sharply to 4.6% YoY vs. 5.0% in October, while the headline is expected in at 5.5% versus 6.0% in October. Hotter than expected inflation readings will be an interesting test for markets in coming months as the market has a strong view that the Fed is poised to halt rate hikes as soon as Q2 of next year and will be cutting by year end, despite the Fed “dot plot” projections suggesting the Fed will have a policy rate at the end of next year of above 5% (versus 4.25%-4.50% now). Earnings to watch The earnings calendar is winding down for the year, with payroll and HR-services company Paychex reporting today before the market opens and struggling US used car seller and servicer CarMax, which is trading near its lows for the year, likewise reports before the market open today. Today: Paychex, CarMax Friday: Nitori Economic calendar highlights for today (times GMT) 1100 – Turkey Rate Announcement 1330 – US Weekly Initial Jobless Claims 1530 – US Weekly Natural Gas Storage Change 2330 – Japan Nov. CPI Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app:   Source: Financial Markets Today: Quick Take – December 22, 2022 | Saxo Group (home.saxo)
The USD/CAD Pair Has The Strong Downside Momentum

Analysis And Outlook Of The USD/CAD Pair Situation

TeleTrade Comments TeleTrade Comments 22.12.2022 09:45
USD/CAD holds lower grounds near intraday bottom, prints four-day downtrend. Cautious optimism, downbeat Treasury yields weigh on US Dollar. WTI seesaws near 13-day high amid hopes of more demand on winter, travel concerns. USD/CAD takes offers to refresh intraday low near 1.3580 during early Thursday morning in Europe. In doing so, the Loonie pair drops for the fourth consecutive day while extending the previous day’s downside break of a short-term key support trend line toward another support line. That said, the quote’s latest weakness could be linked to the broad US Dollar weakness, as well as firmer prices of WTI crude oil, Canada’s main export item. It should be noted that the mixed prints of Canada inflation data failed to recall USD/CAD buyers the previous day. US Dollar Index (DXY) drops half a percent to around 103.85 at the latest as the US 10-year Treasury yields remain depressed at around 3.65%, extending the previous day’s pullback from the monthly high. WTI crude oil prints mild losses as it pares the daily gains around $78.40. Even so, hopes of more energy demand due to fierce winter and more travel forecasts keep the black gold positive on a weekly basis. On Wednesday, Canada’s Consumer Price Index (CPI) declined to 6.8% YoY in November from 6.9% in October, versus market forecasts of 6.7%. Further, the more important reading of inflation, namely the Core Bank of Canada (BOC) CPI, which excludes volatile food and energy prices, remained unchanged at 5.8% YoY. It should be noted that the Bank of Japan’s (BOJ) second unscheduled bond-buying joins the cautious optimism in the market, as portrayed by mildly bid stock futures and Asia-Pacific equities, also exert downside pressure on the USD/CAD prices. Bloomberg cites China’s State Council and the People’s Bank of China (PBOC) to hint at more positives for the dragon nation and revives the market’s optimism of late. “China’s State Council, People’s Bank of China (PBoC) and the country’s top securities regulator jointly conducted a study during last week’s economic policy meeting, aiming to prioritize growth and boost the property market in 2023,” reported Bloomberg. Alternatively, news suggesting China’s biggest budget deficit on record, for the January-November period, joins the Russia-Ukraine woes to probe the USD/CAD bears. Looking forward, final prints of the US Gross Domestic Product (GDP) and Core Personal Consumption Expenditure (PCE) details for the third quarter (Q3) could entertain traders ahead of Friday’s US Core PCE Price Index for November, also known as the Fed’s preferred inflation gauge. That said, the US GDP is expected to confirm 2.9% Annualized growth in Q3 while the Core PCE is anticipated to also meet the initial forecasts of 4.6% QoQ during the stated period. Technical analysis A clear downside break of the two-week-old ascending trend line, around 1.3630 by the press time, directs USD/CAD bears towards an upward-sloping support line from November 15, close to 1.3540 at the latest.
Equity Markets Rise, VIX at 12 Handle After ECB Rate Hike and US Economic Resilience

The Saxo 2023 Outrageous Predictions For 2023 In Special Edition Of The Podcast

Saxo Bank Saxo Bank 22.12.2022 11:24
Summary:  In this Special Edition of the podcast, we discuss the Saxo 2023 Outrageous Predictions for 2023, based on the theme of The War Economy. Our Outrageous Predictions are a yearly exercise in looking at possible, if improbable events that may unfold in the year ahead and will alter the investment landscape if they do come to pass. This Special Edition podcast features Editor-in-Chief of the 2023 Outrageous Predictions John J. Hardy and major contributor Peter Garnry. Listen to today’s podcast - slides are available via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: Podcast: Special Edition - Saxo Outrageous Predictions for 2023 | Saxo Group (home.saxo)
The USD/IDR Pair Is Expected A Further Downside Movement

Indonesia: Bank Indonesia Will Need To Match Fed Rate Hikes To Help Maintain Indonesian Rupiah (IDR) Stability

ING Economics ING Economics 22.12.2022 11:34
Bank Indonesia hikes rates by 25bp, as expected.  BI set to continue tightening in early 2023. Indonesia's central bank governor Perry Warjiyo 5.5% 7-day Reverse Repurchase rate   As expected BI hikes again but downshifts to less aggressive tightening In a move widely anticipated by market participants, Bank Indonesia (BI) has hiked policy rates by 25bp to 5.5%.  Price pressures have abated somewhat, as evidenced by the recent slip in headline inflation and we believe that inflation in Indonesia may have peaked.  The softer inflation reading - combined with the general outlook for growth challenges in 2023 - convinced the central bank that a less forceful rate hike should be rolled out today.  A similar downshift in the pace of tightening from global central banks also allowed BI to implement the 25bp increase in policy rates today.    BI rolls out 25bp rate hike as inflation pressures ease Source: Badan Pusat Statistik Rate hikes set to continue in early 2023 Despite the pullback in the pace of tightening, we believe BI will continue with the current tightening cycle next year.  BI believes that the Fed will continue to hike rates in the first half of 2023 and we could see BI following suit with rate hikes of their own.  The IDR has come under some pressure to close out 2022 and we believe BI will need to match Fed rate hikes to help maintain FX stability.  With BI’s policy rate at 5.5%, IDR should move sideways to close out the year - with investors monitoring the fallout from the recent bond buyback announcement from the national government.  Read this article on THINK TagsIDR 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
Market Insights with Nour Hammoury: S&P 500 and Bitcoin Projections for H2 2023

US Inflation Is Cooling, Japan Headline CPI Ticked Up To 3.8% Y/Y

Saxo Bank Saxo Bank 23.12.2022 08:55
Summary:  Summary: S&P500 shed 1.5% and Nasdaq 100 tumbled 2.2% following an upward revision to the U.S. Q3 GDP data that dashed investors’ optimism of goldilocks of moderation of inflation and a potential soft landing. Among today’s several economic data releases from the U.S., all eyes will be on the November PCE report which has the most potential to shape expectations on the Fed’s policy path. This is the last Market Insights Today for 2022. Our first edition for 2023 will be on 3 January. We would like to wish all our readers a joyous festive season and happy New Year.   What’s happening in markets? Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) reversed and fell on upward revision in Q3 GDP U.S. equities reversed the gains from the previous session and tumbled on an upward revision in the Q3 GDP to 3.2% from the previously reported 2.9%. Coming in at 216K, the initial jobless claims increased less than the 222K expected. Investors were whipsawed by the hope of goldilocks of moderation of inflation and a soft landing and the fear of the persistent strength in the labor market and the economy preventing the Fed from lifting its foot from the brake. A day after the hope on Wednesday, investors succumbed to fear on stronger than expected economic data that were taken as bad news for the market. S&P500 fell by 1.5% and Nasdaq 100 shed 2.2% on Thursday. All 11 sectors within the S&P 500 declined, with laggards of consumer discretionary, information technology, and energy falling over 2% each. Tesla (TSLA:xnas), plunging 8.9% was once again the top loser in the S&P 500 as well as the Nasdaq 100. Please refer to Peter Garnry’s notes on more about the harsh reality that Tesla is facing. Following the gloomy demand outlook from Micron (MU:xnas), the semiconductors were sold off, with Lam Research (LRCX:xnas) falling 8.7%, Applied Material (AMAT:xnas) down 7.8%, Nvidia (NVDA:xnas) down 7%, and Advanced Micro Devices (AMD:xnas) down 5.6%. US Treasuries (TLT:xnas, IEF:xnas, SHY:xnas) cheapened on strong economic data Q3 GDP was revised up to 3.2% from the previously reported 2.9%. The personal consumption component was revised up to 2.3% from the previously reported 1.7% on firmer services consumption. The quarterly core PCE in the Q3 GDP report was revised up to 4.7% from the previously reported 4.6%. The monthly PCE and core PCE for November are scheduled to release today. The stronger-than-expected GDP revision saw yields on the 2-year Treasuries 6bps cheaper to 4.27%. The long-end’s reaction to the data was muted with yields on the 10-year 2bps higher to 3.68%. The demand in the 4-week and 8-week bill auctions was good while the demand in the 5-year TIPS auction is relatively subdued. Hong Kong’s Hang Seng (HIZ2) and China’s CSI300 (03188:xhkg) rallied on stimulus rhetoric and talk of shortening quarantine The Hang Seng Index rallied 2.4% and CSI 300 climbed 0.4% as of writing, after China’s State Council, the People’s Bank of China, and the China Securities Regulatory Commission separately released meeting readouts or statements to pledge to implement the decisions from the recent Central Economic Work Conference to boost the economy, support the property sector, and the internet platform companies. Mega-cap China internet stocks surged, with Alibaba (09988:xhkg) up 4.1%, Tencent (00700:xhkg) up 4.1%, Meituan (03690:xhkg) up 6.8%, and Bilibili (09626:xhkg) up 9.6%. Adding to the risk-on sentiment is market chatter about the shortening of quarantine to three days. Leading retail and catering stocks soared. Xiabuxibu (00520:xhkg) jumped 15.7% and Haidilao (06862:xhkg) rose by 7.6%. Li Ning (02331) surged 7.4%. Educational services providers continued to rise in anticipation of potential loosening restrictions over the sector. FX: US dollar little changed versus major currencies The U.S. dollar tread water in thin trading ahead of a busy economic calendar today in the U.S. with the closely watched PCE deflators, plus personal spending, durable goods, new home sales, and the U. of Michigan Consumer Sentiment Survey. USDJP and EURUSD were nearly unchanged at 132.30 and 1.0600 respectively. GBPUSD was moderately lower at 1.2030, down 0.4% and AUDUSD was down 0.5% to 0.6670. What to consider? Japan’s November CPI in line with expectations Japan’s national CPI released this morning came in basically in line with expectations. The headline CPI ticked up to 3.8% Y/Y from 3.7% in October but below the 3.9% consensus forecast. CPI excluding fresh food and CPI excluding fresh food and energy were as expected, being at 3.7% Y/Y (vs consensus: 3.7%, Oct: 3.6%) and 2.8% Y/Y (vs consensus: 2.8%, Oct: 2.5%) respectively in November. US November PCE may be on course for further easing for now US inflation is cooling, but we argue that the debate at this point needs to move away from peak inflation to how low inflation can go and how fast it can reach there. Fed’s preferred inflation gauge, the Core PCE, will continue t,o remain in focus especially after Powell has highlighted it a key metric recently at both the Brookings Institute and the December FOMC press conference. However, PCE may now slow as rapidly as CPI with the two key restraining components – goods and energy – likely to play a smaller part in PCE. Expectations are for a November reading of 5.5% Y/Y reading vs a previous reading of 6.0% Y/Y while the core is expected to come in at 4.6% Y/Y from 5.0% Y/Y in October. Still, risks to inflation remain tilted to the upside going into 2023 as financial conditions have been easing and China’s reopening brings a fresh wave of inflation risks. 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: U.S. stocks reversed and fell on upward Q3 GDP revision ahead of today’s November PCE deflator – 23 December 2022 | Saxo Group (home.saxo)
The Challenge to the Dollar: De-dollarisation and Geopolitical Shifts

The View Of ING Economists Of Recession And The Fed Rate Cuts

TeleTrade Comments TeleTrade Comments 27.12.2022 11:31
In the view of economists at ING, recession will accelerate inflation's slide and allow the Federal Reserve to respond with rate cuts before 2023 is out. Recession risks mount as businesses pull back “We're likely to see the jobs market and the outlook for business capital expenditure deteriorate markedly over the next couple of quarters. While the US entered a technical recession in the first half of 2022, this was tied to legacy supply chain issues which led to volatility in trade and inventories. A recession will feel much more ‘real’ this time around.” Inflation set to hit 2% “Corporate pricing power already appears to be waning based on survey evidence. The deteriorating activity story will help dampen price and wage pressures further. The composition of the US inflation basket, which is heavily skewed toward housing and vehicles – accounting for more than 40% by weight – is also important for our call that inflation will hit 2% by the end of the year.” The Fed will respond early and fast with rate cuts “With the Fed continuing to suggest the risk of doing too little outweighs the risk of doing too much, it appears prepared to accept a recession to ensure inflation is defeated. Given this situation, there is some upside risk to our forecast of 100 bps of rate hikes from here on. But given the prospect of recession and sharply lower inflation, the Fed will be in a position to cut interest rates in the second half of the year.”  
Korea: Consumer inflation moderated more than expected in February

South Korea: Base Effects Will Likely Lower Headlince CPI Early Next Year

ING Economics ING Economics 30.12.2022 09:06
Entering 2023, we expect headline CPI to head down to 4%. Gasoline prices and utility fees are set to rise meaningfully but base effects will anchor headline CPI Source: Shutterstock 5.0% Consumer Price Inflation % YoY Lower than expected Headline CPI rose by 5% YoY for a second month in December Both headline and core inflation were unchanged for a second month in December. Headline CPI remained at 5.0% YoY, slightly lower than the market consensus of 5.1%, with core CPI remaining at 4.8%.  Electricity, Water and Gas (EWS) rose the most - by 23.17% - while fresh vegetable prices fell (by 2.5%) for the second month. Among services, rent slowed to 1.4% in December (vs 1.6% in November). Given Korea's two-year lease structure, the sharp declines observed haved have only gradually been reflected in CPI. We expect the trend to fall in the coming months.  Rents set to decline in the coming months Source: CEIC, ING estimates CPI Outlook The government and KEPCO announced today that electiricity rates will rise by 11.4 won (9.5%) per KWh from 1 January, pushing up CPI by about 0.15 pt. On top of this, gasoline tax cut will be reduced from 37% to 25% also from 1 January, adding another 0.12 pt. Combined, the two will boost CPI by about 0.3 pt in January.  This will trigger the secondary effect of further price hikes over time, and other public service fees such as public transportation rates are also planned to rise.  Thus, headline CPI is set to remain above 2% throughout the year. We still expect downward pressure to grow due to sharp declines in rents and weak demand-side pressures.  Base effects will likely lower headlince CPI early next year, thus we look for a level of 4% for CPI in 1Q23.  CPI inflation set to stabilize in 2023 Source: CEIC, ING estimates Read this article on THINK TagsSouth Korea CPI inflation 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
Equity Markets Rise, VIX at 12 Handle After ECB Rate Hike and US Economic Resilience

Comparing The Current Economic Situation To That Of The 70s

XTB Team XTB Team 30.12.2022 12:35
Back to the 70s Even superficially assessing the current situation, there are similarities to the first half of the 1970s considerable. The war (then in the Middle East) and the resulting rise in oil prices characterize both periods. Surprisingly, even the scale of the raw material price increase was similar. In 72-74 it was 182% as measured by the GSCI price index, while now (April 2020 to June this year) it is 199%. However, there are more similarities. Let's start with the positives. In 1974, the peak in the commodity market also marked a peak inflation (for several consecutive years). The Commodity Price Index peaked in November 1974 and it was then that the highest level of inflation in the United States was recorded. Core inflation (without energy and food prices) reached its peak 3 months later. Imposition on the commodity price index and annual inflation show a clear correlation. The US inflation shock of 1974 2021/22 US inflation shock GSCI CPI y/y Core CPI y/y The fall in commodity prices in 1974 helped bring inflation down to lower, though still unsatisfactory, levels. Source: Macrobond, XTB Research It would seem that this supports the market's expectations of a fall in inflation, confirmed recently by a much lower level of the ISM Prices Paid Index. However, it is worth noting that this drop occurred before the peak of the GSCI index, and the inflation relation itself seems to be stronger with the GSCI index. Therefore, the transaction prices component of the ISM is rather of secondary importance to us. It is worth noting, however, that it is not about the peak level of inflation itself, but about its return to the target, that is 2%. In the 1970s, the Fed did not yet have an inflation target (it was introduced only in 1995), but we can clearly see that core inflation before the shock did not exceed 3%, while after 1974 it did not fall below 6%, and from 1978 it started to grow again. Why? Custom recession The labor market is often cited as the cause of inflation in the 1970s. Big role unions meant pressure to increase wages, and higher wages allowed for the acceptance of higher prices. It is worth noting, however, that wage growth at the peak of inflation (approx. 5.5%) in the US was similar to today's, and lower in real terms (data for 2020 and the first half of 2021 are a deviation from the trend due to temporary layoffs low paid workers). Prices started rising in 1975 and this helped anchor inflation at higher levels. Inflation vs Wages, 1974 Inflation vs Wages, 2021/22 Salaries y/y CPI y/y Core CPI y/y Wage growth was one of the factors anchoring inflation at higher levels in the 1970s and should be watched closely today as well. The publication of the NFP report is usually held on the first Friday of each month. Source: Macrobond, XTB Research The fact that inflation began to fall along with commodity prices was the result of a deep recession triggered both by price increases and Fed policy. A weakening economy usually eases the pressure and therefore inflation often falls in line with weaker macroeconomic readings. In In the 1970s, inflation rose with weaker macroeconomic readings, because weaker economic data was the result of higher inflation. It's the same today. Why Didn't the Fed Beat Inflation? In short, he feared the recession. Let's start with the Federal Reserve anyway she was in a better position then. In 1972, no time was wasted whining about temporary inflation, but interest rates were aggressively raised (from 5 percent to 13 percent in just two years). However, a sharp economic downturn and a rise in the unemployment rate caused the white flag to be waved and in just a few months the main Fed interest rate returned to its baseline. This revived the economy, but with it inflation and wage pressures. Fed inflation and interest rates, 1974 Fed inflation and interest rates, 2021/22 Fed interest rates CPI y/y Core CPI y/y The Fed capitulated completely in 1974. The rapid retreat from monetary tightening allowed economic and market recovery, but it perpetuated higher levels of inflation. Will the FOMC headed by Jerome Powell do the same? Source: Macrobond, XTB Research This time, the Fed only started raising rates just before inflation peaked. So it won't surprisingly, the cumulative effect of tightening will be much smaller, and the possible pivot in monetary policy much more risky in terms of inflation persistence the American economy. What now? In the realities of a strong labor market and high dynamics of price growth, the Fed can ignore it persistent inflation at your own risk. As proved above, too fast relaxation monetary policy caused another spike in inflation in the 1970s and the Fed – despite promising signals from the commodities market - may consider a very similar scenario. Reserve Federal now has two options: Option 1 - PIVOT. This is what the markets expect. Investors hope the Fed will back off path of monetary policy tightening and will allow economic recovery. this scenario would most likely lead to a return to inflation, but it would be a worry for the markets for later. Pivot Fed could have a positive impact on US indices, oil, precious metals or cryptocurrencies, and negative on the dollar. Option 2 - fighting inflation. This is what the Fed is constantly communicating: we want to make sure that inflation it will fall to the level of 2% and will remain there, argue the members of the Reserve. The question is - whether The Fed will be able to continue to tighten monetary conditions in the face of potentially painful economic downturn? If the answer is yes, it may be negative signal for US indices, oil, precious metals and cryptocurrencies, and positive for US dollar.
Crude Oil Upward Trend Remains Limited

Prices Of Energy Resources In Europe Have Already Started To Fall, The Picture Of Forex And Crypto Market

XTB Team XTB Team 30.12.2022 14:36
Energy resources: OIL, NATGAS The entire world is heavily dependent on conventional energy sources such as oil petroleum, natural gas or coal, so there is a clear connection between the raw materials energy and inflation. When prices move moderately, producers do not they change react immediately because they can take advantage of economies of scale. The problem occurs in when the price increases several times and the producers' costs have to be passed on to consumers. As we mentioned earlier, the current situation is reminiscent of the 70s of the last century, when the energy crisis led to an inflationary spiral. As then, so now the supply of oil is strongly limited (initially artificially, and now due to problems in the supply chain and lack of appropriate investment in production capacity). It is true that the supply is slowly growing, but the demand recovers much faster, which has led to a huge increase in raw material prices. Oil and natural gas prices in Europe have already started to fall from near historic highs. The question, however, is whether the market is experiencing demand destruction? Stocks of raw materials are at exceptionally low levels, with no greater ones on the horizon investment in the extractive sector, and countries with spare production capacity will take advantage of the current high prices. Therefore, there is a risk of extending the period of highs prices, as it was in the 1970s and in 2011-2014. In addition, when we adjust oil prices for inflation, we can see that after the initial increase at the beginning in the 1970s, the valuation of this raw material remained at a high level until the early 1980s. It is another argument proving that without an adequate increase in supply, high oil prices can stay with us longer. Forex market: EURUSD, USDJPY The recent return of higher and volatile global price dynamics has triggered a surge exchange rate volatility and depreciation of the currencies of countries with the highest inflation rate. In In times of economic uncertainty, investors tend to turn to safe haven currencies (the so-called safe havens of the foreign exchange market), mainly the US dollar. Also and this time it was no different, and the dollar index rebounded from the June 2021 lows by over 20%. Meanwhile, the trade-weighted index (TWI) remains at elevated levels. This index, adjusted for inflation, measures the strength of the US dollar against the currencies of major partners of the United States. We see that the TWI REER USD index has strengthened significantly in recent years, which may indicate that the dollar is overvalued. When it comes to EURUSD, however, the situation is more complicated. In mid-July 2022 euros reached parity with the dollar, falling to its lowest level in 20 years. this fall it was triggered not only by the strength of the US currency, but also because of the crisis as a consequence of the war between Russia and Ukraine. High energy prices in Europe have worsened trading conditions in the euro area, leading to an even greater depreciation of the single currency. There is no indication that energy prices will fall in the near future, but if such a scenario materializes, the euro would have a chance to move away from the parity level. In the case of EURUSD, the market's attention is focused on the weakness of the euro, while in the case of USDJPY monetary policy sets the pace. Since the early 2000s, the Bank of Japan has pursued an ultra-loose policy monetary policy while controlling the bond yield curve. This has not changed even after inflation started to rise. Meanwhile, the Fed turned its stance 180 degrees to strangle inflation through aggressive interest rate hikes. The difference in bond yields is a key factor for this pair, even if the Bank of Japan decides to change its current policy. Cryptocurrencies: BITCOIN, ETHEREUM Cryptocurrencies are still a young asset class. The history of Bitcoin goes back a little over 10 years, a most of the remaining cryptocurrencies (so-called altcoins) were created after 2017, which is why the reactions of the cryptocurrency exchange rate to the increase in the level of inflation are not sufficiently known. from this Therefore, when trying to assess digital asset quotes, it is difficult to rely solely on on historical data. Due to the tendency of investors to buy cryptocurrencies as part of diversifying their exposure to traditional financial markets, as well as the involvement of institutions in this market, begins to be a visible correlation between the reactions of debt-financed companies and the price of Bitcoin. Movements Cryptocurrency rates in response to rising inflation are beginning to resemble stock market reactions, which based on historical data are a bit easier to track and analyze. As a rule, rising inflation is not conducive to the valuation of risky assets and becomes a disadvantage for them burden when central banks decide to tighten monetary policy. Rate hikes interest rates, difficulties in obtaining capital and the rising cost of living in a recessionary environment indicate a decrease in risk sentiment and decreases in the valuation of risky assets. having it in mind, the cryptocurrency market will not be helped by rising inflation, which prompts banks to raise Stop. Therefore, even if the trend of cryptocurrency adoption continues - and they are noticeable signals that this is the case - movements on the charts of individual cryptocurrencies may resemble those of US100, only on a larger scale. Five key facts about cryptocurrency adoption BlackRock creates a bitcoin trust fund for US investors institutional and begins cooperation with Coinbase JP Morgan creates an open living room inside the Decentraland metaverse and explores the possibilities blockchain technology Ethereum processed 1.45 million smart contracts in Q1 2022 vs. 1.16 million in Q4 2021 (up 25%) NFT popularity is growing: 7.84 million transactions in OpenSea in Q1 2022 vs. 4.85 million carried out in Q4 2021 (up 61.6%) 46 million Americans own Bitcoins and 1 billion people will use cryptocurrencies in over the next 4 years
US CPI Surprises on the Upside, but Fed Expectations Unchanged Amid Rising Recession Risks

Corporates Are Already Feeling The Effects Of Significant Wage Increases, As Evidenced By The First Layoff Announcements From Various Technology Companies

Franklin Templeton Franklin Templeton 31.12.2022 10:16
Falling inflation scenario still at play Ken Leech Chief Investment Officer Western Asset Where are you looking in 2023 to position to best maintain yield averages? Inflation has proceeded faster and for longer than we antici- pated, and the damage to fixed income investments has been commensurate. However, we believe a falling-inflation scenario is still at play—one that would provide some comfort and respite to bond investors. In our analysis, bond yields are also now at very attractive levels—the 10-year US Treasury bond is at its highest rate since 2008. Given these factors and current market pricing, the priority for us over the next 12 months is to position portfolios to best maintain our current yield advantage relative to benchmarks. We see opportunities in specific places across fixed-income sectors. Can you provide some examples of opportunities? The combination of higher rates, wider spreads and de minimis defaults makes a good case for owning IG credit, despite macro concerns. Fundamentals at the corporate level still appear very good to us, given issuers’ conservative approach to balance-sheet management. Looking ahead, companies are going to face some challenges. Margins are likely to continue to feel the squeeze from elevated labor, financing and input costs. Corporates are already feeling the effects of significant wage increases, as evidenced by the first layoff announcements from various technology companies. In the United States, corporate fundamentals may have peaked, but they are coming off a strong starting point. Concerns abound that earnings will decelerate given tighter financial conditions, rising input costs and the currency impact of a surging US dollar. We see opportunities in banking (where we expect further ratings upgrades), energy, select reopening industries (such as airlines, cruise lines and lodging), and rising-star candidates. In Europe, utilities face higher funding needs, but with government support we see some opportunities in this space. Yields at multi-year highs look attractive to us. In particular, we like the three- to five-year part of the market. We find the most value in financials and real estate investment trusts (REITs) and are cautious on more cyclical consumer- facing sectors. Additionally, we believe the quality of the HY market is the best it’s been in decades. Fallen angels downgraded from IG ratings during the COVID-19 pandemic put a significant amount of BB rated issues in the HY index. However, we continue to be extremely selective, choosing issues name by name. We also continue to favor IG energy. In the United States, we believe HY credit spreads are relatively attractive. In our analysis, default rates are likely to rise from very low levels in the coming quarters, but yields are providing ample cushion for higher defaults. We continue to see opportunity in service-related sectors that are still recovering from the COVID-led recession and potential rising stars In Europe, credit fundamentals face challenges including slowing regional growth, elevated energy prices, and tightening financial conditions. We see value in BB and B rated issues—focusing on more defensive industries, including telecommunications/cable and health care. With your forecast that home prices are poised to have a major pullback, what are the challenges/opportunities in sectors like mortgage-backed securities (MBS) in 2023? While we expect the homebuilding market is in for a major pullback as well as substantial home price declines, we see selective opportunities. Here are a couple of examples: For agency MBS, diminishing Fed and bank demand coupled with increased volatility remain headwinds, but we believe the fundamental picture has greatly improved as spreads have widened significantly and look attractive historically, while prepayment risk has subsided. For non-agency commercial MBS (CMBS), fundamentals vary by sector, with continued strength in multi-family, industrial and lodging, but challenges remain in retail and office. Macro and rates pressures are depressing prices across the market; however, if volatility declines, we believe attractive yields are available across the capital stack for high-quality credits. Why do you think inflation is likely to decline? Whether you focus on demand and supply as the driver of prices, on interest rates, or on the money stock as a measure of Fed policy, we believe all of these indicators point to a substantial moderation of inflation in the near future. Furthermore, looking at economic conditions “on the ground,” pricing in the goods and housing sectors is already moderating
Market Insights with Nour Hammoury: S&P 500 and Bitcoin Projections for H2 2023

As Inflation Declines, Bond Returns Will Likely Recover, As Will The Potential Diversification Benefits Of Holding Bonds Alongside Stocks And Select Alternatives

Franklin Templeton Franklin Templeton 31.12.2022 10:15
Alternatives: The hunt for diversification In looking beyond stocks and bonds for diversification, many times access to alternatives limits investors. However, if this limitation can be overcome, investors might consider adding private credit or commercial real estate for greater risk-adjusted returns. Beyond the potential for less correlation to stocks and bonds, there may also be potentially higher returns in exchange for a longer-term commitment of assets. Why do some options have the potential for less correlation? For private credit, the modern market emerged after the GFC to fill the void banks left as they significantly reduced their lending to small- and medium-sized businesses. We believe emphasis needs to be on selecting top-tier managers, who not only specialize in finding genuine value, but in avoiding accidents—not indexing the category. Similarly, a different correlation from commercial real estate can come from some automatic adjustment to inflation, as rental rates often align with price increases. While current levels of inflation and the possibility of recession are chal- lenging for real estate investors, segments including industrial warehouses, life science facilities, and multi-family rental properties can provide strong returns as well as a hedge against inflation. In the alternatives section, we provide outlooks for two areas that may help with diversification: infrastructure and commercial real estate. Think diversification After a tough 2022, many investors may feel like standing on the sidelines. That sentiment, however understandable, is best avoided. As inflation declines, bond returns will likely recover, as will the potential diversification benefits of holding bonds alongside stocks and select alternatives. While it may be premature to dive into the equity markets, focusing on select themes may deliver better overall portfolio returns in 2023. For specific thoughts on allocations, we direct you to Allocation Views, our quarterly publication from the Franklin Templeton Investment Solutions team, to see how they are approaching 2023. The silver lining from 2022’s difficult markets appears to be an improved potential for long-term returns, and the return of diversification within multi-asset portfolios. In what follows, our investment teams offer their perspectives and, most importantly, their key investment opportunities for 2023.
Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

The First Inflation Data In The New Year From Europe May Show A Decline

Kamila Szypuła Kamila Szypuła 31.12.2022 20:55
After two years of lockdowns, COVID deaths, and rising sentiment and unrest, it was hoped that 2022 would bring some relief. Instead, 2022 turned out to be a difficult year in a year where no gnews would fall very well. We have wars, rising interest rates, rising inflation. Central banks around the world have taken action to combat the high level of inflation, including the ECB. The data is far from the expected 2% and as you can see the fight is not over. Inflation reports from the old continent will be presented next week. CPI data The week between Christmas and New Year's is usually very data-poor, and there were no Tier 1 events in Germany or the Eurozone this week. Spain released flash CPI estimates for December, which showed that inflation continued to weaken. CPI fell to 5.8% from 6.8% and below estimate of 6.0%. Inflation in Spain fell for the fifth consecutive month as energy costs continue to fall. The next week may prove to be more important for the European Union, as the inflation report will appear. Moreover, reports from Member of UE will be just as important. The ECB will be keeping a close eye on these inflation reports and the data will be an important factor in the ECB's decision on the pace of future rate hikes. Next Friday, Eurostat will give its first look at consumer prices in the euro area at the end of 2022. It predicts a decrease in the annual growth rate of basic consumer prices from 10.1% in November to 9.6% in December. Source: investing.com Energy situation Russian President Vladimir Putin's invasion of Ukraine on February 24 triggered a price shock, sparked an energy crisis and brought supply chains to a halt. Not to mention thousands dead, millions homeless and a kind of Cold War that pits Russia, with the exception of Iran and North Korea, against the rest of the world. The high volatility in the markets has persisted since the invasion and there is no end in sight. In 2021, Europe imported $117 billion worth of energy from Russia, which was about 40% of Europe's consumption of natural gas and 30% of its oil. It has yet to move away from relying on Russia, leaving European countries struggling to replenish their underground gas reserves for the colder winter months. Until recently, Europe received large amounts of natural gas from Russia via the Nord Stream pipeline. However, flows were halted in late August when Russia cut off flows to Europe via Nord Stream in response to Western sanctions. Russia is set to increase diesel exports next month before EU oil sanctions go into effect in February. Fuel deliveries from Russian ports in the Baltic and Black Seas will increase to 2.68 million tons in January. By February 5, the European Union will ban imports of Russian petroleum products, which it heavily relies on for diesel production. This follows a ban on Russian oil that came into effect in December. Should a recession be expected? Recessions in Europe seem inevitable as gas prices rise. Meanwhile, the central banks of Europe and the UK are determined to bring down inflation by continuing to raise interest rates. While recessions around the world have been suggested, analysts say they will only be mild. The outlook for 2023 remains uncertain. The war continues. Interest rates will go up until inflation goes down. Source: investing.com
FX Daily: Asymmetrical upside risks for the dollar today

The US Dollar Index Holds Near Six-Month Lows

TeleTrade Comments TeleTrade Comments 02.01.2023 13:41
Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, notes that EUR/USD stays near 6-month highs to start the new year and the US Dollar Index holds near six-month lows Eurozone is facing a recession "USD weakness remains the dominating subject on the FX market. Because the market still does not believe the Fed’s affirmations that it will not cut the key rate. It has revised its expectations a little since the last FOMC meeting, but not substantially." "This mistrust must not surprise, as the FOMC members have been incorrect with their forecasts too many times in the past. I still remember very clearly their – in retrospect – absurd dots from 2009 and the following years." Read next: Twitter Did Not Pay $136,260 Rent, Microsoft Reported Its Worst Quarterly Results In Years| FXMAG.COM "In contrast all those who celebrated New Year’s eve in a T-shirt in Europe are likely to feel less concerned about a shortage of gas. This factor that had been putting pressure on the euro, which had already eased in Q4, is thus disappearing even more quickly." "Of course, the Eurozone is facing a recession. However, if this is one that is “only” due to a tightening of monetary policy it will not be as damaging for the EUR exchange rates as a recession caused by a shortage of gas would have been." "And in comparison to the US where the real economy is having to deal with a much more aggressive Fed monetary policy the FX market seems to consider the ECB's policy as not that unattractive any longer." "Our colleagues in macro research like to refer to the long-term risks of inflation of the more cautious ECB interest rate policy. These dangers are not likely to be concrete enough for the FX market yet. It will take some time yet before it prices these in. I am not sure whether that will become an issue this year or whether that is more likely to become the subject of my outlook for 2024."
A Bright Spot Amidst Economic Challenges

The IMF Warned That 2023 Would Be Worst Than 2022, As The US, EU And China Would All See A Decline In Growth

Kenny Fisher Kenny Fisher 03.01.2023 15:11
The US dollar is showing strong gains against the majors on Tuesday, with the exception of the Japanese yen. EUR/USD has tumbled by 1.27% and is trading at 1.0528 in Europe. Investors eye German CPI EUR/USD is sharply lower today, despite a very light economic calendar. The only release of note is German CPI, which will be released later today. Despite the lack of fundamentals, the US dollar is taking advantage of risk aversion in the markets. There are headwinds everywhere you look. The war in Ukraine, the threat of recession in the US and the eurozone and China’s slowdown all make for a gloomy outlook as we start the new year. Germany’s inflation has been falling, and the downtrend is expected to continue. The consensus for December CPI is 9.0%, compared to 10.0% in November. If the consensus proves accurate, it could put further pressure on the euro, as the ECB may have to reconsider its hawkish stance on rate policy. The International Monetary Fund didn’t bring any festive cheer with its pessimistic message on Monday. The IMF warned that 2023 would be tougher than 2022, as the US, EU and China would all see a decline in growth. Adding to the gloom, the IMF said that it expected one-third of the global economy to be in recession this year. In October, the IMF cut its growth outlook from 2.9% to 2.7%, due to the war in Ukraine as well as central banks around the world raising interest rates. After the Christmas and New Year’s holidays, the markets are easing back in, as the data calendar gets busier as of Wednesday. We’ll get a look at the Fed minutes from the December meeting, which was a hawkish affair that surprised investors and gave the US dollar a boost. On Friday, the US releases the employment report, which always plays an important factor in the Federal Reserve’s rate policy.   EUR/USD Technical EUR/USD is testing support at 1.0528. Below, there is support at 1.0469 There is resistance at 1.0566 and 1.0636 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.   Source: EUR/USD slides to three-week low - MarketPulseMarketPulse
The Current War Between China And The United States Over Semiconductor Chips Is Gaining Momentum

Concerns Among Investors About The Demand Outlook For The Products Of Apple

Saxo Bank Saxo Bank 04.01.2023 08:57
Summary:  The share price of Tesla plunged 12% following releasing weak deliveries in December. Apple’s market value fell below US2 trillion for the first time since March 2021 on weakening demand for its MacBooks, the Apple Watch and Airpods. The USD bounced by 1% against EUR and GBP. Crude oil slid by 4% on higher OPEC daily production. On Wednesday, all eyes are on the US ISM Manufacturing Index, JOLTS job openings, and the December Fed minutes. What’s happening in markets? Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) slid with significant weakness in Apple and Tesla U.S. equities started the year weaker on Tuesday. S&P 500 slid 0.4% and Nasdaq 100 lost 0.8%. Energy, plunging 3.6% on a 4% decline in crude oil, was the worst-performing sector within the S&P 500 Index. Communication Services, up 1.4%, advanced the most, with Meta (META:xnas) up 3.7% and Alphabet (GOOGL:xnas) up 1.1%. Nasdaq 100 was dragged down particularly hard by the declines in the share prices of Apple (AAPL:xnas) which accounts for 13% index weighting and Tesla (TSLA:xnas) which accounts for 2.5% index weighting. Tesla fell by 12.3% after releasing weak December delivery data. Apple slid 3.4% on a Nikkei report suggesting potential weak demand for the company’s products, taking the company’s market value down below USD2 trillion, the first time since March 2021. Apple accounted for 13% in Nasdaq 100 weighting. Tesla plunged 12.3% on weak December deliveries Tesla announced Q4 deliveries of 405.3K coming short of the estimate at 420.8K and significantly below the 439.7K units produced in Q4. In this article, Peter Garnry suggests that Telsa is facing problems of elevated battery costs that forced the EV maker to raise prices and excessive electricity costs in Europe that weighs on demand. Some demand in the U.S. in Q4 might have been pushed into Q1 2023 by the EV purchase tax credit in the Inflation Reduction Act. The share price of Tesla plunged 12.3% on Tuesday, its largest decline by percentage since September 2020. Apple fell by 3.4% on reportedly weakening demand for its MacBooks, the Apple Watch and Airpods A Nikkei article reported that “Apple has notified several suppliers to build fewer components for Airpods, the Apple Watch and MacBooks for the first quarter, citing weakening demand”. The article stirred up concerns among investors about the demand outlook for the products of the consumer electronics giant. US Treasuries (TLT:xnas, IEF:xnas, SHY:xnas) rallied with yields on the 10-year 14bps richer to 3.74% Bids returned to Treasuries as German Bunds jumped in price following German CPI coming in softer than expectations.  Yields on 10-year German bunds fell by 6bps on Tuesday and by 18 bps since the New Year. On the tape, former Fed Chair Aland Greenspan and former New York Fed President Bill Dudley said a not-too-severe U.S. recession was the most likely outcome. The 10-year segment led the rally, with yields 14bps richer to 3.74%. Yields on the 2-year fell by 6bps to 4.37%. The corporate issuance calendar was busy with 19 investment grade bonds for a total of over 30 billion issued on Tuesday. Hong Kong’s Hang Seng (HIZ2) and China’s CSI300 (03188:xhkg) On its first day of trading in 2023, Hang Seng Index opened lower but rallied to post a 1.8% gain. Hang Seng TECH Index (HSTECH.I) climbed 1.9%. Chinese telco, consumer, electricity utilities, pharmaceuticals, autos, and Macao casino operators led the charge higher. It is widely expected that the border between the mainland and Hong Kong will be reopened as soon as January 8, 2023. In addition, a rebound in mobility data in some large Chinese cities, such as Guangzhou, Chongqing, Shanghai, and Beijing helped market sentiment. Investors brushed off the weak December NBS PMI reports released during the holiday and the Caixin PMI on Tuesday and the seemingly inevitable surge and spread of Covid inflections during the initial stage of relaxation of pandemic containment in China to focus on the improved economic outlook in mainland China and Hong Kong for 2023. Southbound flows into Hong Kong amounted to a decent HKD4.25 billion, of which buying in Tencent (00700:xhkg) accounted for HKD1.58 billion. Following the release of strong December sales, BYD rose by 4.7%, Li Auto by 10.5%, and Xpeng by 7.8%.  China’s CSI 300 Index gained 0.4%, with computing, communication, media, and defense names gaining the most. FX: the dollar gained 1% versus EUR and GBP As Saxo’s Head of FX Strategy, John Hardy, put it in his note, USD wakes up with a bang ass US market come back on line. Softer CPI prints from Germany triggered selling in the Euro and saw EURUSD down 1%. The pound sterling also slid 1% versus the dollar. The Yen held on relatively well, after briefly strengthening to 129.52, finished the day little changed at around 131. Crude oil fell nearly 4% on higher OPEC production WTI crude fell 3.9% on Tuesday following production by OPEC countries increased by 150,000 barrels to 29.14 million barrels a day, partly due to higher output from Nigeria. The warmer-than-normal weather in the U.S. and Europe also weighed on the market sentiment. What to consider? German December CPI softer than expectations Germany released headline CPI at 8.6% Y/Y below the street estimate of 9.0%Y/Y and November’s 10.0%. Germany’s EU Harmonized CPI came in at 9.6% Y/Y, falling from the 10.2% expected and 11.3% in November. U.S. ISM Manufacturing Index, JOLTS Job openings, and the December FOMC minutes to focus on Wednesday We have a busy economic calendar in the U.S. on Wednesday. The ISM Manufacturing Index is generally considered by investors as one of the key indicators in the recession question. The Bloomberg consensus estimate is calling for a further decline into the contractionary territory to 48.5 in December from 49.0 in November. JOTLS job openings (consensus 10.05 million; Nov 10.33 million) will also be closely monitored as the data series was highlighted by Fed Chair Powell almost every time in his assessment of the state of the labor market and monetary policies. Finally, at 2pm US EST, we will have the minutes from the Fed’s December FOMC meeting. For a global look at markets – tune into our Podcast. Source: Market Insights Today: – Apple and Tesla plunged; ISM, JOLTS, and Fed minutes the focus on Wednesday - 4 January 2023 | Saxo Group (home.saxo)
The Acquisition Of Activision Blizzard Could Give The Microsoft Additional Revenue

How Dream Sports Built Its Value, High Inflation And Its Impact On The Hedge Fund

Kamila Szypuła Kamila Szypuła 04.01.2023 11:23
Many dream to set up their own business, but the fear of losses or continuous investment in business and not having a profit scares. The founders of Dream Sports are an example that it takes time for an investment to pay off. In this article: The founders of Dream Sports Hedge fund Improve your financial health Story of the founders of Dream Sports Everything is brought into the virtual realm, even sports. Although it might seem that we are now witnessing the beginnings of this evolution, this is not the case. This change began more than a decade ago. Harsh Jain and Bhavit Sheth are the founders of Dream Sports, an Indian sports technology company that owns one of the country's largest fantasy gaming platforms, Dream11. Dream11, simply put, is a Game of Skill where you create a team of real players for an upcoming match and compete with other fans for big prizes. Everything is brought into the virtual realm, even sports. Although it might seem that we are now witnessing the beginnings of this evolution, this is not the case. This change began more than a decade ago. Harsh Jain and Bhavit Sheth are the founders of Dream Sports, an Indian sports technology company that owns one of the country's largest fantasy gaming platforms, Dream11. Dream11, simply put, is a Game of Skill where you create a team of real players for an upcoming match and compete with other fans for big prizes. They made a huge financial loss starting this company, but now the project is valued at $8 billion and has 160 million users. Based on the example of these two friends, one can draw conclusions that in order to gain something, one must incur high costs when it comes to an innovative company, even in the strictest terms. They launched a fantasy sports company at 22. It's now worth $8 billion. (via @CNBCMakeIt) https://t.co/exmzE1abZE — CNBC (@CNBC) January 4, 2023 Read next: EUR/USD, GBP/USD And AUD/USD Fell Sharply After The US Dollar Recovered| FXMAG.COM Hedge fund After a difficult year, everyone is wondering what the new year will bring. Investors also wonder which investments may be the most beneficial. Many hedge fund managers around the world are bracing themselves for continued inflation this year and are looking for exposure to commodities and bonds. Why can it be beneficial? An actively managed fund focused on achieving profits in various market conditions. Unlike traditional funds, the manager does not focus on imitating or beating the market pattern. Having weathered a dire 2022, many global hedge fund managers are preparing this year for persistent inflation and seeking exposure to commodities and bonds that perform well in such an environment https://t.co/puETFWUXCP — Reuters Business (@ReutersBiz) January 4, 2023 Read next: New Record For Electric Car Manufacturer - Tesla Deliveries Increased By 40% Year-On-Year| FXMAG.COM How to improve your financial health? New year means new resolutions. Everyone does them, hoping that the new year will give a chance for a new beginning and thus for new opportunities. Experts advise that when making new resolutions, look at the finances. How many of us have said to ourselves that this year we will start saving or will start to actively manage our budget. Experts can always give specific advice on where to start. This time, a tweet from Charles Schwab Corp comes to the rescue. When it comes to saving, you can follow the advice from George Samuel Clason's book "The Richest Man in Babylon" and save 10% of your income or find another way. There are many ways, but remember that you don't have to do everything at once. There are many things you can do to improve your financial health by taking it step by step and thinking of these resolutions as a checklist. It's best to start with a summary of last year.  Are you the kind of person who makes resolutions on New Year's Day? Here are 5 steps we encourage all investors to consider taking to boost their financial fitness. https://t.co/10jhiNyeie #NewYearsResolutions #OwnYourTomorrow — Charles Schwab Corp (@CharlesSchwab) January 3, 2023
Russia's Weekend Mutiny and Gold's Bounce off Support Raise Concerns; Verbal Intervention in USD/JPY and US Banking Stocks Tumble Ahead of Fed's Stress Test Results

Saxo Bank Podcast: Lifting Risk Sentiment And Seeing A Weaker US Dollar

Saxo Bank Saxo Bank 04.01.2023 12:45
Summary:  Today, we note that today's inter-market picture makes far more sense than what we saw yesterday as some low inflation data in Europe is helping to drive global bond yields lower, lifting risk sentiment and seeing a weaker US dollar. This came after a volatile and confusing day yesterday. The biggest winner of the first couple of days this year has been gold, which has soared above major resistance. We also look at the latest Tesla plunge and some of the network effects that may be aggravating its decline, discuss the reversal in crude oil prices and new lows in natural gas prices and how markets may continue to flourish on signs of a weakening economy. Today's pod features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are available via the link. Read next: How Dream Sports Built Its Value, High Inflation And Its Impact On The Hedge Fund| FXMAG.COM Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Read next:Exxon And Chevron Abandon The Global Market And Focus On The Americas| FXMAG.COM Source: Podcast: Global markets getting back in synch today | Saxo Group (home.saxo)
The Drop In German Inflation Is Welcome News, But It Is Mean That Can We Say That Inflation Has Peaked?

The Drop In German Inflation Is Welcome News, But It Is Mean That Can We Say That Inflation Has Peaked?

Kenny Fisher Kenny Fisher 04.01.2023 12:52
After a dreadful showing on Tuesday, EUR/USD has rebounded today. In the European session, the euro is trading at 1.0618, up 0.66%. Investors eye German CPI German CPI was lower than expected in December. CPI slowed to 9.6%, down sharply from 11.3% in November and below the consensus of 10.7%. This marked the first time that German inflation has fallen into single digits since the summer. Spanish inflation, released last week, also slowed in December. The next test is the release of eurozone inflation on Friday. Inflation is expected to fall to 9.7%, down from November’s 10.1%. The drop in German inflation is welcome news, but two caveats are in order. First, the German government enacted a price cap for electricity and gas in December, which meant that energy inflation slowed in December. However, services inflation, which is a more accurate gauge of price pressures, rose to 3.9% in December, up from 3.6% a month earlier. Second, inflation remains at unacceptably high levels. Germany’s annual inflation in 2022 hit 7.9%, its highest level since 1951. If eurozone inflation follows the German lead and heads lower, can we say that inflation has peaked? Some investors may think so, but I wouldn’t expect ECB policy makers to banter around the “P” word. The central bank reacted very slowly to the surge in inflation and has been playing catch-up as it tightens policy. Lagarde & Co. will therefore be very cautious before declaring victory over inflation. If eurozone inflation drops significantly in the upcoming release, it will provide some relief for the ECB in its battle with inflation. The ECB has adopted a hawkish stance, and the markets are still expecting a 50-bp hike at the February 2nd meeting. In the US, the markets are back in full swing after the holidays. Today’s key events are ISM Manufacturing PMI and the minutes from the Fed’s December meeting. In October, the PMI contracted for the first time since May 2020, with a reading of 49.0 (the 50.0 threshold separates contraction from expansion). Another weak reading is expected, with a forecast of 48.5 points. The Fed minutes will make for interesting reading, providing details about the Fed’s commitment to continue raising rates, which surprised the markets and sent the US dollar sharply higher.   EUR/USD Technical EUR/USD is putting pressure on resistance at 1.0636. Next, there is resistance at 1.0674 There is support at 1.0566 and 1.0487 This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.  
The ECB Has Made It Clear That Rates Will Remain High Until There Is Evidence That Inflation Is Falling Toward The Target

Rates Daily: Core Inflation Should Be A Better Predictor Of European Central Bank Policy

ING Economics ING Economics 05.01.2023 08:38
Bond yields continue their plunge on hopes that falling energy prices will help in the fight against inflation. The strength in the US labour market may not last but it is preventing Treasuries from joining the party. The Fed has also reiterated its unfinished rate hike work through the latest minutes. The next big cue comes from Friday's payrolls report. Fed insists on higher for longer in their latest minutes Market reaction to the FOMC minutes was muted. Breakevens, real rates and nominal rates did not do much at all. Although at the margin there has been a tendency for rates to test a tad higher, especially on the front end. The Fed has given a clear bias to continue to hike rates in the months ahead, so that makes a degree of sense. Further out the curve, the market is not paying too much attention, mostly as there is not a whole lot new from the minutes. There is not a whole lot new from the minutes On the technical front, the Fed noted the ease lower in use of the reverse repo facility, and noted that this went hand-in-hand with upward pressure on market repo. The Fed also notes an expectation for this to continue in the months ahead, in tandem with the ongoing bond roll-off from their balance sheet. The Fed also notes that this reflected the move of money market funds away from the reverse repo facility and towards market repo. Our observation here is that this has been quite minor so far. SOFR is struggling to make it much above the reverse repo rate (at 5bp over the fed funds floor, now at 4.30%). But it should gather more pace as we progress further through 2023. As SOFR eases above the Fed’s reverse repo rate in a more material fashion in the months ahead, there should be a larger reduction in cash going back to the Fed on their reverse repo facility. Rates shrugged off hawkish Fed minutes to continue to bet heavily on 2024 cuts Source: Refinitiv, ING The fall in energy prices triggers another 'everything rally' Bund yields are down almost 30bp since the start of the year, which is to say they’ve dropped almost 30bp in three days. As we discussed in yesterday’s Spark, we think the (mostly energy-related) drop in inflation in December is a red herring. Whilst helpful at the margin, we think core inflation should be a better predictor of European Central Bank policy. This drop in yields has been as sudden and relentless as the rise into year-end. Swaption implied volatility is down since its September peak but there are no signs so far that 2023 will prove a calmer year. There are no signs so far that 2023 will prove a calmer year Of course, anyone in search for a cause to explain the bond rally should look farther than backward-looking inflation indicators. The fall in yields has come alongside a collapse in energy prices. That trend is nothing new, explained in Europe by milder weather than normal and in the wider world by fear of a growth slowdown, in particular in China, but also reinforced by a weak ISM manufacturing in the US. This has resulted in another case of ‘everything rally’ where both stocks and safer bonds benefit from hopes that central banks will have an easier job tackling inflation. Students of the late 2022 playbook know that the ‘everything rally’ comes with tighter peripheral spreads. The 10Y Italy-Germany spread for instance has retraced almost half of its 36bp post-December ECB meeting widening. Implied volatility is down as peripheral bonds outperform Source: Refinitiv, ING US labour market strength is tough for Treasuries One area of persistent strength has been US labour market indicators. The ISM employment sub-index rose back above the 50 level, a development that our US economist thinks is hardly sustainable in light of the fall in other components. Together with higher-than-expected job openings, they offer little relief to a Fed concerned about wages feeding into core services inflation, as Fed Chair Jerome Powell is fond of repeating. If current inflation is a guide of how much further the Fed has to hike, recent data points to an imminent end to this hiking cycle. But if the job market is a guide of how long it would take before it decides to cut rates, there is still a protracted period of restrictive monetary policy ahead. A re-steepening of the US curve is on the cards At face value, this means a re-steepening of the US curve is on the cards. And indeed, the US curve has shown signs of re-steepening from very inverted levels. Our own view is that both growth and inflation will soften enough to allow the Fed to loosen policy in the latter half of 2023. Much of the action in recent days, however, has been driven by the duration rally. This means that longer bonds outperformed and the curve flattened. This isn’t necessarily consistent with the data but it seems markets are comfortable with the longer maturity skew in supply, starting today with long-end auctions and syndications from Europe (see events section below). Today's events and market view Portugal and Ireland mandated banks for the launch of new benchmarks which we expect today. Both deals are at the long end, respectively 15Y and 20Y. This will be the second green bond on the Irish curve. They will add to scheduled long-end auction from France, with maturities of 9-43Y. The drip-feed of eurozone inflation data continues today with December CPI from Italy, and PPI for the whole of the eurozone. The US data slate comprises Challenger job cuts, ADP employment, jobless claims, and services PMIs. We think the strength in US albour market indicators and heavy long-end supply will dent the performance of bonds, a bear steepening of yield curves appears most likely into the end of the week. Read this article on THINK TagsRates Daily 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
Supply Trends Resurface: Analyzing the Impact on Market Dynamics

The Australian Dollar (AUD) Was The Best Performer Among Major Currencies Against The Dollar

Saxo Bank Saxo Bank 05.01.2023 08:51
Summary:  European and U.S. equities as well as bonds gained on a large-than-expected decline in the rate of inflation in France. Hong Kong stocks had a strong day in anticipation of more economic stimulus, support to the real estate sector, and relation on regulations over the internet sector in mainland China. The U.S. JOLTS job openings report shows the Fed has more work to do to cool off the labor market. The December FOMC minutes sent mixed signals of warning against an easing of financial conditions and concerns about two-sided risks of under- and over-tightening. What’s happening in markets? Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) ended higher in a choppy session U.S. stocks had a strong start on Wednesday through the morning and then oscillated after the release of the FOMC minutes in the afternoon digesting the hawkish warnings from the Fed about an unwarranted easing in financial conditions and the dovish signal of an increasing number of Fed FOMC members being concerned about two-sided risks. S&P 500 ended the session 0.8% higher and Nasdaq 100 climbed 0.7%. The rally was broad-based as all 11 sectors within the S&P 500 gained. The interest rate-sensitive real estate sector was the best performer while the energy sector was close to flat as crude oil slid nearly 5%. Tesla (TSLA:xnas) rebounded 5%. Micorsoft (MSFT:xnas) plunged 4.4% on analyst downgrades and concerns about the company’s cloud computing business. The next key focus of investors will be the employment report this Friday. US Treasuries (TLT:xnas, IEF:xnas, SHY:xnas) gained on softer French CPI prints, and the FOMC minutes showed more Fed officials concerned about two-sided risks Treasuries caught some strong bids in tandem with the European bond markets that rallied on softer-than-expected CPI prints from France. The market pared some gains after a stronger-than-expected JOLTS job openings report and position squaring ahead of the release of the FOMC minutes. Yields, in particular, those in the longer-end segment, fell again after the FOMC minutes. The 10-year finished Wednesday 6bps richer to 3.68% which yields on the 2-year falling only 2bps to 4.35%. The December FOMC minutes highlighted Fed officials’ worries about “an unwarranted easing in financial conditions” due to a misinterpretation by the market of the Fed’s downshift from 75bp to 50bp hike as a pivot. Nonetheless, the minutes showed that “many participants” argued for balancing the two-sided risks of under- and over-tightening in the December meeting. Minneapolis Fed President Kashkari said in an article that he saw rate hikes “at least at the next few meetings”, leading to a terminal rate of 5.375%. Hong Kong’s Hang Seng (HIF3) and China’s CSI300 (03188:xhkg) Hang Seng Index rallied for the second day in a row in 2023, registering an impressive gain of 3.2% and rising to above its 250-day moving average. A pledge of fiscal expansion from China’s Finance Minister fueled investors’ optimism in more economic stimulus measures. Hang Seng TECH Index surged 4.6%, led by Alibaba (09988:xhkg) which soared 8.7% following the news that the Chinese authorities approved an increase in registered capital of the consumer finance unit of Ant Group. Shares of Chinese developers and property management services providers climbed on anticipation of state support, following the state-owned Economic Daily emphasizing the importance of the real estate sector to the economy in its editorial, a recent message from the Financial Stability and Development Committee to support “systematically important” property developers, and Asset Management Association of China’s decision to resume approvals for private equity funds investing in property projects. Longfor (00960:xhkg) and Country Garden Services (06098:xhkg) each jumped more than 11%, being the two biggest gainers within the Hang Seng Index. Sunny Optical (02382:xhkg), a supplier to Apple (AAPL:xnas), plunged 10% on analyst downgrades and a Nikkei report that “Apple has notified several suppliers to build fewer components for Airpods, the Apple Watch and MacBooks for the first quarter, citing weakening demand”. Semiconductors names were among the laggards as China was reportedly going to slow its investment push for developing the country’s chip-making industry due to pressures on its fiscal budget. In A-shares, CSI 300 finished the day little changed, with real estate and financials outperforming and weakness in semiconductors and new energy. FX: AUD gained 1.6% to 0.6840 as China is considering resuming coal imports from Australia The Australian dollar was the best performer among major currencies against the dollar following news headlines saying that China is considering ending its import ban on Australian coal. EUR and GBP also rebounded from the loss the day before and each up about 0.7% against the dollar. The Japanese yen was the laggard among major currencies and weakened to 132 against the dollar. Crude oil fell nearly 5% to USD73.17 WTI crude oil fell 4.9% to US73.17 on concerns of a slowing global economy and higher-than-average temperatures in Europe and the U.S. Read next: The EUR/USD Pair Is Trading Above 1.06 Again, The USD/JPY Pair Is Close To Level Of 131| FXMAG.COM What to consider? FOMC minutes warned about an unwarranted easing in financial conditions while highlighting a shift toward risk management The FOMC minutes sent out mixed messages. FOMC participants worried that the downshift from a 75bp hike to a 50-hike would be interpreted by the market as the signal of a pivot and warned that “an unwarranted easing in financial conditions, especially if driven by a misperception by the public of the committee’s reaction function, would complicate the committee’s effort to restore price stability”. Nonetheless, the minutes showed that “many” participants argued for balancing two risks: the risk “insufficiently restrictive monetary policy could cause inflation to remain above the Committee’s target for longer than anticipated” and the other risk of “the lagged cumulative effect of policy tightening could end up being more restrictive than is necessary to bring down inflation to 2 percent and lead to an unnecessary reduction in economic activity”. That points to a data-dependent risk management approach going forward. Fed’s Kashkari expects the Fed to raise the policy rate another 100 basis points Saying in an article, Minneapolis Fed President Neel Kashkari said that “it would be appropriate to continue to raise rates at least at the next few meetings” and indicated that he saw the ultimate rate going 100 basis points higher to 5.25%-5.50%, in 2023. He suggests that any sign of slow progress that keeps inflation elevated for longer will warrant the policy rate potentially much higher. Softer-than-Expected French CPI A day after a softer-than-expected German CPI report, December CPI in France also came in softer. French December headline CPI decelerated to 5.9% Y/Y from 6.2% in November as opposed to the expectation of a rise to 6.4% Y/Y.  French CPI EU Harmonized slowed to 6.7% Y/Y in December (consensus estimate: 7.3%) from 7.1% in November. U.S. JOLTS job openings stronger than expected U.S. JOLTS job openings declined to 10.46 million in November, above the consensus estimate of 10.01 million, from a revised 10.51 million (previously reported 10.33 million) in October. It implies that the ratio of vacancies to unemployment is 1.74, above the pre-pandemic level and the labor market will be considered by the Fed as being too tight. U.S. ISM Manufacturing Index fell to 48.4, slightly below expectations The ISM Manufacturing Index slid more than expected to 48.4 in December (consensus: 48.5) from 49.0 in November. New orders were weak, falling to 45.2 from 47.2. The price-paid sub-index decelerated to 39.4 in December (consensus: 42.9) from 43.0 in November. For a global look at markets – tune into our Podcast. Source: Market Insights Today: Softer inflation prints from France, solid JOLTS job openings report, mixed messages from the FOMC minutes – 5 January 2023 | Saxo Group (home.saxo)
Despite The Improvement In The Outlook Due To Falling Energy Prices, The Economic Environment In Britain Remains Difficult

The Bank Of England Urgently Needs To Tame Stubbornly High Inflation

InstaForex Analysis InstaForex Analysis 04.01.2023 15:05
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. 
Decarbonizing Steel: Contrasting Coal-based and Hydrogen-based Production Methods

Consumer Inflation Fell For The Second Month In A Row In Poland Thanks To Cheaper Coal

ING Economics ING Economics 05.01.2023 12:21
CPI inflation fell to 16.6% year-on-year in December from 17.5% YoY in November on the back of cheaper coal (down by more than 20% vs. November). Core inflation continued to trend upwards and probably rose to 11.7% YoY from 11.4% YoY in the previous month. Persistently high core inflation will leave no room for rate cuts in 2023   According to the flash estimate, CPI inflation fell to 16.6% YoY in December (ING: 17.4%; consensus: 17.3%) from 17.5% YoY in November. Compared to November, prices rose by just 0.2%, largely due to a 3.3% monthly fall in energy prices. This can be attributed to a decline in coal prices, including government-subsidised imported coal. Given that electricity and gas prices for households are regulated and did not change significantly in December, this means that coal cheapened by more than 20% in December relative to November. By contrast, the fall in fuel prices and the rise in food prices were both close to our expectations. We estimate that core inflation, excluding food and energy prices, accelerated to 11.7% YoY in December from 11.4% YoY in November. Consumer inflation declined for the second month in a row, but the scale of the decline in December was sharper than the most optimistic forecasts. The withdrawal of the Anti-Inflation Shield from 1 January and the low reference base associated with its introduction will boost annual CPI inflation readings in the first two months of this year. The local peak is therefore still ahead, but it is increasingly likely to be below 20% YoY. There is also a growing chance that inflation could decline to single digits by the end of 2023. This means that the MPC will most likely be able to formally declare that the current rate hike cycle is over. We expect that rates will probably remain unchanged until March (and most likely throughout 2023), while the MPC awaits the results of the next macroeconomic projection to better assess the inflation outlook. The energy shock is losing momentum supported, among other things, by weather anomalies in Europe. In our view, there will be no conditions for interest rate cuts this year due to the high and persistent core inflation. 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
Italian headline inflation decelerates in January, courtesy of energy

In Italy The Peak In Headline Inflation Might Have Passed

ING Economics ING Economics 05.01.2023 14:19
Positive developments in gas prices suggests that the peak in headline inflation might be behind us, but future declines will be slowed down by some inertia in the core component Weather conditions will play a key role in determining the scope of the deceleration in the energy component of the CPI basket Energy goods and fresh food at the heart of the deceleration Preliminary Istat data shows that in December 2022 the headline inflation slowed down marginally to 11.6% year-on-year from 11.8% in November, in line with expectations.  The drivers of the slowdown were the modest deceleration in the energy good component (to 64.7% from 67.6% in November) and in fresh food (to 9.5% from 11.4%). The core measure, which excludes fresh food and energy, inched up to 5.8% year-on-year from 5.6% in November, signalling that the pass-through of past energy price pressures is still ongoing, if at a decelerating pace. Energy component still exposed to volatility Looking forward, the inflation profile looks set to remain volatile, reflecting the timing of administrative decisions put in place by the government to contain the impact of past energy price increases on household and business balance sheets. Within the energy domain, in January we will likely have a neat decline in the regulated price of electricity and an increase in fuel prices at the pump as the government decided not to confirm the cut to related excises. A contained increase in motorway fares (they were frozen in January 2022) could marginally push up the transport component in January. Weather-driven gas price declines justifies some short-term optimism Over the first quarter of 2023, weather conditions will play a key role in determining the scope of the deceleration in the energy component of the CPI basket. The recent decline in TTF gas prices to the €60/MWh area reflects the combination of abnormally mild winter weather and of related softer gas demand, and is extending to future contracts maturing over 2023. If confirmed, it could bring about a sharp deceleration in the energy inflation component over the next few months. The unusually high level of gas storage filling at this time of the year (at 82% vs a 73.8% average during the pre-Covid 2017-19 period in the same days of the year) encourages some short-term optimism. Peak in headline inflation possibly passed All in all, today’s data suggest that the peak in headline inflation might have been passed. The pace of the decline in headline inflation will depend on how the energy and the core components will balance out. We still believe that the core measure has some room for further increases: the energy pass-through is not over yet, and wage increases, so far scarcely perceptible, might become more visible over the course of 2023. However, a favourable base effect should increasingly push down the energy component. After today’s release, the statistical carryover for 2023 average headline inflation is 5.1%. We forecast average CPI inflation at 6.6% in 2023.     Read this article on THINK TagsItaly Inflation 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 US PCE Data Is Expected To Confirm Another Modest Slowdown

The US Unemployment Rate Indicates Strength, But Wages Indicate Softening Inflationary Pressures

ING Economics ING Economics 07.01.2023 10:23
The US added 223,000 jobs and the unemployment rate returned to cycle lows, but there are signs that a turn is coming. A fifth consecutive drop in temporary help employment is a warning signal while softer wage inflation suggests labour market dynamics are shifting. With business surveys pointing to recession, tougher times are coming The US created 223,000 jobs in December 223,000 The number of jobs added in December   Decent jobs gain, but fall in temporary help employment hints at a turn The US economy added 223k jobs in December, a little above the 203k consensus but there was a net 28k of downward revisions to the past two months. meaning we are broadly in line with what was anticipated. The details show the jobs growth was led by the service sector with education and health gaining 78k, leisure/hospitality 67k and trade and transport gaining 27k. Meanwhile construction saw employment rise 28k with manufacturing up 8k. However, we are starting to see falls in some key areas, most notably temporary help, which posted the fifth consecutive monthly fall. This is an important signal as these workers are always the first to be fired in a downturn (as they are the easiest to fire) and are likely to indicate broadening weakness in coming months. Business services fell for the second consecutive month while information services also saw employment fall. US unemployment and CEO confidence - more pain ahead Source: Macrobond, ING Unemployment indicates strength, wages... less so... Elsewhere, we have had quite a lot of revisions within the household survey, which is used to calculate the unemployment rate. It is now reported at 3.5% versus the 3.7% consensus. This is down from a downwardly revised 3.6% in November (initially reported as 3.7%). While a great number, remember that the low unemployment rate masks the fact that more that a third of the working age population are not engaged at all (participation rate is just 62.3%). Then there are the wage numbers. Again there are major revisions, but this time they make the situation look a lot weaker. The annual rate of wage inflation (average hourly earnings) is now 'just' 4.6% whereas the market had been looking for 5%. Last month’s 0.6% month-on-month initial print has been revised down to 0.4% while December's MoM rate came in at 0.3% versus 0.4% expected. So we have a weaker trend materialising it seems. Fed focus moves to next week's CPI As such the report is a fairly mixed bag. Payrolls are broadly in line with expectations, the unemployment rate indicates strength, but wages indicate softening inflationary pressures. Consequently, the focus switches to next Thursday's CPI report. Markets are currently split between whether the Fed will raise rates by 25bp or 50bp at the February Federal Open Market Committee meeting. Given the softer wage situation, if we get another softish core CPI print (0.3% MoM or below) the case for a 25bp hike at the February FOMC versus 50bp is likely to build. More pain ahead for the jobs market That’s the near-term story. Looking further ahead we have to remember that labour data is a lagging indicator – the last thing to turn in a cycle. What we should be focusing on is the economic outlook and that is deteriorating as the Federal Reserve continues to hike interest rates in its battle with inflation. This week’s ISM report showed manufacturing orders contracting for four consecutive months while the Conference Board reports that CEO confidence is at its weakest since the Global Financial Crisis – even weaker than at the worst point in the pandemic. This suggests that businesses will increasingly adopt a defensive stance, which implies a greater focus on costs, including labour. So far the job loss announcements have been concentrated in the tech sector and, more under the radar, the temporary help sector, but we expect that to change over the next twelve months. Read this article on THINK TagsWages US Unemployment Jobs 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
Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

Core Inflation Continues To Show Little Sign Of Relief And It Will Be Enough For The ECB To Continue To Hike By 50bp

ING Economics ING Economics 07.01.2023 10:34
Inflation fell back to 9.2% in December, but rising core inflation means that not much will sway the European Central Bank from the hawkish path it set out late last year Inflation fell in December on the back of slowing energy price rises   A combination of price caps and lower oil and natural gas prices have caused a significant dip in energy inflation (from 34.9% to 25.7%), which was the main driver of the decline in headline inflation. The decline was broad-based by country, with all the major eurozone economies showing significant drops in price growth. It is likely that the peak in inflation is behind us now, but far more relevant for the economy and policymakers is whether inflation will structurally trend back to 2% from here on. Core inflation continues to show little sign of relief for now. It increased from 5% to 5.2% and saw sizable increases for both goods and services. The next two months will be critical as many businesses traditionally change prices at the start of the year. It could therefore be that core inflation rises further from now. While consumption remains under pressure and retail sales have been trending down for quite some time now, businesses continue to adjust their prices to the supply-side shocks of 2021 and 2022. So while supply-side shocks are fading – not just energy, but also think of container prices and various production inputs – core inflation is still adjusting with a lag. The ECB has taken a very hawkish stance towards this development and has indicated that it will hike through a mild recession to bring inflation structurally down to 2%. With energy inflation dropping quickly and energy supply forecasts improving, 2% could be reached much sooner than expected. Still, rising core inflation will be enough for the ECB to continue to hike by 50bp in February and March. Read this article on THINK TagsInflation 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
Anticipating a Strong Rebound for AUD: Evaluating Australia's Monetary Outlook

Communications Infrastructure Continues To Roll Out 5G And Develop 6G Technology

Franklin Templeton Franklin Templeton 07.01.2023 10:55
Infrastructure outlook: Climate legislation, macro drivers create tailwinds Charles HamiehPortfolio ManagerClearBridge InvestmentsShane HurstPortfolio ManagerClearBridge InvestmentsNick LangleyPortfolio ManagerClearBridge Investments We know the COVID-19 pandemic has had significant impacts on infrastructure. Are these impacts still being felt? The pandemic continues to create ripple effects in the global economy. From no growth in 2020 to rapid growth in 2021 to slow growth in 2022, we look at 2023 with a base case of recessions in the United States, Europe and the United Kingdom. And growth in China should be below trend for at east a good portion of 2023. Bond yields should push higher heading into 2023 before abating along with inflation later in the year. For equities, higher bond yields resulting in contracting multiples have characterized the first part of this bear market. The second phase of bear markets is generally an earnings recession, and we expect that to be a force, particularly in early 2023. However, we believe the impact on infrastructure should be muted, particularly for regulated assets, where companies generate their cash flows, earnings and dividends from their underlying asset bases. We expect those asset bases to increase over the next several years. As a result, infrastructure earnings look better protected to us when compared with global equities. How do inflation and rising bond yields typically impact infrastructure companies? Most infrastructure companies have a link to inflation in their revenue or returns. Regulated assets, such as utilities, have their allowed returns adjusted for changes in bond yields over time. As real yields rise, utilities look poised to perform well (Exhibit 3 on the next page), and we have currently tilted our infrastructure portfolios to reflect this. As a result, changes in inflation and bond yields don’t generally impact the underlying valuations of infrastructure assets. However, we have seen equity market volatility associated with higher bond yields impact the prices of listed infrastructure securities, making them more compelling when compared with unlisted infrastructure valuations in the private markets. On top of its relative appeal versus equities, we believe infrastructure should benefit from several macro trends in 2023 and beyond. First, energy security is currently driving policy globally, and a significant amount of infrastructure will need to be built to attain energy security. The Russia-Ukraine war, resulting in high gas prices and supply constraints, has highlighted the importance of Energy security and energy investment. This is supportive of Energy infrastructure, particularly in Europe, where additional. Most infrastructure companies have a link to inflation in their revenue or returns. Regulated assets, such as utilities, have their allowed returns adjusted for changes in bond yields over time. As real yields rise, utilities look poised to perform well, and we have currently tilted our infrastructure portfolios to reflect this. capacity is needed to supplant Russian oil and gas supply, and in the United States, where new basins are starting up, in part to meet fresh demand from Europe. In transport, changing trade routes and adjustments to supply chains to bring production closer to home, either through reshoring or near-shoring, are driving demand for new transport infrastructure. Airports are still struggling to return to pre-pandemic passenger levels, and a global recession in 2023 will likely interrupt the bounce-back. In addition, the industry is facing changes in long-term trends like business travel. Communications infrastructure continues to roll out 5G and develop 6G technology. It is also working to reduce network latency, driving significant investments in wireless tower businesses, generally through long-term inflation-linked contracts. However, in the short term, higher interest costs are hitting the bottom line. How does the US Inflation Reduction Act (IRA) impact the potential investment opportunities you see? In terms of fiscal policy, the US IRA, signed into law in August 2022, is one of the most significant pieces of climate legislation in US history. We believe it will be industry- transformative (Exhibit 4 on the next page) for utilities and renewables, in particular. The growing need for electrification—including more EV-charging infrastructure and more residential and smaller commercial rooftop solar—will require new substations, new transformers and upgraded wires along distribution networks. We already see its impact in the 2023 capital expenditures plans of utilities, together with the forward order books of companies involved in the energy transition—such as renewable, storage and components suppliers—increasing their growth profiles. One major macro takeaway from the IRA: There is no reason to build anything other than renewables from now on. The main reason? Tax credits. Production tax credits for solar/wind are available until 2032 or until a 75% reduction in greenhouse gases is achieved (based off of 2022 numbers). Either way, this is expected to be a tailwind for investment for well over a decade. Secular growth drivers for infrastructure should be on full display in 2023. US President Joe Biden wants to reduce emissions by 50% in the United States by 2030, with roughly half of US power coming from solar plants by 2050. It will require nearly US$320 billion to be invested in electricity transmission infrastructure by 2030 to meet net zero by 2050. The dire need for infrastructure spending underpins growth for the next decade and beyond, and the first steps for meeting these long-term goals are being taken now
The Commodities Digest: US Crude Oil Inventories Decline Amidst Growing Supply Risks

The US Economy Expects Another Lower Inflation Reading

Kamila Szypuła Kamila Szypuła 07.01.2023 19:17
The US CPI will be the headline of the publication of the most important economic data next week. This data is especially important because it will affect the future decision of the Fed. Data Non-farm payrolls released on Friday showed that the US economy added 223,000 new jobs in December, up from the +200,000 estimate. In addition, the November printout was revised to +256,000. The unemployment rate fell to 3.5% from 3.6 % and expected 3.7%. These two data points alone should raise markets' fears of a more hawkish Fed as the Fed said it needs jobs to cool down and bring down inflation. In addition, the US ISM Non-Manufacturing PMI for December was 49.6 versus 56.5 previously and expected 55. This was the first drop (below 50) in print since May 2020. Source: investing.com CPI Forecast On Thursday, the US will publish CPI data for December. Expectations are for headline at 6.5% y/y compared to November's reading of 7.1% y/y. Core prices also fell from 6.3% to 6%. Core CPI is expected to fall to 5.7%YoY from 6%YoY in November. Headline inflation has been declining since June, when it peaked at 9.1% y/y, but the core number has been a bit more sticky. If the data are weaker than expected and the US dollar falls. Source: investing.com Some of that optimism has since reset a bit due to more stable wage data, which seems to pose some two-way risk to the narrative that wants the FOMC to slow the pace of rate hikes to 25 basis points at its next meeting February 1. The CPI report provides important insight into price developments but will be supplemented by other inflation readings. The publication of the producer price index (PPI) will show how wholesale prices are developing. Fed The January CPI inflation report is expected to provide more data pointing to a downward trend in inflation. However, annual inflation will remain relatively high, which worries the Fed. Services inflation will be watched closely for signs where inflation rates may stabilize in 2023. The CPI report may provide more evidence that inflation is falling, but not as fast as the Fed wants. Therefore, in February there may be another rate hike by the Fed. The Fed sees inflation coming down but is concerned service inflation is still too high based on wage pressures. It appears the Fed will raise interest rates again in February, but by a smaller amount than for most of 2022. Markets estimate that the Fed will most likely raise interest rates by 0.25 percentage points. However, if the inflation report and other data are not encouraging, the Fed may be inclined to raise interest rates by 0.5 percentage point. The Fed believes that goods inflation and housing costs are likely to fall in 2023, but they fear services costs will continue to rise if the labor market remains relatively hot. Source: investing.com
Bank Of England Will Probably Be Unable To Avoid A Significant Easing Of Policy

The Issues That The UK Economy Is Facing Are Real: Interest Rate Expectations Peaking, Inflation Falling, And A Manageable Trading Downturn

Franklin Templeton Franklin Templeton 08.01.2023 12:48
Macroeconomic trends If 2023 is anything like 2022, then the UK may be in for a bumpy ride – inflation surged, interest rates soared, currencies swung, and the UK government clashed. But for us, one of the main challenges ahead for UK equities can be succinctly summarised: Will inflation begin to moderate as economic activity wanes? Indeed, macroeconomic headwinds remain. Investors remain hopeful that UK inflation has peaked, but continue to balance the prospect of surging prices with the rising cost of debt. Whilst the notion of transitory inflation has largely been disproven through 2022 as CPI data remained elevated, some factors are undoubtedly considered stickier than others. Frictional supply chain costs as the world emerges from the COVID-19 pandemic are already beginning to subside, but secular impacts on inflation such as globalisation and demographic change should not be overlooked. Thus, as the prospect of a technical recession is increasingly considered within the UK, the inflationary backdrop will be key to shaping its severity. Fortunately, an easing of global inflationary pressures is beginning to unfold. Data released in November showed that US consumer prices had risen by 7.7% over the past 12 months, falling short of the 8% estimates. In December, China announced a reversal of key zero-Covid policies after weeks of civil unrest. And indeed, global commodity prices have moderated since their extreme volatility earlier in the year. As inflation looks like it is peaking in the UK, the news of a cooling backdrop in the US has helped drive a rerating of equities and a pullback in government bond yields domestically. Inflation in the UK is expected to continue to fall back from highs over the next few months, although the impact from changes in consumer energy support policy will likely be a key determinant as to how this plays out. Assuming an easing in headline inflation figures, we expect the central bank to be nearing a peak in its monetary tightening programme. The Bank of England recently made steps to reduce its balance sheet, embarking on a programme of quantitative tightening in Q4 2022. Higher interest rates mean higher financing costs for corporations and consumers. Combined with the tighter flow of liquidity, this may present some short-term challenges for UK equities whilst the positive effect of moderating inflation takes its time to embed into supply/demand habits. Key economic concerns are the length and depth of this inevitable slowdown – investors remain closely focussed on the central bank response as the risk of a policy mistake is increased. As the short-lived “Trussonomics” regime unwinds, the central bank at least has some relative market stability in order to play its best hand. Market inferred peak base rates have moderated by over 100 basis points (bps) since the (not so) mini budget was announced earlier in 2022. The perception of a safe pair of economic hands with Prime Minister Rishi Sunak and Jeremy Hunt, chancellor of the Exchequer, has improved sentiment to the UK into 2023. With gilt yields stabilised, and an economic catastrophe seemingly circumnavigated, the expectation of relatively benign markets should be well received by the Bank of England as they execute monetary policy over the coming months. One must be reminded that not all consumers are proportionately impacted by the enduring cost-of-living crisis consuming the UK. The UK remains in a position of strength from the perspective of excess household savings – savings accumulated throughout the Covid-19 pandemic are now earning an attractive rate of interest income. Furthermore, the UK mortgage market has evolved since 2005 – the last meaningful period of central bank tightening – when 70% of mortgages were financed on variable terms. Today, only 14% of the UK mortgage market is financed with variable rates. The extent of fixed rate mortgage financing and indeed outright home ownership within the UK should continue to partially offset the cost-of-living burden instilled by soaring consumer energy bills. But we do expect a degree of consumer caution to remain until broader costs begin to moderate. The labour market has continued to demonstrate resilience throughout this period of volatility. Although latest data indicate that unemployment rose to 3.7% in Q3 2022 and that job vacancies dropped for the fifth consecutive quarter, one must be reminded that the labour market remains buoyant relative to historic levels. Signals such as a falling labour inactivity rate are indicative of employment re-engagement, particularly amid the over 50s, as soaring costs prompt ‘early retirees’ back into employment. Thus, we do not expect a surge in the unemployment rate, which should provide some protection against the risk of a prolonged, severe recession. Despite the relative strength of the UK equity market throughout a period of heightened volatility, investors remain mindful of the value that remains. The UK market is trading on a forward P/E ratio of around 10x – 20% beneath its 15-year median – and offers a dividend yield of 4%. Contrasting with the US, trading on a forward P/E ratio of around 18x – 12% above its 15-year median – and a dividend yield of 1.7%, UK equities look cheap to us. An economic slowdown is widely anticipated across global markets and as such, should investors continue to address the notion – is this bad news already priced in to UK assets? The UK market remains forward-looking, and in our mind is pricing in an excess of pessimism given where valuations are today. Thus, we believe the attractiveness of the region is enhanced to investors as evidenced by ongoing M&A activity, as indeed are the prospects for continued resilience through 2023 and beyond. Small- and mid-cap UK equities UK small-and-mid (SMid) cap has been an asset class that has been hugely out of favour over the last 12 months, leading to significant underperformance versus the wider UK equity market. Yet, we believe that the prospects for many companies in this area of the market remain much brighter than the investor value inferred in today’s constricted valuation multiples. Amongst the current barrage of UK negativity, short termism and ongoing selling pressure, we believe opportunities are emerging that set the stage for a recovery in 2023. The issues that the UK economy is facing are real. However, we believe that next year we are likely to see interest rate expectations peaking, inflation falling, and a manageable trading downturn. We are increasingly enthused by some of the compelling opportunities that we observe within the Smid cap market which lays the foundation for future returns. We do expect earnings to come under pressure in the short term, but the degree of valuation discount observed assumes a wide margin of safety. Currently, Smid cap companies are trading towards the lower end of their historical valuation range, along with what we believe to be attractive dividend and free cash flow yields. Many businesses are entering this well signalled downturn with significant balance sheet strength, and this enables them to continue to invest and take advantage of the opportunities which should inevitably arise. After exiting a disruptive pandemic period, not only in sound financial shape, but also operationally and competitively, we believe that many businesses and their prospects have actually been significantly strengthened. In our view, the flexibility, strength and resilience engrained in many Smid cap companies is being underestimated. Thus, we believe the prospects of the UK Smid cap market are enhanced, where the risk/reward opportunity is beginning to look compelling over the long term. Large-cap UK equities UK large-cap businesses kept the UK equity market afloat through 2022, as many other developed markets suffered at the hands of an inflationary resurgence. As humanitarian tragedy and geopolitical unrest reverberate across Europe, investors continue to shelter in recognised safe havens; this has led to an encouraging period of attractive relative returns for the FTSE 100 Index. Looking forward into 2023, the FTSE 100 looks well positioned to continue to demonstrate resiliency in the face of global headwinds. Of course, investors are presented with many unknowns… Will an enduring economic recession engulf the market? The FTSE 100 is comprised of some of the highest quality, cash generative businesses listed within the UK. These businesses are well capitalised and many raised equity where needed during the pandemic, and thus start from a position of strength relative to speculative/higher leveraged alternatives. Defensive havens remain prevalent – tobacco, pharmaceutical and utility businesses are demonstrably less sensitive to economic cyclicality. Will inflation persist? The FTSE 100 is constructed by many companies that exhibit innate inflationary resistance. Real asset businesses such as oil and gas majors and metal miners account for over 20% of the index. Whilst some may argue that their fate is in the hands of global commodity volatility, most would concur that these remain an effective hedge against soaring inflation. Furthermore, regulated businesses such as utility companies have a reliable mechanism for protecting their revenue streams from inflation. Will interest rates settle at 3-4%? Inherent interest rate protection is prevalent within the index. Multinational banks are now beginning to earn material interest income margins from their lending, after over a decade of frankly negligible rates. Furthermore, long-term liabilities for life assurance businesses are now discounted at a higher rate, reducing the value of their liabilities in today’s terms. The UK market has lagged the US market for some time due to the notable omission of high-growth, pre-profit stocks where the terminal value is discounted from many years into the future. These businesses were able to thrive in a zero-rate environment. But as rising interest rates inflate the discount rate used for equity valuations, these high-growth stocks are disproportionately sensitive to hawkish policy relative to the established, profitable, and mature businesses prominent within the FTSE 100 Index. Should investors not know what steps to take next. Then in our mind the notion of being “paid to wait” is an attractive concept amid the UK large-cap market. The mature nature of the UK large-cap landscape instils a degree of resilience in the propensity of businesses to return capital to shareholders. This may be derived from reliable dividend income – the FTSE 100 is a natural hunting ground for income, yielding over 4.5% - or indeed the opportunity to benefit from share buybacks which remain commonplace, particularly amongst businesses generating windfall profits. Source: Bloomberg as at 16/12/2022 unless otherwise stated. Read the full report
The Bank of Korea Is Likely To Respond With A Rate Cut In The Second Half Of 2023

Next Week Bank Of Korea Will Announce Its Monetary Policy Decision, Australian And Indian CPI Report Ahead

ING Economics ING Economics 08.01.2023 13:42
Next week’s data calendar features China's growth numbers, inflation readings from Australia and India, plus a key central bank meeting In this article Inflation finally on the downtrend? China activity and loan data due in the coming days BoK could surprise with a pause Philippines exports likely to reverse recent surprise gain   Shutterstock    Inflation finally on the downtrend? The new monthly Australian inflation series should show a further small decline in the inflation rate to 6.8% year-on-year, down from October’s 6.9% rate – still too high for the Reserve Bank of Australia to stop tightening, but moving in the right direction. And in India, further falls in food prices and stable gasoline should bring the price level down by 0.1/0.2% month-on-month, although similar falls last year mean that the inflation rate could hold up at around 5.9%YoY for a second month – still, within the Reserve Bank of India’s target range and indicating that we may be closing in on peak rates.   China activity and loan data due in the coming days China will announce loan data between 9 and 15 January and activity data and GDP data between 10 and 27 January. Loan growth should have slowed in the last month of 2022 even after the People's Bank of China cut the required reserve ratio (RRR) to absorb liquidity. The impact of the RRR cut in December should be reflected in loan growth data for January and support economic activity post-reopening. China also reports activity data and we expect retail sales to face a deeper contraction on a yearly basis. Meanwhile, industrial production could turn from positive growth to mild contraction in December. This suggests that growth was supported mainly by fixed-asset investments for the period. As a result, GDP growth for the fourth quarter of 2022 should fall into a slight year-on-year contraction. BoK could surprise with a pause Bank of Korea (BoK) will meet next Friday. The market expects a 25bp hike, but we maintain our minority view that the BoK will likely stand pat this time. Since the last meeting, both inflation and inflation expectations decelerated quite meaningfully while the Korean won stabilised under the 1300 level despite a widening yield gap between the US and Korea. The BoK is expected to use the rate hike card more carefully as there is little room left to raise interest rates in this cycle given sluggish exports and economic activity. However, given the recent rise in gasoline and power prices, upside risks remain high and thus the BoK should retain a hawkish tilt despite the pause. Philippines exports likely to reverse recent surprise gain Exports are expected to revert to contraction following a surprise jump in the previous month. Electronics form the bulk of outbound shipments from the Philippines and given slowing global demand we could see the overall exports sector fall back into the red. Imports on the other hand should continue to expand, resulting in the trade deficit widening to roughly $4.4bn.  Key events in Asia next week Refinitiv, ING TagsAsia week ahead 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
Soft PMIs Are Further Signs Of A Weak UK Economy

The U.K. Economy Is In Trouble, Fall Of GDP Is Expected!

Kamila Szypuła Kamila Szypuła 08.01.2023 19:48
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
Economic Data From China Positively Affected Copper, Aluminum, Zinc And Iron Ore

Commodities: Copper And Iron Ore Prices Rose, Aluminium Exchange Inventories Continue To Show Signs Of Recovery

ING Economics ING Economics 09.01.2023 08:26
Commodity markets had a weak start to the year, driven predominantly by the energy complex. Immediate demand concerns from China and milder weather in Europe were key catalysts. For this week, market direction (at least towards the end of the week) will likely be dictated by US CPI data Source: Shutterstock Energy - Speculators add to Brent long position The first trading week of 2023 saw a lot of weakness in the oil market. ICE Brent fell by almost 9% over the week. Global growth concerns and Chinese covid infections have hit sentiment in the immediate term. However, the change in China’s covid policy is constructive for the market in the medium to long term. Speculators also appear to have taken advantage of the recent weakness to enter the market. The latest positioning data shows that speculators increased their net long in ICE Brent by 17,753 lots over the last reporting week, to leave them with a net long of 161,456 lots as of last Tuesday. According to Bloomberg, the US Department of Energy rejected a number of offers it received for the potential purchase of crude oil in February in order to start refilling the strategic petroleum reserve. Reports suggest that the DOE will delay the process after offers were either too high or didn’t meeting the necessary specifications. The Biden administration had previously said that it would look to refill the SPR if WTI was to trade towards US$70/bbl. And in doing so providing some good support to prices around these levels.-  Looking at the calendar for the week, the EIA will release its monthly Short Term Energy Outlook on Tuesday, which will include the latest forecasts for US crude oil output. The outlook for US production growth has become increasingly more modest over the last year and the recent weakness in prices will likely not help this trend.  Then on Thursday, broader markets will be focused on US CPI data, with this an important data point for assessing what the US Fed may do in terms of monetary policy in upcoming meetings. Finally, on Friday, China will release its first batch of trade data for December, which will include oil import data. Metals - Boosted by more property measures in China Copper and iron ore prices rose again on Friday, on a report that China may ease curbs on borrowings by developers. Beijing may allow some property firms to add leverage by easing borrowing caps and pushing back the grace period for meeting debt targets, according to a report from Bloomberg. A raft of policy moves in recent weeks in China has boosted confidence that the economy is stabilizing, improving the outlook for industrial metals. In mine supply, Peru’s latest official numbers showed copper output in the country rising 15.3% YoY (although declining 3.2% MoM) to 225kt in November. Most of the annual production gain came from mines including Antamina, Cerro Verde and Southern Peru Copper. Amongst other metals, zinc production in the country declined 2.9% YoY in November. Aluminium exchange inventories in Chinese warehouses continue to show signs of recovery. The latest data from Shanghai Futures Exchange (ShFE) showed weekly inventories for aluminium increasing by 22.6kt for a fourth consecutive week to 118.5kt as of Friday. Other base metals stocks also reported inflows over the week. In nickel, Tsingshan Holdings Group Co., the largest nickel producer, has started a primary nickel plant in Hubei province with monthly capacity of 1,500 tonnes, according to a report from SMM. Agriculture – Ukraine corn harvest progress The latest data from Ukraine’s Agriculture Ministry shows that farmers in the nation harvested 22.1mt of corn from 3.4m hectares as of 6th January, which accounts for 81% of corn area for the 2022/23 season. The USDA released its weekly export sales report on Friday, which shows that US soybean sales remained strong, while shipments for wheat and corn remained weak for the week ending 29th December. Export sales of soybean rose to 872kt for the week, higher than the 706kt a week ago. For wheat, the agency reported that US export sales fell to 144kt for the above-mentioned week, lower than the 511kt seen the previous week. US corn export sales declined to 319kt; from 952kt a week ago. The latest CFTC data shows that money managers increased their net longs in CBOT soybeans by 14,378 lots over the last week, leaving them with a net long position of 142,994 lots as of 3 January. The move was predominantly driven by rising long positions with gross longs increasing by 15,672 lots to 166,894 lots. For wheat, speculators decreased their net short position in CBOT wheat by 3,497 lots to 57,715 lots. Speculative net longs in CBOT corn increased by 37,142 lots to 196,457 lots. Read this article on THINK TagsSpeculators Oil Iron ore Grains CPI inflation China property   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
Polish Inflation Declines in July, Paving the Way for September Rate Cut

UK’s November GDP Will Likely Signal The Start Of Recession, The Q4 Earnings Season Starts Next Week

Saxo Bank Saxo Bank 09.01.2023 08:37
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)
All Eyes On Capitol Hill, Jerome Powell Will Appear Before The Senate Banking Committee

Fed Ensues Its Annual Voting Rotation But The Bar For Cutting Rates In 2023 Will Still Remain High

Saxo Bank Saxo Bank 09.01.2023 10:05
Summary:  As the FOMC voting rotates, the new set of voters in 2023 will likely see a dovish tilt. Hawkish members like Bullard, Mester and George will not be voting this year, being replaced by Goolsbee, Logan and Harker. Kashkari, who is currently hawkish, will also be voting in 2023. Still, broad consensus is likely to remain on Fed policy unless economic conditions deteriorate materially and labor market starts to loosen in H2. Going into 2023, the focus for the Fed will squarely remain on inflation, despite the recent softening. A tight labour market meanwhile continues to provide room to the Fed to continue hiking rates well above 5%. However, it will be key to watch how the Fed’s voting committee changes could potentially affect policy direction. A number of the hawkish Fed members will not be voting this year as the Fed ensues its annual voting rotation. James Bullard of the St. Louis Fed, Loretta Mester of the Cleveland Fed and Esther George of the Kansas City Fed, all of whom have favored sharply higher interest rates to help curb inflation, will lose their votes. Boston’s Susan Collins, a newcomer who’s considered to be neutral, will also lose her voting seat. Charlie Evans of the Chicago Fed and Esther George of the Kansas City Fed are retiring in early 2023. Charlie’s successor has been named. Austan Goolsbee, who will have a voting role at his first meeting in 2023, will replace him. He is expected to be dovish. Goolsbee will be joined by newcomer Lorie Logan at the Dallas Fed, who is also a centrist. Philadelphia Fed president Patrick Harker will rotate into a voting position. Minneapolis’s Neel Kashkari, who is currently an arch hawk after being an uber dove for many years, will also be voting in 2023. While H1 should continue to see a broad consensus within the Fed’s board with inflation remaining a key concern, disagreements may start to flow in from H2 if economic conditions deteriorate materially and labor market starts to loosen. The bar for cutting rates in 2023 will still remain high, however, as any recession in the US – if one was to occur – will be short and shallow.   Source: Fedspeak Monitor: Fed’s 2023 voting committee has a dovish tilt, but broad consensus likely to stay | Saxo Group (home.saxo)
Riksbank's Potential Rate Hike Amid Economic Challenges: Analysis and Outlook

Unemployment In Eurozone Was Unchanged From October At 6.5%

ING Economics ING Economics 09.01.2023 12:41
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
Gold's Hedge Appeal Shines Amid Economic Uncertainty and Fed's Soft-Landing Challenge

Asia Market: Japan CPI Hit 4.0% YoY For The First Time Since 1982, In China The Reopening Has Resulted In A Greater Increase In Arrivals Than Departures

ING Economics ING Economics 10.01.2023 08:30
Big rally in Asian FX yesterday, but today could see some profit taking  Source: shutterstock Macro outlook Global Markets: Monday stands for “mainly mediocre”. US stocks opened up but after rising in early trading, lost momentum and slid towards the close. This left the S&P500 roughly unchanged on the day, though the NASDAQ hung on to some of its gains and finished up by 0.63%. After tumbling sharply on Friday following the payrolls report, US Treasury yields only declined slightly more on Monday. 10Y Treasury yields fell 2.6bp to yield 3.53%, while 2Y yields dropped by 4bp. Two Fed officials yesterday hinted that they saw rates being raised above 5%. Raphael Bostic saw rates rising to 5-5.25%, while Mary Daly gave a vaguer “somewhere above 5%” indication. Both suggested that rates could start to go up in 25bp increments from here. Fed funds futures markets have reverted to not pricing in even 5% for peak Fed funds. The current implied peak comes in June this year at 4.93%. There were further increases in the EURUSD yesterday, which has now risen to 1.0733. This was mirrored in the AUD, which is back above 69 cents, and at its highest level since September last year.  Cable is also up at 1.2185 and the JPY is steady at 131.70. Asian FX had a great day yesterday. The KRW gained 2%, leading a pack that saw gains across the board. The THB, PHP, CNY, and SGD all gained between 1.69% (THB) and 0.7% (SGD). Today will likely see much more muted gains and perhaps some profit-taking. G-7 Macro: It was a quiet day for macro news in the G-7 yesterday. And it is also relatively quiet too today. The US NFIB business survey will be the main data point to look at. China:  Fiscal spending in 2023 should be stronger than last year. Increased spending for 2023 includes an increase in the issuance of special local government bonds and tax breaks for small and medium-sized enterprises. The aim of more government spending is to increase employment during the reopening process. So far, the reopening (which began on 8 January) has resulted in a greater increase in arrivals than departures as outbound travel has been deterred by the requirement for Covid tests in some foreign locations. We expect retail sales to pick up gradually in 1Q23 as some people could still be struggling to land a job at the beginning of the reopening process. Then we should see more pickup in activity in 2Q23, and more solid growth in 2H23. Chinese New Year annual migration has already started, and so far, we see more mobility than last year. This year, there are no "border controls" when people travel across provinces in Mainland China. The point to look for is whether this year's migration can reach a level similar to early 2020 (before Covid restrictions were imposed) Japan: Tokyo December CPI inflation data has been released. Both headline and core inflation (excluding fresh food) hit 4.0% YoY for the first time since 1982. As core inflation beat the market consensus of 3.8%, market expectations for the Bank of Japan’s (BoJ’s) exit strategy are expected to rise. But we do not believe that this data will persuade the BoJ to take any further action at their meeting next week. The BoJ thinks that higher-than-usual inflation is not sustainable, plus, other data, such as today’s household spending and the latest real cash earnings, both contracted, signalling weak growth. South Korea:  The current account posted a deficit of USD0.6bn in November - the first deficit in three months. The deficit in the goods account widened due to higher commodity prices together with sluggish exports. Also, the deficit in the services account widened as freight fares fell and outbound travel increased significantly. Today’s weak current account adds more downside risk to last quarter’s GDP.  With Industrial production and trade weaker than expected, we are considering lowering our GDP forecast for 4Q22 from -0.1% QoQ to -0.2%. Philippines: November trade data is out today.  Exports may revert to negative territory after last month's surprise growth given expectations for weak demand for electronics.  Imports, on the other hand, will likely sustain gains but fall short of double-digit growth as global energy prices eased from their peak in 2022.  The overall trade deficit should remain sizable at roughly $4.5bn, enough to keep the PHP from appreciating sharply this year as the current account remains in deficit. What to look out for: US and China inflation reports later in the week Philippines trade balance (10 January) South Korea good balance (10 January) Japan Tokyo CPI inflation (10 January) US NFIB small business optimism survey (10 January) Powell gives speeches (10 January) Australia retail sales (11 January) Malaysia industrial production (11 January) Japan trade balance (12 January) Australia trade balance (12 January) China CPI inflation (12 January) India CPI inflation (12 January) US CPI inflation and initial jobless claims (12 January) Fed’s Harker gives a speech (12 January) South Korea export price index and BoK decision (13 January) US University of Michigan sentiment (13 January) Fed’s Bullard gives speech (13 January) China trade balance (14 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
Gold Is Showing A Good Sign For Further Drop

Gold Received Support From A Weaker Dollar And Softer Yields

Saxo Bank Saxo Bank 10.01.2023 09:29
Summary:  A further squeeze in US equities yesterday, perhaps inspired by the recent drop in US treasury yields, peaked out mid-session and was entirely erased by the end of the day, establishing an important line in the sand on charts ahead of the next important macro event risk on the US economic calendar, the Thursday December CPI release. Interesting session ahead for European equities after yesterday saw major indices in Europe closing at their highest levels since Russia invaded Ukraine.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures erased all of their gains in yesterday’s session, declining 1.5% from the intraday highs. The culprit was Fed member Mary Daly’s comments that she expects the policy rate to move to 5% or a bit above. Despite these comments, the US 10-year yield declined downplaying the comments from Daly suggesting the market keeps betting that the Fed will pivot before reaching the 5% level. S&P 500 futures are trading lower again this morning hovering just above the 3,900 level taking the futures back into the upper part of the trading range established since mid-December. The next important event for US equities is the December CPI report on Thursday. Hong Kong’s Hang Seng (HIF3) and China’s CSI300 (03188:xhkg) Hong Kong and Chinese equities retraced after a strong start in the new year. Hang Seng Index edged down 0.3% and CSI300 was nearly flat as of writing. China is exempting value-added tax (VAT) among small businesses till the end of 2023 and is considering a record special debt quota and a wider budget deficit. The news stirred little excitement among investors as expectations for stimulus measures are already high. Chinese leading EV maker, BYD (01211:xhkg) slid 2% following Berkshire Hathaway reduced its stake to 13.97% from 14.06%. FX: Currencies swing with risk sentiment, USDCNH rejects new lows after huge slide The US dollar found support late yesterday after an extension of its recent sell-off on a squeeze higher in equities. EURUSD spilled over to a new high since last June, posting a 1.0761 high water market before easing back as risk sentiment weakened late in the US yesterday, supporting the greenback. A good portion of the EURUSD upside was on a firmer euro, as other USD pairs remain within recent trading ranges, including USDJPY, trading mid-range this morning just below 132.00. Elsewhere, USDCNH extended its remarkable run lower in the Asian session but was quickly gathered up after hitting new lows since last August at 6.76. Several central bankers are out speaking at a conference in Stockholm, Sweden today, while the market awaits the next major US macro event risk, Thursday’s December CPI release. Crude oil (CLG3 & LCOH3) trades steady with Brent hovering around $80 Gains being driven by excitement over a rapid reopening in China with the upcoming Lunar New Year driving a pickup in demand for travel. Near-term weakness in demand will be discussed when the OPEC+ monitoring committee (JMMC) meets on February 1 and despite a drop in Russian exports, due to sanctions, forcing the price of its flagship Urals below $40 per barrel last Friday, the committee could still spring a surprise and recommend another production cut. China meanwhile issued another generous quota for crude imports that will allow 44 non-state-owned refiners to import a total 132 million tons compared with 109 this time last year. Brent trades within a small uptrend with resistance being the 21-day moving average, today at $81.30 and support at $78. Gold (XAUUSD) holds onto its gains Supported by a weaker dollar and softer yields despite comments on Monday from two Fed officials that rates may rise above 5% before pausing and holding for some time. The metal has also been buoyed by the reopening in China with pictures of very crowded gold markets seeing pre-Lunar demand and the PBoC announcing it bought 62 tons of gold during the last two months of the year. However, following two back-to-back weeks of ETF buying, total holdings dropped slightly on Monday as some investors remained cautious. Focus this week on Thursday’s US CPI print with the next major hurdle for gold being $1896, the 61.8% retracement of the 2022 correction, with support now at $1830. HG Copper breaks higher on China demand optimism With the China government considering CNY3.81trn of local government bond issuance in 2023, there is expectations of a further push to infrastructure spending which will continue to bump up industrial metals' prices. Beijing may also bump the budget deficit to 3% of GDP, up from 2.8% last year. Meanwhile, copper inventories for immediate withdrawal from LME warehouses fell 2.8%, the most since 8 December. That leaves stockpiles at just above a 17-year low. HG copper reached $4.05 on Monday with the 50% retracement of the 2022 correction now offering resistance at $4.0850, with support being the 200-day moving average at $3.84. US Treasuries (TLT:xnas, IEF:xnas, SHY:xnas) yields ease lower, 10-year close to 3.50% Ahead of three days of treasury auctions starting with today’s auction of 3-year notes, US treasury yields dropped a few basis points all along the curve. The two-year yield is nearing the range low since last September just below 4.15%, while the 10-year benchmark yield has another 10 basis points of range to work with into the cycle low near 3.40%. A 10-year auction is up tomorrow and 30-year T-bond auction on Thursday, with prior auctions for those maturities rather weak. Read next: The Aussie Pair Is Trading Above 0.69$, The Euro Above 1.07, The British Pound Also Benefits From A Weak Dollar| FXMAG.COM What is going on? The labour market remains tight in the Eurozone The Eurostat figures for Eurozone unemployment were out at 6.5 % in November and at 6.0 % for the EU. The figures are stable compared to October. Within the EU, Spain scores the highest official unemployment rate (12.4 %) and Germany and Poland the lowest one (3.0 %). In a working paper published yesterday, ECB economists pointed out the risk of high wage growth in the coming quarters – way above historical patterns.  “This reflects robust labour markets that so far have not been substantially affected by the slowing of the economy, increases in national minimum wages and some catch-up between wages and high rates of inflation”. We tend to disagree with this assessment. Wage growth is of course fuelling inflation in the CEE area. But this is clearly not the case in Western Europe. The likelihood that wages will increase significantly, thus becoming an issue regarding the fight against inflation, is rather low in our view. The United Kingdom is certainly the only European country which may potentially face a wage-price spiral this year.  Commodities supported on optimism over a speedy reopening in China  China will return to “normal” growth soon as Beijing steps up support for households and businesses, according to party secretary of the China’s central bank. That adds to hopes that the government will expand measures to steady the economy and potentially roll out more infrastructure spending that could support industrial metals prices. The HG copper price rose over $4 at on one point, for the first time in six months, with demand likely to rise while inventory stockpiles remain near 17-year lows while the Iron ore (SCOA) price surged 2.4% to a new six month high, $119.80 on expectations for a seasonal post-Lunar new year ramp up in demand.  China reopening, authorities are anxious the nation could run out of power China’s National Development and Reform Commission has issued three notices urging parties to secure and speed up the process of locking in medium and long-term supply deals, to ensure China does not run out of power. China had banned imports of Australian coal for over two years, however, yesterday reports suggested BHP struck a deal and sold two shipments of met coal to China. This highlights that trade relations are improving but also means the price of coal is likely to remain supported as demand is increasing. Japan’s December Tokyo CPI touched the 4% mark Tokyo CPI for December was released this morning, with the headline coming in at 4.0% YoY as expected from a revised 3.7% YoY in November, suggesting price pressures in Japan haven’t started to cool off yet. Tokyo core CPI (ex-food) was higher than expected at 4.0% YoY from 3.6% YoY previously while the core-core measure (ex-food and energy) was also higher at 2.7% YoY from a revised 2.4% YoY in Nov. With Tokyo CPI numbers leading the broader print, there are clear signs that further upside pressures are likely to stay and continue to keep a policy tweak option alive for the BOJ. Russian crude exports coming under pressure Russia’s Urals grade, a far bigger export stream than any other crude that Russia sells, was $37.80 a barrel at the Baltic Sea port of Primorsk on Friday, according to data provided by Argus Media. Global benchmark Brent settled at $78.57 on the same day. Combined flows to China, India and Turkey hit the lowest last week since October, suggesting sanctions and EU embargo may be impacting Russia’s key exports. Microsoft considers $10bn investment into OpenAI The recently published ChatGPT has surprised the world by being quite good at answering all sorts of questions whether they are simple or complex. ChatGPT reached a 1mn users in just one week of beta testing. There have been serious talks about that ChatGPT might be something that could one day upend Google’s classic and very profitable search engine business. This might be the exact opportunity Microsoft is pursuing. What are we watching next? US December CPI up on Thursday The latest CPI data out of the US is the next important test for global markets, which have grown perhaps over-confident that the Fed will not only halt its policy tightening soon after perhaps 50 basis points of further tightening, but will be signalling rate cuts by year-end. The US CPI releases have triggered considerable volatility in recent months, particularly in equity markets on aggressive trading in very short-dated options. The market expects that inflation will actually fall month on month by –0.1% and only rise 6.5% year-on-year versus +7.1% in November. The core, ex Food and Energy number is expected to rise +0.3% MoM and +5.7% YoY vs. +6.0% YoY in November and a peak rate of 6.6% in September. Earnings to watch The Q4 earnings season kicks off this Friday with banking earnings from Bank of America, JPMorgan Chase, and Citigroup with consensus expecting earnings to continue contracting among US banks before coming back to growth this year. The key uncertainty is credit quality in 2023 as it is linked to the degree of a recession or maybe no recession at all in the US economy. With higher interest rates level expectations are that banking revenue will slowly begin to accelerate and if high interest rates persist for an extended period, the longer-term growth for banks could be quite attractive. Overall, the Q4 earnings season is likely going to see an extension of value and tangible companies performing better than intangible-driven companies. Today: 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 Economic calendar highlights for today (times GMT) 1000 – Sweden Riskbank Governor Thedeen to speak 1010 – Bank of England Governor Bailey, Bank of Canada Governor Macklem, ECB’s Schnabel speak Stockholm 1100 – US Dec. NFIB Small Business Optimism 1400 – US Fed Chair Powell to speak at Riksbank even in Stockholm 1535 – ECB's de Cos, Knot to speak in Stockholm 1700 – EIA's Short-term Energy Outlook (STEO) 1800 – US 3-year Treasury Auction 2130 – API's Weekly US Oil and Fuel Inventory Report 0030 – Australia Nov. Retail Sales 0030 – Australia Nov. CPI Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Financial Markets Today: Quick Take – January 10, 2023 | Saxo Group (home.saxo)
British Prime Minister Rishi Sunak Sees No Chance Of Reducing Inflation, Despite Promises To Halve It

British Prime Minister Rishi Sunak Sees No Chance Of Reducing Inflation, Despite Promises To Halve It

Jakub Novak Jakub Novak 10.01.2023 14:10
UK Prime Minister Rishi Sunak said UK inflation is not certain to slow down this year so there is a need to continue influencing wages in order to limit their rise despite ongoing negotiations with striking sectors, including the National Health Service and the railways. Sunak has come under criticism Sunak has come under criticism over promises to halve inflation this year. This is despite the forecasts of the Budget Authority that the rate of price increase will slow down significantly as it is without any additional intervention from the government. Rising energy prices in the UK led to inflation exceeding 11% last year, causing a cost-of-living crisis. The Prime Minister and many other politicians have also changed for this reason. The new Prime Minister, Rishi Sunak, has decided to take seriously the issue of containing price rises, which is his top priority and the reason why he is resisting calls to adopt high public sector wage demands as this is sure to spur yet another rise in inflation. A growing political problem for the prime minister However, unrest is now taking place all over the country as citizens are pushing for a 19% pay rise. Another issue is that Sunak refused to answer the question of whether he has private medical care, saying it was of little consequence. This has become a growing political problem for the prime minister, who is under pressure from both members of his own Conservative Party and the general public. GBP/USD Talking about the forex market, yesterday's rise in GBP/USD is gradually slowing down, so buyers need to stay above 1.2140 in order to maintain their advantage. The breakdown of 1.2200 will push the pair to 1.2260 and 1.2301, while a drop below 1.2140 will bring it to 1.2090 and 1.2040. EUR/USD In EUR/USD, there is a chance to update the December highs, but this is only if the pair breaks above 1.0760. Such a move will push euro to 1.0790 and 1.0850, while a fall below 1.0720 will bring it to 1.0680 and 1.0650.     Relevance up to 09:00 2023-01-11 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/331837
Hawkish Fed Minutes Spark US Market Decline to One-Month Lows on August 17, 2023

The Commentary From Fed Officials Was More Hawkish Than What Investors Wanted

Craig Erlam Craig Erlam 10.01.2023 15:26
European stock markets are softer in early trade on Tuesday following a similar session in much of Asia as investors turn more cautious ahead of Thursday’s US inflation data. The commentary from Fed officials at the start of the week was more hawkish than what investors wanted to hear following a knockout jobs report. Considering the rhetoric in the weeks leading up to Friday, it shouldn’t have come as a great surprise that policymakers are sticking to the “higher for longer” narrative. There has been a determination to not allow financial conditions to loosen on the expectation of lower rates down the road as it undermines tightening efforts now. While the central bank’s assessment of future rates may be more hawkish than the markets, it’s also possible that they’re being intentionally overly hawkish now in an attempt to stop investors from getting carried away. The jobs report may not have been enough to warrant a shift in the language, but that doesn’t mean we aren’t close and any change could be quite stark. The inflation report on Thursday could further justify such a move although investors will be very wary that a bad one could ensure policymakers dig their heels in for a while longer yet. Tentatively higher Bitcoin is marginally higher after breaking back above $17,000 yesterday, buoyed by an improvement in risk appetite. That remains fragile though and a nasty surprise this Thursday from the US inflation report could send risk assets into reverse. The broader crypto environment remains the dominant driver though and it’s gone a little quiet on that front which will be welcome. 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 RBA Raised The Rates By 25bp As Expected

Australia Is Likely To See A Modest Further Reduction In Inflation

ING Economics ING Economics 11.01.2023 08:53
The November monthly inflation series surprised markets with a stronger-than-expected rise. While this will be a disappointment for the Reserve Bank of Australia, many of these factors look likely to reverse in the months ahead Australian retail sales Source: Shutterstock 7.3% November inflation YoY% Higher than expected A bad number, but it should soon fade After falling to 6.9% in October, the return of inflation to 7.3% in November is quite disappointing and highlights the fact that inflation in Australia is not going to be a pushover for the Reserve Bank as it tries to squeeze it back to its 2-3% target. A relatively muted month-on-month gain in the price level in November last year meant that at best we were only likely to have seen a modest further reduction in inflation this month instead of the rise we actually saw. But some outsize rises in the price of a number of components mean that we may be waiting another month or two before we can confidently call "peak inflation" in Australia.   Rain stops play The monthly data tells the story quite well. Let's start with food. And after two consecutive months of large declines, food prices, especially fruit and vegetables, were pushed strongly higher. Poor weather and more flooding in New South Wales and Victoria are probably to blame for much of this. And December wasn't by any means a return to normality either, with the Bureau of Meteorology noting rainfall was 33% above average for the month as a whole with temperatures below or very much below normal (though New South Wales and Victoria were drier than normal after the previous month's rain).   Australian December rainfall - percentage of mean Source: Australian Bureau of Meteorology Oil isn't helping The second 2.2% month-on-month increase in a row for the transport component is largely a reflection of crude oil and retail gasoline prices, with the motor fuel component up 5.6% MoM after a 7% MoM increase in October. National pump prices in December more than reversed the November increase, though they are on the rise again in January, so any respite in December may be short-lived. Then there is the recreation component, which is being driven by holidays, the price of which rose 4.3% in November due to a choppy and hard-to-forecast combination of air fares (a derivative of oil prices) and pressure on holiday vacancies (a function of global reopening). Rising overseas visitors for Christmas mean that these November figures may only partially reverse in December after the latest spike.   Australian inflation by component MoM% Source: CEIC, ING Better news buried in the detail However, all of this could be regarded as the death throes for inflation in Australia, as there are some encouraging developments elsewhere that could signal lower inflation once this latest volatility is out of the way, and absent any renewed climate-related impacts (a very big "if" these days).  Firstly, clothing, which is a good reflection of discretionary spending strength, dropped 2.4% MoM, though it is also extremely volatile, so we aren't reading too much into just one month's reading. More importantly, housing registered only a 0.1% MoM increase in November, with house purchase costs also only up 0.1%, while rents rose only 0.2% MoM, down from 0.6% in October. These prices tend to be much less volatile, and having softened, we could anticipate even weaker figures in the months ahead, which may help to soften any residual volatility in the other components that we still need to work through.  What does this mean for markets? Interestingly, after a brief spike higher on the news, 10Y Australian bond yields have tended to drift lower today following the CPI numbers. This could indicate that markets also view this as a last hurrah for inflation rather than any meaningful setback for the Reserve Bank of Australia. The same seems true for RBA expectations, where December 2023 bank bill futures have risen, signalling an expectation for lower, not higher yields. The Australian dollar did push higher against the US dollar following the release, though drifted back before strengthening again later, though not clearly a direct result of today's data.  Certainly, today's data adds more risk to our view that the RBA will stop raising rates once it reaches 3.6% (another two 25bp rate hikes from here), and we may have to raise that to 3.85% if we don't see some more encouragement from other figures, for example, the labour data. But we are not throwing in the towel just yet. This latest inflation data offered just enough hope that this is a temporary setback to enable us to defer that decision for a little while longer.   Read this article on THINK TagsRBA rate policy Australian inflation Australian 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
The US PCE Data Is Expected To Confirm Another Modest Slowdown

Saxo Bank Podcast: The Conflicting Signals From Expanding US Credit, Apple's Deepening Vertical Integration Moves, Strong Metals Markets And More

Saxo Bank Saxo Bank 11.01.2023 10:22
Summary:  Today we discuss the bounce-back in US equity markets as we are all supposedly holding our breath for a CPI release tomorrow when the last soft CPI release in December drove zany intraday volatility and a rally that was quickly erased - etching out a market top at the time. Elsewhere, we discuss the conflicting signals from expanding US credit while another sentiment survey disappoints, look at strong metals markets as a clear expression of hopes for a China-driven recovery, Apple's deepening vertical integration moves as it looks to ditch Samsung screens, and much more. Today's podcast features Peter Garnry on equities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are available via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Read next:The EUR/USD Pair Is Still Above 1.0700$, The USD/JPY Pair Was Little Changed| FXMAG.COM   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: Podcast: Metals are sending loud signals as US equities in limbo | Saxo Group (home.saxo)
The Overall Picture Is Positive For The Czech National Bank

The Overall Picture Is Positive For The Czech National Bank

ING Economics ING Economics 11.01.2023 11:44
December inflation brought a downward surprise and is good news for the central bank. However, the main issue at the moment is the January re-pricing and the impact of government measures on the CPI. The January number should bring inflation back to higher levels, but lower than the central bank expects December inflation was lower than expected in the Czech Republic 15.8% December inflation (YoY)   Lower than expected Mixed picture but overall lower than expected The overall level of consumer prices remained the same in December as in November (0.0% month-on-month). On an annual basis, consumer prices rose by 15.8% in December, 0.4pp lower than in November. The average inflation rate for the full year 2022 was 15.1%. Price developments varied across the different sections of the consumer basket. The fall in fuel prices was offset by price increases, particularly in housing, energy and food. However, growth in these items was lower than we expected. Core inflation also slowed from 0.4% to 0.2% MoM according to our calculations which translates into a slowdown from 13.8% to 13.2% year-on-year. The official number will be published by the Czech National Bank (CNB) later today but the overall picture is positive for the central bank. The CNB's November forecast was expecting a 19.1% headline number for December, however if we adjust this number for the effect of government measures, today's result is close to the CNB's forecast. Contributions to year-on-year inflation (pp) Source: Macrobond, ING Re-pricing is the main risk for January December brought a significant signal that inflation is coming under control. However, the true test of where inflation really is will not come until January. For the next figure, we see two main issues: energy prices and new year repricing. From January, the government's measure will switch from a saving tariff to an energy price cap, but we estimate this should have about the same effect (3.5pp). We thus see the main uncertainty in the January re-pricing. On the regulated side, apart from energy prices, we see a 5% excise tax hike on tobacco, which should lead to a 0.1pp contribution to CPI. On the market side, the situation is unclear. Last January, prices jumped by 4.4% MoM, the most in the region. The same pace would equal 15.7% YoY this year. We don't have all the surveys yet, but it is already certain that the same drop in fuel prices as in December (10% MoM) cannot be expected for January. And it can also be assumed that January is the last time retailers can increase their margins and offset higher costs. On the other hand, today's number lowers our expected inflation profile from above 17% to above 16% for January. Central bank expectations For CNB, today's number is clearly good news. Given the underestimated effect of government measures on the CPI, it's hard to read where the central bank's expectations really are these days. However, Governor Ales Michl mentioned in a recent interview that inflation may reach levels above 20% YoY in January. However, yesterday Deputy Governor Eva Zamrazilova said she expects levels more around 18% YoY. Both estimates suggest that the CNB expects the YoY figure to return to higher levels after the end of the saving tariff. The central bank will release a new forecast before the January number, however, at the moment we expect January inflation to be below the central bank's expectations. On the other hand, we believe the rhetoric of "higher rates for longer" will remain in place. Read this article on THINK TagsCzech Republic 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 Melbourne Institute Inflation Gauge For Australia Rose More Than Expected

The Quarterly CPI Release Could Determine The RBA Decision

Kenny Fisher Kenny Fisher 11.01.2023 12:34
The Australian dollar is trading quietly on Wednesday. AUD/USD is at 0.6904, up 0.14%. Australian CPI climbs to 7.3% Australian inflation pushed higher in November, rising to 7.3% following a 6.9% gain in October. This matched the forecast. The trimmed mean rate, a key gauge of core inflation, rose to 5.6% in November, up from 5.4% a month earlier and its highest level since 2018. The drivers behind the increase were higher jet fuel prices as well as accommodation prices. The drop in inflation in October (6.9%, down from 7.3% prior) had raised hopes that inflation might have peaked, but the rise in the November release has dampened such hopes. Retail sales for November jumped 1.4%, buoyed by Black Friday sales. This was much higher than the forecast of 0.6% and the October read of 0.4%. Consumer spending remains strong despite the double-whammy of rising interest rates and high inflation. What will be the RBA’s take on this data? The trimmed mean rate indicates that the rise in inflation is broad-based, a reminder that the RBA has more work to do as it tackles high inflation. The strong retail sales data shows that the economy can still bear further hikes, and the markets have priced in a 25-basis point increase at the February 7th meeting. The RBA rate policy is data-dependent, which means that the quarterly CPI release on January 25th could determine what decision the central bank takes at the meeting. The minutes of the December meeting indicated that the RBA considered three options at that meeting – a 25 bp hike, a 50-bp hike and a pause. In the end, RBA members opted for the 25-bp increase. I would expect the RBA to show similar flexibility at the February meeting. Fed Chair Powell finds himself under constant scrutiny, not just for his comments but also for what he doesn’t say. Powell participated on a panel at a symposium of the Swedish central bank on Tuesday. The topic was central bank independence, and Powell did not touch upon the economy or monetary policy. The markets took this as a dovish sign and the US dollar pared gains as a result. Read next:Pietro Beccari Will Be The Louis Vuitton’s CEO, Departures Several Top Executives At Rivian| FXMAG.COM AUD/USD Technical 0.6931 remains a weak resistance line, followed by 0.7044 0.6817 and 0.6747 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.  
Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

Eurozone Inflation Has Fallen Back Into Single Digits But The ECB’s Message Remains Hawkish

Kenny Fisher Kenny Fisher 11.01.2023 14:44
The euro is drifting on Wednesday, trading at 1.0730. EUR/USD has climbed about 1% this week, and Monday’s high of 1.0760 is its highest level since June 22nd. Can the euro continue to push higher? ECB unlikely to change aggressive stance Eurozone inflation has fallen back into single digits, raising hopes that inflation may have finally peaked. The headline rate slowed to 9.2% in December, down from 10.1% in November and beating the forecast of 9.7%. The slowdown is welcome news for the ECB, but investors shouldn’t count on the central bank becoming dovish and ending its current rate-tightening cycle, even if inflation continues its downturn in the coming months. The drop in headline inflation has been fuelled by energy subsidies by governments in Germany and other eurozone members, as well as lower energy prices. Core inflation rose to 5.2% in December, up from 5.0% in November, which indicates that underlying price pressures remain strong. The ECB is unlikely to ease its pace of hikes until the core rate shows a sustained fall as well as a drop in wage growth. In the meantime, the ECB’s message remains hawkish. ECB President Lagarde said in December that the markets were underestimating how high rates would go and noting that the ECB was likely to continue raising rates in 50-bp increments “for a period of time”. The US releases December CPI on Thursday, and we’ve seen in recent months how inflation reports can move the equity and currency markets. The consensus for headline inflation stands at 6.5%, following the November gain of 7.1%. The core rate is also expected to ease, with a forecast of 5.7% in December, compared to 6.0% in November. In recent months, soft inflation reports have sent the US dollar lower, as the markets have assumed that the Fed will not be able to continue hiking in the face of falling inflation. I would expect a similar reaction if December’s inflation numbers are lower than expected. Read next: The EUR/USD Pair Maintains A Steady Upward Trend, The Aussie Pair Keeps Close To 0.69| FXMAG.COM EUR/USD Technical EUR/USD has support at 1.0711 and 1.0612 There is resistance at 1.0800 and 1.0953 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 RBA Raised The Rates By 25bp As Expected

Inflation In Australia Is Moving In The Opposite Direction

InstaForex Analysis InstaForex Analysis 12.01.2023 08:01
Australia's inflation report was released on Wednesday, which exceeded expectations of most experts. The consumer price index rose 7.3% in Q4 2022, with a forecast of 6.8% growth. Notably, in the third quarter, inflation showed signs of slowing (when the growth forecast was 7.4%, the indicator turned out to be at 6.9%). And in the fourth quarter analysts expected further development of this trend - but in fact the CPI returned to the level of the second quarter, thereby puzzling market participants. In addition, on Wednesday another equally important report was published in Australia, which reflected a significant increase in consumer activity. We are talking about retail sales, which rose by 1.4% month-on-month in November (with a modest forecast of 0.6%). This is the strongest growth rate since last March. For comparison, in the previous month the figure increased by only 0.4%. The data added to the fundamental picture for the pair, which is shaping up quite positively. The relevant news flow is mainly related to China, which abandoned its "zero-Covid" policy and resumed imports of coal from Australia. The reset in relations between Beijing and Canberra was appreciated by AUD/USD traders: in the first week and a half of 2023, the pair rose more than 200 pips to settle at the 69th figure area. Interest rate  Wednesday's inflation report, which is important in and of itself, also suggests that the Reserve Bank of Australia will continue to "quietly" tighten monetary policy parameters. The RBA has cut the rate of interest rate hikes to 25 points since last October, but assures markets that it is not going to pause the tightening of monetary policy. The resumed growth of inflation in the fourth quarter suggests that the issue of a pause is now finally off the agenda (at least in the perspective of the next meetings). Following the December meeting, RBA head Philip Lowe said that the central bank does not pursue a pre-planned course: in his words, the size and timing of future rate hikes "will be determined by incoming data and the outlook for inflation and the labor market. Another noteworthy phrase from the head of the RBA is that the Board's priority remains restoring low inflation and getting inflation back into the 2-3% range over time. Inflation report is unlikely to prompt the RBA to be more aggressive As we can see, so far inflation in Australia is moving in the opposite direction. Therefore, the likelihood of any pause at this point is close to zero. On the other hand, the latest inflation report is unlikely to prompt the RBA to be more aggressive (in the context of a return to the 50-point rate). Most likely, the Australian central bank will continue to raise the rate in 25-point increments, without risking to increase the rate due to possible side effects (relevant concerns were repeatedly voiced by the RBA representatives). In other words, the aforementioned report will not lead to any "revolutionary" changes, despite its greenback color. At the same time, this release has reduced to zero the probability of a pause in the RBA rate hike. That's enough for the aussie to keep trying to climb back up to the 70s. But so far the bulls' attempts to get closer to the main price barrier at 0.7000 are failing. During the two days the pair's bulls were assaulting the intermediate resistance level at 0.6930 (the upper line of the Bollinger Bands indicator on the daily chart), but each time they were back to their previous positions, to the base of the 69th figure. The reason for such indecisiveness is also caused by the inflationary report, only now it is the American one. US data Let me remind you that the US Consumer Price Index will be released at the beginning of the US session. According to most experts, the release will reflect a further slowdown in US inflation, reinforcing the discussion that the Fed may move to a 25-point rate hike. The likelihood of such a scenario materializing (at least in the context of the February meeting) has risen to 76% after last Friday's Nonfarm data. If inflation also disappoints traders, the probability of a 25-point rate hike in February will probably rise to 85-90%. The greenback will again come under pressure and bulls will have an excuse to make a march to the 70s. The alternative scenario But the alternative scenario (though unlikely, of course) is that inflation in the US will show growth contrary to what most experts predicted. In that case, the dollar bulls will assert themselves all over the market, especially in the light of the latest statements of the Fed representatives. Mary Daly and Raphael Bostick made some very hawkish remarks this week. Specifically, Daly said that the rate could be raised "by either 25 or 50 points" at the next meeting. Also, in her opinion, the final point of the current cycle would be in the 5.1%-5.25% range (that is, she was against lowering the upper bound). Bostick took a similar stance. Fed All this suggests that it is too early to write off the hawkishness of the Fed: if the inflation report surprises market participants with its greenback, the US currency will strengthen its position considerably. Again, this option is unlikely, but judging by the dynamics of the dollar pairs, traders do not risk to play against the greenback on the threshold of this release. AUD/USD Thus, at the moment the best option for the pair is to take a wait-and-see stand, because the key macro report of Thursday is hypothetically able to "redraw" the fundamental picture for all the dollar pairs.   Relevance up to 23:00 2023-01-12 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/332040
Gold Has Extreme Bullish Condition

US CPI Could Favor The USD Which Could Exert Strong Pressure On Gold

InstaForex Analysis InstaForex Analysis 12.01.2023 08:19
Early in the European session, Gold (XAU/USD) is trading around 1,884.24, close to the highs of 1,886.47 and with a strong bullish trend. It is likely that in the next few hours, gold will continue to rise and may reach the resistance zone around 1,895 and could reach the +1/8 Murray located at 1,906. According to the daily chart, we can see that the eagle indicator is showing strong overbought signs and it is likely that a technical correction will occur in the coming days. The key will be to wait for gold to trade below 1,875 (8/8 Murray), then there could be a decline towards 7/8 Murray located at 1,843. Investors are waiting for the inflation report to be published during the American session. Some believe that this report will be below expectations. If the annual CPI is above 6.5%, it could favor the US dollar which could exert strong pressure on gold. On the contrary, if the reading is below this level, we could expect gold to quickly reach the area of 1,900 and even rise to 1,937 (+2/8 Murray). In the next few hours, gold is likely to consolidate above 1,875 and below 1,887. Above 1,887, we could expect gold to reach the key zone of 1,900. Below 1,875 and 21 SMA, we can expect gold to drop and the price could reach 1,843 and could even decline to 1,812 (6/8 Murray).     Read next: The EUR/USD Pair Maintains A Steady Upward Trend, The Aussie Pair Keeps Close To 0.69| FXMAG.COM Relevance up to 04:00 2023-01-17 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/308290
ECB cheat sheet: Wake up, this isn’t the Fed!

Rates Daily: The European Central Bank Continuing To Signal Its Intention To Hike Rates Further

ING Economics ING Economics 12.01.2023 09:17
There is the potential for a big reaction to today's US CPI report. The biggest one would be on a disappointing report that identifies sticky inflation, especially with the market tending to choose to believe that the dominant likelihood is for another surprise to the downside for inflation Auctions plus inflation expectations shine a very positive light on Treasuries - there's risk there The market has come through the auction test so far We had been quite intrigued as to the size of interest at auction yesterday in the 10yr, fearing that the recent run into money market funds might have been a signal of a reduced desire to take down duration. But in the event the auction went very well, on tight pricing, good cover and decent client interest based off the auction statistics. Today's 30yr auction will be a further test of duration appetite, although the 10yr event yesterday was the more relevant one; more representative of wider market sentiment. Bottom line the market has come through the auction test so far this week, and will now take its cue from an incredibly important CPI report today. The market will be expecting a good US CPI report. Falls in energy prices will bring down the headline monthly outcome; indeed a moderate fall is anticipated. This together with a notable base effect brings down the headline year-on-year rate to 6.5% for December. Even the core number has the capacity to surprise to the downside given the reversals being seen in prior rises from other elements, like second-hand car prices. But watch services inflation in particular. This represents about 40% of the index, and despite everything this was still running at 0.4% on the month for the previous month, which still annualises to 6%. This needs to slow, else the pressure from the Fed will remain as intense as ever. The biggest reaction would be on a disappointing CPI report We note that the Bloomberg financial conditions index is now back to neutral territory, driven there by falls in market rates, tighter credit spreads and a lower TED spread. The Fed won't mind this if the inflation story is really on the wane. But if it's not, the Fed will want to see a reversal in many of these factors. The market is in a remarkably relaxed mood right now based off this, and likely fully expecting a market-friendly CPI report. There is the potential for a big reaction to this report. The biggest one would be on a disappointing report that identifies sticky inflation, especially with the market tending to choose to believe that the dominant likelihood is for another surprise to the downside for inflation. EUR curves flatten, with the ECB still toeing the hawkish line With supply out of the way European rates managed to eke out a decent curve flattening and outperforming US rates. 10Y EUR swaps rallied 10bp lower, while the front end 2Y only nudged 2bp lower.    Front-end rates are held up with the European Central Bank continuing to signal its intention to hike rates further and officials sticking to the hawkish narrative. We have seen headline inflation drop back to single digits, but core inflation has still crept higher to a new record. With the labour market still historically strong in the eurozone, it remains one of the key risks for second-round effects as our economists have pointed out.   ECB's determination is not changed as long as core inflation has not peaked The ECB’s Holzmann stated yesterday that the central bank’s determination is not changed as long as core inflation has not peaked. Chiming in on the timelines floated by colleagues he concurred that the terminal rate could be reached by the summer, dropping the possibility that this might need another four 50bp hikes. That would be 75bp more than our economists are expecting currently, but Holzmann is also one of the most hawkish members of the ECB. And it may also reflect a view that rates should remain the ECB’s primary monetary policy tool, as he noted that the central bank should be cautious about moving too quickly on quantitative tightening – perhaps somewhat surprising coming from a hawk. All segments of the euro swap curve are now inverted Source: Refinitiv, ING EGB spreads tighten despite supply deluge Currently the ECB is slated to melt off its APP portfolio by €15bn per month starting in March and continuing at that pace through the second quarter. If we assume a doubling of that pace starting in the second half of the year and look at the overall shifting balance of government debt that will have to be digested by private investors, one can see where Holzmann's caution may stem from: The effective net supply of European government bonds (EGB) to private investors taking into account the ECB portfolio changes could rise to €600bn, an increase of €400bn over last year. Effective EGB net supply to private investors could rise to €600bn Yet so far European government bond spreads over their Bund peers have continued to narrow in the first weeks of the year. The first bulk of syndicated bond deals has been straddled and more generally risk sentiment has improved as the worst of recession fears have been placated by easing energy prices and China starting to reopen. Yesterday's chatter about possibly more joint EU financing to provide a European counterweight to the US green investment plans is also helping. 10Y Italian bonds have retightened towards 180bp, having stood at around 210bp at the turn of the year. Outperforming were Greek bonds, though, helped by market expectations that they could regain investment grade status already this year.   Euro sovereigns need to find a lot more demand for their debt this year Source: Refinitiv, ING Today's events and market view Today’s main release is the US CPI data. Expectations are largely geared towards a softer reading which would confirm market pricing converging towards a 25bp Fed hike in February. As such, the surprise impact of a higher reading than expected could be larger, as it would give more credence to the ongoing hawkish yet ineffective tones coming from the Fed. To that end we will hear from the Fed’s Bullard after the data today. He is one of the hawkish Fed speakers, although he is not a voter in the Federal Open Market Committee this year. Other speakers are the Fed’s Harker and Barkin.   Other data releases today are the US initial jobless claims. In the eurozone the main focus should be on the ECB's consumer expectations survey and its inflation measures. In the past, ECB proponents of quicker action such as the ECB's Schnabel have also drawn on these indicators to flag the risks of deanchoring inflation expectations.  In supply the focus is on the 30Y US Treasury auction while in the eurozone we will see bond auctions from Spain and – in smaller size after the recent 20Y bond syndication – Italy. Read this article on THINK TagsRates Daily 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
Commodity: The World's Two Biggest Commodity Consuming Nations, Both Delivered Price Softening News

Aluminium, Copper And Iron Ore Rose To New Highs, The EUR/USD Pair Broke Above 1.0760

Saxo Bank Saxo Bank 12.01.2023 09:32
Summary:  US stocks rallied as yields fell ahead of the CPI release later today where a softer reading is widely expected. Key to watch in the inflation release will be the services ex-housing print, and significant volatility can be expected due to large hedging flows. Oil prices higher despite inventory builds. Meanwhile, the metals space continues to run hot amid positive sentiment from China’s reopening and policy stimulus, with Aluminum, Iron Ore and Copper all rising to fresh highs. Gold also held onto its recent gains, but could be ripe for a temporary correction with CPI on the radar.   What’s happening in markets? Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) rallied on lower bond yields, short covering, and optimism of upcoming CPI data potentially soft With relatively quiet corporate headlines, S&P 500 gained 1.3% and Nasdaq 100 advanced 1.8% as bond yields slid. The interest rate-sensitive real estate sector, up 3.6%, was the top winner within the S&P 500 Index, followed by consumer discretionary and information technology. Traders notably covered some of their shorts ahead of today’s CPI as the most-shorted names were among the best performers on Wednesday. The Nasdaq 100 closed above its 50 day moving average. Meanwhile, the S&P 500 (US500.I) rose for the second day and closed at the high of the day. Tesla and Amazon shares trade at key levels; but caution is thick in the air Indeed these were some of the standouts share on Wednesday with Tesla shares up 3.7% after failing to move above a key resistance level. It appears there is some skepticism about the rally as Tesla is selling less EVs than its making and is cutting prices in China. Amazon meanwhile, gained 5.8%, closing near its high of the day and around 15% up from its low last Friday, and moved further above its 50-day moving average. These are positive signs. US Treasuries (TLT:xnas, IEF:xnas, SHY:xnas) rallied on dovish ECB comments, strong 10-year auction U.S. Treasuries were well bid through European hours in tandem with German bunds which rallied on dovish remarks from a typically hawkish Holzmann, an ECB Governing Council member. Treasuries held on to their gains and traded sideways for the most part of the New York session before rallying further with yields on the long-end falling further on a strong 10-year note auction. Yields on the 10-year were 8bps richer to 3.54%. Yields on the 2-year were off by 3bps to 4.22, bringing the 2-10-year curve 5bps more inverted to -68. Boston Fed’s Collins (non-voter) said she would “lean at this stage to 25 [basis point hike], but it’s very data-dependent.” Traders’ focus is now on the CPI data scheduled to release today. What to watch in Australia and Asia: Oil rises for 5th day, Iron ore clears $120, copper rises to six month high entering a bull market The Australian share market (ASXSP200.I) rose 1% in early trade, with Hong Kong’s market futures in the positive, as well as Japan’s futures. A major focus will be on resources, with the oil price jumping 3% to $77.41, as well as focus on industrial metal equites, that will likely rally again on optimism of China’s reopening, which has pushed some commodities into bull markets. The Copper price rose to $4.18 on the Comex market, rising 2.5% in New York, taking its rally of its July 2022 low to 29%. With copper at $9000 per tonne for the first time since June, Goldman thinks it could hit $11,500 by year-end. Copper remains Saxo’s preferred metal for its use in electrification and urbanisation (for more click here). Popular copper equities include BHP, Oz Minerals, Rio Tinto. Meanwhile, iron ore (SCOA) cleared $120 for the first time in 6-months, with the iron ore price up 54% from its October low. BHP is trading at its highest level in history. It makes 48.7% of its revenue from iron ore, 26.7% from copper and the remainder from coal. It has a PE of 8 times earnings, and a dividend yield of 13.8%. Rio Tinto also trades near its all-time high and it’s also involved in the key metals mention too; making 58% of its revenue from iron ore, 11% from copper, and the rest from aluminum and others. Rio’s PE is 6.8 times earnings, its dividend yield is 8.6%. Hong Kong’s Hang Seng (HIF3) and China’s CSI300 (03188:xhkg) pared gains after making a 6-month high After having taken out the top of trading range resistance and making a six-month new high, Hang Seng Index pared most of the gains to finish the Wednesday session up only 0.5%. Alibaba (09988:xhkg) gained 3.1% on the news report that the eCommerce platform giant entered into a strategic cooperation agreement with the municipal government of Hangzhou and a People’s Daily article sounded complimentary to the Ant Group. Air China (00753:xhkg) dropped by 1.2% and China Southern Airlines (01055:xhkg) shed 1.5% following China suspended issuing visas to visitors from South Korea and Japan. EV names gained even though the China Passenger Car Association (CPCA) dismissed the speculation on the relaxation of licensing restrictions in Beijing. EV maker BYD (01211:xhkg) and coal miner China Shenhua Energy (01088:xhkg), each rising around 4.7%, were the two top winners within the Hang Seng Index. Mainland China’s CSI300 was down 0.2%. Stocks in coal mining, oil and gas exploration, and development industries gained. FX: USDJPY drops below 132 on possible BOJ action next week The USD was range-bound on Wednesday as it awaited the key US CPI release, despite a drop in yields taking the 10-year yields closer to 3.50% support once again. Fed member Susan Collins, although a non-voter, she is leaning towards a 25bps hike at the February 1st meeting although the data will help guide her decision, adding further dovish hints in the day. However she still favoured rates above 5% and a pause thereafter throughout 2023. EURUSD broke above 1.0760 and EURCHF rose above parity for the first time since July. ECB’s De Cos said he sees “significant” rate hikes at the upcoming meetings. USDJPY saw a big move lower in the Asian morning to drop below 132 from highs of 132.88 yesterday with expectations of BOJ likely considering further tweaks to its YCC policy (read below). FX watch: Australian trade data surged beyond expectations. US CPI next catalyst for AUDUSD Australia’s trade balance data released today, rose well beyond expectations, with the trade balance surging to $13.2 billion, when consensus expected exports and imports to have fallen considerably in November, with the market expecting the surplus would fall from $12.2 billion to $11.3 billion. This data shows that trade has been improving, well ahead of China’s easing of restrictions – which is a positive sign. The AUD rallied to 69.18 US, which is the level it hit yesterday after Australian inflation and retail data came out hotter than expected. The next resistance level is a psychological one, 0.700 for the AUD vs the USD. However, if core US CPI comes out hotter than expected (5.7% YoY), then a hotter USD may pressure the AUD back down. Our Head of FX Strategy suggests if that happens the AUD could drop back to another support level. However the next few days are pivotal. Click for more on FX. Crude oil (CLG3 & LCOH3) prices continue higher on China story Crude oil prices rallied again overnight as signs of improving Chinese demand boosted sentiment. Chinese buyers have become active in the physical market, with Unipec snapping up about 3-4mbbl of US crude for March and April in recent days. This comes following news that China had issued a fresh batch of import quotas as it reopens following years of COVID-19 restrictions. Supply was supported by a huge build in US inventories, but could not dampen the price sentiment as higher inventories was expected. US crude oil stocks jumped 19m barrels last week, the biggest since Feb 2021, driven by a 2m b/d drop in exports to 2.1m b/d. WTI futures rose above $77.50/barrel while Brent got in close sight of $83. No stopping the gains in metals space, yet Industrial metals continued to march higher on positive signals from China on Zero Covid and policy stimulus. An apparent peak in infections follow the sudden dropping of COVID-19 restrictions has raised the prospect of an earlier than expected jump in industrial activity. Pent up consumer demand is likely to add to the clamour for metals. Aluminium, copper and iron ore, all rose to new highs. Iron ore (SCOF3) could be potentially ripe for a reversal, given China’s warning on tightening the supervision on iron ore pricing on Friday to crack down on speculators. Meanwhile, Copper’s gains to $4.16 have also been fast and could see scope for a correction, but the sharply improved technical outlook and limited investor positioning may drive it higher still in the short term. Gold (XAUUSD) sees correction risks ahead of CPI Gold prices are hovering around an 8-month high, but our Head of Commodity Strategy sees risk of correction even if ‘lower-than-expected’ CPI print sends gold higher to test the resistance level around $1900. He sees potential of profit taking emerge. He says, “Gold’s price action during the past week has in my opinion showed us the correct direction for 2023, but while the direction is correct, I believe the timing could be wrong.”  Read next: The EUR/USD Pair Maintains A Steady Upward Trend, The Aussie Pair Keeps Close To 0.69| FXMAG.COM What to consider? US CPI remains the most key data point to watch 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. 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. Apple plans to use its own displays in mobile devices Apple (AAPL:xnas) aims to its own custom displays in the consumer electronic giant’s mobile devices starting in 2024, as opposed to procuring from Samsung and LG. It is the latest move in a series of initiatives from Apple to reduce reliance on sourcing components from partners, including chips from Broadcom and modems from Qualcomm. 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. Signs of wage growth in Japan; could we see more action from BOJ next week? The fast-fashion Japanese retailer Uniqlo (owned by Fast Retailing) is set to hike pay for many full-time staff in Japan by as much as 40% and will raise the salary for newly hired graduates by over 17%. Bank of Japan Governor Kuroda has long stated that inflation is only rising sustainably if Japanese wages also begin to rise in line with commodity and other input costs. Meanwhile, Yomuiri reported that BOJ officials will review the side effects of the ultra-easy monetary policy at their policy meeting next week, opening the door for further adjusting the yield curve control policy or the bond-buying as the central bank continues to see 10-year yields testing the new upper limit of 0.5%. Fast Retailing (9983:xtks) reports earnings today and a 10th straight quarter of operating profit growth is seen, although the pace of growth is likely to slow amid China’s lockdowns in the November-ended quarter and fading FX benefits. TSMC (TSM:xnys) reporting Q4 results, 1H23 outlook and overseas expansion plans key to watch Given the industry-wide inventory overhang, investors will be closing monitoring the world’s largest foundry’s 1H2023 revenue outlook when TSMC reports Q4 2022 results today. Investors will also pay much attention to the management’s comments on TSMC’s plans for building manufacturing capacities outside of Taiwan and mainland China which have implications on margins and capex spending. For Q4 results, analysts surveyed by Bloomberg, on average, are forecasting revenues coming at TWD636 billion and adjusted earnings at TWD11.087 per share. 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: US CPI day, Bank of Japan policy tweak speculation – 12 January 2023 | Saxo Group (home.saxo)
Czech National Bank Prepares for Possible Rate Cut in November

CPI In China Rose, US CPI Print Are For A Rise For The Year-On-Year At 6.5%

Saxo Bank Saxo Bank 12.01.2023 09:40
Summary:  Markets have charged higher again, seemingly confident that today’s US December CPI data won’t provide any pushback against this rally, which is pulling up into the psychologically important 4,000 area in the US S&P 500 Index. Elsewhere, the USD remains on its back foot on hopes for a soft CPI print, while EURCHF has suddenly pulled above parity for the first time in over six months in a delayed reaction to ECB hawkishness. Oil jumped.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures extended momentum all the way up to the falling 200-day moving average closing at 3,990 and in early trading this morning the index futures are hovering around the 200-day moving average. This average was hit back in mid-December before US equities were weighed down by hawkish central bank comments and sold off into New Year. Today’s US December CPI report is naturally the key report to watch today as the previous three inflation reports have caused significant volatility over the release. If the market gets it lower inflation print then S&P 500 futures might push above 4,000 and even all the way up to 4,050. Hong Kong’s Hang Seng (HIF3) and China’s CSI300 (03188:xhkg) After making a new six-month high this morning, Hang Seng Index reversed and pared gains. Profit-taking weighed on recent policy beneficiaries, such as mainland Chinese property developers, domestic consumption names, mega-cap internet stocks, and Macao casino operators. Shares of EV makers bucked the market trend of retracement to advance, led by BYD (01211:xhkg) up 5.7%. FIT Hong Teng (06088:xhkg), a subsidiary of Foxconn, soared 23% on speculation that the company might replace GoerTek (002241:xsec) to assemble AirPods for Apple. In A-shares, defense, aerospace, auto industrial equipment and wind power outperformed as the domestic consumption space retraced. As of writing, Hang Seng Index and CSI300 edged up around 0.3%. FX: USD still low, JPY resurgent. EURCHF blasts higher The greenback remains on its back foot coming into today’s US December CPI release, with market players likely very unclear around the reaction function (more on that below in What’s Next?) to in-line or even soft data today. EURUSD etched marginal new highs above 1.0760 yesterday, but clearly faces a test over today’s data and may have been driven yesterday by flows in EURCHF, which suddenly bursts out of its range and traded well above parity – likely on the hawkish ECB outlook finally sending the pair over the edge. ECB’s De Cos said he sees “significant” rate hikes at the upcoming meetings, while ECB’s Holzmann soft-pedaled the message on QT, saying he was very cautious on moving too fast.  USDJPY dipped on the news flow overnight as described below, and many other USD pairs are still within recent ranges, if toward important USD support in places, especially AUDUSD. Crude oil (CLG3 & LCOH3) remains supported by China recovery story Crude oil prices rallied strongly on Wednesday with the improved outlook for Chinese demand and the softer dollar driving a fifth day of gains. Chinese buyers have become active in the physical market, with Unipec snapping up about 3-4mbbl of US crude for March and April in recent days. This comes following news that China had issued a fresh batch of import quotas as it reopens following years of COVID-19 restrictions. Supply was supported by a huge 19m barrels build in US inventories, the biggest since Feb 2021, but it could not dampen the positive price sentiment as higher inventories was expected after the late December cold blast reduced exports while temporarily shutting down some refineries. Fresh momentum was seen in both WTI and Brent after breaking their 21-day moving averages, now offering support at $76.35 and $81.65 respectively. Gold sees raised correction risk as US CPI looms Gold’s price action and gains during the past week has in our opinion showed us the correct direction for 2023, but while the direction is correct, we believe the timing could be wrong, and with momentum showing signs of slowing ahead of key resistance around $1900, and a potential weaker-than-forecast US CPI print today having been priced in, the risk of correction has risen. Pent-up demand in China ahead of the Lunar New Year may soon fade, while India’s demand may slow as traders adapt to the higher price level. In addition, we have yet to see demand for ETF’s, often used by long-term focused investors, spring back to life with total holdings still hovering around a near two-year low at 2923 tons. The next major hurdle for gold being $1896, the 61.8% retracement of the 2022 correction, with support around $1865 followed by $1826, the 21-day moving average. US Treasuries (TLT:xnas, IEF:xnas, SHY:xnas) yields drop, strong 10-year auction supports The US 10-year yield dropped back toward 3.50% support overnight after falling some 7-basis point yesterday, supported in part by a solid US 10-year auction, with bidding metrics sharply improving relative to the prior couple of weak auctions. The 2-10 year yield slope inverted back toward –70 basis points. Treasuries may find additional support if today’s December US CPI report proves softer than expected. Read next: Discussion Of Bank Representatives On Financing The Ecological Transformation | FXMAG.COM What is going on? The Eurozone economy is more resilient than forecasted Economic surprises are improving significantly in the eurozone. The consensus forecasts a drop in GDP of minus 0.1% this year. Based on hard data, this seems excessively conservative. It is bound to be revised up, in our view. The German economy is especially very resilient. While gas consumption has collapsed by double digits, industry output has remained largely flat. This is a remarkable achievement. Based on the latest data on industrial production (for the month of November), it looks like there will be no recession in German industry in Q4. However, the year 2023 will be challenging in the eurozone: credit stress is on the rise (this is the first time in a decade we start the year with European IG credit yield above the 4 % level), and the market will need to absorb about 700bn euros of liquidity due to the ECB quantitative tightening. Metals pause after powering higher on China optimism Industrial metals are pausing ahead of today’s CPI print and after having marched higher on positive signals from China on Zero Covid and policy stimulus. An apparent peak in infections follow the sudden dropping of COVID-19 restrictions has raised the prospect of an earlier than expected jump in industrial activity. Pent up consumer demand is likely to add to the clamour for metals. Aluminium, copper and iron ore, all rose to new highs on Wednesday. Iron ore (SCOF3) could be potentially ripe for a reversal, given China’s warning on tightening the supervision on iron ore pricing on Friday to crack down on speculators. Meanwhile, Copper’s year-to-date gain of 9% to near $4.20 has also been fast and could see scope for a correction, but the sharply improved technical outlook and limited investor positioning may continue to provide some support in the short term. USDJPY drops below 132 on possible BOJ action next week The Bank of Japan meets next Wednesday and may be set to guide for further policy tweaks after a regional Bank of Japan report released overnight . In other news in Japan, the Yomiuri newspaper reported that the BoJ will review the side effects of its policy at next week’s meeting and a quarterly Bank of Japan report raised its assessment of the economy in four of Japan’s nine regions, noting that in “there were many cases where companies were increasing winter bonus payments, or plan to hike wages.” Also JPY-supportive, preliminary data from Japan’s Ministry of Finance suggest that Japan’s life insurers sold a record amount of foreign bonds last month. CPI and PPI inflation remained low in China CPI in China rose to 1.8% y/y in December from 1.6% in November, in line with expectations. The rise was due to a low base and on CPI was unchanged m/m. Excluding food and energy, core CPI came in at 0.7% y/y in December, edging up slightly from 0.6% y/y in November. The change in PPI however rebounded less than expected to -0.7% y/y versus -0.1% expected and -1.3% y/y in November. TSMC Q4 earnings beat estimates The world’s largest foundry of semiconductors beat on net income in Q4 driven by gross margin at 62.2% vs est. 60.1%. TSMC says company to face margin headwinds in 2023 with revenue growth slowing down. CAPEX in 2023 is expected at $32-36bn vs est. $35bn against $36bn in 2022. The company is considering a second manufacturing plant in Japan and a new automotive chips plant in Europe. It has also expanded its 28nm production in China and is planning to mass produce its new 2nm in 2025 in its facilities in Taiwan. Fast Retailing sees big miss in Q1 operating income The parent company behind the Japanese fashion retailer Uniqlo reports Q1 operating income of JPY 117bn vs est. JPY140bn but maintains its outlook for profit and revenue growth amid its commitment from yesterday to raise wages up to 40% for its Japanese retail workers. KB Home outlook hit by interest rates When the price of capital goes up the demand on homes often goes down, and this is exactly what KB Home is experiencing. The US homebuilder reported Q4 EPS of $2.47 vs est. $2.86, but it was the FY23 outlook of revenue between $5bn and $6bn missing the consensus of $6bn in revenue, but with new orders down 80% more profit warnings could come during the year. What are we watching next? WASDE report on tap with grain traders watching stock levels The Bloomberg Grains Index, rangebound for the past six month has opened a new trading year with a loss of 3.5% primarily driven by lower wheat prices on ample supply from the Black Sea region, will receive some fundamental input later today when the US Department of Agriculture releases its monthly supply and demand report. Market estimates point to a trimming of the global corn and soybeans inventories, while wheat is expected to show a small rise. US inventories, meanwhile, is expected to rise across the board driven by weakness in Chinese demand and strong competition from overseas supplies, in part due to the dollar. Also focus on Argentina where an ongoing drought may drive a 6% reduction in the country's soy and corn output. US December CPI up today – what is the reaction function? The latest CPI data out of the US is the next important test for global markets, which seem confident that the Fed will not only halt its policy tightening soon after perhaps 50 basis points of further tightening but will even cut rates cuts by year-end. The US CPI releases have triggered considerable volatility in recent months, and the November CPI release on December 13 ullustrates the potentially treacherous reaction pattern to this data points, as softer than expected inflation levels reported saw risk asset jump aggressively as US treasury yields eased, only for the equity market move to get erased within hours and the US yields to bottom out on the following day. Consensus expectations for today’s CPI print are for a fall in the month-on-month headline data of –0.1% and a rise for the year-on-year at 6.5% versus +7.1% in November. The core, ex Food and Energy number is expected to rise +0.3% MoM and +5.7% YoY vs. +6.0% YoY in November and a peak rate of 6.6% last September. Earnings to watch The Q4 earnings season kicks off tomorrow with banking earnings from Bank of America, JPMorgan Chase, and Citigroup with consensus expecting earnings to continue contracting among US banks before coming back to growth in 2023. The key uncertainty is credit quality in 2023 as it is linked to the degree of a recession or maybe no recession at all in the US economy. With higher interest rates level expectations are that banking revenue will slowly begin to accelerate and if high interest rates persist for an extended period, the longer-term growth for banks could be quite attractive. In addition, US banks have extended credit at the fastest pace in 2022 since the year leading up to the Great Financial Crisis. Overall, the Q4 earnings season is likely going to see an extension of value and tangible companies performing better than intangible-driven companies. Today: 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 Economic calendar highlights for today (times GMT) 1330 – US December CPI 1330 – US Weekly Initial Jobless Claims 1345 – US Fed’s Harker (voter 2023) to discuss economic outlook 1530 – EIA Natural Gas Storage Change 1630 – US Fed’s Bullard (non-voter) to speak 1700 – UK Bank of England’s Mann to speak 1700 – USDA's World Agriculture Supply and Demand Estimates (WASDE) Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher
Further Downside Of The AUD/JPY Cross Pair Is Expected

The Australian Dollar Might Draw Support From Rising Bets

TeleTrade Comments TeleTrade Comments 12.01.2023 10:02
AUD/USD surrenders modest intraday gains and retreats below the 0.6900 mark in the last hour. The cautious market mood lends some support to the safe-haven buck and acts as a headwind. Bets for an additional RBA rate hike in February should limit losses ahead of the key US CPI. The AUD/USD pair struggles to capitalize on its modest intraday gains and fails near the 0.6925-0.6930 supply zone for the third straight day on Thursday. Spot prices retreat below the 0.6900 mark during the early part of the European session and refresh the daily low in the last hour, though the downside seems limited. The Australian Dollar might draw support from rising bets for an additional interest rate hike by the Reserve Bank of Australia (RBA) in February, bolstered by Wednesday's hotter domestic inflation data. In fact, the Australian Bureau of Statistics reported that the headline Consumer Price Index (CPI) re-accelerated to the 7.3% YoY rate - a 32-year-high - in November from the 6.9% in the previous month. Apart from this, subdued US Dollar price action could act as a tailwind for the AUD/USD pair, at least for the time being. The USD Index, which measures the greenback's performance against a basket of currencies, languishes near a multi-month low amid diminishing odds for a more aggressive tightening by the Fed. A slowdown in the US wage growth was seen as the initial sign of easing inflationary pressures, which could allow the US central bank to soften its hawkish stance. This leads to a further decline in the US Treasury bond yields and weighs on the buck. That said, the cautious mood helps limit any further losses for the safe-haven USD. Read next:Discussion Of Bank Representatives On Financing The Ecological Transformation | FXMAG.COM The anxiety ahead of Thursday's release of the latest US consumer inflation figures tempers investors' appetite for perceived riskier assets. This is evident from a softer tone around the equity markets, which is seen benefitting the greenback's relative safe-haven status and capping the upside for the risk-sensitive Aussie. Hence, the focus remains on the crucial US CPI report, due later during the early North American session.
All Eyes On Capitol Hill, Jerome Powell Will Appear Before The Senate Banking Committee

The Fed Will Most Likely Be More Deliberate In Its Decisions

Jakub Novak Jakub Novak 12.01.2023 10:29
While market players await the crucial inflation data from last year, which could trigger another rally, three leading Chicago Fed economists said the Fed will raise rates by one more percentage point before announcing that it has reached the ceiling so it will end the monetary policy tightening. Randall Kroszner Economists predict that rates will peak around 5.5% and stay there for a long time, keeping prices of everything from food to fuel in check. "I do think the Fed is going to keep rates at the highs for a while," said Randall Kroszner, a former Fed governor. "Even if inflation falls by 200 basis points over the year, or maybe even 300 basis points, the Fed will still keep rates at 5.5%," he added. Inflation  Inflation jumped to a 40-year high last year as global demand for goods and services recovered. Although prices have fallen since then, they are still well above the Fed's 2% target, making the bank realize that they missed the appropriate time they should have started to raise rates. Of course, if no more problems arise in the market and if the situation remains stable, economic recession will still be avoided. Interest rates Fed officials increased interest rates to 4.3% last month and forecasted that it will reach 5.1% this year. This is entirely different from the path they took back in the 1970s, when inflation began to slow. It was probably because the decision before was a fatal mistake as prices began to rise sharply again, leading to a crisis in the economy. Read next: Pietro Beccari Will Be The Louis Vuitton’s CEO, Departures Several Top Executives At Rivian| FXMAG.COM The Fed has not lost confidence in the markets Although today's data may indicate that inflation remains under control, the Fed will most likely be more deliberate in its decisions. At least, that is what many market participants are hoping for. But many experts say there is a vast difference between the late 1970s, early 1980s and today as it is obvious that the Fed has not lost confidence in the markets. If events unfold in this way, a rate hike will probably lead to a mild recession later this year, but it will only be short-lived. EUR/USD In terms of the forex market, there are still chances of hitting new monthly highs in EUR/USD as long as buyers manage to push euro to 1.0760. That will spur the pair to rise above 1.0790 and reach 1.0850. But if pressure returns and sellers get ahold of 1.0760, euro will collapse to 1.0720 and head to 1.0680 or as low as 1.0650. GBP/USD In GBP/USD, the rally is gradually slowing down, which means that buyers need to stay above 1.2120 in order to maintain their advantage. Only the breakdown of 1.2180 will push pound to 1.2240 and 1.2300 as a return of pressure around 1.2120 is likely to result in a collapse to 1.2060 and 1.2010.   Relevance up to 08:00 2023-01-13 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/332086
EUR/USD: Looking beyond the market’s trust issues with the Fed and ECB

Saxo Bank Podcast: Why The Euro Is Strong, Weak Housing News And More

Saxo Bank Saxo Bank 12.01.2023 10:40
Summary:  Today we look at global equity markets gunning for more to the upside, apparently expecting a benign US CPI release today and pricing in a soft landing scenario as long treasury yields settled back lower after a strong US 10-year treasury auction yesterday. We also look at a resurgent JPY, why the euro is strong, but some thoughts on longer term caution, coffee and grains in commodities, the latest expansion plans abroad from TSMC, weak housing news but strong housing stocks & more. Today's pod features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are available via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Read next: Pietro Beccari Will Be The Louis Vuitton’s CEO, Departures Several Top Executives At Rivian| FXMAG.COM   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: Podcast: Market showing no fear ahead of US CPI | Saxo Group (home.saxo)
The ECB Has Made It Clear That Rates Will Remain High Until There Is Evidence That Inflation Is Falling Toward The Target

The Members Of The European Central Bank Remain Hawkish So The ECB Will Raise Rates At The February Meeting By 50 Points

InstaForex Analysis InstaForex Analysis 12.01.2023 10:50
The European Central Bank continues to demonstrate a hawkish attitude amid contradictory data on inflation growth in the eurozone. Last week, a report on the growth of the consumer price index was published. The overall CPI was in the red zone, falling to 9.2% (with a forecast decline to 9.6%). While core inflation, excluding volatile energy and food prices, on the contrary, continued to gain momentum, rising to a record 5.2%. Energy prices  The structure of the report suggests that the growth of energy prices slowed down in December to almost 26%. While food, alcohol and tobacco rose in price by almost 14%, services increased in price by 4.4%, and industrial goods by 6.4% (in November – by 6.1%). This suggests that the decline in overall inflation is due to warm weather in the European region: the purchase price of gas in European countries in December was almost five times lower than in August. The cheapening of the blue fuel had an impact on electricity prices, as many European power plants produce electricity using gas. In particular, in France, the purchase price of electricity at the end of August exceeded €1,000 per megawatt-hour, and at the end of last month it dropped to €240. Germany also contributed to the slowdown in overall inflation: last month, German government provided a one-time compensation for electricity bills. The slowdown in the overall CPI In other words, the slowdown in the overall CPI was not due to the ECB but Mother Nature, which spoils the European region this year with warm days. The growth of the core consumer price index indicates that the problem of high inflation has not only not been resolved, but is getting worse. The ECB Hawkishness Representatives of the European Central Bank understand this very well, and therefore do not lower the degree of intensity in their rhetoric. Moreover, members of the ECB have been sounding clear hawkish signals lately. For example, Latvian central bank governor Martins Kazaks said that he expects a "significant" rate increase at the February and March meetings, after which the steps could become "less as necessary." We are talking about two 50-point rate hikes. The ECB could then slow the pace of monetary tightening to 25 bps. Isabel Schnabel ECB Governing Council member Isabel Schnabel also called for further rate hikes this week, as "inflation will not subside on its own." In turn, Austrian central bank chief Robert Holzmann said there are no signs of weakening market expectations regarding inflation at the moment. However, he added that rates would need to "raise significantly to reach levels sufficiently restrictive to ensure that inflation returns to the target level." His colleague, Bank of Finland Governor Olli Rehn, made a similar statement yesterday, saying that rates should be raised significantly "in the next couple of meetings" to keep inflation in check. The ECB will raise rates As you can see, the members of the European Central Bank remain hawkish, at least in the context of the next two meetings. However, they prefer not to specify where the final point of the current cycle of tightening monetary policy is. For example, French central bank chief Francois Villeroy de Galhau said last week that it was desirable to peak interest rates by summer, "but it's too early to say at what level." At the same time, he stressed that rates will remain at the peak level "for as long as necessary." Thus, now we can say with confidence that the ECB will raise rates at the February meeting by 50 points and very likely by the same amount at the March meeting. This scenario is the base case despite a slowdown in overall inflation in the euro area. EUR/USD Meanwhile, the prospect of a 50-point Fed rate hike at the February meeting is highly questionable. For now, the CME FedWatch Tool says there is a 74 percent chance of a 25 basis point rate hike next month. If today's U.S. inflation report comes out at least at the predicted level (not to mention the red zone), the probability of the 25-point scenario will increase to 80%–90%. In this case, the difference in interest rates between the U.S. and Europe will continue to shrink, and this circumstance will provide background support to the euro. However, this fundamental factor will play on the side of the euro even before the actual implementation—the hawkish attitude of the ECB against the background of slowing inflation in the United States will allow buyers of EUR/USD to organize another offensive upward, to the borders of the 8th figure. Technically, the pair is currently testing the upper line of the Bollinger Bands indicator on the daily chart, which corresponds to 1.0750. Overcoming this target will open the way not only to the next price barrier at 1.0800, but also to the main resistance level at 1.0930 (the upper line of the Bollinger Bands indicator, coinciding with the upper boundary of the Kumo cloud on the W1 timeframe). A slowdown in U.S. inflation, a softening of the Fed's rhetoric, and an increase in the hawkish mood of the ECB will create the necessary information background for the implementation of the upward scenario.   Relevance up to 09:00 2023-01-13 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/332090
From UFOs to Financial Fires: A Week of Bizarre Events Shakes the World

The Fed Doesn’t Want To Be Responsible For A Needlessly Sharp Downturn

Craig Erlam Craig Erlam 12.01.2023 11:53
European equity markets opened cautiously higher on Thursday, following a mixed session in Asia amid nerves around the US inflation release later in the day. This inflation print has been the main topic of conversation all week. The jobs report last Friday changed the dynamic in the markets and ensured that not only was this CPI report going to be important but in all likelihood pivotal ahead of next month’s Fed meeting. We’ve gone from inflation declining but the labour market being stubbornly tight to both appearing to sing from the same hymn sheet. Cracks are appearing in the economy following a very aggressive tightening cycle that’s leading to cooling demand, prices, and wage demands. Unemployment remains low as employers have been reluctant to lay people off but there’s every chance that will follow. The Fed doesn’t want to be responsible for a needlessly sharp downturn and the lag effect of monetary policy means that is a risk when the central bank is raising rates as aggressively as they have been. Another good inflation report today, particularly on the core side, will give policymakers more than enough reason to slow the pace of tightening further and even lower the terminal rate projections in March if it continues. Read next: The New Disney Drama: Disney Is Opposing Activist-Investor Nelson Peltz| FXMAG.COM Bitcoin buoyed by risk recovery Bitcoin is capitalising on the improvement in risk appetite that we’re seeing in the broader markets, rallying more than 4% today before paring gains just shy of the December peak. After weeks of treading water between $16,000 and $17,000, cryptos have been given new life by the jobs report and the risk rally that has ensued. Another positive inflation reading today could see it trading at levels not seen since the early days of the FTX collapse. ​ 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 USD/JPY Price Seems To Be Optimistic

The USD/JPY Pair Drop To 130, The Aussie Pair Keeps Trading Above 0.69$

Kamila Szypuła Kamila Szypuła 12.01.2023 14:22
Financial markets started Thursday with optimism putting some pressure on the US dollar, although activity remained subdued ahead of the release of the US Consumer Price Index (CPI). Traders, meanwhile, seem reluctant to place aggressive bets and prefer to wait for the release of US consumer inflation data on Thursday. The headline CPI is expected to rise by 6.5% in the 12 months to December, much better than previously at 7.1%, and further decline from a multi-year high of 9.1% recorded in June. Investors will pay particular attention to the underlying reading, which excludes fluctuations in food and energy prices. Core inflation peaked at 6.6% y/y in September, falling to 6% in November. A key US CPI report should clarify whether the Fed will need to raise its interest rate target above 5% to curb stubbornly high inflation. December inflation data from the US may significantly affect the valuation of the US dollar. Apart from inflation data, the US will publish preliminary jobless claims data for the week. USD/JPY The yen gained ground on Thursday amid expectations that the Bank of Japan will review the side effects of monetary easing. Due to the strengthening of the yen, USD/JPY fell to the level of 130.7030. Overall, the yen also indirectly benefited from the more dovish move markets are pricing in for the Federal Reserve. Markets are clearly pricing in a Fed turnaround that will come early after weaker US economic data earlier this month. The upcoming BOJ meeting, expectations of an upward revision of the bank's inflation forecast, and the imminent announcement of a new BOJ chairman are also likely to fuel expectations for a change in policy. Read next: The New Disney Drama: Disney Is Opposing Activist-Investor Nelson Peltz| FXMAG.COM EUR/USD The EUR/USD daily chart has seen an impressive series of green candles this year, extending its rally from deep below par that started in September 2022. EUR/USD keeps trading above 1.0750. On the “EUR” side, further interest rate hikes from the European Central Bank are expected. The bottom line is that expectations for future interest rate support will continue to favor the euro. GBP/USD The GBP/USD Pair lost the momentum of its rebound and dropped below 1.2150 ahead of Thursday's US session amid cautious market sentiment. The short-term technical outlook suggests that GBP/USD's bullish bias remains intact. What's more, the pound fell to its lowest level since late September on Wednesday as the rising euro hit a seven-month high amid hawkish messages from European Central Bank officials. AUD/USD In the Asian session, the pair traded above 0.69, only in the European session did it drop below this level. Currently, the pair of the Australian has regained strength and again trades above $0.6910 The Australian and New Zealand dollars rose on Thursday as markets assumed incoming US data would confirm a cooling in inflation, while Australia boasted a surprisingly large trade surplus amid falling imports. Local data showed how Australia continued to benefit from being a net exporter of resources when commodity prices were still relatively high. The country's trade surplus rose to A$13.2bn ($9.13bn) in November, well above forecasts. Source: dailyfx.com, finance.yahoo.com, investing.com
The Commodities Digest: US Crude Oil Inventories Decline Amidst Growing Supply Risks

All Eyes On US Inflation Data!, Bitcoin Rebounds

Swissquote Bank Swissquote Bank 12.01.2023 14:29
Today is the most important day of the trading week, in terms of economic data release, as the US will reveal its latest CPI update, and it could be a make-or-break moment for the market sentiment. Consumer price inflation  Consumer price inflation in the US probably eased to 6.5%, from 7.1% printed a month earlier. Core inflation fell to 6% at last release, from a peak of 6.6% printed for October, and is expected to fall further to 5.7% y-o-y.US equities extended gains yesterday, on hope that softening inflation will further boost the Fed doves. Today’s US inflation data will help move things, to one side or the other. But keep in mind that there is room for decent hawkish pricing given that the money markets still price that the US interest rates will top around 4.9%, while the Fed officials are struggling to convince investors that they will go above 5%. Watch the full episode to find out more! 0:00 Intro 0:26 All eyes on US inflation data! 3:27 Why inflation may not ease smoothly this year? 5:51 Some bank analysts see EURUSD at 1.15 7:01 Short sterling? 7:51 Bitcoin rebounds as FTX finds $5bn to repay customers 8:36 Why bonds are better alternative for dovish Fed bets? Read next: The USD/JPY Pair Drop To 130, The Aussie Pair Keeps Trading Above 0.69$| FXMAG.COM 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. #US #CPI #inflation #Fed #China #expectations #USD #EUR #GBP #JPY #crude #oil #copper #Bitcoin #FTX #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      
Polish Inflation Declines in July, Paving the Way for September Rate Cut

The UK GDP Data Is Likely To Show A Decrease

InstaForex Analysis InstaForex Analysis 13.01.2023 08:20
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
Gold Traded Softer In Response To Dollar Strength, The Bank Of Japan Left Its Policy Levers Unchanged

A Softer US Inflation Data Helps Gold, The Japanese Yen Was The Biggest Gainer

Saxo Bank Saxo Bank 13.01.2023 09:03
Summary:  A Fed downshift to 25bp hikes may be firmer in the cards with the in-line 0.3% M/M increase in the core CPI bringing the measure to 3.1% on a three-month annualized basis. Yields on the 10-year Treasury notes plunged 10bps to 3.44% and the S&P 500 closed just below its 200-DMA. The Japanese Yen was the biggest winner in the currency space on speculation for further policy shifts by the BOJ next week. Bank of America, JPMorgan Chase, and Citigroup report Q4 earnings today.   What’s happening in markets? Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) advanced on CPI prints supporting a Fed downshift U.S. stocks climbed, following CPI data that support the Fed to slow the pace of rate hike to 25bps in February. Nasdaq 100 gained 0.5% and S&P 500 edged up 0.3%. Closing at 3983.17, the S&P 500 has its 200-day moving average of 3,984.39 within reach. Energy, rising 1.9, was the best-performing sector within the S&P 500 as WTI crude oil climbed over 1% to USD78.29. Interest rate-sensitive REITS was the other top winning sector. American Airlines (AAL:xnys) surged 9.7% on upbeat revenue growth and earnings guidance and a debt reduction plan.   US Treasuries (TLT:xnas, IEF:xnas, SHY:xnas) rallied, yields on the 10-year sliding to 3.44% After choppy initial reactions when traders digested the CPI prints, U.S. Treasuries advanced and their yields slid decisively. The headline and core CPIs in December were in line with expectations. Investors noted the decline of the core inflation on a three-month annualised basis to 3.1% and the softness in core services excluding shelter and concluded that the Fed is on track to downshift to a 25bp hike in February. Comments from Fed’s Harker (voter) that “hikes of 25bps will be appropriate going forward” added conviction to the notion. The strong results from the USD18 billion 30-year auction saw yields on the long end richer further. Yields on the 10-year finished the session 10bps lower to 3.44% and those on the 2-year were 4bps lower to 4.12%. In Australia and Asia today focus is on; risk-on assets, Oil, Iron Ore and Copper charging The Australian share market (ASXSP200.I) opened 0.8% higher, with most other Asian markets are set to open in the positive. Ahead of Australia’s company reporting season kicking off next month, we’re thinking we could likely see many commodities companies upgrade their outlooks for 2023, expecting higher earnings as many resources prices have quickly entered bull markets amid China easing restrictions sooner than expected. However today, eyes will once again be on commodities and affiliated equites; as the oil price jumped for the 6th day, moving up to $78.30, after rising 1.1%, The copper price rose 0.1% to $4.17 on the COMEX market in New York. Iron ore (SCOA) is 0.6% higher at $123, a new 6-month high. Hong Kong’s Hang Seng (HIF3) and China’s CSI300 (03188:xhkg) traded sideways on profit taking After making a new six-month high, Hang Seng Index reversed and pared gains to finish Thursday only 0.4% higher. Profit-taking weighed on recent policy beneficiaries, such as mainland Chinese property developers, domestic consumption names, mega-cap internet stocks, and Macao casino operators. Country Garden, down 6.3%, was the biggest loser within the Hang Seng Index. Shares of EV makers bucked the market trend of retracement to advance, led by BYD (01211:xhkg) which was up 5.3% and was the top winner among Hang Seng Index constituents. NetEase (09999:xhkg) outperformed other China internet names with a 3.7% gain on collaborating with the state-owned CCTV to broadcast the Lunar New Year gala on the company’s metaverse platform. FIT Hong Teng (06088:xhkg), a subsidiary of Foxconn, soared 17.2% on speculation that the company might replace GoerTek (002241:xsec) to assemble AirPods for Apple. In A-shares, telecommunication, electric equipment, EV, non-bank financials, and new energy outperformed as the domestic consumption space retraced. CSI300 climbed 0.2%. FX watch; Australian dollar is on the heels of 0.70 US After US CPI data showed US prices have continued to fall, the US dollar vs the AUD continued to fall, taking its fall from its peak to 10%. Inversely, Australia's trade balance data released yesterday, as well as Aussie retail and Aussie CPI earlier in the week, plus the all-important easing of China’s restrictions sooner than expected, all support upside in the AUD. As such the Aussie versus the US rallied to new four-month highs, 69.67 US. The next resistance level, the psychological 70.00 US is the next hurdle to get over. Aussie home loan data released today is the next catalyst to watch. If it’s stronger than expected, the AUDUSD could march on up. FX: USDJPY crumbles on weaker USD and BOJ speculation The Japanese yen was the biggest gainer on Thursday, boosted both by lower US yields as well as speculation around a policy tweak by the Bank of Japan at the next week’s meeting. USDJPY slid from 132.50 to 129 handle. Japanese 10-year bonds continued to test the upper limit of the permitted trading band, and rose higher to 0.53% in early Asian hours testing the central bank’s resolve on a dovish policy. EURUSD broke above 1.08 to fresh highs of 1.0867 with expectations of Fed-ECB divergence setting a bullish tone. Crude oil (CLG3 & LCOH3) rounding in at about 6% gains for the week Crude oil prices gained further on Thursday amid the risk on tone set by further softening in inflation pressures. China’s steady commitment to reopen the economy and provide a stimulus to the economy continued to support sentiment this week, along with Chinese buyers become more active in the physical market as import quotas were increased. WTI futures rose to $79/barrel while Brent moved above $84/barrel. Gold (XAUUSD) reached $1900 on expectations of Fed downshift Gold saw another rally with a softer inflation print in the US bolstering the case for a further downshift in the Fed’s rate hike trajectory. A broadly dovish tone from the Fed members also saw a plunge in US yields and weighed on the USD, helping support gains in Gold as well. Silver outperformed gold, and platinum and palladium gained as well.    Read next: GM, Ford, Google And Solar Producers Would Work Together To Set Standards For Increasing The Use Of VPPs| FXMAG.COM What to consider? US CPI boosts the case for a Fed downshift A further slowdown was seen in US CPI last night, with the headline sliding to 6.5% YoY as expected from 7.1% YoY in November, stepping into the disinflationary territory on a m/m basis with a negative 0.1% print from +0.1% previously. Core inflation also eased in-line with expectations to 5.7% YoY in December from 6.0% YoY previously but still higher on m/m basis at 0.3% from 0.2% in November. Services inflation was still higher, being the more sticky component of inflation, but with six consecutive months of softening in inflation, the Fed could take some comfort that its tightening moves are working. Market is pricing in another step down at the Fed’s next decision on Feb 1 to 25bps rate hike, but the terminal rate pricing still stands at sub-5% levels compared to a unanimous voice from the FOMC members calling for rates over 5%. Meanwhile, US jobless claims unexpectedly fell to 205,000 from a revised 206,000 the previous week, suggesting labor market is still tight. Continuing claims also surprisingly improved, dropping to 1.63 million from 1.7 million. Fed members also signal a further downshift Patrick Harker (voter) said 25-bp increases "will be appropriate going forward" after data showed inflation moderating. Thomas Barkin (non-voter) also emphasised that Fed has more work to do, although he signalled that "it makes sense to steer more deliberately." Bullard was relatively more hawkish, but he also doesn’t vote this year. He said that he favors getting the benchmark above 5% as soon as possible before holding. US Bank earnings kickstart today US banking earnings kick off the Q4 earnings season today, most notably from Bank of Bank of America, JPMorgan Chase, and Citigroup. Analysts remain muted on US banks with earnings expected to show another quarter of negative growth compared to a year ago. Peter Garnry, Saxo’s Head of Equity Strategy, wrote in his recent article that the interest rate shock had been bad for banking earnings and activity levels across the investment banking division. As credit portfolios have an average maturity of around seven years banks will slowly begin rolling their assets into higher interest rate levels which will begin to accelerate their net revenue figures improving profitability over time. If the US economy just experience a shallow recession in real terms and strong nominal growth then US banks should be considered as a good tactical trade over the coming years. CPI and PPI inflation remained low in China CPI in China rose to 1.8% y/y in December from 1.6% in November, in line with expectations. The year-on-year growth was due to a low base. On a month-on-month basis, CPI was unchanged in December. Excluding food and energy, core CPI came in at 0.7% y/y in December, edging up slightly from 0.6% y/y in November but remaining subdued. The change in PPI rebounded less than expected to -0.7% y/y versus -0.1% expected and -1.3% y/y in November. Deflation in the processing sector narrowed to -2.7% Y/Y in December from -3.2% Y/Y in November. The mining component in the PPI swung to 1.7% Y/Y in December from -3.9% Y/Y in November. TSMC (TSM:xnys) Q4 earnings beating estimates, expecting revenue decline and CAPEX cuts in 2023 The world’s largest foundry of semiconductors beats on net income in Q4 driven by a gross margin of 62.2% versus the 60.1% expected. TSMC says the company is to face margin headwinds in 2023 with revenue growth slowing down. For Q1 2023, the management expects revenues to fall to between USD16.7 billion and USD17.5 billion from USD17.57 billion in Q1 2022. CAPEX in 2023 is expected to be between USD32 billion and USD36 billion, against $36bn in 2022. The company is considering a second manufacturing plant in Japan and a new automotive chips plant in Europe. It has also expanded its 28nm production in China and is planning to mass produce its new 2nm in 2025 in its facilities in Taiwan. TSMC expects that revenues of the global semiconductor industry, excluding memory chips, to fall 4% in 2023. 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.   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: Softer US CPI supports Fed downshift, Bank earnings ahead - 13 January 2023 | Saxo Group (home.saxo)
Korea: Consumer inflation moderated more than expected in February

The BoK Would Pause This Time Considering The Recent Slowdown In Inflation

ING Economics ING Economics 13.01.2023 10:00
The Bank of Korea (BoK) raised its policy rate to 3.50% from 3.25%. The big question now is whether this will be the end of the current hike cycle. We expect the BoK to top out at 3.50% but the central bank seems to want to leave the door open for further hikes as inflation remains high 3.50% 7-day repo rate   As expected The BoK board is divided on rate hikes Today's rate hike decision was not unanimous as expected, with two members disagreeing about today's 25bp hike call. At the press conference, Governor Rhee Chang-Yong said that board members have different opinions on the terminal rate level over the next three-month horizon. Three members see the terminal rate at 3.5% and the other three think that 3.75% should not be ruled out.  Although we thought the BoK would pause this time considering the recent slowdown in inflation and growing concerns over growth, resuming rate hikes in February, the BoK seems to have focused more on the high inflation figure rather than the fact it is on a downward trend, as the uncertainty over inflation is still large. The BoK also announced today that the short-term market stabilisation measures will be extended for another three months until the end of April. The short-term financial market has been stabilising since last November, but the risks surrounding PF financing and credit markets are still significant. This extension will therefore support improving market liquidity.   It ain't over till it's over Listening to Governor Rhee, it is clear he was trying not to give a definite answer to the market about whether this will be the end of the current hike cycle or not. But in his remarks about inflation, growth and the housing market, we understood that the BoK is primarily focused on stabilising inflation. Thus, if inflation does not go down faster than expected, there will continue to be the possibility of further rate hikes.  As for the economic outlook, the current inflation path is in line with the current BoK's forecast (3.4% year-on-year), while growth is expected to fall short of the current forecast of 1.7% YoY. Rhee added that the economy may have contracted in the fourth quarter mainly due to sluggish exports and domestic demand, but GDP in the first quarter is expected to rebound on the back of fiscal spending, better-than-expected growth in the US and EU, and the possibility of a rapid recovery in China based on the latest preliminary data. It seems to us that the BoK believes the economy is heading for (a mild) recovery after bottoming out last quarter. The first half of this year will be tough, but it is still too early to tell whether the economy will fall into recession. Regarding the recent housing market adjustment, Rhee drew a line that monetary policy should not target a specific sector of the economy, and that the recent easing measures would not likely reverse the housing market situation.  We still think the BoK has ended its tightening cycle We believe that inflation is going to slow down faster in the coming months. Global commodity prices continued to fall over the last quarter and the strengthening Korean won will likely lighten the burden on domestic pass-through inflation. Today's import price index levelled down from 14.0% in November to 9.1% in December. We expect CPI to decelerate to the 4% level in the first quarter despite the recent hikes in utilities and gasoline prices.   As for growth, weak growth in the fourth quarter could provide a technical rebound in the first quarter. However, as interest rates have remained in restrictive territory for more than three months, the negative impact of the interest rate hike on the economy is expected to increase. Credit market conditions have been stabilising mainly due to supportive policy and has helped companies raise operating funds, but it is not expected to encourage companies to invest in Capex given the high level of interest rates. As for consumption, a temporary rebound can be seen in December as weather-related consumption should rebound and impact of the tragic Itaewon crowd crush should fade. But, the debt service burden on households will likely weigh on consumption, and labour market conditions also seem to be weakening. We have to closely monitor how China's Covid-19 situation evolves, but in our view, the positive impact is expected to materialise in the second half of the year.  Thus, apart from the hawkish comments from the BoK, we think that the central bank will take a pause for a while on rate hikes. We maintain our rate cut call in the second half of this year.  BoK is expected to stand pat for a while Source: BoK, ING estimates Read this article on THINK TagsKorea monetary policy Korea inflation 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
Energy Companies Will Likely Reveal Another Excellent Quarter

Energy Companies Will Likely Reveal Another Excellent Quarter

Swissquote Bank Swissquote Bank 13.01.2023 10:44
US inflation came in line with expectations. The kneejerk market reaction to the data was surprisingly negative, but the major US stock indices extended rally, while the US dollar dropped sharply. S&P500  The S&P500 ended the session at a very important technical level – the index is now testing the ceiling of the 2022 bearish trend and the 200-DMA to the upside. The 200-DMA has not been broken since April 2022, and has, so far, acted as a sign to sell the top. It could take more (…better-than-expected earnings) to clear resistance around 3990-4000 range. Tech stocks will likely deliver their second straight quarter of negative growth From now, investors’ focus will shift to earnings. According to FactSet, the S&P500 companies could post earnings growth of -4.1% for the Q4. Energy companies and tech stocks are an exception to this, of course. Energy companies will likely reveal another excellent quarter due to high energy prices, while tech stocks will likely deliver their second straight quarter of negative growth, with a decent 9.5% contraction expected across the sector. But don’t forget that high expectations are difficult to beat, while low expectations are easier to beat, and the prices move regarding where the results fall compared to expectations. Read next: The USD/JPY Pair Drop To 130, The Aussie Pair Keeps Trading Above 0.69$| FXMAG.COM Q4 results Today, big US banks including JP Morgan, Citigroup, Bank of New York, Bank of America and Wells Fargo will reveal their Q4 results. Watch the full episode to find out more! 0:00 Intro 0:27 US inflation in line with expectations… 3:47 … boost expectation of slower Fed rate hikes 4:34 USD depreciates 6:29 S&P500 tests key resistance, but needs more to extend gains 8:07 S&P500 earnings are expected to fall in Q4 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. #US #CPI #inflation #Fed #expectations #USD #EUR #GBP #JPY #XAU #crude #oil #earnings #season #US #big #banks #TSM #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        
Romanian retail sales confirm economic slowdown

Inflation Data Shows That The National Bank Of Romania Sees No Possibility Of Further Hikes This Year

ING Economics ING Economics 13.01.2023 11:38
At 16.4%, inflation in December was very close to the central bank’s 16.3% estimate and not far from our own forecast of 16.6%. With the peak in inflation safely behind us now and a gradual downward trend to follow throughout 2023, we remain of the opinion that there is very limited scope for more policy tightening and rate cuts can even be envisaged in late 2023   Given the relatively small forecast error, there are few eye-catching components to be highlighted in the December inflation. The major contribution to the slightly lower-than-expected headline number came from fuel prices which declined by over one percentage point more than we estimated. By extension, the entire non-food category witnessed a price dop of 0.3% versus the previous month, with food items advancing by 1.3% and services by 0.7%. Inflation (YoY%) and components (ppt) Source: NSI, ING   Looking into 2023, the inflation profile appears fairly well-behaved, to the extent that double-digit inflation lasting until the third quarter can be described that way. Nevertheless, strong base effects are at play and together with the extension of energy price capping and compensation schemes until 31 March 2025 should provide somewhat more reliable estimates compared to 2022 and even 2021.   The one area we still find relatively problematic to grasp for 2023 and even beyond (setting aside the geopolitics, supply chain disruptions, etc.) is the impact of the wage pressures in the overall CPI. The latest wage data suggests that the average net wage advance in 2022 will be around 12.0%. While this is obviously below the 13.8% average inflation rate in 2022, we argue that the difference is not that sizeable and very likely one of the smallest in the EU. Moreover, we see a good chance that the negative difference will be largely compensated for in 2023. Wages holding up quite well Source: NSI, ING   In all fairness, these robust wage advances will not necessarily trigger a consumption boom, but they should at least preserve purchasing power. While we do not anticipate a price-wage spiral, close attention should be paid to the topic, especially bearing in mind the approaching electoral cycle.   As mentioned in our National Bank of Romania review, we see little scope for more hikes this year. Today’s inflation data reinforces our view. If needed, the NBR will probably make good use of its already deep know-how in managing interbank liquidity, in order to achieve its objectives. We expect the FX rate to hold around current levels at least through spring, while money market rates (say the three-month one) might even have some more room to the downside. 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
Polish Inflation Declines in July, Paving the Way for September Rate Cut

The UK Economy Is Sputtering, GDP For November Outperformed With a 0.1% Gain

Kenny Fisher Kenny Fisher 13.01.2023 12:54
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.  
Asia Morning Bites: Inflation Data in Focus, FOMC, ECB, and BoJ Meetings Ahead

There Will Be No Conditions For Interest Rate Cuts In Poland This Year

ING Economics ING Economics 13.01.2023 14:06
December CPI inflation was confirmed at 16.6% YoY. It moderated on the monthly decline in energy prices. The core inflation is trending upwards and the peak in headline CPI inflation is still ahead. In 2023, we expect disinflation alongside global trends, but elevated core inflation will leave no room for the National Bank of Poland's rate cuts this year   December flash CPI confirmed The preliminary estimate of December inflation was confirmed at 16.6% year-on-year, up from 17.5% YoY in November, although monthly growth was slightly revised down to 0.1% from 0.2% month-on-month. Growth of goods prices eased to 17.6% YoY from 18.8% a month earlier, while services price inflation rose to 13.4% YoY from 13.2%. Cheaper fuel prices than in November were accompanied by a strong reduction in heating prices (-10.8% YoY). This mainly stemmed from a sharp decline in coal for heating purposes, which was linked, among other things, to the intervention purchase of coal on foreign markets and its distribution at subsidised prices. Food prices continue to rise robustly. In December last year, foodstuffs were on average 22.1% more expensive than a year earlier. The monthly growth of clothing and footwear is also noteworthy as it went against the typical seasonal pattern. Despite the marked decline in the headline inflation rate, core inflation continues on an upward trend, rising to 11.6% YoY (our estimate) from 11.4% YoY in November. The increase in month-on-month core inflation in December slowed slightly, but is still very high by historical standards. The peak of inflation is still ahead of us, possibly February 2023. While the jump in petrol prices at the beginning of the year, when VAT on fuel rose from 8% to 23%, was avoided, thanks to the pricing policy of a major player in the fuel market, we are still facing increases in energy prices for households in January linked to higher indirect tax rates. More importantly, the beginning of the year is also traditionally the time for companies to update their price lists, so some of the inflationary pressures observed in previous months will be reflected in price rises in early 2023. Signals from the economy show that in some sectors, the barrier of weak demand is insufficient to prevent large price increases. Enterprises still need to adjust prices to higher costs, eg wholesale electricity and gas prices grew at triple-digit levels. Examples from recent weeks include increases in train fares. In our view, the peak CPI will be around 20% YoY. Disinflation expected in 2023, but core inflation will remain elevated This year will be marked by disinflation, from around 20% YoY to around 10% in December. But in our opinion, there will be no conditions for interest rate cuts this year due to stubbornly high core inflation. Companies continue to face the consequences of the energy crisis (including increased distribution rates for electricity and gas, as well as more expensive energy in new contracts for wholesale users), forcing them to pass on higher costs to the prices of their products. At the same time, high wage pressures persist in sectors benefiting from high energy prices (mining, energy). Indexation processes (high indexation of pensions, 20% rise in minimum wage, and price indexation in intercompany contracts) will limit the rate of inflation decline. In our assessment, the attention of the central banks in the coming quarters should focus on core inflation, so as not to succumb to the illusion of falling price pressures associated with a reversal of the trend in energy markets. Core prices (other than food and energy) will be a better gauge of underlying price developments in the economy. We maintain our view that the problem is the persistence of core inflation. Poland, with its election cycle and the overhang of high energy prices, is exposed to the risk of slow disinflation and the persistence of elevated inflation when the economy rebounds. There will be no conditions for interest rate cuts in Poland this year. However, the decline in headline CPI should dominate global markets. But the bond markets are behaving (pricing in rate cuts just after the last rate hike) as if they are ignoring the fact that the pandemic and war have permanently altered (raised) inflation and neutral rates globally. Read this article on THINK TagsPoland National Bank CPI inflation 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
Spanish economy picks up sharply in February

In Spain Core Inflation Rose More Sharply Than Expected In December

ING Economics ING Economics 13.01.2023 14:10
The final inflation figures show that Spanish core inflation strongly accelerated to 7% in December, from 6.3% in November. Although lower energy prices have brought some temporary relief to headline inflation, this shows that inflationary pressures are still very high Spanish core inflation above headline inflation for the first time The final inflation figures and details by component revealed by Spain's statistics office INE this morning show that core inflation rose more sharply than expected in December. The core CPI reached 7% in December, a new record, and a strong acceleration from the 6.3% in November. As a result, core inflation is now above headline inflation for the first time. This shows that the underlying price pressures in the economy are still at record levels. The current drop in headline inflation to 5.7% is thus solely due to the recent sharp fall in energy prices, such as electricity and fuels. Thanks to warm winter weather, gas stocks in Europe are above the five-year average, easing some pressure on energy markets. These favourable base effects in the energy component bring some relief to headline inflation. Spanish core inflation above headline inflation for the first time Underlying inflationary pressures will remain high Although the coming headline inflation will fall further thanks to these favourable base effects for energy, inflationary pressures in the rest of the economy will remain high. Besides core inflation, the food component will also continue to contribute positively to inflation figures. The details show that food prices continued to rise further to 15.7% year-on-year in December, from 15.3% the month before. This puts food inflation at its highest level since measurements began in January 1994. Food inflation will also remain high in 2023. Moreover, fertiliser exports were severely disrupted last year, which might also affect global food production in 2023. In other eurozone countries, favourable base effects in the energy component will cause further declines in headline inflation in the coming months. However, the ECB will not determine its policy based on the more volatile energy prices but will mainly look at whether core inflation is cooling sustainably. It will therefore be careful to announce a policy reversal before core inflation also starts to fall. Moreover, we should not forget that energy prices will rise again later in 2023, especially if a reopening of the Chinese economy drives up demand for liquefied natural gas. Read this article on THINK TagsSpain Inflation 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
Kiwi Faces Depreciation Pressure: RBNZ Expected to Hold Rates Amidst Downward Momentum

The UK Economy Is Still Under Immense Strain, The Bank Of Korea May Be The First To End Raising Rates

Craig Erlam Craig Erlam 13.01.2023 14:48
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.
The Results Of The March Meeting Of The Bank Of Japan Are Rather Symbolic

Inflation Hasn't Peaked Yet In Japan And Is Likely To Hit 4.0% In Early 2023

ING Economics ING Economics 14.01.2023 10:07
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
The Bank of Korea Is Likely To Respond With A Rate Cut In The Second Half Of 2023

The Bank of Korea Is Likely To Respond With A Rate Cut In The Second Half Of 2023

ING Economics ING Economics 14.01.2023 10:17
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
Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

The European Union Inflation Is Showing Signs Of Cooling Down

Kamila Szypuła Kamila Szypuła 14.01.2023 11:30
The eurozone economy came under tremendous pressure in the aftermath of Russia's invasion of Ukraine in February 2022, when energy and food costs soared last year. In an effort to fight rising prices, the European Central Bank raised interest rates four times in 2022. Previous data The reopening of the European economy in 2021 after the sudden shock of COVID-19 in 2020 is behind a number of factors that have driven prices up so rapidly in recent months. Global supply chains have yet to recover from production issues, travel restrictions, and labor issues caused by the pandemic. Rising energy costs have only exacerbated supply problems, especially in the transport sector. Europe and most of the world were already hit by soaring energy prices - which contribute to inflation - even before Russia invaded Ukraine in late February. The conflict has exacerbated the energy crisis, fueling global fears that it could lead to an interruption of oil or natural gas supplies from Russia. Moscow said in September that it would not fully resume gas supplies to Europe until the West lifted sanctions. Russia typically supplies around 40 percent of Europe's natural gas. Euro area annual inflation is expected to be 9.2% in December 2022, down from 10.1% in November according to a flash estimate from Eurostat, the statistical office of the European Union. Of the components of inflation, energy continued to be the biggest driver in December, but declined from previous levels. According to the latest data, energy costs fell from 34.9% in November to around 25.7% in December. Unusually high temperatures in the fall and winter drove energy prices back to pre-war levels. In terms of countries, the Baltic states once again recorded the highest spikes in inflation, which amounted to around 20%.The Baltic countries continue to be the hardest hit. In particular, Latvia experiences the highest level of inflation in the Eurozone, which stood at 20.7 percent in December (down from 21.7 percent in November), compared to 7.4 percent a year ago. The sharpest fall in inflation was in Estonia, one of the countries where prices rose the most in recent months, where it fell to 17.5 percent. in December compared to 21.4 percent. Source: investing.com Inflation estimate Currently, the December inflation reading is expected to maintain the previous level (9.2%) and stay above 9% this time. Source: investing.com HICP To facilitate country comparisons, EU Member States calculate the Consumer Price Index according to international definitions and methods. The European Central Bank (ECB) uses the HICP to formulate its monetary policy in the euro area. In addition, most countries produce their own national consumer price index. Prices rose the fastest in Hungary, where the inflation rate was 23.1%. By contrast, Spain's inflation rate was 6.7%, the lowest in the EU this month. Inflation in the EU last month was higher than ever before. ECB interest rate While the new figures are undoubtedly positive, inflation in Europe remains well above the European Central Bank's (ECB) target of keeping the eurozone below 2%. Despite further signs that inflation is coming down, analysts say it is too early to celebrate and do not expect a return from the region's central bank. In an effort to fight rising prices, the European Central Bank raised interest rates four times in 2022 and has said it will likely continue to do so this year. The bank's main interest rate is currently 2%. Speaking earlier this week, ECB Governing Council member and Bank of France governor Francois Villeroy de Galhau said interest rates could peak this summer. We must expect that the ECB would be prepared to remain at the terminal rate as long necessary Source: investing.com
Philippines’ central bank hikes rates after blowout CPI report

Philippines: The Potent Mix Of Resurgent Demand, Currency Depreciation And Elevated Commodity Prices Have All Contributed To A Pickup In Price Pressures

ING Economics ING Economics 15.01.2023 12:44
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
Singapore's non-oil domestic exports shrank 20.6% year-on-year

Singapore: Inflation And Rapid Tightening From Global Central Banks Forced Aggressive Action From the Monetary Authority of Singapore

ING Economics ING Economics 15.01.2023 12:49
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
India: Reserve Bank hikes and keeps tightening stance

India: Inflation Has Shown Clear Signs Of Peaking Out

ING Economics ING Economics 15.01.2023 16:42
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
The RBA Raised The Rates By 25bp As Expected

Australia: GDP Growth Is Expected To Slow To A Sub-2% Pace In 2023

ING Economics ING Economics 15.01.2023 16:48
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
US Nonfarm Payrolls Disappoint: Impact on Dollar and EUR/USD Analysis

Analysis Suggests That Markets Usually Trough Around The Same Time As The Macroeconomic Data

Franklin Templeton Franklin Templeton 15.01.2023 17:28
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.
China: PMI positively surprises the market

The CNY Is Expected To Strengthen Against The Dollar As The Economy Picks Up And The US Enters A Recession

ING Economics ING Economics 15.01.2023 17:33
China has drastically eased its Covid-19 measures. Both domestic mobility and international traffic should increase in 2023. But the question is in which quarter? The current Covid wave could last at least a few months. By then, the US and EU will likely be in recession, hurting China's exports. We also worry about the fiscal deficit getting bigger In this article China: At a glance 3 calls for 2023 It is really about timing when it comes to the question of economic recovery External demand to be weaker in 2023 Fiscal deficit could become an issue, and unconventional monetary policy could become a norm   China is set to lift its quarantine requirement for inbound travellers China: At a glance The Chinese economy has slowed since the second quarter of 2022, mainly due to strict Covid measures that disrupted port and land logistics, retail sales and catering, and caused temporary shutdowns of factories in some key manufacturing locations. Even when restrictions were eased, a mixture of a weak domestic economy and high external inflation hit manufacturing in the fourth quarter of 2022. In addition, real estate developers have struggled to get enough cash to complete residential projects. This triggered a slew of easing measures for real estate developers to get financing via banks, stock and debt markets in the fourth quarter. The fragile economy means there has been no inflation pressure at all, and luckily no deflation. The People's Bank of China (PBoC) has used re-lending programmes to inject liquidity into specific areas, such as small and medium-sized enterprises and real estate. Conventional interest rates and required reserve ratios were not used frequently as those tools were not effective when there were Covid restrictions. The strong dollar combined with the weak Chinese economy resulted in a weak Chinese yuan (CNY) in 2022. GDP and inflation outlooks CEIC, ING estimates 3 calls for 2023 1 It is really about timing when it comes to the question of economic recovery Most Covid-19 measures were removed in December 2022. The removal of mandatory quarantine when entering Mainland China suggests that business travel will resume soon, even with the current spike in Covid cases as people in most locations outside China have become used to living with the virus. Residents could start to visit Hong Kong to get medicines and healthcare services, and then later in the year they could begin to travel to foreign countries for leisure activities. We believe that leisure travel into Mainland China could resume from the Easter holidays. Retail sales should recover, and the current Covid wave should ease after a few months (although it's difficult to gauge the timing), which should minimise the risk of supply chain disruptions. 2 External demand to be weaker in 2023 The US and Europe have been China's second and third top export destinations respectively. According to our house forecasts, the timing of recession in the US and Europe should be around the first half of 2023, and therefore should not overlap with the peak export season of the fourth quarter. But whether export demand can recover after the recession is still in question. China's trade with ASEAN – the number one export destination for China – and the rest of Asia also depend on the consumer market in the US and Europe. Both exports and imports could enter yearly contraction in the first half of 2023. Trade could recover towards the second half when domestic and external economies recover. 3 Fiscal deficit could become an issue, and unconventional monetary policy could become a norm The fiscal deficit has not previously been an issue for China. But Covid and the real estate crisis have changed this. The fiscal deficit-to-GDP will be around 8% by the end of 2022, which is higher than the historical high (data goes back to December 1995) of 6.2% in the fourth quarter of 2020. The fiscal deficit-to-GDP should remain at 8% in 2023 even if there is much less spending on Covid tests and quarantines. Fiscal spending on high-tech development will increase. As for monetary policy, the PBoC may choose to stay on hold next year as the central bank has hesitated to lower the 7D interest rate any further to avoid falling into a liquidity trap. We do not expect the PBoC to cut the required reserve ratio or interest rates in 2023. That said, the re-lending programme for specific targets should continue at least into the first half of 2023. Further liquidity injections via the re-lending programme in the second half will depend on the speed of recovery of real estate developers and external markets. We expect the CNY to strengthen against the dollar as the economy picks up and the US enters a recession.  China forecast summary table CEIC, ING estimates TagsUSDCNY PBoC Fiscal 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
UK Budget: Short-term positives to be met with medium-term caution

The UK Economy Expects A Slightly Fall In Inflation, Expected To Fall By 0.1%

Kamila Szypuła Kamila Szypuła 15.01.2023 18:56
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
Monitoring Hungary: Glimmering light at the end of the tunnel

In Hungary Both Core And Headline Inflation Ending Up

ING Economics ING Economics 16.01.2023 13:03
On the one hand, Hungary has joined its regional peers with headline inflation delivering a downside surprise. On the other hand, it is still moving higher. The lifting of fuel price caps has pushed inflation up while underlying inflation strengthened too. The good news is the peak might be close Hungary removed the fuel price cap on 7 December 24.5% Headline inflation (YoY) Consensus 25.8% / Previous 22.5% Lower than expected Highest inflation in 27 years Inflation in Hungary continues to surge, but not as much as the market expected. Headline inflation came in at 24.5% year-on-year, which is the result of a 1.9% month-on-month price increase. The main culprit behind the monthly acceleration is the motor fuel component, which didn’t catch markets off guard as it was a result of the lifted fuel price cap. But we have some ideas about what the market missed, resulting in the downside surprise. Main drivers of the change in headline CPI (%) Source: HCSO, ING The details After months of stagnation (due to price caps) fuel prices emerged as the most important contributor to the acceleration in inflation. The fuel price cap was removed on 7 December, which resulted in long-brewing inflationary pressure on households. Motor fuel prices rose by 24.4% on a monthly basis, but the entire effect was not registered in December’s data due to methodological issues. We see an additional inflationary impact from this item in January due to technicalities and further rising prices.  Food prices registered a 44.8% year-on-year increase. While processed food prices posted a 3.0% month-on-month increase, the price of unprocessed food decreased by 0.3% on a monthly basis. The good news is that the overall 2.1% MoM food inflation was the lowest in 2022 and responsible for the vast majority of the downside surprise in the headline reading. The bad news is that the overall picture remains bleak especially as basic food caps will remain with us until the end of April and retailers face a higher tax burden from January. The biggest surprise came from the fuel and power component, where prices decreased by 6% MoM shaving off around 0.5ppt from the headline inflation print. The main driver was natural gas with an 11.8% price decrease from November to December. This is attributed to favourable (warmer) weather conditions and demand destruction caused by the reshaped utility bill support scheme. The volume of household gas usage dropped by 23% in December, thus the consumption by a larger proportion of consumers fell below the quantity limit of the lower gas price, resulting in a decrease in the estimated average gas price. The composition of headline inflation (ppt) Source: HCSO, ING Core inflation remains above headline Core inflation jumped to 24.8% year-on-year, remaining above headline inflation by a mere 0.3ppt. On a monthly basis, core inflation posted a 1.6% increase, mainly due to processed food and services. In all, the downside surprise in headline inflation is a result of non-core elements, while underlying price pressure remains significant. According to our estimates, 54% of the items in the consumer basket already showed at least a 20% YoY inflation figure in December. Headline and underlying inflation measures (% YoY) Source: HCSO, ING We are not out of the woods yet We expect a further acceleration in headline inflation. One key source of it will be the fuel price impact. The usual start-of-the-year repricing in retail could also be stronger than history suggests, especially considering the changes in wages and taxes. This will impact processed food and services prices. The wild card will be the energy price of households in January. The moderation of energy consumption due to the two-tiered price system in electricity and natural gas, and the warmer-than-usual winter might reduce the average monthly bill value in utilities. In all, we see headline and core inflation starting the year at around 25.2% YoY followed by some sideway moves before starting a gradual descent during the second quarter of 2023. We see both core and headline inflation ending up in the range of 18-19% when it comes to the full-year average. Too early for the central bank to pull the trigger Even with the December downside surprise, we don’t think that the National Bank of Hungary (NBH) will be ready to pull the trigger on a monetary policy pivot. The Monetary Council wants to see a trend improvement in risk perceptions; thus, it is adopting a patient approach. Though global market sentiment has improved a lot since the last rate-setting meeting, the central bank might want to see more of the same. Unless there is an unexpectedly significant forint strengthening in the coming weeks, we see the NBH sticking to the temporary, targeted measures and to the 18% marginal rate until late March. By then we might see a long-enough period of improved global risk-taking and evidence of a peak in Hungarian inflation. The March Inflation Report (thus the updated staff projection) would be an ideal time to announce the start of the gradual turnaround. Read this article on THINK TagsMonetary Policy Inflation Hungary Forecast CPI 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 ECB Has Made It Clear That Rates Will Remain High Until There Is Evidence That Inflation Is Falling Toward The Target

The Economic Outlook For The Eurozone Appears Brighter

Kenny Fisher Kenny Fisher 16.01.2023 13:15
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.
Technical Analysis: Gold/Silver Ratio Still On The Rise

Optimism Forced Investors To Actively Buy U.S. Stocks, Gold And Silver

InstaForex Analysis InstaForex Analysis 16.01.2023 14:17
Market participants continue to react to the bullish market sentiment created by the CPI report, which was released on Thursday last week. Inflation was 6.5% year-over-year, marking the sixth consecutive month that inflation has declined from a peak of 9.1% in June. According to the U.S. Bureau of Labor Statistics, after a 0.1% increase in November, consumer price index for all urban consumers (CPI-U) fell by 0.1% in December on a seasonally adjusted basis. And the all items index, before seasonal adjustment, increased by 6.5% for the year. Core CPI inflation (excluding food and energy costs) rose 5.7% YoY, up 0.3% from the previous month. Although inflationary pressures have eased, the core consumer price index is still about three times the Federal Reserve's target of 2%. At the same time, optimism forced investors to actively buy U.S. stocks, gold, and silver. However, they did not base market sentiment on recent Fed statements. The caveat is that the Federal Reserve has repeatedly reaffirmed its unwavering determination to keep interest rates high throughout 2023. Many analysts believe that the Fed is bluffing because current rates are not sustainable throughout the year. Others feel that their vows to be transparent simply no longer exists. U.S. equities, gold, and silver have benefited from this sentiment, leading to a strong rally in gold and silver, as well as moderate gains in major stock indices. Dow added 0.33%: S&P 500 added 0.40%: and the NASDAQ Composite Index added 0.70%: Gold up $24.20: Silver up $0.41: If the Fed continues on its course of tightening, it could lead to one of the biggest Fed blunders in recent history. The Fed's days of data dependency only seem to matter when the data supports their assumptions   Relevance up to 10:00 2023-01-19 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/332378
Wage agreement may be game-changing in a way. First meeting of the new BoJ Governor Ueda takes place on April 28th

The Bank Of Japan Is Expected To Increase Its Inflation Forecast At The Meeting

Kenny Fisher Kenny Fisher 17.01.2023 13:13
The Japanese yen is in calm waters on Tuesday, as the Bank of Japan’s two-day meeting starts today. In the European session, USD/JPY is trading at 128.76, up 0.18%. Markets eye BOJ meeting The markets are keeping a close eye on the BOJ meeting. The central bank shocked the markets at the December meeting with a policy tweak that widened the bank around 10-year JBs to 0.50%, up from 0.25%. The speculation that the BOJ could follow through with additional moves at this meeting has pushed USD/JPY back below the 130 level. On Monday, USD/JPY touched 127.21, its lowest level since May. It seems likely that further moves are coming from the BOJ, but it’s unclear whether the BOJ will announce the changes on Wednesday or will wait until the new BOJ Governor takes over in April. Unlike the Fed, the BOJ appears to have no interest in telegraphing its plans and is keeping mum, which is making this meeting that much more dramatic. I expect to see some volatility from USD/JPY on Wednesday – if the BOJ does make any policy tweaks, the yen will likely continue to improve. Conversely, if the BOJ maintains the status quo, traders will be disappointed at the lack of action and the yen would likely lose ground. The BOJ has spent over six trillion yen ($86 billion) since Friday to defend its new 0.50% cap on 10 JGB, as sellers continue to flood the bond market. The central bank could widen the band to 0.75% or make a radical change and discard its yield curve control altogether. Let’s not forget that the BOJ is expected to increase its inflation forecast at the meeting, which would mark a step closer to normalization and would be bullish for the yen. USD/JPY Technical There is resistance at 129.40 and 130.82 128.40 and 127.54 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.
Despite The Improvement In The Outlook Due To Falling Energy Prices, The Economic Environment In Britain Remains Difficult

Today's UK Data Should Ensure The Bank Of England Continues Tightening

Craig Erlam Craig Erlam 17.01.2023 16:51
Equity markets are a little softer on Tuesday as investors await more earnings from the US and closely monitor events in Davos. Stocks have had a strong start to the year on the belief that interest rates may not go as high as feared and even move into reverse later in the year. While that is looking plausible in the US, it may not be the case in Europe where policymakers are seemingly still some way from considering the tightening cycle complete. The ECB, for example, was very late to the party and could be at least three 50 basis point hikes away from the terminal rate which we could see around the middle of the year. Inflation in the euro area declined last month but core inflation is still on the rise which is why we’re continuing to see pushback to the idea of slower hikes and cuts this year. That narrative may change once the data moves in a more positive direction. Pressure mounting on BoE In the UK, the data remains quite troubling. Labour market figures released today showed earnings growth accelerating to 6.4%, meaning while we’re still seeing negative changes in real terms, as far as the central bank will be concerned they’re still far too high to be consistent with inflation returning to target. And the longer it goes on, the more stubborn inflation will become. That should ensure the BoE continues tightening by 50 basis points next month, at which point we’ll get fresh economic projections. Encouraging figures from China The data from China overnight was broadly positive even if it confirmed one of the slowest annual growth rates in decades. The economy ended on a stronger note despite the surge in Covid infections as the leadership suddenly pivoted from a zero-tolerance approach to allowing it to run free. That was expected to take a heavy toll on the economy initially but the figures for December from retail sales to industrial production and fixed asset investment suggest a much more modest hit. That may offer hope that the opening months of the new year will not be as bad as initially feared. Bouncing back Bitcoin seems to have been one of the big winners from the new year risk rally, after struggling for much support in recent months as a result of the FTX collapse. Perhaps it’s making up for lost time as traders look to capitalize on such heavily discounted levels compared with the 2021 peak. That said, it will take a lot more than a risk revival to get traders fully back on board. 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
BRICS Summit's Expansion Discussion: Impact on De-dollarisation Speed

The US 10yr Yield Really Has No Business Getting Below 3%

ING Economics ING Economics 18.01.2023 09:31
Inflation is convincingly lower and falling. And, at the very least, we’re heading into a growth recession. So, shouldn’t market yields be collapsing? They could. But, then again not necessarily. There are technical factors pushing in the other direction, ones that can in fact pressure longer-dated market yields higher, or at least mute any fall The US 10yr yield looks one-way biased to fall for macro reasons, but the absolute level is already quite low Here are four factors to consider: 1. History shows that the 10yr yield trades below the funds rate as the rate hiking cycle peaks. Typically it would get to 75bp through. It has been 150bp through in the past (e.g. dotcom bust), but not till just before the Fed cut. Recently it’s been some 150bp through the likely peak in the funds rate. So, right here at 3.5%, the 10yr is not that cheap. 2. There is better risk / reward from ultra-front end positions, where handles of 4% + are attainable. The price risk here is minimal (to zero). The only risk is the Fed starts to cut rates, which would adjust down the yield on roll-overs. This trade, by definition, means lower buying of duration. Recent flows into money market funds suggest this is happening. 3. While US Treasury yields offer a generous yield for influential Japanese-based players, that’s not the case for hedged positions. The cost of a 3mth hedge back into the Japanese yen is 4.9%, well in excess of any running yield along the Treasury curve. With hedged positions yielding a negative yield, this important rump will not play in Treasuries. 4. Importantly, the monetary tightening story is not just a US one. Ultra-low rate economies like the eurozone and Japan are also tightening policy. Indeed, more tightening is likely from the ECB than from the Fed in the coming months. So even unhedged longs will see attainable spreads becoming less attractive as we progress through 2023. Bottom line, we’re suggesting that the US 10yr yield is in fact not that high, we identify better risk/return on the ultra-front end, and suggest that external demand can become more fickle from a relative value sense. This is further amplified should the US dollar maintain a weakening trend, and bond markets that are inversely related to the USD start to perform better (e.g. some emerging markets). Future Fed cuts must mean room is made for a much steeper curve Source: Macrobond, Federal Reserve, ING estimates Also, to end up with a proper upward sloping curve there needs to be room made by the 10yr yield There is another important technical factor to consider too, centered on finding room for the curve to steepen out appropriately. Typically, as the cycle morphs from Fed hiking to cutting we evolve towards an upward sloping curve. At the very minimum the 2/10yr should get to 50bp, and even that is very conservative, as it more often than not gets to 100-200bp. The evolution from dis-inversion to a positively sloped curve limits the room for the 10yr yield to fall. The 2yr yield can fall by lots. The 10yr too, but it depends on what’s feasible. So what is feasible? Let’s take our relatively aggressive view for the funds rate – as we see the Fed cutting later in 2023, and getting the funds rate down towards 2.5%. That’s the starting point for the curve. When the funds rate gets there, it has bottomed, and the 2-10yr yield curve should be positively sloped. Let’s pitch the 2yr at flat to the funds rate, at 2.5% in 2024. Given that, the 10yr yield really has no business getting below 3%, as at 3% that’s only a 50bp curve. It should in fact be a 100bp curve, which would bring us all the way back to 3.5%, where we currently are. In fact, if the 10yr were at 4% while the funds rate targetted 2.5%, that would not be an unusual combination. The target for the 10yr is 3% and no lower, but don't be surprised if it reverts to 4% So as a call for 2023, we are looking for the 10yr to rally down to 3%, mostly as the Treasury market can get all excited as the Federal Reserve winds up for rate hikes. But that should in fact prove to be an overshoot to the downside. The 10yr really has no business getting to below 3%, unless there is the emergence of some (unknown at this point) crisis. In fact, a fairer level is 3.5%. Moreover, if the market gets its head around this, there is a neat route back to 4%. Now that would be a more credible curve, and one more consistent with the renewed ability for economies to generate inflation in the future. We could even skip the 3% and go for straight to 4%. We understand that the average US 10yr yield over the past decade is 2.15%, and indeed the 2% area has been crossed on a frequent basis over that period; a mean-reversion tendency. Fine, but that does not mean we are heading back down there. There is simply neither room nor logic for that to happen, apart from an anchoring to the recent past when 2% seemed normal.  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  
Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

Euro Sovereigns Have Benefitted Doubly From The Improvement In Inflation And Growth Expectations

ING Economics ING Economics 18.01.2023 09:39
Mixed European Central Bank messages and better economic data continue to benefit core and peripheral bonds alike. Markets increasingly think the ECB will cut rates shortly after the Fed. We think bonds don’t price properly higher sovereign funding needs this year. We also note that US 10yr yield is already priced quite low versus the future funds rate Sticky US Treasuries, despite the one-way macro data US Treasuries are bascially back to where they were just before the consumer price inflation release of last Thursday. Even the front end, which had dropped in an almost precipitous manner in yield, has snapped back to practically where it was. Yesterday's drop in the Bund yield also did not have a lasting effect on Treasuries, taking them down in yield initially, but then yields eased back up again. It seems the downdraft in yield is no longer the path of least resistance. It seems the downdraft in yield is no longer the path of least resistance We'd note that the 10yr Treasury yield is not exactly cheap here. It is practically at, or has been recently, some 150bp through the terminal funds rate being priced by the Fed funds future. That's quite a spread. History shows it has been wider, but not by much, and not for too long. History also shows that it is rare for it to trade through the funds rate by this much. The macro impulses are clearly bullish, but technical relative value suggests that precipitous falls in yields from here will not be as straightforward as many suggest. Future Fed cuts must mean that room is made for a much steeper curve Source: Macrobond, ING ECB mixed messages expose the market's underlying strength We warned in yesterday’s Spark that bond markets face a number of bearish risks in what is evidently a strong bullish trend. Sometimes, contradictory events and the way markets react to them provide us with a golden opportunity to test our theory. This was the case yesterday in which markets pretty much shrugged off European Central Bank chief economist Philip Lane’s hawkish message – from no less than one of the most dovish members of the board – to instead focus on a vague anonymous ECB sources story. Market participants have faced an uninterrupted string of hawkish comments since the December meeting Since the December meeting, participants have faced an uninterrupted string of hawkish comments since the December meeting so perhaps Lane’s comments were less surprising to markets. They, however, increasingly contrast with the swap curve pricing 80bp of cuts in 2024. The way markets think of Fed policy heavily influences the way they think of the ECB too. The ECB sources story highlighted the prospect of a downshift to a 25bp hike in March after a 50bp hike in February, contrary to Lagarde and other officials signalling two 50bp hikes. This seems to have reinforced not only the view that the end of the ECB’s hiking cycle is close, but also that cuts are imminent. Bond markets have so far shrugged off the wall of supply they're facing in 2023 Source: Refinitiv, Debt Management Offices, ING High beta sovereigns are the clear winners but supply looms large Euro sovereigns have benefitted doubly from the improvement in inflation and growth expectations. First, lower inflation lets markets hope for a world with less aggressive central banks. The related drop in core rates has also benefitted higher beta fixed income, for instance peripheral bond markets. Second, as the sharp improvement in the Zew index yesterday illustrates, markets no longer price a disastrous recession for the eurozone. This is reflected in better appetite for riskier investment, and has accelerated the outperformance of riskier bonds over safer ones. In one word spreads tightened. The two developments could prove contradictory, however, as better growth might slow down the decline in inflation. We expect bond yields to continue to rise relative to swap rates You wouldn’t guess it looking at the strength of sovereign bonds this year, but these markets are faced with a wall of supply. The ECB will shift from being a net buyer in 2022 to being a net seller in 2023. Combined with wide deficits, this results in a dramatic increase in funding needs. We find that euro sovereign bond markets do not reflect this wall of supply properly. For one thing, we expect bond yields to continue to rise relative to swap rates. Secondly, we expect markets to better take into account supply dynamics in pricing relative sovereign yields. The chart below gives a rough guide of where each sovereign 10Y swap spreads trade compared to our estimate. Euro sovereign bonds don't reflect coherently new supply dynamics Source: Refinitiv, Debt Management Offices, ING Today's events and market view The main release this morning will be the eurozone’s December inflation report, although this is a final reading and so less likely to surprise markets. The US calendar is more substantial with retail sales and producer price index. Both are expected to decline and so shouldn’t prove a challenge to the market’s expectation of the Fed easing as soon as this year, barring an upside surprise. The NAHB housing market index should prove equally gloomy. Germany is scheduled to sell 30Y debt. Francois Villeroy of the ECB, alongside Raphael Bostic, Patrick Harker, and Lorie Logan of the Fed, are the speakers listed on the World Economic Forum in Davos but we’re sure to get quotes from others. 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  
Czech National Bank Prepares for Possible Rate Cut in November

The Latest UK CPI Figure Is Below October’s 11.1% Peak

ING Economics ING Economics 18.01.2023 09:46
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  
Economic Calendar Details and Trading Analysis - August 7 & 8

Reserve Bank of India Is Projecting Inflation To Dip Below 6% In Q1 2023

TeleTrade Comments TeleTrade Comments 18.01.2023 10:26
Indian Rupee was the second worst performer vs USD in 2022, behind only the Yen. Economists at Commerzbank look for a stable to slightly firmer INR in 2023. RBI nearing end of hike cycle “The RBI is expected to tighten policy further by another 30-50 bps in the next six months. Nevertheless, RBI is nearing the end of its tightening cycle.” “Inflation is expected to have averaged 6.8% in 2022. RBI is projecting inflation to dip below 6% in Q1 2023 but it is expected to hold at around 5% in 2023. This should pave the way for RBI to pause rate hikes but not enough to cause them to cut.” “We look for a stable to lower USD/INR in 2023 at 81.50 by year-end.”
Despite The Improvement In The Outlook Due To Falling Energy Prices, The Economic Environment In Britain Remains Difficult

Yields On JGB's Fell Back Sharply, Markets May Expect To See Another 50bps Rate Hike From The Bank Of England

Michael Hewson Michael Hewson 18.01.2023 11:34
Yesterday saw another positive session for European markets, although the FTSE100 underperformed despite hitting a new 4 year high. US markets returned from their long weekend break with a choppy and somewhat mixed session, with the Dow and S&P500 struggling while the Nasdaq 100 finished slightly higher, as various earnings announcements painted a mixed picture of the US economy. Bond yields also chopped between negative and positive territory as yields ended the day little changed. BoJ tweaks bond program Asia markets have spent the day still digesting yesterday's economic numbers from China, as well as today's Bank of Japan rate decision. The Japanese yen has seen some decent gains over the past few weeks, with those gains accelerating after the Bank of Japan caught markets by surprise last month by widening the band of its yield curve control to between -0.5% and +0.5%, from +/-0.25%. It would appear that with current governor Kuroda set to leave in April that the BoJ wanted to start seeding the ground for a possible shift in the coming months, however as with everything related to monetary policy markets have already started to front run any possible change.. The 10-year JGB has consistently tested above the upper bound of the 0.5% in the past few days testing the central banks resolve in the process. The central bank has been consistent in maintaining that they aren't in any rush to make major adjustments to its yield curve control policy yet, however events appear to have overtaken them, as volatility has increased. The Bank of Japan's challenge today has been to try and reset market expectations, as well as try to avoid a further rapid appreciation in the yen, in the same way they wanted to manage the declines in their currency over the past few months. Suffice it to say they appear to have succeeded, pushing back on the recent moves that have pushed the yen higher. This morning the Bank of Japan kept monetary policy unchanged, which wasn't a surprise, but they also announced they would continue large scale bond buying and be more flexible about duration in order to keep policy settings loose. Yields on JGB's fell back sharply from the 0.5% upper bound in the wake of the announcement. Today's pushback or reset whatever you want to call it, shouldn't have been too much of a surprise given recent yen moves. Japanese central bank officials have always been particularly sensitive to sharp short term moves in either direction where the yen is concerned in the same way they were about recent yen weakness. The direction of the move is less of a concern rather than the speed of it, and in slowing the yen move lower the BoJ is merely resetting market expectations about future policy change, with the US dollar rising back above 130.00 UK inflation set to slip back in December After the peak of 11.1% in October, headline CPI fell back to 10.7% in November in a welcome sign that we could well be past the peak, when it comes to price rises.Recent falls in oil and gas prices are also likely to start to feed into the underlying numbers, while PPI inflation has also been falling in recent months, though given problems with the PPI calculations we haven't had clear visibility on that in the past couple of months, as the ONS continues to review how that is calculated. Today's December inflation numbers are expected to show that inflationary pressures continue to subside, but are only expected to fall modestly to 10.5%, with core prices also still high at 6.2%. We already know that food price inflation is trending in the mid-teens, which means that headline CPI is expected to remain above 10% for a while. It's also important to remember that RPI is even higher. With average wage growth trending at 6.4% and unemployment still low, the gap between wages and inflation is still quite wide, although it is narrowing from both directions. This probably means we can expect to see another 50bps rate hike from the Bank of England when it meets in just over 2 weeks' time, although any decision is unlikely to be unanimous, given the 3-way split last time. Headline CPI in the EU is also expected to be confirmed at 9.2% in December with core prices at 5.2%. EUR/USD – has struggled to overcome the 1.0870 area, prompting a fall to 1.0780. Could see a deeper fall towards 1.0720. The key resistance sits at 1.0950 which is a 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. GBP/USD – ran out of steam at 1.2300 yesterday, with the risk that the move above 1.2000 level is running out of steam, despite the decent rebound from the 1.1830/35 area. The next big resistance lies at the 1.2350 area. We need to hold above the 1.2000 area for further gains to unfold. EUR/GBP – the failure at the 3-month highs at 0.8895 this week has seen a drift back towards last week's low at 0.8770/80. Below 0.8770/80 retargets the 0.8720 area. USD/JPY – has recovered off 127.20 area this week, just shy of the 126.50 area which is the 50% retracement of the up move from 101.18 to the highs at 151.95. Has squeezed back above the 130.00 area and could extend back through 132.60 on towards 134.80 without undermining the downward momentum. FTSE100 is expected to open 10 points lower at 7,841 DAX is expected to open 32 points higher at 15,219 CAC40 is expected to open 11 points higher at 7,088 Email: marketcomment@cmcmarkets.comFollow CMC Markets on Twitter: @cmcmarketsFollow Michael Hewson (Chief Market Analyst) on Twitter: @mhewson_CMC
UK Budget: Short-term positives to be met with medium-term caution

Data Shows That The Bank of England Is Needing To Keep Raising Interest Rates

Craig Erlam Craig Erlam 18.01.2023 14:47
Equity markets are marginally higher in Europe, with the Nikkei outperforming in Asia on the back of a much weaker yen. BoJ stands firm The Bank of Japan has decided to stand its ground against market forces that have forced it to purchase huge amounts of JGBs in order to defend its yield curve control upper band. Despite mounting speculation that it could be prepared to further tweak the tool or abandon it altogether, the central bank has stubbornly dug in its heals and seemingly prepared itself for another onslaught in the bond markets. The surprise decision last month to widen the threshold in which it will allow the 10-year yield to trade has further fueled speculation that it’s planning to phase out YCC, so rather than ease the pressure on the central bank as it hoped, it has intensified. In standings its ground today, it’s effectively invited the backlash and the yen has been hammered as a result. Inflation eases but still far too high UK inflation eased slightly in December, the second month in which it has fallen, indicating that it has peaked and barring another surge in energy prices, it could now steadily decline. That will come as a relief to households and businesses suffering the cost-of-living squeeze although, with the headline CPI still above 10%, there’s still obviously a long way to go. The Bank of England now finds itself in the uncomfortable position of needing to keep raising interest rates as inflation is still more than five times its target. Even core inflation is above 6% and we haven’t really seen much progress on that front. Markets are pricing in another 1% of rate hikes in the coming months but if inflation remains stubbornly high, they may have to do more. Especially if the economy shows the kind of surprising resilience that it appeared to in the fourth quarter. Read next:The Japanese Yen (JPY) Weakened, The Aussie Pair Is Trading Above 0.70$| FXMAG.COM Steadies after huge surge It’s been a phenomenal week for bitcoin, up around 20% and looking in a far healthier position. The lack of further contagion in the aftermath of the FTX collapse and the surge in risk-appetite has seen a flurry of support for cryptos which have had a rough few months to put it lightly. Well, they’ve made up for lost time and bitcoin is now steadying above $21,000. Whether it can significantly build on this rebound is another thing but the fact that it’s trading back in the pre-FTX range will come as a huge relief to the industry that will have feared further plunges or negative headlines. 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.  
Indonesia Inflation Returns to Target, but Bank Indonesia Likely to Maintain Rates Until Year-End

Asia Market: Bank Indonesia Is Widely Expected To Hike Rates Today

ING Economics ING Economics 19.01.2023 09:05
Souring US data raises thoughts of the Fed's endgame. Australian labour data and Bank Indonesia decision APAC highlights Source: shutterstock Macro outlook Global Markets:  Big Moves in bond markets overnight – the run of soft data in the US is being taken at face value by investors – bad news finally equals bad news. Stocks had a bad day, with the S&P500 and NASDAQ both losing between 1 and a quarter and one and a half per cent on the day, but it is the moves in US treasury yields that most catch the eye. 2Y US Treasury yields fell 12.2bp, to 4.082%,  while the 10Y bond saw yields down 17.8bp to 3.37%, which has helped drag bond yields elsewhere down too. The Australian 10Y now yields 3.43%, which is down more than 60bp from the start of the year. Japan’s 10Y JGB is now yielding only 0.402% after investors were chastened by Kuroda’s blunt rejection of further changes to the BoJ’s policy stance. It did look at one point as if these weaker yields would drive EURUSD to new year highs, and for a while they did, reaching up to 1.0887, but the rise was short-lived, and EURUSD is now back to just below 1.08. The AUD had a similar gain and then reversal, as did Cable, though it managed to hold on to more of its earlier gains to trade at 1.2345 currently. The JPY did almost the opposite, selling off up to 131.50 after the BoJ meeting, only to recover back to 128.43. Asian FX had a mostly positive day yesterday, led by the THB, INR, IDR and PHP. G-7 Macro: December US advance retail sales came in even weaker than expected, dropping 1.1% MoM, with downward revisions to previous months’ data. PPI inflation data also fell sharply from the previous month, and there was a nasty fall of 0.7% MoM from industrial production. James Knightley has written about this data plus what it may mean for the Fed. It’s well worth the read – it even questions whether the Fed will raise further after February.  The Fed’s Beige book also noted that the rate of price increases was moderating in many districts with contacts expecting further moderation in the year ahead. In spite of this, James Bullard and Loretta Mester kept up the hawkish commentary – not that it seems anyone in the markets is listening. Today, we get US housing starts and permits. Housing starts have been on the slide since April last year, though these winter readings need to be taken with a pinch of salt as they are prone to seasonal anomalies. UK RICS house price balance is also released for December today and is expected to show further declines. Australia: The December labour report contains a lot of interesting data. The headline figure of a 14,600 decline in total employment is the most eye-grabbing detail, though it was mainly a result of part-time job losses (-32,200), and full-time jobs still grew a respectable 17,600, though slower than in November. And there was a higher-than-expected unemployment rate of 3.5% up from 3.4%. Together, these data mean that we will stick to our 3.6% peak cash rate call, despite the inflation disappointment last month. More inflation data is released next week, which we hope will restart inflation's move lower.  Indonesia: Bank Indonesia meets to discuss policy today.  The central bank is widely expected to hike rates at today’s policy meeting to steady the IDR and to quell still-potent price pressures.  Inflation unexpectedly flared up last December with BI Governor Warjiyo warning that inflation could remain elevated this year. BI will continue to monitor inflation developments and the performance of the currency. However, we could see the central bank eventually pause after Governor Warjiyo voiced some concerns about the economy’s growth trajectory in 2023.     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  
US Retail Sales Boost Prospects for 3% GDP Growth, but Challenges Loom Ahead

Results From Procter & Gamble And Netflix Will Shed Some Light On Global Consumer Strength

Saxo Bank Saxo Bank 19.01.2023 09:28
Summary:  The deteriorating US retail sales and industrial production data hurt risk sentiment, and US equity markets tumbled despite lower yields. The US dollar was choppy after BOJ’s pushback on market speculation and the announcement to keep policy unchanged, but hotter core CPI in UK supported the sterling. Weaker Australia employment data sent AUDUSD lower to test 0.6900. Crude oil prices plummeted on deteriorating economic outlook and a weaker API inventory build. Focus turns to earnings today with Proctor & Gamble and Netflix due to report.   What’s happening in markets? Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) reversed and fell over 1% on recession fears U.S. equities opened higher initially as bond yields tumbled on a dovish Bank of Japan and much weaker than expected prints on U.S. retail sales, industrial production, and producer prices. Comments from the Fed’s Bullard in a Wall Street Journal interview about his preference of keeping the pace of rate hike at 50bps at the February FOMC triggered a reversal around mid-day and saw U.S. stocks plunge in the New York afternoon session. The weak economic data and the risk of the Fed overdoing it in rate hikes troubled equity investors. At the close of Wednesday, Nasdaq 100 fell 1.3% and S&P 500 slipped 1.6%. All 11 sectors of the S&P 500 declined, with the consumer staples sector falling the most to finish the session 2.7% lower. In the Fed’s Beige Book released on Wednesday, U.S. retailers said they were having difficulties in passing through costs increases to consumers. On individual stocks, PNC Financial Services (PNC:xnys) fell 6% on a larger-than-expected credit losses provision. Moderna (MRNA:xnas) gained 3.3% following release of positive trial results for a RSV virus vaccine. US Treasuries (TLT:xnas, IEF:xnas, SHY:xnas) surged on dovish BoJ and weak economic data; the 10-year yield slid to 3.37% Treasuries surged in price and yields collapsed on dovish outcomes from the Bank of Japan’s monetary policy meeting. The BoJ doubled down on monetary easing with an adjustment to its Funds-Supplying Operations against Pooled Collateral which enables it to lend cheaply to banks up to 10 years in maturity from only up to two years previously. Apparently, the BoJ aims at bringing down the elevated swap rates closer to the yields of JGBs. Treasury yields took a further dive in New York morning hours following the release of larger-than-expected declines in retail sales and industrial production as well as a bigger-than-expected 0.5% month-on-month fall in the Producer Price Index in December. The hawkish comments from Fed’s Bullard about keeping the February hike at 50bps did not have much of an impact on Treasuries despite being picked up as a reason to fade the rally in equities by traders. The result from the USD12 billion 20-year Treasury bond auction was strong. Treasury yields finished the Wednesday session with the 2-year 12bps richer at 4.08% and the 10-year 18bps richer at 3.37%, bringing the 2-10 curve more invested to -71bps. Hong Kong’s Hang Seng (HIF3) ticked up and China’s CSI300 (03188:xhkg) traded sideways Hang Seng Index ticked up by 0.5% and CSI300 edged down by 0.2%. Online and mobile gaming names led in both the Hong Kong and mainland bourses. China released 88 new licenses of online/mobile games, including one title from Tencent (00700:xhkg), up 1.7%. and one title from NetEase (09999:xhkg), up 6.5%. Trading in other internet names, however, was mixed. Auto dealers were led lower by an 8.3% decline in Zhongseng (00881:xhkg). EV makers traded weakly, XPeng (09868”:xhkg) down 2.9%. In A-shares, food and beverage, beauty care, and construction materials led the decline while online gaming, computing, media, communication, and non-ferrous metal gained. Northbound net buying was over RMB4 billion, bringing the net buying in January to over RMB90 billion. FX: Choppy dollar after BOJ ECB’s Villeroy dismissed dovish ECB talks and says Lagarde guidance still valid, bumping up EUR higher but the gains were reversed later and EURUSD ended below 1.0800 again. EURGBP meanwhile testing a break below 0.8740 to near 1-month lows as UK core CPI came in hotter-than-expected. AUD and NZD were divergent with AUDNZD falling from highs of 1.0873 to lows of 1.0783. AUDUSD was slightly lower on weaker-than-expected employment data which saw unemployment rate rising to 3.5% while overall employment fell 14.6k compared to expectations of +25k, while last month’s employment gains were revised lower to 58.3k. NZDUSD however saw little reaction to reports of PM Arden’s resignation. USDJPY back below 129 after the BOJ-related volatility yesterday. Crude oil (CLG3 & LCOH3) tumbled on sluggish US data and weak API build Crude oil prices rose to fresh highs earlier on Wednesday before sliding in the NY hours. US data flow turned out to be grim with both retail sales and industrial production disappointing, sending recession concerns soaring. The International Energy Agency was also circumspect. It said the market faces immediate headwinds, with supply exceeding demand by about 1mb/d in Q1. Meanwhile, API reported that US crude stockpiles rose 7.6mn barrels for last week. WTI futures retreated from highs of $82+ to $79, while Brent was back below $85/barrel from highs of ~$88.  Read next: The Japanese Yen (JPY) Weakened, The Aussie Pair Is Trading Above 0.70$| FXMAG.COM What to consider? BOJ maintains policy unchanged, launches new tool to support bond market The Bank of Japan left its policy levers unchanged at the January meeting, defying heavy market speculation of another tweak after the surprise in December. The announcement saw the yen plunge by over 2%, as the central bank said it would continue large-scale purchases of government bonds and increase it on a flexible basis as needed. The central bank, in a new measure to maintain yield control policy, also extended a loan offer to banks for funds of up to 10 years against collateral for both fixed- and variable-rate loans. Meanwhile, the BOJ still sees inflation getting back to sub-2% range this year. Core CPI estimate for FY2022 was only slightly raised to 3.0% for 2.9% previously, while the FY2023 estimate of 1.6% was maintained. In the press conference, BoJ Governor Kuroda said that the sustainable inflation goal is not yet in sight, suggesting low odds that he will declare victory on bringing back inflation before his exit in April. Bad economic news is now bad news for the markets US PPI fell 0.5% M/M in December, a deeper fall than the expected 0.1% decline, while the prior was downwardly revised to +0.2%; PPI Y/Y rose 6.2%, a big fall from the prior (downwardly revised) +7.3%, beneath the expected +6.8%. While slowing inflation continues to be a positive for the markets, concerns around slowing economic growth have started to bite as well. December US retail sales fell 1.1% M/M, deeper than the consensus 0.8% decline with a sizable downward revision for the prior to -1.0% from -0.6%. Industrial production fell 0.7% M/M in December, deeper than the consensus -0.1%, with the prior downwardly revised to -0.6% from -0.2%. Manufacturing output also declined by a larger 1.3%, deeper than expected -0.3% and the prior revised to -1.1% from -0.6%. Fed speakers continue to be mixed, with the non-voters staying hawkish Fed’s Bullard (non-voter) said his dot plot forecast for 2023 is just above the Fed's median of 5.1% at 5.25-5.50% and that Fed policy is not quite in restrictive territory, reiterating it needs to be over 5% at least. Bullard added the Fed should move as rapidly as it can to get over 5% and then react to data, noting his preference is for a 50bps hike at the next meeting (against the consensus 25bps). Loretta Mester (non-voter) said further rate hikes are still needed to decisively crush inflation and we are not at 5% yet, nor above it, which she thinks is going to be needed given her economic projections. She believes the Fed's key rate should rise a "little bit" above the 5.00-5.25% range that the Fed median implies. Harker (voter) said Fed needs to get FFR above 5%, but its good to approach the terminal rate slowly. Dallas President Lorie Logan (voter) spoke later as well, and also hinted at a slower pace of rate hikes. She said she wants a 25bp rate hike, not 50, at the February 1 FOMC meeting. She said if slower rate hike pace eases financial conditions, then the Fed can offset that by gradually raising rates to a higher level than previously expected. UK CPI softens for a second straight month UK Dec. CPI out this morning and slightly hotter than expectations as the headline rose +0.4% MoM and +10.5% year-on-year vs. +0.3%/+10.5% expected, respectively while the core CPI level rose +6.3% YoY vs. +6.2% expected and +6.3% in November. Sterling traded slightly firmer after the data. P&G and Netflix report earnings today On the earnings front, results from Procter & Gamble (PG:xnys) and Netflix (NFLX:xnas) will shed some light on global consumer strength. P&G reports Q4 earnings on Thursday before the market opens with analysts expecting revenue growth of -1.1% y/y and EPS of $1.59 down 4% y/y suggesting that volumes are being hit by inflation and that analysts expect P&G to see their operating margin decline q/q. The potential upside for P&G on its outlook is the reopening of China. Netflix reports Q4 earnings on Thursday after the market close with analysts expecting revenue growth of 1.7% y/y as streaming services are still facing headwinds post the pandemic. EPS is expected at $0.51 down 67% y/y. The things to focus on for investors are user growth, updates on its advertising business, and user engagement figures relative to recent content launches.   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: Sluggish US economic data; P&G and Netflix earnings ahead - 19 January 2023 | Saxo Group (home.saxo)
Sterling Slides as Market Anticipates Possible Final BOE Rate Hike Amidst Weakening Consumer and Housing Market Concerns

The Global Recession Fears Are For Now Taking A Backseat With Europe Weathering The Energy Crisis Better And China’s Economy Reopening

Saxo Bank Saxo Bank 19.01.2023 09:34
Summary:  Even as inflation concerns continue to be the top concern for markets, weak US retail sales and industrial production data overnight has sparked some concerns of an economic slowdown. The strength of the labor market still provides room to argue in favor of a soft landing vs. a steep recession, and markets will becoming increasingly sensitive to payroll data going forward. Earnings will also start to take a bigger focus with major tech players starting to report next week. The global economic cycle is at a critical juncture, and investors are trying to weigh up the options between whether we get a soft landing or a recession. While US housing data and survey data has been weak for months now, it is the real economic data that is now starting to show a significant deterioration. The markets are also evolving on their interpretation of economic data, coming from a point where bad news was good news and suggested that the Fed will pivot on its rate hike cycle which provided a bid to equities. Now, bad news is bad news, and it is starting to send shivers about what the Fed’s tightening cycle means to the growth outlook. This shift in perspective comes from a weak set of US data last night. December US retail sales fell 1.1% M/M, deeper than the consensus 0.8% decline with a sizable downward revision for the prior to -1.0% from -0.6%. Industrial production fell 0.7% M/M in December, deeper than the consensus -0.1%, with the prior downwardly revised to -0.6% from -0.2%. Manufacturing output also declined by a larger 1.3%, deeper than expected -0.3% and the prior revised to -1.1% from -0.6%. Source: Bloomberg, Saxo Markets The state of the US consumer; payroll data will be key This shift in narrative is raising some key questions about the strength of the consumer which has been the key pillar of strength in this extremely tough macro environment. With inflation and interest rates in record high territory, consumers are likely to find ways to cut costs. This translated into a reduction of excess savings last year, as spending shifted from goods to services and from high-priced goods to lower-priced goods. Some risks have emerged to a deterioration in services demand as well, with the December retail sales print also showing a deterioration in restaurant sales, which serves as a proxy for spending on services. But with the labor market still tight, it is hard to see consumer spending decelerate sharply. That being said, markets will continue to look for more signs to judge the state of the US consumer and a big focus will be on labor market and wage data going forward. Wage pressures are cooling, especially in industries that saw the largest wage gains over the past year due to labor shortages, including leisure and hospitality and wholesale trade. But for now, jobs are still growing and that keeps the outlook of the consumer supported against any sharp and steep reversals. In the weeks to come, we could see market volatility shifting away from CPI days to NFP (nonfarm payroll) days as the jobs data comes under greater scrutiny. Read next:The Japanese Yen (JPY) Weakened, The Aussie Pair Is Trading Above 0.70$| FXMAG.COM Watch for earnings The next nonfarm payroll data is after two weeks (due 3rd February). In the meantime, markets will be getting a lot more to digest from the earnings front. Consumer staples giant Proctor & Gamble reports today, followed by Kimberly Clark next week. After Netflix reports today, tech earnings also pick up next week with Microsoft and Tesla reporting, while Apple, Amazon, Alphabet and Meta report earnings a week later. Factset estimates that S&P500 will report earnings decline of 3.9% YoY in Q4, as analysts are revising their estimates lower. Our Equity Strategist Peter Garnry has also written numerous equity notes suggesting that company earnings and margins are likely to come under pressure this year as pricing power declines and costs (esp wages) remain sticky. Investment Implications We believe that earnings disappointments will continue to spark further fears of an economic slowdown. But the global recession fears are for now taking a backseat with Europe weathering the energy crisis better and China’s economy reopening at a rapid pace. For now, inflation fears continue to be somewhat more pronounced but if recession fears start to take a firmer hold, that could likely nudge investors towards safe havens such as bonds. If market pricing for economic growth deteriorates further, earnings estimates could get hurt even more and we could potentially see more pain for growth stocks. This necessitates the importance of a diversified and balanced portfolio once again, despite dismal results for a 60/40 portfolio last year. We also believe Asian equities have the potential to outperform US equities in 2023, as discussed in this video, and provide some attractive valuation levels to consider.   Source: Macro Insights: Growth concerns starting to bite harder | Saxo Group (home.saxo)
Reserve Bank of New Zealand: Kenny Fisher says he expects a 25bp rate hike on May 24th

Jacinda Ardern Has Resigned As Prime Minister Of New Zealand, Crude Oil Extended Wednesday's Steep Decline

Saxo Bank Saxo Bank 19.01.2023 09:43
Summary:  Yesterday saw a sharp reversal in risk sentiment across the board, with US equities in a steep slide and the USD higher, even as treasury yields dipped. The slide in sentiment came after weak US Retail Sales and other data - is bad news finally bad news again? The selling came in at a key technical area after the recent rally, making for a compelling bearish reversal. Elsewhere, the Japanese yen bounced back across the board overnight, just after BoJ-inspired weakness.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) fall over 1% on recession fears U.S. equities opened higher initially as bond yields tumbled on a dovish Bank of Japan and much weaker than expected prints on U.S. retail sales, industrial production, and producer prices. Comments from the Fed’s Bullard in a Wall Street Journal interview about his preference of keeping the pace of rate hike at 50bps at the February FOMC triggered a reversal around mid-day and saw U.S. stocks plunge during the afternoon session. The weak economic data and the risk of the Fed overdoing it on rate hikes troubled equity investors. On the close the Nasdaq 100 was down 1.3% while the S&P 500 slipped 1.6%. All 11 sectors of the S&P 500 declined, with the consumer staples sector falling the most to finish the session 2.7% lower. In the Fed’s Beige Book released on Wednesday, U.S. retailers said they were having difficulties in passing through cost increases to consumers. Hong Kong’s Hang Seng (HIF3) and China’s CSI300 (03188:xhkg) Following the decline in U.S. stocks overnight, Hong Kong and mainland Chinese stocks opened lower but managed to pare losses and more. Hang Seng Index and CSI300 edged up modestly in the early afternoon local time. Chinese property developer stocks outperformed while technology names were among the laggards. Hang Seng TECH Index dropped more than 1% on profit taking ahead of the 3-day Lunar New Year holiday next week. Chinese social platform, Kuaishou (01024:xhkg) plunged nearly 6% after a co-founder sold shares. FX: US dollar posts strong rally on weak US data; JPY roars stronger still overnight The weak US data yesterday (more below) took US treasury yields sharply lower all along the curve, but with risk sentiment sliding badly on the news, the USD rallied sharply rather than selling off on the implications for less Fed tightening at coming meetings. This suggests investors may finally be fretting the risk of an incoming recession. The USD strength eased overnight as the Japanese yen, already beginning to reverse to the strong side by late US hours despite the dovish BoJ earlier in the day (the JPY traditionally thrives most on falling global yields and weak sentiment/recession fears) rallied hard, handily outpacing the US dollar and ripping stronger across the board, particularly against the hapless AUD, which was hit by weak December employment data overnight. Crude oil (CLG3 & LCOH3) tumbles badly on sluggish US data Crude oil extended Wednesday’s sharp losses which occurred after poor US economic data triggered fresh growth concerns. The move lower was strengthened by technical and momentum traders getting wrong-footed after having bought an upside break earlier in the day. A reopening of China has been the main supporting focus in recent weeks but with activity there now slowing ahead of the Lunar New Year holiday, traders turned their attention elsewhere and did not like what they saw. Also, the API reported another chunky inventory rise of 7.6 million barrels, well above the 2-million-barrel rise expected by the EIA later today. Finally, IEA delivered a bullish outlook for 2023 demand as China recovers and air travel rebounds. Gold ended lower for a third day, but bids keep coming Gold’s newfound strength continues to be tested but so far, the metal has shown resilience and found fresh bids on any pullback. Yesterday it ended lower for a third day, but still above $1900 with traders (many of which are algorithmic, and machine based) taking their directional input from the US bonds market and not least the dollar. Traders have built positions in the belief we will see peak rates soon in the US, a development that triggered very strong rallies on three previous occasions during the past 20 years. However, as long the market trusts the FOMC will deliver lower inflation, major institutional investors are likely side lined, something that shows up in ETF holdings which remain near a two-year low. Support at $1896 followed by $1855, the 21-day moving average. US Treasury yields lower on weak US data, BoJ standing pat (TLT:xnas, IEF:xnas, SHY:xnas) Treasuries surged in price and yields collapsed on dovish outcomes from the Bank of Japan’s monetary policy meeting. Treasury yields then took a further dive following the release of larger-than-expected declines in US retail sales and industrial production as well as a bigger-than-expected 0.5% month-on-month fall in the Producer Price Index in December. The hawkish comments from Fed’s Bullard about keeping the February hike at 50bps was ignored by Treasuries despite being picked up by traders as a reason to fade the rally in equities. The result from the USD12 billion 20-year Treasury bond auction was strong. The 2-year trades this morning at 4.04% while the 10-year yield has dropped to a four-month low at 3.32%, with the 2-10 curve still very inverted at -72.5 bps. What is going on? US December Retail Sales and other US data disappoint The December US Retail Sales report for December was the second consecutive monthly report to disappoint expectations, with the headline falling –1.1% MoM vs. -0.9% expected and despite the negative November revision to –1.0% (vs. -0.6% originally). The ex Auto and Gas number was also disappointing at –0.7% vs. 0.0% expected and also with a negative revision for November to –0.5% (from –0.2%). These are particularly negative numbers given still high inflation in the US as they are not inflation-adjusted. Elsewhere, the US PPI data was softer than expected at –0.5% MoM and ex Food and Energy at +0.1%, with the YoY dropping to +6.2%/5.5% vs. 6.8%/5,6% expected. Finally, December US Industrial Production fell 0.7% MoM vs. 0.1% expected, with a negative revision of November data to –0.6% from -0.2%. New Zealand Prime Minister Jacinda Ardern shocks with resignation announcement Her resignation was announced after five and a half years in power and came in the context of announcing an October 14 election this year. She will step down no later than February 7. Her Labour Party is trailing the opposition National Party slightly in the polls. Ardern said she hadn’t the energy to continue as PM. Microsoft to lay off 10,000 employees ... as a part of it what it considers a set of cost-cutting measures outlined in a securities filing yesterday. CEO Satya Nadella cited a downward shift in demand for digital services and fears of  a recession. “...we saw customers accelerate their digital spend during the pandemic, we’re no seeing them optimize their digital spend to do more with less.” The layoff are just under 5% of the company’s global workforce. Rising volume of trades on Euronext Paris In recent sessions, we have noticed a strong rise in the volume of trades and a sharp increase of volatility for several small and medium companies listed on Euronext Paris. Target Spot (which connect brands to their audience through a premium portfolio of publishers across digital audio) has experienced a huge rebound in recent sessions (+28 % on a weekly basis) driven by an increase in the volume of trades. This company can be considered as a penny stock (the stock was exchanged at 50 cents two weeks ago). There is also a jump in speculation for companies using dilutive financing in the form of OCABSAs ((bonds convertible into shares with share subscription warrants). In October 2022, the French stock market authorities, the AMF warned against the risks associated to this financing, especially for retail investors. There are several listed companies in that case at the Paris stock market, such as Avenir Telecom (manufacture of mobile phones) and Spineway (implants and surgical instruments). Usually, stay away from any kind of ultra-dilutive funding. Fed speakers continue to be mixed, with the non-voters staying hawkish Fed’s Bullard (non-voter) said his dot plot forecast for 2023 is just above the Fed's median of 5.1% at 5.25-5.50% and that Fed policy is not quite in restrictive territory, reiterating it needs to be over 5% at least. Bullard added the Fed should move as rapidly as it can to get over 5% and then react to data, noting his preference is for a 50bps hike at the next meeting (against the consensus 25bps). Loretta Mester (non-voter) said further rate hikes are still needed to decisively crush inflation and we are not at 5% yet, nor above it, which she thinks is going to be needed given her economic projections. She believes the Fed's key rate should rise a "little bit" above the 5.00-5.25% range that the Fed median implies. Harker (voter) said Fed needs to get FFR above 5%, but its good to approach the terminal rate slowly. Dallas President Lorie Logan (voter) spoke later as well, and also hinted at a slower pace of rate hikes. She said she wants a 25bp rate hike, not 50, at the February 1 FOMC meeting. She said if slower rate hike pace eases financial conditions, then the Fed can offset that by gradually raising rates to a higher level than previously expected. What are we watching next? Norway Central Bank the latest to indicate end-of-cycle hike today? The Norwegian central bank was the first G10 central bank to hike rates back in 2021, but maintained a curiously slow pace of hikes relative to other central banks. The market is divided on whether the Norges Bank is set to hike by 25 basis points today, with most believing that even if it doesn’t, the following meeting in late March will see a hike, probably the last of the cycle for now. Earnings to watch The Q4 earnings season continues today with two big earnings reports from two very different companies: the huge US consumer products company Procter and Gamble (Market Cap $350B) and streaming services provider Netflix, which has enjoyed a more than 100% rally off the lows by rejuvenating subscriber growth and rolling out plans to launch advertising on its platform for the first time. Still, that stock is down more than 50% from the bubble peak in 2021. Today: Procter & Gamble, Netflix Friday: Investor, Sandvik, Ericsson, Schlumberger Economic calendar highlights for today (times GMT) 0900 – Norway Rate decision 1330 – US Dec Housing Starts and Building Permits 1330 – US Initial Jobless Claims 1330 – Philadelphia Fed Business Outlook 1330 – Canada Dec. Terante/National Bank Home Price Index 1530 – EIA Natural Gas Storage Change 1600 – EIA's Weekly Crude and Fuel Stock Report (delayed) 1815 – US Fed Vice Chair Brainard to speak on economic outlook 2330 – Japan Dec. National CPI 0001 – UK Jan. GfK Consumer Confidence Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: Financial Markets Today: Quick Take – January 19, 2023 | Saxo Group (home.saxo)
Assessing the 50-50 Risk: USD's Outlook and Market Expectations for a June Fed Hike

Weaker Activity And An Increasingly Benign Inflation Backdrop In US

ING Economics ING Economics 19.01.2023 14:38
Widespread falls in key retail sales components and broadening signs that inflation pressures are rapidly moderating means we are getting very close to the peak for Federal Reserve policy rates. A 25bp hike in February still appears odds-on, but the case for additional hikes is looking less convincing US retail sales fell 1.1% month-on-month in December Broad, steep declines in retail sales In what is yet another disappointing set of US activity data, retail sales fell 1.1% month-on-month in December, worse than the -0.9% figure the market was expecting. Meanwhile, November's contraction of -0.6% was revised to an even weaker -1% MoM print. The damage was widespread with 11 of the 14 main components posting monthly declines including motor vehicles/parts (-1.2%), furniture (-2.5%), electronics (-1.1%), gasoline stations (-4.6%), department stores (-6.6%) and non-store retailers (-1.1%). Of the three that didn’t fall we have food/beverages flat on the month, sporting goods up 0.1% and building materials up 0.3%. Retail sales levels (February 2020 = 100) Source: Macrobond, ING   Lower gasoline prices obviously had a big impact given this is a dollar value report, but even if you exclude them, retail sales fell 0.8% after a 0.9% fall in November. The decline in autos is no surprise given the drop in unit volumes already reported while variable weather patterns may also have played a part, particularly on eating out. Nonetheless, the breadth of weakness, including internet, underlines the weaker consumer spending story as worries about squeezed incomes and falling asset prices weigh on sentiment. Can spending on services offset the gloom? The core 'control' group, which omits volatile components such as autos, gasoline and building materials and better tallies with broader consumer spending activity was also poor – falling 0.7% MoM rather than the 0.3% consensus. We can only hope that spending on services is holding up better. As the chart below shows, retail sales as a proportion of total consumer spending remains well above pre-Covid trends, so it may well be that overall spending holds up better as consumers gradually re-balance their spending back towards services. Retail sales spending as a proportion of total consumer spending Source: Bloomberg Increasingly benign inflation backdrop argues against the need for more major hikes Meanwhile the producer price inflation report showed that pipeline price pressures were also weaker than expected in December and November. Headline PPI fell 0.5% MoM rather than at the -0.1% rate expected  while November was also revised down a tenth of a percentage point. Core PPI (ex food & energy) was in line at just 0.1%, but November’s rate of price increases was revised down two-tenths of a percent. So we have further evidence of weaker activity and an increasingly benign inflation backdrop, which clearly suggests we are in the end game for Fed rate hikes. Today’s numbers, coming after the softer CPI report, should cement expectations for a 25bp Federal Reserve interest rate hike in February and at the margin diminish the case for additional rate hikes – currently we expect a final 25bp in March. With recessionary forces intensifying and inflation looking less and less threatening, the prospects for Fed rate cuts later in the year are growing. Read this article on THINK TagsUS Retail sales Inflation Federal Reserve 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
Rates Spark: Central banks vs economic data

The ECB Is Far From Being Done With Rate Hikes

ING Economics ING Economics 19.01.2023 14:48
The minutes of the European Central Bank's December decision once again confirm the main messages heard during and after the meeting: the Bank is far from done with its rate hike cycle A keynote speech by ECB President Christine Lagarde will be in focus today   The key takeaways from the December minutes were that “the monetary policy stance had to be tightened decisively and that the current configuration of interest rates and expectations embodied in market pricing was not sufficiently restrictive to bring inflation back to target in a timely manner”. Several ECB members were in favour of a 75bp rate hike (instead of the decided 50bp) and also preferred a fast pace for the reduction of reinvestments under the Asset Purchase Programme. ECB is far from done with rate hikes Looking ahead to future ECB meetings, it is clear that the central bank is far from being done with rate hikes. Admittedly, the recent drop in eurozone inflation has nothing to do with the ECB’s rate increases so far. The surge in inflation was mainly a result of higher energy prices, and the recent drop has consequently been driven by lower energy prices. Therefore, when predicting what the ECB will do next, it doesn’t make sense to analyse what the ECB should do but rather, what the bank is saying it will do. Hawkishness is no longer a characteristic of just a few ECB members; it is now the mainstream view. Another 50bp rate hike at the February meeting in two weeks looks like a done deal and another 50bp rate hike at the March meeting even looks highly likely. As long as core inflation remains stubbornly high and core inflation forecasts remain above 2%, the ECB will continue hiking rates. To some extent, we are currently witnessing a mirror image of the ECB until 2019. Back then, the Bank had a clear easing bias and was chasing disinflation with all means possible, even though the root causes for disinflation lay outside of the ECB’s realm. Now, the ECB has a clear tightening bias and is chasing inflation which arguably also has its root cause in something the ECB cannot tackle. Still, it looks as though the current generation of ECB policymakers will only let go once they are fully convinced that inflation is no longer an issue. In this regard, the slight improvement of the eurozone’s growth prospects as well as abundant fiscal stimulus have given the Bank even more reason to continue with its hawkish mission. With all of this in mind, it is hard to see that the ECB would cut interest rates any time again. Current market expectations about ECB rate cuts in 2024 are premature. If anything, these expectations as reflected in dropping longer-term interest rates are an additional argument for the ECB to stay hawkish. Just remember that the ECB’s December hawkishness was also a result of the Bank's view that market pricing was too dovish. Today's comments by both Christine Lagarde and Klaas Knot illustrate once again the ECB's determination to go all the way. Read this article on THINK TagsMonetary policy Inflation Eurozone ECB CPI 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
Saxo Bank Podcast: The Bank Of Japan Meeting And More

Podcast: Craig Erlam And Jonny Hart Discussed The Bank of Japan Decision And UK Inflation

Craig Erlam Craig Erlam 19.01.2023 14:51
OANDA Senior Market Analyst Craig Erlam reviews the latest market news with Jonny Hart. They discussed the Bank of Japan decision, UK inflation, and US retail sales. 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.
Supply Trends Resurface: Analyzing the Impact on Market Dynamics

The Australian Jobs Report In December Had A Negative Impact On The Australian Dollar (AUD)

Kenny Fisher Kenny Fisher 19.01.2023 14:53
The Australian dollar has extended its slide on Thursday. AUD/USD is trading at 0.6884 in Europe, down 0.82%. Australian employment data disappoints Australia’s December employment report was weaker than expected, sending the Australian dollar sharply lower. The headline reading showed a loss of 14,600 in total employment, which may have soured investors. The release wasn’t all that bad, as full-time jobs showed gains of 17,600, with part-time positions falling by 32,200. The unemployment rate remained at 3.5%, but this was a notch higher than the forecast of 3.4%. On the inflation front, recent releases point to inflation moving higher. November CPI rose to 7.3%, up from 6.9%, and the Melbourne Institute Inflation Expectations climbed to 5.6%, up from 5.2%. We’ll get a look at the all-important quarterly inflation reading next week. Inflation came in at 1.8% q/q in Q3, and an acceleration in Q4 would force the Reserve Bank of Australia to consider raising rates higher and for longer than it had anticipated. The cash rate is currently at 3.10%, and I expect the RBA will raise it to 3.50% or a bit higher, which means we are looking at further rate hikes early in the year. The US dollar seems to take a hit every time there is a soft US release, and this week has had its share of weak data. The Empire State Manufacturing Index sank to -32.9, while headline and core retail sales both fell by -1.1%. PPI came in at -0.5%. All three releases were weaker than the November readings and missed the forecasts, indicating that cracks are appearing across the US economy, as the bite of higher rates is being felt. The markets are clinging to the belief that softer numbers will force the Fed to ease up on its pace of rate hikes and possibly end the current rate-cycle after a 25-bp increase in February. The Fed has done its best to dispel speculation that it will pivot, but I expect the US dollar to lose ground if key releases are weaker than expected.   AUD/USD Technical AUD/USD is testing support at 0.6893. Below, there is support at 0.6810 0.6944 and 0.7027 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.
Rates Spark: Central banks vs economic data

The ECB Will Stay The Course With Rate Hikes, Netflix Reported Q4 2022 EPS Below Market Expectations

Saxo Bank Saxo Bank 20.01.2023 09:28
Summary:  The US equity markets ended lower again on Thursday as strong US jobless claims data underpinned, despite Fed speakers largely supporting the case of a downshift in February. Meanwhile, ECB speakers surprised hawkish, supporting EURUSD, and the post-BOJ strength in Japanese yen also sustained. Mixed earnings results with P&G down but Netflix rising despite missing EPS estimates as subscriber numbers grew. Gold returned to gains after three days of pullback, and crude oil prices also edged higher on China optimism.   What’s happening in markets? Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) slid on concerns about earnings Nasdaq 100 moved down by 1% and S&P500 slid 0.8% in a relatively quiet day. Energy and communication services bucked the decline and managed to each gain around 1%. Microsoft added to its previous day’s decline, falling 1.7% on Thursday. Consumer product giant, Procter & Gamble (PG:xnys) dropped 2.7% on a small earnings miss but disappointing organic sales growth due to a weaker-than-expected volume trend. Netflix (NFLX:xnas) jumped 6.9% in the extended hours after reporting a 7.7 million subscriber increase in Q4. US Treasuries (TLT:xnas, IEF:xnas, SHY:xnas) consolidated on hawkish ECB comments and a strong Philly Fed survey Treasuries erased their gains in Asian hours as yields followed German bunds higher in London hours on pushbacks from ECB’s Lagarde and Knot to speculation on a downshift of ECB rate hikes from 50bps to 25bps. Yields, especially in the short-end of the curve, climbed further following a smaller-than-expected 190K rise in initial jobless claims and an increase of the Philly Fed Business Outlook Index by 4.8 points to -8.9, better than the consensus estimate of -11.0. The 6-month ahead conditions sub-index improved nearly 6 points to 4.9. The Fed’s Vice Chair Brainard said she was supportive of slowing the rate hike to 25bps at the February FOMC while reiterated “the need for further rate increases, likely to just above 5 percent”. According to Nick Timiraos at the Wall Street Journal, Brainard raised the possibility that the Fed might not need to see as much evidence of a slowdown in labor markets to be confident of inflation improving. The USD17 billion TIPS auction went very strong with bid-to-cover at 2.79, well above the average of 2.25. As the federal government reached its debt limit, Treasury Secretary Yellen wrote a letter to Congress about measures that the Treasury Department is taking to keep meeting obligations until at least early June to allow time for Congress to work on raising the debt limit. Yields on the 2-year rose 4bps to 4.13% and those on the 10-year climbed 2bps to 3.39%, bringing the 2-10-year curve 2bps more inverted at -74. Hong Kong’s Hang Seng (HIF3) unchanged; China’s CSI300 (03188:xhkg) higher Hang Seng Index opened lower on Thursday but managed to pare losses and finished the day nearly unchanged. Techtronic (00669:xhkg), falling 5.4% on analyst downgrades, was the biggest loser with the Hang Seng Index. Chinese developer stocks and consumer names outperformed while China internet stocks, except Tencent, dragged. Country Garden (02007:xhkg) gained 4.9% and Longfor (00960:xhkg) climbed 3.5%. Leading sportswear name, Li Ning (02331:xhkg) rose 3.9%. BYD (01211:xhkg) rose 2.3% while other EV markers edged down. The speculation that a new “Strong Nation Transportation” ride-hailing app is backed by the government to compete with the incumbent platform companies, though later clarified being not the case, weighed on internet stocks, seeing Meituan (03690:xhkg) down 2.1% and Alibaba (09988:xhkg) down 1.7%. Chinese social platform, Kuashou (01024:xhkg) plunged nearly 6% after a co-founder sold shares. The Hang Seng TECH Index slid 1.7%. Overseas buying into A-shares through Stock Connect continued for 12 days in a row with a net buying of RMB9 billion on Thursday, bringing the net buying in January so far to over RMB100 billion. On Thursday, semiconductors, computing, ride-hailing, electronics, pharmaceuticals, brokerage, and defence stocks outperformed. CSI100 gained 0.6%. FX: Dollar slightly lower as Yen and Euro continue to gain The USD was slightly lower on Thursday as the ECB hawkishness continued to outpace that of the Fed and the post-BOJ recovery in the Japanese yen continued. USDJPY traded at sub-129 levels after a trip higher to 131.50 on the BOJ-day. EURUSD has returned above 1.0800 amid ECB member Knot and President Lagarde staying hawkish (read below). NZD and AUD were the underperformers. NZDUSD slid below 0.6400 before a slight recovery as news of NZ PM Ardern’s resignation weighed. AUDNZD’s drop below 1.0800 was also reversed. Crude oil (CLG3 & LCOH3) rebounds Crude oil prices gained as China optimism continued to reign. Reports that China’s covid caseload has peaked further boosted optimism that demand will start to recover more sustainably. Markets shrugged off rising inventories in the US. Commercial stockpiles rose 8,408kbbls last week, according to EIA data. Global demand expectations also got a boost as US jobless claims data supported the view that the labor market is still tight. WTI futures touched $81/barrel again after a drop towards $78 while Brent was back above $86. Gold (XAUUSD) climbed higher after three days of decline Gold continues to show resilience and found fresh bids on Thursday after three days of pullback. Support at $1900 continued to hold, and the yellow metal rose back above $1930 as US yields remained near new cycle lows despite some gains last night. However, demand from ETFs is yet to pick up with expectations that inflation will eventually come back to Fed’s target levels. Some correction may also be seen as Gold’s demand eases after China’s Lunar New Year festival, but the long-term view holds that 2023 will be friendlier towards investment metals, as last year’s headwinds – most notably dollar and yield strength – begin to reverse. For investors, what’s the big picture in markets right now with bond yields down 94bps and gold up nearly 20%? Despite bond yields rising on Thursday, to 3.4% the US 10-year Treasury yield broke below key support two days ago. As our head of technical analysis points out the closely watch yield could drop to 3.22%. As you may recall, our view at Saxo has been that peak hawkishness came in Q4 2022, which supports the retreat in bond yields since November last year. Bond yields are now down 94 basis points from their October peak. At the same time, the gold price rose 19% during the same period, given it typically tends to have an inverse relationship to bond yields, in particular real yields. If we see the Fed pauses later in the year, as Ole points out on yesterday’s podcast, the gold price could rally further in 2023.  Read next: Elon Musk Is Facing Trial In Fraud Trial Over 2018 Tweets| FXMAG.COM What to consider? More Fed members, including Brainard, hinting at a 25bps rate hike Lael Brainard (voter) said the recent downshift in the pace of rate hikes allows the Fed to assess more data as it moves policy to a "sufficiently restrictive" level, noting we are now in "restrictive" territory and are probing for a sufficiently restrictive level. She didn’t clearly confirm a 25bps rate hike for February, but hinted at that saying Fed downshifted the rate hike pace in December to absorb more data, and that logic is applicable today. Another voter Williams is speaking in the Asian morning hours, and signalling that the Fed has more work to do but labor demand far exceeds supply. Non-voter Collins reaffirmed her view that rates need to rise to likely just above 5%, and then the Fed needs to hold rates there for some time, also saying that it is appropriate to slow the pace of hikes particularly with risks now more two-sided. US initial jobless claims a good reminder that labor market is still tight While the focus somewhat shifted towards growth concerns yesterday after the disappointment from US retail sales and industrial production data. US jobless claims unexpectedly fell last week by 15k to 190k vs. expected 214k. Pre-covid monthly average was 345k per week while the 5Yr trend was 245k. So the data is still strong and a good reminder that inflation may continue to stay much higher than expected levels. The Philly Fed regional manufacturing index was also released yesterday, and it wasn’t as bad as the Empire State manufacturing survey stressing our view that survey results can be volatile. That index came in at -8.9 which was better than the -11.0 expected and marginally better than the -13.9 last month. Hawkish ECB speakers pushback against reports of slowing rate hikes ECB's Knot said that market developments of late are not entirely welcome and that the ECB won't stop after a single 50bps hike, planning to hike by 50bps multiple times. Despite a softer CPI print lately, Knot said that there are no signs of underlying inflation pressures abating, and said that the ECB will be in "tightening mode" until at least mid-year. ECB President Lagarde was also on the wires, saying economic news has become much more positive as the contraction in Eurozone 2023 GDP may be smaller than previously expected, so the ECB will stay the course with rate hikes. It's the demography, stupid! Earlier this week, we have learnt that China reached its demographic peak with 10-year ahead of projections. This will serve a as wake-up call for other countries, certainly. The world population growth is now below 1 % for the first time since the first half of the 20th century. About 61 countries in the world are expected to see their population decrease by at least 1% by 2050 (the population of Japan has been decreasing since 2010 while that of Italy since 2014, for instance). Expect massive consequences for the labor market. In Germany, about 500,000 people will leave the labor market each year between 2025 and 2035. This is massive! We are entering into a world of human capital shortage. Japan’s December CPI touches 4%, eyes on BOJ nominations due in February Japan’s December CPI came in at 4.0% YoY from 3.8% YoY previously, with core CPI also at 4.0% YoY while the core-core measure was a notch softer-then-expectations but still above the 2% target, coming in at 3.0% YoY. Despite the Bank of Japan’s pushback on expectations to tweak policy this week, speculations are likely to continue as inflation breadth is spreading. A contender to succeed Bank of Japan Governor Kuroda, Takatoshi Ito, said that the BOJ's next step may be to widen 10y band, could raise it to 0.75% or 1.00% by mid-year, likely won't tweak yield curve control at least until April, and may abandon negative rates this year depending on inflation and wage developments. Procter & Gamble disappointed on weaker organic growth and volume trend Procter & Gamble, the consumer product giant, reported FYQ2 2023 EPS of USD1.59, slightly below the USD1.60 street estimate. The bigger disappointment came from weaker organic growth as a result of a softer than expected volume trend. The management raise sales outlook for FY23 sales outlook but had its FY23 EPS outlook at the low end of its initial range. Netflix reported a gain of 7.7 million subscribers in Q4 Netflix reported Q4 2022 EPS at USD0.12 below market expectations. However, share prices jumped on a better-than-expected gain of 7.7 million subscribers in Q4. Guidance for Q1 2023 revenue at USD8.17 billion was stronger than market expectations.     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: US jobs data confirms labor market strength; ECB’s surprise hawkishness – 20 January 2023 | Saxo Group (home.saxo)
Soft PMIs Are Further Signs Of A Weak UK Economy

Recession Still Looks Like The Base Case For The UK Economy

ING Economics ING Economics 20.01.2023 09:58
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
ECB press conference brings more fog than clarity

The Necessity Of Raising The Rate By Half A Point In The Near Future Still Hold

Jakub Novak Jakub Novak 20.01.2023 12:45
After Christine Lagarde, president of the European Central Bank, warned yesterday that inflation in the eurozone is still too high and is the biggest problem, the euro increased somewhat. She also pledged that lawmakers will not back down from their attempts to get price growth back to normal levels. Lagarde stated on Thursday in Davos that "Inflation by any measure, no matter from which side you look at it, is too high. We'll continue raising rates and then shift to a trajectory that restricts spending for a sufficient amount of time to quickly bring inflation back to 2%." Core inflation is far from ideal Some eurozone politicians have previously suggested that it is already reasonable to discuss the viability of a less aggressive rate hike after price growth slows and the price of natural gas declines, but only after another step of 0.5 percentage points is predicted in February. Some, on the other hand, argue that core inflation is far from ideal and point out that it set a new record high in December. Christine Lagarde and those who want to keep moving forward with rate increases will benefit from this.  Francois Villeroy de Galhau and Klaas Knot Lagarde's words from last month regarding the necessity of raising the rate by half a point in the near future still hold today, according to members of the Governing Council Francois Villeroy de Galhau and Klaas Knot, who recently confirmed them in Davos. At least one additional rate rise of 50 basis points is anticipated at the following meeting based on the new data that is now available. However, if the rate of inflation increase does not aggressively go down, the regulator will likely continue to pursue a strong stance until the spring of this year. A report from the European Central Bank's monetary policy meeting A report from the European Central Bank's monetary policy meeting claims that several officials first predicted a rate increase of 75 basis points in December but afterward revised their prediction downward by 0.5%. The risks of underlying pricing pressure are discussed in the paper, along with worries about inflation being entrenched in the eurozone countries for a longer period. Lagarde's words Lagarde added that a little recession is now more probable than the start of one. "Over the past three weeks, the news has changed dramatically for the better. Despite not being a great year, it will be substantially better than we anticipated," said Lagarde.  EUR/USD  Given that the bullish trend has not yet been broken, the technical picture of EUR/USD indicates that demand for the euro could resume at any time. There is also a prospect for more expansion and setting new records for the year. Staying above 1.0820 will cause the trading instrument to surge to the 1.0870 region, which is what is needed to achieve this. You may reach 1.0930 with ease by climbing over this point. If the trading instrument falls, only a breakdown of support at 1.0820 will put more pressure on the pair and potentially cause it to fall as low as 1.0720. GBP/USD Regarding the technical picture of the GBP/USD, it failed to update the weekly maximum, severely limiting the pair's future upward potential. Buyers must continue to trade over 1.2330 to keep their advantage. The only thing that will increase the likelihood of a further recovery to the 1.2500 region, after which it will be feasible to discuss a more abrupt move of the pound up to the 1.2550 area, is the loss of resistance at 1.2430. After the bears seize control of 1.2330, it is feasible to discuss the pressure on the trading instrument. The GBP/USD will be forced back to 1.2250 and 1.2190 as a result, hitting the bulls' positions Relevance up to 09:00 2023-01-21 UTC+1 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/332859
French strikes will cause limited economic impact

Inflation In France Is Expected To Rise Further In The First Quarter Of 2023

ING Economics ING Economics 21.01.2023 10:28
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  
Italian headline inflation decelerates in January, courtesy of energy

In Italy Private Investment Should Remain A Positive Growth Driver In 2023

ING Economics ING Economics 21.01.2023 10:35
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  
Spanish economy picks up sharply in February

Spanish Economy Is Expected To Do Slightly Better Than The Eurozone Average

ING Economics ING Economics 21.01.2023 10:50
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    
A Better-Than-Expected US GDP Read, Nvidia Extends Rally

A Slight Decline In U.S. GDP Is Expected

Kamila Szypuła Kamila Szypuła 21.01.2023 18:57
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
In Austria Inflation Will Remain High In 2023

In Austria Inflation Will Remain High In 2023

ING Economics ING Economics 22.01.2023 13:38
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
The Greek Budget For 2023 Targets A Return To A Primary Surplus

The Greek Budget For 2023 Targets A Return To A Primary Surplus

ING Economics ING Economics 22.01.2023 14:02
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
Belgium: Core inflation rises, but the peak is near

A Slow Recovery Of The Belgian Economy Is Likely To Take Shape In The Course Of The Year

ING Economics ING Economics 22.01.2023 14:07
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
FX Markets React to Rising US Rates: Implications and Outlook

The RBA Are Expecting Inflation To Rise, Will The Bank Of Canada Increase Interest Rates Again?

Kamila Szypuła Kamila Szypuła 22.01.2023 15:05
Wednesday's data is expected to reveal another CPI rise, but both the Treasury and the Reserve Bank of Australia (RBA) predicted a peak in the December quarter. In the coming week, the Bank of Kandy will make decisions regarding its monetary policy. CPI in Australia The Australian Bureau of Statistics will release its Consumer Price Index (CPI) data for the December quarter on Wednesday as the cost of many household items rises. Commonwealth Bank analysts forecast inflation to rise by 1.7 per cent over the quarter, compared with an increase of 1.3 per cent in the same period a year earlier. In the minutes of its November meeting, the Reserve Bank of Australia said it expected headline inflation to peak around 8% and core inflation to peak at 6.5%. at the end of 2022, before both start declining earlier this year. None of the forecasts have been updated after the meeting in December. A print above 7.6% would flag a problem for the central and could alter expectations for their February monetary policy meeting. The futures market is currently pricing around a 15 bp increase in the cash rate target, reflecting uncertainty between a 25 bp lift or no change. Source: investing.com Interest rates in Canada Canada's central bank is expected to announce its eighth consecutive rate hike on Wednesday, with most commercial banks anticipating a quarter-percentage-point increase. That would raise the central bank's key interest rate to 4.5 percent, the highest level since 2007. But also in line with this view, some gleeful experts predict that the Bank of Canada will hold back and not raise its key interest rate above the current level of 4.25%. However, the bank does not seem determined to end the tightening cycle. After peaking at 8.1 percent in June, year-on-year inflation slowly declined and reached 6.3 percent in December. For some economists, this drop in inflation is proof that the Bank of Canada's restrictive monetary policy is working. In any case, headline inflation at 6.3 percent is still three times above target - so the inflation hawks will conclude that the bank must keep raising the interest rate. And similarly when we take into account core inflation - which excludes food and energy, two volatile components of the CPI basket. The Canadian economy added 104,000 jobs in December — far exceeding forecasts of an increase of 8,000 jobs — and the unemployment rate fell to 5 per cent from 5.1 per cent in November. The labour market, therefore, continues to be very tight. And this is what really worries the Bank of Canada If the decision to raise interest rates depended solely on the latest available data, then the answer would be simple: the main interest rate will not be raised above the current 4.25 percent. But if the decision depended on the bank's inflation outlook, the rate would definitely be raised on January 25 and later. Source: investing.com, rba.com,
The AUD/USD Pair’s Downside Remains Off The Table

The Bullish Outlook For The AUD/USD Pair Will Depend Solely On The US Dollar

InstaForex Analysis InstaForex Analysis 22.01.2023 15:21
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
For What It Is Worthy To Pay Attention Next Week 23.01-29.01

What It Is Worthy To Pay Attention Next Week 23.01-29.01

InstaForex Analysis InstaForex Analysis 22.01.2023 15:36
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
Central Banks' Rates Outlook: Fed Treads Cautiously, ECB Prepares for Hike

Gas And Oil Prices Are Higher Too Ahead Of The EU Embargo On Russian Products

Saxo Bank Saxo Bank 23.01.2023 09:08
Summary:  Risk on tone supported by lower bond yields and US dollar. Saxo’s equity baskets show the best gains are in sectors benefiting from China’s reopening. If NZ's CPI slows more than expected, the NZDUSD may see profit taking. Chinese New Year brings limited market hours. Australia’s ASX200 to take out a new all-time high, but CPI is in the way. Gold and copper continue to rally up. Oil prices are higher ahead of the EU embargo on Russia. Tech profits expected to dive, but there is room for disappointment. Saxo Spotlight: What’s on investors & traders radars this week, January 23-27: US GDP, AU NZ CPI, Microsoft & Tesla earnings Risk on tone supported for now as bond yields hold near lows, along with US dollar index US Treasury bond yields trading at some of the lowest levels down about 0.8% from the October peak, but yields are up slightly at 3.48%. Yields look set for lower levels and could even head back down and could drop below the 200-day SMA. The next level we’re watching is if yields fall to 3.22%.  If that level is reached, it would theoretically support US equities. We’d also need to see the US dollar remain lower. The US dollar index is now down 10% from its September high, but rose slightly on Friday after hotter than expected US prouder inflation for November, which bolsters the case for the Fed to keep hiking, even if it’s at a slower pace. Most gains in Saxo's equity baskets are in sectors benefiting from China’s reopening The Travel, E-commerce basket of stocks are up the most this month, followed by Energy Storage and China Consumer and Technology basket. However year-on Year, the most growth is from Defence which is up 21%. Economic news brings FX into focus US fourth-quarter GDP data, European PMIs and the Bank of Canada rate decision, as well as CPI for Australia and NZ will all be watched. NZ Consumer prices are expected broadly to have climbed 7.1% in the fourth quarter from a year earlier, which could mark CPI is slowing from the prior 7.2% and, more importantly, less than the 7.5% predicted by the Reserve Bank in its most recent forecasts. Given the NZ dollar was one of the strongest currencies last week, it could face profit taking if the data is weaker than expected. Market hours are limited this week, for Chinese New Year This also means light volume is expected and thus moves could perhaps be amplified on thin trade. China’s market is shut all week (Monday to Friday), Hong Kong’s market is shut for Monday to Wednesday, Singapore’s market is shut for Monday and Tuesday. Australia’s market shut Thursday for Australia Day. Australia’s ASX200 could likely to take out a new all-time high..... this is supported by the rally in commodities and expected higher earnings from mining companies, which make up 25% of the market. However CPI is a focus this week. Our technical analyst backs up this thinking, that the ASX200 is likely to hit a new all high- for more click here. But the danger this week is if Q4 CPI is hotter than expected on Wednesday, then equities could see profit taking. However overall sentiment is bullish for the ASX as demand for copper and iron ore is likely to pick up after CNY. CPI is expected to rise to 5.8% YoY from 5.6% (trimmed Mean CPI). And CPI YoY is expected to rise to 7.7% YoY, from 7.3%. Hotter data could further fuel the AUD and a likely fuel a sell-off in tech stocks and real estate. In company news to watch, iron ore company Champion Iron (CIA) reports quarterly earnings. Given the iron ore price is up 66% from its low, its outlook is expected to be optimistic. In commodities Gold and copper are gaining momentum and oil rallies The precious metal, gold, has been supported by lower yields and the US dollar falling, which has supported gold up 19% from its September low. As Ole Hansen points out we might need to see ETF holdings pick up in Gold, to see longer term investors getting involved, which could support gold higher, or potentially we may see some profit taking. However, gold momentum remains as long as the USD and yields behave. Recall that if the Fed pauses rates and rates peak, we think there is a case for our outrageous prediction of gold hitting $3,000 coming true. Copper trades up 0.5% to $4.25, its highest level since June last year, continuing its 32% rally off its low on expectations that China will increase buying after the Luna New Year holiday. Plus there are also disruptions on copper output in Peru, which could impact 2% of global copper output. So given inventory levels are already lower and demand expectations are picking up, copper prices are underpinned. Gas and oil prices are also higher too ahead of the EU embargo on Russian products which starts on February 5th. Oil (WTI) is up 1.3% to $82.64, at this level since early November, after two weeks of gains. Refinery demand is supporting prices. Tech companies' profits are expected to dive, but earnings estimates could be too optimistic & disappoint In the S&P500(US500.I) tech companies, which make up 26% of the market, are expected to report a quarterly profit drop of 9.2% on average, according to Bloomberg. This could be the biggest tech profit drop since 2016. Forward 12-month earnings of 39% is also expected according to Bloomberg. The danger is that estimates are still too bullish, and markets will likely be disappointed, which would trigger a fall. Overall aggregate S&P500 earnings are expected to have grown 2.12% in the quarter and miners are expected to deliver the most growth, real estate with the least. So far, only 55 companies have reported in the S&P500 and earnings have fallen over 4% on average. So, the bear case is still a factor for some investors, especially in tech. More job cuts are expected with margins being squeezed. EV companies are also facing pressure with higher metal prices. On Tuesday Microsoft kicks off earning season. Defence giants Raytheon and Lockheed Martin report on Tuesday. Tesla reports Wednesday. On Thursday Intel and Mastercard report, and steel giant Nucor. On Friday Chevron. These could be industry proxies to watch with a major focus on their outlooks.   Key economic releases & central bank meetings this week to watch  Monday 23 January China, Hong Kong, Taiwan, South Korea, Indonesia, Malaysia, Singapore Market Holiday Japan BOJ Meeting Minutes (Dec) Tuesday 24 January China, Hong Kong, Taiwan South Korea, Malaysia, Singapore Market Holiday Australia Judo Bank Flash PMI, Manufacturing & Services Japan au Jibun Bank Flash Manufacturing PMI UK S&P Global/CIPS Flash PMI, Manufacturing & Services Germany S&P Global Flash PMI, Manufacturing & Services France S&P Global Flash PMI, Manufacturing & Services Eurozone S&P Global Flash PMI, Manufacturing & Services US S&P Global Flash PMI, Manufacturing & Services Thailand Customs-Based Trade Data (Dec) Germany GfK Consumer Sentiment (Feb) United Kingdom CBI Trends (Jan) Wednesday 25 January China, Hong Kong, Taiwan Market Holiday New Zealand CPI (Q4) Australia Composite Leading Index (Dec Australia CPI (Q4) Japan Leading Indicator (Nov, revised) Singapore Consumer Price Index (Dec) United Kingdom PPI (Dec) Thailand 1-Day Repo Rate (25 Jan) Germany Ifo Business Climate New (Jan) Canada BoC Rate Decision (25 Jan) Thursday 26 January Australia, China, Taiwan, India Market Holiday Japan BOJ Summary of Opinions (Jan) South Korea GDP (Q4) Japan Services PPI (Dec) Philippines GDP (Q4) Singapore Manufacturing Output (Dec) Norway Labour Force Survey (Dec) United Kingdom CBI Distributive Trades (Jan) Canada Business Barometer (Jan) United States Durable Goods (Dec) United States GDP (Q4, advance) United States Initial Jobless Claims United States New Home Sales (Dec) Friday 27 January China, Taiwan Market Holiday Japan CPI, Overall Tokyo (Jan) Australia PPI (Q4) Australia Export and Import Prices (Q4) United States Personal Income and Consumption (Dec) United States Core PCE (Dec) United States UoM Sentiment (Jan, final) United States Pending Home Sales (Dec) Source:Saxo Spotlight: What’s on investors & traders radars this week? | Saxo Group (home.saxo)
The ECB Has Made It Clear That Rates Will Remain High Until There Is Evidence That Inflation Is Falling Toward The Target

The ECB Is Likely To Stay The Course And Hike By Another 50bp

ING Economics ING Economics 24.01.2023 11:44
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
French strikes will cause limited economic impact

The French Economic Outlook Is Uncertain But Far From Dramatic

ING Economics ING Economics 24.01.2023 11:48
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
The RBA Raised The Rates By 25bp As Expected

Asia Market: Disappointing Inflation Data From Australia

ING Economics ING Economics 25.01.2023 09:03
Disappointing inflation data already out from Australia suggest a higher peak cash rate. Singapore inflation data are out later  Source: shutterstock Macro outlook Global markets: Happy Chinese New Year to all our readers. US equity markets regained their composure at the end of last week, and have traded more or less sideways since then, so there is not too much to catch up on after the recent holidays in Asia. The S&P500 is now at 4016.95, which leaves it slightly above its 200-day moving average. The early part of this week saw US 2Y Treasury bond yields rising sharply, before drifting slightly lower again yesterday. The current 2Y yield is 4.21%. 10Y US Treasury yields have performed a similar rise then decline, currently at 3.45%. EURUSD pushed above 1.09 last Friday but has been trading just south of that in the first two days of this week. There is a mixed performance from other G-10 currencies. The AUD is looking firm against the USD, trading above 70 cents currently. But sterling is softer at 1.2332. And the JPY is holding at about 130, just slightly stronger after a weak start to the week. In other Asian FX, there isn’t much action given the Chinese New Year holidays in much of the region. The INR has been losing ground on reports of USD buying by Indian oil companies. G-7 Macro: Since we went on holiday, the most notable G-7 releases have been a bunch of PMI figures out of Europe, which painted a slightly less bleak picture of the economy than for some time, with the composite PMI just clawing its way back above the 50 threshold boom/bust level. Today, we get more colour on Germany from the Ifo business index. And the Bank of Canada will most likely raise rates a further 25bp taking policy rates to 4.5% Australia: Another big upside miss to the Australian CPI data, with December inflation rising from 7.3% to 8.4% YoY. This increase took the 4Q22 inflation rate up to 7.8% YoY from 7.3%. Both weighted median and trimmed mean measures of inflation also rose. We've had our cash rate forecast under "double-secret probation" for the last month, and see no other course of action than to raise this from 3.6% to 4.1%, by extending the Reserve Bank's hiking activity a further 2 months.  Singapore: December 2022 inflation is due for release later today.  The market consensus points to headline inflation easing slightly to 6.6%YoY while core inflation is likewise expected to soften to 5.0%YoY (from 5.1% previously).  Despite the slight dip in inflation, price pressures remain evident and core inflation is still well above the Monetary Authority of Singapore’s (MAS) inflation target of 2%. The recent rebound of the SGD means that the MAS may not need to tinker with policy just yet but we do expect the MAS to be mindful of the SGD’s appreciation which could eventually weigh on an already challenged export sector.    What to look out for: Australia and Singapore inflation Australia CPI inflation (25 January) Singapore CPI inflation (25 January) Bank of Thailand policy (25 January) US mortgage applications (25 January) 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
The Melbourne Institute Inflation Gauge For Australia Rose More Than Expected

Australia: The Increase In Inflation Has taken 10Y Australian Government Bond Yields Sharply Higher

ING Economics ING Economics 25.01.2023 09:16
Much of the recent inflation disappointment can be put down to one-offs, weather-related and other seasonal effects. But that still leaves inflation higher, and likely to come down slower than otherwise, suggesting that the Reserve Bank of Australia's (RBA) policy of a 25bp increase in the cash rate each meeting has longer to run before its peak Reserve Bank of Australia Governor Philip Lowe Source: Shutterstock 8.4% December inflation YoY% Higher than expected Holiday in the sun The chart below shows that most of the damage to inflation this month was done from one source, holidays (a subcomponent of the recreation series), and with December being peak holiday time in Australia and overseas visitors making the journey to see family and friends after, in many cases, long waits, it is perhaps not completely surprising to see some price pressure here. In December 2021, holiday prices rose 10.8% from the previous month. In December 2022, they rose a staggering 27% MoM, which is almost double the highest monthly increase in recent history.  Last month, food prices were the big shock to the data, driven higher by poor weather and flooding. The December weather wasn't particularly good either, and food prices, especially fresh fruit and vegetables, were up another 3% from the previous month, though the impact of the food and beverage component was offset this month by some declines in alcohol and tobacco prices.  Clothing bounced back after a big drop in November, and confusingly, housing also delivered a strong lift to the overall index with house-purchase, rents and furnishings all delivering sizeable increases from the previous month. The quarterly index with which most people are more familiar, showed inflation rising from 7.3%YoY in 3Q22 to 7.8% in 4Q22. Trimmed mean inflation rose from 6.1%YoY to 6.9% over the same period, while the median weighted index inflation measure rose to 5.8% from 5.0%.  Australian inflation month-on-month % by component Source: CEIC, ING More work for the RBA to do We had already been looking at our cash rate forecast with a view to revising it higher, and this latest data leaves us no option but to increase it. The RBA is hiking the cash rate by 25bp a meeting, and we do not believe this will change. But while we had harboured hopes that base effects would start to quickly bring down inflation, enabling the RBA to stop hiking once rates reached 3.6%, which they would have done by the March meeting, we now believe they will have to keep hiking for at least another 2 meetings, taking the peak cash rate up another 50bp to 4.1%.  The increase in inflation and its implications for policy rates has taken 10Y Australian government bond yields sharply higher. The 10Y yield is up about 13bp from its intra-day lows, and may not have stopped rising yet.  As we note in our introduction, a lot of what we are seeing is still one-offs and seasonal shocks, and we do think that in a few months, those shocks could quickly start to drop out of inflation again. As a result, we still eye lower bond yields as the easier direction of travel now that they have risen on this inflation news. The main risk to this view is that we may not yet have seen an end to the one-offs and seasonal shocks.  Read this article on THINK TagsRBA rate policy Cash rate target Australia inflation 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
OPEC+ Are Expected To Keeping Oil Production Unchanged, AUD/USD Trades At Its Highest Levels

OPEC+ Are Expected To Keeping Oil Production Unchanged, AUD/USD Trades At Its Highest Levels

Saxo Bank Saxo Bank 25.01.2023 09:54
Summary:  Equity markets lose steam and trade cautiously ahead of the Fed’s preferred inflation gauge. The S&P500 closes above it 200-day average for the second day - a sign there are more bulls in the market than bears, but Tesla's results could rock the boat. Australian and NZ CPI blow hotter than expected. Gold is on the cusp of a bull market. Oil slides, investors buy the dip ahead of the EU ban on Russian oil. Oil prices make their biggest drop in 3 weeks; some investors see this as opportunity Equity markets lose steam and trade cautiously ahead of the Fed’s preferred inflation gauge   US equity markets were a bit dull on Tuesday with investors weighing up mostly stronger than expected Microsoft earnings results, vs a weaker than expected earnings from chipmaker giant, Texas Instruments. The S&P500(US500.I) fell 0.1% but closed above it 200-day average for the second day (a sign there are more bulls in the market than bears), while the Nasdaq 100 (NAS100.I) lost 0.2%. Still markets are waiting for the next major catalysts; Tesla’s results on Wednesday, then later in the week the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) price index for December to gauge if the Nasdaq’s rally of 11% from its low can be sustained, especially as the PE for the Nasdaq is about 54.6 times earnings; meaning tech stocks are still quite expensive compared to their averages. The risk is if Core PCE doesn’t fall as expected from 4.7% QoQ to 3.9%, then we could see a selloff in equity markets, while the US dollar would be bought as hotter inflation supports the Fed keeping rates higher for longer. However, the S&P500 is seemingly bullish for now, until the next tests (some of which we mentioned), click for an in depth Technical Analysis on what the next levels could be for the S&P500. Mixed Microsoft (MSFT) result has shareholders relived as cloud sales rise more than forecast; a sign the business could stand tall amid the murky year ahead After hours Microsoft (MSFT) shares gained 4.3% with investors relieved its revenue in constant currency rose 7% in the quarter, versus the 6.59% estimate. Microsoft’s closely watched Azure cloud-computing business, sales gained 38%, compared with predictions for a 37% increase, excluding the impact of currency fluctuations. This underscores Azure’s ability to help drive the company forth, even as sales of Windows software to PC makers plummeted amid a slumping market. Adjusted earnings per share came in at $2.32, slightly better than the $2.30 estimate, thanks to the cost cutting. Capital expenditure was $6.27 billion, less than Bloomberg estimated ($6.63 billion), while revenue slightly missed expectations hitting $52.75 billion vs the $52.93 billion estimate. Commodities see red on profit taking, while gold nudges up on the cusp of a bull market   Oil dropped, with WTI falling $1.8% below $81 after as OPEC+ are expected to keeping oil production unchanged when they meet next week as they await clarity on Chinese demand and the impact of EU’s ban on Russian supply (from Feb 5). Copper declined 0.2% with investors booking profits after the copper prices gained 32% from their low. Traders bought into Wheat, lifting the Wheat price up 2% as its trades at year lows. While Gold nudged up 0.4%, taking its total rally off its low to 19.5%, meaning gold is on the cusp of a bull market. Be mindful that we also think gold could also face profit taking, or a consolidation. Ole Hansen, head of commodity strategy discusses that here.  Australia CPI came out hotter than expected. Focus is on oil’s biggest drop in 3 weeks with some investors buying the dip  After Australia’s ASX200(ASXSP200.I) rallied for five straight days, the market fell like a knife on Wednesday after CPI came out hotter than expected supporting the notion that the RBA can keep rates higher for longer, despite the services sector remaining in contractionary phase. You have to remember Australian CPI has now on numerous occasions been hotter than expected. So given the market is up 16% from its low, we are seeing traders and investors book in profits ahead of the public holiday tomorrow and ahead of next week's RBA decision. Oil stocks such as Santos, Woodside, WorleyParsons, Ampol trade lower but some longer term investors would be seeing this pull back as an opportunity to buy the dip. Why? Oil prices remain supported ahead of EU’s ban on Russian oil coming up (Feb 5), which will restrict oil supply, plus we’re seeing APAC air travel rev up and this is expected to continue over the medium term; which is also driving demand for diesel and underpinning oil demand. In FX the Aussie dollar is on the cusp of a key event   The Aussie dollar vs the US (AUDUSD) trades at its highest levels since August, 70.64 US, after AU CPI came out showing prices are up 7.8% YoY, vs 7.6% expected. Core mean CPI rose 6.9% YoY, also hotter than the 6.5% expected. This means the RBA has more fire power to keep rising rates, despite the services sector remaining in a contraction (with a reading of under 50). If the AUDUSD's 50 day simple moving average crosses above the 200 day, marking a ‘golden cross’, we could see a quick run up to 0.7137, the August peak. It’s also worth watching the AUDEUR as bullish momentum could see the pair on the weekly chart cross over its 100-day moving average. - Stay tuned to Saxo's inspiration page for trading and investing ideas, as news breaks.  For a global look at markets – tune into our Podcast. Source: Video: Oil prices drop, some investors buy the oil dip. AU & NZ CPI hotter than expected | Saxo Group (home.saxo)  
Inflation Reports In Australia And New Zealand Were Higher Than Expected

Inflation Reports In Australia And New Zealand Were Higher Than Expected

Saxo Bank Saxo Bank 25.01.2023 10:04
Summary:  A double dose of upside surprise in inflation was reported this morning. Australia’s 4Q CPI rose to fresh 33-year highs and New Zealand’s remained firm near its recent three-decade highs as well. This brings potential for some upward re-pricing in RBA’s rate hike path, and also raises concerns on whether China’s reopening and the surge in commodity prices, along with a boost to travel demand, could bring another leg up in price pressures later in 2023. Hot Australia CPI cements RBA’s February rate hike Inflation reports in Australia and New Zealand were released this morning, and both came in higher-than-expected. The bigger upside surprise was in Australia’s CPI report which showed inflation rising to a fresh 33-year high in the fourth quarter. 4Q CPI was up 7.8% YoY from 7.3% YoY in 3Q, coming in above the 7.6% YoY expected. December inflation was an even bigger shock, rising by 8.4% YoY from 7.3% YoY in November. Both weighted median and trimmed mean measures of inflation also rose. Price pressures were mostly underpinned by a rise in electricity prices as well as a pickup in holiday travel during the Christmas period. While some may argue that Australia’s inflation is peaking, given that the headline CPI gain of 7.8% YoY was less than the RBA’s expectation of 8% YoY, it is imperative to look at how close the trimmed mean is getting to the headline CPI. With trimmed mean CPI at 6.9% YoY, less than 100bps below headline, shows that the price pressures are rather broad-based. Today’s inflation print cements another 25bps rate hike by the RBA at the February meeting, while also raising the risk of further tightening if inflation data continues to surprise on the upside. Source: Bloomberg, Saxo Markets Steady NZ CPI suggests RBNZ could surprise Earlier in the day New Zealand CPI came in steady at 7.2% YoY for Q4, the same as previously, but above the 7.1% consensus estimate. The quarter-on-quarter read was 1.4% rather than the 1.3% forecast but a deceleration from the prior print of 2.2%. The YoY read was still below the central bank’s forecast of 7.5%, but still remaining close to the 30-year peak of 7.3% YoY printed in June 2022 This suggests that inflation isn’t cooling yet despite rapid rate increases. Price pressures were underpinned by higher house-building costs and higher wages, along with higher demand for holiday travel just like for Australia. Non-tradable inflation, or domestic price rise rises, were up 6.6% YoY, same as last quarter. Meanwhile, tradable inflation was 8.2% YoY, higher than 8.1% YoY on Q3. While the downside surprise in non-tradable inflation may prompt some calls for the RBNZ to slow down its rapid rate increases, there is also reason to believe that the central bank could continue to deliver hawkish as inflation remains hot. This brings the February RBNZ meeting (decision due 22 Feb) in focus, with market pricing also split between a 50 or a 75bps rate hike. Also worth noting that the new NZ Prime Minister Chris Hipkins is bringing the focus back on economic growth amid forecasts of a recession in 2023, and the administration is highlighting the fall in quarterly CPI from 2.2% in Q3 to 1.4% this quarter as a peak in inflation. Source: Bloomberg, Saxo Markets AUDNZD poised for more gains AUDUSD has been bumped higher recently due to a host of factors, including the faster-than-expected China reopening and the resulting gains in commodities such as iron ore. Meanwhile, reports that China will relax its soft ban on some Australian commodities, including coal, has also underpinned. Today’s CPI data should provide further support for AUD, with AUDUSD making fresh highs above 0.7100. The pair may however remain volatile however with US PCE data on the horizon this week ahead of the FOMC meeting next week. If the USD emerges stronger, resistance at 0.7125 may stick. NZDUSD was a notch weaker, staying below 0.6500 with key hurdle at 0.6535. AUDNZD was up over 1%, jumping past the key 1.0900 to test the cycle highs at 1.0955 and the 0.618 retracement around 1.11. The cross likely has more room on the upside due to the relative scope for upward re-pricing of the RBA path compared to RBNZ. Source: Bloomberg, Saxo Markets Here is the latest technical analysis on AUDUSD and other AUD crosses from our Technical Analyst, Kim Cramer, highlighting the key levels to watch next. Peak inflation narrative getting a reality check A double dose of upside inflation surprises will spark concerns on whether the global inflation has really peaked. We have continued to see tight labor markets for now, which should continue to fuel wage pressures globally. China’s reopening is also further raising prices of commodities, especially crude oil and industrial metals. Meanwhile, a big part of Australia and NZ’s CPI gains in Q4 came from a rebound in travel, which is likely to get a further bump higher with China’s reopening and pent-up demand. In summary, today’s data was a reminder that it is still early to take comfort on inflation, and start thinking about peak rates even as a pause from several central banks looks imminent in Q1. Inflation could come back to haunt global markets in H2, and this would force most central banks, especially the Fed to stay cautious of premature easing.   Source: Macro Insights: Hot Australia and New Zealand CPI to challenge the peak inflation narrative | Saxo Group (home.saxo)
The RBA Is Expected To Raise Rates By 25bp Next Week

Australia Inflation Report Helps The AUD/USD Pair

TeleTrade Comments TeleTrade Comments 25.01.2023 10:26
AUD/USD takes the bids to rise to a fresh high since August 2022. A clear upside break of previous resistance from November, bullish MACD signals favor buyers. Nearly overbought RSI (14), multiple hurdle since June 2022 challenge immediate upside. AUD/USD bulls cheer the strong Aussie inflation data as the quote renews the five-month peak near 0.7115 during early Wednesday. In addition to the upbeat prints of the quarterly Australia Consumer Price Index (CPI) and Reserve Bank of Australia Trimmed Mean CPI, the Aussie pair’s ability to successfully cross an ascending trend line from November 15, around 0.7095 at the latest, also favor the bulls. It’s worth noting that the bullish MACD signals add strength to the upside move. However, a horizontal area comprising multiple levels marked since June 2022, around 0.7130-40 restricts appears a strong resistance for the AUD/USD pair traders. Adding strength to the stated hurdle is the overbought condition of the RSI (14). Should the Aussie pair stays comfortably beyond 0.7140, the odds of witnessing the pair’s run-up toward the mid-2022 peak surrounding 0.7285 can’t be ruled out. Alternatively, intraday sellers could take entries in case the AUD/USD price drops below the resistance-turned-support line near 0.7095. Read next: The Aussie Pair Is Above 0.70$, GBP/USD Pair Lost Its Level Of 1.24$| FXMAG.COM Even so, the previous weekly high near 0.7065 and the last Thursday’s low near 0.6870 may test the AUD/USD bears. It should be noted that the 61.8% Fibonacci retracement level of the pair’s June-October 2022 downside and the 200-DMA, respectively near 0.6855 and 0.6815, appear the last defense of the pair buyers as a clear of the same might confirm the bearish trend. AUD/USD: Daily chart Trend: Limited upside expected
Philippines’ central bank hikes rates after blowout CPI report

Asia Market: The Philippines 4Q GDP Growth Is Expected To Expand

ING Economics ING Economics 26.01.2023 09:57
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
Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

The ECB Has A Clear Tightening Bias And Is Chasing Inflation

ING Economics ING Economics 26.01.2023 11:42
When the European Central Bank meets next week, all eyes and ears will once again be on the communication. A rate hike of 50bp looks like a done deal. How far and how fast the ECB will go from there, is still unclear   Recent economic data in the eurozone offers a taste of what will increasingly become a new challenge for the ECB: a somewhat more resilient than expected economy, improving sentiment indicators and dropping headline inflation. While the growth part argues in favour of more rate hikes, lower inflation could argue in favour of taking a step back given that the central bank's primary mandate is to reach price stability. For next week, however, both developments are too fresh and tentative for the ECB to change course. Instead, the ECB looks set to hike interest rates by another 50bp. There has not been a single ECB member on the record with a diverting view. Read next: Musk Intends To Cut Costs In Tesla On Everything| FXMAG.COM Risk of longer-lasting inflationary pressure The reason for a 50bp rate hike is clear: the ECB’s job is far from done as the Bank's own December projections pointed to inflation at 3.4% in 2024 and 2.3% in 2025. Inflation was only expected to return to 2% in the second half of 2025. These estimates have provided a clear license to hike for quite some time. The only problem with these forecasts is that they are highly conditional on the so-called technical assumptions for interest rates, energy prices and exchange rates. At the December press conference, the ECB stated its discontent with the market pricing of future rate hikes, hoping for higher pricing, which would mechanically lower the ECB’s inflation forecasts. With energy prices much lower than in December, the exchange rate stronger and interest rates higher, back-of-the-envelope estimates show that, if everything else remains the same as it was in December, the ECB’s headline inflation projections could easily be lowered by 0.3 to 0.5 percentage points for 2024 and 2025. Looking beyond next week’s meeting, as long as core inflation remains stubbornly high and core inflation forecasts remain above 2%, the ECB will continue hiking rates. The increasing probability that a recession will be avoided in the first half of the year also gives companies more pricing power, as reflected in January’s PMI, showing that selling price expectations remain elevated. The celebrated fiscal stimulus, which has eased recession fears, is an additional concern for the ECB as it could transform a supply-side inflation issue into demand-side inflation. These are two factors that could extend inflationary pressures, albeit at a lower level than currently, in the eurozone. More hikes to come but communication needs improvement More generally speaking, we are currently witnessing a mirror image of the ECB up until 2019. Back then, the Bank had a clear easing bias and was chasing disinflation with all means possible, even though the root causes for disinflation lay outside of the ECB’s realm. Now, the ECB has a clear tightening bias and is chasing inflation, which arguably also has its root cause in something the ECB cannot tackle. Still, it looks as though the current generation of ECB policymakers will only back down once they are fully convinced that inflation is no longer an issue. In this regard, the slight improvement of the eurozone’s growth prospects as well as abundant fiscal stimulus have given the Bank even more reason to continue with its hawkish mission. With all of the above in mind, it is hard to see the ECB cutting interest rates again any time soon. Current market expectations about ECB rate cuts in 2024 are premature. If anything, these expectations, as reflected in dropping longer-term interest rates, are an additional argument for the ECB to stay hawkish. However, sounding hawkish will not be enough. Recent weeks have once again illustrated that the ECB’s communication is suboptimal. Over the last 12 months, there has been forward guidance, meeting-by-meeting, focusing on actual inflation, inflation projections, core inflation, wages, financing conditions etc, etc, etc. But communication is always a two-way street. If ECB policymakers are not satisfied with how financial markets perceive their communication, they might need to ask themselves why this is happening and reflect on the messages they have been sending.  Still licensed to hike For next week, the ECB remains licensed to hike. We expect hawkish comments by ECB President Christine Lagarde in order to prevent another drop in market interest rates. In this regard, it would help if the ECB were to clarify its reaction function and send a message that has a longer shelf life than just a few days. Read this article on THINK TagsMonetary policy Inflation 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
Bank of Japan to welcome Kazuo Ueda as its new governor

BoJ Core CPI Has Now Accelerated And Challenging The Bank Of Japan’s Stance

Kenny Fisher Kenny Fisher 26.01.2023 13:52
Tokyo CPI expected to rise Inflation has been on the rise in Japan and the trend is expected to continue with the release of Tokyo CPI later today. The headline figure is expected to rise to 4.4% in December, up from 4.0% in November, while the core rate is forecast to climb to 4.2%, up from 4.0%. Earlier this week, BoJ Core CPI, the central bank’s preferred inflation gauge, rose to 3.1%, up from 2.9% prior and above the forecast of 2.9%. BoJ Core CPI has now accelerated for 11 straight months, challenging the BoJ’s stance that inflation is transitory. The BoJ is projecting that inflation will peak at 3% in March, but this forecast seems questionable, given that rising energy and food prices have been driving inflation higher and higher. With wage growth lagging behind inflation, the cost of living is squeezing consumers, who are likely to cut back on consumption which will hurt Japan’s fragile economy. Kanda sends warning to speculators The yen has been relatively quiet over the past two weeks, but Japan’s top “currency diplomat” sent out a warning today. Vice Finance Minister for International Affairs Kanda said that sharp, one-sided moves in the currency markets would not be tolerated. Kanada oversaw the currency intervention in October after the yen had fallen close to 152 to the dollar. The yen has since rebounded and is currently trading close to 130 to the dollar. Kanda’s message is aimed at speculators, but with inflation rising and the BoJ’s ultra-loose policy looking increasingly anachronistic, speculators are likely to continue betting that the BoJ will have to tighten policy and the yen will rise as a result. The IMF had a message of its own for the BoJ, suggesting that the central bank allow more flexibility in 10-year bond yields, which would mean a shift in BoJ policy. It’s a busy day on the economic calendar, with the US releasing GDP and durable goods. GDP is expected to slow to 2.6% in Q4, which would still point to solid growth. Durable Goods is forecast to rebound and gain 2.5% in December, following a soft reading of -2.1% in November. Traders can expect some volatility from the US dollar in the North American session, as the markets have jumped on any soft readings as a signal that the Fed will have to ease up on its aggressive rate policy, and this has sent the US dollar lower. Read next: GBP/USD Pair Is Struggling To Extend Previous Highs, EUR/USD Pair Continued Its Gains| FXMAG.COM USD/JPY Technical There is resistance at 130.36 and 131.69 129.46 and 128.40 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.  
Bank of Canada keeps the rates unchanged. After the release of the US inflation, Fed's Barkin drew attention to cooling demand, but still strong labour market and inflation

The Canadian Dollar (CAD) Was The Clear Outperformer Across The G10 Board

Saxo Bank Saxo Bank 27.01.2023 10:16
Summary:  U.S. equities gained and Treasuries sold off on stronger-than-expected U.S. data headlines, including a 2.9% growth in Q4 GDP, a decline in the initial claims to 186K, a 5.6% increase in durable goods orders, and a rise in new home sales. The Nasdaq 100 closed above its 200-day moving average for the first time since March last year. Hong Kong came back from the Lunar New Year holiday rising 2.4% on high-frequency data that pointed to a strong recovery in traffic and consumption during the Lunar New Year holiday in mainland China. Today all eyes are on the PCE data as it may set the direction of the next move of equities and bonds.   What’s happening in markets? Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) rallied on slower but better-than-expected economic growth The major US indices had a choppy day of trade, with the S&P 500 rebounding and ending up 1.1%, and the Nasdaq 100 finishing the session 2% higher. Investors digested slower US economic GDP growth data but better-than-expected from the fourth quarter, as it tends to suggest that the US economy could make a soft landing. Nasdaq 100 closed above its 200-day moving average for the first time since March last year. 10 of the 11 S&P 500 sectors gained with energy, up 3.3%, and consumer discretionary, up 2%, leading the charge higher. Tesla shares charge, investors look past falling auto margins Tesla’s shares jumped 11% on Thursday, extending its rally from its January 6 intra-day low to over 57%, with earnings and revenue beat expectations, while investors looked past automotive gross margins grinding to its lowest figure in five quarters, 25.1%. Also, despite a streak of quarterly sales (deliveries) coming up short of expectations, Musk teased the potential to produce 2 million vehicles this year, and minimise the effects of drastic price cuts to its EVs. Other company news American Airlines Group expects profit this year to exceed estimates following a slow start, as steady demand for air travel keeps an industry recovery going into 2023. Mastercard warned revenue growth would slow even faster than expected this quarter, stoking fears that inflation has put a damper on consumer spending. Yields on US Treasuries (TLT:Xmas, IEF:xnas, SHY:xnas) rose on stronger-than-expected economic data U.S. Treasures sold off after the stronger-than-expected economic headlines. Real GDP grew at 2.9% annualized in Q4, faster than the 2.6% median forecast, though more than half of the increase came from a rise in inventories. Initial jobless claims fell to 186K instead of rising as in the consensus forecasts. New home sales rose 2.3% sequentially against expectations for a decline. Durable goods orders grew 5.6% M/M while the median forecast expecting for a decline. The 7-year auction had strong demand with a strong bid-to-cover ratio of 2.69 times and was awarded 2bps richer than the market level at the time of the auction. Yields on the 2-year notes settled 6bps higher at 4.18% and the 10-year finished the session cheaper at 3.49%. Hong Kong’s Hang Seng Index surged 2.4% as mobility and consumption picked up in the mainland On the first trading day of returning from the Lunar New Year holiday while the mainland bourses remain closed, Hang Seng Index surged 2.4% and Hang Seng TECH Index jumped 4.3%. According to Xinhua News, the State Council estimates that passenger trips over the whole Lunar New Year peak transportation period are reaching 2.1 billion, almost doubled the number from last year. Separately, data from the Ministry of Transport showed that daily passenger trips between 7 and 25 January averaged nearly 37 million, a 50.8% growth from last year. Tourism consumption data from Ctrip and cinema box offices have also been encouraging. It added to the optimism that the initial Covid outbreak when pandemic containment measures were lifted has not stalled the rebound in mobility and economic activities. Xiaomi (01810:xhkg), surging 12.5%, was the best performer within the benchmark Hang Seng Index, following the leak of an EV blueprint design being considered as an indication of the mobile phone and electronic device maker is on track to launch its first EV in 2024. FX: CAD boosted by higher oil prices; JPY stronger on Tokyo CPI The US dollar was modestly higher on Thursday with upbeat US GDP and claims data supporting the case for a soft landing. Focus now turns to PCE and the earnings season ahead of the Fed meeting next week where the broad consensus is still for a step down to a 25bps rate hike. CAD was the clear outperformer across the G10 board, despite Bank of Canada’s dovish tilt this week as higher oil prices supported. USDCAD now testing a break below 1.33. EURUSD still getting rejected close to YTD highs of 1.0930, but JPY was one of the underperformers as USDJPY traded back above 130 amid somewhat higher US yields but a dip back below 129.70 was seen in early Asia as Tokyo CPI for January came in above expectations. AUDUSD holds higher despite Australian producer prices slowing. US PCE today & RBA decision Tuesday next test Australian producer inflation (as measured by the Producer Price Index), has been trending higher, however today’s data from Q4 suggests producer prices are easing. However we believe that this is not an accurate reflection of reality. Not only is the data quarterly, but raw material prices (oil, electricity, fuel, copper, rent) are trending higher. As such the Australian dollar holds at 0.7127, after rising up 0.2%. The next test for the Aussie dollar will be Friday’s PCE data from the US and Tuesday’s RBA commentary with an expected 0.25% (25bps) hike on the cards. All in all, we believe the AUD is supported higher over the medium term, following a series of hotter than expected CPI prints, while China’s reopening is supporting the AUD with commodity demand rising. Still we continue to watch if the 50 day simple moving average crosses above the 200 day, marking a ‘golden cross’, which could lead to another quick run up. Crude oil (CLG3 & LCOH3) prices jump higher The demand outlook for commodities got another boost on Thursday with upbeat US GDP report for Q4 and a still-low initial claims weekly print highlighting the tight jobs market. Th30e recovering demand outlook in the short run also saw Brent structure flipping to backwardation from contango. Brent futures were up 1.7% to $87.50 but our Head of Commodity Strategy, Ole Hansen, writes that Brent is likely to find resistance at $100 in the short-term, with recession risks offsetting an expected rebound in Chinese demand and supply concerns related to the February 5 introduction of an EU embargo on Russian seaborne sales of fuel products. WTI futures inched back above $81/barrel. Gold (XAUUSD) rejected at 1950 With the upbeat US economic data releases on Thursday, there was increasing conviction that the Fed could still deliver a soft landing vs. a deep recession that some had started to forecast at the end of 2022. This prompted some profit-taking in Gold which closed at a nine-month high and very close to the key resistance of $1950 a day before. Spot prices slumped close to 0.9% to close near $1930, with support seen at $1900 with resistance at $1963, a Fibonacci level. Copper shorter term correction risk Copper prices lift 0.5% to $4.27, and are now up 32% from their lows. The wiring and industry metal outlook remains bright amid the clean energy transition, while mines will need to produce more than needed over the next two years to meet demand. However there is a risk Latin America will ramp up output, which could see prices correct.  Read next: Trump Returns To Social Media, Meta Will Restore The Former President's Account| FXMAG.COM  What to consider? US economic data continues to point to soft landing, eyes on PCE The advance print of US 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. While the strong headline, together with another sub-200k print for the weekly jobless claims, coming in at 186k vs. 205k expected, suggested that the US economy was holding up strongly in the wake of rapid Fed tightening, the details were still patchy. Importantly, personal consumption, key to gauge how the consumers are holding up, climbed at a weaker-than-expected pace of 2.1% YoY. Focus now turns to Fed’s preferred inflation gauge, the PCE data, due to be released today. The disinflation impulse is likely to stretch further, as has been evident from CPI releases lately, likely continuing to build a case for a 25bps rate hike by the Fed next week. IMF urges the Bank of Japan to consider policy flexibility The BOJ should consider increasing flexibility in long-term yields, the IMF said, highlighting that the risks to inflation are tilted to the upside with exceptionally high uncertainty. Options include raising its 10-year yield target, widening the trading band, switching back to a quantity goal for bond buying and aiming at a shorter-maturity yield. Japan needs to see a 3% across-the-board rise in nominal wages to anchor CPI above the BOJ's 2% target, fund Deputy MD Gita Gopinath said. EU considering $100 cap on Russian diesel The European Union is floating a plan to cap the price of Russian diesel at $100 a barrel from February 5 (the same date as the EU will ban almost all imports of refined Russian products). For reference, diesel futures are currently trading at $130/barrel, as they usually trade at a premium to crude. A lower $45 threshold would be set for discounted fuels like fuel oil, but member states will need to unanimously agree to the final figures. The objective remains to keep the Russian flows coming but cut Moscow’s revenues. Japan’s Tokyo CPI beats expectations Tokyo CPI for January came in above expectations, with the headline rising to 4.4% YoY from a revised 3.9% YoY previously and estimate of 4.0% YoY. The core measure rose to 4.3% YoY from 3.9% YoY while the core-core measure was also higher at 3.0% YoY from 2.7% YoY in December. This makes way from another beat in the overall CPI for January as well, and saw USDJPY down by about 50pips in response to 129.70 after a modest rise in the US session as US yields rose. Asia’s inflation surge from Australia to New Zealand to Japan is raising concerns on how China’s reopening could potentially fuel another leg of price pressures globally as commodity prices surge. In Australia, the ASX200(ASXSP200.I) seems supported by China reopening Consider Australia is often considered an investment proxy for China and Aussie exchange-traded funds (ETFs) could draw flows as China's economy reopens from Covid. The Australian equity market is frequently a dividend and commodity play, tilting heavily to financial and materials sectors. Mining company BHP Group expects dividend growth of 17% while the top iron ore miners are expected to ramp up shipments, underpinning higher earnings. Insurers, banks and financials could benefit most from RBA rate hikes with QBE and Westpac most sensitive to rising interest rates, with 60% and 40% profit boosts expected for them this year amid higher earnings on assets. The ASX200 is up 16% from its low and total aggregate earnings growth of over 30% is likely to unpin further growth for the market.   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: Tesla leads; US GDP beats estimates – 27 January 2023 | Saxo Group (home.saxo)
The ECB to Hike, But Euro Rally May Be Short-Lived as Dollar Strength Persists

Visa Earnings Beat Expectations And Mastercard Report Was Still Below Expectations

Saxo Bank Saxo Bank 27.01.2023 10:31
Summary:  The market mood remained upbeat yesterday, with US equities posting their highest close since early December, although an ugly earnings report after hours took chip giant Intel down nearly 10%. Treasury yields rebounded in the US after the lowest weekly jobless claims number since last May and a firmer than expected first estimate of Q4 GDP. The good mood was not shared by India, where equities tumbled after an attack by a short-shelling outfit on Adani’s network of companies.   What is our trading focus? Equities: US equity hits new highs since early December, but weak Intel weighs after hours The market rallied again yesterday, closing at new high since early December, with a broad advance across most sectors. The rally took the S&P to within hailing distance of the next key resistance area, the range highs into 4100, while the tech-heavy Nasdaq 100 closed just a hair above its 200-day moving average on the cash index and north of 12,000, the highest close since last September. A weak earnings report from Intel (more below) marred sentiment in late trading as the chip giant’s shares were marked sharply lower. Hong Kong’s Hang Seng (HIF3) consolidated, holding onto weekly gainsy Hang Seng Index fluctuated between modest gains and losses after yesterday’s strong post-holiday rally and ahead of the resumption of trading in the mainland bourses on Monday. High-frequency data on multi-mode traveling activity and holiday consumption continued from various sources continued to be positive and pointed to a solid recovery. Chinese developers and Macao casino operators were among the top gainers. Country Garden (02007), rising nearly 6%, was the best performer within the benchmark Hang Seng Index after the developer secured a 3-year bank loan. FX: USD avoids further drop on strong US data The latest weekly US jobless claims posted a new low for the cycle at 186k and since May of last year, with the first Q4 GDP estimate marginally stronger than expected. This helped US treasury yields rebound slightly and generally helped the USD avoid a further drop, although volatility in US yields has eased. EURUSD can’t seem to decide whether to take out 1.0900 after having criss-crossed the level for several days running, just as GBPUSD has been unable to take 1.2400 and the pivot high of 1.2446 from December after several over the last seven trading days, and USDJPY has meandered without conviction in the 130.00 area, with new lows in US long yields or some further indication of policy action from the Bank of Japan or both likely needed to post new lows. A dip back below 129.70 was seen in early Asia as Tokyo CPI for January came in above expectations. The next event risk for USD traders is today’s December PCE inflation data release ahead of the Fed meeting next week where the broad consensus is still for a step down to a 25bps rate hike.  Crude oil (CLG3 & LCOH3) prices range-bound Crude oil trades near unchanged on the week with an underlying positive sentiment, as China demand optimism offsetting slowdown and recession risks elsewhere. Trafigura Group sees “a lot of upside” for oil markets as pent-up demand is unleashed, especially as Chinese consumption rebounds after the nation dismantled its strict Covid Zero policy. The market is also focusing on a potential risk to supply from EU sanctions on Russian fuel shipments from February 5, and a plan under consideration to introduce a price cap on diesel at $100 a barrel against a current market price of $130. Brent is currently trading within nine-dollar wide up trending channel within a medium-term downtrend, both offering firm resistance in the $89-$90 area. Ahead of channel support at $80.35 some support is likely to be provided by the 21- and 50-day moving averages, currently around $83.50.  Gold (XAUUSD) rejected at $1950  Gold is heading for its first, albeit small, weekly loss in six weeks and following Thursday’s rejection at $1950 an upbeat US GDP report for Q4 and a still-low initial claims weekly print helped send yields and the dollar a tad higher, thereby reducing the appeal. Given gold’s steep ascent during the past two months a period of consolidation is long overdue and whether it’s consolidation or correction will depend on the yellow metals ability to hold trendline and the 21-day moving average both currently around $1890. Watching ETF holdings which reached an 11-week high following a modest increase, and US breakeven and inflation swaps which have started to move higher, thereby challenging the markets outlook for sub-2.5% inflation. Focus now turns to next week's FOMC and in the meantime the dollar remains the key source of short-term trading strategies. Yields on US Treasuries (TLT:Xmas, IEF:xnas, SHY:xnas) rose on stronger-than-expected economic data  U.S. Treasures sold off after the release of overall stronger-than-expected economic headlines. Real GDP grew at 2.9% annualized in Q4, faster than the 2.6% median forecast though more than half of the increase came from a rise in inventories. Initial jobless claims surprisingly fell further to 186K the lowest print since last May. New home sales rose 2.3% sequentially against expectations for a decline. Durable goods orders grew 5.6% M/M while the median forecast expected a decline. The 7-year auction had strong demand with a strong bid-to-cover ratio of 2.69 times and was awarded 2bps richer than the market level at the time of the auction. Yields on the 2-year notes settled 6bps higher at 4.18% and the 10-year bounced back to 3.49% on the close and rose to 3.52% into early European hours What is going on? IMF urges the Bank of Japan to consider policy flexibility  The BOJ should consider increasing flexibility in long-term yields, the IMF said, highlighting that the risks to inflation are tilted to the upside with exceptionally high uncertainty. Options include raising its 10-year yield target, widening the trading band, switching back to a quantity goal for bond buying and aiming at a shorter-maturity yield. Japan needs to see a 3% across-the-board rise in nominal wages to anchor CPI above the BOJ's 2% target, fund Deputy MD Gita Gopinath said. Intel sent nearly 10% lower after hours on revenue miss, dire forecast The chip giant reported weaker than expected results for Q4, as it continues to deal with the post-pandemic slump in demand after the work-from-home and IT infrastructure upgrade wave boosted sales the prior two years. Even worse, the company posted a revenue forecast for the current quarter at $10.5 to $11.5 billion, far short of consensus estimates of $14 billion (the year ago quarter was north of $18 billion). In part, the weak estimate is due to customers having stockpiled significant inventories that must be worked through before demand for components rises again. The company predicted an earnings loss of 15 cents/share for the upcoming quarter as well, the first such prediction in decades. Indian stocks crater further on Hindenburg short-seller report on Adani. The network of Adani companies saw their prices fall steeply again, after Indian markets were closed yesterday, with Adani Enterprises down over 8% in late trading overnight. Adani is said to be preparing a detailed response to the short-selling outfit’s allegations. Visa and Mastercard report slower rise in card spending than expected Visa earnings beat expectations, but the company only reported a +1.7% rise for the quarter in card spending, some 5% below expectations. Mastercard reported a growth of 11% on the quarter, but that was still below expectations. The companies report that customers are shifting to cheaper brands for some of their spending. Mastercard closed 0.4% higher, having reported before the market open, while Visa reported after hours. EU considering $100 cap on Russian diesel The European Union is floating a plan to cap the price of Russian diesel at $100 a barrel from February 5 (the same date as the EU will ban almost all imports of refined Russian products). For reference, diesel futures are currently trading at $130/barrel, as they usually trade at a premium to crude. A lower $45 threshold would be set for discounted fuels like fuel oil, but member states will need to unanimously agree to the final figures. The objective remains to keep the Russian flows coming but cut Moscow’s revenues.   Japan's Tokyo CPI beats expectations Tokyo CPI for January came in above expectations, with the headline rising to 4.4% YoY from a revised 3.9% YoY previously and estimate of 4.0% YoY. The core measure rose to 4.3% YoY from 3.9% YoY while the core-core measure was also higher at 3.0% YoY from 2.7% YoY in December. This makes way from another beat in the overall CPI for January as well and saw USDJPY down by about 50pips in response to 129.70 after a modest rise in the US session as US yields rose. Asia’s inflation surge from Australia to New Zealand to Japan is raising concerns on how China’s reopening could potentially fuel another leg of price pressures globally as commodity prices surge. Iron ore price hits new 2022 high, on Fortescue seeing China demand pick up in 1H2023 In thin trade with China’s market still on public holidays, iron ore (SCOA), the key steel making ingredient, hit a new six month high price today, $126.20 a ton, not only driven by expectations China will increase buying after the Lunar new year holiday, but also as Australia’s large pure play iron ore company, Fortescue sees stronger sales in the first half of 2023. Fortescue reported China increased buying of port side iron ore in the prior quarter to 4.0mt, and it sees sales in the first half increasing to 9.3mt. All in all, iron ore supply is still lower than it was a year ago, and demand is increasing which underpins price supports. The iron ore price is now up 67% from its low, which has boosted optimism that iron ore companies will guide for stronger outlooks. Australia, an investment proxy for China reopening sees biggest monthly rally since 2020 Australia’s ASX200 (ASXSP200.I) has recorded its biggest monthly rally since November 2020, up 6.5% so far with Australia being considered an investment proxy for China's reopening. We see Australian investment instruments and exchange-traded funds drawing flows in 2023 as China’s economy emerges from covid19. Australia’s equity market, considered a dividend and commodity play, is heavily made up of financial and materials companies. Mining giant BHP Group expects 17% dividend growth, with iron ore miners forecasting higher demand for high-grade iron ore from China, which supports higher earnings. Australian insurers, banks and financials will likely benefit from the RBA’s rate hikes with QBE and Westpac as examples, see 60% and 40% profit boosts amid higher earnings on assets. What are we watching next? Lower output in the Black Sea region reducing world supplies key crops Ukraine’s corn and wheat production is set to fall for a second year in 2023, with corn output not expected to exceed 18 million tons and wheat production 16 million tons as farmers reduce planting due to the war, a grain sector group said on Thursday. Ukraine’s agriculture minister said last month that 2022 corn production could fall to 22-23 million tons from 41.9 million tons in 2021. Wheat production is estimated to have fallen to about 20 million tons last year. In addition, the USDA said on Thursday it saw Russia’s official wheat crop estimate as “not feasible”. Because of disrupted wheat supplies and strong demand, Thai rice, a benchmark for Asia, has soared to the highest in almost two years. Rice is a staple for half the world, and while wheat soared to a record in March last year, rice was relatively subdued for most of 2022, constraining food inflation in Asia. US December PCE Inflation is up today While focus has pulled away from inflation a bit recently on the significant deceleration in its trajectory, the market may be somewhat poorly prepared for a hotter than expected number today. The headline figure is expected at 0.0% MoM and +5.0% YoY vs. +5.5% YoY in November. The core is expected in at +0.3% MoM and +4.4% YoY vs. +4.7% YoY in November. Earnings to watch Earnings reports are few and far between on a Friday, but a couple of interesting names are on the docket today, including Chevron, which has declared it will buy back $75 billion of its own stock and increase its dividend, and major US consumer products company Colgate Palmolive.  Next week’s sports an ongoing big blast of earnings reports, which will include most of the remaining mega-caps after Microsoft this week (Apple, Alphabet and Amazon reporting next Thursday). Today: Fanuc, Chevron, American Express, Colgate-Palmolive Economic calendar highlights for today (times GMT) 1330 – US Dec. PCE Inflation1500 – US Dec. Pending Home Sales1500 – US Jan. Final University of Michigan Confidence1600 – US Jan. Kansas City Fed Services Survey Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher     Source: Financial Markets Today: Quick Take – January 27, 2023 | Saxo Group (home.saxo)
Hawkish Fed Minutes Spark US Market Decline to One-Month Lows on August 17, 2023

The Agressive Rate Hikes By The Fed Did Not Lead To A Deeper Recession

InstaForex Analysis InstaForex Analysis 27.01.2023 13:45
The key takeaway from yesterday's Q4 GDP report was that economic growth in the US was strong at the end of 2022, thanks to the strong labor market and lower inflationary pressures. The BEA (Bureau of Economic Analysis) said inflation-adjusted GDP is up 2.9% year-on-year for the 4th quarter of 2022. However, compared to Q3 2022, the figure is lower because the growth back then was 3.2%. Most likely, the reason for growth is the consumer spending report, which rose by 2.1%. The second half of last year was also very different because the beginning of 2022 was a time of economic recession. The US has recovered since then, and the agressive rate hikes by the Fed did not lead to a deeper recession. However, it should be noted that the average GDP growth was only 1% last year, much lower than that of 2021's, which is 5.7%. If the Federal Reserve does not raise rates by more than a percentage point at the next two FOMC meetings, bullish sentiment will persist in the precious metals market. Currently, the core PCE report is forecast to show a decrease from 4.7% in November to 4.4% in December. Many analysts believe that inflation will continue to fall, but will stop at a certain level that is well above the Fed's target of 2%. If this assumption comes true, the Fed will face more problems, that is, raise the 2% target or remain aggressive for a longer period. Relevance up to 10:00 2023-01-28 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/333459
EUR/USD: Looking beyond the market’s trust issues with the Fed and ECB

The Euro Has A High Probability Of Growing Further This Year

Jakub Novak Jakub Novak 27.01.2023 13:51
According to a survey of analysts, the European Central Bank's decision to raise interest rates by 50 basis points is already final, so the euro has a high probability of growing further this year. By May of this year, the cost of borrowing will likely have increased by another half-point due to the fight against ongoing inflation. Many respondents believe that the deposit rate will remain at 3.25% for the next year or until the economy starts to deteriorate, at which point it will be reduced by a quarter point. These modifications won't likely occur until June 2024. ECB policy meeting More than half of the analysts surveyed think that policymakers will continue to face the strongest pricing pressure in recent memory despite the 250 basis point rate hike, the ECB's most aggressive tightening of monetary policy. Next week's ECB policy meeting, which will be the first in 2023, is very probably going to result in a half-point rate increase. This was stated repeatedly by ECB President Christine Lagarde in January. Polls also indicate that although oil prices are down, eurozone inflation is steadily declining, and the Federal Reserve is considering a less aggressive rate hike in its cycle, regulators will still be inclined to tighten policy following the February meeting. Lagarde speech Lagarde will give another speech today, and she and her hawkish colleagues will undoubtedly hint that the interest rate will be raised by the same amount in March as it was in February. A more gradual approach is preferred by some of the 26 members of the Governing Council, but just four out of the 46 economists questioned think it is likely to happen. Signals for the March meeting will be the main topic of discussion in February. The possibility exists that even a small dovish reading by the markets, brought on by a softening of the phrasing, could induce a decline in the value of the euro. Read next: The Aussie Pair Is Holding Above 0.7100, The Major Currency Pairs Are Waiting For US PCE Report| FXMAG.COM Even while inflation may now be in the single digits, it is still higher than the ECB's target rate of 2% and closer to 10%. Numerous experts predict that the Governing Council's largest challenge will be to strike a balance between lowering overall inflation and the base, which is falling more slowly than expected because it ignores energy prices. Next week, the ECB is anticipated to provide additional information regarding its plans to shrink its bond portfolio by 5 trillion euros. The procedure will start with officials allowing partial debt payback and not reinvesting the revenues, as they currently do. EUR/USD Regarding the technical analysis of EUR/USD, there is still demand for the single currency, and there is a potential that monthly and annual highs will continue to be updated. To do this, the trading instrument must remain above 1.0860, which will cause it to move to the vicinity of 1.0930. You can easily get through this point to reach 1.0970 when an update to 1.1007 is imminent. Only the collapse of support at 1.0860 will put more pressure on the pair and drive EUR/USD to 1.0805, with the possibility of dropping to a minimum of 1.0770 if the trading instrument declines. GBP/USD Regarding the GBP/USD technical picture, the demand for the pound is declining. Buyers must sustain their advantage by remaining over 1.2350. The only way to increase the likelihood of a further recovery to the area of 1.2430 and, ultimately, a greater movement of the pound up to the region of 1.2490 and 1.2550, is for the resistance at 1.2440 to fail. After the bears seize control of 1.2350, it is feasible to discuss the pressure on the trading instrument returning. The GBP/USD will be pushed back to 1.2285 and 1.2170 as a result, hitting the bulls' positions   Relevance up to 09:00 2023-01-28 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/333447
Long-Term Yields Soar Amidst Hawkish Fed: Will They Reach 5%?

Key events in developed markets next week - 28.01.2023

ING Economics ING Economics 28.01.2023 08:59
Next week is packed with central bank meetings. We see the Federal Reserve raising rates by 25 basis points, given inflation is moving in the right direction. For the European Central Bank, a rate hike of 50bp looks like a done deal, and we believe the Bank of England is likely to follow in the ECB's footsteps, given wage growth is persistently high In this article US: A slowdown in the pace of tightening UK: Bank of England to stick to 50bp hike following recent inflation data Eurozone: ECB to hike by 50bp; Lagarde to make hawkish statement   Shutterstock US: A slowdown in the pace of tightening Two major events in the US will shape market sentiment next week. First is the Federal Reserve policy meeting, where we expect it to raise the policy rate by 25bp. Having raised rates by 75bp on four consecutive occasions last year and then lifted the policy rate by 50bp in December, this marks a clear slowdown in the pace of tightening and appears justified given inflation is moving in the right direction and activity is slowing. However, the Fed remains wary and will again suggest that this is not the end for interest rate increases. The central bank will also be keen to dismiss the notion that it is preparing for potential rate cuts later this year. Financial conditions have loosened given movements in the dollar, Treasury yields and credit spreads and it may feel that any further loosening, fuelled by talk of potential policy easing in the second half of the year, could undermine its current actions in fighting inflation. We will then be looking at the January jobs report. Employment creation remains strong for now, but job lay-off announcements are coming in thick and fast. We are nervously watching what happens to the temporary help component, which has already experienced five consecutive monthly falls. Given the nature of the role, which is easier to be hired into and fired from, this tends to lead to broader shifts in employment. As such, we expect to see a softer non-farm payrolls increase than seen in recent months, but it is still likely to be well above 100k given the large number of job vacancies that remain. Read our full Fed preview here. UK: Bank of England to stick to 50bp hike following recent inflation data The Bank of England looks more likely to follow the European Central Bank than the Federal Reserve next Thursday, and we expect a 50bp rate hike for the second consecutive meeting. While the minutes of the December meeting appeared to open the door to a potential downshift to a 25bp move next month, the reality is that the recent data has looked relatively hawkish. Wage growth is still persistently high, both in the official numbers and the BoE’s own business surveys. Headline inflation came in a little lower than the Bank projected back in November, but services CPI – seen as a better gauge of domestically-driven inflation – has come in above expectations. Still, if we get a 50bp hike on Thursday then it’s likely to be the last. BoE officials have suggested that much of the impact of last year’s rate hikes is still to show through, and cracks are forming in interest-rate-sensitive parts of the economy. We expect one final 25bp hike in March, taking the Bank Rate to a peak of 4.25%. The key question for Thursday is whether the Bank itself acknowledges its work is nearly complete. We suspect it’s more likely to keep its options open. Read our full preview here. Read next: The Aussie Pair Is Holding Above 0.7100, The Major Currency Pairs Are Waiting For US PCE Report| FXMAG.COM Eurozone: ECB to hike by 50bp; Lagarde to make hawkish statement When the European Central Bank meets next week, all eyes and ears will once again be on communication. A rate hike of 50bp looks like a done deal, but how far and how fast the ECB will go from there is still unclear. We expect hawkish comments by ECB President Christine Lagarde in order to prevent another drop in market interest rates. Current market expectations about ECB rate cuts in 2024 are premature. Read our full ECB preview. Key events in developed markets next week Refinitiv, ING TagsUS UK Monetary policy Eurozone   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 ECB Has Made It Clear That Rates Will Remain High Until There Is Evidence That Inflation Is Falling Toward The Target

Eurozone Inflation Forecasts Raise Optimism, But The ECB Remains Hawkish

Kamila Szypuła Kamila Szypuła 28.01.2023 12:52
In Europe, the reporting week will start on Monday with the first estimates of German GDP for the last quarter. The latest national inflation statistics will be released on Tuesday, along with the eurozone-wide Q4 GDP printout. Monthly inflation data for the euro zone will be published on Wednesday. Of course, the main event will be Thursday's decision of the European Central Bank. Intrest rate The ECB, which has acted as the region's central bank since 1991, has historically been more dovish after years of dying inflation. But the energy crisis, severe supply chain issues and other bottlenecks have pushed prices up across the bloc and led to a new tone from the central bank. The ECB entered tightening mode last year with four interest rate hikes in an attempt to control high inflation in the eurozone. These decisions raised the main deposit rate from -0.5% to 2%. The warmer-than-usual weather has been a real blessing for the eurozone economy, and therefore for the euro itself, as it eased some of the fears of an energy-driven recession while helping to ease inflationary pressures. Despite all this, many ECB officials spoke of a great game. With inflation still "too high," as President Christine Lagarde said, the ECB will almost certainly raise the deposit rate by half a point next week to continue the most aggressive monetary tightening in its history. European Central Bank President Christine Lagarde has repeatedly used the phrase "stay the course" when referring to upcoming interest rate decisions, but some market watchers doubt the bank will maintain its hawkish stance for much longer. Hawkish officials emphasize that the so-called core measure showing underlying price pressures remains stubbornly elevated too. Markets have priced in a 50bps hike for the next two policy meetings, but there are questions as to whether the ECB will need to ease its hawkish stance afterwards. A Reuters poll released earlier this week showed markets expect the ECB to hold off on interest rate hikes in the second quarter when the deposit rate hits 3.25%. Looking at the region, economists predict that inflation in Germany and France has accelerated, while in Italy and Spain it will slow down. CPI In line with key data forecasts ahead of next week's interest rate decision, eurozone inflation is likely to have slowed slightly after the economy stalled or even contracted. The main growth rate of consumer prices fell for the third month in January to 9.1%. The return to single-digit levels surprised many and fueled the wave of optimism even more, even as core inflation, which excludes volatile energy and food prices, remains stubbornly elevated. Source: investing.com The data will inform policy makers at the European Central Bank, whose first meeting of 2023 will take place on Thursday, a day after the US Federal Reserve will do the same. Euro-zone officials normally use forecasts of future inflation and growth to guide their rate hiking. But several have also hinged recent decisions on the latest monthly outcomes for consumer prices, bringing greater significance to such releases. Positive news from the eurozone The flash reading of the Eurozone Purchasing Managers' Index, which tracks activity in the manufacturing and services sectors, rose to 50.2 in January from 49.3 in December, marking the first increase since June. A reading above 50 indicates an increase. The sudden shift in sentiment across the bloc is attributed to a series of positive developments that materialized around the turn of the year. The most important of them: the steady decline in gas prices. Falling energy prices and easing tensions in the supply chain helped support a return to moderate growth, helping to cushion rising production costs for manufacturers. An exceptionally warm start to the year, coupled with massive underground storage to meet additional demand and consistent shipments of liquefied natural gas (LNG) to European shores, appears to have instilled a degree of confidence in a previously explosive market. Source: investing.com
ECB's Tenth Consecutive Rate Hike: The Final Move in the Current Cycle

Inflation Is Falling, But Does It Mean That The Fed's February Decision Will Be Dovish?

Kamila Szypuła Kamila Szypuła 29.01.2023 16:48
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
Record High UK Wages Raise Concerns for Bank of England's Rate Decision

Intentional Depreciation Of The Currency - Devaluation

Kamila Szypuła Kamila Szypuła 29.01.2023 17:45
Devaluation and inflation, do they mean the same thing? The answer is no. However, despite the different meaning, these two words are quite closely related. Devaluation - definition Devaluation is nothing more than an administrative or statutory reduction in the price of a country's currency, which is denominated in another country's currency or in gold. Countries that use the so-called adjustment policy, i.e. a fixed exchange rate system, devaluations are carried out by the Central Bank or by law. Interestingly, the fact that devaluation can only be done by statute or administrative decision means that the phenomenon of devaluation is intentional. And the result is inflation. In the case of countries with a floating exchange rate, any reduction in the currency can be called depreciation. On the other hand, the opposite of depreciation is appreciation and it means strengthening of a given currency. More importantly, devaluation should not be confused with redenomination. Redenomination is responsible for changing the current currency to a new one without affecting its value. Main reasons for the use of the devaluation mechanism by states The desire to increase the value of the country's exports. As a result of monetary or fiscal policy, the country's authorities may lead to currency devaluation, which leads to an increase in the price attractiveness of exported products. Which in turn leads directly to an increase in demand for exported goods from the country where the devaluation occurred. Normalization of the country's balance of payments In a situation where a country buys more than it sells, ie has a negative balance of payments, devaluation can help to normalize the situation. This is because the country can export its products more attractively and the value of imports usually decreases. Weakening of speculative demand for foreign currencies. Currency devaluation and inflation Devaluation is a reduction in the value of a currency against gold or foreign currency, and inflation is an increase in prices. Both of these issues are related. when devaluation is introduced, inflation is usually the result. Unfortunately, such a procedure adversely affects the state's economy. The effect of devaluation on inflation is very similar to that of depreciation: There are such foreign goods and services (e.g. capital goods, raw materials needed for production) that will be imported despite devaluation. Their prices on the domestic market expressed in PLN after devaluation will be higher. Inflation will spread throughout the economy. The increase in the prices of foreign goods and services causes a tendency to replace some imports with domestic production, which usually becomes profitable only when the selling price is higher than the price of imported goods expressed in zlotys before devaluation. Demand for export is growing, which causes the need to shift the means of production from production intended for the domestic market. Thus, the prices of factors of production related to production for export must be higher than before the devaluation. Devaluation and the trade balance In a situation where the price elasticity of demand for exports from a given country and demand for imports decreases, there is an opportunity to restore equilibrium. The condition is the existence of a balance of payments deficit at the starting point. According to the Marshall-Lerner condition, trade balance equilibrium can be achieved only when the sum of the absolute volumes of the price elasticity of export demand and import demand is greater than one. When the sum of these elasticities equals one, the devaluation does not affect the balance of trade. On the other hand, if it is less than one, the currency devaluation will cause the trade balance to deteriorate. Source: Samuelson P. A., Nordhaus W. D., Economy
Spanish economy picks up sharply in February

Spanish inflation up again as core inflation strengthens

ING Economics ING Economics 30.01.2023 11:27
Spanish inflation rose again to 5.8% in January, from 5.7% in December. The further cooling in gas and electricity prices was completely offset by a further rise in core inflation to a new record of 7.5% from 7% last month Spanish inflation rebounds to 5.8% in January, due to a further acceleration of core inflation Spanish inflation rose slightly to 5.8% in January from 5.7% in December. On a monthly basis, inflation fell 0.3% compared to December. Harmonised inflation rose to 5.8% year-on-year in January from 5.5% the month before and fell 0.5% month-on-month. The increase in headline inflation was mainly because fuel prices rose more strongly, and clothing and footwear prices fell less than in January last year. A further cooling in energy inflation, on the other hand, put some downward pressure on headline inflation. The removal of the state subsidy on fuel retail prices will also have exerted some downward pressure. On the other hand, core inflation, excluding food and energy, rose further from 7% last month to 7.5% in January. Core inflation continues to rise worryingly strongly, showing that underlying price pressures in the economy are still very high. The current figures may also be biased because this month the weightings of the various components in the inflation basket were updated and several methodological changes were made. It will be necessary to wait for the final figures by component to estimate the impact of these changes. Lower energy prices drive core inflation higher The headline inflation rate is affected by two opposing drivers. On one side are lower energy prices exercising some downward pressure on headline inflation. Thanks to warm winter weather, gas stocks are still at very high levels despite reduced imports. As a result, there is growing optimism that we will get through next winter comfortably as well, allowing gas and electricity prices to ease. On the other hand, underlying price pressures in the rest of the economy remain very high. High core inflation shows that there are still very many pass-through effects at play. Food inflation also remains stubbornly high. The number of food producers planning to raise their prices further has barely fallen from its peak levels. Another factor is that the Spanish government has launched several support packages to help families in this energy crisis. One drawback of these measures is that they may prolong inflationary pressures. The sharp fall in energy prices brings some relief to headline inflation, but inflationary pressures in the rest of the economy remain worryingly high. Unless energy prices strongly rebound, falling energy prices will further cool headline inflation. The big question remains when core inflation will peak. Current figures do not yet point to a cooling. With the economy doing better than expected, it is also easier for companies to pass on new price increases than if we had fallen into a severe recession. We expect core inflation to remain stubbornly high for some time before it too begins its downward trajectory. This is likely to motivate the ECB to continue its tightening cycle. The ECB will not let its policy decisions depend on sharply fluctuating energy prices. We will probably also need to see a sign that core inflation is permanently falling before it will soften its tone. Read this article on THINK TagsSpain Inflation 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 ECB Has Made It Clear That Rates Will Remain High Until There Is Evidence That Inflation Is Falling Toward The Target

Eurozone sentiment continues to improve

ING Economics ING Economics 30.01.2023 13:16
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
ECB press conference brings more fog than clarity

Rates Spark: Economic releases in the driving seat today

ING Economics ING Economics 31.01.2023 09:14
Central banks are increasingly perceived to be behind the curve and participants are forming their own view based on economic data. A dovish bias exposes bonds to more losses today. European inflation and lending are the highlights, followed by US employment indicators Expect volatile markets in the run up to central bank meetings The closer markets get to this week’s central bank events, the more unpredictable day-to-day price movements will get. That said, we stick to our view that the next couple of days are likely to be dominated by profit taking on longs and, in the case of euro markets, by the realisation that pricing rate cuts in 2024 is premature. However, 5Y swaps, the sector of the curve most at risk in case of a hawkish push back from the European Central Bank, has already moved 30bp higher since its mid-January low. We think higher euro rates and yields are the right macro move, but the scope for more movement before the ECB meeting is now reduced. Higher euro rates and yields are the right macro move One potential driver of short-term rate moves is today’s long list of economic releases (see events section below). A surprise jump in core Spanish inflation has proved a warning shot to investors too complacent in their view that inflation is on the decline. The magnitude of the sell-off means that it would take at least as large an upside surprise in the French inflation release today to push rates much higher. This is not excluded, however, and the eurozone-wide print tomorrow will feature an estimated German component as the national statistics office has delayed its own inflation report until the end of the month. 2s5s10s butterflies show curves geared towards rate cuts, prematurely in the case of the euro curve Source: Refinitiv, ING ECB tightening is working its way through but euro-dollar rates differentials should shrink So far, so hawkish for the European Central Bank, but investors might find solace in the fact that policy tightening already implemented is working its way through the economy. If the ECB lending survey confirms the picture painted by December credit growth numbers, it will at least reassure the governing council on that front. This is also an important piece of the jigsaw for central bankers and investors trying to anticipate the path for core inflation. Lower energy costs have shielded growth from the worst of the energy crisis, but also mean less of a drag on demand and non-energy inflation. One of the most notable trend this and next quarters should be the convergence between euro and dollar rates One has to acknowledge that for all the too optimistic inflation view priced by euro rates, this will most likely affect markets on a relative basis. Our US economics team thinks the Fed is winning its fight against inflation, a slowdown in today’s Employment Cost Index would be a further evidence of this, and the economy is heading into a recession. Although this will likely not be on a linear path, this means dollar rates are right to decline, and we think they should reach a trough of 3% later this year in the case of 10Y Treasuries. As result, one of the most notable trend this and next quarters should be the convergence between euro and dollar rates. 5Y EUR swaps are off their January lows but should climb further, especially relative to other currencies Source: Refinitiv, ING Today's events and market view In the run up to tomorrow’s eurozone-wide HICP (inflation) release, today brings France’s CPI print. Yesterday’s surprise surge in Spanish core inflation proved two things: that markets are leaning towards an inflation view that may be correct for the US but is too dovish for the eurozone. It also proved that releases can be volatile, especially around changes in the weighting of price indices. Away from inflation, German unemployment data will be closely scrutinised for signs of a turn in a still tight labour market, and the ECB lending survey will be a key indicator for the central bank to assess how quickly its tighter monetary stance is transmitting to the economy. Finally, we will get a first look at eurozone and Italy fourth quarter GDP after German and French growth surprised to the downside. Bond supply will consist in German 2Y and Italian 5Y and 10Y debt. US releases will be no less relevant for rates markets. The employment cost index for the fourth quarter isn’t a very timely indicator but it is a well-regarded gauge of underlying wage pressure. One day before the Fed meeting concludes, and at a time its focus is increasingly shifting to non-housing core services, this is an important data point. Consensus is for a slowdown to 1.1% quarterly from 1.2% previously. Other US release include house price index, Chicago PMI, and conference board consumer confidence. The latter is geared towards the labour market so any dip in the job-related sub-indices will be another clue about a potential turn in the labour market. Read this article on THINK TagsRates Daily 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/USD Movement Analysis: False Breakthrough and Volatility Ahead of Powell's Speech

Growing Fears Of Tech War, The USD Was Broadly Higher Against The Entire G10 Pack

Saxo Bank Saxo Bank 31.01.2023 09:29
Summary:  U.S. equities retreated on profit-taking in a risk-off session ahead of central bank policy rate decisions and a heavy corporate earnings calendar. Ford Motor slashed prices of its EV model in response to the price cut from Tesla recently triggered fear of a price war. Chinese technology and internet stocks as well as U.S. semiconductor names dropped on worries of an escalation of the US-China tech war.   What’s happening in markets? Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) declined in a risk-off session Markets see red on concern FAANG’s will bite into markets, while caution is around that markets mispriced the Fed will cut rates later this year, plus end-of-month rebalancing hits. The risk is the Fed says it has “more work to do”, which could send equities into a tailspin. Ahead of the Fed, ECB, and BOE meeting this week, for the first time in 2023, with the central banks potentially setting the course of interest rates for the year, risk management resulted in traders and investors booking profits, which dragged the S&P500 down 1.3% and the Nasdaq 100 2.1%.  Tesla (TSLA:xnas) dropped 6.3% after Ford Motor (F:xnys) cut prices of its electric vehicles in response to Tesla’s recent price cuts. Nvdia (NVDA:xnas) plunged 5.9% alongside with other chip makers on the risk of an escalation of the U.S.’ ban on exporting chips to China. We think there the short-term correction may last for a while though we are bullish equities in Q1 overall, so potentially consider taking profits and buying downside optionality (puts), and consider tight stops. Secondly, the worry is that major tech company earnings will continue to slump. This is probably why profit-taking in Meta, Apple, Amazon and Google parent Alphabet is occurring ahead of reporting results. Ultimately, we think their outlooks could set the tone for equities this year. Click here for more on US earnings. Yields on US Treasuries (TLT:Xmas, IEF:xnas, SHY:xnas) higher on Spanish inflation upside surprise U.S. Treasuries sold off in price with yields 3bps to 5bps higher across the curve following the rise in European bond yields triggered by an increase in Spain’s EU harmonized CPI to 5.8%, a full percentage point above market expectations. The Treasury Department announced a Q1 borrowing plan of USD 932 billion, larger than its previous estimate of USD 576 billion released in last October. The yield on the 2-year rose 4bps to 4.23% and that on the 10-year climbed 3bps to 3.54%. Hang Seng Index retreated; CSI300 pared opening gains Falling 2.7% on Monday, the Hang Seng Index gave back almost all its gain from last week. The Politico story on the Biden administration’s plan to ban U.S. investments from investing in certain high-tech areas in China, such as AI, quantum, cyber, 5G, and advanced semiconductors triggered profit-taking in mega-cap China internet stocks. Alibaba (09988:xhkg), tumbling 7.1% and Tencent (00700:xhkg) sliding 6.7% were among the biggest losers within the Hang Seng Index. Hang Seng TECH Index plunged 4.8%. The Bloomberg story that reported the Netherlands and Japan had agreed to join the U.S. to restrict exports of advanced chip-making machinery to China added to the woes, in particular shares of Semiconductor Manufacturing International Corp (SMIC, 00981:xhkg), down 5%, and Hua Hong Semiconductor (01347:xhkg) falling 5.1%. Home sales in the 40 major cities during the Lunar New Year holiday shrank 14% from last year. Leading Chinese developer Country Garden (02007:xhkg) plunging 8.3% was the top loser within the Hang Seng Index, followed by Alibaba (09988:xhkg) which tumbled 7.1. Macao casino stocks slid on disappointing traffic that reached just 38% of the pre-pandemic level. CSI300 gapped higher by over 2% at the open when the Chinese market returned from a week-long holiday but pared most of it to finish the first post-holiday trading day only 0.5%. Auto, defense, electric equipment, and electronics were among the outperformers in A shares. Australian shares hold steady, defying negative leads from Wall Street. Australian retail sales fall off a cliff, borrowing falls Australia’s share market, as measured by the ASX200(ASXSP200.I) opened 0.3% higher today at 7,501 defying the futures and US markets negative lead. Not only are Australia shares outperforming US shares this year, but also UK’s FTSE . However, given materials prices could be at risk of a shorter term pull-back as mentioned above, it’s worth pointing out the technical indicators suggest the ASX200’s uptrend is weakening. Our Technical Analyst suggests a possible short term correction down to 7,167 should be ruled out. However, over the longer term, we think upside in the ASX200 is intact with mining companies to report some of the strongest earnings on record, and guide for their strongest outlooks in several years amid China reopening. For stocks, ETFs and baskets to watch, click here.  In company news today, Gold Road Resources (GOR) reported a drop in production in the prior quarter and higher costs due to inflationary pressure, but guided for higher grades in 2023. This follows Oz Minerals (OZL) also guiding for higher costs, which paints a picture of what we can expect for full year earnings season next month. In economic news, retail sales fell 3.9% in December, shocking the market, which expected sales to only decline 0.3%. On top of that, borrowing data also missed expectations. Borrowing rose 0.3% in December, vs Bloomberg’s consensus expecting lending to rise 0.5%. Today’s data is telling as it shows interest rates have taken effect on the consumer, and supports the market thinking that the RBA could potentially pause and then cut rates later this year.  FX: Dollar recovers as risk sentiment deteriorates ahead of Fed The USD was broadly higher against the entire G10 pack on Monday as risk sentiment was hurt by higher-than-expected Spanish inflation fuelling concerns on global inflation remaining higher-for-longer. Lower commodity prices also fuelled some profit taking in AUDUSD which is now testing the support at 0.7050. NZDUSD was also marginally lower but AUDNZD remained above 1.09. EURUSD made another attempt at breaking above 1.09 as ECB rate hike bets picked up, but retreated back to 1.0840 at the US close. GBPUSD also slid to 1.2350. Higher yields saw USDJPY back above 130.50. In FX the US dollar picks up, pushing most currencies off course. The US dollar index has bounced up off it lower and risen 0.5% and pressured most currencies lower, with the Aussie dollar (AUDUSD) falling 0.8% from its high, with the Aussie buying 0.7061 US. The Aussie against the US has fallen under its 200-day moving average after commodity prices rolled over, while there is caution the Fed’s Wednesday’s decision could cause the US dollar to rise. Should we see the Fed only hike by 0.25% as excepted and guide for only one more hike, or if the Fed mentions it’s hikes have been effective, or that its sees interest rates having a lag effect, then the AUDUSD could potentially rally back up. Supporting longer term upside in the AUD is the rise of China’s economy and commodity buying picking up. From a technical perspective, the bull may like to hear the 50 day moving crossed above the 200, indicating the longer term rally could remain intact, despite the RSI indicating, there are currently more sellers right now, than buyers.  Commodity short term pull back risk – with prices already down from fresh peaks; oil down 5.6%, iron ore, copper and aluminium lose 2% ahead of the Fed On Monday oil dropped 2.4%, while most commodities lost almost 1%, with the markets awaiting further evidence China is picking up demand - just as BHP, Rio and FMG alluded to. It seems traders are torn between real demand physical materially rising, but awaiting the Fed’s decision this week, which could result in the US dollar spiking, that would ultimately pressure commodity prices down further. So these factors raise the risk of a short-term correction across the board. That said, resources prices have been really strong up 17-70% from their lows. In 2023 alone iron ore and copper are up 9%, Aluminium up 11%, spot gold up 5%. However, with the commodity prices falling - it also raises the alarm that Aussie dollar and the Aussie share market could be at risk of a short term correction or consolidation as well. The key is to watch the US dollar index. Also keep in mind, over the longer term, commodity prices appear underpinned by rising demand amid lower physical supply. For more on commodities, see Saxo’s Commitments of Traders report, that highlights broad buying slowed in recent weeks. Crude oil (CLG3 & LCOH3) prices slumped as dollar gathered steam Oil prices dropped to three-week lows as the new week kicked off, with another interest rate hike on the table by the Fed this week boosting the US dollar. Higher-than-expected Spanish inflation also served as a reminder that rate hikes can continue.. Meanwhile, China returned from a week-long Lunar New Year holiday and all the gains that were built up in anticipation are now being put to test. The market is also cautious ahead of this week’s OPEC+ meeting. President Putin and Prince Mohammed bin Salman discussed cooperation within the group to maintain the stability of the global market. Russia also formalised its ban on sales to nations adhering to the G7 price cap on its fuel. WTI futures fell below $78/barrel while Brent was down to $85.  Read next: Major Currency Pairs Are Waiting For Central Banks Decisions, USD/JPY Pair Rose Above 130.00, | FXMAG.COM What to consider? Spanish inflation fuels concerns on EU inflation surge Spain’s HICP rose 5.8% YoY for January from 5.5% YoY in December, and came in a whole 100bps above expectations of a softer print at 4.8% YoY. This casted concerns on the pace of slowdown in the Eurozone inflation, and marginally increased ECB rate hike bets as well through the middle of the year. There was a resulting sell-off in bonds and European equity futures in the morning hours, and the risk appetite remained weak in the rest of the session as big earnings data and events in the week were eyed. Meanwhile, German GDP contracted for the first time on a QoQ basis since December 2021, down 2% vs expectations of remaining unchanged. The Adani saga poses some key questions on India for foreign investors India’s corporate governance has come back in focus with the Adani rout, alarming foreign investors who had been looking at India as a potential long-term opportunity especially with a shift away from China. While the extent of collateral damage can be contained and Modi’s popularity will be protected by a lack of coherent opposition, the key concern is how deeply the investor confidence gets dented and whether markets start to question India’s premium valuation. Read our Market Strategist Charu Chanana’s full report here. Expecting pickups in China’s PMIs China returns from a week-long Lunar New Year holiday, during which, sales in consumption-related industries grew by 12.2% from the same lunar calendar period last year. Estimates of passenger traffic from various sources all pointed to a strong recovery of activities. The official NBS Manufacturing PMI and Non-manufacturing PMI, scheduled to release this morning, are expected to bounce back strongly to the expansionary territory. The median forecasts from Bloomberg’s survey of economists call for the Manufacturing PMI to rise to 50.1 in January from 47.0 in December and the Non-manufacturing PMI to bounce sharply to 52.0 in January from 41.6 in December. Japan Productivity Center panel hints at policy tweak Several comments from a panel at Japan Productivity Center hinted at making the inflation target of 2% a long-term goal, suggesting that flexibility around inflation targeting may be considered by the new Chief. USDJPY slid below 130 on the report, before recovering later in the session. The panel also suggested that BOJ and the Japanese government should make a new joint statement so as to make responsibilities of the government clearer. FinMin Suzuki responded to the panel this morning saying that it is too early for a joint statement to consider revising the inflation goal. But speculation of a policy tweak will likely continue as the bOJ leadership changes get closer.   For what is 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: – Profit-taking in a risk-off session, higher inflation in Spain, central bank decisions and corporate earnings ahead, US-China tech war - 31 January 2023 | Saxo Group (home.saxo)
Long-Term Yields Soar Amidst Hawkish Fed: Will They Reach 5%?

Eurozone bank lending survey confirms bleak outlook for investment

ING Economics ING Economics 31.01.2023 11:26
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
Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

Rising inflation in France adds to the ECB’s reasons to hike

ING Economics ING Economics 31.01.2023 11:31
While most European countries are starting to see inflation fall, the inflation peak has not yet been reached in France. In January, inflation rose again, increasing to 6% from 5.9% in December. While the economy is escaping recession for now, peak inflation is yet to come Demonstration of French bakers against inflation and sharp increase in energy prices. Paris, France Inflation is on the rise again Inflation in France rose again in January, increasing to 6% from 5.9% in December. The harmonised index, which is important for the ECB, stands at 7% compared to 6.7% the previous month. Over one month, consumer prices increased by 0.4% (compared to -0.1% in December) due to the rise in food prices (+13.2% over one year) and the rebound in energy inflation. The end of the fuel rebate at the pump and the revision of the tariff shield, which has led to a 15% increase in household gas bills (compared to a 4% increase in 2022), are pushing up energy inflation, at a time when it is falling in other countries. While government measures on energy prices brought down inflation in France by 3 percentage points in 2022, French households and companies are finally facing higher energy bills, well after their European neighbours. Electricity bills will also increase by 15% in February. On the other hand, inflation in manufactured goods is stable at 4.6% thanks to the winter sales. The good news is that services price inflation remains surprisingly low, even falling to 2.6% in January from 2.9% in December. For the time being, services prices seem to be little affected by cost increases, including minimum wage indexations. Inflation in France will soon be above the European average Headline and core inflation could continue to rise in France in February. Indeed, the 15% rise in electricity bills will push up energy inflation further, and hence overall inflation. At the same time, energy will start contributing negatively to inflation in most other European countries. As a result, French inflation will soon be higher than in neighbouring countries. Beyond the developments in energy inflation, core inflation should continue to rise as well. January PMI surveys indicate that, while production cost inflation is finally starting to fall, businesses’ pricing intentions are still on the rise. This is particularly the case in the services sector – where forecast prices, according to the January INSEE survey, are at their highest level since 1988 – and in retail trade. Many companies are facing the first upward revision of their energy bills, which will continue to push costs upwards. In addition, the four indexations of the minimum wage to inflation in 2022 will continue to lead to increases in all wages. As the French economy is doing better than expected and escaping recession for the moment, it is easier for companies to pass on past cost increases to customers. Add to this the fact that a series of annual price reviews (notably in transport) are due to take place in February, and we can expect core inflation to rise further in the coming months. This should encourage the ECB to continue its tightening cycle. The ECB will probably want to see clear signs of a permanent decline in core inflation before it softens its tone and stops raising rates. Ultimately, average inflation in 2023 in France 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 that could reach 6.5% in the first quarter, and 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 TagsInflation 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
Jerome Powell Will Certainly Try To Calm Down Market Joy

Jerome Powell Will Certainly Try To Calm Down Market Joy

Ipek Ozkardeskaya Ipek Ozkardeskaya 31.01.2023 13:18
Stock investors kicked off the week on a cautious note, as the Federal Reserve (Fed) is expected to kill joy when it announced its latest decision tomorrow, and earnings announcements may not save the day.   Some profit taking  US equities kicked off the week on a negative note, as many investors preferred booking profits before the deluge of earnings announcements and the Fed decision.    And they are certainly not wrong to be scared, because the Fed expectations became increasingly dovish in January, as investors saw the easing inflation figures combined with softening economic activity.   The S&P500 gave back 1.30% on Monday. The  index is still above the 2022 bearish trend and above the 200-DMA, but we can't rely on Jerome Powell to keep the party going; only stronger-than-expected earnings, and ideally sufficiently good profit guidance from companies could do it – and spitting out a good guidance won't be a piece of cake for a good amount of them.   Crude oil down despite strong China PMI, encouraging IMF growth forecast   US crude fell 2% yesterday and slipped below the 50-DMA this morning.   Interestingly, however, the latest news on the macro front is not bad, at all. The Chinese reopening is now well reflected through the first set of economic data. Released today, both the manufacturing and services PMI jumped into the expansion zone.   And the cherry on top, the IMF raised its growth forecast for this year by 0.2% to 2.9% citing the resilience of US spending and the Chinese reopening.   This is the kind of news that the energy markets normally cheer. But not this time, apparently.    Read next: The Government Pension Fund Global Suffers Losses| FXMAG.COM Won't call victory over inflation...  The US dollar is gaining some positive momentum into the Fed meeting, as investors know that the Fed won't declare victory over inflation despite the falling inflation, and position accordingly.  Why? Because the trend could reverse suddenly.   The Spanish inflation came as a punch to the Europeans' face yesterday as it advanced to 5.8% in January instead of falling to 4.7% as expected. French and German readings could reveal similar surprises.  And nothing guarantees that the same U-turn won't happen in the US. Gasoline prices surged 12.5% over the past month on the back of winter storms and a rising global demand – partly thanks to the ban on Russian oil and the Chinese reopening, and food price inflation remains high.   So, the Fed will certainly hike by 25bp, but there is little chance it will announce the end of the tightening.   And Jerome Powell will certainly try to calm down market joy – given that the actual market environment suggests that the financial conditions in the US have become as loose as last February, before the Fed started tightening its purse's strings.   And the more the market fights the Fed, the more aggressive the Fed should become to achieve what they need to achieve.   In summary, the Fed will likely reveal that there will be at least one more rate hike, or two more rate hikes to go before pause.  And that simply 's' could make all the difference.   
Asia week ahead: Policy meetings in China and the Philippines

China’s Manufacturing PMI Bounced Back To 50.1, The Australian Dollar Continued Its 3-Day Pull Back

Saxo Bank Saxo Bank 01.02.2023 09:29
Summary:  Equities ended January on a positive note, jumping higher yesterday as easing Q4 employment cost index and consumer confidence further supporting the case for a smaller rate hike of 25bps from the Fed later today. Earnings remained a mixed bag with GM and Exxon delivering a beat, but most other signaling margin pressures and dampening consumer growth. Gold and most industrial metals reversed the recent downtrend, helping AUDUSD to rebound from post-retail sales slump lows. Today’s focus will be on Eurozone CPI, US ISM manufacturing and the Fed announcement.   What’s happening in markets? Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) rallied on cooler worker compensation trend After consolidating for one day, U.S. stocks resumed their charge higher, being aided by a softer print of the Employment Cost Index that increased the odds of a pause by the Fed in March or May this year. Nasdaq 100 rose 1.6% and the S&P500 gained 1.5%. The rally was broad-based as all 11 sectors within the S&P500 advanced. Materials, consumer discretionary, real estate, and industrials outperformed. General Motors (GM:xnys) jumped 8.3% on earnings and revenue beats. Exxon Mobil (XOM:xnys) gained 2.2% as the oil major reported record profits. Leading home builder PuteGroup (PHM:xnys) surged 9.5% following reporting Q4 earnings beating estimates. United Parcel Service (UPS:xnys) rose 4.6% on a 2023 business outlook largely in-line with expectations. Caterpillar (CAT:xnys) slid 3.5% after the construction and mining machine maker’s Q4 earnings missed expectations and said that sales in China will be softer in 2023. McDonald’s (MCD:xnys) declined 1.3% on weaknesses in Q4 as well as the 2023 operating margin outlook dragged by inflation pressure. Snap (SNAP:xnys) tumbled 14.4% in extended-hour trading following reporting Q4 revenue in-line with expectations and earnings beat but expecting a decline in revenues in Q1 this year, citing significant headwinds. Yields on US Treasuries (TLT:Xmas, IEF:xnas, SHY:xnas) 2bps to 4bps richer as the Employment Cost Index softened Bids came into the front end to the belly of the Treasury curve following the growth in the U.S. employment cost index, a preferred wage and benefit barometer of the Fed came in at 1% in Q4, below the 1.1% expected, and decelerated from 1.2% in Q3. The 5-year notes outperformed with a 5bp drop in yield to 3.62%. Yields on the 2-year and the 10-year were 3bps lower to 4.20% ad 3.51% respectively. Gabriel Rubin and Nick Timiraos of the Wall Street Journal suggested that the cooler worker compensation gains increased “the possibility of a pause in rate rises this spring”. Hong Kong’s Hang Seng (HIG3) and China’s CSI300 (03188:xhkg) extended decline Stocks in the Hong Kong and mainland bourses extended the decline from their recent highs on a risk-off day. After the strong gains in January on the positive development in the potential peaking of the exit wave of inflection in China, traders booked their profits ahead of the U.S. Fed’s rate decision as well as in response to fear about the risk of escalation of tension between the U.S. and China on the technology front.  In addition to the recent Politico story on the Biden administration’s plan to ban U.S. investments from investing in certain high-tech areas in China, Financial Times reported on Tuesday that the U.S. Commerce Department has stopped issuing licenses to companies seeking to export to China’s Huawei. Hang Seng Index and CSI 300 Index each fell by around 1%. Hang Seng Index was partly dragged down by Hang Lung Properties (00101:xhkg), which tumbled 5.3% following reporting underlying profit falling 3.8% Y/Y and below expectations. EV stocks advanced. BYD rose 2.3% after reporting a preliminary 2022 profit of RMB 6.7 – 7.7 billion which represents a 425% to 458% growth from a year earlier. Li Auto (02015:xhkg) climbed 1.5% following confirmation that its new EV model L5 would not be a SUV, implying less cannibalization of existing models. In A-shares, Chinese white liquor, food and beverage, semiconductors, pharmaceuticals, and electronics were the major laggards while property developers, petrochemicals, farming and fishery, and machinery stocks gained. FX: Dollar reversed gears to drop as Fed decision nears The dollar index made a further recovery to 102.60 on plunging German retail sales data, but the index slumped lower as US data including Fed’s preferred wage measure came in softer than expected. USDCAD hit a low of 1.3300 amid a rebound in WTI prices. EURUSD continues to struggle to break above 1.0900 ahead of EZ CPI and ECB decision due today. AUDUSD reversed the drop below 0.7000 after the plunge in AU retail sales, with metals gaining traction again. Crude oil (CLG3 & LCOH3) recovers ahead of Fed and OPEC Crude oil reversed the early drop from Tuesday as sentiment shifted amid signs of cooling inflation and wage pressures emerging from the US economic data (details below) ahead of the key Fed decision due today, and the US dollar slipped. Further, Exxon CEO post-earnings said he sees potential for continued tight global oil markets and tight supplies as some producers pull back. WTI rebounded back above $79 while Brent was above $85. Meanwhile, API inventory data for crude oil suggested another built of 6.3 million barrels, as stockpiles of gasoline and diesel also increased. Reports also suggested that OPEC is likely to maintain a cautious path on oil policy as it awaits clarity on China’s reopening. Gold (XAUUSD) finds support at $1900 Gold snapped a three-day downtrend with US employment cost index and consumer confidence data suggested that there remains scope for the Fed to slow its rate hikes. Lower US yields prompted interest in the yellow metal, reversing it from key support level of $1900 and it reached close to $1930, bringing the recent high of 1949 in focus again. The World Gold Council reported that gold demand reached a decade high in 2022 amid strong buying from central banks.  Read next: AUD/USD Pair Remains Under Strong Selling Pressure, The EUR/USD Pair Has Been Falling But Remains Above 1.08$| FXMAG.COM What to consider? Where has the most momentum been in markets and can it continue? It’s vital to reflect on the global equity markets rally in January  - and where momentum has been. In the US the Nasdaq gained 10%, the S&P500 5.6%, with EV names, Lucid and Tesla up 40-70% off their lows. In Europe the biggest 50 stocks (Stoxx 50) gained 10% with designers such as Hermes and LVMH providing the most heat, up 18% on expectations of higher earnings as China reopens. Australia’s ASX200 lifted 6.2% with lithium miners Sayona Mining and Pilbara Minerals up the most, 37-27%. Ultimately the Fed's decision in interest rates and it outcome this week, along with the ECB's put some of these companies on notice.  The Fed is expected to downshift again 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. The consensus expects the FOMC will downshift again to lift its Federal Funds Rate target by 25bps to 4.50-4.75% on February 1, although some still expect the central bank to hike rates by a larger 50bps increment. Fed speakers have also broadly guided for a smaller hike at the next meeting. With economic data remaining volatile, 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. Read our full preview here. US economic data still supporting a smaller rate hike The Fed’s preferred measure of wage gains, the employment cost index, slowed to 1% last quarter from +1.2% in Q3, coming in a notch softer than the expected at 1.1%. The fall was led by wages and salaries falling to +1.0% from +1.3%, while benefit costs fell to +0.8% from +1.0%. While the report signals that wage pressures may be easing and could mean that the Fed’s against inflation is working, more data will be needed to confirm the trend. Meanwhile, US consumer confidence in January dipped to 107.1, short of the expected 109.0 and the prior, revised higher, 109.0. The present situation index encouragingly rose to 150.9 (prev. 147.2), but the forward-looking expectations index declined to 77.8 (prev. 82.4). Chicago PMI slightly declined in January to 44.3 from 45.1, beneath the expected 45.0. Eurozone CPI on the radar today as the ECB meets With Spain and France’s inflation getting another bump higher in January, and Germany’s inflation release postponed to next week due to technical issues, jitters are running high for the Eurozone inflation print due today. More so, it comes a day ahead of ECB’s policy decision, where a 50bps rate hike in baked in with a small chance of a 75bps. Slowing energy and electricity prices mean that headline inflation can come in softer, but the focus will be on the core measure which is likely to remain firm. Bloomberg consensus expects the Eurozone headline inflation to slow to 8.9% in January from 9.2% in December, but the core measure at 5.1% from 5.2% previously. China’s PMI data bounced back to the expansionary territory; strong recovery in services China’s manufacturing PMI bounced back to 50.1 in January from 47.0 in December as economic activities have picked up as expected. The new orders sub-index jumped to 50.9 in January from 43.9 in December while the new export orders sub-index was below 50 for 21 consecutive months at 46.1, rising modestly from December’s 44.2. The improvement in employment was also lackluster, with the employment sub-index coming in at 47.4, staying in the contraction territory for 22 consecutive months.  Non-manufacturing PMI rose more strongly than expected to 54.4 in January from 41.6 in December. The brightest spot was the services sub-index which jumped to 54.0 in January from 39.4 in December, driven by the release of strong pent-up demand for in-person services, particularly dining, tourism, and entertainment. The construction sub-index improved to 56.4 from 54.4. Caixin China Manufacturing PMI is scheduled to release today Unlike the official NBS manufacturing PMI, the private Caixin China Manufacturing PMI which has a bigger representation of SMEs in the eastern coastal regions is however expected, according to the survey by Bloomberg, to improve only moderately to 49.8 and stay in the contractionary territory in January from 49.0 in December. IMF upgrades global growth; expects China to grow at 5.2% in 2023 and 4.5% in 2024 In its World Economic Outlook Update released yesterday, the IMF has marginally increased its global growth forecast for 2023 to 2.9% from 2.7% previously. Meanwhile, the IMF expects China’s real GDP growth to be at 5.2% in 2023 and then to fall to 4.5% in 2024. The medium-term growth rate in China is expected to settle at below 4% due to “declining business dynamism and slow progress on structural reform”. Australian full year earnings season kicks off; will mining companies deliver triple digit growth   February is an important time of year with full earnings season kicking off. ASX200 companies will report their 2022 profits and earnings, and guide for 2023, which could set the course for equites for the next few months. A company’s shares will generally do well if the company reports a better than expected outlook and results, and inversely their shares will typically sink if they disappoint. That said, the most earnings growth is expected to come from the Mining sector with well over 100% earnings growth (consensus); with gold and lithium companies are expected to outperform. BHP as an example, could report 17% dividend growth and it could give a rosy outlook after kicking off coal exports to China for the first time in two years. Energy companies are expected to report a 30% earnings jump and 300% revenue growth. For a list of stocks and inspiration refer to the Australia Resources basket. Today, Credit Corp reports results, Pinnacle on Thursday, NewsCorp Friday. In the third week of February the season ramps up with CBA and Fortescue reporting Feb 15, on Feb 21, BHP reports, with Rio the next day, followed by Qantas. Mixed messages for the Australian dollar; Coal cargoes head to China, but retail sales slump and borrowing disappoints With commodity prices falling across the board from their highs, the Australian dollar continued its 3-day pull back, falling below the 200-day moving average. Adding to the bearish short-term picture, weaker than expected Australian retail trade was released for December (with sales down 3.9%), while weaker than forecast borrowing data also added to Aussie woes. On the positive side, Australia sent two cargos of metallurgical coal to China’s steel production centre, officially marking the end of China’s two-year Australian coal ban. Earlier this month BHP struck the deal with China Baowu Steel. So although the RBA could potentially pause rate hikes sooner, longer term upside could be underpinned by Aussie commodity demand. We continue to monitor short term risks, for the Aussie, especially if the USD thunders up ahead and after the Fed meeting, while further commodity price weakness could also pull the Aussie down. Meta’s Q4 may help investors gauge the health of digital advertising While the importance of Meta Platforms (META:xnas) to the market has declined substantially over the past year, investors and traders have their eyes on the social platform’s Q4 results and outlook for 2023, to be released on Wednesday, to provide an early glimpse to the state of health of the digital adverting before the Q4 results from the heavy-weight Alphabet (GOOGL:xnas) on Thursday. The weakness in the guidance from Snap on Tuesday added to investors’ concerns about softening digital advertising amid macro headwinds. For what is 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: Easing US wage pressures; Fed decision eyed – 1 February 2023 | Saxo Group (home.saxo)
Saxo Bank Podcast: A Massive Collapse In Yields, Fed's Tightening Cycle And More

Euro Rebounds On Stronger GDP Read, All Eyes On Fed Decision

Swissquote Bank Swissquote Bank 01.02.2023 10:29
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
Turbulent Times Ahead: Poland's Central Bank Signals Easing Measures

India's Adani Group May Have Passed A Key Test, Positive EU CPI Report

Kamila Szypuła Kamila Szypuła 01.02.2023 12:10
Recently, there has been a lot of talk about the impact of the Hindenburg Research report on India's Adani group. It seems that the company will cope with the current problems. Another positive is the report on inflation in the euro zone, CPI fell again. In this article: Headline-topping news India's Adani group may have passed a key test The 9th International Conference on Financial Markets EU CPI drop The European Union, 20-country region underwent a major price surge in 2022 after the Russian invasion of Ukraine pushed energy and food costs up across the bloc. However, the latest data provide further evidence that inflation has started to ease. Inflation in the euro zone fell for the third month in a row in January due to a significant drop in energy costs. According to preliminary data published on Wednesday, headline inflation in the euro zone amounted to 8.5% in January. In December this indicator amounted to 9.2%. Energy remained the biggest cost driver in January, but fell once again from previous levels. Now investors of the EUR/USD pair will counter at the Fed meeting and will await tomorrow's decision of the ECB. Euro zone inflation dips for a third straight month as energy prices continue to fall https://t.co/Fy81jgxCKf — CNBC (@CNBC) February 1, 2023 India's Adani group may have passed a key test The world's third richest man completed a $2.4 billion stock sale in a Hindenburg short sale attack. India's Adani group may have passed a key test by raising $2.5 billion in the face of a short-selling attack, but its response to the allegations and results of regulatory probes will shape its outlook, analysts and investors say. Most of the conglomerate's shares fell Wednesday, bringing losses to $84 billion after last week's Hindenburg Research report. Moreover, looking at India, the country is set to be the world's fastest-growing major economy in the year to March 2024 as the post-pandemic retail boom and recent bank balance sheet repairs attract new investment, fueling demand for everything. From @Breakingviews: Gautam Adani completed a $2.4 billion share sale amid Hindenburg’s short-seller attack. His group now faces refinancing challenges. Local lenders may step up, but funding will be pricier with more strings attached, says @ShritamaBose https://t.co/WMdi9lLFf9 — Reuters Business (@ReutersBiz) February 1, 2023 Read next: Intel's Cost Reduction Also Includes Executive Compensation | FXMAG.COM The 9th International Conference on Financial Markets In 2020, the world was stopped by the COVID-19 pandemic, which highlighted the importance of cooperation, flexibility and readiness for unforeseen challenges both in everyday life and in the economy. The year 2022 brought new trials. The war in Ukraine started by Russia has led to turbulence in various sectors, from energy to financial. The 9th International Conference on Financial Markets "Strengthening Recovery, Developing Resilience", co-organized by the Ministry of Finance of the Republic of Lithuania and the Lithuanian Banking Association, brings together high-level decision makers and business practitioners for leadership and ideas exchange on topical topics related to financial markets and more. The forum will discuss the needs of the EU and Baltic capital markets and the actions required. In addition, the further development of capital markets for the Baltic States and an overview of the implementation of digitization and innovation in the sector will be discussed. The Director of the IMF European Department, Alfred Kammer, will participate in a panel discussion at the International Financial Markets conference, focused on capital markets in the Baltics, their challenges and the need for action. Registration: https://t.co/KkDPKQTRM3 pic.twitter.com/F4w5t7Px01 — IMF (@IMFNews) February 1, 2023
Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

Eurozone inflation looks encouraging, but be careful interpreting the data

ING Economics ING Economics 01.02.2023 12:24
Headline inflation continues its fast decline and dropped to 8.5% in January, while core inflation remains stubbornly high at 5.2%. Lacking German inputs, these numbers are tricky to interpret, but for the ECB high core inflation will be enough to hike by another 50bp tomorrow January's eurozone inflation data does not include Germany's numbers   Tread carefully with these January inflation figures. A day ahead of a crucial ECB rate decision, January inflation data have been released but are hard to interpret as German inputs have been postponed. A model has been used to infer German data, making it more prone to revision than in other months. Besides that, we have the annual item weights revision influencing the data, already making it a difficult month to interpret. It's also a month the ECB has put a lot of emphasis on as President Christine Lagarde mentioned in the Q&A of the December press conference that she expected January to have higher inflation as it is a traditional month for passthrough of energy to reach retail prices. If we take the data at face value – and we’ll see on 23 February when final data are released if we were right to do so – we see that core inflation did not show the feared increase. The core inflation rate was flat at 5.2%, but monthly seasonally-adjusted data show another cautious decline to 0.4% growth compared to December. While this is still far too high – annualised this makes 5.3% core inflation – it does mark the fourth month of consecutive declines. While it’s all about core from here on, we do of course see an encouraging trend in headline inflation. The drop from 9.2% to 8.5% is faster than expected. Food inflation remains stubbornly at 14.1%, but energy drives the rate down at the start of the year. A decline from 25.5% to 17.2% reflects lower market prices and significant negative base effects. Read next: India's Adani Group May Have Passed A Key Test, Positive EU CPI Report| FXMAG.COM In recent days, both the Brent oil price in euros and natural gas market prices have declined year-on-year, which will put more downward pressure on consumer prices in the coming months. Price ceilings for energy also have their effect of course, which does work both ways in January. From here on, energy contributions are set to decline substantially given the relatively low market prices we are currently seeing. All in all, the data looks decent as a jump in core inflation has been avoided but uncertainty remains without final German figures. For the ECB, the muddied picture of inflation is annoying, but don’t expect it to throw it off course for tomorrow. The jump in core inflation in some key countries will be enough for the central bank to confirm its current hawkish stance and add another 50 basis points to policy rates. Read this article on THINK TagsInflation Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  
The German Purchasing Managers' Index, ZEW Economic Sentiment And More Ahead

If German Numbers Remain Weak, The ECB Will Have To Consider Easing Up On Rates

Kenny Fisher Kenny Fisher 01.02.2023 12:52
It has been a quiet week for EUR/USD which continues to say close to the 1.09 line. The lack of activity could change in a hurry in the North American session, with the Fed rate announcement. Eurozone inflation slides in January Eurozone inflation is expected to be 8.5% in January, down from 9.2% in December and below the consensus of 9.0%. The key driver behind the decline was energy prices, which rose 17.2% in January, compared to 25.5% in December. Core CPI remained at 5.2%, a notch above the consensus of 5.1%. On a month-by-month basis, Core CPI fell by 0.8%, compared to a 0.6% gain in November and below the forecast of -0.2%. Today’s inflation report is the final key event ahead of the ECB rate decision on Thursday. It’s practically a given that the central bank will raise rates by 50 basis points, bringing the cash rate to 3.0%. After that, the pace of monetary tightening will depend largely on the strength of the eurozone economy and inflation levels. The ECB will be pleased with the drop in headline inflation but concerned that the core rate has been stickier. Germany, the locomotive of the bloc, released dismal numbers this week. Retail sales crashed, with a decline of 5.3% while GDP came in at -0.2%. If German numbers remain weak, the ECB will have to consider easing up on rates with modest hikes of 25 basis points rather than 50-bp moves. The markets are forecasting a terminal rate in the range of 3.25%-3.75%. All eyes are on the Federal Reserve, which is widely expected to raise rates by 25 basis points. This would bring the benchmark rate to 4.75%. Inflation in the US fell to 6.5% in December, marking six straight months of de-acceleration. It appears that inflation has peaked, although the Fed won’t be using the “P” word for fear of an excessive reaction from the markets. The Fed has been more hawkish about rate levels than what the markets have priced in, and if Jerome Powell reiterates this hawkish stance, the markets could be in for a cold shower which would be bullish for the US dollar. Read next: India's Adani Group May Have Passed A Key Test, Positive EU CPI Report| FXMAG.COM EUR/USD Technical EUR/USD is testing support at 1.0878. Below, there is support at 1.0826 1.0921 and 1.1034 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.  
Italian headline inflation decelerates in January, courtesy of energy

Italian headline inflation decelerates in January, courtesy of energy

ING Economics ING Economics 01.02.2023 13:34
Today's release shows a divergence between the headline and core measures, which could continue for a few months. This pattern is unlikely to revive consumption, for the time being, but might start affecting supply Italian inflation decelerated in January, mainly on lower energy prices Regulated energy prices push down headline inflation The headline inflation peak should now be behind us. According to the preliminary estimate, headline inflation declined in January to 10.1% year-on-year (from 11.6% in December), in line with expectations. Unsurprisingly, the inflation decline was mainly driven by the sharp fall in regulated energy goods inflation (down to -10% YoY from +70.2% YoY), but also non-regulated energy goods, fresh food and recreational services contributed marginally to cool down headline inflation. The expiration of excise cuts on fuels had the expected upwards effect on transport inflation. The core measure inches up again at a non-accelerating pace However, the most interesting part of the release, from the European Central Bank perspective, was the core inflation part. The core measure inched up once again to 6.0% (from 5.8% in December), signalling that the pass-through of past energy price pressures is yet in place, albeit at a non-accelerating pace. This might continue for a few months more, but if energy prices continue to be well-behaved, chances are that the peak in core inflation might be reached by mid-year. The pattern should continue if gas prices remain well-behaved Looking ahead, we expect the divergence between headline and core inflation to continue in February, once again courtesy of the energy-related component. With TTF gas prices now hovering in the 60 €/MWh area, we expect retail gas prices to fall markedly in the month. The expected modest increase in the core measure should not prevent headline inflation from decelerating to the 9%+ area in February. Read next: USD/JPY Pair Drop Below 130.00, GBP/USD Is Trading Below 1.2330, The Australian Dollar Remains Generally Up| FXMAG.COM No short-term positive impact on consumption expected All in all, the inflation picture seems to follow the expected profile. Notwithstanding the headline deceleration, the stubbornness in the core measure remains an issue for short-term growth developments. True, resilience in employment represents a crucial safety net for households, but with contractual hourly wages increasing at a very modest 1.5% yearly pace, it can only limit damages on real disposable incomes. For the time being, consumption looks set to remain under pressure. Interesting signals on the supply front worth monitoring Where the energy deceleration might have a more immediate positive effect is on manufacturing, and particularly on energy-intensive sectors. The PMI indicator for January, also released earlier today, was back in expansion territory at 50.4, interrupting a six-month run of sub-50 readings. This is a tentative indication that something might happen on the supply side front already in the first quarter. Read this article on THINK TagsItaly inflation 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
AUD: RBA Maintains Rates as New Governor Upholds Continuity

Meta Announced A Lower-Than-Expected Operating Expense, Gold Reached A Fresh Cycle High

Saxo Bank Saxo Bank 02.02.2023 09:53
Summary:  Traders felt that the FOMC failed to push back sufficiently against market expectations for the Fed to reach peak rates soon and begin cutting rates by year end, which drove a fresh rally in equities and took the US dollar to new cycle lows almost across the board. Let’s see if the key US data up on Friday further encourages the USD bears. In the meantime, the Bank of England and ECB are on tap today. What is our trading focus? Equities: Momentum continues on Powell declaring part victory over inflation While the Fed is still cautious and wants to send hawkish signals including a goal of moving the policy rate to 5% or slightly more, Powell’s comments about inflation is beginning to ease was extrapolated in the equity market. S&P 500 futures rallied another 1% in yesterday’s session and this morning they have opened just below the 4,150 level suggesting traders are eyeing the 4,200 level which was the approximate air pocket area last time S&P 500 futures visited this area back in August of last year. The truth is that Powell did say anything new but as long as the message was not too hawkish the equity market had the excuse it needed for continuing higher. Adding to positive sentiment was Meta’s better than expected outlook announced after the US cash equity market closed. Hong Kong’s Hang Seng (HIG3) and China’s CSI300 (03188:xhkg) little changed in lackluster trading The Hang Seng Index advanced modestly on the back of a strong rally in U.S. equities overnight and less upward pressure on domestic interest rates. Baidu (09888:xhkg), rising 7.3%, extended its strong recent gains on the ChatGPT concept and following BlackRock raised its stake to 6.6% from 5.4% in the Chinese search engine giant. Baidu was the best-performing stock on the Hang Seng Index for the second day in a row. Li Auto (02015:xhkg) climbed 2.4% after reporting delivery of 15,141 units of EV in January,  up 23% Y/Y. On the other hand, NIO (09866:xhkg) slid 4.3% following a 12% Y/Y decline in delivery to 9,652 units in January and on reports that the Chinese EV maker is cutting prices. Chinese mobile gaming stocks traded in the Hong Kong bourse soared with Forgame (00484:xhkg) leading the charge and jumping over 80%.  CSI 300 traded sideways and was flat to yesterday’s close as of writing. ChatGPT concept, eCommerce, Chinese white liquor, machinery, and semiconductor stocks outperformed. FX: USD bears back in action after dovish read of FOMC The USD was weaker across the board after the Fed Chair Powell stayed away from pushing back aggressively on the easing priced in by the markets for this year or the loosening of financial conditions. EURUSD broke above the 1.0930 resistance and was trading above 1.1000 in the Asian session. The ECB may need to match market pricing for further hawkishness today to sustain this level. An interesting test for EURGBP as it trades into the upper reaches of its range near 0.8900, by the way, on possible relative surprises from the ECB and Bank of England meetings today. USDJPY slumped back below 128.50 with focus turning to BOJ Governor nominees to replace Kuroda, who leaves in early April. AUDUSD rose to 0.7150 but USDCAD was choppier as lower oil prices weighed on the loonie. Crude oil (CLH3 & LCOJ3) starting February on the backfoot Crude oil started February by sliding more than 2.5% on Wednesday after US data showed a further inventory built. Crude stocks rose 4.1 million barrels, its sixth consecutive weekly build, to the highest since June 2021. OPEC+ meanwhile reaffirmed their commitment to current output quotas after meeting on Wednesday. It is monitoring the impact of China’s reopening on demand. On February 5, the EU will ban almost all seaborne imports of Russian refined products, and just like Russian crude, diesel is already selling at a heavy discount of more than 25 dollars a barrel. Oil staged a partial, but weak post-FOMC rebound as the dollar weakened. The Brent prompt spread remains in a bullish backwardation structure which points to some underlying strength. Gold (XAUUSD) breaks higher on dovish Fed Gold reached a fresh cycle high after the Fed announced a 25bp hike and Chairman Powell said the committee had concluded the disinflationary process had started, and despite using the phrase “ongoing increases” he failed to push back enough on easing financial conditions. As a result, the market concluded the end of the rate hike cycle is near, and this focus helped weaken the dollar to a fresh cycle low while supporting a rally in gold to $1957, its highest since mid-April 2022. Next on watch will be $1963, the 76.4% retracement of the 2022 correction, following which there is no major level of resistance before the psychologically important $2000 level. Minor support at $1935, $1920 ahead of $1912. Silver (XAGUSD) meanwhile managed, for a change, to keep up with gold resulting in the XAUXAG ratio declining to 81 from above 82.5. Yields on US Treasuries (TLT:Xmas, IEF:xnas, SHY:xnas) dropped as hopes for rate cuts in H2 heightened See more on last night’s FOMC dovish meeting below, but the general read is that Fed Chair Powell failed to push back against sufficiently hard against market expectations that the policy rate will soon peak and economic developments will see the Fed in easing mode in the second half of this year.  AFter a soft ISM Manufacturing data point and weak ADP payrolls growth, he yield on the 2-year and the 10-year tumbled 9bps each to 4.11% and 3.42% respectively. A stronger JOLTS job openings data (note: for December) failed to garner much attention. What is going on? Market reads FOMC monetary policy statement and presser as dovish. The Fed delivered a 25bp rate hike, bringing the Fed Fund target to 4.50%-4.75% as widely anticipated and a statement largely unchanged from the previous one, reiterating that “ongoing increases” in the policy Fed Fund target “will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive,” The strong market reactions came from the response to Powell’s dovish statement in the post-meeting press conference. Powell said the Fed “can now say, I think for the first time, that the disinflationary process has started” though he cautioned that “the job is not fully done.”  Powell’s remarks saw the June-Dec 2023 SOFR spread widen to 54.5 bps, fully pricing in 50 bps of rate cuts in the 2nd half of 2023, following another 25bp increase in March. The SOFR futures curve implies further 143 bps of rate cuts in 2024. These implied rates bring the Fed Fund target to 4.25%-4.50% by Dec 2023 versus the Fed’s December dot plot of 5%-5.25%, and to 2.75%-3.00% by December 2024, that is 125bps below the Fed’s projection of 4%-4.25% Meta earnings: greed triumph idealism Mark Zuckerberg did listen to investors after all acknowledging that the idealism of the Metaverse and the huge capital expenditures it requires were too much given the environment. Meta announced a lower-than-expected operating expense and capital expenditures level for FY23 and that was exactly what the market wanted to hear. The shares rallied 20% in extended trading on this aggressive cut in expected expenses. In Q4, the company lost another $4.3bn on its Reality Labs segment (Metaverse bet), but revenue was higher in this segment and overall, in the entire advertising business. On the Q1 outlook revenue guidance was $26-28.5bn vs est. $27.3bn indicating a slightly better performance than Snap indicated yesterday for Q1. Meta also authorized the share buyback programme to be increased to $40bn. US ISM manufacturing was weaker than expected, but Prices Paid above expectations. ISM manufacturing declined for a fifth consecutive month to 47.7 from 48.4, short of the consensus of 48.0. While prices paid lifted to 44.5 (exp. 39.5, prev. 39.4), suggesting upside pressures in inflation sustaining, production and new orders fell to 48.0 (prev. 48.6) and 42.5 (prev. 45.1), respectively. Employment was also softer but still remained above the 50-mark at 50.6 from 50.8 previously. JOLTS job openings in December ramped back up to 11.012mln from the prior 10.44mln, surprising expectations for a fall to 10.25mln and now at their highest level since July. Overall, inflation risks are not going away yet, while growth concerns seems to be settling as well. Eurozone headline inflation softens more than expected, but core inflation fails to drop. January headline inflation data in the Eurozone came in softer at –0.4% MoM and 8.5% YoY from 9.2% YoY mostly underpinned by softer energy inflation, which remains high at 17.2% YoY (vs. 25.5% YoY in December). While the trend seems encouraging, inflation remains elevated at the core at +5.2% YoY versus the small drop to 5.1% expected. This data is unlikely to deter the ECB from staying on course with further tightening. A delayed German inflation print for January is due next week. Read next: USD/JPY Pair Drop Below 130.00, GBP/USD Is Trading Below 1.2330, The Australian Dollar Remains Generally Up| FXMAG.COM China’s President Xi called for moving faster to establish the new development pattern In the second study session of the Chinese Communist Party’s new Politburo, China’s President Xi called for the country to move faster toward establishing a new development pattern, a concept that he first introduced in April 2020. He emphasized the importance of boosting domestic demand and deepening supply-side structural reform. President Xi also pledged to bring forward the construction of more new infrastructure projects and focus on the real economy and new industrialization. He also called for strengthening the measures against monopoly and unfair competition, as well as guiding and supervising the healthy development of private capital according to the law. The readout from the Politburo meeting mentioned neither “preventing disorderly expansion of private capital” nor “common prosperity”. Shell beats on Q4 earnings One of Europe’s largest oil and gas majors reported Q4 adjusted profit of $9.8bn vs est. $8.3bn driven by higher-than-expected oil and gas output for the quarter. Q4 dividends are lifted to $0.2875 per share vs est. $0.285. What are we watching next? ECB and Bank of England up today. The market read on the Fed was dovish after fearing that Powell might be on the warpath against market expectations. Expectations for today’s ECB meeting are rather different as hotter core CPI reads in Europe have the market fearing considerable further ECB tightening – but can the ECB deliver beyond market expectations, with more than 100 basis points after today’s 50 bps hike expected at coming meetings?. After last night’s reaction to the FOMC meeting, the 2-year yield in 2-year's time for the EU and US is virtually at parity coming into today’s ECB meeting. The Bank of England meeting today is less certain, as the BoE may try to sneak in more cautious guidance, given the weak outlook for the UK economy, even if that outlook has improved. Besides today’s expected 50 basis points hike, watch for a potential downshift in guidance to less pre-commitment to further tightening, backed up by possible adjustments to inflation forecasts that are also due for a refresh today. The EURGBP in an interesting pair to watch today for relative central bank surprises as it pushes towards the top of its range into 0.8900. Earnings to watch Today is the week’s big earnings day with key earnings from Apple, Alphabet, and Amazon all being released after the US market close. With the animal spirits unleashed this year and helped by Powell’s comments yesterday better than expected results from these three technology giants could unleash a rally into the weekend. Today: DSV, Dassault Systemes, Siemens Healthineers, Infineon Technologies, Deutsche Bank, Sony, Takeda Pharmaceutical, Shell, ING Groep, Banco Santander, Siemens Gamesa Renewable Energy, Nordea, Roche, ABB, Apple, Alphabet, Amazon, Eli Lilly, ConocoPhillips, Qualcomm, Honeywell, Starbucks, Gilead Sciences, JD.com, Ford Motor, Ferrari Friday: Coloplast, Sanofi, Intesa Sanpaolo, Denso, CaixaBank, Naturgy Energy, Assa Abloy, Regeneron Pharmaceuticals Economic calendar highlights for today (times GMT) 1200 – UK Bank of England Rate Announcement1230 – UK Bank of England Governor Bailey press conference1230 – US Jan. Challenger Job Cuts1315 – ECB Rate Announcement1330 – Q4 Unit Labor Costs / Nonfarm Productivity1330 – Czech National Bank Rate Announcement1330 – US Weekly Initial Jobless Claims1345 – ECB President Lagarde Press Conference1500 – US Dec. Factory Orders1530 – EIA's Weekly Natural Gas Storage Change1730 – Swiss National Bank’s Thomas Jordan to speak Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: Financial Markets Today: Quick Take – February 2, 2023 | Saxo Group (home.saxo)
Korea: Consumer inflation moderated more than expected in February

South Korea: Consumer inflation accelerated again in January

ING Economics ING Economics 02.02.2023 10:23
Due to a cold snap, utility bills and fresh food prices rose more than expected in January. This could strengthen the Bank of Korea's tightening stance. But we still think that the BoK will stay put at its February meeting and monitor price changes in the coming months Source: Shutterstock 5.2% Consumer price inflation % YoY Higher than expected Headline inflation rose more than expected in January Upside surprises came mainly from utility prices (electricity, gas, water), which rose the most (28.3% in January vs 23.2% in December). Basic electricity and gas rates have risen over the past few months, and the continuing cold weather has resulted in additional rate increases as the progressive fee system is applied. Fresh food prices, especially vegetables, also increased quite sharply due to the bad weather. Meanwhile, gasoline prices (-4.3%) continued to drop as oil prices fell significantly, more than offsetting negative tax effects from the fuel tax cut reduction. January CPI reaccelerated for the first time in six months Source: CEIC Public service-led inflation is a concern In the coming months, several public service prices are set to rise or are planned. For example, taxi fares in Seoul have already risen in early February, and some other public transportation fares are expected to rise soon. This is also likely to trigger other fare hikes in the Metropolitan Seoul area, like Gyeonggi Province. Public service-led inflation is a major concern for the government and the Bank of Korea because it could push up private service prices as a second-round effect. The government has urged local governments to refrain from raising public service charges. At the same time, the government plans to expand energy subsidy programmes not only for low-income- households but also for middle-income households. As weather conditions improve and government support is dispensed, price pressures on utilities should gradually diminish.  The higher-than-expected January CPI results will keep the Bank of Korea in a hawkish frame of mind, but at this point, the data is unlikely to trigger a February rate hike. Aside from utility prices, products and service prices grew at a more moderate pace in January. Also, we see that domestic economic activity has slowed pretty sharply in recent months and external conditions have also worsened. Last night, the Federal Reserve slowed its tightening pace with a 25bp hike, thus the BoK will take time to monitor the price trend and examine the impact of earlier rate hikes. Read this article on THINK TagsKorea inflation CPI inflation 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
The ECB Has Made It Clear That Rates Will Remain High Until There Is Evidence That Inflation Is Falling Toward The Target

ECB hikes rates by 50bp

ING Economics ING Economics 02.02.2023 14:39
The European Central Bank has hiked interest rates by 50bp and made a quasi-announcement of a further 50bp hike in March, opening the door to either a pause or a slower pace in its hiking cycle   And they did it again. The ECB hiked interest rates by 50bp, bringing the deposit rate to 2.5% and the refinancing rate to 3%. But there was more, the ECB quasi pre-announced another rate hike next month by 50bp as well, opening the door to either a pause or a slower rate hike pace beyond March. The ECB also confirmed the December decision that the Asset Purchase Programme (APP) portfolio will decline by €15bn per month on average from the beginning of March until the end of June 2023. Not done, yet It took the ECB a while, but it seems to have got the hang of it: hiking interest rates. And as long as core inflation remains stubbornly high and core inflation forecasts remain above 2%, the ECB will continue hiking rates. The increasing probability that a recession will be avoided in the first half of the year also gives companies more pricing power, showing that selling price expectations remain elevated. The celebrated fiscal stimulus, which has eased recession fears, is an additional concern for the ECB as it could transform a supply-side inflation issue into demand-side inflation. These are two factors that could extend inflationary pressures in the eurozone, albeit at a lower level than we see at the moment. As a consequence, we expect the ECB not only to continue hiking into late spring but also to keep interest rates high for longer than markets have currently pencilled in. Whether the ECB agrees with this view or not might become clearer at the press conference, starting at 2.45pm CET. Read this article on THINK TagsMonetary policy Inflation 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
ECB press conference brings more fog than clarity

ECB press conference brings more fog than clarity

ING Economics ING Economics 03.02.2023 08:37
During the Q&A session, European Central Bank president Christine Lagarde confirmed the ECB's hawkish stance, while probably also confusing some market participants ECB President Christine Lagarde at today's press conference   The facts are straight: the ECB hikes interest rates by 50bp today, gave a quasi pre-commitment to hike again by 50bp in March and kept the door open for further rate hikes beyond the March meeting. A very clear message if the ECB had limited its communication to the 1:15pm CET press release but it didn’t. More and not less confusion We know that it is easy to criticize politicians and policymakers if you are just an observer and not in the driver’s seat but if anything today’s ECB press conference created more and not less confusion about the ECB’s reaction function and the path beyond the March meeting. With phrases like “continuity in a steady state”, it is doubtful that market participants really understand the ECB’s plans. And the logic behind a “data dependent” and “meeting by meeting” approach combined with a pre-commitment to hike by 50bp in March is not comprehensive to everyone. Just trying to look through the fog of most parts of the press conference, what remains are remarks like a “disinflationary process is not already at play” and “we know that we have ground to cover”. Probably the best hints that the ECB will not stop after the March meeting but will rather slow down the size and pace of rate hikes. At the same time, ECB president Christine Lagarde made clear that staying the course implied keeping interest rates in restrictive territory for a sufficiently long period. Read next: Santander Bank Polska Shareholders Can Expect A Solid Dividend, The ETH Liquid Staking Narrative Is Already Going Strong| FXMAG.COM Not done, yet It took the ECB a while, but it seems to have got the hang of it: hiking interest rates. And as long as core inflation remains stubbornly high and core inflation forecasts remain above 2%, the ECB will continue hiking rates. The increasing probability that a recession will be avoided in the first half of the year also gives companies more pricing power as illustrated by still high selling price expectations remain elevated. More generally speaking, we are currently witnessing a mirror image of the ECB up until 2019. Back then, the Bank had a clear easing bias and was chasing disinflation with all means possible, even though the root causes for disinflation lay outside of the ECB’s realm. Now, the ECB has a clear tightening bias and is chasing inflation, which arguably also has its root cause in something the ECB cannot tackle. This is why the ECB is obviously shiftinng its focus on core instead of headline inflation. More generally speaking, it looks as the current generation of ECB policymakers will only back down once they are fully convinced that inflation is no longer an issue. In this regard, the slight improvement of the eurozone’s growth prospects as well as abundant fiscal stimulus have given the Bank even more reason to continue with its hawkish mission. The celebrated fiscal stimulus, which has eased recession fears, is indeed an additional concern for the ECB as it could transform a supply-side inflation issue into demand-side inflation. These are two factors that could extend inflationary pressures in the eurozone, albeit at a lower level than we see at the moment. As a consequence, we expect the ECB not only to continue hiking into late spring but also to keep interest rates high for longer than markets have currently pencilled in. Even after today's exciting press conference. Read this article on THINK TagsMonetary policy Inflation 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
Czech National Bank Prepares for Possible Rate Cut in November

2023 FX Market Preview: Every Country And Economic Area In The G10 Will Continue To Experience An Inflation Overshoot Through The End Of 2023

Matthew Ryan Matthew Ryan 28.01.2023 09:48
But what can we expect in the FX market in the next twelve months? Below, we outline our main calls for the coming year, providing an overview of the factors that we believe could have the most significant impact on currencies in 2023. Inflation rates to ease from highs - for now We have finally begun to see signs of an easing in price pressures in the past few months, suggesting that we may have seen the peak in inflation, at least in the short- and medium-term. Recent inflation prints have started to come in below both economists’ expectations, as represented by a sharp drop in Citigroups’s Inflation Surprise indices, and their respective peaks. This has been particularly evident in the US, where the CPI reports for both October and November came in well below projections. Much of these softer inflation prints can be attributed to the recent drop in energy prices. Core inflation rates, which strip out volatile components such as food and energy, remain elevated and have not yet shown any real signs of trending downwards in most cases. This will be key for central bank policy in 2023. Figure 1: Citigroup Inflation Surprise Indices (2012 - 2022) Source: Refinitiv Datastream Date: 04/01/2023 If peaks in inflation rates haven’t already materialised, we believe that these will emerge in early-2023, in large part due to the below: Energy prices have fallen sharply, particularly natural gas. Since peaking in late-August EU natural gas prices have dropped by approximately 75%, while in the US prices have declined by around 50%. A complete cutoff in Russian energy supply to Europe remains a risk factor. Energy shortages and rationing, however, appear highly unlikely this winter in light of high gas storage (still above 80% in EU at the time of writing), an oversupply of liquefied natural gas and rather mild winter weather in Europe thus far. Supply chains are improving. The main driver of the initial spike in prices in 2021 was the mismatch between the supply of goods and booming demand following the lifting of pandemic restrictions. These supply constraints have eased in recent months, and we believe will continue to do so in 2023. This is represented by a sharp drop in freight rates, which represent the cost of transporting goods from one place to another, an increase in port volumes and shorter shipping times. Economic activity globally is softening, in part due to tighter monetary policy. While economic slowdowns and recessions are an unfortunate byproduct of higher interest rates, they may be a prerequisite to bring down rates of inflation in a sustainable manner. The IMF expects global growth to slow to 2.7% this year, from 3.2% in 2022, with growth in advanced economies projected to drop to a mere 1.1%, less than half the expected pace for 2022 (2.4%). Inflation expectations have eased. For the most part, both the market’s and consumers' expectations for future inflation rates have either eased or stabilised in recent months. In the US, the two-, five- and ten-year breakeven inflation rates have all fallen to the 2.25-2.30% range, just above the Fed’s 2% target, from 4.9%, 3.6% and 2.9% respectively in March. Read next: Intentional Depreciation Of The Currency - Devaluation| FXMAG.COM We believe that a normalisation in inflationary pressures will likely be a gradual process, and the return to central bank targets remains some way off. According to the IMF’s most recent projections, every country and economic area in the G10, with the exception of Japan (-0.6%), will continue to experience an inflation overshoot through the end of 2023. In some instances, most notably the UK (+7.0%) and Sweden (+6.4%), this gap is expected to remain significant, though we believe that these estimates may soon be revised downwards. We suspect that China's reopening will be an important factor for inflation rates this year, as an increase in activity in the world's second-largest economy would likely present an upside risk to prices.   Written by: Enrique Diaz-Alvarez, Matthew Ryan (CFA), Roman Ziruk, Itsaso Apezteguia, Eduardo Moutinho, Michal Jozwiak – Ebury’s Market Analysts Source: 2023 FX Market Preview: Is a global recession on the way? (ebury.com)
US Weekly Jobless Claims Hit Lowest Level Since February; Apple Shares Slide Amid China's iPhone Crackdown; USD/JPY Shows Volatility Amid Interest Rate Fears and Tech Stock Woes

Japanese Startup Aerwins Technologies Will Be On NASDAQ

Kamila Szypuła Kamila Szypuła 03.02.2023 13:03
For a company, a debut on the stock exchange is not only a way to raise capital from investors. For many companies, the presence on the stock exchange means greater credibility in the eyes of current and potential customers. The American stock exchange is the largest, so appearing on it can be very beneficial for a company located there. Japanese Startup Aerwins Technologies achieved its goal and got approved to list on NASDAQ. In this article: Globalization is the answer to inflation ? Ford: “We have to change our cost profile” Aerwins Technologies Globalization is the answer to inflation ? The pandemic, followed by Russia's invasion of Ukraine, has turned supply chains upside down and caused shortages. Rich industrial countries responded to scarcity, inequality and social stress with large fiscal packages. Rising food and fuel prices can spark discontent, protests, and even revolutions and the collapse of governments around the world. Large states are rethinking the benefits of globalization. While globalization has been under attack recently, history suggests that it may be the wrong target for policy renewal and that globalization is an antidote to inflationary spirals. At the same time, we see new technologies that will provide better growth and a better ability to solve a wide range of today's problems - health, energy policy, climate and even security. Today's dynamics of globalization have the potential to revolutionize systems optimization, making the results of previous technical changes cheaper and more accessible. In this sense, it is globalization that is the real law of reducing inflation. How important is international trade when it comes to taming inflation? https://t.co/2KS2E8kXto pic.twitter.com/PgM1J3AFoW — IMF (@IMFNews) February 2, 2023 Read next: Starbucks Revenues Are High Despite High Costs| FXMAG.COM Ford: “We have to change our cost profile” The push to transform Ford is becoming more urgent after the automaker reported adjusted earnings of $10.4 billion in 2022. Costs and supply chain issues hurt Ford's bottom line again. Farley knows his company needs to change. When Farley became Ford's CEO in October 2020, he vowed to quickly lead the automaker into a new phase of growth led by electric models. Although it is not close to catching up with Tesla in many respects he has succeeded. Ford is the number 2 electric vehicle sales in the United States with a market share of just under 8%. Despite all its achievements in switching to electric vehicles, Ford still struggles with internal combustion engine vehicles, which account for almost all of Ford's profits. Farley knows investors are watching and waiting for Ford to finally act. That's why Farley wants Ford to become a much more efficient company, and he needs it to happen quickly. Ford will take steps to reduce costs and make the automaker more efficient and profitable. Ford CEO Jim Farley's frustration builds as he vows to transform the automaker https://t.co/QImZcbdBi1 — CNBC (@CNBC) February 3, 2023 Aerwins Technologies Japanese startup Aerwins Technologies has been approved to list on NASDAQ as part of its merger with blank company Pono Capital Corp. Aerwins, which is taking orders for the XTurismo motorcycle-mounted hovercraft it unveiled last year, estimates the deal to be worth $600 million. Aerwins, which also sells drones and related technology, says its hovercraft can fly for up to 40 minutes and at speeds of up to 100 km/h. Japan startup selling $550,000 Star Wars-inspired hoverbike to list on NASDAQ https://t.co/nzBEDEWOQv pic.twitter.com/AltEt5WvWM — Reuters Business (@ReutersBiz) February 3, 2023
Assessing 'Significant Upside Risks to Inflation': Insights from FOMC Minutes

The FOMC Is Acting As If It Is Blind To Signs Of Retreating Inflation

Franklin Templeton Franklin Templeton 04.02.2023 08:15
Self-Preservation and Credibility Welcome to 2023 and not soon enough. Last year delivered negative returns across most asset classes, not to mention the worst global bond market rout in a century. Even cash failed to keep pace with inflation. The bad news is that the new year kicks off with a slew of last year’s known unknowns still unresolved. Will the Ukraine-Russia conflict turn nuclear? Will U.S.-China tensions escalate? Where will the drive to net-zero greenhouse gas emissions take energy prices? What is next for COVID-19? Will China’s U-turn on policy be enough to stabilize the economy? Will the Federal Reserve (Fed) overreact? Handicapping these unknowns remains difficult. What we do know is that a very unbalanced world economy entered the new year close to or already in recession. China was by far the weakest of the major economic blocs and quite deflationary. Still early days, the Chinese Communist Party rang in the new year with a dramatic U-turn in policy: an abrupt and chaotic end to its zero-COVID strategy and a blitz of growth-enhancing measures. In contrast, the U.S. entered the new year with the Fed hitting the brakes hard while offering a lot of tough talk that the fight against inflation will be bloody enough to cause recession. The world’s two largest economies seem set up for exactly opposite economic cycles this year. It is a complicated and fragmented collection of developments and prospects, but several themes seem likely to define this year’s macroeconomic road map and drive investment returns. The net of these factors calls for a disinflationary and soft first half of the new year; what happens later depends on the dynamics in the U.S. and China and the credibility of their policy leaders. Read next: Today's ECB Policymakers Comments Seem To Help The EUR/USD Pair, The Australian Dollar Fall Against Strong US Dollar| FXMAG.COM Federal Reserve Credibility This is not your normal business cycle. We still see economic developments as reflections of an economy attempting to normalize from a disaster while simultaneously adjusting to extreme swings in economic policy. It is possible that we are coming to the end of this process in 2023. Government-mandated lockdowns pushed the U.S. economy in 2020 into the deepest contraction since the Great Depression. However, the economy quickly rebounded on reopenings and then was chased dramatically higher with massive Modern Monetary Theory (MMT)-like fiscal and monetary stimulus. The combination of reopenings and historic stimulus sent money growth soaring along with financial asset, commodity, and real estate inflation. The economy boomed, and with a lag, so did price and wage inflation. Most of this booming recovery was ignored by the Fed. As recently as December 2021, the Federal Open Market Committee (FOMC) Economic Projections showed that the median FOMC member anticipated a meager 80-basis point increase in the federal funds rate for 2022 and a retreat in inflation to well below 3%. By March 2022, only three months later, the CPI inflation rate had risen 8.5% from the previous year and almost 11% over the previous three months (annualized). The Fed has a credibility issue. It is obvious that the central bank made a big mistake in 2021, underestimating the momentum behind inflation. It finally realized its error in March last year with its panicky U-turn. Since flipping, the Fed has presided over the fastest run-up in policy rates over any comparable period in its history while simultaneously shrinking the balance sheet. The dollar soared as the Fed tightened into a global economic downturn. Research from the Federal Reserve Bank of San Francisco calculates a shadow federal funds rate that takes account of the balance sheet and financial conditions. This measure has risen almost 700 basis points from its low. What has happened since the Fed’s pivot in March? In a word, deflation. Like watching a movie backward, everything that went up during the boom phase of the pandemic has been coming down and in sequence: across-the-board asset prices are deflating; industrial and energy commodities are in retreat; real estate prices have started to fall; and not only inflation rates but price levels are declining in a range of goods. The broad economy has remained supported by consumption, which, in turn, has been propped up by a drawdown of accumulated savings from the earlier fiscal stimulus. However, deceleration is evident almost everywhere in both real and nominal terms. Broad price inflation measures have been rolling over. U.S. headline Consumer Price Index (CPI), which peaked at 9% mid-2022, rose less than 2% over the last six months of data (annualized). Furthermore, survey data suggest lower inflation rates ahead, and there is a clear fall-off in nominal income growth evident from the latest labor reports. In the meantime, Fed stringency has reached a level not seen in decades: real money supply growth is lower than any time since 1980. Nominal money supply growth is contracting for the first time ever. Commercial bank lending standards are tightening. Despite these developments, the FOMC is acting as if it is blind to signs of retreating inflation as it was to signs of escalating inflation a year ago. Virtually every member of the FOMC signaled in December that rates need to go higher this year. But based on the yield curve, the market is not buying it. The intransigence of the central bank definitely increases the probability of recession, with the majority of economic forecasters suggesting one is already in the pipeline. With its credibility at stake, the Fed may have no option but to bombard the market with talk of persistent tightening. Otherwise, acknowledging the retreating nature of inflation too soon could invite a powerful rally in risk assets, which could put the Fed and the economy back in the same boat six months from now. However, if inflation falls as quickly as some current trends suggest to us, it is hard to believe the Fed would not react to these developments earlier. With oil prices down 40% from their peak, some of the “stagflationary” forces have reversed. Putting it all together, a timely response by the Fed to easing inflation could produce a shallow recession or soft landing. Unfortunately, the track record of intransigence implies it could take something more or some event to shift the Fed’s position. Author: Francis A. Scotland, Director of Global Macro Research This article is part of the report
The First Half Of 2023 Looks Like It Will Be Fairly Disinflationary For The Global Economy

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

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

Quick-fire answers to your global economy questions

ING Economics ING Economics 04.02.2023 08:49
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
Eurozone's Price Tension and Business Activity: Assessing the ECB's Challenge - 07.07.2023

Easing US inflation fears boost hopes for a Fed rescue

ING Economics ING Economics 04.02.2023 08:55
US recession fears linger on as softening activity spreads throughout the economy. There are also tentative signs that the labour market is cooling with increasing layoff announcements and slowing wage growth. Inflation pressures are subsiding and offer hope that the Fed will ride to the rescue with stimulus later this year In this article Real interest rates turn positive as Fed hikes continue Weakness is spreading Inflation pressures are cooling, allowing Fed rate cuts from the third quarter   The Fed's Jerome Powell may well start stimulating the US economy later this year Real interest rates turn positive as Fed hikes continue Inflation caught the Federal Reserve off guard last year and it had to catch up aggressively, implementing the most substantive series of interest rate increases in more than 40 years. Despite that, it has taken a further 25bp hike this week to finally get positive real interest rates; both the ceiling and the lower band of the Fed funds target rate range are above core inflation for the first time since 2019. US policy rates finally exceed inflation Macrobond, ING   This doesn’t mark the end of policy tightening. Inflation remains well above the 2% target and unemployment is at very low levels leaving the Fed wary that any relaxation of policy could allow inflation to reignite, especially with China reopening and the European story looking more positive. Moreover, many officials are concerned that financial markets are getting ahead of themselves in pricing interest rate cuts later this year. Lower Treasury yields, a softer dollar and narrowing credit spreads could boost growth and undermine the central bank’s attempts to control inflation. We don't share those concerns to the same extent. Instead, we expect a final 25bp interest rate increase in March. With inflation set to continue slowing and the outlook for both growth and the labour market deteriorating, we think that will be the peak and rate cuts will indeed be the story of the second half of the year. Weakness is spreading The economy is certainly feeling the impact of the Federal Reserve’s interest rate hikes and the knock-on effects for borrowing costs throughout the economy. The housing market has cooled rapidly in response to the surge in mortgage rates, with the number of transactions slowing sharply and residential investment contracting at an annualised 26.7% rate in the fourth quarter of 2022. In fact, we’ve had seven consecutive month-on-month falls in residential construction, three consecutive drops in industrial production plus 1%+ MoM falls in retail sales in both November and December. We need to see a turn quickly to prevent GDP from turning negative in the first half of this year, but with the ISM manufacturing and non-manufacturing surveys pointing to a flat to weaker trend, this is going to be difficult. Auto sales are looking OK, but we are concerned that the strong boost to growth from net trade and inventory building experienced in the fourth quarter of last year will not be repeated. We see a strong chance, therefore, that first quarter GDP growth will be negative. Moreover, the Conference Board’s measure of CEO confidence is now at the lowest level since the global financial crisis, which suggests that corporate America will turn increasingly defensive, implying a greater focus on cost control rather than a desire to expand businesses. Inflation pressures are cooling, allowing Fed rate cuts from the third quarter This isn’t encouraging from a labour market perspective. Job loss announcements are becoming more prevalent, and there have been five consecutive monthly falls in the temporary help component; historically, that's a strong leading indicator ahead of broader shifts in employment. If America’s boardrooms are as gloomy as surveys suggest, this does indeed indicate the threat of rising unemployment. Fewer companies are looking to raise prices Macrobond, ING   Wage pressures also appear to be cooling, with the latest Employment Cost index posting the slowest increase in a year; both wages and salaries, along with benefits are seeing this trend. Corporate pricing power also appears to be softening, as you can see in the chart above. With fewer firms planning to raise prices, falling inflation looks to be a strong bet even before we consider slowing housing rents and falling car prices which together account for more than 40% of the basket of goods and services used to calculate the inflation rate. A weak economy, a cooling jobs market and rapidly slowing inflation will, in our view, allow the Fed to cut rates from late in the third quarter. Remember that over the past 50 years, the average time elapsed between the last rate hike in a cycle and the first rate cuts has only been six months. We expect the fed funds ceiling to be cut to 4% by year-end. TagsUS Recession Jobs Inflation Federal Reserve   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 Expects A Decline And Is Gearing Up For Recession

The UK Economy Expects A Decline And Is Gearing Up For Recession

Kamila Szypuła Kamila Szypuła 04.02.2023 10:41
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
RBA Meeting Minutes - policymakers were concerned about weak productivity growth that would trigger inflation risk

Difficult Decision Ahead Of The RBA, The Market Expects A 25bp Rate Hike

Kamila Szypuła Kamila Szypuła 05.02.2023 09:43
The Reserve Bank of Australia (RBA) will be making its first monetary policy decision for the year next week. Expectations The Reserve Bank (RBA) Board meets next Tuesday and the most important item on the agenda will be the official interest rate decision. In the last eight games, he has risen every time, by a record 300 basis points in total. He did this in an effort to slow down the rate of economic growth, and thus bring inflation back to the target range of 2-3 percent as quickly and painlessly as possible. The Reserve Bank board is expected to raise interest rates by another 25 basis points on Tuesday, bringing the cash rate to 3.35%. The expected 25 bp hike next week would be the ninth in a row. One of the reasons for the expected increase is the latest inflation data, which in December 2022 reached 1.9% quarterly and 7.8% annually. The RBA will also release an updated economic outlook in its monetary policy statement due to be released on Friday. Two extreme views The February interest rate question is sure to spark heated debate. The RBA board will eventually discuss whether it needs to lay off tens of thousands more as it works to meet its inflation target. This is a serious decision. Two extreme views will be confronted at the February RBA meeting. First, it would be unwise to raise interest rates as growth is clearly slowing down, all future inflation rates are falling and global growth is headed for a hard landing. The second view from the RBA deliberations will scream “rate hike”. Inflation is at a 32-year high and well above target, the unemployment rate remains at a 48-year low - fueling wage growth - and there is a risk that inflation will not fall as expected unless the economy is further weakened by another interest rate hike. Expectations of economists from Australian banks Here's what big bank economists have to say about next week's RBA board meeting: ANZ said the strength of inflation cemented a 25 basis point RBA hike this month. NAB economist Taylor Nugent said the RBA is expected to deliver 25 basis points gains next week, thanks to a taming rate of inflation. Westpac expects the RBA to raise interest rates by 25 basis points in February and March, bringing the cash rate to 3.60%. Read next: Forex Weekly Summary: USD/JPY Ended At 129.80, AUD/USD Closed Above 0.71| FXMAG.COM Other data To start the week, the Melbourne Institute will release its monthly inflation index.The Australian Bureau of Statistics will release December's international trade data on Tuesday. The RBA will also release an updated economic outlook in its monetary policy statement due to be released on Friday. The unemployment rate is important Next Friday, following Tuesday's board meeting, the RBA will release its most important quarterly monetary policy statement. It will feature the RBA's updated economic outlook, with the focus - as always - on the RBA's calls on the unemployment rate and inflation. The pressure on the labor market in recent times is important. The unemployment rate is at a multi-decade low, employment fell in December, and various future job demand indicators in business surveys, job postings and job vacancies tilt downward. This means, quite plainly and simply, that the best of the good news about unemployment is behind us. The outlook for inflation will also be extremely important. The RBA had previously projected inflation to fall to 4.7 percent. at the end of 2023, and then to 3.2 percent. by the end of 2024, after reaching a peak of 8.0 percent. Source: investing.com, rba,gov.au
Euro and European bond yields decreased after the ECB decision. The end of tightening may be close

The eurozone’s been saved, in part, by the weather

ING Economics ING Economics 05.02.2023 10:37
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
Asia week ahead: Policy meetings in China and the Philippines

Asia week ahead: Regional inflation data, Taiwan trade numbers and Indonesia’s GDP

ING Economics ING Economics 05.02.2023 10:47
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
Eurozone economy boosted by service sector growth

Key events in EMEA next week - 05.02.2023

ING Economics ING Economics 05.02.2023 10:53
An action-packed week ahead for Hungary. As the government has abolished the fuel price cap, we expect signs of a downturn in retail sales and industrial production figures, while headline and core CPI move above 25% year-on-year. In the Czech Republic, we see headline inflation accelerating further to 17.6% year-on-year, while core prices remain at 13% In this article Czech Republic: Spikes in CPI unlikely to influence CNB's decision Hungary: Data impacted by abolishment of fuel price cap   Shutterstock Czech Republic: Spikes in CPI unlikely to influence CNB's decision In Czech we expect the CPI increased by 6.1% MoM in January and hence the headline inflation likely accelerated further from 15.8% to 17.6% YoY. This increase was likely owing to the increase of regulated prices by around 40% YoY, while core inflation still remained strong at 13% YoY. This is in line with new CNB forecast. We see the risk, however, that some reprising upwards was made later in January hence it would be reflected rather in February CPI reading. Even a further spike in headline inflation is unlikely to persuade the CNB board to change their stance to keep rates unchanged at the next meeting in March.   Read next: Definition: Social Inequalities i.e A Socio-Economic Phenomenon| FXMAG.COM Hungary: Data impacted by abolishment of fuel price cap After a quite boring week, next week’s calendar will be really action-packed. On Monday and Tuesday, the Hungarian Statistical Office is going to release the December retail sales and industrial production figures. We expect to see major signs of a downturn. In retail sales, the government let go the fuel price cap, which lead the fuel sales falling from a cliff, while food and non-food retailers are suffering from a lowering demand due to the drop in households’ purchasing power. As industry had two working days less to produce in December 2022 than a year ago, we see the year-on-year performance to shrink, though seasonally and working day adjusted print will show a bit more favourable picture. Wednesday will be about balances. We see the January budget balance in deficit due a one-off expenditure item related to a public financed acquisition. Meanwhile, the December trade balance will bring some good news, as lower commodity prices will be finally filtering through the energy balance, as new energy contracts in the private and public sectors are following the global stock prices with a two-month lag. Last, but definitely not least, Friday brings the first inflation print of 2023. We see both headline and core CPI moving above 25% year-on-year, mainly driven by a strong start-of-the-year repricing in food and services and a second-leg impact of the scrap of the fuel price cap. In contrast, price changes in household energy and durable goods will limit the upside in the acceleration, in our view. Key events in EMEA next week Refinitiv, ING This article is part of Our view on next week’s key events   View 3 articles TagsHungary EMEA and Latam calendar EMEA 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
Kelvin Wong talks JGB, US dollar against Japanese yen and more

The Bank of Japan faces tough choices ahead of policy normalisation

ING Economics ING Economics 05.02.2023 11:11
Market expectations for a policy change by the Bank of Japan will continue to grow, but it won't move as fast as many in the market might hope In this article Will a change in leadership lead to a change in policy? Wage increases are essential to escape the vicious cycle of deflation BoJ watch   Kuroda Haruhiko, Governor of the Bank of Japan, is getting ready to step down Will a change in leadership lead to a change in policy? The Bank of Japan's Governor, Haruhiko Kuroda, will step down on 8 April after serving 10 years at the Japanese central bank. Kuroda is credited as being the main advocate of Japan's super-easy monetary policy stance. And his looming retirement means that market expectations are growing over whether the next governor will shift the BoJ's policy stance.  His successor nominee will be presented to Parliament on 10 February, but a couple of names are already circulating, notably those of the current deputy governor or his predecessor. Based on their past remarks, it's expected they would both reduce the extent of accommodation, although there is a 'hawk-dove' division as far as the policy spectrum's concerned. So, the pace and extent of any changes will surely vary, but even small modifications can shock the market, as was demonstrated after the December policy tweak. Consequently, a conservative policy transition is likely to be pursued. We also think that the next governor is likely to continue to focus on prices, as the current above-4% inflation rate is not considered sustainable and is expected to fall below 2% in the coming quarters. That's why we believe the spring wage negotiations, known as Shunto, are the key variable to watch.  Wage increases are essential to escape the vicious cycle of deflation As we mentioned in our research note "Why is Japan's inflation so low?", there are structural problems which have led to Japanese consumers' wage and wealth growth stagnating. Core CPI inflation, excluding fresh food, is expected to exceed 4% in January. But this is driven mainly by supply-side pressures and will be transitory. Therefore, from the BoJ's perspective, there is still concern about deflation. This is why the spring salary negotiation is important. Without wage growth, it is going to be very difficult to achieve a sustainable inflation target of 2%. The government has offered incentives to companies for wage increases, but in our view, wage growth will rise more slowly than the 3% sought by the BoJ. Base salaries may pick up, reflecting high inflation, but this may be largely offset by a reduction in bonuses and incentives as corporate earnings are likely to be squeezed. The latest labour market reports suggest that wage pressures remain relatively weak. However, if wages do rise by around 3%, then the pace of policy adjustment by the BoJ is expected to accelerate.  10-year JGB runs just below the BoJ's target band CEIC BoJ watch We think it will be difficult for Kuroda to try any policy changes at the March meeting just before he steps down. A lack of upward wage pressure, along with slowing inflation, may also prevent the new governor from taking immediate action in April. We think he will likely adjust the forward guidance and call for a policy review with the Ministry of Finance. This will give the BoJ more flexibility in policymaking.  As we argued in our outlook report, there could well be a re-examination of the inflation target – from the current "at the earliest possible time" to making the 2% target a "long-term goal". Thereafter, we think the BoJ will lift the mid-point target for the 10Y Japanese government bond from 0% to 0.25% in early 2024, followed by raising its short-term policy rate from -0.1% to 0.0% in the second quarter of 2024. If wage growth is stronger than we expect and inflation stays above 2% until the third quarter of this year, then the timing could be brought forward to the end of this year. TagsWage growth Japanese inflation Bank of Japan 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
Eurozone economy boosted by service sector growth

Moment of truth for Central and Eastern Europe

ING Economics ING Economics 05.02.2023 11:18
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
Indonesia Inflation Returns to Target, but Bank Indonesia Likely to Maintain Rates Until Year-End

Indonesia: fourth quarter GDP surprises on the upside but growth momentum is fading

ING Economics ING Economics 06.02.2023 08:43
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
UK PMI Weakness Supports Pause in Bank of England's Tightening Cycle

Markets Are Still Too Optimistic On Inflation And Central Banks Will Not Rush To Pull All Stops, Driving Rates To Zero

Franklin Templeton Franklin Templeton 06.02.2023 09:21
Does the latest US data confirm the battle against inflation has already been won? Franklin Templeton Fixed Income CIO Sonal Desai says markets are overly optimistic. Bond investors have started the new year on a very upbeat tone. They seem convinced that the battle against inflation has already been won. The Federal Reserve (Fed) might nudge rates up a bit more to stay on the safe side, but soon enough we’ll go back to a world of very low interest rates—this seems to be the consensus view based on the price action. The encouraging US December Consumer Price Index (CPI) print solidified this view—headline inflation fell 0.1% from the previous month, pushing the year-over-year rate down to 6.5% from November’s 7.1%. Core inflation (excluding food and energy) slowed to 5.7% from 6.0%. Mission accomplished? I believe not. I think markets are still too optimistic on inflation, and underestimate a very  important shift in central banks’ attitudes. In this post I will summarize my thinking in four points. First. Macro policies are still relatively loose. It’s true that supply shocks are fading out, rent inflation will likely soon peak, and there is some weakening in economic activity. But this weakening is nowhere near enough of what’s needed to pull inflation down to 2%-3%, because there are a number of inflationary forces still at work. In particular: Fiscal policy remains very loose; we are looking at a fiscal deficit in excess of 5% of gross domestic product (GDP) with a relatively robust economy; on top of this, Congress passed a US$1.7 trillion funding bill that increases discretionary spending by 6%. Social Security and disability checks have just increased by close to 9% for 70 million people—that’s close to 30% of the adult population. The Fed’s balance sheet is still way larger than pre-crisis, with an expansionary impact on monetary policy. Second. I think markets and many analysts have a “glass half-full” view of wage growth and inflation expectations: We have different measures of wage growth, and some show an encouraging decelerating trend. But others do not. The latest available data from the Atlanta Fed’s Wage Growth Tracker show wage growth treading water at a rather elevated level. In December, wages for workers switching jobs rose 7.7% year over year; but wages for workers staying in their jobs also increased a hefty 5.3%, showing that employers are having to give robust wage raises to retain workers.1 Overall wage growth increased  6.1%. We keep hearing that long-term inflation expectations are still well anchored, and indeed the New York Fed survey of consumer expectations has five-year ahead expectations just over 2%.2 But one-year ahead expectations are 5.2%. Inflation has run above 5% for a year and a half already, and consumers expect it to stay above 5% for another year. To me that means that while consumers do believe that eventually inflation will come back to target, for the time horizon relevant to most of their economic decisions, they expect inflation to remain much higher. To summarize, we have a strong US labor market with the unemployment rate still at 3.5%, wage growth running at 6% and one-year ahead inflation expectations above 5%. It seems very unlikely that we can halve the inflation rate by the end of this year with just a reduction in job openings. I think we are more likely to end the year with inflation at 4%-5%. Atlanta Fed Wage Growth Tracker Pointing to Still-Elevated Wage Pressures Atlanta Fed Wage Growth TrackerJanuary 1998–December 2022   Sources: Bloomberg. As of January 18, 2023. Shaded area represents a recession as defined by the National Bureau of Economic Research (NBER).   Third. Financial conditions remain loose, and this could turn the markets’ confidence in lower rates into a self-defeating prophecy. Markets keep testing the Fed. The Fed keeps promising that it will hike more and then keep policy tight for quite a while. Markets bet that as soon as growth weakens a bit more the Fed will blink and start cutting rates. But as looser financial conditions offset part of the Fed’s tightening effort, the central bank runs a higher risk of inflation pressures becoming entrenched at an uncomfortably high level. This cat-and-mouse game is one reason why I think the Fed will have to raise the policy rate to 5.00%-5.25% and leave it there for the remainder of this year. Read next: Difficult Decision Ahead Of The RBA, The Market Expects A 25bp Rate Hike| FXMAG.COM Inversion in the Yield Curve Suggests Bond Markets Expect the Fed to Pivot Soon Two-Year US Treasury Minus Three-Month US Treasury Yield SpreadJanuary 2000–January 18, 2023   Sources: Bloomberg. As of January 18, 2023. Shaded area represents a recession as defined by the National Bureau of Economic Research (NBER). Past performance is not an indicator or guarantee of future results.   Fourth and most important. I believe financial markets are misguided in thinking that central banks will end up regarding this inflation episode as simply a temporary aberration. Just like the global financial crisis (GFC) caused a long-lasting change in the attitude and stance of monetary policymakers, the inflation surge of the past couple of years will have a similar long-lasting effect. The GFC did not result in a new great depression. But central banks became nonetheless much more sensitive to the risk of deflation, and for the next 10 years reacted to every shock with an overwhelming monetary easing. Similarly, the recent inflation surge will not result in hyperinflation or even in a 1970s-style inflation spiral, but it will make central bankers much more sensitive to the risk of entrenched higher inflation. Central bankers now understand that prolonged loose monetary policy contributed to a multi-year inflation overshoot that they have not yet brought back under control. You can see it in statements from monetary policymakers in both the Fed and the European Central Bank. As a consequence, as the economy slows and possibly dips into contraction, central banks will not rush to pull all stops, driving rates to zero and launching a new stage of quantitative easing. I think they will instead limit themselves to more traditionally sized rate cuts. This is reinforced by another consideration: over the past decade and a half, central banks could rely on important disinflationary forces, especially the surge in labor supply from China and deepening global supply chains. These forces allowed massive monetary easing to support asset prices without boosting goods and services inflation. This is no longer true. In their book, “The Great Demographic Reversal,” authors Manoj Pradhan and Charles Goodhart make a compelling case on the demographics. As China’s population ages, it contributes more to demand than to supply, and therefore has an inflationary impact—the opposite of when a younger Chinese population entered the global market and boosted supply more than demand. Similarly, the energy transition and companies reducing their reliance on global supply chains tend to raise costs, and are therefore inflationary. We are therefore likely to see a structural change in central banks’ attitudes, and markets have not come to terms with it yet. They will have to. In my view, we are facing a multi-year period where markets will relearn to price risk without such a strong central bank safety net. There will be a lot more volatility—we have gotten a taste of it already. The silver lining is that this adjustment brings new investment opportunities, particularly in fixed income, where the focus can finally shift squarely onto the analysis-driven search for value, rather than an obsessive hunt for yield at greater and greater risk. Endnotes Source: Federal Reserve Bank of Atlanta, data as of December 2022. Source: Federal Reserve Bank of New York December 2022 Survey of Consumer Expectations. There is no assurance that any estimate, forecast or projection will be realized. WHAT ARE THE RISKS All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio. This is not a complete analysis of every material fact regarding any industry, security or investment and should not be viewed as an investment recommendation. This is intended to provide insight into the portfolio selection and research process. Factual statements are taken from sources considered reliable but have not been independently verified for completeness or accuracy. These opinions may not be relied upon as investment advice or as an offer for any particular security.   Source: On My Mind: Transitory tightening? | Franklin Templeton
The Commodities Feed: Brent Breaks Above $80, Energy Market Dynamics and Trade Data Analysis

Gold's Correction Could Last Until February 14

InstaForex Analysis InstaForex Analysis 06.02.2023 14:05
Investors waiting for an opportunity to enter the gold market found their chance on Friday, when the US released an unexpectedly strong employment report for January. The data said 517,000 jobs were created in January, well above the expected gain of around 193,000. This led to prices falling by more than 2%. However, some analysts said there was a downside risk because the growing momentum in the US labor market could force the Fed to keep its aggressive policy longer than expected. The central bank mentioned before that it needs to see a softening of the labor market before they become confident that inflation is under control. A survey was conducted last week in which 44% of participants were bearish in the short term. 17% were optimistic, while 39% believe that prices will trade horizontally. There was also an online poll, where 61% said gold will rise this week. 25% said the price will fall, while 14% were neutral. This mixed view on gold is due to the fact that prices fell by 3.5% at the end of the week. It went under $1,900 an ounce, making analysts foresee support around $1,850 an ounce. Bannockburn Global Forex managing director Marc Chandler said gold's correction could last until February 14, when the next inflation data will be released. This could give the Fed an opportunity to slow its aggressive monetary policy. Darin Newsom, a senior technical analyst at Barchart.com, said $1,850 could be the first stop in this correction. However, some analysts, such as Adrian Day, president of Adrian Day Asset Management, see near-term downside potential for gold prices   Relevance up to 10:00 2023-02-11 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/334243
Technical Outlook Of The Main EUR/USD Currency Pair

The Euro To US Dollar (EUR/USD) Pair Is Still Moving Lower

Paolo Greco Paolo Greco 07.02.2023 08:22
As predicted yesterday, the EUR/USD currency pair continued to decline on Monday, albeit with less volatility. Given that neither the US nor the EU released any significant macroeconomic information or basic background yesterday, the movement on Monday best satisfies the definition of "inertial." Thus, the euro's value continued to decline entirely as a result of last week's events, notably the outcomes of the Fed and ECB meetings and the American media's publications on Friday. This movement could finish today and an upward correction could start because we predicted it would last for another one or two days. We continue to anticipate that the European currency will continue to decline. A downward trend is the most likely course of action given the pair's recent extreme overbought condition. Additionally, sales signs are also beginning to emerge. The pair was fixed below the moving average line on the 4-hour TF, which is noteworthy. Today, the price can already pass the crucial threshold on the 24-hour TF. When these two signals are merged, the pair can fall by hundreds of points. Additionally, we must keep in mind that there won't be much in the way of macroeconomic and fundamental background this week. There won't be any significant reports, and Christine Lagarde's address didn't reveal any new information. What additional information could there possibly be given that practically all ECB officials have recently stated the necessity of continuing to tighten monetary policy? Since the regulator would have already started a modest slowdown if it wanted to stop its tightening, there is now no question that the rate will increase by at least 0.75%. There will be at least two more increases of 0.5% and 0.25% if it does not slow down at the February meeting. The ECB's planned tightening of monetary policy, however, is a "double-edged sword." Since the market is already prepared for such an event, quotes can already reflect it. Therefore, rhetoric with a longer-term view is needed from Christine Lagarde, Luis de Guindos, or Isabelle Schnabel. If they give any indication or make it clear that they intend to raise the rate in the second half of 2023, this might lead to a new round of buying of the euro since the Fed rate will have undoubtedly risen by then. Read next: USD/JPY Pair Is Trading Above 132.00, The Aussie Pair Is Near 0.6900| FXMAG.COM Can the inflation rate rise again? Another option is to approach the issue differently. Both in the United States and the European Union, inflation has been slowly declining over the past few months. A lot of individuals, who have grown accustomed to this phenomenon, think that the consumer price index will now decline (at some rate or another) until it reaches 2% or such. A year is implied. The fact that inflation has been falling in recent months as a result of lower energy transport prices is not surprising. The impact of this occurrence will eventually stop having an impact on prices, and inflation may then stop accelerating. In a few months, this will likely occur. It is also important to keep in mind that the effects of a rapid rate increase by the ECB and the Fed may eventually "fade into the background." If the rate has increased to 4.75% (in the US), it does not follow that inflation will continue to decline indefinitely. The Fed will need to decrease the key rate quickly to stop inflation. In general, we think that the monetary policies of the Central Bank may be changed more than once in 2023. As a result, making long-term predictions is useless. To make them, too many aspects must be taken into account. By the way, the armed confrontation in Ukraine is still going on and has not ended. Everyone is aware of the terrible effects it had on the pound and the euro last year. This year, history might repeat itself. As of February 7, the euro/dollar currency pair's average volatility over the previous five trading days was 121 points, which is considered "high." So, on Tuesday, we anticipate the pair to move between 1.0614 and 1.0856. The Heiken Ashi indicator's upward reversal will signal a round of corrective movement. Nearest levels of support S1 – 1.0742 S2 – 1.0620 S3 – 1.0498 Nearest levels of resistance R1 – 1.0864 R2 – 1.0986 R3 – 1.1047 Trading Advice: The EUR/USD pair is still moving lower. Until the Heiken Ashi indicator turns up, you can maintain short positions with a target price of 1.0620. After the price is fixed back above the moving average line, long positions can be initiated with a target of 1.0986. 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/334321
Philippines: Inflation blows past expectations to hit 8.7%

Philippines: Inflation blows past expectations to hit 8.7%

ING Economics ING Economics 07.02.2023 09:04
Inflation has yet to peak in the Philippines with inflation jumping to 8.7%YoY, up from 8.1% in the previous month Consumption in the Philippines accounts for roughly 72.8% of all economic activity 8.7% January YoY inflation 14 year high Higher than expected January inflation sizzles at 8.7% Price pressures were on full display with headline inflation blowing past expectations to hit 8.7%YoY.  The market consensus pointed to inflation slowing to 7.6%YoY from the 8.1% rise last month, but price pressures remain persistent.  Nine out of the thirteen categories reported inflation past the central bank’s upper bound target of 4% indicating that this price surge is clearly broad-based and not limited to select commodities.  Food inflation accelerated to 10.7% YoY (10.2% previously), transport costs increased 11.2% and utilities rose by 8.5%.  Poor agriculture output and elevated energy prices drove much of the supply-side price pressure but inflation was also driven by surging domestic demand.  Robust economic growth resulted in accelerating inflation for items related to recreation (4.2%), restaurants & accommodation (7.6%) and personal care (5.0%).  The confluence of supply and demand side pressures is likely to keep inflation elevated in the coming months with inflation only grinding lower throughout 2023. Inflation is everywhere: Price pressures have spread across the CPI basket Source: Philippine Statistics Authority BSP to continue tightening policy next week The Bangko Sentral ng Pilipinas (BSP) meets to discuss policy next week and we believe Governor Medalla will whip out a 50bp rate increase in an attempt to get ahead of surging inflation.  Medalla previously sounded off on the possibility of pausing “as early as the first quarter” but today’s inflation report likely means BSP will need to stay hawkish in the near term.  BSP increased rates on consumer credit last January which could act as an additional tightening measure to combat soaring inflation. Nevertheless, price pressures are broad-based and BSP will likely need to sustain rate hikes until we see inflation head back towards the target in a convincing manner.  Read this article on THINK TagsPhilippines inflation 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 ECB Has Made It Clear That Rates Will Remain High Until There Is Evidence That Inflation Is Falling Toward The Target

Europe Will Be Forced To Run Larger Deficits Including The Fiscal Conservative Germany

Saxo Bank Saxo Bank 07.02.2023 10:51
Summary:  As the world turns increasingly bipolar, equity markets face harsh times as they transition into the new reality. Wandering into the darkness Andrew Lo’s 2017 book Adaptive Market is a compelling thesis against the prevailing efficient market hypothesis, as it borrows key concepts from biology to explain things we observe in financial markets and more generally our economic system. In nature some species are more adaptable to a given environment and will therefore have a higher survival rate, win more resources and thus reproduce more successfully. These animals have a higher fitness, but sometimes through a random mutation or external changes in the environment, other species become more successful. Phase transitions in the environment can be brutal and outside the well understood causalities in physics, as when water turns to ice or steam, and our chaotic human societies become extremely unpredictable. In the age of globalisation from 1980-2020 it seems the fittest were the multinational companies. During the late stage of the information technology age, software companies were the fittest due to fewer constraints in the physical world. Globalisation combined with cheap gas from Russia made Germany particularly fit. Low interest rates made venture capital, private equity firms and real estate very fit. What we saw in 2022 was that the fittest models and agents in our economy stumbled into the darkness because the world went into a phase transition, as globalisation as we have come to know it since 1980 has ended. What lies on the other side of this phase transition is difficult to predict, but our working idea is that what was fit during globalisation will be less fit in a world driven by geopolitics and the move to a bipolar world driven by two different value systems. In other words, all the models that have worked very well will not work well going forward. This equity outlook is about those broken models with these five implications being the biggest: Higher structural inflation because ‘geopolitical war’ is inflationary Lower corporate margins as labour is fighting back and taxes will increase in the new fiscal dominance over monetary policy Physical assets will outperform intangible and financial assets Self-reliance will drive optimisation for robust supply chains creating winners and losers in emerging markets Lower real growth rates and more macroeconomic uncertainty The physical world is roaring back Digitalisation had started already in the early 1990s with the Amazon start-up in 1994 as one of the early key events, but it was not until after the Great Financial Crisis that digitalisation began to dominate equity markets. Together with other companies dominated by intellectual property rights and intangible assets such as network effects, brands and patents etc, these intangible-driven companies vastly outperformed companies based on tangible assets such as machines, collateral value and buildings. The boom in the intangible world started around April 2008 and lasted until October 2020, the month before the news of the mRNA vaccines against Covid-19. The vaccines changed everything. They made it possible to reopen faster than imagined. It caused a time compression of the fiscal and monetary stimulus that was meant to cushion society against the base case scenario that it would take around four years to get a vaccine. This faster-than-expected reopening reverberated through the global economy causing bottlenecks in the physical world as people had massively increased their wealth and income which could finally be spent outside the digital world. This unleash of demand in the physical world was on a par with the post-WWII stimulus when Europe was rebuilt and inflation naturally kicked in. Commodities rallied hard entering what might end this decade being a commodity super cycle. The tangible-driven industries are now in their third year of outperformance against the intangible world. In our view this trend has just started. Source: Bloomberg and Saxo Two parts of the physical world did well last year. Companies in the commodity sector (agricultural, energy and mining) and the defence industry were among the only positive trends last year. Both themes seem fitter than digital companies for a world that is at ‘war’ over different value systems and where the US and Europe are in a race against time to invest in commodities supply security, infrastructure and defence, change global supply chains, and on top of it all transition their economies away from fossil fuel energy sources. The boom in intangible-driven companies delivering stellar returns for investors reduced available capital for the physical world and this phenomenon was already setting up the stage for the phase transition we are already experiencing, but the pandemic and subsequent war in Ukraine turbocharged the change. Source: Bloomberg and Saxo Inside our positive view on commodities we are significantly bullish on copper and lithium miners due to the green transformation and the enormous political capital being invested in achieving this transition. Many argue that commodities are already up a lot and therefore the risk-reward ratio is bad. If we are in a decade-long super cycle then commodities will another eight years and in the previous commodity super cycles the spot prices on commodities rose 20 percent annualised. The new geopolitical environment will mean a massive boost for the European defence industry which should see double-digit growth rates close to 20 percent per year over the next economic cycle as the European continent doubles its military spending in percentage of GDP. There are always exceptions to the rule. With a raging ‘war’ in computer chips due to the US CHIPS Act passed in 2022 we expect a massive investment boom, growth and tax incentives to help boost earnings for US and European semiconductor companies over the next decade. While semiconductors to some extent are very much in the physical world, the valuation of semiconductor stocks suggests that they are driven by strong intangible assets such as patents.  In a world driven by geopolitical upheaval and with a ‘war’ being fought in many other dimensions than the old-fashioned kinetic war, digital systems are vulnerable to attacks. Thus companies and governments will spend an enormous amount of resources on protecting digital assets and that will create a long path of growth for cybersecurity companies. US vs Europe, EM and mega caps? The strong fittest of the technology sector in the late stage of globalisation combined with low interest rates meant that the US technology sector measured by the Nasdaq Composite Index outperformed everything else. This led to a significant alpha in US equities over European equities with the latter stuck in the mud after the euro crisis. Europe basically lost the dominance in the digital world to the US. With deglobalisation kicking into gear, a war in Ukraine amplifying the energy crisis and a world in need of physical assets, Europe will stand to gain from this shift. European equity markets have many more of the companies that will thrive in this new environment across green energy technologies, mining, automation, robotics and advanced industrial components. Europe will also be forced to run larger deficits including the fiscal conservative Germany due to rising infrastructure and military spending which could lift growth significantly during this decade. When looking at equity market performance in USD total return terms, European equities actually outperformed US equities from 1969 to 2008 with several longer cycles during this period. But from mid-2008 to October 2022, US equities massively outperformed European equities in line with the rise of the intangible-driven industries driven by the digitalisation which the US won. While tangible-driven industries have begun outperforming intangible-driven industries, European equities have lagged until recently. If the new geopolitical environment plays out as we expect, European equities will stage a comeback. With the USD historically strong against EUR there is significant tailwind from the currency side if the USD weakens from here due to structurally higher inflation compared to Europe. When we look at equities valuations, Europe has an advantage with a 12-month forward P/E ratio of 11.9 vs 17.7 for US equities. This valuation discount cannot be ignored by investors and as Europe gets its energy supply fixed and the war in Ukraine comes to an end, investor flows will follow. Finally, with China reopening its economy and conducting a 2008-style fiscal expansion Europe, being China’s biggest trading partner, will benefit from this. European equities might be viewed as a good indirect way to be long China and their fiscal expansion. Source: Bloomberg and Saxo On a country-specific level, export-driven countries such as Germany, South Korea and especially China were the fittest. This is likely not going to be the case in the new geopolitical environment. India, Vietnam and Indonesia look to be the winners in Asia. Closer to central Europe, Eastern Europe and some countries in Northern Africa could win on manufacturing being reshored, while countries south of the Sahara will experience an investment boom due to Europe’s hunger for energy and materials as Russia is cut out of the equation. Closer to the US, Mexico will benefit in manufacturing and countries in South America will benefit from the commodity super cycle. Deglobalisation and self-preservation policies will also make life more difficult for the mega caps. Their combined market value peaked during the height of the pandemic setting a new record for market value concentration not seen since the 1970s. This will reverse and thus the new regime will not favour mega caps and companies with large geographical footprints, but instead smaller domestically oriented companies operating in niche industries delivering into the build up of the physical world. Source: Bloomberg and Saxo Quality and high margin are less sensitive to wage inflation The past 10 years will be remembered for the extraordinary monetary policy in the wake of the Great Financial Crisis and the euro crisis two years later. Lowering the cost of capital arguably lowered the threshold for return on invested capital (ROIC) and the environment of low interest rates reduced the cost for highly debt leveraged companies. Low interest rates also created enormous risk-taking and time value distortion most evident in the venture capital industry in which a new model beautifully melted with digitalisation and network effects. Funding loss-making businesses to ensure a market-leading position was no longer problematic because low interest rates opened the floodgates of capital streaming into ultra-high risk venture projects. These dynamics created a large forest of technology start-ups and turbocharged the biotechnology industry that had been in hibernation since the dot-com bubble. Uber is one of the most iconic examples of this with 32 rounds of financing worth around $25bn, according to TechCrunch, over the 13 years since its founding. Uber still has a negative ROIC despite $29bn in revenue. WeWork, and the whole portfolio of technology start-ups financed by SoftBank, was another poster child of this era. In the current inflation and interest rate regime this model is broken. Companies that are the most fit for higher interest rates, a reset in wages, and high inflation are those with high ROIC or a high operating margin combined with less excessive equity valuations. The least fit companies are those with low margin, high debt leverage and unprofitable.   Source: A painful phase transition | Saxo Group (home.saxo)
India: Reserve Bank hikes and keeps tightening stance

India: Reserve Bank hikes and keeps tightening stance

ING Economics ING Economics 08.02.2023 09:09
The Reserve Bank of India (RBI) hiked a further 25bp, though rather than signalling "job done", they have maintained their tightening bias Reserve Bank of India Governor Shaktikanta Das 6.50% Repo rate Up 25bp As expected "Headline inflation has moderated with negative momentum in November and December 2022, but the stickiness of core or underlying inflation is a matter of concern. " - Shaktikanta Das - Governor RBI A more hawkish hike than anticipated The prevailing view before this meeting was that the RBI would hike, but indicate that this was the last hike in this cycle as inflation was both below the RBI's policy rate (indicating positive real policy rates) and was also back within the RBI's 4+/-2% inflation target.  We had actually felt that the RBI might, as a result of falling inflation, decide to pause at this meeting - a minority view - and one which turned out to be wrong in the end.  But the consensus didn't get it all its own way either. Governor Shaktikanta Das said in his statement that the Monetary Policy Committee would "continue to maintain strong vigilance against inflation" a view he justified by noting persistently high core inflation which threatened to de-anchor inflation expectations. Indian headline and core rates of inflation relative to the RBI's target Source: CEIC, ING So it's all down to the data now... The chart above shows how the headline rate of Indian inflation has fallen, but that various core measures have remained persistently above the upper bound of the RBI's inflation target.  What is also fairly clear about these core measures of inflation, is that, unlike some western economies, the core inflation rates can deviate from headline inflation for considerable periods of time. So we can't take too much solace in the fact that headline inflation rates will likely continue to fall, as it could be a long time before core rates move down and into line with them. Another factor we need to consider is the fact that India's economy continues to grow quite robustly. The RBI's forecast for growth in fiscal 2024 (the year ending March 2024) was 6.4%, only marginally down from the forecast of 7.0% for fiscal 2023. This will also be providing the RBI's Monetary Policy Committee with additional confidence that it has room to move rates up some more, without undue risk of triggering a recession. Indeed, Governor Das remarked that overall monetary policy remained accommodative, implying that there is further upside risk to rates if inflation is to be sufficiently tamed.    It seems reasonable to conclude that until these measures of inflation present less of a threat, by falling below 6% and remaining there for a couple of months, we can't rule out further rate hikes. So we will be amending our forecasts and adding a further 25bp taking peak policy rates to 6.75% after this latest increase and pushing back the timing of eventual rate cuts until next year. That said, the decision wasn't unanimous. Two of the six-member MPC decided not to vote for the hike, and two also did not vote to keep the policy stance of withdrawing accommodation. Taking all of this together suggests that there is still a little more tightening to come, but though this latest hike did not represent the last in this cycle, we are now getting very close to the peak. Financial markets took the rate decision and outlook in their stride. The INR did not react much at all, and 10Y government bonds only rose about 3bp to just under 7.34%. Read this article on THINK TagsRBI policy rates RBI INR Indian inflation Indian 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  
Navigating Inflation and Central Bank Meetings: Assessing Rate Hike Odds

Disney Is Expected To Report Revenue Growth Of 7%, Crude Oil Pirces Was Up

Saxo Bank Saxo Bank 08.02.2023 09:25
Summary:  Bumpy ride for the markets as Fed Chair Powell repeated his disinflationary remark but later added that the Fed will need to do more rate increases. NASDAQ led the gains, supported by Microsoft and Alphabet, despite another day higher in US 10-year yields. USD was broadly softer with JPY leading the gains, while EUR lagged. RBA’s hawkish guidance supported AUDUSD as China demand upturn is still awaited. Gold steady and oil prices jumped higher on improving demand outlook.   What’s happening in markets? US equities (US500.I and USNAS100.I): Short-term strength is still intact On Tuesday the S&P 500 rallied 1.3% in a choppy session to close at 4,164, regaining some short-term strength. Traders absorbed Powell's remarks (for details of his comments, please read below) and took stocks to rebound and close near the day high. So, we’re seeing the technical indicators (the MACD and RSI) behaving - supporting short-term strength, as the VIX Index is too. The advance in the S&P500 was led by energy, communication services, and information technology. Nasdaq rose 2.1% to 12,728, driven by strong gains in mega-cap names such as Microsoft (MSFT:xnas) up 4.2% and Alphabet (GOOGL:xnas) up 4.6%. Take-Twe Interactive (TTWO:xnas) jumped 7.9% after the game software company announced cost-cutting. Du Pont (DD:xnys) surged 7.5% following earnings and margins beat analyst estimates. Royal Caribbean Cruises (RCL:xnys) rose 7.2% on upbeat guidance, citing “a record-breaking Wave season”. Yields on US Treasuries (TLT:Xmas, IEF:xnas, SHY:xnas) edged up on Powell’s comments and a weak auction Fed Chair Powell’s comments made at the much anticipated moderated discussion before the Economic Club of Washington, D.C. were less hawkish than feared. He started by repeating that the disinflation process had begun and his remarks saw yields on the front end tumbling 10bps with the 2-year down to as low as 4.38 and the curve bull steepened. The fall in yields quickly reversed after Powell said that last Friday’s payroll report was “certainly strong-stronger than anyone I know expected” and that inflation “will go away quickly and painlessly” is not the Fed’s base case and the Fed has to “do more rate increases”.  More selling came after a weak 3-year action that was awarded 4bps cheaper than the market at the time of the auction, and the bid-to-cover ratio dropped to 2.33 from 2.84 last time. The corporate supply of around USD15 billion of new issues, including USD11 billion from Intel also weighed on the market. The 2-year pared almost all its early gains to settle 1bp richer at 4.46% while yields on the 10-year rose 3bps to 3.67%. Australian equites (ASXSP200.I); short term pressure as RBA hikes by 25bps to 3.35% guiding for more hikes in “months ahead”   ASX200 futures suggest the market will rally 0.46%, and likely erase yesterday’s 0.5% fall. But short-term pressure has built up by the RBA indicating more hikes are needed. Coal prices are down 36% and picked up this week almost 7% after the Australia Energy Market Operator said coal supply and gas supply in Australia is short and will stay short till 2026, so we think the RBA could make upward revisions to underlying inflation forecasts on Friday, despite the Bank keeping its headline CPI, unemployment and activity forecasts broadly unchanged. For investors, this means volatility in the ASX200 could pick up on Friday - financials and insurers could be supported with the RBA seeing more hikes ahead. The services sector is already in contraction, yet the RBA sees GDP slowing to around 1.5% this and next year, expecting household spending to pull back amid tightening financial conditions, as the post-pandemic spending rush has eased. This means, consumer discretionary stocks likely face headwinds. On the flip side, the energy sector is being supported. Hong Kong’s Hang Seng (HIG3) and China’s CSI300 (03188:xhkg) in thin trading; ChatGPT names soared After climbing as much as 1.4% in the morning, Hang Seng Index retraced to close near the day low, inching up 0.4% from Monday. The trading volume was light. The Hang Seng TECH index outperformed and closed 1.2% higher, led by a 15.3% jump in Baidu (09888”xhkg) on confirmation from the company that it is working on a ChatGPT-like product. The three Chinese state-owned oil giants advanced, led by CNOOC (00883:xhkg) up 2.2%. In A-shares, ChatGPT names continued to outperform. Household appliances, media, environmental, and real estate names gained. CSI300 registered a modest 0.2% gain in a choppy and low-volume session. Northbound flows were net selling of RMB3 billion, being outflow for the third day in a row. FX: Yen strength returned as Powell adds little new information Dollar was choppy as Powell initially reiterated his remarks from last week but later made a comment that the Fed could more if the data stays hot. Still, market pricing of the Fed’s path was little changed, and dollar ended the day broadly lower against all G10 currencies. The Japanese yen recouped come strength despite somewhat higher Treasury yields, with USDJPY falling as low as 130.49 before bouncing back higher to 131.50. AUDUSD, although still waiting for the upturn is Chinese demand, was supported by the RBA’s guidance to hike more. AUDUSD above 0.6960 in early Asian hours, with AUDNZD moving above 1.1000 to near 3-month highs. EURUSD was a laggard as it took a look below 1.07 before bouncing back to 1.0720+ levels subsequently. Crude oil (CLH3 & LCOJ3) prices rise on demand outlook and supply concerns WTI prices jumped 4% and Brent was up 3% after Powell stayed away from turning significantly more hawkish after the bumper jobs report last Friday. Meanwhile, demand outlook continues to improve as signaled by Saudi Aramco’s price increases, and API also suggested a draw in US crude stocks. API reported US crude stockpiles declined by 2.2mm barrels last week, compared to expectations of a 2.5mm barrels increase. Both OPEC and EIA have been upbeat on China’s demand recovery as well. The market shrugged off reports that flows through the 1mb/d Ceyhan oil terminal in Turkey will resume shortly, and supply side issues remained in focus as well. The Energy Information Administration lowered its forecast for US crude oil production in 2024. Gold (XAUUSD) strength continues to hold up despite a stronger dollar Gold continues to remain supported around the $1860 level despite another increase in US yields overnight. Buying by central banks remains buoyant, with China raising its gold reserves for a third straight month in January, up 6.9% MoM. The momentum below $1900 appears to be lacking, suggesting the move remains a correction in the larger bullish trend. Eyes on next supports at $1845 and $1828.  Read next: The Court In Munich Decided In Favor Of BMW| FXMAG.COM What to consider? Powell’s balanced narrative unable to spur market caution; Kashkari sees terminal rate at 5.4% Fed Chair Powell’s message last night was only marginally more hawkish compared to last week’s Fed meeting, giving markets enough reasons to continue to give more emphasis to data. Powell qualified his ‘disinflationary’ remark from last week’s Fed meeting by saying it is at a very early stage, and only in the goods sector. He was surprised by the strength of the jobs report, and said that the Fed probably needs to hike rates further and they have still not reached a sufficiently restrictive level. Powell expects 2023 to be a year of a significant decline in inflation, but it will certainly take into next year to get down close to 2% - in fitting with the December SEP's. Market’s pricing of the Fed rate path saw no material change following Powell’s comments. Meanwhile, Fed member Kashkari (voter) was more hawkish saying if he had to pick a rate forecast, would not lower it from his Dec SEP forecast of 5.4% but rates may have to be held at a higher level for longer. He added that markets are more confident than he is about inflation falling. Weak German industrial production, CPI due today Germany’s industrial production for December saw a steeper fall than expected, coming in at -3.1% MoM (vs. est -0.8%) while the November print was revised higher to +0.4%. After a technical delay last week, Germany’s inflation prints for January will be released today. 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. Bloomberg consensus expects 10.0% YoY from 9.6% YoY in December, with the MoM print also turning positive at 1.3% from -1.2% previously. Walt Disney to report earnings 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.  Saxo launches in Q1 2023 quarterly outlook: The Models are Broken Saxo’s quarterly outlook released argues that the economic models and assumptions of how market cycles are supposed to work are broken. We explore how this may affect both equities and commodities, as well inflation being higher-for-longer and how could it impact forex and crypto. Read the outlook here.   For what is 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: Powell adds little new information – 8 February 2023 | Saxo Group (home.saxo)
US Inflation Eases, but Fed's Influence Remains Crucial

US Outlook: Supply-Chain Issues Are Easing

Franklin Templeton Franklin Templeton 08.02.2023 15:07
Has inflation peaked? US headline inflation appears to have peaked in June 2022 when it reached a multi-decade high of 9.1% year-on-year (Y/Y), boosted by high energy and food prices (Exhibit 14 on the next page). Excluding food and energy, core CPI inflation had recorded an earlier multi-decade high of 6.5% Y/Y in March 2022, and the pace of underlying inflation appears to have been decreasing from its peaks since then. Although core CPI remains elevated relative to the historical record, slowing inflation should keep the Fed from hiking in a Volcker-like fashion. A number of factors support the view that inflation rates will continue declining. Both raw food prices and oil prices peaked in March, and these elements of non-core CPI should continue to drive headline disinflation. Supply-chain issues are easing, lowering firm input prices. Measured input prices (Producer Price Index [PPI] import prices) peaked in March–April. Nonetheless, core inflation is anticipated to remain elevated relative to the Fed’s 2% target for some time, supported by housing costs and other core items, particularly core services, where sticky inflation measures have increased. Thus, while we expect the disinflationary process to continue, we also expect it to be slow. Base effects should help restrain inflation as prices normalize somewhat. 2021 was quite abnormal in that the month-onmonth (m/m) gains in CPI for almost every month of that year were either at or near the top of their 2010–2021 range (Exhibit 15). Monthly gains through 2022 were similarly high. If CPI monthly gains continue to retreat toward the middle of their historical range, as they have recently, inflation should continue to decrease. Energy prices have peaked (at least for now): West Texas Intermediate (WTI) oil prices had fallen about 35% by end-November compared to June (Exhibit 16 on the next page). If energy prices remain stable, the contribution of energy to headline CPI should decrease from a peak of 3.3 percentage points (pp) in October to a negative contribution by March 2023 (Exhibit 17 on the next page), further cementing the disinflationary trend in headline CPI. Food prices should also decelerate. The FAO (Food and Agriculture Organization of the United Nations) Food Price Index4 has decreased 15.5% from its March peak (Exhibit 18 on the next page), and the annual growth rate has fallen sharply from 34% Y/Y in March 2022 to just 0.3% in November. US food prices have not yet slowed as fast as would be suggested by their long-run relationship to international food prices. In October, US food inflation was running at 10.6%, while the long-run relationship to international prices would imply this inflation rate should be below 4%. This current break in the relationship, as seen in Exhibit 19 (where the gray area represents 2022 outcomes), is likely due to food distribution issues. As long-run relationships reestablish themselves, the deceleration in FAO food prices implies that US food CPI should also decelerate. Food and beverage inflation does appear to have peaked at 10.9% in August. Supply constraints are easing significantly in both goods and services sectors, leading to lower input prices (see Exhibits 20 and 21 on the next page). Overall PPI and import price inflation peaked in March–April 2022. A number of consumer price items that saw sharp price increases around the reopening after COVID shutdowns are also coming off their highs now. For example, airfares in August had declined 17% from their June highs. Lodging prices are 4.5% below their May highs (Exhibit 22 on page 12). Rental car inflation, which had seen costs double around mid-2021, is now in deflation (Exhibit 23 on page 12). While we expect headline inflation to abate from current historically elevated levels, the inflation rates of the stickier parts5 of the CPI basket have increased meaningfully (see Exhibit 24 on page 13) and should keep inflation substantially above the Fed’s 2% target for some time. One of these sticky components is the housing component of CPI. Asking rental rates (such as from Zillow and Redfin) tend to lead US CPI rental inflation by roughly 12 months (Exhibit 25 on page 13). Zillow rental rates peaked in February at 17.2% and had decelerated to 11% by November. This suggests that US CPI rental inflation should peak in early 2023, but is likely to decelerate only slowly. This article is part of the report
Asia Morning Bites 13 March 2023

Asia Morning Bites - 09.02.2023

ING Economics ING Economics 09.02.2023 08:40
Taiwan's inflation this afternoon and US initial jobless claims to chew on tonight. More Fed speakers are scheduled, but markets are currently not paying them much attention Source: shutterstock Macro outlook Global Markets:  US stocks don’t seem to know which way to turn currently, and after Monday’s fall and Tuesday’s rise, Wednesday saw them falling again. There was nothing of note on the macro calendar, but a slew of Fed speakers kept up a hawkish background hum, which was probably the main cause of the falls. The S&P 500 fell 1.11%, and the NASDAQ fell 1.68%. Chinese stocks were down slightly, the HSI just barely lower by 0.07% and the CSI 300 down 0.44%. FX was quite whippy on Wednesday. EURUSD rose to 1.076 at one point but gave that all back to settle slightly lower at 1.0715. The AUD performed a similar set of acrobatics but finished close to where it started and is currently 0.6926. Cable actually performed a little better, the pound climbed up above 1.21 vs the USD, and though it too drifted lower, maintained a level of 1.2070. The JPY is at 131.34, slightly weaker than this time yesterday. Other Asian FX delivered a mixed bag, with the SE Asian currencies mainly stronger against the USD, but the more continuously traded currencies slightly softer. We will probably see some convergence with the SE Asian currencies coming more into line with their Northern peers this morning. US Treasury markets have gone back into “ignore the Fed” mode. 2Y US Treasury yields fell 4.4bp while yields on 10Y bonds fell 6.4bp to 3.61%. G-7 Macro: Preliminary German CPI for January is released today, and the consensus expects it will rise back up to 8.9% from 8.6% YoY in December. There is nothing else on the Macro calendar except for a couple more Fed speakers – Kashkari and Waller. So the hawkish tone should continue through today too. Markets may continue to ignore it ahead of next week’s CPI release. China:  Loan data released between 9 Feb and 15 Feb should show a jump in new yuan loans to over CNY 4 trillion. This is a seasonal phenomenon. Chinese banks usually book loans at the beginning of the year. Any amount over CNY 4.37 trillion will suggest strong loan demand from corporates that expect a strong recovery in the economy. Taiwan:  CPI inflation should be stable at around 2.7%YoY with WPI expected at around 5.3%YoY from 7.14%. In theory, this set of data should give Taiwan’s central bank an option to pause from March 2023. The downside of this would be a widening interest rate differential, which could induce portfolio capital outflows. In that case, the central bank could choose to just follow the Fed's hikes with small steps of 12.5bp from the current level of 1.75%. This would put extra pressure on the economy as we expect the semiconductor industry in Taiwan to experience a downward cycle in 1H23. This should result in a mild recession in Taiwan's economy in the same period. As such, the March meeting will be a difficult decision for Taiwan’s central bank. What to look out for: US initial jobless claims and Taiwan inflation data Taiwan CPI inflation (9 February) Japan machine tool orders (9 February) US initial jobless claims (9 February) Japan PPI inflation (10 February) China CPI inflation (10 February) Malaysia GDP (10 February) US University of Michigan sentiment (10 February) Fed’s Waller and Harker speak (10 February) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
German ZEW index adds to recent growth worries

German inflation increases and drops at the same time

ING Economics ING Economics 09.02.2023 08:53
The national inflation measure increased in January, while the European measure dropped. This shows that inflation numbers will be surrounded by lots of noise this year as government measures and statistical changes continue to affect inflation numbers. Not an easy task for the European Central Bank German inflation data in January was surrounded by statistical noise   Some say that haste makes waste. Others say that there are fewer challenging jobs than being a German statistician these days. In any case, the long-awaited first estimate of German inflation in January confirmed the very gradual retreat of inflation, without giving any reason for relief. Headline inflation came in at 8.7% year-on-year, from 8.6% YoY in December. The monthly change of 1.0% illustrates that inflationary pressure is far from being over. The HICP measure came in at 9.2% YoY, from 9.6% in December. The fact that German headline inflation can increase and drop at the same time has to do with a rebasing of the national time series and changes in the weights. Expect more noise in inflation data According to the German statistical office, it did not send any German numbers to Eurostat last week. How Eurostat dealt with this missing piece of information when preparing its first eurozone inflation estimate might become clearer in the coming weeks. In any case, with today’s German inflation data, chances are high that the initial eurozone number of 8.5% YoY will be slightly revised upwards, probably by 0.1 percentage point. Turning back to German inflation, January data will not have been the last inflation print surrounded by statistical noise. In fact, according to Bundesbank estimates, energy price caps and cheap public transportation tickets will lower average German inflation by 1.5 percentage points this year. The energy price cap will come into effect as of 1 March but will be paid retroactively. It is unclear how the statistical office has taken this effect into account. And there is more. Negative base effects from last year’s energy relief package for the summer months should automatically push up headline inflation between June and August. Long and complicated path towards lower inflation More generally speaking, headline inflation in Germany seems to have reached its peak and, unless there is another large surge in energy prices again, double-digit inflation numbers should be behind us. However, the path towards substantially lower inflation rates won’t be easy. For the time being, it is lower energy prices and hence base effects, as well as government interventions that are pushing down headline inflation, not a broader-based disinflationary process. In fact, the German and European inflation outlook is highly affected by two opposing drivers. Lower-than-expected energy prices due to the warm winter weather could, if they remain at current levels, push down headline inflation faster than recent forecasts suggest. On the other hand, there is still significant pipeline pressure stemming from energy and commodity inflation pass-through. For example, many households will only face the sharp gas and electricity price increases this month. Also, despite some recent weakening, companies’ selling price expectations are still high, suggesting that the pass-through of higher production costs is not over, yet. Also, the ongoing war and new price negotiations in the agricultural sector are likely to keep food price inflation high. Finally, the downside of government support schemes is that they could extend inflationary pressures, though at a lower level. The risk is high that what started as supply-driven inflation could morph into demand-driven inflation. And not only in Germany. All of this means that it is a safe bet to claim that German headline inflation has seen the peak and double-digit inflation rates are over, but the pace and size of the inflation retreat over the course of the new year remain highly uncertain. For now, we expect German inflation to come in at around 5.5% for the entire year 2023 but unfortunately, the lessons of the last two years have taught us that new revisions could be in the offing. ECB to focus on core inflation For the ECB, today’s drop in German headline inflation shows how slow and gradual the disinflationary process in the eurozone will be. It also shows that headline inflation is currently not the best inflation tracker. Therefore, even if last week’s Q&A session left more questions than answers, the ECB’s intention is clear: focus on core inflation and core inflation projections. As long as core inflation remains stubbornly high, the ECB will continue hiking rates and will not for a single second consider future rate cuts. A 50bp rate hike at the March meeting has been pre-announced and looks like a done deal. Beyond the March meeting, the ECB seems to enter a new game in which further rate hikes will not necessarily get the same support from the Governing Council as hiking deep into restrictive territory increases the risk of adverse effects on the economy. The main question beyond the March meeting will be whether the ECB will wait to see the impact of its tightening on the economy or whether it will continue hiking until core inflation starts to substantially come down. In the former case, the ECB could consider a pause in its rate hike cycle and hike again at the June meeting. The latter would see continuous meeting-by-meeting hikes, possibly at a smaller size of 25bp. Read this article on THINK TagsMonetary policy Inflation Germany Eurozone ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Uncertain Waters: Saudi's Oil Production Commitment and Global Economic Jitters

Adidas Released A Shockingly Bad Outlook, The US Dollar Traded Weaker

Saxo Bank Saxo Bank 10.02.2023 08:51
Summary:  A downbeat session in the US yesterday took the S&P 500 Index back below the pivotal levels that provided resistance on the way up recently. Long US treasury yields rose again on one of the weakest a weak 30-year T-bond auctions in a year. This helped boost the US dollar again and take gold prices to nearly 1,850 overnight, representing a more than 100-dollar consolidation of the rally since last November. What is our trading focus? US equities (US500.I and USNAS100.I): Failing to hold the line  S&P 500 futures failed yesterday to push higher above that important 4,200 level and lost instead altitude closing below the 4,100 level erasing the gains for February. The US 10-year yield also bounced but the moves are not dramatic, and it feels like the market is waiting for the bond market to make up its mind about long-term yields and inflation. Earnings after the close from PayPal and Lyft that both disappointed also helped lower risk sentiment in US equity futures overnight. FX: USD rolls back higher on weak sentiment. Historic day for SEK The US dollar traded weaker yesterday before firming late in the session as US equities rolled over and posted a weak session, with EURUSD never making a serious challenge of 1.0800  and trading below 1.0725 this morning, while a USDJPY sell-off yesterday quickly aborted on a weak US T-bond auction that sparked a rise in long US yields. This will have USD traders on watch for a follow through higher, which could suggest a proper trending move rathre than a mere consolidation of prior weakness. Elsewhere, an historic day for the Swedish krona yesterday on a powerful broadside to SEK speculators in yesterday’s guidance, but also technical moves to increase liquidity in Sweden’s banking system as noted below. Crude oil (CLH3 & LCOJ3) slides again on US growth concerns Crude oil trades lower for a second day after sentiment across markets received a fresh set back on worries about the US economy's ability to withstand additional Fed rate hikes. Overall, it highlights a market that remains rangebound (since November) with current soft fundamentals likely to remain until the second quarter when, despite concerns about further US rate hikes, improved activity in China should brighten the macro-outlook. Brent trades back below its 21-day moving average, currently at $84.90 - in WTI at $78.40 - with a close above needed to attract fresh buying momentum. Next week, apart from US CPI on Tuesday, the market will look out for monthly oil market reports from OPEC and the IEA. Gold (XAUUSD) weakness resumes with focus on US rates and next week’s CPI print Gold’s attempt this past week to recover from last Friday’s sell-off below support-turned-resistance in the $1900 area received a setback on Thursday when weakness resumed, driving the price down to a $1853 during the Asian trading session. The market had been left vulnerable to further weakness after only managing a small bounce earlier in the week, and with the attention now fully on the prospect for even higher Fed rates to tame inflation, the dollar and Treasury yields have risen to provide some formidable headwind. Furthe weakness carry the risk of an extension towards $1828, the 38.2% retracement of the run up from early November. The main event next week being the US January CPI report on Tuesday. Yields on US Treasuries (TLT:Xmas, IEF:xnas, SHY:xnas) back higher on weak 30-year T-bond auction It has been a confusing week for treasury traders this week, as we saw a very weak 3-year auction on Tuesday followed by a robust 10-year auction Wednesday, only to see one of the weakest 30-year T-bond auctions over the last 12 months yesterday, which saw 30-year benchmark yields reversing back higher and posting a new local high close just shy of 3.75%. The 2-10 portion of the yield curve remains near the extreme of its inversion for the cycle, just below –80 basis points, and near the highest since the early 1980s. What is going on? SEK blasts higher on watershed Riksbank meeting The Riksbank met yesterday and impressed the market with its guidance on further rate hikes and additional plans to accelerate the pace of quantitative tightening from April onwards, with additional offerings of “Riksbank certificates” to encourage a rise in rates and foreign investment in Swedish paper. Two-year Swedish rates jumped 10 basis points on the news, and the QT The new Riksbank Governor, Erik Thedeen, also took aim at currency speculators in the press conference yesterday. Ahead of the meeting, EURSEK had risen above 11.40 at one point, its highest level since 2009, in part on concerns that the Riksbank feared the impact of higher rates on Sweden’s housing market, the bottom dropped out yesterday on the Riksbank developments, taking EURSEK all the way back down to range support near 11.10, one of the most powerful strengthening moves in the krona’s history. This was a watershed moment and likely puts a floor under the krona for now. Natural gas lower despite larger-than-expected US draw US natural gas futures (NGH3) only managed a temporary rise on Thursday after the EIA said inventories had declined by 217 billion cubic feet (bcf) last week. This the first above average weekly storage draw this year left total stocks some 5.2% above the long-term average, and despite trading near a two-year low the upside potential remains limited amid robust production, up 6% y/y, and gas demand down y/y by the same percentage. In addition, forecasts are now pointing to much warmer-than-normal weather through February 18 across Central and Eastern states. Adidas reports a disastrous 2023 outlook The German sports clothing maker released yesterday after the market close a shockingly bad outlook. The decision to not sell Yeezy inventory will have an adverse impact on the underlying operating profit which could hit €700mn loss in 2023 with €500mn impact coming from Yeezy items. Adidas also sees €200mn in one-off costs in 2023. Revenue in constant currency terms is expected to decline up to high-single-digit. The shocking revelation is that the majority of Adidas operating profit came from one partnership and design series. PayPal misses Q4 volume estimates but steady Q1 expected The US-based payment company missed on volume in Q4 against estimates but delivered EPS $1.24 vs est. $1.20 in addition to announcing that the CEO Dan Schulman is stepping down by year-end. The Q1 outlook on EPS was $1.08-1.10 vs est. $1.06 and Q1 revenue growth of 7.5% y/y at current spot rates in the currencies. The RBA raised its underlying inflationary forecasts In the RBA’s quarterly economic forecasts and policy outlook (known as the Statement of Monetary Policy) released today in Australia, the Bank increased its “trimmed mean” CPI forecast from 3.8% to 4.3%. The increase was largely driven by sticky consumer durable goods inflation and services inflation. The RBA also upgraded labour costs projections, forecasting wages to rise 4.25% this year versus 3.9% previously. RBA continues to forecast that longer term inflation will ease to within the Bank’s target. Market pricing now suggests the RBA will hike another 75 basis points through the July meeting before a likely pause. US jobless claims rose but still sub-200k Initial jobless claims rose to 196k from 183k, and above the expected 190k. Continued claims also surpassed expectations and printed 1.688mln (exp. 1.68mln), above the prior 1.650mln. While there is a pick-up in claims, it must be noted that it comes from a low level and continues to signal a tight labour market. Hawkish 50 bp hike from Mexico’s central bank Banxico surprised markets with a 50-bp rate hike once again, taking the policy rate to 11.00% and signalled another, smaller hike at the next meeting. Expectations were for a smaller 25-bp hike, followed by a pause. This appears to be in line with what we have seen from RBA and Reserve Bank of India this month, suggesting broad inflation pressures continue to challenge central banks that were hoping to signal a pause.  Read next: USD/JPY Is Below 131.00 Again, The Aussie Is Close To 0.70$| FXMAG.COM What are we watching next? “New” USD CPI next Tuesday as risk sentiment on watch with the break of US S&P 500 Index support. As noted above, the S&P 500 Index broke below the pivotal 4,100 area that was an important resistance line on the way up, suggesting the risk of further consolidation lower from a technical perspective. A more significant level to the downside could be the 200-day moving average coming in near 3,945 on the cash Index, considerably lower, while the Nasdaq 100 Index eyes the important 12,300-12,100 area. What could turn sentiment lower? The most likely source of immediate concern would be any further rise in Treasury yields, but an interesting test awaits the market with next Tuesday’s CPI release, which will be the first release after an overhaul of the calculation methodology, which some argue could engineer a sharper than expected drop. Breaking: Government nominates Kazuo Ueda as new Bank of Japan Governor The name of Kazuo Ueda, an economist and former member of the Bank of Japan’s deliberation committee, was not among the names considered most likely to replace current governor Kuroda on his exit in early April. The first move in the JPY was higher on the announcement. Earnings to watch The earnings calendar is light today with Enbridge, Canada-based energy distributor, being the most interesting to watch. Analysts expect Enbridge to report revenue growth of 3% y/y and EPS of $0.73 down 5% y/y. Next week, the earnings calendar will provide plenty of interesting releases with the three most important releases being Deere, Schneider Electric, and Airbnb. Friday: Enbridge, Constellation Software Next week’s earnings: Monday: Recruit Holdings, DBS Group, Cadence Design Systems, SolarEdge, Palantir Tuesday: CSL, TC Energy, First Quantum Minerals, Toshiba, Norsk Hydro, Boliden, Coca-Cola, Zoetis, Airbnb, Marriott International, Globalfoundries, NU Holdings, Akamai Technologies Wednesday: Commonwealth Bank of Australia, Fortesque Metals Group, Wesfarmers, Shopify, Suncor Energy, Nutrien, Barrick Gold, Kering, EDF, Tenaris, Glencore, Barclays, Heineken, Nibe Industrier, Cisco Systems, Kraft Heinz, AIG, Biogen, Trade Desk Thursday: Newcrest Mining, South 32, Airbus, Schneider Electric, Air Liquide, Pernod Ricard, Bridgestone, Standard Chartered, Repsol, Nestle, Applied Materials, Datadog, DoorDash Friday: Hermes International, Safran, Allianz, Mercedes-Benz, Uniper, Sika, Deere Economic calendar highlights for today (times GMT) 1300 – Poland National Bank releases meeting minutes 1330 – Canada Jan. Net Change in Employment / Unemployment Rate 1400 – UK Bank of England Chief Economist Huw Pill to speak 1400 – ECB’s Schabel in live Q&A on Twitter 1500 – US Feb. Preliminary University of Michigan Sentiment 1730 – US Fed’s Waller (Voter) to speak at Crypto conference 2100 – US Fed’s Harker (Voter 2023) to speak   Source: Financial Markets Today: Quick Take – February 10, 2023 | Saxo Group (home.saxo)
The Challenge to the Dollar: De-dollarisation and Geopolitical Shifts

The Recent Economic Data Could Justify A Pause In The Fed Hiking Cycle

Franklin Templeton Franklin Templeton 10.02.2023 11:46
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
Mexico’s Central Bank Surprised Markets With A 50bps Rate Hike Once Again

Latin America Is Generally On A Decelerating Path

Franklin Templeton Franklin Templeton 11.02.2023 11:51
Growth and inflation outside the United States Michael, let’s look more globally. What’s your outlook for inflation and growth outside the United States? Michael: It’s a challenging time because there’s a lot of variance when looking at different parts of the world. In Europe, inflation is currently running higher than in the United States. It is only beginning to peak on the headline inflation numbers, and the core numbers (excluding food and energy) are still in an upward trend, whereas in the United States, both inflation measures have been trending down. It’s a question of how quickly they trend down. Energy was a much bigger factor in Europe, and wage negotiations were a very significant contributor to some of Europe’s inflationary dynamics. “ The key takeaways looking globally at inflation are that Latin America is generally on a decelerating path, and that Asia is slightly accelerating, but the terminal level will likely be a lot lower than what we witnessed in the United States and what we’re seeing in Europe.” Michael Hasenstab Asia looks very interesting. The core Tokyo CPI, which comes out a little earlier than the national CPI, rose 4% in December, the highest level since the 1980s. While it does tend to differ from the national reading, it’s an interesting signal in that Japan is seeing some different dynamics. Many investors had written off Japan because for decades it struggled with a deflation liquidity trap. So, I think it is an interesting dynamic and has important implications for growth and for currencies. If we look at the rest of Asia, we did not see the same magnitude of inflation that we saw in the United States or in Europe. It was a lot more moderate, and lagged, because COVID-related policies greatly restricted the opening of economic activity. While inflation in the United States has been on a clear downtrend in recent months, there are still some moderate upticks in Asia, but the magnitude is different. It’s at much lower levels generally throughout the region. With China beginning to open again, growth dynamics there could have some moderate inflationary impacts, but for good reasons. In Latin America, some countries saw inflation readings surge earlier and faster than in Europe or the United States—hitting double-digits. It necessitated some very aggressive central bank activity, which did occur. And now in many cases we’ve seen that inflation trajectory change to inflation coming back down. So, the key takeaways looking globally at inflation are that Latin America is generally on a decelerating path, and that Asia is slightly accelerating, but the terminal level will likely be a lot lower than what we witnessed in the United States and what we’re seeing in Europe. Quality and duration decisions key in “run” toward fixed income Gene, you’re looking at multi-asset portfolios, trying to make some decisions in terms of positioning. What is your thinking right now? Gene: The inflation outlook and commensurate policy response, and the equity and bond market reactions to these variables, have largely influenced changes to our asset allocations from 2022 until now. We look at inflation as being both a cause and a symptom of underwhelming market performance in 2022, and it’s really changed the calculus for all risk assets over the past quarter: for equities, fixed income and everything in between. We think the Fed, and most other central banks, have really set the economic context over the past year, given the tightening of rates in response to higher-than-expected inflation. We believe that’s going to continue, and we’ve already seen the negative impact inflation had on equities last year. But perhaps the reset in bond yields has been a stronger force driving allocation shifts. Consequently, bonds overall offer a much more favorable risk and return tradeoff against equities than we’ve seen at any point in recent memory. We characterize this asset allocation preference as not so much about running away from equities, but rather, running toward fixed income. Last year it was challenging to eke out return from fixed income, and it was a pretty disastrous year in terms of portfolio-level returns. So far, that’s not looking to be the case this year. Over the last couple of quarters, we have shifted our strategies from being at one point overweight equities to now overweight fixed income, as equities continue to track the economy and resulting policy response. As I mentioned, we believe a recession is ultimately looming on the horizon and we are monitoring the situation very closely. Should “recession” go from concern to reality, this will likely have profound implications on asset allocation, and not just at a high level between equity and fixed income, but also within equity and fixed income sectors. Read next: EUR/USD Pair Is Belowe $1.07, USD/JPY Pair Is Back To 131 And GBP/USD Pair Is Slightly Above $1.21| FXMAG.COM Sonal, Gene mentioned that from an asset allocation point of view, he’s “running toward fixed income.” Can you share your thoughts on duration and where you think there are opportunities now within fixed income? Sonal: Historically, I’ve always been pretty pessimistic about the outlook for fixed income, but I do think this is a great point in fixed income—that I completely agree with Gene on. Markets have recently seen huge daily swings in basis points, so it makes abundant sense to shorten your duration, but you have to do it tactically. If you can be tactical, I’d say it’s a good time to be invested relatively short to benchmark indexes because I have very little doubt that we’re going to see selloffs, we’re going to see the market react to the Fed, perhaps to actions out of Japan. We’ve had a strong start for fixed income in the first three weeks of this year, which in my view, makes it an excellent time to actually stay a bit short duration because that’s not going to last. Having said this, the areas where I am most bullish would be investment grade, which seems fairly boring but offers good yields currently around 4%–5%. This implies some duration, but is an area that should be able to weather a mild recession. I’m also looking at high-yield credit, which in an absolute way is delivering much higher yields. There will be volatility, but if you can ride out the next 18 to 24 months and are very selective, I think it’s an excellent time to enter the market. Over the past several years, investors had to go to the alternatives space, or private credit to see the types of returns that we are currently getting in liquid public markets on the fixed income side. I would reiterate that it’s great time to be an active investor, because you want to try to avoid those pockets of extreme weakness. At this point, I’d be a little more hesitant in the floating-rate space, because you have to be extremely careful with interest rates continuing to go up. Lastly, emerging markets are looking at decent fundamentals, and fabulous valuations in terms of starting points in hard currency as well as local currency. I think the US dollar probably has gotten pretty much toward its topmost level, especially as we continue to see changes from Japan. I think this sets us up nicely in the emerging markets space.
All Eyes On Capitol Hill, Jerome Powell Will Appear Before The Senate Banking Committee

The Fed’s Inflation Fighting Credibility Is Really On The Line This Year

Franklin Templeton Franklin Templeton 11.02.2023 12:01
Francis, what is your view of inflation right now in the United States? Francis: Well, the short answer for me is: the direction is down. I don’t think there’s a lot of dispute about that anymore. The real question is: are we going to 2% or are we going to hit 3% to 4%, and then level out? My view is we’re going to go to 2%, maybe even lower. As you know from a lot of the conversations we’ve had in the past about the outlook and this particular topic, our view has been shaped by the idea that this isn’t a normal business cycle. We’re living through the normalization of the economy following a disaster brought on by the pandemic, the lockdowns, and the various reactions to both. To recap briefly, we had the biggest bust in history. The authorities reacted to it with historic reflationary stimulus on a scale we’ve never seen before. As a result, we experienced the sequence of inflation rolling through asset markets. We had asset market inflation. Then we got commodity market inflation. We got real estate inflation, and ultimately, we got inflation in goods and services itself. In late 2021, the Fed started to get nervous that inflation might not be transitory after all. They really started to get nervous when they saw this reflationary impulse roll into wage inflation. Then, they pivoted. They shifted the narrative from “it’s transitory” to “it’s structural.” And the shift really felt like they were panicking over the realization that they got it really wrong, and they needed to catch up in order to preserve the inflation credibility. So, what’s happened since they made their pivot? It’s been a bit like watching a movie in reverse. In a word, we’ve seen a lot of deflation. Stock and bond prices have fallen, commodity prices have retreated, and real estate prices have started to decline. Additionally, in the second half of last year, price inflation retreated a lot. The data—looking at both headline and core CPI—is pretty convincing, indicating that the peak in inflation was mid-2022. It’s fallen a lot in the last six months, and likely to keep falling. It should fall all through this year. And my own view is it’s going to be 2% or less by year end. Read next: Tesla Will Increase Output For 2023, Deliveroo Are Planning To Cut Jobs| FXMAG.COM That’s very compelling, Francis, and it seems there are a number of market indicators that also suggest that inflation could be coming down. But the Fed doesn’t really seem to have that view. What’s going on? Francis: It’s hard to tell what the Fed believes at times— especially after underestimating inflation so badly last year. The Fed’s inflation fighting credibility is really on the line this year. At the December Federal Open Market Committee (FOMC) meeting, what was really interesting was every single FOMC member believed that interest rates had to go higher this year, notwithstanding this declining inflation rate that I just mentioned that was playing out all through the second half of 2022. So, the Fed shifted its view on inflation from transitory to structural concerns almost at the peak of the price-inflation cycle in the middle of last year. Now, it’s really focusing on how tightness in the labor market and how sticky wage inflation might prop up service sector price inflation. However, we know from the yield curve that the market believes that in last year’s panicky effort to correct its wrong and get ahead of inflation that they overshot equilibrium. The yield curve’s inverted. It’s been that way for a while now. Even in the Fed’s own summary of economic projections, they have an equilibrium fed funds rate at 2.5%. So, the market’s saying the central bank is overdoing it. Conditions are very restrictive. It’s not just the yield curve. If you look at the money supply, we’ve seen an unprecedented contraction, in nominal terms, in M2;8 and, the contraction in money supply in real terms is as severe as it was in the 1980s. These conditions are what the yield curve is picking up. Inflation’s not going up as long as money growth stays this weak. If you look at risk assets, risk assets have been rallying lately. Risk assets are finding optimism in the inflation developments. But because the Fed sees financial conditions as part of the transmission mechanism on inflation, Fed Chair Powell has kept up his sort of hawkish rhetoric. They reduced the pace with the 25-bps increase in February, but there’s still no discussion about the case for lower rates.
Eurozone economy boosted by service sector growth

Key events in EMEA next week - 12.02.2023

ING Economics ING Economics 12.02.2023 10:54
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
Disappointing activity data in China suggests more fiscal support is needed

Asia week ahead: Indian inflation, Australian jobs data plus key central bank decisions

ING Economics ING Economics 12.02.2023 10:59
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
Market Insights with Nour Hammoury: S&P 500 and Bitcoin Projections for H2 2023

UK Economy Has Suggested That Inflation Will Drop

Kamila Szypuła Kamila Szypuła 12.02.2023 11:46
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 Commodities Digest: US Crude Oil Inventories Decline Amidst Growing Supply Risks

The US Economy Is Already Seeing The Effects Of The Interest Rate Hike And Inflation Is Expected To Fall Again

Kamila Szypuła Kamila Szypuła 11.02.2023 15:04
Fed Chairman Jerome Powell gave no policy guidance at Tuesday's panel discussion in Stockholm, and with other Fed officials saying their next moves will depend on the data, investors are very focused on the US CPI data. Forecast The YoY CPI report is expected to fall to 6.2% from 6.5% previously, but the monthly CPI change (M/M) is expected to increase to 0.4%, from 0.1%. Core CPI Y/Y is also expected to drop to 5.5% from 5.7%. Source: investing.com Deflation? US inflation rates rose to their highest levels since the 1980s last year, thanks to a string of geopolitical tensions and pandemic-related economic decisions. Now, we’re watching a delicate dance between the Fed, unemployment and interest rates unfold, aiming to tame the beast. Inflation has decreased in the US six months in a row, a sign that the Fed’s aggressive interest rate-raising approach is working. However, the Fed is expected to stick to rate increases after the lowest levels of unemployment in 50 years were revealed. Last week, the Fed raised interest rates by 25 basis points and said it saw signs of disinflation, but the hit jobs report shook investors as they feared policymakers could stay hawkish for longer. Fed Chairman Powell reiterated his belief that disinflation is underway in his speech this week. Employment An employment report last week showed U.S. job growth accelerated sharply in January while the unemployment rate hit a more than 53-1/2-year low of 3.4%, pointing to a tight labor market that could be a headache for the Fed. The labor market has an interesting role to play. When many people are out of work, employers have plenty of choice in whom to hire and don't have to push workers to pay higher wages. This keeps wage inflation low. Right now, it should be the other way around, but we're getting mixed signals instead. While the labor market is hot, wage growth is declining: average hourly earnings fell from 4.8% in December to 4.4% a month later. It is quite difficult for the Fed to decide whether to continue raising interest rates when unemployment is extremely low and wage growth is not adequate. What's next from the Fed? After a massive effort to rein in inflation in 2022, the Fed has started to take control of the situation. Rate hikes have slowed down recently, with the Fed announcing a quarter-point rate hike last week. Interest rates are currently within the target range of 4.5% to 4.75%. Still, the Fed appears to be cautiously optimistic about inflation. While no one is sure of the exact number of inflation in 2023, most agree that it will continue to fall. Moreover, we have yet to see the full effect of the staggering increase in interest rates. As this affects the cost of credit, consumer spending and exchange rates, we will only see the impact of interest rate increases in 2022 only this year. This can mean a slower economy, fewer jobs and less spending. The Fed is still sticking to its target of bringing inflation down to 2%. How fast that happens depends on a lot of moving parts we haven't seen yet. Source: investing.com
Crude Prices Are Rallying After A Mixed Jobs Report Sent The Dollar Lower

Russia Has Announced To Cut Its Production By 500 000 Barrels Per Day, Equities Are Under Selling Presure

Swissquote Bank Swissquote Bank 13.02.2023 10:45
US equities recorded their worst week since the year started. Hawkish comments from many Federal Reserve (Fed) members hammers sentiment, as stress mounts before the much-important US CPI data due Tuesday. US CPI If US inflation hasn’t eased, or eased enough, or God forbid, ticked unexpectedly higher on yearly basis, we could rapidly see the post-NFP optimism, and the pricing on the goldilocks scenario to leave its place to fear and chaos. Fed At the start of the week, the activity on Fed fund futures hints at around 91% chance for a 25bp in the next FOMC meeting, and around 9% chance for a 50bp hike. Forex In the FX, the US dollar index finally cleared the 50-DMA offers on Friday - which I think could be premature if tomorrow’s US inflation number is sufficiently soft. A a wave of fresh buying in the Japanese yen also marked the latest mood in the currency markets, but didn’t last long. The EURUSD, on the other hand, slipped below its own 50-DMA. What’s next depends on the US dollar, as the US dollar is what leads the dance right now. Read next: Amazon Is Slowly Dismantling Tony Hsieh’s Version Of Zappos, Louisa Vuitton Doubled Sales| FXMAG.COM Energy market In energy, US crude oil jumped past the $80pb on Friday, as Russia announced to cut its production by 500’000 barrels per day, which is roughly 5% of its daily production. But gains remain limited by an overall bearish mood and recession fears, and offers remain strong into the 100-DMA, which currently stands near $81pb level. Watch the full episode to find out more! 0:00 Intro 0:27 Investors are tense before US inflation data due Tue 3:30 S&P500, Nasdaq: key technical levels to watch this week 5:27 FX update: USD up, euro, yen down 7:47 UK avoids recession, FTSE at record, BP tops £100bn valuation 9:09 Crude jumps on Russia, but 100-DMA still intact 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. #USD #inflation #data #Fed #expectations #EUR #JPY #GBP #FTSE #BP #crude #oil #Russia #output #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
Deciphering the Economic Puzzle: Unraveling Britain's Mixed Signals

The Bank Of England Has To Strike A Balance Between Suppressing The Highest Prices In 10 Years And The Recession Of Its Own Economy

Marek Petkovich Marek Petkovich 13.02.2023 11:43
There will be no recession! Or will there be a recession, but later? Britain's economic growth of 0.1% in the fourth quarter, thanks to the activity of fans during the World Cup, allowed the country to avoid a technical recession. Nevertheless, most Wall Street Journal experts believe that GDP will contract in the first six months of 2023, followed by a sluggish growth. The Bank of England predicts that the economy will return to pre-pandemic levels no earlier than 2026, which is five years later than in the United States. The IMF calls Britain the weakest link in the G7. How can GBPUSD not fall in such conditions? You can try to solve problems, or you can postpone the solution in the hope that over time the difficulties will disappear by themselves. Even though the Bank of England raised the repo rate 10 times since the beginning of the monetary restriction cycle and brought it to the highest level since 2008, investors constantly felt that it is watching its back. A weak economy, which may deteriorate further due to aggressive tightening of monetary policy. As a result, the cost of borrowing in Britain rose only to 4%, and in the U.S. to 4.75%. Inflation in the United States slowed down from a peak of 9.1% to 6.5%, and in the UK, from 11.1% to 10.5%. The Fed is doing its job more efficiently than the BoE, and the latter is facing the same difficulties as before. Dynamics of British inflation The central bank has to strike a balance between suppressing the highest prices in 10 years and the recession of its own economy. Its indecision doesn't change the situation. Maybe they should follow the path of the Riksbank, which turned a blind eye to the recession in Sweden and accelerated the process of tightening monetary policy? Read next: Amazon Is Slowly Dismantling Tony Hsieh’s Version Of Zappos, Louisa Vuitton Doubled Sales| FXMAG.COM Moreover, along with high inflation in the UK, the average wage continues to grow. Bloomberg experts predicted that the figure accelerated to 6.5% in the fourth quarter. If we exclude 2021 with its recovery from the pandemic, it will be the highest value in history. Dynamics of average wages in Britain And the situation is unlikely to change dramatically in the near future: according to a survey by the Chartered Institute of Personnel Development (CIPD), 55% of recruiters planned to raise salaries in 2023 as they struggle to find and retain staff in a tough job market. The expected average salary has risen to 5%, the highest level since the beginning of record keeping. Against such a backdrop, the futures market's expectation of a repo rate ceiling of 4.25%, that is only 25 bps higher than its current value, looks more than modest. With CME derivatives giving a 90% chance of a federal funds rate hike above 5%, sterling's fall against the U.S. dollar looks logical. Technically, on the eve of important inflation releases in the U.S. and the UK, the GBPUSD pair took refuge in a consolidation in the 1.195–1.22 range. It makes sense to hold and increase short positions formed on growth to 1.2135 in the event of a breakthrough of the 1.195-1.1965 convergence zone.   Relevance up to 07:00 2023-02-18 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/334873
The Commodities Digest: US Crude Oil Inventories Decline Amidst Growing Supply Risks

Saxo Bank Podcast: US CPI Ahead, What Might Happen If The Economy Re-Accelerates And More

Saxo Bank Saxo Bank 13.02.2023 12:04
Summary:  Today we look at the market narrative around the coming "landing" and what might happen if the economy re-accelerates and the market has to price in a "no landing" scenario. The key is the long end of the yield curve, which has remained very anchored for a few months. Elsewhere, we discuss the important US January CPI release coming up tomorrow, discuss Interesting stocks to watch as some vulnerable companies seek liquidity and Lyft craters in contrast to Uber's recent report, and look at earnings reports up today. Today's pod features Peter Garnry on equities, with John J. Hardy hosting and on FX. Listen to today’s podcast - slides are available via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Read next: Poland’s President Andrzej Duda Said The Decision To Send Fighter Jets To Ukraine Was “Not Easy To Take”| FXMAG.COM   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com. Source: Podcast: What does a "no landing" scenario look like? | Saxo Group (home.saxo)
Central Bank Policies: Hawkish Fed vs. Dovish Others"

Market Expectations For The Fed Path And Domination Of US CPI In The Rhetoric This Week

Saxo Bank Saxo Bank 13.02.2023 12:12
Summary:  Market expectations for the Fed path has come back in-line with the December dot plot, with Fed speakers turning hawkish at the margin since the bumper January jobs report. While US CPI is key early in the week, focus will shift back to Fed commentaries later in the week. Market narrative has shifted swiftly from recession at the end of 2022 to soft landing in early 2023, and expectations of a re-acceleration in cyclical growth on the back of a strong labor market are now picking traction. Bond markets are starting to reflect this changing perception, with yields rallying strongly. US 2-year yields reached their highest levels since November, above 4.5%. Market pricing of the Fed’s path has also started to converge with the December dot plot, bringing the terminal rate to 5-5.25% and slowly pushing out the two rate cuts priced in for this year. Read next: Poland’s President Andrzej Duda Said The Decision To Send Fighter Jets To Ukraine Was “Not Easy To Take”| FXMAG.COM A general hawkish tilt has returned in Fed communications, but this week US CPI will dominate the rhetoric in the first half of the week. If inflation is hotter than expected, or even if continues to be sticky, the disinflation narrative started by Chair Powell at the last Fed meeting could continue to come under the scanner. A host of Fed speakers are lined up for the week, and their take on the inflation and jobs data could continue to unnerve the markets.   Source: Fedspeak Monitor: The hawks are lining up again | Saxo Group (home.saxo)
The Pound Is Now Openly Enjoying A Favorable Moment

GBP/USD Started The New Week In A Calm Way, EUR/USD Is Waiting For US CPI Report

Kamila Szypuła Kamila Szypuła 13.02.2023 13:11
The dollar approached a five-week high against its major peers on Monday, and investors increased their bets on the Federal Reserve staying on tight monetary policy longer. The most important event this week will be US consumer prices data released on Tuesday, which will strengthen expectations regarding Fed policy. Strong CPI data in the US would increase expectations for monetary policy tightening by the Federal Reserve, which would probably push the dollar up. USD/JPY USD/JPY started the new week at the level of 131.3470, and in the following hours it rose and broke through the level of 132.00. At the time of writing, USD/JPY is trading above 132.50. The asset is expected to refresh a four-day high above 132.00 as investors are extremely risk-averse ahead of the United States inflation report. In January, Japanese investors became net buyers of foreign bonds for the first time in five months as US bond yields fell in a sign that slowing inflation would prompt major central banks to slow down the pace of interest rate hikes. Japanese investors bought foreign bonds net worth 1.56 trillion yen ($11.79 billion) in January, according to data from Japan's Ministry of Finance, marking their biggest buying frenzy since September 2021. Read next: Poland’s President Andrzej Duda Said The Decision To Send Fighter Jets To Ukraine Was “Not Easy To Take”| FXMAG.COM EUR/USD On Friday, a preliminary consumer sentiment survey by the University of Michigan in February showed that annual expected inflation rose to 4.2% from 3.9% in February. The reading helped the US dollar stay strong against its rivals ahead of the weekend and forced EUR/USD to end the week in the red. Early Monday, the US Dollar Index holds strong and limits EUR/USD's gains. The EUR/USD pair started trading at 1.0684 this week. In the following hours, EUR/USD fell towards 1.0660 but rebounded above 1.0680. At the time of writing, the EUR/USD pair is trading at 1.0675. The European Commission raised the EU growth forecast for 2023. The European Commission noted that the EU economy entered 2023 in a better position than predicted in the autumn and raised its growth forecasts for this year to 0.9% in the euro area. The Eurozone looks set to avoid a technical recession, thanks in large part to falling gas prices and a solid labor market. The Commission has also lowered its inflation expectations, with headline inflation now expected to fall to 5.6% in 2023. GBP/USD The GBP/USD pair started the week at 1.2050. Similar to the Euro pair, the GBP/USD pair fell towards 1.2035 during the morning trading hours before rising above 1.2060 again. Currently, GBP/USD is trading at 1.2056. The market awaits this week's data, which could show that unemployment in the UK remained flat in December and weekly earnings rose less than in November. The British economy, similarly to the US, will publish inflation reports this week. UK is expecting inflation to fall. UK retail sales figures for January are expected to show that while consumers continue to spend less, the pace of decline in sales may have slowed in the new year. AUD/USD Markets expects RBA Chairman Philip Lowe to reinforce the bank's hawkish stance at parliamentary hearings this week. Reserve Bank of Australia (RBA) Governor Philip Lowe will testify before the Senate this week. Lowe will appear before the Senate Appraisals Committee on Wednesday, and then on Friday will give his semi-annual testimony to the House Economics Committee. In between these public appearances will be squeezed in employment data on Thursday. The central bank surprised markets last week by signaling at least two more rate hikes after raising the cash rate to a decade high of 3.35%. This stifled any talk of a break and led the markets to price in a final rate of 4.2% The AUD/USD Pair started the week close to 0.6900, where it fell below this level in the following hours. The Australian pair managed to break above 0.6915 and is currently trading above 0.6930. Source: investing.com, finance.yahoo.com
Bitcoin Is Strongly Bearish, So A Further Drop Is Natural

Bitcoin's Further Movement In The Coming Days Will Depend On The Behavior Of The Stock Market

InstaForex Analysis InstaForex Analysis 13.02.2023 14:11
The previous week ended with the beginning of a long-awaited corrective movement for Bitcoin. At the end of Thursday, the cryptocurrency formed the largest red candle from November 9, and the price made a bearish breakdown of the $22k level. Bitcoin spent the weekend calmly consolidating below the $22k area. Buyers managed to stop the fall, and the price consolidated near the $21.8k support area. There are no clear signals for further price movement due to a decline in trading activity. However, this week can be the starting point for a deeper correction and a resumption of the bullish trend. Inflation data The Wall Street Journal reported that investors expect a probable extension of the key rate hike cycle by one month. They also noted the strong labor market as the main argument of the Fed in extending the period of raising the key rate. But there is a possibility that this will not happen if the pace of inflation decline accelerates. That is why the publication of statistical data on the consumer price index this week may become a key signal that will set the medium-term trend for the movement of risky assets. The consumer price index is at 6.5%, and according to the forecasts, the index will fall to 5%. Experts are betting on a further acceleration of the deflationary movement, and if the forecasts do not match the facts, the market reaction could be painful. In addition, the Securities and Exchange Commission is actively taking on the crypto market. The SEC recently succeeded in halting the stacking of a major U.S. crypto exchange. As of February 13, the regulator also influenced Paxos to stop the issuance of BUSD stablecoin. All actions of the SEC at the current stage have clearly negative consequences for the crypto market, as they scare away investors. In the long term, this may be a positive signal due to the likely increase in the level of security in the crypto market, but right now, the SEC policy is destructive for the price of crypto assets. Bitcoin and SPX Bitcoin retains a high correlation with the SPX index, and, as already noted, it was the activation of sellers on the stock market that contributed to the fall of both risky assets. According to Santiment experts, the positive correlation of BTC and SPX complicates the upward movement of the cryptocurrency. In addition, experts from the world's leading banks predict an early completion of the SPX rally and the beginning of a corrective movement to $3,500–$3,600. Morgan Stanley once again said that investor interest in SPX and stock indices reached a peak, after which a sell-off usually followed. BTC/USD Analysis Over the weekend, we saw local attempts by buyers to break through the round level of $22k. These attempts were completely absorbed by the sellers, after which the price returned to the usual area of $21.5k–$21.8k. Much of Bitcoin's further movement in the coming days will depend on the behavior of the stock market, and hence the results of the deflationary movement. If the forecasts correspond to the actual data, we should expect an upward movement of Bitcoin to the levels of $22.5k–$22.7k, where there is a local resistance zone. Subsequently, the cryptocurrency will need to gain a foothold above $23k in order to finally level out the bearish scenario. Otherwise, the price will start to decline, and the expected targets will be Fibo levels. This means that BTC/USD will move to the second stage of correction, which may become deeper. Results In any of the cases, except for fixing the price above $23k, Bitcoin is moving towards the second stage of correction. The estimated targets for the asset will be the $21.4k level and deeper to the $20k area. Below $21k, investor sentiment could drop heavily, which could lead to a breakdown of the $20k round mark. However, if the bullish sentiment persists, which will be visible on the main on-chain metrics, we will see active accumulation in the $20k–$21k area. Subsequently, this will allow Bitcoin to continue its upward movement towards the $24k–$25k levels.   Relevance up to 09:00 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/334911
Central Bank Policies: Hawkish Fed vs. Dovish Others"

All Eyes Are On The US CPI Today, Kazuo Ueda Has Been Nominated As The Next Bank Of Japan Governor

Swissquote Bank Swissquote Bank 14.02.2023 09:41
Market bulls have endless optimism this year, it is amazing. Whether it is funded or not, is yet to be seen. US CPI Inflation could help answer that question today. A few indicators point at a certain uptick in inflation in January figures, and the expectation is that the US headline CPI may have slowed to 6.2% in January, from 6.5% printed a month earlier, on a yearly basis. A sufficiently soft, or ideally a softer-than-expected CPI read today should give an additional boost to the equity bulls while a stronger inflation read could easily bring the Fed hawks back to the marketplace and send equities tumbling. Forex In the FX, the US dollar has seen a crowd of sellers above the 50-DMA. A strong inflation data could finally send the dollar index sustainably above its 50-DMA, while a soft reading will be a good reason to sell the rebound. The EURUSD continues its own struggle around the 50-DMA. In Japan, Kazuo Ueda has been nominated as the next Bank of Japan (BoJ) governor. There are rumours that the new BoJ leader could scrap the YCC policy. The yen was better bid in Tokyo, but the US CPI data is probably what will determine the short-term direction both in EURUSD and the USDJPY. CPI What everyone wants to see is a soft US CPI figure, a softer US dollar, strong equities, improved bonds, and stronger other currencies. What everyone fears however is a figure that’s not convincingly softer. The only sure thing is, the CPI days are known for their high intraday volatility. Watch the full episode to find out more! 0:00 Intro 0:24 Mixed feelings about the market 3:51 All eyes are on the US CPI today! 7:13 FX update 8:39 Balloon update 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. #USD #inflation #data #Fed #expectations #EUR #JPY #XAU #US #China #spy #balloon #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      
The Commodities Digest: US Crude Oil Inventories Decline Amidst Growing Supply Risks

Saxo Bank Podcast: US CPI Report Ahead, Tightening Financial Conditions In The Corporate Bond Market And More

Saxo Bank Saxo Bank 14.02.2023 12:14
Summary:  Today we look at the odd session yesterday in the US, with no readily apparent proximate cause to the rally outside, perhaps of traders hedging today's US January CPI release, which could trigger considerable volatility, especially on the impact of heavy 0DTE options trading if the release is a big surprise in either direction. We also note tightening financial conditions in the corporate bond market, talk market reaction to incoming earnings data, including from ThyssenKrupp, SolarEdge and Palantir, and look at today's crop of earnings reports, as well as stories impacting FX & more. Today's pod features Peter Garnry on equities, with John J. Hardy hosting and on FX. Listen to today’s podcast - slides are available via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Read next: Brazil’s Bank Allows To Pay Taxes Using Cryopto, Ford Will Cut Jobs In Europe| FXMAG.COM   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com. Source: Podcast: Another CPI circus today. Tightening financial conditions? | Saxo Group (home.saxo)
The GBP/USD Pair Is Expected The Consolidation To Continue

GBP/USD Pair Rose Sharply Above $1.22, EUR/USD Pair Also Rose

Kamila Szypuła Kamila Szypuła 14.02.2023 12:49
The dollar fell on Tuesday in anticipation of the eagerly awaited inflation report. Markets are looking at US consumer inflation data for further clues to the Federal Reserve's policy outlook. Investors expect the headline annual CPI to fall to 6.2% from 6.5% in December and the core CPI, which excludes volatile food and energy prices, to fall to 5.5% from 5.7%. USD/JPY The Yen pair initially cheered the pullback in the Treasury bond yields before the Japanese government’s announcements of Bank of Japan (BoJ) officials triggered hawkish concerns and weighed on the prices. Also favoring the USD/JPY bears is the broad US Dollar pullback as traders brace for a positive surprise from the US Consumer Price Index (CPI) for January. Japan’s preliminary readings of the fourth quarter (Q4) Gross Domestic Product (GDP) data printed mixed readings. Following that, the official nomination of Kazuo Ueda as the BoJ leader weighed on the USD/JPY prices. Fresh fears of the US-China tension over the balloon shooting also challenge the sentiment and put a floor under the USD/JPY price. The USD/JPY pair started trading above 132.30 today, but then fell towards 131.90. The yen pair managed to bounce back and traded close to 132.30 again. USD/JPY is currently trading above 132.20. EUR/USD The European Commission's winter economic forecast published yesterday says that the EU economy is geared to avoid recession. The EUR/USD pair held a narrow range of 1.0730-1.0745 in morning trading, but surged up in the European session. The euro maintained its earlier gains against the slightly weaker US dollar, with EUR/USD changing hands around 1.0760. The latest US inflation report due to be released will be another driver of action. Read next: Brazil’s Bank Allows To Pay Taxes Using Cryopto, Ford Will Cut Jobs In Europe| FXMAG.COM GBP/USD The UK unemployment rate remained unchanged for the 3 months to December 2022, as expected. The number of people out of work for up to 6 months has increased, mainly among people aged 16 to 24. The number of people working in the UK increased by 74,000. in the three months to December, well above market forecasts for an increase of 40,000. and after an increase of 27,000 in last month. Meanwhile, from November 2022 to January 2023, the number of vacancies fell by 76,000. up to 1,134,000 UK wages rose 5.9% in December 2022 compared to the same month last year, beating estimates and down 6.4% from the previous print. What will be of concern, however, is the increase in average earnings without bonuses, which rose to 6.7%, beating the 6.5% forecast. The data compares with market forecasts of growth of 6.2% and 6.5%, respectively. In real terms, adjusted for inflation, the increase in total and regular wages fell by 3.1% in the year from October to December 2022 for total wages and by 2.5% for regular salaries. GBP/USD has gathered bullish momentum and climbed toward 1.2200 in the European trading hours. AUD/USD The Australian and New Zealand dollars tried to hold their gains on Tuesday after a rebound on Wall Street boosted global risk sentiment and Australian data underlined the case for further domestic interest rate hikes. Currently, the price of the Australian pair is around 0.6970. Source: investing.com, finance.yahoo.com
Disinflation in Romania is becoming more evident

Romanian growth remains strong while inflation undershoots

ING Economics ING Economics 14.02.2023 14:23
The 1.1% sequential expansion of the economy in the fourth quarter of 2022 came largely in line with expectations, taking full-year GDP growth to 4.8%. January inflation, on the other hand, came in significantly below expectations at 15.1%. We are likely to see sharply lower inflation estimates from the central bank in tomorrow's Inflation Report Source: Shutterstock GDP: great in 2022, good in 2023? It’s been a pretty big day on the macroeconomic front for Romania. Arguably the most important news is that the economy expanded in the fourth quarter of 2022 by 1.1% versus the previous quarter and by 4.6% when compared to the fourth quarter of 2021. This takes the full-year GDP growth to 4.8% which is perhaps among the better figures that one could have hoped for. Being a flash release, there is no other data to chew on except for the overall growth, with details of the growth drivers due to be published on 8 March. What we do know from the available high-frequency data (in some cases the December data is not out yet) is that it’s been a strong quarter for construction activity which expanded by approximately 8.0% versus the third quarter. Services were also around 2.0% higher while retail sales rose by 0.8%. Industrial production lagged behind at -2.1%. Looking to 2023, our 2.5% GDP growth forecast was at the higher end of the estimates for a time, but now looks to be the consensus after many analysts and institutions revised their expectations higher as well. We maintain the current forecast and evaluate that risks are - dare we say - skewed to the upside! While a slowdown in private consumption could be visible in the first quarter of 2023, which could even bring the overall GDP growth close to zero, the strong momentum in investment activity (presumably related to EU-financed projects) should continue, and prevent a contraction. Corroborate that with a somewhat looser monetary policy due to laxer liquidity management and the picture for 2023 does not look all that grim. Read next: GBP/USD Pair Rose Sharply Above $1.22, EUR/USD Pair Also Rose| FXMAG.COM Inflation: below expectations, though not exactly for the right reasons At 15.1% in January, the headline inflation rate came in way below market expectations of 15.8% (Bloomberg survey) and even below our 15.4% estimate which was the lowest point in the survey. However, the details have been rather surprising as we did not account for the sharply lower electricity prices (-15.8% versus December 2022) and considered a much smaller number. For this reason, prices for non-food items posted a monthly decrease of 1.0%. Energy aside, the rest of the price increases have been above expectations, with food items advancing by a monthly 1.5% and services by 1.8%. In particular, fresh fruit was almost 5.0% higher than in December, while the rise in excise duties for alcohol has pushed these items over 3.0% higher. Core inflation inched higher towards 14.9%  from 14.7% in December. While below expectations, today’s inflation data is unlikely to change the National Bank of Romania's mindset. A new Inflation Report is due to be presented tomorrow 15 February and will contain the updated NBR forecast. We expect the 2023 year-end inflation rate to be revised much closer to our 7.4% estimate – for which we are actually starting to see risks to the downside. It will also be interesting to watch for the longer-dated NBR estimates, particularly whether they see inflation entering the 1.5%-3.5% target range over the two-year forecast horizon. Our base case is that headline inflation will not dip below 4.0% over the next two years. 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  
Asia Morning Bites - 04.05.2023

The NAB Noted That Firms Are More Optimistic About Global Growth

Kenny Fisher Kenny Fisher 14.02.2023 14:45
The Australian dollar is unchanged on Tuesday, after starting the week with strong gains. In the European session, AUD/USD is trading at 0.6966. Australia’s Business Confidence jumps Australia’s NAB Business Confidence rebounded in January, rising from 0 to 6 and above the forecast of 1 point. Business Conditions rose to 18, up from 13 and higher than the forecast of 8 points. This follows three months of softening in late 2022. The NAB noted that firms are more optimistic about global growth and the jump in business conditions is a sign that the economy is more resilient than previously expected. The positive news failed to send the Aussie higher, as the markets are waiting for today’s US inflation report. Reserve Bank of Australia Governor Lowe will be on the hot seat when he appears before parliamentary committees on Wednesday and Friday. Inflation rose to 7.8% in December, its highest level since 1990. The RBA has hiked rates by some 325 basis points in 10 months, yet inflation isn’t showing signs of peaking. The RBA raised rates by 25 bp last week and Lowe has signalled that more increases will be needed to tame inflation. Inflation isn’t expected to fall to the RBA’s target of 2% to 3% until 2025. Lowe has faced a barrage of criticism in his handling of inflation and interest rate policy and it’s far from certain that he will be reappointed for another term. Lowe is likely to face a grilling from the committee members, who may be thinking that “something isn’t working here”. All eyes on US inflation The US releases January inflation later today. Inflation is projected to fall to 6.2%, down from 6.5%, but there is unease in the markets that headline inflation might be stronger than expected. The sizzling jobs report indicated that the US labour market remains strong and January has seen higher energy and used car prices. The markets aren’t as confident that the Fed will cut rates late in the year and if the inflation report is higher than expected, the markets could fully price in two more rate hikes. This would be a major shift towards the Fed stance, as Jerome Powell has been saying for months that the pace of rate hikes will likely be higher and longer than previously expected. Recent inflation reports have overestimated inflation and the US dollar has responded with sharp losses. Today’s inflation report will likely follow that pattern, and if inflation is weaker than expected, the dollar should lose ground. Conversely, the dollar should get a boost if inflation is higher than expected.   AUD/USD Technical 0.6962 is a weak resistance line, followed by 0.7080 0.6841 and 0.6761 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 Challenge to the Dollar: De-dollarisation and Geopolitical Shifts

A Chorus Of Fed Speakers Have Suggested The Fed Isn't Yet Taking Comfort In The Inflation Trends

Saxo Bank Saxo Bank 15.02.2023 09:09
Summary:  US equities ended mixed but bonds were lower after a hot US CPI raised concerns on the pace of disinflation and the Fed comments that followed pushed the market pricing of terminal Fed funds rate higher. Dollar ended the day mostly flat but higher yields saw the yen plummeting. A bumper UK jobs report for January sent the GBP higher but the wait is now on for the January inflation print. US retail sales will also be on tap today.   What’s happening in markets? US equities supported by strong price performance in Tesla and Nvidia U.S. equities had a choppy session as stocks oscillated between gains and losses following a slower-than-expected deceleration in the CPI prints and hawkish-leaning Fedspeak before the broad benchmark S&P500 settled at nearly flat and the tech-heavy Nasdaq 100 gained 0.7%. Most of the strength in the Nasdaq came from Tesla’s (TSLA:xnas) 7.5% jump and NVIDIA’s (NVDA:xnas) 5.4% rise in share price. Tesla gained following rival Ford (F:xnys), down 0.9%, halted production and shipments of its F-150 Lightning electric pickup trucks due to an unidentified problem with the battery. Tesla also raised the price of its Model Y by USD1,000 to USD58,990. Consumer discretionary, up 1.2%, was the best-performing sector in the S&P500 and Tesla was the top winner. Palantir Technologies (PLTR:xnys) soared 21.3% after the data analysis software company reported better-than-expected Q4 earnings and expects to turn profitable for the whole year in 2023. Airbnb (ABNB:xnas) surged 9.2% in extended-hour trading following reported adjusted EPS at USD0.475, beating the USD0.31 consensus estimate and an upbeat outlook on strong travel demand. Coca-cola (KO:xnys) slid 1.7% despite reporting stronger-than-expected revenue growth and inline earnings. The management gave upbeat guidance for revenue growth of 7-8% and EPS growth of 7-9% in spite of continued cost pressure. US Treasuries (TLT:Xmas, IEF:xnas, SHY:xnas) bear-flattened as yields on the 2-year jumped 10bps Growth in the U.S. CPI came at a slower pace but slowed less than what the consensus forecast expected. After choppy initial reactions, selling emerged in the front end, seeing the 2-year yield finish 10bps cheaper at 4.61%. The SOFR June-Dec 2023 spread narrowed by 10bps to -24bps from -33bps, signaling a further reduction in the bet of rate cuts in the second half of 2023. Hawkish-leaning comments from Fed’s Logan and Barkin, plus the departure of Fed Vice-chair Lael Brainard to join the Biden Administration as head of the National Economic Council added fuel to the higher-for-longer narrative. Brainard is perceived to be the “most persuasive policy dove” at the Fed, as the Wall Street Journal’s Nick Timiraos puts it. Yields on the 10-year rose 4bps to 3.74%, paring some of the rises in yield after a large block buying of nearly 20,000 contracts in the 10-year futures. Across the pond, yields on 2-year Gilts jumped 19bps on a hot employment report. Hong Kong’s Hang Seng (HIG3) and China’s CSI300 (03188:xhkg) traded sideways In a choppy but uneventful session, Hang Seng Index slipped 0.2%. Hong Kong developers recovered from yesterday’s sell-off and bounced by 1%-2%. Sun Hung Kai Properties (00016:xhkg) gained 2.4%; Wharf Real Estate (01997:xhkg) climbed 1.8%. Healthcare names were laggards, with Wuxi Biologics (02269:xhkg) plunging 4% after forecasting 2022 revenues rising 48.4% and profits growing 30%, which failed to meet the high bar of analyst estimates. Alibaba Health Information (00241:xhkg) dropped 2.8%. Tencent (00700:xhkg), down 2.1%, led the internet space lower. Oriental Overseas (00316:xhkg) slipped 2.6% on analyst downgrades citing falling container freight rates. In A-shares, CSI300 was little changed. Non-ferrous metal stocks outperformed, with North Copper (000737:xsec) up 8.7%, Yunnan Copper (000878:xsec) up 5%, and CMOC (603993:xssc) up 3.3%, leading the charge higher. Household appliances names were among the winners with Zhejiang Meida (002677:xsec) advancing by 10%, hitting the upper price limit. Australia equities (ASXSP200.I) fall back to January 16 levels, dragged down by Commonwealth Bank’s cautious outlook Shares in the biggest bank in Australia, the Commonwealth Bank (CBA) sank 5.2% pulling away from record high territory, after reporting half-year results today that paint a cautious tone for banks for the year ahead. CBA’s share price drop pulled back the broad market. CBA's profit results mostly disappointed, although its net interest margin- the main metric analysts look at for banking profitability - came in at 2.1% - on par with expectations. CBA’s cash profit missed expectations with profit up 8.6% YoY to $5.15 billion (vs $5.17 billion Bloomberg consensus), while CBA’s return on equity improved – but also missed market targets. That spooked the market, along with CBA putting aside more capital for bad debts, as higher price pressures continue to hurt consumers, along with falling home prices.  Even though CBA’s results missed, it announced a $1 billion share buy-back as its headline profit after tax moved to a record, which was supported by a surge in business banking profits. The share buy back should theatrically support CBA's shares over the medium to longer term, coupled with the market expecting 2023 profits to hit another record, with margins to improve.  CBA shares gapped down, wiping out a month of gains - with CBA shares moving into oversold territory.  FX: Wobbly dollar as yen slips but AUD, GBP gain A hot inflation data along with Fed officials starting to float the idea of a higher terminal rate saw the dollar being volatile on the day but ended unchanged. Higher yields underpinned as market pricing of the Fed path shifted higher, and that made the yen as the underperformer for the day. USDJPY surged above 133, after Kazuo Ueda being formally nominated as the BOJ chief yesterday and expectations that he won’t be quick with any policy normalization. Meanwhile, AUDUSD was choppy but could not sustain a move above 0.70. GBPUSD also gave up 1.22 despite the strong labor market data questioning the Bank of England’s pause signal, eyes on inflation due today. EURUSD still above 1.0700 with the preliminary readings of the Eurozone Q4 GDP matching 0.1% QoQ and 1.9% YoY forecasts. Lagarde will be on the wires today, and also keep a watch on US retail sales data. Aussie dollar's 50-day moving average continues to limit downside ahead of AU employment The Aussie dollar has continued to track sideways for the last 7 trading sessions, with the Aussie dollar against the US - the AUDUSD pair - being supported by its 50-day moving average ahead of Australian employment on Thursday. Despite hotter than expected US CPI, the pair is steady - also supported by the fundaments - metal prices have moved higher, with Copper and Iron Ore prices back at June 2022 levels. The next catalyst will be Thursday’s Australian employment data, if we see more than 20,000 jobs added, then we will be watching the resistance levels, at perhaps 0.7114 for the Aussie. On the downside, if Australian employment is weaker than expected, we will be watching for a potential pullback. Support for the AUDUSD is perhaps at 0.6879. But, over the medium-to-long term, should the USD continue to track lower, commodity prices stay higher and AU exports continue to grow to China, we see the Aussie dollar doing well. Crude oil (CLH3 & LCOJ3) prices remain pressured While reports of the US release of crude oil from its strategic reserves continued to nudge oil prices lower, a large stockpile built and inflation concerns also added to a weak demand outlook. WTI dropped below $79/barrel while Brent got close to $85. US private inventories, as reported by API, were up by 10.5 million barrels last week. A hot US CPI printed also raised concerns on the disinflation narrative taking hold, suggesting Fed may have to go for a higher terminal rate and pause there for sometime, which raises concerns on the demand outlook. The slide in oil prices however got some support from the OPEC report, which hinted at a tigher oil market as it nudged up the demand estimate and trimmed its supply outlook. IEA monthly report will be on tap today. Read next: Walmart Plans To Close Offices, Ford Invests In Battery Factories | FXMAG.COM What to consider? US CPI sent confusing signals to the markets, but the cooling isn’t enough The US January CPI came in at 0.5% MoM, in-line with estimates, while the core CPI was at 0.4% MoM also as expected. December prints were however revised higher with headline up to +0.1% MoM from -0.1% previously, and core up to 0.4% MoM from 0.3% previously. Markets were wobbly on the release, as the YoY prints came in higher-than-expected at 6.4% for the headline (vs. 6.2% exp) and 5.6% for the core (vs. 5.5% exp). However, a key measure that Powell has highlighted earlier – core services ex shelter – cooled to 0.3% in the month from 0.4% previously. Housing contributed the most to the monthly increase in the CPI, but it is a lagged measure. Meanwhile, disinflation in goods slowed as core goods prices rose +0.1% MoM vs. -0.1% MoM prior. Overall, there wasn’t enough evidence that core inflationary pressures are cooling enough to support calls for the Fed to pivot. Fed speakers send market pricing for Fed path higher A chorus of Fed speakers last night talked about the slow pace of disinflation, suggesting the Fed isn’t yet taking comfort in the inflation trends. NY Fed President Williams repeated there is "still a ways to go" to control inflation and the current levels of inflation are far too high. His views on the terminal rate also differed slightly, in December he suggested rates between 5.00-5.50% is reasonable before last week changing the view to 5.00-5.25%. However, he has now seemingly switched back his views of the higher upper bound for the FFR to 5.50% in wake of the January inflation data. Philly Fed’s Patrick Harker noted that how far above 5% the Fed needs to go depends on incoming data, and Tuesday's inflation report shows inflation is not moving down quickly. Dallas President Logan stressed that tightening policy too little is the top risk. All three are voters this year. Thomas Barkin, a non-voter said it was about as expected and there's going to be a lot more inertia and persistence to inflation than the Fed thought. However he was slightly more dovish saying that if inflation settles, they may not go as far on the terminal but he stressed data dependence. Markets are now pricing in a higher terminal rate of 5.26% in July, and one rate cut has also been driven out of this year’s pricing. Takeaways and quick reflections from hotter-than-expected CPI  Shelter costs were a large contributor to US monthly prices moving up - with rent prices up 8.6%, while large price jumps were seen in airfares costs, up 26%. Airlines are not only seeing more passengers, but also increasing their fares - and this is translating to higher earnings expectations and thus stronger share price performance in airline industry stocks. American Airlines shares are up 40% from their lows, while aircraft maker Boeing is up 80% off its lows. Across other inflation categories, other significant price moves were seen in eggs, butter, fuel, gas, lettuce, cereals, and pet food. This reinforces Saxo’s bullish and overweight view on Commodities as we see higher prices for longer. Companies such as Shell trade 32% up from their lows, while agricultural company Deere is up 40% from its lows. UK employment data points to much firmer than expected labour market The UK saw a strong surge in Monthly Payrolled Employees of +102k, well north of the +15k expected, while the January Jobless Claims dropped -12.9k and the December claims were revised down to -3.2k vs. +19.7k originally reported. The December employment change registered a gain of 74k vs. 43k expected and the Unemployment rate in December was steady at 3.7%. Weekly earnings ex Bonus were +6.7% YoY in December Vs. 6.5% expected and 6.5% in November. Focus shifts to CPI report due today and another double digit print is expected. Hong Kong Monetary Authority bought HKD to defend the peg The Hong Kong Monetary Authority bought HKD14.87 billion (USD1.9 billion) to cap the USDHKD at 7.85, in defence of the SAR’s link-exchange-rate regime for the first time since last November. For what is ahead at markets this week – Read/listen to our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: Markets Today: Choppy markets with a hot US CPI and Fed speak – 15 February 2023 | Saxo Group (home.saxo)
The RBA’s aggressive rate tightening cycle will be continued

CBA’s Stock Drop Pulled The Broad Aussie Shar Market Back To January 16 Levels

Saxo Bank Saxo Bank 15.02.2023 09:14
Summary:  Watch our video or read below on what’s happening in markets with potential trading and investing considerations. The Aussie dollar's 50-day moving average continues to limit downside ahead of AU employment data. The sectors that win from hotter than expected US CPI. CBA shares moved into oversold territory after its results missed expectations, but CBA's pull back from its record highs may encourage investors to buy in. US equities supported by technical levels, despite hotter-than-expected CPI. Fed speakers suggest more rates hikes could be ahead The S&P500(US500.I) closed flat, while the Nasdaq 100 (USNAS100.I) gained 0 6% - with the tech index propped up by a 7.5% jump in Tesla shares, which erased Tesla’s two-day fall. That said, Tesla still remains in overbought territory. The major US indices seem to be supported by their 50, 100, and 200-day simple moving averages (SMAs), suggesting a slow rebound in equities may continue, as the market is still pricing in rate cuts later this year. This is despite the headwinds of hotter-than-expected January CPI, which suggests the Fed can keep rates higher for longer, which would pressure aggregate S&P500 company margins/profits, especially those high PE names, such as non-profitable tech companies. Headline consumer prices rose 0.5% in January - the biggest jump in three months, and 6.4% YoY – while the market expected CPI to slide from 6.5% to 6.2%. Core CPI (ex-food and energy) was also higher than forecast at 5.6% YoY – resulting in two Fed speakers saying the central bank may need to raise rates, more than envisioned. While another Fed speaker says the rate-hike path could be near its end.  Investor reflections from hotter-than-expected US CPI; with airlines costs and commodities up   Shelter costs were a large contributor to US monthly prices moving up -  with rent prices up 8.6%, while large price jumps were seen in airfares costs, up 26%. Airlines are not only seeing more passengers, but also increasing their fares  - and this is translating to higher earnings expectations and thus stronger share price performance in airline industry stocks. American Airlines shares are up 40% from their lows, while aircraft maker Boeing is up 80% off its lows. Across other inflation categories, other significant price moves were seen in eggs, butter, fuel, gas, lettuce, cereals, and pet food. This reinforces Saxo’s bullish and overweight view on Commodities as we see higher prices for longer. Companies such as Shell trade 32% up from their lows, while agricultural company Deere is up 40% from its lows. For more commodity companies, refer to Saxo's Commodity equity basket theme.  Read next: Walmart Plans To Close Offices, Ford Invests In Battery Factories | FXMAG.COM Australia equities (ASXSP200.I) fall back to January 16 levels, dragged down by Commonwealth Bank’s cautious outlook Shares in the biggest bank in Australia, the Commonwealth Bank (CBA) sank 5.2% pulling away from their record high territory, after reporting half-year results today that paint a cautious tone for banks for the year ahead. And CBA’s stock drop pulled the broad Aussie shar market back to January 16 levels. CBA’s profit results mostly disappointed, although its net interest margin- the main metric analysts look at for banking profitability - came in at 2.1% - on par with expectations. CBA’s cash profit missed expectations with profit up 8.6% YoY to $5.15 billion (vs $5.17 billion Bloomberg consensus), while CBA’s return on equity improved – but also missed market targets. That spooked the market, along with CBA putting aside more capital for bad debts, as higher price pressures continue to hurt consumers, along with falling home prices.  Even though CBA’s results missed, it announced a $1 billion share buy-back as its headline profit after tax moved to a record, which was supported by a surge in business banking profits. The share buy back should theatrically support CBA's shares over the medium to longer term, coupled with the market expecting 2023 profits to hit another record, with margins to improve.  CBA shares gapped down, wiping out a month of gains - with CBA shares moving into oversold territory.  Aussie dollar's 50-day moving average continues to limit downside ahead of AU employment  The Aussie dollar has continued to track sideways for the last 7 trading sessions, with the Aussie dollar against the US - the AUDUSD pair being supported by its 50-day moving average-  ahead of Australian employment on Thursday. Despite hotter than expected US CPI, the pair is steady - also supported by the fundaments - metal prices have moved higher, with Copper and Iron Ore prices back at June 2022 levels. The next catalyst will be Thursday’s Australian employment data, if we see more than 20,000 jobs added, then we will be watching the resistance levels, at perhaps 0.7114 for the Aussie. On the downside, if Australian employment is weaker than expected, we will be watching for a potential pullback. Support for the AUDUSD is perhaps at 0.6879. But, over the medium-to-long term, should the USD continue to track lower, commodity prices stay higher and AU exports continue to grow to China, we see the Aussie dollar doing well.   -Click here to look at more stocks to watch across the metals sector this week. For our team's weekly look at markets, click here.  To listen to our global team's take on markets - tune into our Podcast. Source: Commonwealth Bank shares fall further from record highs on results miss, Tesla rip up despite hot CPI | Saxo Group (home.saxo)
Airbnb's Revenue Exceeded Estimates, Growing 24% y/y

Airbnb's Revenue Exceeded Estimates, Growing 24% y/y

Saxo Bank Saxo Bank 15.02.2023 09:29
Summary:  Markets gyrated wildly on yesterday’s US January CPI release, which showed higher than expected inflation on a year-on-year basis, which kept US treasury yields firm as a number of Fed members chimed in with hawkish comments. Elsewhere, has the consumption led Chinese recovery been oversold as many new consumer credit loans are being funnelled to pay down mortgages and on stock speculation rather than on consumption. What is our trading focus? US equities (US500.I and USNAS100.I): the dilemma in equities As we wrote in yesterday’s equity note in a response to the US January CPI report, the initial positive reaction in S&P 500 futures seemed weird and most likely reflected clearing of hedges and other derivatives positions. The market eventually settled on the interpretation that inflation remains stubbornly high, and the trajectory lower might take longer than expected. The dilemma for investors is that if the economy does not slip into a recession hen high inflation will remain and eventually push on bond yields and likely increase the equity risk premium leading to lower equity valuations. In the case the economy slips into a recession, equity valuations will come down to reflect lower growth and hit to margins. In any case, equities could have seen the best for now and investors might consider reducing equity exposure at these levels. S&P 500 futures bounced back during the session from the lows after the inflation report, but this morning the index futures trade lower again around the 4,127 level with the 4,100 level naturally being the key level to watch on the downside. Hong Kong’s Hang Seng (HIG3) slid and pared its 2023 gain to only 5% Hang Seng dropped 1.6% on Wednesday to levels last seen on 4 January and pared its 2023 gain to only 5%. The Hong Kong Monetary Authority intervened in the forex market for the first time since last November to sell USD1.9 billion against buying the Hong Kong dollar to cap the USDHKD from going about 7.85 the upper limit of the special administrative region’s link-exchange-rate regime. Selling was across the board. Baidu (09888) bucked the market decline and rallied over 5% supported by the somewhat return of the hype on the AI-generated content concept. In A-shares, CSI300 fell 0.6%. AI-generated content concept stocks advanced while domestic consumption, financial, healthcare, and non-ferrous metal names retreated. FX: Choppy dollar on CPI release, eventually settles higher as yen slips on yields rising The USD ended largely unchanged after gyrating wildly in the wake of the January CPI release and Fed comments (more below). After US treasury yields ended the day firmer all along the curve, the JPY was the weakest of USDJPY rallied and took out local resistance, trading above 133.00 into this morning. ay but ended unchanged. Elsewhere, AUDUSD was choppy but could not sustain a move above 0.70 yesterday and stumbled badly in late Asian trading. GBPUSD also gave up 1.22 despite the strong labour market data questioning the Bank of England’s pause signal, eyes on inflation due this morning (breaking news below on that). EURUSD has edged lower toward 1. 0700 overnight with the preliminary readings of the Eurozone Q4 GDP matching 0.1% QoQ and 1.9% YoY forecasts. Lagarde will be on the wires today. Crude oil (CLH3 & LCOJ3) prices remain pressured While reports of the US release of crude oil from its strategic reserves continued to nudge oil prices lower, a large stockpile build and inflation concerns also added to a weak demand outlook. WTI dropped below $79/barrel while Brent slid below $85. US private inventories, as reported by API, were up by 10.5 million barrels last week. A hot US CPI printed also raised concerns on the disinflation narrative taking hold, suggesting Fed may have to go for a higher terminal rate and pause there for some time, which raises concerns on the demand outlook. The slide in oil prices however got some support from the OPEC report, which hinted at a tighter oil market as it nudged up the demand estimate and trimmed its supply outlook. IEA monthly report will be on tap today. Gold (XAUUSD) pummelled further by yield rise post-US CPI release Gold dropped further yesterday, taking out the 1,850 level as US treasury yields closed the day firmer after wild gyrations across markets in the wake of the US CPI release and hawkish talk from Fed speakers (more below). The next important levels include the 1,829 level, which is the 38.2% retracement of the rally off the November lows, the 1,809 area which was broken on the way up, and then the 200-day moving average, currently coming in just above 1,775. Treasuries bear-flattened as yields on the 2-year jumped 10bps Growth in the U.S. CPI came at a slower pace but slowed less than what the consensus forecast expected. After choppy initial reactions, selling emerged in the front end, seeing the 2-year yield finish 10bps cheaper at 4.61%. The SOFR June-Dec 2023 spread narrowed by 9bps to -24bps from -33bps, signalling a further reduction in the bet of rate cuts in the second half of 2023. Hawkish-leaning comments from Fed’s Logan and Barkin, plus the departure of Fed Vice-chair Lael Brainard to join the Biden Administration as head of the National Economic Council added fuel to the higher-for-longer narrative. Brainard is perceived to be the “most persuasive policy dove” at the Fed, as the Wall Street Journal’s Nick Timiraos puts it. Yields on the 10-year rose 4bps to 3.74%, paring some of the rises in yield after a large block buying of nearly 20,000 contracts in the 10-year futures. Across the pond, yields on 2-year Gilts jumped 19bps on a hot employment report. What is going on? Worries that China’s consumer rebound will underwhelm as consumers not spending Bloomberg reports that China’s attempt to engineer a consumer-led recovery may be hindered as funds issued by banks for consumer credit are in many cases funnelled to unintended destinations, especially for mortgage prepayments, but also for speculation in stocks. The rates on the new bank lending are often lower than those for mortgages. UK Jan. CPI out this morning undershoots expectations UK headline CPI out this morning at –0.6% MoM and +10.1% YoY vs. -0.4%/+10.3% expected and 10.5% YoY in December. The core figure was 5.8% YoY vs. 6.2% expected and 6.3% in Dec. US CPI sent confusing signals to the markets The US January CPI came in at 0.5% MoM, in-line with estimates, while the core CPI was at 0.4% MoM also as expected. December prints were however revised higher with headline up to +0.1% MoM from -0.1% previously, and core up to 0.4% MoM from 0.3% previously. Markets were wobbly on the release, as the YoY prints came in higher-than-expected at 6.4% for the headline (vs. 6.2% exp) and 5.6% for the core (vs. 5.5% exp). However, a key measure that Powell has highlighted earlier – core services ex shelter – cooled to 0.3% in the month from 0.4% previously. Housing contributed the most to the monthly increase in the CPI, but it is a lagged measure. Meanwhile, disinflation in goods slowed as core goods prices rose +0.1% MoM vs. -0.1% MoM prior. Overall, there wasn’t enough evidence that core inflationary pressures are cooling enough to support calls for the Fed to pivot. Fed speakers send market pricing for Fed path higher A chorus of Fed speakers last night talked about the slow pace of disinflation, suggesting the Fed isn’t yet taking comfort in the inflation trends. NY Fed President Williams repeated there is "still a ways to go" to control inflation and the current levels of inflation are far too high. His views on the terminal rate also differed slightly, in December he suggested rates between 5.00-5.50% is reasonable before last week changing the view to 5.00-5.25%. However, he has now seemingly switched back his views of the higher upper bound for the FFR to 5.50% in wake of the January inflation data. Philly Fed’s Patrick Harker noted that how far above 5% the Fed needs to go depends on incoming data, and Tuesday's inflation report shows inflation is not moving down quickly. Dallas President Logan stressed that tightening policy too little is the top risk. All three are voters this year. Thomas Barkin, a non-voter said it was about as expected and there's going to be a lot more inertia and persistence to inflation than the Fed thought. However he was slightly more dovish saying that if inflation settles, they may not go as far on the terminal but he stressed data dependence. Markets are now pricing in a higher terminal rate of 5.26% in July, and one rate cut has also been driven out of this year’s pricing. Berkshire Hathaway cuts stake at TSMC Warren Buffett’s investment company cut 86% of its stake in TSMC in the previous quarter in a quick reversal that is unusual for the investor. As the rivalry in chips is heating up between the US and China, Berkshire Hathaway is likely finding it uncomfortable to hold exposure to physical manufacturing in a conflict area. Earnings recap: Airbnb, GlobalFoundries, NU Holdings Airbnb delivered Q4 revenue that beat estimates growing 24% y/y and Q4 adj. EBITDA was $506mn vs est. $435mn, but the Q1 outlook took the market by surprise with Q1 revenue guidance at $1.75-1.82bn vs est. $1.68bn as travel demand remains strong. GlobalFoundries beat slightly on revenue and earnings with Q1 revenue guidance also coming out higher than estimated suggesting strong demand for computer chips. NU Holdings, the parent company behind Nubank, reports Q4 total revenue of $1.45bn vs est. $1.28bn and the second straight quarter of positive net income as the Brazilian bank continues to navigate the credit turmoil in Latin America due to the recent interest rate shock. Commonwealth Bank, Australia’s largest lender, issues cautious outlook as its customers feel ‘significant strain’ CBA’s shares sank almost 6%, falling from their record highs to $103, while also dragging down the broader Australian share market (ASXSP200.I). Australia’s biggest bank and lender reported disappointing profit results and guided for a challenging year ahead - putting aside more capital for bad debts, as higher price pressures continue to hurt consumers, along with falling home prices. Its net interest margin came in at 2.1%, which was on par with expectations, but its cash profit missed expectations, despite rising 8.6% YoY to $5.15 billion (vs $5.17 billion Bloomberg consensus). The big Bank announced a $1 billion share buy-back and consensus also expects 2023 profits to hit another record, and for margins to improve. CBA shares gapped down, wiping out a month of gains. Read next: Walmart Plans To Close Offices, Ford Invests In Battery Factories | FXMAG.COM What are we watching next? US January Retail Sales, Housing Survey set for release today -With the January CPI data leaving observers none the wiser on the future course of inflation, the market may remain sensitive to incoming data that offers signs of whether economic activity remains robust. Today’s focus is the January US Retail Sales data, which is expected to rebound sharply from the weak December numbers, possibly in part on out-of-date seasonal weightings. Consensus expectations are for headline Retail Sales to have risen a chunky +2.2% month-on-month, with the core, ex Auto and Gas figure to show +0.9%. Elsewhere, the February NAHB Housing Market Index, one of the more leading indicators on the US housing market, is also up today, expected to show further marginal improvement after bottoming in December at 31 and surprisingly rebounding to 35 in January. Earnings to watch Today’s US earnings focus is Kraft Heinz and Biogen with analysts expecting revenue growth of 8% y/y in Q4 for Kraft Heinz as the consumer staples company’s revenue track inflation. Kraft Heinz is also expected to expand its EBITDA margin in Q4. The biotechnology sector is still under pressure from higher interest rates and slower pipeline of drugs, so the industry is relying on the old guard to delivering results. However, Biogen is expected to report a –11% y/y revenue growth in Q4 and lower EBITDA compared to a year ago. Wednesday: Commonwealth Bank of Australia, Fortesque Metals Group, Wesfarmers, Shopify, Suncor Energy, Nutrien, Barrick Gold, Kering, EDF, Tenaris, Glencore, Barclays, Heineken, Nibe Industrier, Cisco Systems, Kraft Heinz, AIG, Biogen, Trade Desk Thursday: Newcrest Mining, South 32, Airbus, Schneider Electric, Air Liquide, Pernod Ricard, Bridgestone, Standard Chartered, Repsol, Nestle, Applied Materials, Datadog, DoorDash Friday: Hermes International, Safran, Allianz, Mercedes-Benz, Uniper, Sika, Deere Economic calendar highlights for today (times GMT) 0900 – Poland Jan. CPI 1000 – Eurozone Dec. Industrial Production 1330 – US Feb. Empire Manufacturing 1330 – US Jan. Retail Sales 1330 – Canada Dec. Manufacturing Sales 1400 – ECB President Lagarde to speak 1415 – US Jan. Industrial Production & Capacity Utilization 1500 – US Feb. NAHB Housing Market Index 1530 – US DoE Weekly Crude Oil and Product Inventories 0030 – Australia Jan. Employment Change / Unemployment Rate Source: Financial Markets Today: Quick Take – February 14, 2023 | Saxo Group (home.saxo)
FX Daily: Hawkish Riksbank can lift the krona today

FX Daily: Data can still lift the dollar

ING Economics ING Economics 15.02.2023 10:08
US CPI numbers were in line with consensus yesterday and offered more room for markets to raise Fed rate expectations. This hasn’t translated into a dollar rally, but we could still see at least some support coming the greenback’s way as US data for January should prove strong. Polish inflation should confirm a different inflation story in the CEE region USD: Still eyes on data There were no fireworks in the FX market yesterday as January’s CPI figures matched expectations. Evidence of a slowdown in the disinflation process is giving an opportunity to the Federal Reserve and markets to feel more comfortable about more tightening beyond March. Fed Funds futures are now pricing in 68bp of extra hikes, having added around 7bp in price after the inflation release. This has, however, failed to translate into a materially stronger dollar for now, which is largely a consequence of some resilience in global risk sentiment despite the reinforcing of hawkish Fed bets. We think data will remain the key driver for the dollar and the global risk environment, as the depth of the US economic slowdown is still a key driver of rate expectations, especially when it comes to the timing, size and pace of Fed easing in the medium term. We think that January’s US data may come in rather strong throughout on the back of weather-related factors and this may keep short-term US rates and the dollar supported in the near term. Today, we’ll keep a close eye on retail sales data, industrial production and empire manufacturing, which should all improve.  Francesco Pesole EUR: Lagarde's speech may be a non-event EUR/USD remains primarily a dollar story, and despite having survived the US CPI risk event, we continue to see some downside risks in the near term on the back of raising bets on Fed tightening and a lack of drivers from the euro side. In this sense, we don’t think that today’s speech by European Central Bank President Christine Lagarde will drive major market moves. After her attempts and those (more successful) of her governing council colleagues to keep rate expectations high in the eurozone, we don’t see how there is much she could add to the central bank’s rhetoric at this stage. The release of eurozone-aggregate industrial production data for December should not have any material market impact.  We see room for EUR/USD to slip back to 1.0650/1.0700 by the end of this week on the back of a strengthening dollar.  Francesco Pesole GBP: Bearish story is running out of steam This morning's UK inflation data missed estimates (5.8% vs est. 6.2% year-on-year). Looking at the details, this is also true of 'core services', the index we know the Bank of England is paying closest attention to because it includes the slowest-moving/most persistent components of the inflation basket. It seems like hospitality is doing some of the work here. A word of caution - by definition, the BoE's insistence on looking at 'inflation persistence' means it's not looking at single-month changes in inflation. But this nevertheless goes firmly in the opposite direction of what the central bank has forecast. We would still expect a 25bp hike in March, but if this trend continues then it would heavily lean towards a pause in May. The EUR/GBP fall could extend and force a break below 0.8800, but we think the bearish story may soon run out of steam and we favour a rebound to 0.9000 over the course of 2023. Francesco Pesole PLN: Poland joining the inflation club As usual this week, Poland will be in the spotlight today again. We expect January inflation to jump from 16.6% to 18.1% year-on-year, above market expectations. Last Friday, we saw numbers from Hungary and the Czech Republic surprise to the upside by 50bp and 40bp, respectively, and we should see a similar picture today in Poland. The market has already partially corrected expectations for the first rate cut by the National Bank of Poland in recent days, but we believe there is still room for market rates to go up at the short end of the curve. And today's inflation should provide that impetus. Thus, a further improvement in the rate differential could at least stop the Polish zloty from weakening for a while. However, the Polish story does not end today. On Thursday, we will see the European Court of Justice's decision on the FX mortgage case and on Friday, S&P's rating review will be published. The ECJ decision is probably the main reason why the zloty has been underperforming the region recently. While we do not expect the sovereign rating to be downgraded, after the Hungarian experience, the market may wonder whether the delay in accessing EU money will be a problem for rating agencies in the case of Poland as well. Thus, today the zloty could look towards 4.74 EUR/PLN. However, for the rest of the week we remain bearish and rather expect weaker values near 4.80 EUR/PLN. 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  
Rates Spark: Hawkish white noise

Surprise UK services inflation dip bolsters case for rate hike pause

ING Economics ING Economics 15.02.2023 10:21
Services inflation is the bit of the CPI basket that the Bank of England cares most about right now, and January data saw a surprise dip. While it may not be enough to talk the committee out of a 25bp hike in March, if this trend continues, it probably points to a pause from May   The latest UK inflation numbers certainly throw in a curveball for the Bank of England’s March meeting. Headline CPI ticked lower to 10.1%, which was partly down to a near-4% fall in petrol/diesel prices across January. But core inflation was also much lower than expected, and slipped below 6% for the first time since last June. Some of this is linked to ongoing disinflation in goods categories, and unsurprising consequences of improving supply chains and lower consumer demand. But the Bank of England has said it is most interested now in “inflation persistence”, which is code for identifying trends in the inflation data that might still be relevant over a two-year horizon. Our recent analysis showed that it’s the services indices that are typically less volatile and show more persistent trends. And contrary to Bank of England forecasts for core services inflation to continue notching higher, we saw a surprise dip, partly as a result of a month-on-month fall in various hospitality categories. Updated weights have probably also played a role, albeit a pretty minor one. Core services inflation in a surprise dip Core services inflation excludes air fares, package holidays and education. Core goods excludes food, energy, alcohol and tobacco. Series vary slightly from BoE estimates, partly due to lack of VAT adjustment Source: Macrobond, ING calculations   Read next: Airbnb Posted A Profit Of $1.9. Billion, Air India And Largest Commercial Aircraft Deal In Aviation History| FXMAG.COM A word of caution: one month does not make a trend. By definition, the Bank of England’s focus on “persistence” suggests policymakers are going to be less fazed by month-to-month gyrations in this data. That said, our view is that services inflation has probably peaked. While wage growth has shown only very limited signs of slowing in recent surveys/official data, lower gas prices are a potential boon for the service sector. Successive ONS Business Insight surveys have indicated that higher energy prices have been a more commonly cited reason for raising prices in the service sector than labour costs. Will today’s data be enough to cast serious doubt over a potential March rate hike? The Bank dropped a firm hint in February that its latest 50bp rate hike might have been the last, though recent comments have suggested that committee members are still minded to hike a little further. We are therefore still pencilling in a 25bp hike next month for the time being - and the Bank's own Decision Maker Survey in early March is the next big data point to watch. But if this trend in services inflation persists, then it would be a strong argument in favour of pausing in May. 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  
Deciphering the Economic Puzzle: Unraveling Britain's Mixed Signals

UK Inflation Must Please Bank Of England, Crude Oil Down

Swissquote Bank Swissquote Bank 15.02.2023 10:29
Looking at the market pricing, you could’ve hardly guessed, but yesterday’s US inflation report was not brilliant. US stocks But US stocks gave a mixed reaction. Why?! Why did people buy equities on strong inflation data yesterday, is the main topic of today’s Market Talk.Still, treasury markets seemed more down to earth, as the US 2-year yield ticked to the highest levels since last November, activity on Fed funds futures gave a little more than 12% probability for a 50bp hike at the next FOMC meeting, versus around 9% at the start of the week. USD index But the dollar index remained stuck below its 50-DMA. Gold Gold extended losses to $1843 on the back of stronger yields and firmer US dollar. EUR/USD The EURUSD found support above the 50-DMA, which stands around the 1.0715 mark. USD/JPY The dollar-yen cleared resistance near its own 50-DMA level, but the risks are still tilted to the downside in USDJPY. Read next: Airbnb Posted A Profit Of $1.9. Billion, Air India And Largest Commercial Aircraft Deal In Aviation History| FXMAG.COM UK CPI and Crude Oil In the UK, inflation in January still eased more than expected to 10.1%. Crude oil remains offered into the 100-DMA, on a massive 10 mio barrel build in US oil inventories last week, while Biden Administration announced there would be further releases from the strategic petroleum reserves of 26 million barrels earlier this week.  Warren Buffett In individual stocks, Warren Buffett sold 86% stake in TSM. Shares plunged more than 4% in Taipei. Watch the full episode to find out more! 0:00 Intro 0:28 US inflation eased less than expected in January 2:55 But who cares? 5:35 FX & yields update 7:05 UK inflation must please BoE, but not sterling 7:36 Crude oil down on massive US inventory build 8:27 Buffett sells TSM. Ouch. 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. #USD #GBP #inflation #data #Fed #BoE #BoJ #expectations #EUR #JPY #XAU #US #crude #oil #F13 #TSM #Ford #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
Assessing 'Significant Upside Risks to Inflation': Insights from FOMC Minutes

The Market Is Waiting For No Further Increases Of Rates By Fed

InstaForex Analysis InstaForex Analysis 15.02.2023 10:50
Two highly significant economic indicators for the US were released with their values in February. It consists of two components: inflation and the state of the labor market (nonfarm payrolls). In January, payrolls increased by 534 thousand while inflation fell by 0.1%. What do these data indicate, and what can we anticipate the Fed to do at its upcoming meetings? Fed will decline to raise rates? Many analysts were certain that the United States' cycle of interest rate increases was about to come to an end for the whole month of January. Some have even predicted that the Fed will decline to raise rates at its very first meeting in 2023. It became generally known that the market is waiting for no further increases when it was revealed that it had grown by 0.25%. The inflation figures, which showed a drop for six straight months, supported this. But the most recent report (for January), which was just made public, showed a drop of just 0.1% to 6.4% y/y. I think the disinflation process is slowing down, which could impact the FOMC members' outlook. One month is not particularly frightening. However, if, for instance, the February report also reveals a minor slowdown, this will be cause for concern. In this situation, the Fed might opt to tighten monetary policy more than just once or twice. Let me remind you that the Fed is essentially no longer dealing with the economic problem, and it was decided right away to sacrifice the economy in favor of price stability. In this situation, it is clear that the FOMC will keep trying everything in its power to get back to the target level. Labor Market  What about the labor market? The most recent nonfarm payroll data showed that it is in good shape. Additionally, the unemployment rate decreased to 3.4%, which is the lowest it has ever been in the previous 50 years. It appears that the Fed has an infinite range of options. It is not an issue if you need to increase the rate multiple times because of how the labor market and economy are currently functioning. In any case, the most recent GDP data was similarly positive. Additionally, the previous one. The economy is expanding once again, jobs are being created often, and unemployment is at a 50-year low. With such a bundle of introductory materials, you can increase the rate to at least 6%. Read next: Airbnb Posted A Profit Of $1.9. Billion, Air India And Largest Commercial Aircraft Deal In Aviation History| FXMAG.COM Wages and services will increase  Analysts are cautious individuals, though, and the majority currently anticipates two additional interest rate increases this year, according to a Reuters survey. Since wages and services will increase in line with the labor market, which will accelerate inflation once more, economists point out that a strong labor market only works against a decline in inflation. We can therefore conclude that the Fed would even profit if the labor market decreased significantly and the labor shortage decreased. Therefore, if nothing else, the rate may increase more frequently than anticipated. In 2023, lowering the rate is not an option. This factor may sustain the demand for US currency in the long run. I draw the conclusion that the upward trend section's development is finished based on the analysis. As a result, sales with targets close to the predicted level of 1.0350, or 261.8% Fibonacci, can now be taken into consideration. However, almost for the first time in recent weeks, we notice on the chart a picture that can be termed the start of a new downward trend segment. The likelihood of an even bigger complication in the upward trend segment still exists. GBP/USD The development of a downward trend section is implied by the wave pattern of the pound/dollar pair. Currently, sales with targets at the level of 1.1508, or 50.0% Fibonacci, might be taken into account. The peaks of waves e and b could be used to place a Stop Loss order. Wave c may take a shorter form, but I expect it to drop another 200-300 points for the time being.   Relevance up to 15:00 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/335103
Canada Expected to Report 6,400 Job Losses; BoC Contemplates Further Rate Hikes

In The United States The Demand For Warehouse Space Is Still Growing

Kamila Szypuła Kamila Szypuła 15.02.2023 11:26
Online shopping is becoming more and more popular. Sellers, in order to meet the expectations of consumers, look for the best possible solutions. It turns out that online sales require more storage space than brick-and-mortar sales, which is why the demand for warehouse space increases with the growth of online trade. In this article: US CPI and what does it mean for investors? Magazine dominance The largest ever bond issue by India's Housing Development Finance Corp US CPI and what does it mean for investors? After months of good news in the fight against inflation, the January report on the Consumer Price Index showed that progress in bringing down inflation is slower. Although it seems that the trend towards lower inflation is still on track For investors, more sticky inflation means interest rates can stay higher for longer. Increasingly, they expect the Fed to hold off on interest rate hikes until the end of the year, the latest inflation report, coupled with the Good Jobs Report released earlier this month, shows that hopes may be waning. The latest data changed expectations that the Fed will raise interest rates and hold them longer. January's CPI report is potentially difficult news for both bond and equity markets, which have increasingly bet that the Fed will soon stop raising interest rates and start cutting them well before the end of 2023. The January CPI report showed that progress in bringing inflation down is moving more slowly than many in the markets thought.For investors, stickier inflation means interest rates potentially staying higher for longer. Here's what to know. https://t.co/oMMcguky0C — Morningstar, Inc. (@MorningstarInc) February 14, 2023 Read next: Airbnb Posted A Profit Of $1.9. Billion, Air India And Largest Commercial Aircraft Deal In Aviation History| FXMAG.COM Magazine dominance According to CBRE, another nearly 190 million square feet of warehouse space was under construction in North America in 2020, with more than 43% of the buildings pre-leased. This demand is being driven by retailers who are expanding their e-commerce business during the online shopping boom and investing in faster delivery thanks to consumer expectations. Retailers are also securing more US warehouse space to cushion the impact of future supply chain shocks, such as those caused by the coronavirus pandemic. JLL estimates that by 2025, the US may need an additional 1 billion square feet of new industrial space to keep up with demand. This forces industrial developers to get creative and find more unconventional places. The U.S. is facing a warehouse shortage. What does this mean for American consumers and business people from Wall Street to Main Street? Watch the full video here: https://t.co/0frYl0vhY7 pic.twitter.com/lnTxxJroki — CNBC (@CNBC) February 15, 2023 The largest ever bond issue by India's Housing Development Finance Corp India's Housing Development Finance Corp (HDFC) aims to raise at least 50 billion rupees ($603.4 million) through the sale of 10-year bonds on Thursday. If the company raises the full amount, it will also be the largest-ever private debt issuance by an Indian company. Indian lender HDFC's biggest-ever bond issue to see strong demand - bankers https://t.co/3IH1i2XeZR pic.twitter.com/cgZ2ziNKzh — Reuters Business (@ReutersBiz) February 15, 2023
USD/JPY Pair Has Rebounded Firmly From The Upward-Sloping Trendline

USD/JPY Is Above 133.30, GBP/USD Droped Form $1.21 to $1.20, The Aussie Pair Is Trading Below $0.69

Kamila Szypuła Kamila Szypuła 15.02.2023 12:21
The dollar rose on Wednesday amid stubbornly high US inflation data and sharp interest rate talks from Federal Reserve officials. Year on year prices increased (CPI) by 6.4%. This is down from 6.5% in December, but above economists' expectations of 6.2%. The Core CPI, which excludes volatile food and energy prices, rose 0.4% as expected. More importantly, the underlying details of the report revealed that the core services' inflation, which the Fed pays close attention to, stood at 7.2% on a yearly basis. These figures showed markets that the disinflation has not picked up any steam in January and reminded that the Federal Reserve is unlikely to entertain the idea of a policy pivot. USD/JPY Kazuo Ueda, the Japanese government's nominee to be the next governor of the Bank of Japan (BoJ), will inherit a difficult set of problems when he takes over from incumbent Haruhiko Kuroda on April 8. Japanese inflation y/y reached 4% in December, the highest level since January 1991. The new central banker will have to decide when and by how much the BoJ needs to start reducing its very loose monetary policy in order to keep inflation in check while allowing enough monetary slack to allow for economic growth. As other countries have recently learned, once inflation takes root, it becomes increasingly difficult to bring it down. The yen pair after yesterday closed trading near 133.00 today in the first hours of trading USD/JPY started a decline towards 132.55. The drop in the first hours of trading was not sustained and the pair rose above 133.00. At the time of writing, the yen pair is trading at 133.31. EUR/USD The EUR/USD pair started the day trading above 1.0740 but fell towards 1.0710 in the following hours. EUR/USD gained momentum in the European session and traded near 1.0730 but lost momentum and is now trading around 1.0715. According to ING, remarks by European Central Bank President Christine Lagarde later probably won't move the euro materially. EUR/USD pair should remain driven by dollar moves and faces near-term "downside risks" as the market raised its U.S. interest rate expectations following Tuesday's higher-than-expected inflation data. Read next: In The United States The Demand For Warehouse Space Is Still Growing| FXMAG.COM GBP/USD The British pound fell this morning after the UK CPI. The report showed weaker than expected inflation data, both y/y and m/m, concerning headline and core inflation, respectively. The UK's Office for National Statistics reported on Wednesday that the Consumer Price Index declined 0.6% on a monthly basis in January, causing the annual rate to retreat to 10.1% from 10.5%. The Core CPI also edged lower to 5.8% from 6.3% on a yearly basis, coming in lower than the market expectation of 6.2%. Although it's too early to say how these figures could influence the Bank of England's (BoE) policy outlook, the reaction suggests that markets have scaled back hawkish BoE bets. The Cable pair started trading at a high of 1.2175 on Wednesday, but in the following hours it started to fall initially to 1.2150 and then to 1.2100. Currently, GBP/USD is below 1.2100, at 1.2076. AUD/USD The Aussie pair is just below 0.6900. The AUD/USD pair is under strong selling pressure on Wednesday and is pulling further back from its over-week high. The RBA's latest monetary policy statement showed the central bank revised its inflation forecast for this year higher, saying price pressures were spreading to services and wages. The communiqué suggests two more interest rate hikes in the coming months and possibly a third if inflation remains high. Source: investing.com, finance.yahoo.com
Asia Morning Bites: Inflation Data in Focus, FOMC, ECB, and BoJ Meetings Ahead

Poland’s CPI inflation surprised to the downside in January

ING Economics ING Economics 15.02.2023 12:29
Inflation increased to 17.2% YoY in January from 16.6% YoY in December 2022. The reading was well below the market forecast of 17.6% YoY mainly due to a slower-than-expected increase in energy prices, even though VAT rates went back to 23%. We do not expect monetary easing in 2023 due to elevated core inflation, but the Council may make such a move in late 2023 Inflation in January increased to 17.2% year-on-year, which was lower than expected Headline figure lower than feared Contrary to developments in the Czech Republic and Hungary, where January CPI figures surprised to the upside, in Poland January inflation fell short of market expectations. As projected, the start of 2023 saw a renewed rise in CPI inflation, following its decline in the last two months of 2022. Its scale, however, turned out to be lower than our forecasts and market expectations. In January, consumer prices rose by 17.2% year-on-year, following an increase of 16.6% YoY in December. Market consensus was at 17.6%. CPI inflation Source: GUS, ING Spike in energy prices below expectations despite higher VAT As expected, a large part of the increase in the annual inflation rate relative to December (around 0.3 percentage points) was due to the higher dynamics of prices of energy carriers following the return of the standard VAT rate (23%) on electricity, natural gas and heating from January. At the same time, it is worth noting that the scale of the impact of this factor was clearly lower than our forecasts, with energy carriers increasing in price by "only" 10.4% month-on-month. Moreover, the price increase in the entire category related to housing costs was only 6% MoM. Gasoline prices were unchanged vs. December, but the annual growth rate of this category increased to 18.7% in January from 13.5% in December, mainly due to the low reference base of last year (fuels cheapened by 4.4% MoM in January 2022). Food and non-alcoholic beverage prices, on the other hand, rose by 1.9% MoM in January, close to our expectations. January 2022 saw an increase of 2.6% MoM. Main trends still not great The January CPI figures are preliminary and will be revised in March when the CSO publishes data for February and updates the CPI basket weights. Moderate upward revision the January headline CPI is expected. The National Bank of Poland will publish core inflation data for January and February. Although the level of inflation turned out to be clearly below expectations, the main trends remain similar to our scenario. Inflation will peak in February this year, but probably below 19% rather than close to 20% as we feared earlier. The odds of inflation falling to single-digit levels by the end of the year have also increased substantially. Core inflation, however, remains stubbornly high. Based on today's data, we estimate core inflation excluding food and energy prices (using 2022 weights) at around 11.7-11.9% YoY. Read next: USD/JPY Is Above 133.30, GBP/USD Droped Form $1.21 to $1.20, The Aussie Pair Is Trading Below $0.69| FXMAG.COM Monetary Policy Council to welcome lower hump of inflation in early 2023 From a monetary policy outlook point of view, the January CPI data should allow the Council to formally end the interest rate hike cycle in the first quarter of 2023, despite the expected rise in inflation in February. The MPC will welcome the fact that CPI inflation is likely to peak below 20% in February and likely moderate to single-digit levels in December. The key factor for the Council's next decisions will be the pace of disinflation from March onwards. It looks like the next move by the MPC will be a rate cut. In our view, there may not be macroeconomic conditions for monetary easing before the end of 2023 due to the sticky core inflation, but it cannot be ruled out that the Council will nevertheless decide to make such a move. Read this article on THINK TagsPoland inflation Poland CPI 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
FX Markets React to Rising US Rates: Implications and Outlook

The Trend Remains Positive But It May Be Stalling

Craig Erlam Craig Erlam 15.02.2023 14:05
Equity markets are poised to open a little softer on Wednesday following similar moves in Asia overnight as investors weigh up the latest setback in US data. The inflation report really needed to over-deliver after the red-hot labour market figures earlier in the month and it simply didn’t do it. The trend remains positive but it may be stalling and that won’t give the Fed any encouragement to stop raising interest rates. The next 25 basis point hike was never really in doubt anyway but now markets are factoring in much more, including another in May and a good chance of one more in June. What’s more, those rate cuts that were priced in for the end of the year only a couple of weeks ago are no more. Markets are pricing in the possibility of one but the anticipated year-end rate is now significantly higher, as is the terminal rate. A long way to go UK inflation may still be far too high but the January CPI report has offered some cause for optimism, slipping faster than expected on both a headline and core basis. The headline number remains above 10% so there’s still a very long way to go but favourable base effects and lower energy prices should go a long way in driving this much lower over the course of the year. The BoE may be particularly encouraged by the core decline as this is where we’re likely to see stubbornness but we must remember that this is just one release and there will likely be many setbacks over the course of the year. Correction run its course? Bitcoin enjoyed a decent rebound on Tuesday despite broader market sentiment being more challenging on the back of the US inflation report. We continue to see resilience in cryptos which is very encouraging despite regulatory headlines not being particularly good. Of course, it’s now retraced back to a level that was a notable area of support in late January and early February before it corrected and we’ll soon see whether that’s become a bearish resistance zone or the corrective move has run its course. 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.  
Bank of England hikes rates and keeps options open for further increases

UK Inflation Continues To Fall, But Also British Pound (GBP) Too

Kenny Fisher Kenny Fisher 15.02.2023 14:08
UK inflation falls but remains above 10% The British pound is sharply lower on Wednesday. In the European session, GBP/USD is trading at 1.2069, down 0.88%. UK inflation continues to fall, although it clearly has a long way to go. January’s inflation dropped to 10.1%, down from 10.5% in December and below the consensus of 10.3%. The core rate dropped to 5.8%, down from 6.3% in December and lower than the consensus of 6.2%. These numbers offer room for a bit of optimism, as does the drop in wage growth on Tuesday. Still, inflation is a bumpy road that will feature highs and lows and market participants would be wise not to make decisions based on one release. With headline inflation still in double digits, the Bank of England will have to continue raising rates, with the most likely scenario being a 25-basis increase at the Mar. 22 meeting. In the US, inflation in January ticked lower to 6.4%, down from 6.5% but higher than the forecast of 6.2%. It was a similar story for the core rate, which dropped from 5.7% to 5.6% and was above the forecast of 5.5%. Inflation is still falling but the trend may be stalling, which will provide support for the Federal Reserve’s hawkish stance. After the US inflation release, several Fed members reiterated the “higher for longer” theme. Fed members Barkin, Logan and Harker all had a similar message that the Fed would likely raise rates if inflation did not fall fast enough. The Fed has projected a federal funds rate of 5% to 5.5% by the end of the year, but given the strong economy and high inflation levels, there have been forecasts of a terminal rate as high as 6%.   GBP/USD Technical 1.2180 has strengthened in resistance as GBP/USD is down sharply. 1.2304 is the next resistance line 1.2071 and 1.1947 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.  
All Eyes On Capitol Hill, Jerome Powell Will Appear Before The Senate Banking Committee

The Fed Should Hike A Couple Of Times More In The First Half Of 2023

Torben Melsted Torben Melsted 16.02.2023 08:07
We have seen the inflation move slightly lower in the US and we know that the FED would like to see the inflation hovering at about 2%. That means the forceful hiking of the interest rates seems to be doing their job, but it's likely not enough yet and we should expect the FED to hike a couple of times more in the first half of 2023. That is at least what the market is telling us as the 10-year US Treasury yield moved above the resistance line near 3.75% and we expect the US 10Y yield to continue higher towards the next target at 4.86% and possibly even closer to 5.81 before peaking in wave 5 and setting the stage for a larger correction. However, for now, we should stay focused towards the upside as wave 5 progresses higher towards 4.86% and maybe even higher.   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/312951
InstaForex's Irina Manzenko talks British pound amid latest events

British Pound (GBP) Took A Hit With Cooler Inflation, Crude Oil Prices Still Depressed

Saxo Bank Saxo Bank 16.02.2023 08:15
Summary:  In yet another sign of likely re-acceleration in cyclical growth, US retail sales surprised on the upside. Although Fed rate pricing was unchanged with terminal rate above 5.25%, US equities reversed early losses to close in some gains after a strong European session. Dollar rose to fresh highs before softening later, as AUD was troubled by tumbling metal prices and GBP took a hit with cooler inflation print. Crude oil prices still depressed despite IEA raising the demand outlook, and Gold is close to testing key support levels.   What’s happening in markets? Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) advanced despite rate fear U.S. equities declined initially following a strong retail sales report that further reduced the probability of any rate cut in 2023 and to the contrary, increased the odds that the Fed may need to hold rates higher for longer. Nonetheless, the stock market was able to walk away from the good-news-is-bad-news script and spent the rest of the day clawing back the early losses and finishing the session higher.  The S&P500 gained 0.3% and Nasdaq 100 advanced 0.8%. Communication services and consumer discretionary, each rising 1.2%, led the advance in the S&P 500. Airbnb (ABNB:xnas) jumped 13.3% after reporting an earnings beat. Devon Energy (DVN:xnys) was the worst performer within the S&P500. The oil and gas producer plunged 10% after reporting a decline in Q4 earnings. The ADR of Taiwan Semiconductor Manufacturing (TSM:xnys) lost 5.3% following filings showing that Warren Buffett’s Berkshire Hathaway reduced its stake in the chip maker. Cisco (CSCO:xnas) gained 3.5% in the extended-hour trading after reporting quarterly revenues and earnings beating estimates and raising guidance for the rest of the year. Yields on US Treasuries (TLT:Xmas, IEF:xnas, SHY:xnas) rose further on solid retail sales Yields on the 10-year Treasury notes jumped 6bps to 3.8% following a stronger-than-expected retail sales report and a rebound in the Empire State Manufacturing Index. Headline retail sales jumped by the most in almost two years. While the 20-year Treasury bond auction received decent demand with bid/cover ratio at 2.54, new issuance of around USD30 billion from corporate, including USD24 billion from Amgen weighed on the market. Yields on the 2-year climbed 2bps to 4.63%. Hong Kong’s Hang Seng (HIG3) and China’s CSI300 (03188:xhkg) dragged by property stocks Hang Seng dropped 1.4% on Wednesday to levels last seen on January 4 and pared its 2023 gain to only 5.2%. The aggregate balance held by banks at the Hong Kong Monetary Authority, a proxy of interbank liquidity, fell to HK80 billion, following HKMA’s intervention to sell USD against HKD to cap the USDHKD from going above 7.85 the upper limit of the special administrative region’s link-exchange-rate regime. State-owned Economic Daily in the mainland warns about the re-emergence of speculative activities in properties in some cities and calls for more targeted approaches in support of genuine household demand for housing. Chinese developers retreated, with Country Garden (02007:xhkg) falling 5.6%, China Overseas Land & Investment (00688:xhkg) losing 4.6%, and Longfor (00960:xhkg) down 3.5%. Sportswear company Anta (02020:xhkg) dropped 3.6% on speculation of majority shareholders moving shares to the CCASS clearing system to get ready for a sale. Baidu (09888:xhkg) bucked the market decline and rallied over 3.8% supported by the somewhat return of the hype on the AI-generated content concept. In A-shares, CSI300 fell 0.5%. AI-generated content concept stocks advanced while real estate, domestic consumption, financial, healthcare, and non-ferrous metal names retreated. Australia equities (ASXSP200.I) moved lower to one-month lows, weighted by CBA. Gold miners and coal companies' results ahead Yesterday Commonwealth Bank, Australia’s largest lender, issued a cautious outlook as its customers are feeling ‘significant strain’. Its shares sank about 6%, falling from their record highs to $103, while also dragging down the broader Australian share market (ASXSP200.I). Australia’s biggest bank and lender reported disappointing profit results and guided for a challenging year ahead - putting aside more capital for bad debts, as higher price pressures continue to hurt consumers, along with falling home prices. Its net interest margin came in at 2.1%, which was on par with expectations, but its cash profit missed expectations, despite rising 8.6% YoY to $5.15 billion (vs $5.17 billion Bloomberg consensus). The big Bank announced a $1 billion share buy-back and consensus expects 2023 profits to hit another record, and for margins to improve – that’s good to know for long term investors. However, for potential traders, it’s worthwhile noting, yesterday CBA shares gapped down, meaning the market may fill that gap and buy the dip today or in coming days. Today we will be watching NAB’s quarterly results as well as results from miners, coal giant Whitehaven Coal and gold company Evolution Mining with the market expecting strong results. FX: AUD and GBP lagged, JPY rallies at Asia open Further gains in the dollar were seen last night as yields continued to surge, albeit at a softer pace, after US retail sales also surprised to the upside. AUDUSD was the biggest loser on the G10 board amid tumbling metal prices and RBA governor Lowe refusing to step down. AUDUSD dropped 40bps as January employment data disappointed with a fall of 11.5k vs. expectations of +20k. GBPUSD plunged below 1.2100 on the cooler-than-expected inflation data. EURUSD also touched lows of 1.0660 despite Lagarde reiterating that the ECB intends to hike by another 50bps next month. JPY gains returned in Asia after USDJPY rose to 134+ levels overnight, with Japan export data surprising to the upside with a rise of 3.5% YoY vs. -1.7% expected. Aussie dollar falls as AU jobs data misses. Watching AUDUSD and AUDGBP The Aussie dollar stumbled again, falling 0.4% after Australian employment data came out weaker than expected, with the unemployment rate surprisingly rising to 3.7% (vs the market expecting a steady rate), while jobs surprisingly fell 11,500 when the market expected 20,000 jobs to be added. We saw the AUD lose its footing yesterday after CBA guided for a cautious outlook, setting to the tone for a pull back on spending in Australia. Also consider watching the AUDGBP after the UK received slightly softer than expected UK CPI, which allows the bank of England to sit on their hands for a little longer, while the RBA can keep hiking following hotter than expected CPI.  Crude oil (CLH3 & LCOJ3) lower on inventory build despite IEA’s bullish demand outlook A series of signals from US CPI reported on Tuesday to retail sales print out last night suggest more ammunition for the Fed to raise rates. This has boosted the market pricing of the Fed terminal rate, and dollar strength is back in focus, weighing on commodity prices. Crude oil prices extended their losses after US oil inventories rose 16.3mn barrels to 471mn barrels against expectations of 1.17mn. WTI prices were still below $79/barrel while Brent stayed close to $85. The International Energy Agency (IEA) raised its demand growth estimates by 0.1mb/d to 2mb/d for 2023, but this was overshadowed by swelling US oil inventories. Gold (XAUUSD) close to testing key support Gold prices fell further to $1830/oz as US yields surged higher after the January CPI print, and a hawkish tilt was also seen in Fed commentaries. Last night, US retail sales was also hot suggesting more room for the Fed to hike rates, which boosted the USD. The next important levels include the 1,829 level, which is the 38.2% retracement of the rally off the November lows, the 1,809 area which was broken on the way up, and then the 200-day moving average, currently coming in just above 1,775. Pressure on gold miners to do more deals is rising, despite Newcrest’s rejection of the takeover bid from the world’s biggest gold miner Newmont (more below).  Read next: USD/JPY Is Above 133.30, GBP/USD Droped Form $1.21 to $1.20, The Aussie Pair Is Trading Below $0.69| FXMAG.COM What to consider? US retail sales jump higher January retail sales in the US jumped higher by the most in almost two years, in another signal that the US consumer demand is holding up strongly despite high inflation and interest rate pressures. Retail sales were by 3.0% from a decline of 1.1% in December and above the 1.8% expected. Strength was broad-based, with ex-gas/autos rising 2.6% from the prior -0.7%. The control group, which is a useful gauge of consumer spending data, rose 1.7%, also beating expectations of 0.8% and above the prior -0.7%. Factory output also beat estimates, rising 1.0%, although industrial production was flat vs. +0.5% gains expected, mostly weighed by reduced heating demand in January. Geopolitics on watch keeps Saxo’s Defense basket in focus Russia said its troops had broken through two fortified lines of Ukrainian defenses on the eastern front, as the one-year mark of the invasion approaches. The advances come as Western allies announced more military aid for Kyiv including artillery rounds. The situation may continue to become more tense as Ukraine forces take the time to get trained with the new US equipment. Meanwhile, China is warnings retaliation against US entities involved in the shooting of the balloon. Biden is considering a public address on the downing of an alleged Chinese spy balloon and other unidentified objects. With geopolitical tensions continuing to be on a rise, Saxo’s equity theme basket on Defense remains worth a consideration. Teher were also reports that Germany is poised to increase its defense budget by as much as €10 billion next year, which continues to suggest strong defense focus in the coming years. Newcrest rejects Newmont's takeover bid  Newcrest Mining (NCM) rejected the takeover by Newmont saying it undervalues the company, but kept the door open to a revised offer. Australia’s biggest gold miner reported broadly stronger than expected results – given the rise of the gold price. Half year earnings (EBITDA) hit US$919m, that was 4% above consensus. And the gold giant declared stronger than expected dividends of $0.15 per share for the half-year and a $0.20 special dividend. However, net debt rose far more than expected. NCM retained expectations for a strong 2H operational performance. For what is ahead at markets this week – Read/listen to our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: Markets Today: US retail sales soar in another sign of a hot economy – 16 February 2023 | Saxo Group (home.saxo)
Riksbank's Potential Rate Hike Amid Economic Challenges: Analysis and Outlook

The Aussie Unemployment Rate Rose, China Is Warning Of Retaliation Against US Entities Involved In The Shooting Of The Balloon

Saxo Bank Saxo Bank 16.02.2023 09:18
Summary:  The US equity market put in a solid advance yesterday even as treasury yields remain near recent highs. Sentiment in Asia recovered smartly overnight after a stumble yesterday. In FX, yesterday's sharp USD advance paused, while in commodities, oil is pushing back higher near important resistance levels and gold is nearing major support after a drop of more than a hundred dollars per ounce in just two weeks. What is our trading focus? US equities (US500.I and USNAS100.I): animal spirits remain strong Strong US retail sales figures for January and the NAHB Housing Market Index both showed yesterday that the US economy is humming along despite the interest rate shock. Equities shrugged off the implications for further rate hikes and potentially higher long-term interest rates and rallied with S&P 500 futures closed the session at the highest close price in six sessions above the 4,150 level. The uptrend remains intact at this point with the 4,200 level still in play. The US 10-year yield hit 3.8% on the close yesterday. Hong Kong’s Hang Seng (HIG3) and China’s CSI300 (03188:xhkg) in choppy session Early in China’s equity session, the Hang Seng Index and CSI300 gained sharply after a strong US session, but sentiment rolled over badly into late trading, with the Hange Seng approximately flat and CSI 300 down about 1% as of this writing. Qiushi Magazine, a mouthpiece of the Chinese Communist Party, published an excerpt of President Xi’s speech delivered in December, in which the Chinese leader highlighted insufficient aggregate demand as the paramount challenge so expanding consumption is a top policy priority. FX: GBP weakest after soft CPI, JPY sharply lower on yield rise yesterday, DXY on backfoot overnight AUDUSD fell sharply yesterday and stumbled again overnight on the release of weak Australian jobs numbers, but bounced on a recovery in sentiment in China and bounce in metals prices, also keeping away from the pivot low of 0.6856 of earlier this month. Elsewhere, sterling weakness from yesterday’s soft UK CPI release lingered. EURGBP jumped back higher yesterday and GBPUSD even tested below 1.2000 briefly before recovering very slightly. The focus there is on the 1.1941 low and 200-day moving average just above that level. USDJPY surged further yesterday on a fresh rise in global yields and as the Bank of Japan’s rear-guard actions to defend its yield curve control policy mean the bank is effectively doing aggressive QE even as markets anticipated a coming shift away from this policy. Focus today on US housing-related data after the Feb. Crude oil (CLH3 & LCOJ3) rebounds amid China optimism and IEA’s bullish demand outlook A series of signals from US CPI reported on Tuesday to retail sales print yesterday suggest more ammunition for the Fed to raise rates. This has boosted the market pricing of the Fed terminal rate, and dollar strength is back in focus, weighing on commodity prices. Crude oil prices extended their losses after US oil inventories rose 16.3mn barrels to 471mn barrels against expectations of 1.17mn suggesting demand concerns. But reports of passenger loads picking up at China’s top three airlines added optimism overnight. WTI prices rose back above $79/barrel while Brent was above $85. The International Energy Agency (IEA) also raised its demand growth estimates by 0.1mb/d to 2mb/d for 2023. Gold (XAUUSD) close to testing key support Gold prices fell further to $1830/oz as US yields surged higher after the January CPI print, and a hawkish tilt was also seen in Fed commentaries. Last night, US retail sales was also hot suggesting more room for the Fed to hike rates, which boosted the USD. The next important levels include the 1,829 level, which is the 38.2% retracement of the rally off the November lows, the 1,809 area which was broken on the way up, and then the 200-day moving average, currently coming in just above 1,775. Pressure on gold miners to do more deals is rising, despite Newcrest’s rejection of the takeover bid from the world’s biggest gold miner Newmont. Yields on US Treasuries (TLT:Xmas, IEF:xnas, SHY:xnas) rose further on solid retail sales Yields on the 10-year Treasury notes jumped 6bps to 3.8% following stronger-than-expected 3% headline retail sales and 1.7% control group (ex-autos, gasoline, and building materials) prints and a rebound in the Empire State Manufacturing Index to -5.8 from -32.9. While the 20-year Treasury bond auction received decent demand with a bid/cover ratio at 2.54, new issuance of around USD 30 billion from corporate, including USD 24 billion from Amgen weighed on the market. Yields on the 2-year climbed 2bps to 4.63%, bringing the 2-10 curve 5bps less inverted to -83bps. Read next: USD/JPY Is Above 133.30, GBP/USD Droped Form $1.21 to $1.20, The Aussie Pair Is Trading Below $0.69| FXMAG.COM What is going on? US retail sales jump far more than expected January retail sales in the US jumped higher by the most in almost two years, in another signal that the US consumer demand is holding up strongly despite high inflation and interest rate pressures. Retail sales expanded 3.0% month-on-month after a decline of 1.1% in December and above the 1.8% expected. Strength was broad-based, with ex-gas/autos rising 2.6% from the prior -0.7%. The control group, which is a useful gauge of consumer spending data, rose 1.7%, also beating expectations of 0.8% and above the prior -0.7%. Factory output also beat estimates, rising 1.0%, although industrial production was flat vs. +0.5% gains expected, mostly weighed by reduced heating demand in January. European earnings: Airbus and Schneider Electric Airbus has had a relatively good year as aviation demand is coming back after the pandemic with fiscal year free cash flow beating estimates and dividends per share set to €1.80 vs est. €1.73. Q4 revenue is €20.6bn vs est. €20bn. Airbus is disappointing a but on its FY23 adjusted EBIT outlook relative to estimates and delays its A320 output target of 75/month to 2026. Schneider Electric reports Q4 revenue that beats estimates driven by strong organic revenue growth and it reports FY23 revenue growth of 9-11% y/y and adjusted EBITA margin up 50-80 basis points. Shopify outlook misses estimates The e-commerce platform reported Q4 revenue of €1.73bn vs est. €1.65bn with gross merchandise volume also beating estimates. The company expects the gross margin to expand in Q1 but the Q1 revenue outlook of high-teen growth rate compared to 20% expected by analysts sent shares lower in extended trading. Geopolitics keeps Saxo’s Defense basket in focus Russia said its troops had broken through two fortified lines of Ukrainian defenses on the eastern front, as the one-year mark of the invasion approaches. The advances come as Western allies announced more military aid for Kyiv including artillery rounds. Meanwhile, China is warning of retaliation against US entities involved in the shooting of the balloon. Biden is considering a public address on the downing of an alleged Chinese spy balloon and other unidentified objects. With geopolitical tensions on the rise, Saxo’s equity theme basket on Defense remains worth a consideration. There were also reports that Germany is poised to increase its defense budget by as much as €10 billion next years. Weak Australian jobs report The Aussie unemployment rate rose to 3.7% in January (vs the market expecting a steady rate of 3.6%), while Australian jobs surprisingly fell 11,5k versus market expectations for +20k, and full-time employment actually fell –43k. Yesterday Australia’s biggest bank Commonwealth Bank also warned that its customers are experiencing ‘significant strain’, amid higher price pressures. What are we watching next? US data, including US Housing Related Data after strong NAHB Housing Market Survey. Yesterday, the US February NAHB Housing Market survey surged 7 points from its January reading, suggesting a fading impact from the mortgage interest rate shock last year. The reading was a 5-month high. Today we get further US housing-related data, including the January Housing Starts and Building Permits figures. We’ll also see the latest weekly jobless claims after a string of four readings below 200k. Earnings to watch Today’s US earnings focus is Applied Materials and DoorDash with analysts expecting Applied Materials to deliver revenue growth of 7% y/y and EPS of $1.94 down 1% y/y. DoorDash, which has been part of our bubble basket, is expected to revenue Q4 revenue growth of 36% and EBITDA of $109mn which seems quite unrealistic given EBITDA was $-147mn a quarter ago. Thursday: Newcrest Mining, South 32, Airbus, Schneider Electric, Air Liquide, Pernod Ricard, Bridgestone, Standard Chartered, Repsol, Nestle, Applied Materials, Datadog, DoorDash Friday: Hermes International, Safran, Allianz, Mercedes-Benz, Uniper, Sika, Deere Economic calendar highlights for today (times GMT) 1300 – ECB's Nagel to speak 1330 – US Jan. PPI 1330 – US Housing Starts and Building Permits 1330 – US Weekly Initial Jobless Claims 1330 – US Philadelphia Fed Business Outlook 1330 – US New York Fed Services Business Activity 1345 – US Fed’s Mester (non-voter) to speak 1500 – ECB Chief Economist Lane to speak 1530 – US Weekly Natural Gas Storage Change 1600 – Canada Bank of Canada Governor Macklem before Parliament 1700 – UK Bank of England Chief Economist Huw Pill to speak 1700 – Norway Norges Bank Governor Wolden Bach to deliver annual address 1830 – US Fed’s Bullard (non-voter) to speak 2230 – Australia RBA Governor Lowe to testify before House   Source: Financial Markets Today: Quick Take – February 16, 2023 | Saxo Group (home.saxo)
Philippines’ central bank hikes rates after blowout CPI report

Philippines’ central bank hikes rates after blowout CPI report

ING Economics ING Economics 16.02.2023 09:21
Bangko Sentral ng Pilipinas hiked rates by 50bp today after inflation surged to 8.7% year-on-year in January The Central Bank of the Philippines and other buildings as seen from the CCP Grounds Source: Shutterstock 6.0% BSP policy rate +50bp As expected BSP stays aggressive after inflation surprise Bangko Sentral ng Pilipinas (BSP) hiked rates by 50bp today in a bid to combat searing price pressures and to manage inflation expectations. January inflation blew past expectations which all but ensured BSP would hike rates today. Governor Felipe Medalla opted to retain a hawkish bias with a 50bp increase.  BSP also announced an upward adjustment to the 2023 inflation forecast, pushing its expectation to 6.1% YoY, up sharply from the 4.5% estimate from December 2022. Price pressures appear to have spread across the CPI basket and could keep headline and core inflation elevated for some time.     Medalla noted that inflation expectations have begun to increase, prompting an aggressive response from the BSP today. BSP also reiterated the need for a “whole of government approach” to deal with significant price pressures given the outsized impact of supply shortages on basic food items. Today’s rate hike takes the overnight reverse repurchase rate to 6.0%.  Source: Philippine Statistics Authority What's next? BSP’s latest inflation forecast and admission that price pressure has broadened could open the door for additional rate hikes in the coming months.  Governor Medalla appears to be increasingly concerned about inflation expectations, indicating that “it is unlikely we won’t increase the rate at the next meeting”. Medalla suggested that the probability of a pause in the first half of the year was feasible but low indicating that inflation pressures remain high and that supply-side remedies recently implemented may take time to take hold.  Given this new information and the obvious shift in tone from Governor Medalla, we now expect a 25bp rate hike by the BSP at the March meeting with our forecast for BSP’s terminal rate at 6.25%.        Read this article on THINK TagsPhilippines inflation Bangko Sentral ng Pilipinas
Indonesia Inflation Returns to Target, but Bank Indonesia Likely to Maintain Rates Until Year-End

Bank Indonesia keeps rates untouched as inflation moderates

ING Economics ING Economics 16.02.2023 09:31
Bank Indonesia opted to pause today, confident that core inflation will stay within target Indonesia's central bank governor Perry Warjiyo 5.75% BI policy rate   As expected Central bank keeps rates at 5.75% Bank Indonesia (BI) opted to keep rates untouched at 5.75% today, bringing Governor Perry Warjiyo’s recent rate hike cycle to an end. BI remains confident that the current policy stance will help ensure core inflation remains within target. Moderating price pressures and the relative stability enjoyed by the Indonesian rupiah (IDR) were the likely factors in today's decisions. Headline inflation dipped to 5.3% year-on-year in January, down from 5.5% the previous month, while core inflation eased to 3.3%.  Slower inflation for transportation and utilities helped ease price pressures and we could see inflation inch lower should current trends in energy prices hold.    Read next: USD/JPY Is Above 133.30, GBP/USD Droped Form $1.21 to $1.20, The Aussie Pair Is Trading Below $0.69| FXMAG.COM Easing inflation gives BI space for a pause What next? We had priced in the possibility of a surprise 25bp rate hike today after market participants adjusted expectations for the Fed’s terminal rate, but easing inflation may have convinced BI to shift to a more dovish stance with a pause. BI indicated that it is coordinating with government officials on the planned regulation for exporter earnings which may have lowered the need to utilise rate increases to steady the IDR. Furthermore, Warjiyo indicated that the central bank would utilise its ongoing “operation twist” to help mitigate the impact of potential Fed rate hikes in the coming months.  We believe BI can opt to stay dovish in the near term should inflation sustain its downward path and IDR remain stable.      Read this article on THINK TagsBank 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
US Inflation Eases, but Fed's Influence Remains Crucial

The US Jobs Data Remains Strong, All Eyes On US PPI Report

Swissquote Bank Swissquote Bank 16.02.2023 10:22
Do you remember we were predicting a recession, that was supposed to hit the US and the global economy at the start of the year? A recession that would hit equities and boost bonds? Well, forget about all that, it’s not happening. US data The US jobs data remains strong, inflation continues coming lower but the downtrend gives signs of slowing. And yesterday’s US retail sales data came as a cherry on top, with an eye-popping 3% rise in retail sales last month; it was the biggest jump in the past two years. Stocks Market The S&P500 ended the session 0.28% higher, while Nasdaq 100 stocks added almost 0.80%. Treasury yields pushed higher, however, on expectation that the Federal Reserve (Fed) will continue its rate hike policy – and quite aggressively, given that the rate hikes don’t seem to do any harm to the economy. Deutsche Bank revised its terminal Fed rate from 5.1% to 5.6%. Citi believes that the Fed will end up pushing the rates all the way up to 6%. Read next: Apple Is Facing Multiple Lawsuits And Enforcement Actions| FXMAG.COM US PPI Today, the US will reveal the latest producer price inflation data. Producer prices are expected to have ticked higher by 0.4% m-o-m in January, versus a 0.4% retreat printed last month. On a yearly basis, the PPI index is expected to have slowed from 6.2% to 5.4%. Normally, I would expect a positive PPI surprise – meaning stronger inflation figures - to impact the market mood negatively, but at this point, I am not even sure that it matters. Watch the full episode to find out more! 0:00 Intro 0:18 What recession?! 2:36 Market update 3:50 US PPI is out today! 4:37 USD up, EUR, JPY and XAU down 7:18 Crude oil rebounds from 50-DMA 8:34 Glencore’s record profit fails to convince but… 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. #strong #economic #data #equity #risk #rally #USD #EUR #JPY #XAU #Crude #Oil #inflation #data #Fed #expectations #Glencore #energy #stocks #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  
China: manufacturing activities slipped back to contraction in April. Technical look at China A50

Asia week ahead: Australian wages, Singaporean inflation, Bank of Korea meeting

ING Economics ING Economics 16.02.2023 11:56
Some of the highlights in Asia next week include Australia’s wage data, the BoK meeting, Taiwan's export orders and Singapore’s CPI  Source: Shutterstock Australia's wage price index will provide direction for policymakers Australia is set to release fourth-quarter wage price index data on 22 February. This was a keenly watched data point in 2021 when the Reserve Bank of Australia (RBA) tied its cash rate target to wage growth rising to a level consistent with target inflation of 3.5-4%. In the last quarter, the wage price index grew by 3.1%, which means that there is still room to inch higher, while inflation is currently running at 8.4% YoY. If the wage price index grew by 1.0% in the fourth quarter from the third – as it did in the third quarter from the second, the index would finally reach 3.5%. Although this very lagging data point is mainly of academic interest, a rising number would still encourage hawkish rhetoric from the RBA. BoK to pause on Thursday? The Bank of Korea will meet on Thursday. We believe that the BoK’s rate hike cycle ended with the 25bp hike in January. But given that January's consumer price index picked up again, we are expecting the BoK to maintain its hawkish stance. China's loan prime rates to remain unchanged Chinese banks will announce possible changes to loan prime rates (LPR) next week. Given that the economy is recovering and that the People's Bank of China left the 1Y Medium Lending Facility rate (MLF) unchanged, we predict that the chance for a change in the LPR is small. Moreover, banks have been told by the government to offer lower interest rates on mortgages to provide support to the economy. This would result in banks not having enough room to squeeze net interest margins. Weak semiconductor demand could hurt Taiwan's economy Export orders and industrial production will likely give clues about how bad semiconductor demand was in January. We expect declines of around 10-20% year-on-year for both. Final GDP data should show a slight yearly contraction; the advance estimate was -0.86% YoY. We expect Taiwan to enter a mild recession in the first half of this year given weak demand for semiconductors, the main pillar of the economy. Read next: Tesla Will Make Supercharger Network, Visa Will Allow The Use Of Cryptocurrencies To Settle Transactions| FXMAG.COM Singapore CPI Inflation report We could see headline inflation tick lower, but core inflation will likely remain elevated at 5.2% YoY as the latest increase in the goods and services tax kicks in. Finance Minister Lawrence Wong announced a fresh round of subsidies to help households deal with the rising cost of living. Wong believes inflation will remain elevated for at least the first half of the year.  Persistent price pressures should keep the Monetary Authority of Singapore (MAS) in hawkish mode although it needs to strike a delicate balance as slowing global trade threatens to negatively impact the export sector.  Key events in Asia next week Source: Refinitiv, ING Read this article on THINK TagsAsia week ahead Asia Pacific Asia Markets  
The Commodities Feed: Brent Breaks Above $80, Energy Market Dynamics and Trade Data Analysis

Recent Data Form US Are Putting Pressure On Gold

InstaForex Analysis InstaForex Analysis 16.02.2023 13:23
Gold continues to trade under pressure, declining after the January CPI report released Tuesday showed that year-over-year inflation fell to 6.4%. The CPI report for January was lower by 6.4% than the previous month. However, analysts had expected a larger decline, expecting Tuesday's report to be between 6.2% and 6.3%. When combined with last week's unexpected employment report, the collective information will allow the Federal Reserve to maintain its aggressive stance, which means further interest rate hikes and that rates will remain elevated for much longer. Chairman Powell was determined to maintain higher rates throughout the calendar year. Market participants are beginning to recognize the high likelihood that the Fed will cut rates to 5.1%–5.2% and keep them high without cutting rates in 2023. While gold has been trading under pressure, there is a bullish undertone that could come into play at some point. The dollar is gaining strength against other currencies, but for Americans, the dollar's purchasing power continues to decline, a byproduct of higher inflation. The national debt continues to grow, and the United States has reached its debt ceiling. Consequently, the government will have to raise the debt ceiling, which means that the United States will increase its national debt to a higher level. Another factor putting pressure on gold is recent data that suggests the Federal Reserve may change its current target rate from 5.1% to 6% to accelerate the process of reducing inflation. Essentially, gold benefits from higher inflation, and higher interest rates hurt. This is because gold does not provide the yield that makes U.S. Treasuries and other interest-bearing assets more profitable. Although the current fundamentals have had a strong impact, which led to a decrease in the price of gold, technical factors are also present. Analysts believe that although the price may drop lower, at the moment, gold is oversold   Relevance up to 09:00 2023-02-17 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/335303
Ipek Ozkardeskaya: BoE will certainly leave the door open for further hikes

The Markets Are Braced For Bad News Form UK Report

Kenny Fisher Kenny Fisher 16.02.2023 14:22
The British pound has steadied on Thursday. In the European session, GBP/USD is trading at 1.2053, up 0.25%. This follows a sharp drop of 1.2% a day earlier. UK inflation continues to fall but remains disturbingly high. Headline inflation fell to 10.1% in January, down from 10.5% in December and below the consensus of 10.3%. The drop in inflation is welcome news, but food prices, a key driver of inflation, surged by 16.8% in January. With inflation still in double digits, the Bank of England will have to continue raising rates, with the most likely scenario being a 25-basis increase at the Mar. 22 meeting. The market probability of a 25-bp hike rose as high as 73% on Wednesday before dipping to 66% today, according to Refinitiv data. In the US, retail sales delivered an impressive gain of 3% in January, above the estimate of 1.8%. This was a strong rebound from the December reading of -1.1% and marked the largest gain since January 2022. This positive release follows the January inflation report that ticked lower to 6.4% but was higher than expected. These strong numbers translated into strong gains for the US dollar on Wednesday, as the Fed will likely raise rates even higher in order to put the brakes on the strong economy. The UK wraps up the week with retail sales on Friday. The markets are braced for bad news, with an estimate of -5.5% y/y for the headline figure (-5.8% prior) and -5.3% for the core rate (-6.1%). A weak retail sales report could sour investors on the pound and send the currency lower.   GBP/USD Technical GBP/USD tested resistance at 1.2071 earlier in the day. The next resistance line is 1.2180 1.1958 and 1.1838 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.  
Earnings season: Tesla stock price slipped after yesterday's news. The best selling car in Q1 was Model Y

Tesla Declined 5.7% Following An Announcement To Recall Over 300,000 Cars

Saxo Bank Saxo Bank 17.02.2023 09:08
Summary:  Equities headed lower after the hot US PPI report and hawkish Fed speakers Mester and Bullard bringing the market’s terminal rate projections up to 5.27%. US 10-year yields surged to a YTD high of 3.9% and the US dollar was broadly higher against all other currencies but the yen recovered some of its losses as the session ended. RBA’s Lowe touted more rate hikes as inflation reigns. Metals saw a rebound with Copper leading, while Gold was still close to $1830.   What’s happening in markets? Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) retreated on a hot PPI and 50bps hike back on the table U.S. stocks opened sharply lower on a much hotter-than-expected PPI print. The benchmark S&P 500 and Nasdaq 100 managed to claw back all the losses until they reversed following Fed’s Bullard hit the tape at 3 pm New York time with hawkish comments signaling the door to return to a 50bp hike at the March FOMC is open. The Fedspeak hammered stocks across the board with all 11 sectors in the S&P500 declining. At close, the S&P500 was 1.4% lower and the Nasdaq 100 lost 1.9%. Tesla (TSLA:xnas) declined 5.7% following an announcement to recall over 300,000 cars due to a crash risk associated with its Full Self-driving Beta software. Shopify (SHOP:xnys) plunged 15.8% on revenue outlook missing estimates. Toast (TOST:xnys) dropped 22.8% after missing revenue miss. Twilio (TWLO:XNYS) jumped 14.3% on an earnings beat. Cisco (CSCO:xnas) climbed 5.2%. Yields on US Treasuries (TLT:Xmas, IEF:xnas, SHY:xnas) climbed on hawkish Fed and producer price inflation Yields on the 10-year surged 6bps to 3.86% on a large jump on the PPI print in January and hawkish comments from Fed’s Mester and Bullard who brought a 50bp hike back to the table at the March FOMC. The selling during the session concentrated in the longer-end of the curve in particular in the 10-year futures contract and 5-year futures vs ultra-long bond contracts steepening trades. The USD9 billion TIPS auction had a bid/cover ratio of 2.38, below 2.69 last time. Traders are cautious ahead of next week’s USD120 billion supply from the 2, 5, and 7-year Treasury note auction. Hong Kong’s Hang Seng (HIG3) and China’s CSI300 (03188:xhkg) failed to sustain an attempt to rally Hang Seng Index rallied as much as 2.4% in the morning before spending the afternoon paring gains and finishing the Thursday session only 0.8% higher from the previous day. Qiushi Magazine, a mouth-piece of the Chinese Communist Party, published an excerpt of President Xi’s speech delivered in December, in which the Chinese leader highlighted insufficient aggregate demand as the paramount challenge so expanding consumption is a top policy priority. Media reports of foreign hedge fund building long positions in Chinese equities added fuel to the positive sentiment. The news that President Xi will be visiting Iran, a foe country with the United States, and China’s Ministry of Commerce imposed fines and sanctions on U.S. defence companies, Lockheed Martin (LMI:xnys) and Raytheon Technologies (RTX:xnys) dented sentiment. Tech stocks outperformed with Hang Seng Tech Index gaining 1.8%. Online pharm platform shares surged on the news that the Chinese healthcare regulator is stepping up insurance coverage for drugs. JD Health surged 5.3%; Alibaba Health climbed 3.5%. Lenovo (00992:xhkg) jumped 6.7% ahead of reporting quarterly results. Chinese developers and property management services names gained. China Resources Mixc Lifestyle (01298:xhkg) rose 4.7%; China Overseas Land & Investment (00688:xhkg) gained 3.1%; Longfor (00960:xhkg) climbed 2.8%. In A-shares, CSI300 advanced as much as 1% in the morning but pared all the gains to close 0.7% lower. Semiconductor, non-ferrous metal, machinery, and defense names led the charge lower. The food and beverage and cloud-computing gaming space bucked the decline and outperformed. Albemarle –the lithium giant beat earnings expectations & gave a sparky outlook – paving a positive course for the lithium sector... ...as per our Quarterly Outlook. Albemarle, the world's biggest lithium company – in size, and scale (selling lithium to most EV makers) rose 4.7% after it delivered a stronger than expected sales outlook – with China’s reopening to provide extra momentum as demand for EVs picks up. It sees net sales growing to $11.3-$12.9 billion, and EBITDA getting as high as $5.1 billion. It expects to maintain positive cashflow even despite increasing capital expenditure. In Q4 - its earnings (EBITDA) swelled to $1.24 billion, beating expectations and marking a mega jump from $229 million (same time last year), as lithium earnings rose more than expected. Adjusted EPS also grew more than consensus expected with EPS, at $8.62. This paves a positive path for what we might expect from Allkem and Pilbara when they report results next week. Click here for Saxo’s lithium equity basket for stock inspiration. Tesla recalls over 362,000 cars for self-driving crash risks; Its shares remain ‘overbought’ Tesla shares fell 5.7% to $202.04, staying around seven-month highs. Although Tesla’s uptrend seems intact  - buying is slowing  - with the relative strength index (RSI) indicating we could see some consolidation here as the stock is in overbought territory. Tesla’s recall affects 362,758 vehicles, including certain Model 3, Model X, Model Y and Model S units manufactured between 2016 and 2023. Although Musk said it’s not a recall, even though Tesla’s full-self driving beta system “may allow the vehicle to act unsafe around intersections”, and increase collision risk if the driver does not intervene, Musk affirmed the issue will be remedies with a software update, by April 15. RBA Governor faces parliamentary grilling after Australian unemployment surprising rose RBA Governor Lowe today hinted that despite Australian unemployment rising to 3.7% in January up from 3.5% - it does not change its hiking guidance. Yesterday, he faced a Senate estimates hearing – saying the cash rate was unlikely at its peak. And today he is back on the podium, saying banks need to do better jobs of passing on rate hikes. Meanwhile Bullock said refinances of mortgages are really high, with consumers shopping around to get better deals. Amid diminishing corporate operational expenditure power  - the unemployment rate will likely pick up this year, in the face of rising inflation and unemployment, meaning Australia faces a staglationary environment. We will continue to watch the AUDUSD and the GBPAUD – as we think the UK BOE could sit on its hands with rate hikes, while the RBA will likley push ahead with hikes in the coming months. FX: Firm king dollar as yields rise; JPY recovers from lows   With US yields maintaining their upward trajectory, the dollar was firmer again on to reach fresh highs since 6 January. Hot PPI, still low jobless claims and Fed speakers opening the door to another potential 50bps rate hike underpinned. Quiet day ahead with no tier 1 data due and only Fed’s Barkin and Bowman speaking. USDCAD rose to 1.3480 amid weakness in oil prices while AUDUSD was flattish as metals prices recovered, despite a weak jobs data yesterday and RBA’s Lowe affirming more rate hikes. USDJPY rose to 134.50 overnight but was back closer to 134 in Asia. EURUSD continues to find support at 1.0650 as ECB speakers continued to highlight another 50bps rate hike at the March meeting. Crude oil (CLH3 & LCOJ3) heads for a weekly loss amid Fed concerns and inventory build Even as some signs of improving Chinese demand started to appear, the broader inflation and interest rate rhetoric nudging higher again this week weighed on crude oil and the commodity complex more broadly this week. A hot PPI overnight, along with Fed members now starting to open the door for another potential 50bps rate hike has further brought the Fed’s terminal rate pricing higher and US yields continue to rise. WTI prices dipped below $78 in Asia, with Brent around $85. Even as OPEC and IEA reports suggested possible uptick in demand as China reopens, US stockpile reports continued to dampen the demand outlook. Saudi Energy Minister Prince Abdulaziz bin Salman also said the current OPEC+ deal on output levels will remain in place until year-end and that he is wary of forecasts of much higher demand from China. Copper prices jump to two-week highs Copper prices rose higher on Thursday as the dollar rally took a bit of a breather before resuming again. Copper stockpiles on the Shanghai Futures Exchange fell for the first time in two months, suggesting that the Chinese demand is picking up. Growth in aluminium inventories also slowed, according to data from Shanghai Metals Market. This comes amid ongoing risks of further supply disruptions. Earlier this week, Freeport-McMoRan Inc suspended operations at its Grasberg copper mine in Indonesia due to landslides. This is adding to disruption to Peru’s output caused by social unrest. Copper prices rose to $4.15 before a retreat to $4.11 in Asia. The key $4 handle support continues to hold up. Read next: USD/JPY Is Trading Close To 134.00, EUR/USD Is Remaining Above $1.07| FXMAG.COM What to consider? Fed speakers boost the market pricing of Fed’s terminal rate Hawkish Fed speak prompted an upward shift in the Fed funds futures pricing for the terminal rate, but there is still more than one full 25bps rate cut priced in for this year. Loretta Mester said she saw a compelling case for a 50bp hike at the January FOMC meeting. A similar message was sent out by James Bullard too. However, both are non-voters although Mester may become a voting member this year if Austin Goolsby is appointed as Fed Vice Chair. Mester also added that she is not ready to say if the Fed requires a bigger rate rise at the March FOMC; said more upside inflation surprises could make Fed policy more aggressive and can accelerate the pace if conditions warrant it. Bullard also reaffirmed his terminal rate projection of 5.25-5.50%. With members still sounding the hawkish alarm despite the market pricing catching up with the December dot plot, it appears to be a signal that the March dot plot may see an upward revision. Hot US PPI further casts doubts on the goods disinflation narrative After the CPI report this week brought back concerns on the pace at which inflation is cooling, January PPI also saw a hotter than expected print. Headline rose 0.7% MoM or 6.0% YoY (vs. 0.4% MoM and 5.4% YoY exp) jumping from the prior month's -0.2% MoM print (revised up from -0.5%) but cooling from 6.5% YoY last month. Both goods and services prices increased, with goods rising 1.2% and services rising 0.4%. This has started to question the goods disinflation narrative and continues to support the thesis that services inflation is sticky. Price pressures were broad with ex food and energy measure also up 0.5% MoM from 0.3% last month and expected. Jobless claims still below 200k Initial jobless claims data was beneath expectations, and still beneath the watched 200k level, printing 194k against an expected 200k – still supporting the case for a tight labor market persisting. Continued claims were in line with expectations at 1.696mln, picking up from the prior 1.68mln. RBA Governor Lowe’s testimony focused on the need for more rate hikes The Reserve Bank of Australia chief Philip Lowe appeared for the second session of his testimony to the economic committee today, and the message emphasized that the RBA still needs to do more to bring inflation under control, despite acknowledging the impact on community. He said that business conditions remain above average and labor market is still strong. He was scrutinized not just on policy but also on transparency, especially after his closed door meetings with private bankers but lack of public address.   For what is ahead at markets this week – Read/listen to our Saxo Spotlight. For a global look at markets – tune into our Podcast.     Source: Markets Today: Hot US PPI and Mester/Bullard boost Fed terminal rate expectations – 17 February 2023 | Saxo Group (home.saxo)
Deciphering the Economic Puzzle: Unraveling Britain's Mixed Signals

Watch: The future of UK rate hikes

ING Economics ING Economics 18.02.2023 08:53
Could a surprise dip in UK services inflation be enough for the Bank of England to finally reach the end of its hiking cycle? We're not convinced it'll be entirely sufficient to fend off a 25bp move next month – but a pause could very well be on the cards from May   The future of UK rate hikes A recent drop seen in January's data could signal a potential pause ahead for the Bank of England. But one month does not make a trend, warns Developed Markets Economist James Smith, and we think that one more hike can still be expected   Read this article on THINK TagsUK Monetary policy Inflation 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
Gold's Hedge Appeal Shines Amid Economic Uncertainty and Fed's Soft-Landing Challenge

Asia week ahead: Australian wages, Singaporean inflation, Bank of Korea meeting - 18.02.2023

ING Economics ING Economics 18.02.2023 09:02
Some of the highlights in Asia next week include Australia’s wage data, the BoK meeting, Taiwan's export orders and Singapore’s CPI  In this article Australia’s wage price index will provide direction for policymakers BoK to pause on Thursday? China's loan prime rates to remain unchanged Weak semiconductor demand could hurt Taiwan’s economy Singapore CPI Inflation report   Shutterstock Australia’s wage price index will provide direction for policymakers Australia is set to release fourth-quarter wage price index data on 22 February. This was a keenly watched data point in 2021 when the Reserve Bank of Australia (RBA) tied its cash rate target to wage growth rising to a level consistent with target inflation of 3.5-4%. In the last quarter, the wage price index grew by 3.1%, which means that there is still room to inch higher, while inflation is currently running at 8.4% YoY. If the wage price index grew by 1.0% in the fourth quarter from the third – as it did in the third quarter from the second, the index would finally reach 3.5%. Although this very lagging data point is mainly of academic interest, a rising number would still encourage hawkish rhetoric from the RBA. BoK to pause on Thursday? The Bank of Korea will meet on Thursday. We believe that the BoK’s rate hike cycle ended with the 25bp hike in January. But given that January's consumer price index picked up again, we are expecting the BoK to maintain its hawkish stance. China's loan prime rates to remain unchanged Chinese banks will announce possible changes to loan prime rates (LPR) next week. Given that the economy is recovering and that the People's Bank of China left the 1Y Medium Lending Facility rate (MLF) unchanged, we predict that the chance for a change in the LPR is small. Moreover, banks have been told by the government to offer lower interest rates on mortgages to provide support to the economy. This would result in banks not having enough room to squeeze net interest margins. Weak semiconductor demand could hurt Taiwan’s economy Export orders and industrial production will likely give clues about how bad semiconductor demand was in January. We expect declines of around 10-20% year-on-year for both. Final GDP data should show a slight yearly contraction; the advance estimate was -0.86% YoY. We expect Taiwan to enter a mild recession in the first half of this year given weak demand for semiconductors, the main pillar of the economy. Singapore CPI Inflation report We could see headline inflation tick lower, but core inflation will likely remain elevated at 5.2% YoY as the latest increase in the goods and services tax kicks in. Finance Minister Lawrence Wong announced a fresh round of subsidies to help households deal with the rising cost of living. Wong believes inflation will remain elevated for at least the first half of the year.  Persistent price pressures should keep the Monetary Authority of Singapore (MAS) in hawkish mode although it needs to strike a delicate balance as slowing global trade threatens to negatively impact the export sector.  Key events in Asia next week Refinitiv, ING TagsAsia 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
Equity Markets Rise, VIX at 12 Handle After ECB Rate Hike and US Economic Resilience

Week Ahead: US Q4 GDP, EU CPI, Rolls-Royce And HSBC FY22

Michael Hewson Michael Hewson 18.02.2023 09:16
Fed minutes – 22/02 – if the market reaction to the recent Fed rate hike is any guide, there appears to be a type of cognitive dissonance when it comes to what the market wants to hear from the Federal Reserve and what the US central bank is trying to say. To borrow a line from the film Cool Hand Luke, "what we've got here is a failure to communicate". Long story short, the market thinks the inflation job is done, or at least close to it, even though the recent non-farm payrolls report appears to have muddied the waters in that regard. For all of Fed chair Jay Powell's insistence that more rate hikes were coming at his post meeting press conference, and that the Fed was not looking at cutting rates this year, his failure to push back emphatically on direct questions about market expectations of rate cuts this year, created an even greater divergence between market pricing on rates, and the Fed's expectations of how the economy is likely to evolve. Since that meeting, we've had a succession of Fed officials push back on the dovish narrative insisting that rates are likely to stay higher for longer, however the release of the latest minutes also needs to be set in the context of the fact that they came before the recent jobs, and ISM services data. That said, the recent intervention by non-voting member, Cleveland Fed President Loretta Mester that she saw a compelling case for a 50bps move at the last meeting was an unexpected intervention to the cosy consensus that had developed around the 25bps narrative. This was compounded by another non-voting member, James Bullard of the St. Louis Fed who suggested 50bps in March could be a consideration. This raises two questions, one is to how many other Fed members saw a compelling case for a 50bps move at the last meeting, and two, how much could that have shifted over the last few weeks in light of the recent strength of US data. The minutes should answer the first question, the second question will need to see more data. Another key question will be how long Fed officials see rates staying at current levels, and whether they still see the December dots as an accurate representation of future rate hike expectations. US Core PCE Deflator (Jan) – 24/02 – in the last 2 months the US Core PCE Deflator has fallen back sharply from 5.2% in September, falling to its lowest level since October 2021 in December at 4.4%. The sharp fall from those peaks has certainly helped drive the disinflation narrative that has got the markets speculating that we might start to see some of the recent rate hikes start to get reversed before the end of this year. As the Fed's preferred inflation measure, sharp falls in this indicator could help reinforce the narrative surrounding weaker prices growth. Unfortunately, this week's January numbers may not support this conclusion if the recent payrolls and services data is any indication. We could see a big rebound in prices driven by higher personal spending as a result of the strong jobs data. EU CPI (Jan) – 23/02 – inflation in Europe has been falling sharply in recent months, although the recent Germany CPI numbers would appear to suggest that it is a little stickier than perhaps the ECB would like. The most recent flash numbers for January saw headline CPI fall from 9.2% to 8.5% a bigger fall than expected with the month on month decline of -0.4%. Core prices however increased, rising to 5.2% on an annualised basis from 5.1% in a sign that while headline pressures were easing sharply, there is little sign that core prices are going the same way. This week's January final numbers could see an uptick given that Germany CPI came in higher than expected, in spite of continued weakness in natural gas prices which have slipped to their lowest levels in 18 months. US Q4 GDP – 23/02 – despite the rise in interest rates we've seen over the past few months, the US economy has held up reasonably well, with strong growth in Q3 as well as Q4, after a weak H1. The first iteration of US Q4 GDP saw the economy expand by 2.9%, which was above expectations of 2.5%. Personal consumption was a little disappointing, slipping back to 2.1%, which wasn't that surprising given that November and December retail sales contracted. This trend will probably rebound in the January personal spending and income numbers. HSBC FY 22 – 21/02 – the rebound since the lows in October has seen HSBC shares rally to their best levels since September 2019, on a combination of rising interest rates as well as optimism over a rebound in China's economy in 2023. When HSBC reported in Q3 the shares fell back after reporting Q3 revenue of $11.6bn, while profits after tax came in at $2.56bn. This was significantly lower than the numbers in Q2, with profit attributable to shareholders, dropping to $1.9bn, down from $5.77bn in Q2. Part of the reason for the lower profits was an increase of provisions for non-performing loans of $1.1bn, doubling the amount set aside year to date to $2.2bn. On the plus side the banks NIM rose in Q3 to 1.57% from 1.35%, helping to push net interest income to beat expectations, reflecting the higher interest rate environment. A month later the bank announced it had agreed to sell its Canadian operation to Royal Bank of Canada for $10bn in cash. This appears to be the latest example of Asia's largest bank looking to gravitate away towards its core markets in Asia, and in so doing helping to keep its shareholders onside as it looks to boost the resilience of its core operations, as well as improving pay-outs. This week's full year numbers should point to a better outlook with the Chinese economy reopening even if Q4 disappoints due to the covid disruption which only started to ease in the middle of December. Lloyds Banking Group FY 22 – 22/02 – despite the recovery off its lows in October, the Lloyds share price remains below its highs last year as well as its pre-pandemic peaks set back in December 2019. The shares have underperformed primarily due to concerns over the economic outlook and its heavy reliance on the UK domestic market, particularly mortgages and consumer credit. Despite these concerns the bank has consistently outperformed while increasing profits to the point its more profitable now that it was back in 2019 when the shares were much higher. In Q3 statutory pre-tax profits fell back, coming in at £1.51bn, a 26% decline from the same quarter last year, and down a similar percentage from Q2. A large part of the reason for this was due to a large increase in provisions for non-performing loans, which increased by £668m in a sign that the recent squeeze on customer finances was increasing concern about possible loan losses, pushing impairment provision year to date to over £1bn. In its Q3 numbers the bank also reported that unsecured loan demand remained strong with a 4% increase to £8.8bn, while the open mortgage book saw an increase of 1%. This is expected to see a slowdown in Q4 and into the new fiscal year, even as net interest margins have improved to 2.98% for the quarter, up from 2.55% in Q2, pushing average NIM year to date up to 2.84%. Inevitably this improved profitability has led to calls from certain parts of the political spectrum for a windfall tax on the banks, despite the facts that profits are lower this year than they were last year. Lending to small business also saw a modest decline of 3% to £39.8bn, not altogether surprising given the economic backdrop, and the increases in taxes that are due to come into effect in April. Rolls-Royce FY22 – 23/02 – when new CEO Tufan Erginbilgic took over earlier this year he didn't hold back in the challenges facing the current business. Likening the company to a "burning platform" his words sent the shares off their recent highs, after a rally from the September lows of 70p, which saw the shares hit their highest levels since February last year. There is no question the company has its problems, with its heavy reliance on its civil aerospace division a notable weak spot, although even here there are grounds for optimism as airlines slowly return to their normal pre-Covid flying patterns. In Q3 the company that various problems in its supply chains meant that inventory levels were higher than they should be, due to high demand in its power systems business which was seeing record orders. These problems have caused a higher-than-expected build-up of inventory. Large engine flying hours were also at the lower end of expectations, at 65% of 2019 levels despite the return of long-haul flights last year. The company blamed China's zero-covid policy for impacting the business particularly in Asia, a trend which should improve in the coming months. The ITP Aero proceeds have been used to pay down a £2bn floating rate loan. As we look ahead to the new fiscal year let's hope the new CEO paints a more upbeat and more optimistic outlook than the one, he laid out last month. After all, if he can't paint a positive outlook for the business, why should shareholders. BAE Systems FY 22 – 23/02 – over the last 12 months the UK biggest defence contractor has been one of the best performers with the shares hitting record highs earlier this year. The Russian invasion of Ukraine has pushed BAE to the forefront of investors radars given its position as a manufacturer of artillery shells and howitzer rounds, as well as other defence systems and hardware. In Q3 the company announced it had an order book backlog of £52.7bn, with the company seeing £10bn of orders in Q3 alone, on top of the £17.9bn in H1. The company kept its full year guidance of underlying EPS growth of 4% to 6% unchanged. IAG FY 22 – 24/02 – airlines have got off to flyer this year, amongst the best performing sector over optimism that as we head into 2023 consumers will start splashing what available cash they have on holiday getaways in what looks set to be the first year since covid that won't be subject to widespread disruption. The smaller budget airlines have recently reported a huge surge in bookings numbers, which bodes well for the likes of the big carriers as well. In Q3 IAG reported adjusted operating profits of €1.1bn, while revenues beat expectations coming in at €7.33bn, pushing above 2019 levels, despite operating at lower capacity. The higher revenue level, while welcome, simply reflects higher ticket prices, with business travel back at 75% of 2019 levels. Profits after tax for Q3 rose to €853m. For the year-to-date IAG has managed to edge back into the black to the tune of €170m. For Q4 capacity is expected to be at 87% of 2019 levels, with Q1 expected to rise to 95%, which seems a little on the optimistic side given the economic outlook, and how only Ryanair has managed to return to those sorts of levels of load capacity. Walmart Q4 23 – 21/02 – since falling sharply to 2-year lows in May last year after reducing their sales growth targets and missing on profits due to higher costs, Walmart shares have slowly recovered most of that lost ground. In Q3 the retailer reported Q3 revenues of $152.8bn, and profits of $1.50c a share, which were both well above expectations. The profit number for the quarter was wiped out by a one-off $3.1bn opioid settlement, meaning that the profit turned into a net quarterly loss of $1.8bn. Despite that Walmart upgraded its full year guidance and posted gross margins of 23.8% also slightly ahead of forecasts, as well as announcing a $20bn share buyback. Walmart has also managed to reduce its inventory level down to 13%, haling it from Q2's 26%, helped by sales growth of 8.2%. The big question is whether Walmart will be able to meet this target given the slowdown in US retail sales seen at the end of last year. In previous quarters Walmart warned that rising prices were prompting a shift away from higher margin goods to lower margin everyday staples. Profits are expected to come in at $1.51c a share. Nvidia Q4 23 – 23/02 – having hit two-year lows back in October last year, Nvidia shares have undergone a decent rally since then, retracing 50% of the decline from the record highs from November 2021. The rebound from those lows appears to have run into a bit of trouble in recent days as concerns over the economic outlook increase. In August Nvidia warned on its margins as well as cutting its revenue outlook. Its Q2 numbers confirmed that downgrade to guidance, with profits coming in at $0.52c a share and revenues coming in at $6.7bn, with the company citing a slowdown in gaming revenue to $2bn. In Q3 revenues came in at a lower $5.93bn, although demand for its data centre chips was better, which offset slowing demand for gaming chips. Profits came in at $680m, slightly below expectations, with the company offering Q4 revenue guidance of $6bn, +/- 2%. Since the start of this year Microsoft indicated that demand for gaming had remained lower, which is likely to be reflected in Nvidia's revenue on the gaming side. Demand for higher specification AI chips could well offer some hope here with Nvidia a key supplier in this area. Profits are expected to come in at $0.81c a share. For further comment from Michael Hewson, please call 0203 003 8905 or 07824 660632Email: marketcomment@cmcmarkets.comFollow CMC Markets on Twitter: @cmcmarketsFollow Michael Hewson (Chief Market Analyst) on Twitter: @mhewson_CMC
Week Ahead: Russia is expected to show the deflation trend remains intact

Week Ahead: Russia is expected to show the deflation trend remains intact

Craig Erlam Craig Erlam 18.02.2023 09:20
US The latest round of economic data (retail sales, CPI, PPI, jobless claims) are all signaling more Fed rate hikes are coming.  Wall Street will pay close attention to the flash PMIs, which could show manufacturing and service sector activity is stabilizing, existing home sales, jobless claims, and personal income & spending data.  The second look at Q4 GDP and core PCE are also expected as is the final sentiment reading from the University of Michigan. The debate between quarter-point and 50 basis point rate rises by the Fed has returned.  The FOMC minutes will closely be watched, especially after Fed’s Bullard and Mester noted they were thinking about half-point rises.  Fed speak includes appearances by Bostic and Daly on Thursday, while Jefferson, Collins, and Waller speak on Friday.   Earnings seasons continues with key updates from Alibaba, Baidu, BASF, BHP, Block, Booking, CIBC, Cheniere Energy, Deutsche Telekom, eBay, Engie, Eni, Home Depot, HSBC, Iberdrola, Intuit, Keurig Dr Pepper, Moderna, Munich Re, Nvidia, Rio Tinto, Walmart, and Warner Bros Discovery.  Eurozone It’s unlikely to be a game-changing week but there are some very interesting economic data releases that traders will pay close attention to. The one that stands out is the HICP inflation data, although being a revised number we may not get much from it. The PMI surveys could be of greater consequence, being flash readings that will continue to paint a picture of how well the bloc is holding up.  UK  A quiet week for the UK with the early part bringing PMIs from the services and manufacturing sectors and the latter BoE appearances. The outlook for the UK remains confusing despite all of the optimism and just as we’re seeing setbacks elsewhere, there will likely be plenty here too. Investors appear convinced the end of the tightening cycle is nigh, buoyed by the MPC’s confidence on the path of inflation this year. The PMIs will offer further insight into the state of the economy while the speeches may shed a little more light on what this all means ahead of next month’s meeting. Russia The monetary policy report may be of interest next week, although rates have now been on hold for the last five months. PPI data is expected to show the deflation trend remains intact, something that may trigger a change in thought on rates should it filter through to the CPI numbers.  South Africa Unemployment and PPI data are released next week, the latter of which may catch the eye a little more given the potential implications for CPI inflation and interest rates. We’re still a way off from the next SARB meeting which takes place at the end of March but with inflation now only a little above the 3-6% target range and core well within, the case for further rate hikes is weakening.  On Wednesday, Finance Minister Enoch Godongwana will deliver the National Budget speech to Parliament. The government has numerous priorities that it must address and finding that balance will be no easy feat. Markets, as ever, will be watching. Turkey There’s no doubt what the main event is next week. The CBRT is expected to resume its easing program with another 1% cut, taking the key rate to 8%. The central bank hasn’t been shy about going further than markets expect before, or particularly concerned about the consequences. So we shouldn’t be surprised if it does so again. Switzerland Very little of note on the agenda next week, the most notable possibly being the ZEW survey. A 0.5% rate hike is still expected at the next scheduled meeting on 23 March but with inflation still running uncomfortably above target; the only risk is the SNB won’t wait that long.  China The amount of support that will get pumped into China’s economy might depend on how well their reopening goes.  This week’s main event for China is the decision on loan prime rates.  Given the PBOC kept the key rate steady earlier this month, both the 1-year and 5-year loan prime rates are expected to remain unchanged from a month ago at 3.65% and 4.30% respectively.  China is still widely expected to ease sometime soon and that should keep the outlook strong for Asia.      India No major economic releases or events are expected.  Australia & New Zealand The RBNZ is widely expected to deliver its 10th-straight rate hike, with the majority of analysts expecting a half-point rate rise to 4.75%. The consensus range is anywhere from a quarter-point rate rise to as high as a 75 bp rate increase.  Extreme weather may keep inflation pressures going, so the RBNZ should remain somewhat hawkish.  New Zealand’s second-tier data releases also include PPI, trade balance, and credit card spending.    The main economic release for Australia is Q4 wage data that is expected to show pay growth remained, but struggled to keep up with inflation.  The release of Q4 private capital expenditure should show an improvement from -0.6% to +0.9%.   Japan The focus in Japan will be on two big events.  Kazuo Ueda, the government’s nominee to become the next BOJ  governor, is expected to speak at a confirmation hearing at the lower house of parliament on February 24th. Japan’s inflation report is also expected to show core prices rose to the fastest levels since 1981.  Singapore The January inflation report is expected to be hot as the labor market remains tight and foreign travelers return.  Industrial production is also expected to improve, with the year-over-year reading increasing from -3.1% to -1.9%.  Economic Calendar Saturday, Feb. 18 Economic Events Major leaders attend the 59th Munich Security Conference Hungary PM Orban gives his annual state-of-the-nation speech Sunday, Feb. 19 Economic Event US Secretary of State Blinken’s European trip includes visits to Turkey, Germany, and Greece   Monday, Feb. 20 Economic Data/Events US markets closed for President’s Day China loan prime rates Eurozone consumer confidence Finland CPI Malaysia trade Philippines balance of payments Sweden CPI Taiwan export orders Thailand GDP US President Joe Biden is scheduled to visit Poland   EU foreign ministers meet in Brussels Sweden’s Riksbank releases minutes from its February monetary policy meeting BOE’s Woods speaks at the Association of British Insurers annual dinner Tuesday, Feb. 21 Economic Data/Events US existing home sales, PMI Canada retail sales, CPI Eurozone PMI, new car registrations Finland unemployment France PMI Germany PMI, ZEW survey expectations Japan PMI Mexico retail sales, international reserves UK PMI Russian President Putin to deliver his first state-of-the-nation address RBA releases minutes from its February policy meeting Riksbank’s Floden speaks   Riksbank’s Ohlsson participates in a roundtable about the current economic situation Wednesday, Feb. 22 Economic Data/Events Fed releases minutes from its Jan. 31-Feb. 1 policy meeting Germany CPI, IFO business climate Italy CPI New Zealand trade Russia industrial production US MBA mortgage applications Reserve Bank of New Zealand rate decision: Expected to raise rates by 50bp to 4.75% ECB Governing Council meets in Lapland, for a non-monetary-policy meeting BOJ board member Naoki Tamura speaks in Gunma, Japan Riksbank’s Governor Thedeen speaks about the economy and monetary policy South African Finance Minister Godongwana presents the national budget Hong Kong annual budget presentation Thursday, Feb. 23 Economic Data/Events US 2nd look at Q4 GDP, initial jobless claims Eurozone CPI Singapore CPI Taiwan industrial production G-20 finance ministers and central bank governors meet in India Turkey interest-rate decision: Expected to cut rates by 100bps to 8.00% Mexico’s central bank releases minutes from its February policy meeting Fed’s Bostic speaks at the bank’s 2023 banking outlook conference BOE’s Mann speaks at the Resolution Foundation on “The Results of Rising Rates: Expectations, Lags and the Transmission of Monetary Policy” BOE’s Cunliffe delivers a keynote address at a G-20 financial and central bank deputies meeting on “Leveraging National Payment Systems to Enhance Cross-Border Payment Arrangements” Riksbank’s Floden speaks on the economy and monetary policy Japan Emperor’s Day holiday Friday, Feb. 24 Economic Data/Events US PCE deflator, personal spending, new home sales, University of Michigan consumer sentiment Germany GDP Japan CPI Mexico GDP Singapore industrial production One-year mark of Russia’s invasion of Ukraine German Chancellor Scholz leaves for a three-day trip to India BOE’s  Tenreyro participates in a panel discussion titled, “Back to 2% inflation?” BOJ governor-nominee Kazuo Ueda appears before Japan’s lower house Sovereign Rating Updates Netherlands (Fitch)  Austria (S&P) Austria (Moody’s) Sweden (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.  
Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

Inflation Report In The Euro Zone Ahead Of Us, Will The ECB's Actions Bring The Expected Results?

Kamila Szypuła Kamila Szypuła 18.02.2023 10:39
Next week there are some very interesting economic data releases that investors will pay close attention to. Data on inflation in the euro zone stand out in the foreground. CPI Forecast Eurozone inflation is expected to increase from 8.5% to 8.6%. Core CPI will remain unchanged at 5.2%. The ECB believes that the easing pressure from energy prices and other costs, together with the ECB's monetary policy measures, should bring inflation back to the 2% inflation target. Source: investing.com Economic situation European officials breathed a sigh of relief on Monday after new data suggested the region would avoid an economic recession. Back in November, the European Commission, the EU's executive arm, warned that the eurozone could enter a recession — defined by two consecutive quarters of falling economic performance. However, on Monday, the institution said thanks to government support and a reduction in energy costs, this is no longer the case. The outlook for this year is also brighter with a projected GDP rate of 0.9%, compared to a growth rate of 0.2% projected just three months ago. EU interest rates Despite the good news, finance ministers have plenty of work to do in the coming months. European governments have adopted loose fiscal policies since the outbreak of the coronavirus pandemic in 2020 — it was argued at the time that nations could not focus on lowering debt levels or correcting deficits because they needed to support their economies in such an extraordinary economic shock. The same argument was used after the Russian invasion of Ukraine, when governments helped with energy bills, among other things. “In view of the underlying inflation pressures we intend to raise interest rates by another 50 basis points at our next meeting in March,” Lagarde told lawmakers at the European Parliament. She added it would then evaluate the subsequent path for monetary policy, reiterating the message the bank delivered after hiking rates by a half percentage point on February 2. The ECB will publish updated economic forecasts at its March meeting, which will help it formulate the course for monetary policy. If the central bank goes through with the half-point hike in interest rates, it would be its sixth increase since July for a total increase of 3.5 percentage points. ECB Executive Board member Fabio Panetta said on Thursday that the ECB should consider the risks of over-tightening the policy and argued that the bank should not unconditionally pre-commit to future policy moves. On a more neutral note, ECB Chief Economist Philip Lane said that he is open-minded about the precise scale of the monetary policy tightening that will be needed to achieve the inflation goal. Other reports In the coming week there will also be other reports from the euro zone. PMI surveys may be more meaningful as they will be lightning fast readings that will continue to paint a picture of how well the block is holding up. Source: investing.com
US GDP Ahead, Energy Prices Push Lower, EUR/USD Pair Struggles

The US Economy Expects Neither Decline Nor Growth Of GDP

Kamila Szypuła Kamila Szypuła 19.02.2023 09:30
This week attention was focused on the US inflation report. In the coming week, the markets and the Americans expect the publication of gross domestic production data and thus whether fears of recession are high. Previous data The US economy ended 2022 in solid form, although there are still questions as to whether growth will turn negative in the coming year. Gross domestic product grew by 2.9% yoy in the fourth quarter, slightly better than expected. An increase in private investment in inventories, government spending, and investment in non-residential fixed assets helped raise the value of GDP. The sharp decline in housing helped reduce GDP, while increases in government spending and private investment contributed to growth. The rate of growth was slightly slower than the 3.2% rate in the third quarter. Consumption expenditure, which accounts for around 68% of GDP, increased by 2.1% over the period, down slightly from 2.3% in the previous period, but is still positive. Forecast Gross domestic product is expected to remain unchanged at 2.9%. Fed New government figures released on Tuesday show that above-average inflation continues to challenge the US economy. Largely positive economic data from the US and hawkish stance of several FOMC representatives opened the possibility of further rate hikes by the Federal Reserve. The Federal Reserve is expected to continue raising interest rates. The difficulty the central bank faces is whether it is able to carry out a soft landing. Economists said they still expect a recession after the new January inflation figures. The question is how severe the downturn could be. Soft landing? A recession is when an economy gets smaller, i.e. produces less stuff: fewer laptops, trucks, lattes and hairdressers. Normally when it happens you feel it, people get fired, businesses close down and it all starts with a super sale. But now nothing really goes according to plan. Last year, as inflation spiked, the Federal Reserve took action to drive prices down by raising interest rates. The increase in interest rates is intended to slow spending. Higher interest rates make it more expensive for people and businesses to borrow money, so they borrow less, spend less, and ultimately buy less. When spending goes down, companies lower prices to encourage people to buy. And just like that, prices go down. Inflation problem solved! The problem is that a slowdown in spending slows down the entire economy. A promising sign that the US economy may hit a soft landing comes from the most important consumer. Consumer spending (or what we buy) accounts for nearly 70% of the entire US economy. When consumers spend less, the entire economy slows down. And the latest figures show that consumers spent at a very fast pace in January. Through the eyes of citizens Despite high inflation, rising interest rates and consistent recession predictions from Wall Street, Americans have continued to spend at record rates over the past year. A recent Morning Consult poll found that nearly half of adults - 46% - believe the US is already in recession. Such a slowdown – traditionally defined as two consecutive quarters of falling economic growth – has not really happened yet. However, economists say a recession may be imminent. Source: investing.com
Sterling Slides as Market Anticipates Possible Final BOE Rate Hike Amidst Weakening Consumer and Housing Market Concerns

Analysis Remains More Certain In The View That Headwinds Persist; Whether This Results In A Recession Is Probably Less Important

Franklin Templeton Franklin Templeton 19.02.2023 10:53
The mood music changes The first month of 2023 was quite the contrast to the dismal financial market returns posted last year. We have seen a growing belief form in markets that inflation—the prime driver of last year’s pain—has not just peaked but is finally moderating. This has been complemented by optimism relating to China’s reopening and economic data in Europe that suggest near-term recession risks have been averted. You might say the “mood music has changed.” As we discussed in last month’s Allocation Views, this is perhaps a case of markets having already discounted the likely pause in developed market growth. In addition, the relatively mild winter in Europe, which has led to unusually full reserves of natural gas (and sharply lower prices), can be viewed through an economic lens as one of the more extreme tail risks having been dodged. But has the outlook actually improved noticeably? Or is it just a matter of the phasing of periods of slightly more, or slightly less, sluggish growth. We continue to anticipate that the cumulative effect of monetary policy tightening will have a dampening effect on economic activity. We also believe the consequences of the cost-of-living crisis have not been evaded and that corporate profit margins may have further to fall if wages attempt to catch up with prices. This is likely to see growth slow—not just to below trend levels, but toward a standstill. However, with a more optimistic background, and listening to a happy tune being played by market participants, it would be easy to get carried away and believe that all was well. One area where this optimism perhaps sits on more solid foundations is in Asia. The reopening of China’s economy and rising demand for regional travel may help to support China’s neighbors. The health consequences of a slightly chaotic relaxation in China’s COVID restrictions have not been as bad as some might have feared, and the domestic service sector should continue to benefit from the follow through into sustained acceleration in growth. However, the Chinese authorities continue to balance a desire to promote growth with a need to maintain stability. Neither housing market risks nor fears of further regulatory action have gone away. We have seen that the change in tune regarding China’s zero-COVID policy has improved the mood of equity investors, especially locally, but we would be less certain that China will drive any appreciable improvement in gross domestic product (GDP) for the rest of the world or lessen the risk of recession in the western developed economies to a meaningful extent. The trough in economic activity is likely still ahead of us, as leading indicators suggest a period of weak growth (see Exhibit 1), even where current activity has held up reasonably well thus far. If the full impact of ongoing monetary policy tightening remains to be felt, then it is unlikely financial markets can post a sustained rebound at this time. Our analysis remains more certain in the view that headwinds persist; whether this results in a recession is probably less important than the direction of travel. This is reflected in our primary theme that is revised to note that “Growth Is Below Trend” and recession risks are high globally, but increasingly bifurcated between East and West. Inflation has peaked Part of the improving sentiment in markets, as we noted above, is due to inflation appearing to have peaked. This is true globally at the headline level, including the direct effects of energy prices. One of the areas that has received particular attention is European natural gas prices (see Exhibit 2), but broader measures of commodities have also reversed substantially all of their gains since the invasion of Ukraine in February 2022. As this round trip in prices recedes into the past, it will provide easy comparisons against which current Consumer Price Index (CPI) levels will be judged. This will result in expectations of an ongoing drop in headline CPI inflation being realized, unless other components rise to offset it. However, 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, core 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, many central bankers continue to have a laser focus on developments in employment and the labor force. Even as we become more certain that headline inflation has peaked, it is too early to sound the “all clear” from a policymaker’s perspective. Although supply push inflation is reversing, we believe demand destruction will increasingly be the dominant force as the economic cycle slows. These developments reinforce our view that companies will face softer demand, just as the lagged impacts of wage gains and interestrate rises are felt. A continued drag on profit margins is likely to drive weaker employment trends and a deceleration in core inflation. This will be a catalyst for central bank policy to change, but it is not in place yet. We believe the current focus on inflation and the debate around the rate of policy normalization will be the key determinants of monetary policy actions as the year progresses. However, we do see movement in a more constructive direction and have revised our second theme to reflect “Inflation Risks Are Now More Balanced.” Source: Allocation views | Franklin Templeton
China’s Foreign Minister Qin Gang Downplayed Russia’s Invasion Into Ukraine

Putin will be giving a state of the nation address, and focus will be on any risks of further escalation

Saxo Bank Saxo Bank 20.02.2023 09:20
Summary:  Watch our video or read the text below. This week the Fed’s preferred inflation gauge, US PCE will be released, as well as the FOMC minutes - which will shed light on inflation trends and could result in the USD lifting and equities softening. Japan’s January CPI and BOJ Governor Ueda’s parliamentary hearings are on tap. Geopolitical tension keeps Saxo’s Defense basket in focus. The RBNZ’s rate hike trajectory could downshift and signal NZD weakness. Flash PMIs to test the soft-landing narrative. BHP and Rio Tinto’s outlooks may set the course for copper and aluminium companies in 2023. And Allkem and Pilbara Minerals results could follow Albemarle’s bumper numbers. US PCE and FOMC minutes will shed more light on inflation trends   After firmer prints for January CPI and PPI last week causing some market concern, focus now turns to the Fed’s preferred measure of inflation – the PCE – due this week. Bloomberg consensus expects January core PCE at 4.3% YoY (from 4.4% previously) while the MoM may be slightly hotter at 0.4% from 0.3% last month. Consumer spending is likely to have stayed robust, continuing to signal that the path of disinflation may not be linear. FOMC minutes from the Jan 31-Feb 1 meeting will also be out on Wednesday, but may be slightly dated in the wake of hotter inflation data since the meeting. As there was no dot plot at the meeting, it will be key to watch if any members commented on their expectations of terminal rate pricing. With some of the Fed members hinting at a potential 50bps rate hike again, it will be also important to watch if other members, especially those on the voting committee, remain open to that.  Japan’s January CPI and BOJ Governor Ueda’s parliamentary hearings on tap   Japan reports January inflation on Friday, and the pressure on Bank of Japan to tighten policy will continue to build. Consensus expects a further increase in inflationary pressures, with headline rising to 4.3% YoY from 4.0% YoY previously, while the ex-fresh food and energy is likely to head higher to 3.3% YoY from 3.0% YoY in December. Service price pressures are likely to sustain as travel momentum picks up further with China reopening. Tokyo CPI data for the month also accelerated to 4.4% YoY in January from 3.9% previously. The same day, BoJ Governor-nominee Ueda is poised to appear before the lower house for parliamentary hearings. Ueda’s speech will be key in gauging a clear stance from the Governor candidate ahead of incumbent Kuroda’s end-of-term on April 8. Markets are expecting a hawkish shift amid the hot CPI and wage pressures, but Ueda will likely take the time to assess his policy options.  Russia-Ukraine anniversary: Geopolitical tension keeps Saxo’s Defense basket in focus    In Saxo’s equity theme baskets, the Defense basket was one of the top performers last week despite the news of China sanctions on US defence companies like Lockheed Martin and Raytheon due to balloon shooting incident. Geopolitical tensions, and therefore the Defense stocks, will remain in focus again this week as we approach the one-year anniversary of Russian invasion of Ukraine on 24 February. Biden will be visiting NATO ally Poland to talk about the importance of the international community’s resolve, and unity in supporting Ukraine, adding that the next weeks and months are going to be difficult for Ukraine’s forces, and the US is going to continue to stand by them. Meanwhile, China’s top diplomat Wang Yi kicked off his week-long tour through Europe in Paris on Wednesday. The diplomat is expected to travel to Italy, Germany, and Hungary – with a final stop in Russia. There were also some reports suggesting that the US has information that China may be considering supplying arms to Russia. Putin will also be giving a state of the nation address, and focus will be on any risks of further escalation noting that 500k Russian troops have been mobilised.  Flash PMIs to be the next test of the soft landing narrative    This week will bring flash PMIs for February in the Eurozone, UK as well as the US. Sustained strength is likely for the Eurozone PMIs across manufacturing and services after the jump seen in January, but the impact of monetary tightening remains key to watch given the still significant amount of rate hikes being priced in for the ECB. The PMIs for UK are however likely to continue to remain in contractionary territory, suggesting the risk of recession has not gone away. Germany’s Ifo and ZEW surveys for February will also provide a further read on growth at the start of 2023. US PMIs, likewise, are also likely to remain in contraction despite some improvement, but the key in US remains the ISM surveys more than the S&P PMIs.  Downshift in RBNZ’s rate hike trajectory could signal NZD weakness   The Reserve Bank of New Zealand meets on Wednesday, 22 February and consensus expects a return to 50bps rate hikes after a 75bps in November when even the possibility of a 100bps was debated. Economic data has been soft since the last meeting, with 2-year inflation expectations easing and unemployment rate seeing a slight uptick. However, Cyclone Gabrielle has brought fresh risks of inflation pressures in the short-term. Still, risks of further kiwi weakness loom large after NZD has weakened 1.6% against the USD so far this year. If RBNZ signals that the peak for the current rate hike cycle is near, the 38.2% retracement of NZDUSD uptrend from the October low could be challenged.  Commodity giants - BHP (BHP) and Rio Tinto (RIO) results ahead - setting the course for copper and aluminium companies in 2023   BHP and Rio Tinto report this week (Monday 21, Tuesday 22 respectively) and if Fortescue was something to go by with stronger than expected profits - supported by iron ore demand rising 4% than a year earlier - then BHP and Rio could surprise to the upside. The focus will be on their outlooks – with both BHP and Rio expected to give optimistic forecasts for the year amid Chinese demand picking. They may also shed light on wages picking up and further inflationary pressures. Iron ore, and copper and coal giant BHP is expected to declare a full-year gross dividend yield of 14% with earnings (EBITDA) of $40.6 billion in 2022 and free cashflows of $26 billion. Iron ore, aluminium and copper giant Rio is expected to declare a full-year gross dividend yield of about 11%, with earnings (EBITDA) of $27.1 billion in 2022 and free cash flow of $11.2 billion.  Saxo’s preferred commodity exposure is aluminium and copper (and lithium). To track Australia’s largest Resources companies, refer to Saxo's Australian Resources theme Basket.  Lithium companies Allkem (AKE) and Pilbara Minerals (PLS) results ahead – they could follow Albemarle which paved a positive outlook    After the world's biggest lithium company Albemarle gave a stronger than expected sales outlook for 2023 paving a positive course for lithium companies this year; with China’s reopening to provide extra momentum as demand for EV picks up the market will pay close attention to AKE and PLS’s results on Friday. ALB sees net sales growing to $11.3-$12.9 billion, and EBITDA getting as high as $5.1 billion – so given tight supply and rising demand, you may expect positive outlooks from Australian counterparts - Pilbara Minerals and Allkem. Pay attention to their outlook commentary; earnings, cashflows, forward capital expenditure and importantly expectations of lithium pricing - which underpins earnings. To track lithium companies, refer to Saxo’s Lithium equity theme Basket   Macro data on watch this week   Monday 20 February US, Canada Market Holiday China (Mainland) 1Y and 5Y Loan Prime Rate (Feb) Malaysia Trade (Jan) Taiwan Export Orders (Jan) Eurozone Consumer Confidence (Feb, flash) Thailand Customs-Based Trade Data (Jan) Tuesday 21 February Australia Judo Bank Flash PMI, Manufacturing & Services* Japan au Jibun Bank Flash Manufacturing PMI* UK S&P Global/CIPS Flash PMI, Manufacturing & Services* Germany S&P Global Flash PMI, Manufacturing & Services* France S&P Global Flash PMI, Manufacturing & Services* Eurozone S&P Global Flash PMI, Manufacturing & Services* US S&P Global Flash PMI, Manufacturing & Services* Australia RBA Meeting Minutes (Feb) New Zealand PPI (Q4) Germany ZEW Economic Sentiment (Feb) Canada CPI (Jan) Canada Retail Sales (Dec) United States Existing Home Sales (Jan) Wednesday 22 February New Zealand Trade Balance (Jan) Japan Service PPI (Jan) Australia Composite Leading Index (Jan) Australia Wage Price Index (Q4) New Zealand Cash Rate (22 Feb) Germany CPI (Jan, final) Taiwan Jobless Rate (Jan) Germany Ifo Business Climate New (Feb) Germany CPI Prelim MM (Feb) United Kingdom House Prices (Feb) United States FOMC Meeting Minutes (Feb) Thursday 23 February Australia Capital Expenditure (Q4) South Korea Bank of Korea Base Rate (Feb) Singapore Consumer Price Index (Jan) Taiwan Industrial Output (Jan) Eurozone HICP (Jan, final) United States GDP (Q4, 2nd estimate) United States Initial Jobless Claims Thailand Manufacturing Prod YY (Jan) Friday 24 February Japan CPI (Jan) United Kingdom GfK Consumer Confidence (Feb) Singapore Manufacturing Output (Jan) Germany Detailed GDP (Q4) Germany GfK Consumer Sentiment (Mar) United States Personal Income and Consumption (Jan) United States Core PCE Price Index (Jan) United States UoM Sentiment (Feb, final) United States New Home Sales (Jan) Canada Current Account C$ (Q4) Company earnings to watch   Monday Feb 20Williams Cos Tuesday Feb 21Teck Resources, Gapgemini, Engie, HSBC, Walmart, Home Depot, Medtronic, Palo Alto Networks, Singapore Airlines, BHP Group, Alumina, Coles Wednesday Feb 22Rio Tinto, Santos, Oz Minerals, Domino’s Pizza Enterprises, Genmab, Danone, Lloyds Banking Group, Iberdrola, Nvidia, TJX, Stellantis, Baidu, eBay Thursday Feb 23EssilorLuxottica, Deutsche Telekom, Munich Re, Kuaishou Technology, Eni, Anglo American, BAE Systems, Singapore bank UOB, Qantas, Alibaba Friday Feb 24 Block (Square), Lynas Rare Earths, Mineral Resources, Allkem and Pilbara Minerals (in lithium), Singapore bank OCBC, BASF, Monster Beverage Source: Saxo Spotlight: What’s on investors & traders radars this week? From US PCE to services data, to RBNZ hike to BHP, Rio results | Saxo Group (home.saxo)
Nasdaq 100 posted a new one year high. S&P 500 ended the day unchanged

Chinese equities rally, Meta announced a plan to roll out paid subscriptions

Swissquote Bank Swissquote Bank 21.02.2023 10:30
Chinese equities were boosted on Monday by a report from Goldman Sachs predicting that the MSCI China index could rally as much as 24% by the end of the year. BHP And mining stocks hope they are right because BHP announced a 32% drop in half-year profit as a result of rising costs and soft commodity prices, mostly hit by subdued activity in China. However, rising commodity prices is a scenario of catastrophe for global inflation, and the central bank expectations. The RBA The latest minutes from the Reserve Bank of Australia (RBA) showed that the Australian policymakers considered a 50bp hike at the latest meeting, before agreeing on a 25bp hike. Oil For now, though, oil bears defy all news of Chinese reopening. Yesterday’s rebound in US crude remained capped into the 50-DMA, a touch below the $78pb mark. Meta In the corporate space, Facebook’s Meta announced a plan to roll out paid subscriptions to compensate for the revenue loss from advertisements – which topped $10 billion last year after Apple changed its security settings. Read next: USD/JPY Pair Is Above 134.00, EUR/USD Pair Holds Below 1.07, GBP/USD Pair Managed To Rebound| FXMAG.COM The latter could give some boost to the revenues in the short run but it’s certainly a sign that Facebook is running out of ideas, and that’s not good for the longer-run perspective! Watch the full episode to find out more! 0:00 Intro 0:42 Chinese equities rally as Goldman predicts 24% rally this year 3:16 BHP hopes Chinese reopening will boost energy, commodity prices 4:02 But higher energy prices is bad news for most stocks 4:22 … and for central bank doves! 5:26 BoFA & JP Morgan bet against European stocks 6:38 Meta is like watching trainwreck in slow motion 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. #Facebook #Instagram #Meta #verified #account #China #stock #rally #commodity #energy #prices #crude #oil #BHP #earnings #inflation #RBA #Fed #expectations #AUD #USD #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
The European Economy Has Demonstrated Amazing Resiliency Following The Supply Shock Of The Russian Invasion Of Ukraine

Eurozone PMI shows strong increase in February

ING Economics ING Economics 21.02.2023 11:56
The composite PMI increased from 50.3 to 52.3, hinting at accelerating growth over the course of the first quarter. While a lot of underlying weakness is still apparent, the economy is proving very resilient this winter. With service sector selling price expectations still high, expect the European Central Bank to remain vigilant   The eurozone economy continues to surprise on the upside. The PMI paints a picture of an economy that is bouncing back from the sluggish performance in recent months, which is mainly driven by fading supply-side problems. This may be giving a larger push to economic activity than initially expected as backlogs of orders are now going into production. Also helpful is that the energy crisis has moved into an undoubtedly milder phase with market gas prices now about a third of what they were only in mid-December. The survey also suggests that demand is improving, which is surprising given the downturn in domestic demand in the fourth quarter in most large eurozone economies. Demand is positively affected by some returning optimism among consumers over peak inflation being behind us and a recession likely avoided. But while consumer confidence has been increasing for five months in a row now, it does remain at levels usually associated with recession. Read next: Amazon Will Pay Employees A Lower Salary Due To Lower Stock Prices, Declining Demand For 5G Equipment Will Result In The Loss Of 1,400 Jobs At Ericsson| FXMAG.COM Inflationary pressures continue to ease, but mainly on the manufacturing side. Fading supply-side issues are having a positive impact on prices, especially as inventories have been building. This has resulted in a continued drop in selling price expectations among manufacturing businesses, although the level remains elevated historically. For services, rising wage costs are an important driver of continued high input cost increases. That has resulted in still elevated selling price expectations among service sector businesses. The combination of better-than-expected economic activity at the start of the year and service sector inflationary pressures which remain elevated will likely keep the ECB in hawkish mode. 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
Euro and European bond yields decreased after the ECB decision. The end of tightening may be close

How the ECB’s rate hikes are filtering through to the eurozone economy

ING Economics ING Economics 22.02.2023 12:30
The European Central Bank's policy stance has become restrictive. To us, the impact on the economy is probably the most underestimated drag on growth for 2023. The good news is that we see no meaningful signs of fragmentation between countries, so monetary policy is not causing shocks in more vulnerable parts of the eurozone European Central Bank President Christine Lagarde   Last summer, when the ECB started hiking interest rates, the immediate question for financial markets was how far the Bank would dare to go. Ending an era of negative interest rates and unconventional monetary policy when inflation is approaching double-digit levels is one thing, actively breaking down the economy is, however, another. This is why the eurozone's nominal neutral interest rate – which was pegged at between 1.5% and 2% by almost everyone – suddenly became the focus of attention. Even ECB President Christine Lagarde referred to this illustrious neutral rate (the rate at which monetary policy neither stimulates nor restricts the economy), suggesting that the central bank use this as a rough anchor for when policy could start to become restrictive. When policy is restrictive, this leads to weakening economic activity and ultimately to lower inflation. The rate, however, is a very theoretical concept, impossible to measure and rather an ex-post instrument to describe a monetary policy stance rather than providing guidance for actually conducting monetary policy. This is why the ECB quickly, at least publicly, debunked the idea that it would follow this neutral interest rate concept. Wherever a neutral interest rate in the eurozone might be, hiking interest rates by 300bp, as the ECB has done so far, and with more hikes to come, the question is not whether the ECB’s hiking cycle will slow the eurozone economy but rather when. Most channels through which higher rates work are showing tightening impact Let’s use the ECB's own handy flowchart to explain how it sees monetary policy ultimately feeding through to prices (for the ECB’s own assessment, we can recommend Chief Economist Philip Lane’s speech from 16 February). The four main transmission channels are: money/credit, asset prices, bank rates and the exchange rate. All four channels have seen sizable adjustments since last summer: ECB's own take on monetary transmission Source: https://www.ecb.europa.eu/mopo/intro/transmission/html/index.en.html Source: ECB, ING Research   The money supply has fallen quickly since the ECB started reducing asset purchases. In fact, growth in real money (M1) has not been so negative since the ECB's record-keeping began. This historically corresponds with a significant correction in economic activity. When looking at asset prices, we see that stocks and bonds saw a significant correction in 2022 (although we have seen a rebound in prices as expectations of a peak in policy rates have grown this year). Real estate prices are somewhat slower to respond but are undoubtedly starting to turn. In countries like Germany and the Netherlands, price declines have already become somewhat sizable as the combination of higher bank rates, low consumer confidence and lower purchasing power is resulting in declining housing demand. This is not where it will stop. We expect this to have an impact on construction activity in the coming year. Bank rates have also considerably increased since the beginning of 2022, following the increase at the longer end of the yield curve. This is starting to curb investment as growth in bank lending has almost stalled for households and is considerably negative for businesses. Traditionally, business borrowing reacts with longer lags to higher rates than consumer borrowing. Last year, for example, borrowing by non-financial corporates held up until mid-2022 because of working capital needs – due to supply chain problems for example. Recently, however, there has been a sharp correction, which has been much quicker than in previous cycles. That correction corresponds to the Bank Lending Survey, which indicates that borrowing needs for investment reasons have fallen significantly in recent months. We expect this to have an important dampening impact on investment in the eurozone in the quarters ahead, although the recovery fund's impact on southern economies could mute the overall investment response seen in 2023. The euro has appreciated since the end of last year as investors are expecting more rate hikes from the ECB and because energy prices have fallen significantly from the peak which has resulted in a smaller trade deficit. This is starting to feed through to import prices, which have started to see lower year-on-year growth. In fairness, the bulk of that move down has resulted from the lower energy prices seen recently, but the impact of a stronger euro will be felt down the line. The early phase of monetary transmission is fast at work Source: ECB, Eurostat, ING Research No need for TPI as monetary transmission is not showing signs of fragmentation When looking at the above-defined categories per country, we see that there is not that much difference in transmission. The rise in percentage points for borrowing rates differs just modestly between countries and the nominal effective exchange rate has made roughly similar movements for most countries – as expected. Liquid assets have seen declines across the board, with a few stock markets in Southern Europe notably outperforming. House prices are still well above levels seen in late 2021, although Germany and the Netherlands are starting to see a correction as a downward trend has started which the table below does not pick up on. The money supply is of course handled centrally, but recent developments in bank lending can say something about credit reaching the real economy. Here, we see the most striking difference so far, as Italy and Spain have seen declines in borrowing from non-financial corporates, whereas Germany and France have not, yet. The important caveat here is that we have seen quite some borrowing for working capital and inventory reasons, which has driven up borrowing or at least made borrowing more volatile. For Germany, the bank lending survey suggests declining demand for investment borrowing, which means that transmission could be at work more than the numbers suggest. Compared to the average, we see that France is the country still experiencing a smaller impact on all counts, while Italy is experiencing a somewhat more significant impact. Overall though, there is no shock happening in the system for any country measured, and monetary transmission is therefore not causing problems. So far, there is no reason to use the ECB’s new Transmission Protection Instrument (TPI) as fragmentation of monetary transmission in the eurozone is not happening at the moment. The much feared fragmentation of monetary transmission has not happened so far Note: red indicates more tightening impact than eurozone average, green indicates less tightening than average Source: Macrobond, ECB, ING Research Most of the impact on inflation and growth still has to feed through While the initial boxes of monetary transmission have clearly been ticked, the timing of the actual impact of monetary policy on the real economy has always been difficult. In theory or in large macro models, it is assumed that it takes 9 to 12 months before monetary policy affects the real economy most. Recently, there have been central bankers (Fed members) suggesting that the lag could currently be shorter than in the past. In any case, the transmission of monetary policy can often be blurred by other factors. At the current juncture, the energy crisis is playing a large role in slowing down the economy and has also helped to ease inflation as recent developments have caused gas and electricity prices to come off their peaks. Supply chain problems have been fading recently and demand for goods has weakened, which has helped supply and demand in goods markets become better balanced again. Read next: Consumers Are Spending More On Food, So Walmart And Home Depot Are Making Cautious Predictions| FXMAG.COM How does this stack up to previous hiking cycles? It is difficult to compare current developments to previous tightening cycles by the ECB. The ECB has only engaged in three previous hiking cycles, of which the 2011 one only lasted for two meetings. The thing that stands out is that the underlying conditions of the economy matter a lot when looking at the pace of transmission. The 2005 hiking cycle happened when the economy was performing quite well, the 2000 cycle started in a strong economy, while 2011 was a famous example of hiking into a recession. That difference shows when looking at the response. In 2005, bank lending growth to businesses continued to accelerate despite rate hikes and only slowed when the 2008 recession started. We now see a much faster response. Asset prices are now also turning down much faster than in 2005 as this only happened years after the start of the tightening cycle in 2008, while we are already seeing the negative effects now. This also holds true for money growth. So while we have little to compare to, it does become evident that the key channels of monetary transmission are seeing faster downturns now than in the previous long tightening cycle of 2005. But it's too early for the ECB to declare victory yet While inflation is falling, core inflation is still trending up and is far above target at 5.2%. It is therefore too early to declare victory on price developments. Wage growth is also still moving up cautiously. While not nearly enough to raise concerns about a wage-price spiral, the labour market remains red hot and negotiated wage growth has moved from the 1.5% to 3% range in 2022. So supply and demand in labour markets have yet to adjust. Wage growth has started to trend up, causing upside risk to the inflation outlook Source: ECB   And expectations have started to feed through the monetary transmission system in the wrong way recently. As investors worry about recession and are optimistic about inflation returning to benign levels, we see that financial conditions are loosening again. This could work against tightening efforts from the ECB and we have seen ECB speakers speak out quite vocally against the premature easing of financial conditions. A lot is now moving in the right direction for the ECB to get inflation back to target, but uncertainty remains. No one really knows how persistent core inflation will be after this series of supply shocks that the eurozone has faced. There is also uncertainty over how long it will take for GDP and inflation to be impacted by the aggressive rate hikes from the ECB so far. Having moved to a restrictive level of policy recently and with more hikes in the pipeline, this uncertainty makes policy-making very difficult right now. Restrictive policy will have a significant downside impact on the economy this year While we are not seeing the full impact of monetary policy on prices yet, we do see transmission in full force, which will eventually have a larger impact on output and prices. With uncertain delays on economic activity and prices at work, the question is how hawkish the ECB will remain over the course of the year, given the tightening of monetary policy so far. At the March meeting, another 50bp hike is all but a done deal. Beyond the March meeting, however, the ECB will likely be entering a new phase in which further rate hikes will not necessarily get the same support from the Governing Council, as hiking deep into restrictive territory increases the risk of adverse effects on the economy. The main question beyond the March meeting will be whether the ECB will wait to see the impact of its tightening on the economy or whether it will continue hiking until core inflation starts to substantially come down. In the former case, the ECB could consider a pause in its tightening cycle and hike again at the June meeting. The latter would see continuous meeting-by-meeting hikes, possibly in smaller increments of 25bp. For our economic outlook, we think that restrictive monetary policy in 2023 will be a key factor preventing the economy from bouncing back from its current weak spell. While all eyes are on the energy crisis at the moment, higher rates will also be an important factor in dampening any meaningful recovery. While we don’t see the bulk of the impact yet, expect a eurozone economy that flirts with zero growth for most of the year as higher rates complete the transmission to demand. 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
Moderate Outlook: Growth and Disinflation Trends in the French Economy

French business climate signals economic resilience in February

ING Economics ING Economics 22.02.2023 12:36
In France, the business climate improved slightly in February and paints a picture of a resilient and fairly solid French economy. This data suggests that GDP should remain in positive territory in the first quarter France's La Defense business district Resilience The business climate in France improved slightly in February to 103 from 102 in the previous five months, still above its long-term average. The improvement comes from the services and retail sectors, where the business outlook is improving, but also from industry, where order books are reported to be rising. In the construction sector, on the other hand, the business climate is deteriorating. The employment climate also remains very solid. At 110, the indicator is still well above its long-term average. Overall, the business climate paints a picture of a resilient and fairly robust French economy. The data suggest that GDP should remain in positive territory in the first quarter. Two speeds More generally, all the indicators published since the beginning of the year seem to suggest that the French economy is probably currently operating at two speeds. On the one hand, the industrial sector is still in a slowdown phase, despite the continuous improvement in supply chains. Demand, particularly international demand, is slowing, as indicated by the February PMI for industry, which fell back below 50 in February, dropping to 47.9 from 50.5 the previous month, its lowest in four months. The sharp fall in energy prices, and in particular the price of natural gas, which is now only about a third of its mid-December price, and the resulting improvement in the world economic outlook seem to be limiting the slowdown, but not erasing it completely. On the other hand, the services sector is showing significant resilience and remains dynamic. While, unlike in other European countries, French consumer confidence continues to fall, service companies are rather optimistic and indicate that activity is picking up. The accumulation of pending business and expectations of growth are encouraging them to continue hiring workers and anticipate further significant price increases. This resilience of the services sector is good news for the French economy. Indeed, with traded services accounting for 57% of French value-added, the dynamism of activity in services can counterbalance the slowdown in the manufacturing sector, which accounts for only 9% of total value-added. Read next: Sweden And Finland Are Getting Closer To Becoming NATO Members| FXMAG.COM Activity should continue to grow in the first quarter The question now is whether the dynamism of the services sector can continue in the coming quarters. French companies seem to think so, with the assessment of expected activity rising sharply, according to the INSEE survey. However, major risks remain. Unlike in other European countries, the inflationary peak has not yet been reached in France, and even higher increases in energy and food prices are still expected in the coming months. The shock to purchasing power is therefore not over and will continue to impact consumer behaviour. Moreover, the support of fiscal policy for purchasing power will become less important in the coming months. Finally, French consumer confidence is not recovering right now. Household consumption has already fallen significantly in volume terms in the fourth quarter and growth is likely to remain weak in the coming quarters. At the same time, the construction sector remains under pressure and the rise in interest rates is likely to continue to weigh on household and business investment spending.   Ultimately, the latest economic indicators for France suggest that activity is likely to be stronger than expected in the first quarter of 2023 and that a contraction in GDP should be avoided. Nevertheless, they do not dramatically change the outlook for the following quarters, where activity growth should remain rather weak. Read this article on THINK TagsGDP 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
Central Bank Policies: Hawkish Fed vs. Dovish Others"

Inflation Is Not Declining As Fast As The Fed Had Hoped Which Suggest That Fed Will Maintain Its Hawkish Monetary Policy

InstaForex Analysis InstaForex Analysis 22.02.2023 12:58
The Federal Reserve first spoke about its forward guidance at last year's economic symposium in Jackson Hole. In particular, it was Chairman Jerome Powell's keynote speech that hit the American public. It's about the Fed's intention to raise rates and keep those higher rates until the Fed hits its 2% inflation target. Following the December FOMC meeting, the Federal Reserve released its economic forecasts for 2023–2025, including the most recent dot plot. The dot plot is the Fed's mechanism for predicting future rates by having 17 Fed officials vote on the future of monetary policy. The December dot plot revealed an overwhelming majority that the Fed would raise rates to a target of just over 5% and keep rates high throughout calendar year 2023. Although the Fed has maintained its policy, it is market expectations that have recently shifted from disbelief to recognition that the Federal Reserve is unlikely to abandon its hawkish monetary policy. This includes further rate hikes and maintaining those higher rates throughout the year. Read next: Sweden And Finland Are Getting Closer To Becoming NATO Members| FXMAG.COM During February, market sentiment on the Federal Reserve's forward guidance changed from uncertainty to approval. This put pressure on precious metals prices. While it is true that inflation has been declining since the Federal Reserve began raising rates last March, recent data suggests that inflation is not declining as fast as the Fed had hoped. The January employment report is well above the forecast of 188,000 compared to 517,000, combined with the latest inflation reports, which suggest that inflation remains high and resilient in some sectors. The most recent data has reinforced the idea that the Federal Reserve will maintain its hawkish monetary policy with the real possibility of two more rate hikes and, most importantly, maintain new elevated rates in 2023.   Relevance up to 09:00 2023-02-27 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/335786
Inflation in Singapore heats up again in April

Singapore: Inflation slips below expectations but stays hot

ING Economics ING Economics 23.02.2023 10:02
Headline inflation inched up to 6.6% year-on-year but settled well below market expectations      Price pressures are still evident in Singapore 6.6% January headline inflation (YoY)   Lower than expected Price pressures still evident in January January headline inflation ticked higher but settled much lower than what market participants had expected. Headline inflation hit 6.6% YoY (from 6.5%) driven by high food (8.1%), transport (11.9%) and clothing & footwear (6.9%). Meanwhile, core inflation rose further to 5.5% YoY, up from 5.1% previously. The pickup in prices could be traced in part to the recent increase in the goods and services tax (GST) which should factor into price pressures for the rest of the year.  Recent trends in retail sales data hinted at still robust domestic demand, which is also likely adding upward pressure to prices. Finance Minister Lawrence Wong indicated recently that inflation was expected to remain elevated for at least the first half of the year.    Read next: Tesla Opens Its Global Engineering Headquarters In Palo Alto, California| FXMAG.COM Core inflation has yet to peak Source: Singapore Department of Statistics Despite inflation miss, MAS still likely on notice The market consensus had pointed to headline inflation surging to 7.1% YoY and core inflation rising to 5.7% but both the actual headline and core measures settled below expectations. Despite the downside surprise, price pressures remain evident, especially on the demand side, as inflation for recreation & culture stayed high at 6.7%. With today’s report, we believe that the Monetary Authority of Singapore will retain its hawkish stance while monitoring price developments ahead of its April meeting.  We will be getting one more inflation report before the April meeting and this should be pivotal in determining whether the MAS will need to tighten its policy stance further or wait to see the impact of its cumulative tightening measures carried out since late 2021.    Read this article on THINK TagsSingapore inflation Monetary Authority of Singapore 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
Belgian housing market to see weaker demand and price correction

The Real Estate Market In China Has A Chance To Revive, Indonesia Economy Is More Resilient

Kamila Szypuła Kamila Szypuła 23.02.2023 10:38
The pandemic, Russia's attack on Ukraine will cause a series of difficulties, especially economic ones. Asian countries play an important role in the global economy, and their condition is particularly important. China, after covid restrictions, is back to recovery, including the real estate market. Indonesia is showing that despite external influence it is doing well.   In this article: Chinese households Indonesia is doing well The value of muni ETFs Chinese households There is no shortage of problems caused by the pandemic in the Chinese economy. The real estate market will definitely weaken. The number of families who choose not to invest in real estate has increased significantly. China's real estate sector, once a key driver of the world's second-largest economy, fell into a deep crisis in 2022, with real estate investment and sales plummeting, which took a toll on house prices. But there is an optimistic signal. More households were considering buying a home or investing in other assets in the coming three months, according to a survey by a research institute and think tank within the Ant Group and Southwestern University of Finance and Economics published Wednesday. The survey also shows that respondents' willingness to invest in domestic stocks, funds and foreign asset classes has also increased. Stabilizing the crisis-hit real estate sector will be a key challenge this year for policy makers as they attempt to kick-start economic recovery. Much depends on how quickly people start spending again after the government abruptly lifted strict COVID-19 restrictions in December. The number of Chinese households that decided against buying a home soared in the fourth quarter of 2022, a private survey showed, as COVID infections and lockdowns sapped sentiment, while property foreclosures soared as the economy slowed. More here: https://t.co/vo2GeVfK8u — Reuters Business (@ReutersBiz) February 23, 2023 Read next: Tesla Opens Its Global Engineering Headquarters In Palo Alto, California| FXMAG.COM Indonesia is doing well As the world's largest economy, what the US does has major implications around the world, including in Indonesia. Therefore, Indonesia is taking steps to make its economy more resilient so that it can withstand global shocks such as inflation, especially from the United States. Indonesia has coordinated its fiscal and monetary policy tools well to contain inflation and sustain growth. Unlike the US, where inflation remains stubbornly high, inflation in Indonesia fell in January. The headline consumer price index, the main indicator of inflation, fell to 5.28% yoy in January from 5.51% in December. The Indonesian minister said that despite the global slowdown, Indonesia's economic growth remains strong and domestic demand continues to improve. Indonesia says it's working to become more resilient to inflation shocks from the U.S. https://t.co/jdgiXla4Ka — CNBC (@CNBC) February 23, 2023 The value of muni ETFs In the past, ownership of municipal bonds was largely limited to very wealthy investors: it takes significant assets to build a diversified portfolio of municipal bonds, and investing in them requires a high level of expertise and management between brokers and clients. However, the introduction of exchange-traded funds (ETFs) holding an assortment of municipal bonds has created an attractive option for investors. Morgan Stanley Research expects the value of muni ETFs to double to $200 billion in assets under management by 2026, about a third of the time it takes for this asset class to reach $100 billion. Municipal exchange-traded fund assets are growing, which could improve market structure and give more households the potential to reap tax benefits. Learn more: https://t.co/WvxFskSqe5 #ETFs — Morgan Stanley (@MorganStanley) February 22, 2023
Rates Spark: Crunch time

The Euro Fell Below 1.06, The USD/JPY Pair Is Close To 135.00

Kamila Szypuła Kamila Szypuła 23.02.2023 13:00
The dollar held shy of multi-week peaks against other major currencies on Thursday, a day after minutes from the Federal Reserve's last policy meeting supported, but did not add to markets' view the central bank will raise rates further. Minutes from the Federal Reserve meeting released last night confirmed the hawkish rhetoric of Fed officials over the past two weeks. The key takeaway, of course, is that the Fed is committed to keeping interest rates higher for longer to bring inflation down to the 2% target. The impact of the protocol was somewhat dampened as the meeting was preceded by a series of metrics released in February, most notably employment figures, which showed the US economy was doing well, leaving more room for the Fed to raise interest rates to bring down inflation. Markets will be focused on US GDP as well as the accompanying labor market data in the form of jobless claims. US GDP is expected to come in marginally weaker than the previous. USD/JPY USD/JPY struggles to gain any significant traction on Thursday and trades in a tight band just below the psychological 135.00 mark for the first half of the European session. The yen pair started the day above 134.90, in the Asian session USD/JPY fell towards 134.70. In the European session, USD/JPY increased and is now just below 135.00. In addition, the USD/JPY pair is also weighed down by hawkish concerns around the Bank of Japan (BoJ), due to the imminent end of the term of governor Haruhiko Kuroda. Alternatively, Fed policymakers are poised for further interest rate hikes, according to the latest Federal Open Market Committee (FOMC) meeting minutes, which in turn is fueling demand for the US dollar. EUR/USD EUR/USD in the Asian session was above 1.06, and the pair traded close to the 1.0630 level. In the Asian session, EUR/USD fell below 1.06. This morning brought data on inflation in the euro zone for January, in which annual inflation fell to 8.6% in the euro zone and to 10.0% in the EU. In January, food, alcohol and tobacco accounted for the largest contributors to the euro area's annual inflation rate, followed by energy, services and non-energy industrial goods, according to data released by Eurostat. In addition, EU members will hold further talks on a new package of sanctions against Russia after failing to reach an agreement on Wednesday. According to Reuters, the proposed package includes trade restrictions worth more than €10 billion. Russia is reportedly planning to cut oil production in response to Western sanctions. The heightened risk of rising energy prices, which will contribute to stronger inflation in the eurozone, could help the euro hold its position in the short term, as such a situation would force the European Central Bank (ECB) to raise interest rates further after March. Read next: Tesla Opens Its Global Engineering Headquarters In Palo Alto, California| FXMAG.COM GBP/USD The cable pair in the Asian session was rising towards 1.2070, but in the European session it lost momentum and fell to the level of 1.2020. Currently, GBP/USD is at 1.2022. GBP/USD extended its decline towards 1.2000 early Thursday after reversing much of the PMI-driven gains on Wednesday. Markets will be keeping a close eye on US stocks and Brexit developments for the remainder of the day. AUD/USD The AUD/USD pair was rising towards 0.6840 in the first hours of trading. Then the pair of the Australian fell and rebounded again. In the European session the Aussie Pair traded below 0.6820, currently the AUD/USD pair is trading above 0.6820. Australian capital expenditure data beat estimates across the board (reaching its highest level since Q4 2021) showing optimism in these sectors. Source: investing.com, finance.yahoo.com
The Results Of The March Meeting Of The Bank Of Japan Are Rather Symbolic

Ueda’s Comments Clearly Echoed Kuroda-San’s View

Saxo Bank Saxo Bank 24.02.2023 10:01
Summary:  The policy stance of Bank of Japan’s governor nominee Kazuo Ueda, became much clearer with the parliamentary hearings kicking off today. He assured continuity of the current easy monetary policy with a steadfast focus on achieving 2% inflation sustainably. However he was cognizant of the side effects of yield curve control, and flexible to responding to market pressures with tweaks as needed. This comes against market’s strong anticipation of a hawkish tilt. The highly awaited event of the week was the parliamentary hearing of new Bank of Japan governor nominee Kazuo Ueda in the lower house. That went ahead without creating much sparks, with Ueda broadly sticking to the outgoing Governor Kuroda’s script initially, but later qualifying that with remarks that suggested he will remain flexible and open to policy normalization. As we highlighted earlier, Ueda has been out of touch with BOJ policy making since 2005 and will likely take it slow to even consider policy normalization at some stage. His neutral comments today, coming against market’s hawkish expectations and together with the rising global yields, suggest yen could embark on a weakening trend again once we are past this volatility. Japanese equities have responded positively, and continue to look promising. Inflation goal unlikely to be changed Markets have continued to believe that PM Kishida’s choice for the next BOJ governor to be someone from outside the bank or the Ministry of Finance has meant that people from within the circles didn’t want the job. This has reaffirmed the view that policy is moving towards an exit and boosted expectations that the joint statement from Ueda and the government could alter the 2% inflation goal. That seems unlikely for now. Ueda’s comments clearly echoed Kuroda-san’s view that the current inflationary pressures in Japan are import-driven and unsustainable. While he continued to emphasise the importance of wage growth, he also said that a number of factors will be key to determine price pressures and it will take time to achieve the 2% target in a sustainable and stable manner. As such he continued to emphasize that the key goal for the BOJ is to achieve the 2% inflation sustainably, while fiscal policy can be used to mitigate supply-side sources of inflation. Source: Bloomberg, Saxo Policy tweaks rather than normalization Ueda was not as closed to considering policy normalization as Kuroda. He said that it is his responsibility to ensure that normalization is carried out at the right time if the 2% inflation goal is reached. This means if inflation proves sticky, then the review of the yield curve control is now more likely that it ever was under Kuroda. However, given Ueda’s view that inflationary pressures are currently unsustainable, normalization remains unlikely for now. Ueda still accepted that there are side effects of yield curve control, and remained open to considering policy tweaks. What tweaks may be considered? Ueda stopped short of hinting at just what policy tweaks may be considered, but he remained open to considering tweaks like shortening the long-term interest rate target to 5-year or 7-year from 10-year currently, or even widening the band. This was a contrast to his comment ten days back, where he stated that gradually raising the ceiling creates waves of speculation as market participants just position for the next yield target. While expectations of an abrupt exit may have cooled, market’s hawkish expectations can continue. Other options to embark on policy normalization if inflation proves more than transitory will be ‘creative’. He hinted at moves such as raising interest rates on financial institutions' reserves parked with the central bank rather than selling bonds. Communication with the markets Markets can however expect somewhat improved communication from Ueda, both domestically but also in terms of coordination with foreign central banks which will be key if the YCC policy is abandoned at some point in the next 5 years given its massive global implications. This should reduce speculative positions and bring the safe haven status of yen back in focus.     Source: Macro Insights: Bank of Japan’s new governor Ueda – continuity with flexibility | Saxo Group (home.saxo)
Turkey cuts rate despite inflation threat, Japanese inflation hits 41-year high

Turkey cuts rate despite inflation threat, Japanese inflation hits 41-year high

Swissquote Bank Swissquote Bank 24.02.2023 10:58
US stocks had a wobbling trading session yesterday. US equities gained, then lost, then rebounded to close the session in the green. Nvidia The 14% jump in Nvidia certainly helped improve the overall market mood, whereas the US economic data was mixed and was not supposed to pour water on the equity bears or improve sentiment regarding the Federal Reserve (Fed) hawks.  US economy The latest GDP update from the US revealed that the US economy expanded slower than expected, while prices rose faster-than-expected. We have one more important data point to watch before the week ends… and that’s the US PCE index, the Fed’s favourite gauge of inflation. Given the previous inflation data, we know that inflation has certainly eased, but not as much as expected. Eurozone Across the Atlantic Ocean, the European stocks gained and the euro fell on Thursday, even though the latest inflation data from the eurozone revealed that the core inflation advanced to a record high. Japan While the data released this morning showed that inflation in Japan rose to 4.3%, a 41-year high, and gave a rapid boost to the yen, sending the USDJPY down to the 134 mark. Watch the full episode to find out more! 0:00 Intro 0:35 Mixed reaction to mixed data 3:55 Watch US PCE index today! 5:40 European stocks up, euro down after record core CPI. Why?! 7:38 Japanese inflation hits 41-year high 8:25 Turkey cuts rate despite inflation threat 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. #USD #EUR #JPY #GDP #inflation #data #Turkey #rate #decision #TRY #EuroStoxx #DAX #BIST #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
Saxo Bank Podcast: The Bank Of Japan Meeting And More

The Inflation Report Remained Obscured By Kazuo Ueda's Conflicting Signals

InstaForex Analysis InstaForex Analysis 24.02.2023 11:03
The release of data on Japan's inflation increase and Kazuo Ueda's speech, the new president of the Japanese Central Bank, caused the dollar-yen pair to fall below the base of the 134th figure during Friday's Asian trading session. Ueda's controversial messages Despite the southern momentum, Ueda's inconsistent statements prevented the USD/JPY bears from building on their profits. On the one hand, he asserted that the monetary policy's existing parameters "remain reasonable" and commendable. Ueda did, however, maintain the flexibility for adjustment should inflation continue to show upward dynamics. Such contradictory signals stopped the downward momentum, and the USD/JPY pair thereafter moved back to the 135th figure's margins. Nevertheless, notwithstanding the sellers of the pair's ambiguity, it can be assumed that the Bank of Japan will continue to support the yen over the long term. It is clear that Ueda wants to keep things the same, but his rhetorical style also suggests that he may be open to change in the future. Speaking before the Japanese parliament, Kazuo Ueda asserted that rising import costs for raw materials, rather than strong consumer demand, are mostly to blame for the country's inflationary acceleration. He also stated that the future of the national economy is "very uncertain." One of Ueda's words worked in the yen's favor. According to him, the Central Bank may think about normalizing monetary policy if trend inflation "substantially increases" and the Bank of Japan target can be achieved over the long term. One way to read the expressed phrase is as a warning to the markets to be wary. Nonetheless, Ueda argued that the Central Bank should take its time making the right decisions and that, for the time being, it "should maintain ultra-low interest rates to support a fragile economy." In other words, Kazuo Ueda made it apparent that he currently does not disagree with the course of action taken by the Bank of Japan's current governor. If adjustments are needed in the future, they will be made gradually, consistently, and smoothly; there won't be any sudden 180-degree turns. It should be highlighted that Kazuo Ueda still retains the option of normalizing the monetary policy's settings, in contrast to Kuroda. This is a crucial aspect that will come up later (likely in the second half of the year), especially if Japan's inflation rate gains momentum. The current state of affairs is consistent with this scenario, at least as far as Japanese inflation is concerned, as today's announcement eloquently attests. Report on Japan's rising inflation The scenario is as follows. The consumer price index as a whole increased by 4.3% in January, which is the fastest pace of growth since December 1981. The 40-year record was also updated by the core CPI, which includes energy prices but excludes fresh food. Excluding food and energy costs, the consumer price index increased by 3.2% from the previous year in October. Nearly every aspect of the aforementioned report performed better than expected in the green zone. It is important to note that for the past ten months, inflation has been higher than the Bank of Japan's target rate of two percent. According to the release's structure, prices for food, clothing, furniture, and household products all increased in Japan last month, while prices for medical care, education, and transportation services decreased. The price of utilities increased by 15% all at once, with gas and electricity rising by 20% and roughly 25%, respectively. It is important to note that several major Japanese organizations and businesses have recently started actively raising pay in light of the recently released inflation report. Particularly industry giants like Toyota and Honda. The day before yesterday, representatives of Toyota said that the firm will abide by the union's requests regarding pay and bonuses: wages would increase "at the fastest pace in the last two decades." Honda, a manufacturer of cars, followed suit and declared that it will adhere to all pertinent union obligations. The business announced the biggest pay boost since 1990, a 5% compensation increase. Conclusions The inflation report remained obscured by Kazuo Ueda's conflicting signals. Certainly, Japan's inflation is still on the rise, but Haruhiko Kuroda's replacement made it plain that he would not "jump into war" right once after assuming office (i.e. in early April). At the same time, he acknowledged that the Japanese regulator might need to change its normalization strategy, but it is still too early to discuss this in detail. This stance exerted pressure on the yen, which struggled to maintain its position when paired with the dollar. I believe that the USD/JPY pair will soon follow the dollar, which is anticipating the most significant inflation report regarding the expansion of the underlying PCE index (to be published at the start of the American session on Friday). Making trading decisions on the pair after its publication is thus advised. The key price target in this situation will be 136.50, which corresponds to the upper line of the Bollinger Bands indicator and the upper limit of the Kumo cloud on the D1 timeframe.   Relevance up to 09:00 2023-02-25 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/336024
Wage agreement may be game-changing in a way. First meeting of the new BoJ Governor Ueda takes place on April 28th

The BoJ is hoping that the government’s massive stimulus package will help bring down inflation

Kenny Fisher Kenny Fisher 24.02.2023 13:45
The Japanese yen is slightly weaker on Friday. In the European session, USD/JPY is trading just above the 135 line. Ueda pledges to continue easy policy Incoming Bank of Japan Governor Kazuo Ueda appeared at a parliamentary hearing on Friday and the markets were all ears. The buzz-word from Ueda was ‘continuity’, which really wasn’t a surprise. Ueda has already said that the current policy is appropriate and he maintained this stance at the hearing. Ueda said that ultra-low rates are needed while the economy is fragile and ruled out fighting inflation by tightening policy. With inflation running at 4%, above the BoJ’s target of 2%, there is pressure on Ueda to abandon or at least adjust the Bank’s yield control policy (YCC), which is being criticised for distorting market functions. Ueda treated this hot potato with caution. He acknowledged that the YCC had caused side effects but said that the BoJ should evaluate whether recent steps such as widening the band around the yield target would ease these problems. The takeaway from Ueda’s testimony is that he is in no hurry to shift central bank policy. Still, there is strong pressure on Ueda to address YCC, which is damaging the bond markets. Investors should not discount the possibility that Governor Kuroda could widen the target yield band at the March meeting in order to relieve pressure on Ueda. If Kuroda doesn’t act, the bond markets could respond with massive selling before Ueda takes the helm of the BoJ in April. The inflation pressures facing the BOJ were underscored by National Core CPI for January, which rose from 4.0% to 4.2%. This was just shy of the 4.3% estimate, but still the highest reading since 1981. The BoJ has insisted that inflation is temporary (remember that line from the ECB and the Fed?), and is hoping that the government’s massive stimulus package, which includes subsidies for electricity, will help bring down inflation.  Read next: Visa Success At The Expense Of Small Businesses| FXMAG.COM USD/JPY Technical USD/JPY is testing resistance at 134.85. Above, there is resistance at 135.75 1.3350 and 131.90 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.  Source: Yen edges lower after BoJ's Ueda testimony - MarketPulseMarketPulse
Asia week ahead: Policy meetings in China and the Philippines

Asia week ahead: growth and inflation reports from major economies - 25.02.2023

ING Economics ING Economics 25.02.2023 12:02
Next week’s Asia calendar features GDP data from India and Australia, inflation from Australia, Japan and Indonesia, Singapore’s retail sales and PMI data from Korea, Japan, China and Taiwan In this article India’s economy not slowing anytime soon Inflation to remain resilient in Australia Trade, PMI, and industrial production data from Korea PMI, jobless rate and Tokyo CPI from Japan China PMI data to be released next week Upcoming Taiwan manufacturing PMI Indonesia’s core inflation to stay flat in February Singapore retail sales to slip in January?   Shutterstock India’s economy not slowing anytime soon High-frequency activity indicators for the fourth quarter showed little sign of slowing in India, and as a result, we are looking for the year-on-year growth rate to come in at 4.0% or even higher. Substantial base effects make the interpretation of a single quarter’s data virtually impossible. But a figure of 4.0% in the fourth quarter will deliver a growth rate of 6.7% for India for the calendar year of 2022 and put it on course to achieve around 6.3% for the fiscal year that ends in March 2023. We anticipate another year of growth in the region of 6% in 2023 following a supportive budget which contains a big increase in capital investment in infrastructure. Inflation to remain resilient in Australia The end of 2022 was characterised by extensive flooding in some parts of Australia, and we would not be surprised to see this have some impact on the 4Q22 GDP numbers that are due on 1 March. Tighter monetary policy will likely exert a slight drag on the economy, especially from the more interest-sensitive parts of the economy, such as housing. We anticipate GDP growth of 0.5% quarter-on-quarter (2.5% year-on-year), which will still deliver a respectable 3.6% growth rate for the full year 2022. Australia also releases January CPI inflation data. The December figures provided a rude shock to those who thought that inflation had peaked, with the unprecedented 27% month-on-month increase in holiday prices the culmination of the economic re-opening colliding with seasonal holidays. We do anticipate some unwinding of that result, though there is likely to be plenty of residual strength in other parts of the CPI result to limit the decline in the inflation rate from 8.4% to 8.2%YoY (0.3%MoM). Trade, PMI, and industrial production data from Korea In Korea, we expect exports to deepen their contraction further in February mainly due to the sharp decline in semiconductor exports. Meanwhile, manufacturing PMI is expected to rise marginally on the back of the optimism surrounding China’s reopening, but remain below 50. Given sluggish exports in January, we expect January’s industrial production to decline but retail sales could rebound as severe weather may have boosted weather-related consumption. So, a weak start to the quarter will likely weigh on first quarter GDP, which could translate into a contraction.    PMI, jobless rate and Tokyo CPI from Japan With a relatively late reopening of the economy, Japan should continue to recover on the back of the government support programme. Thus, we believe that service PMI and hiring are expected to improve. However, January’s cold wave probably had a negative impact on manufacturing activity and consumption, thus we foresee a decline in the January industrial production numbers. Meanwhile, Tokyo CPI inflation is expected to come down quite sharply to a 3% level from the recent peak of 4.4% due to the government energy subsidy programme and base effects. China PMI data to be released next week In China, we expect manufacturing activity to pick up in February as factories resumed work after the long holiday. Services PMI however could dip to just above 50 after the spike in spending related to the holiday which was likely offset by an increase in financial and real estate services. Upcoming Taiwan manufacturing PMI In the coming week, Taiwan is set to release manufacturing PMI. We expect the numbers to move higher from 44.3 to 47.0 in February after the Chinese New Year. Export orders for semiconductors, however, were still in contraction, which is not a good sign for the prospects of manufacturing activity. Indonesia’s core inflation to stay flat in February Headline inflation in Indonesia could tick higher to 5.4%YoY but the core inflation reading is expected to remain flat in February. Bank Indonesia (BI) cited slowing inflation as one of the main reasons for pausing at its most recent policy meeting. Price pressures have eased somewhat but BI might refrain from cutting policy rates until we see a more pronounced slide in core inflation. Singapore retail sales to slip in January? Retail sales in Singapore are expected to post a modest contraction in January after a surprise gain in December 2022. The implementation of the latest round of goods and services tax may have had a negative impact, although solid department store sales may have provided a boost to overall retail sales. Key events in Asia next week Refinitiv, ING TagsEmerging Markets Asia week ahead 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
Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

The Situation In The Eurozone Is Improving, The EU Expects Inflation To Drop

Kamila Szypuła Kamila Szypuła 25.02.2023 19:20
Inflation across Europe has continued its downward movement. Another positive report of this indicator is expected. Previous data The cost of living in the eurozone fell slightly slower than previously thought in early 2023. According to Eurostat, the consumer price index for the common currency bloc fell by 0.2% on a monthly basis. This reduced the annual growth rate from 9.2% in December to 8.6% in January (preliminary: 8.5%). A similar story occurred at the baseline, which excludes food, energy, alcohol and tobacco products, with the core printed CPI year-on-year at 5.3% (preliminary: 5.2%), down from 5.2% a month earlier. Compared to the previous month, processed food, alcohol and tobacco increased the most by 1.5%, while energy prices increased by 0.6%. On the other hand, prices of non-energy industrial goods fell by 1.9% and services by 0.1%. Energy prices the main driver of inflation The record inflation in the euro area was due to a spike in energy prices, which started to increase at the end of 2021. The first spike in energy prices came as countries exited or lifted Covid restrictions and energy demand began to recover. The second jump occurred in 2021 due to the emergence of problems on the supply side. This development was exacerbated in early 2022 by the Russian invasion of Ukraine as the conflict interrupted the supply of Russian oil or natural gas to the rest of Europe. Baltic countries were the worst Most eurozone countries saw a decrease in inflation compared to December, but nine countries saw a rise in the consumer price index. Moreover, 12 countries remained in the double digits territory in January. Hungary is experiencing the highest inflation levels at around 26.2% among these. Latvia, Czechia, Estonia, and Lithuania come next, where inflation remains high at 21.4%, 19.1%, 18.6%, and 18.5%, respectively. The report noted that rising food and energy prices contributed the most to the annual inflation in January. Forecast Inflation in the euro zone is falling and is expected to fall again to 8.2% from 8.6%. Such a reading may mean that the ECB's actions are slowly becoming visible in the economy. Interest rates To tame rising inflation, the European Central Bank (ECB) started to raise interest rates after 11 years of loose monetary policy. In July last year, the central bank raised the three key ECB interest rates by 50 basis points. Last week, European Central Bank chief Christine Lagarde reiterated that the central bank aims to raise its interest rates by a half percentage point in March. “In view of the underlying inflation pressures we intend to raise interest rates by another 50 basis points at our next meeting in March,” Lagarde said. Mood improvement Growth in economic activity in the euro area accelerated to a nine-month high in February, reflecting an improvement in the performance of the services sector and a return to growth in industrial production. Growth was boosted by rising confidence as recession fears subsided and inflation shows signs of peaking, although industry also benefited from a significant improvement in supplier performance. The February recovery was supported by the services sector, where business activity increased for the second month in a row. The seasonally adjusted index rose from 50.8 in January to 53.0, the strongest increase since June last year. In terms of manufacturing, chemicals and plastics and basic resources remained major areas of weakness, while the production of food and beverages, household goods and manufactured goods showed further signs of recovery. Source: investing.com, ec.europa.eu/eurostat
Inflation Numbers Signal Potential Pause in Fed Rate Hikes Amid Softening Categories

Next Week: Purchasing Managers Indexes Are Due Next Week In Three Major Economies And Eurozone CPI

Conotoxia Comments Conotoxia Comments 26.02.2023 13:11
Purchasing Managers Indexes are due next week in three major economies, which may allow to assess the state of manufacturing in each country and draw some comparable conclusions between them.   Tuesday 28.02. 15:00 GMT, US Conference Board Consumer Confidence (February) Conference Board (CB) Consumer Confidence index measures the consumer confidence level in economic activity. It is a leading indicator that can predict consumer spending, which plays a significant role in overall economic activity. Higher readings indicate greater consumer optimism. A reference point of 100 that is used is the consumer confidence index from 1985.  The consumer confidence index fell from 109.0 in December to 107.1 in January, below the expected 109.0. In particular, consumers were less optimistic about short-term job prospects and expected business conditions to worsen. Nevertheless, consumers expected their incomes to remain stable over the coming months. Purchase intentions for cars, and household appliances remained stable. However, fewer consumers were planning to buy a new or existing home. The consumer confidence index is expected to rise to 109.5 in February.  Higher than expected reading may have a bullish effect on the USD, while a lower-than-expected reading could be bearish for the USD. Impact: USD Wednesday 01.03. 01:30 GMT, China Manufacturing Purchasing Managers Index (PMI) (February) The Purchasing Managers Index (PMI) provides the first indication of economic activity in the Chinese manufacturing sector as purchasing managers are considered to have access to first-hand data on the performance of their companies. A reading above 50 indicates expansion, while a reading below 50 indicates contraction in the manufacturing sector. China's PMI spent most of 2022 in contraction territory, as the economy faced production disruptions due to the Covid-19 pandemic. Last month's PMI was better than expected, showing the first sign of expansion since September 2022 - 50.1 versus the expected 49.8 and December's 47.0. This month's reading could indicate whether China's manufacturing sector is continuing its upward trend or whether January's positive reading was just a one-off boost. February's PMI is expected to come in at 49.8, indicating a slight contraction in the manufacturing sector. Better-than-expected results may be seen as bullish for the CNY, while lower results may be bearish for the CNY. Impact: CNY Wednesday 01.03. 09:30 GMT, UK Manufacturing Purchasing Managers Index (PMI) (preliminary February data) UK Manufacturing PMI has shown signs of an even sharper contraction than China's. The last time the UK PMI was in expansion territory was in August 2022; since then, the figure has slipped closer to 45. Preliminary data for February are expected to show a slight increase from last month (47.5 versus 47). A UK PMI index below 50 may indicate that the UK manufacturing sector is experiencing uncertainty about the economic outlook and has reduced demand due to lower risk appetite and higher borrowing costs.  Higher than expected reading may have a bullish effect on the GBP, while a lower-than-expected reading could be bearish for the GBP.  Impact: GBP Wednesday 01.03. 15:00 GMT, US ISM Manufacturing Purchasing Managers Index (PMI) (February) The US manufacturing PMI is close to the UK manufacturing PMI - last month's PMI was reported at 47.4. One visible difference between the two is that the UK PMI index has been fairly stable, with signs of improvement in recent months, while the US PMI index has been gradually falling since December 2021. February's data are expected to show a slight increase to 47.9, ending the downward trend. However, the actual data have been lower than forecast for the past 3 months.  A higher-than-expected reading could be bullish for the USD, while a lower-than-expected reading could be bearish for the USD.  Impact: USD Thursday 02.03. 10:00 GMT, Eurozone Consumer Price Index (CPI) YoY (preliminary February data) The CPI measures the change in prices consumers pay for a given basket of goods and services compared to a year ago. The CPI is the most widely used measure  of inflation - a higher index means higher inflation. The inflation outlook for the euro area appears to be influenced by two opposing factors. On the one hand, lower-than-forecast energy prices may push down inflation faster than previously thought. On the other hand, the pass-through pressure of energy and commodities inflation to production costs is not yet over, keeping the overall inflation high. In addition, as the geopolitical situation in Europe seems  not improving, the ongoing price negotiations in the agricultural sector could lead to higher-than-expected prices, giving an additional boost to inflation figures. This results in a slightly lower inflation rate compared to the double-digit numbers at the end of 2022, but still a long way from the ECB's 2% target. Higher-than-expected data may have a bullish impact on the EUR and a bearish impact on the stock market, while lower-than-expected data may have a bearish effect on the EUR and a bullish impact on the stock market.  Impact: EUR, DAX, STOXX Stocks to watch Target (TGT) announcing its earnings results for the quarter ending on 01/2023. Forecast: 1.39. Positive earnings surprise in 7 out of the last 10 reports. Time: Tuesday, February 28, before the market opens. Costco (COT) announcing its earnings results for the quarter ending on 02/2023. Forecast: 3.21. Positive earnings surprise in 6 out of the last 10 reports. Time: Thursday, March 2, after the market closes. Santa Zvaigzne-Sproge, CFA, Head of Investment Advice Department at Conotoxia Ltd. (Conotoxia investment service) Materials, analysis, and opinions contained, referenced, or provided herein are intended solely for informational and educational purposes. The personal opinion of the author does not represent and should not be constructed as a statement, or investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
The Commodities Digest: US Crude Oil Inventories Decline Amidst Growing Supply Risks

US: Fed inflation fears keeps the pressure on for rate hikes

ING Economics ING Economics 26.02.2023 13:21
The Fed's favoured measure of inflation accelerated in January with markets now fully pricing 25bp moves in March, May and June. We agree that this is the most likely path ahead, but it will be painful for the housheold sector, coming at a time when real incomes are squeezed by inflation, borrowing costs continue to rise and lending conditions are tightening Inflation shows little sign of slowing The acceleration in the Federal Reserve’s favoured measure of inflation, the core personal consumer expenditure deflator, is a big story. It rose 0.6% month-on-month versus expectations of a 0.4% print and is also above the 0.4% increase reported by the core CPI report. There were upside revisions too, which means the year-on-year rate has ticked up to 4.7% from 4.6%, above the 4.3% rate expected. This will ensure the Fed mantra of ongoing hikes continues with 25bp moves in March, May and June fully priced by markets. Talk of a potential 50bp move at the March Federal Open Market Committee meeting can’t be completely discounted, although we don't think they will carry through with it. US inflation measures (ex food and energy (YoY%)) Source: Macrobond, ING   Meanwhile, personal incomes didn't rise quite as much as expected, up 0.6% MoM. The consensus was for a 1% gain because of the annual uprating of social security benefits by 9%, but there was a 2.7% MoM drop in farm income while “other benefits” fell 15.5%. Real personal spending rose 1.1% MoM as expected. We will see weaker prints in February and March, but consumer spending is still likely to grow in the 3.5-4% annualised range in the first quarter of this year. Household savings ratio and debt service ratio (% of household disposable income) Source: Macrobond, ING Household finances are under pressure though The combination of decent income growth, rising spending and robust inflation means March and May rate hikes are very likely and we have to accept that a further move in June is more likely than not. Our caution centres on the combination of squeezed real incomes, rising interest rates and tightening lending conditions all happening at the same time. Household saving ratios are now well below pre-pandemic levels while the proportion of income spent on servicing the debts on consumer loans is at the highest since 2009 (chart above measures them as % of household disposable income). This hints at financial pressures on the household sector and this will increasingly bite as we go through the year. It will only get worse if those lay-off announcements keep coming, which could lead to the economy to slow sharply in coming quarters, opening the door for a path to lower interest rates from the fourth quarter. Read this article on THINK TagsUS Spending Inflation Income Federal Reserve 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
Stolen Goods End Up On Amazon, Ebay And Facebook Marketplace

Stolen Goods End Up On Amazon, Ebay And Facebook Marketplace

Kamila Szypuła Kamila Szypuła 26.02.2023 18:29
The Internet offers many possibilities. Also, people who want to run illegal activities have an ideal place to do so. In this article: Warren Buffett and his annual letter Ease of selling stolen items Latin America Warren Buffett and his annual letter In his annual letter to Berkshire shareholders, the 92-year-old Buffett urged investors to focus on the big picture over the long term, rather than higher inflation and other factors. Billionaire investor Warren Buffett signaled on Saturday that he has not lost lasting confidence in the US economy and his company Berkshire Hathaway Inc. Buffett called 2022 a "good year" for Berkshire, with many of its strongest companies holding up to the pressures of heightened inflation, rising interest rates and supply chain disruptions. Billionaire investor Warren Buffett in his annual letter to shareholders urged investors to focus on the big picture over the long term, and pushed back on critics of stock buybacks. Read more https://t.co/SdVLJpK7wY pic.twitter.com/iAllyjuGFD — Reuters Business (@ReutersBiz) February 26, 2023 Read next: Forex Weekly Summary: EUR/USD Ended The Week Below 1.06 And GBP/USD Below 1.20, USD/JPY Ended The Week Higher Above 136.00| FXMAG.COM Ease of selling stolen items Over the past year, large-scale robberies have occurred at stores such as Louis Vuitton in San Francisco's Union Square and at nearby Nordstrom, which was robbed by 80 people. Law enforcement and retailers are warning the public that this is not traditional shoplifting. What they see is rather theft organized by criminal networks. Retailers say $68.9 billion worth of products were stolen in 2019. In 2020, three-quarters reported an increase in organized crime, and more than half reported cargo theft. Some major chains blame organized theft for recent store closures or their decisions to reduce opening hours. Amazon, eBay and Facebook are where these stolen goods are sold, with critics saying they are not doing enough to put an end to the business. The companies disagree. For example, Amazon says it has spent over $900 million and hired over 12,000 people in 2021 to prevent fraud and abuse. The company also says it requests "proofs of origin" when it has concerns about how products are sourced and works with authorities to eliminate illegal activity. Getting started selling on Facebook Marketplace is relatively simple. Although it is against its policy to sell stolen goods, Meta typically does not require proof of identity other than a basic name and a verifiable email address or phone number needed to open a Facebook account. How do stolen goods end up on Amazon, eBay and Facebook Marketplace? Watch the video to learn more and what the online marketplaces are doing to stop the sale of stolen products. https://t.co/oKgoSe6UJ4 pic.twitter.com/sC975Kpsdf — CNBC (@CNBC) February 26, 2023 Latin America Latin American economies performed well last year despite the upheavals caused by Russia's invasion of Ukraine and global interest rate hikes. In 2022, the region's economy grew by nearly 4%. Despite this encouraging news on economic growth and inflation, 2023 is likely to be a challenging year for the region. Growth this year is expected to slow to just 2 percent, with higher interest rates and falling commodity prices. Latin America's economy expanded by nearly 4% in 2022, employment recovered strongly, and the service sector rebounded from the damage caused by the pandemic. More on #IMFBlog: https://t.co/iFCzzU0810 pic.twitter.com/OWf2T8Qvh7 — IMF (@IMFNews) February 26, 2023
China: manufacturing activities slipped back to contraction in April. Technical look at China A50

China’s PMI Surveys Are Expected To Show The Recovery

Saxo Bank Saxo Bank 27.02.2023 08:22
Summary:  The U.S. ISM survey and China’s PMI reports are the key data to watch this week. After the hot employment and inflation data from the U.S., investors are searching for additional data to discern the competing scenarios of recession, soft-landing, and no-landing (i.e. strong growth). Investors are also in need of signs of economic recovery from China or additional positive policy signals from the Chinese authorities to sustain the U-turn in sentiment towards Chinese equities since November last year which has started to fade somewhat. Ueda, the new BOJ chief’s rhetoric on policy continuity will be put to test with this week’s Tokyo CPI due on Friday. US ISM surveys to be the next test for yields and US dollar The recent data out of the US has shown firm inflation and growth dynamics, prompting an upward repricing of the Fed’s path and bringing yields to critical levels. The 2-year yields in the US have touched their highest levels since 2007, and 10-year yields are in close sight of the key 4% zone which can spell further risk aversion. The ISM surveys this week will be key to watch for further direction, with the manufacturing survey out on Wednesday and services out on Friday. The consensus is for the manufacturing ISM to improve to 48.0 in February from 47.4 in January, but still remain in contraction (below 50). The ISM services index saw a surge to 55.2 in January after a drop to 49.2 in December, partially a reflection of winter weather trends. Gains are likely to moderate, and consensus expects 54.5. Also on watch will be the US durable goods orders for January, as mentioned in the Weekly Watch.   China PMIs are expected to show further recovery in the economy Also Wednesday - China’s PMI surveys are expected to show the recovery is progressing in February. We expect good news - with the services sector driving growth and manufacturing picking up slightly. These will be important signals - as monthly activity data won’t next be available until mid-March. The official NBS Manufacturing PMI, according to survey from Bloomberg, is expected to bounce further into expansion at 50.7 in February from 50.1 in January and the Non-manufacturing PMI is forecasted to climb to 55.0 from 54.4. Despite the sluggishness in exports, Caixin China PMI is expected to return to the expansionary territory at 50.8 in in February, from 49.2 in January. The Emerging Industries PMI jumped to 62.5 in February from 50.9 in January added to the favourable forecasts for the NBS and Caixin PMIs. Geopolitics remains in focus with China’s peace proposal talks After threats from US about making public the information on China supplying weapons to Russia, China came up with a 12-point peace proposal on Friday to be a neutral mediator in the Russia-Ukraine conflict. Reports suggested that China’s proposal took a clear anti-West stance, condemning NATO extension and sanctions against Russia, but Ukrainian President Volodymyr Zelensky has signaled he's open to China's new ceasefire plan and meeting President Xi. How these events turn this week will be key to watch, especially US comments and support to Ukraine if it was to accept China as a mediator. Australian Economic news on tap to potentially pressure the ailing Aussie dollar Australian GDP data on Wednesday will likely show fourth-quarter economic growth slowed down to pace of 2.7% YoY - quashed by higher inflation and interest rates. And monthly CPI should show inflation is cooling. In these instances, that would theoretically pressure the Aussie dollar lower, while the US dollar is continuing to move up - so that’s something to watch. Softer Eurozone flash February CPI may not be a big relief, ECB minutes on tap as well Broader expectations are for the Eurozone flash CPI to ease to 8.2% YoY in February from 8.6% last month amid lower energy prices. However, the core measure is still expected to be firm at 5.3% YoY, underpinned by higher non-energy industrial goods. This continues to suggest that the underlying price pressures remain firm, and another 50bps rate hike from the ECB remains likely in March. The minutes from the last ECB meeting are also out on Thursday, and the path after the next 50bps rate hike remains on watch. Lagarde previously noted that the ECB will not be at peak rates in March and there will most likely be ground left to cover, which suggested that hopes for a pause in May could be disappointed. Core measure on focus in Japan’s Tokyo CPI release The new Bank of Japan chief Kazuo Ueda’s testimonies in the parliament hinted at an unchanged monetary policy in the near-term, and a steadfast focus on achieving 2% inflation sustainably. Ueda remains in Kuroda’s camp on inflation, saying that the current inflationary pressures are mostly import-driven and inflation is expected to peak soon. This rhetoric will be put to test with this week’s Tokyo CPI due on Friday. Consensus expects the headline CPI to soften to 3.3% YoY from 4.4% YoY last month, perhaps signalling that nationwide numbers could ease as well. However, the core-core measure (ex-fresh food and energy) is likely to be firmer at 3.1% YoY in February from 3.0% previously. Energy companies will be a focus - after so far delivering the strongest earnings this season and last year Energy companies have again reported the best earnings growth this US and Australian corporate reporting season - with increased profits and dividends. Occidental Petroleum’s outlook will be a focus on Monday as well as Canadian Natural Resources - when they report later this week. Occidental is expected to report its highest-ever fourth-quarter net income – with the US energy giant to benefit from high energy prices amid tight supplies. The oil and gas giant generated about $2.8 billion in free cash flow in the period after years of austerity and debt reduction, according to Bloomberg consensus. Investors will closely monitor its 2023 spending and capital-returns outlook with adjust EPS of $1.79 expected. Occidental's shares are down 6.6% this year. For what Australia’s oil and gas giant - Woodside Energy reported on Monday see our daily team note – Markets Today. Also, keep in mind, we expect the oil price to stay around $80 this quarter and move up to $90 next quarter. Brewers will be interesting to watch amid the reopening trade Budweiser Brewing Co (1876 HK) which is a distributor is Asia - is due to release results on Wednesday with Q4 revenue to get a lifeline from the FIFA World Cup trading- but income is still expected to dive. However, the world’s largest brewer Anheuser-Busch InBev SA/NV (BUD) may gain more attention when it reports on Thursday, as option volume rose 8% last week in BUD, with the market expecting EPS to grow from 1.94 to 3.01. For more on Brewers click here. EVs also in focus – Tesla Investor Day and Li Auto and NIO report earnings China reopening theme also continues to be on test with the Asian reporting season underway, and this week brings earnings reports from two key EV manufacturers. Li Auto (02015:xhkg/LI:xnas) reported on Monday before China open while Nio (09866:xhkg/NIO:xnas) reports on Wednesday. It will be key to watch how Tesla’s steep discounts and the end of government subsidy impacts the outlooks for these two Chinese EV manufacturers which got off to a slow start this year, and whether the decline in lithium prices lifts the outlook higher. Tesla (TSLA:xnas) will hold an Investor Day event on March 1 in what could be one of the key days of the year for the electric vehicle giant. Nio, Li Auto and XPeng (09868:xhkg/XPEV:xnys) also report February deliveries this week, and China’s EV and battery giant BYD (01211:xhkg/BYD:xnys) should release February sales by Friday.   Tech earnings to watch in the tech space: Salesforce, Snowflake, and Coupang In a note last Friday, Peter Garnry,  Saxo’s Head of Equity Strategy draws investors attention to Salesforce (CRM:xnys), Snowflake (SNOW:xnys), and Coupang (CPNG:xnys) announcing this week. Activist investors have entered Salesforce, a cloud-based enterprise software provider, over the past year and the pressure is going up on management to drastically improve profitability which is already being reflected in analyst estimates. Analysts expect revenue growth of 9.2% y/y down from 26% y/y a year and EBITDA of $2.67bn up from $1.02bn a year ago; Salesforce reports FY23 Q4 earnings (ending 31 Jan) on Thursday after the market close. Snowflake was one of the hottest IPOs before the interest rate shock cooled the stock to being more ordinary. The cloud infrastructure company is expected to report FY23 Q4 (ending 31 Jan) earnings on Thursday after the US market close with analysts expecting revenue growth of 50% y/y down 102% y/y a year ago and EBITDA of $25mn up from $-146mn a year ago. The third company to watch is Coupang because of its e-commerce exposure to South Korea which could potentially provide some colour consumer spending patterns in one of Asia’s most cyclical economies. If China’s reopening is progressing well then it should spill over into a more positive outlook for South Korea. Coupang reports earnings on Tuesday after the US market close with analysts expecting revenue growth of 7% y/y down from 34% y/y a year ago and EBITDA of $197mn up from $-248mn a year ago. The CCP’s Central Committee convenes the Second Plenum The 20th Central Committee of the Chinese Communist Party is holding the second plenum from 26 to 28 February to decide on the recommendation list of candidates for top government posts to be sent to the National People’s Congress to finalize during the latter’s meeting commencing from 5 March. Investors will watch closely the personnel arrangement on the state administration side, especially who will be put in the top positions in various financial policy-setting and regulatory authorities amid market chatter of the Party’s plan to pursue a major shake-up of the financial system. Macro data on watch this week Monday 27 FebruaryUS                   Durable goods orders (Jan)Eurozone         Consumer confidence/economic confidence/industrial confidence (Feb) Tuesday 28 FebruaryUS                   Chicago PMI (Feb)Japan              Industrial production (Jan)Japan              Retail sales (Jan)Japan              Housing starts (Jan)India                Real GDP (Q4) Wednesday 1 MarchUS                   ISM manufacturing Index (Feb)Germany          Unemployment (Feb)Germany          CPI (EU harmonized; Feb flash)Australia          Real GDP (Q4)Australia          CPI (Jan)South Korea    Exports (Feb) Thursday 2 MarchUS                   Non-farm productivity (Q4, final)US                   Unit labor costs (Q4, final)Eurozone         CPI (harmonized, Feb flash)Eurozone         Unemployment (Jan)Eurozone         ECB Policy Meeting Minutes (Feb)Japan              Consumer confidence (Feb)South Korea     Industrial production (Jan) Friday 3 MarchUS                   ISM Services (Feb)Eurozone         PPI (Jan)France             Industrial production (Jan)Japan              Tokyo-area CPI (Feb)Japan              Unemployment rate (Jan)Singapore        Retail sales (Jan) Company earnings to watch Monday 27 Feb: Woodside Energy, Alcon, Occidental Petroleum, Workday, Li Auto, Zoom Video Tuesday 28 Feb: Bayer, Moncler, ASM International, Target, Monster Beverage, HP, First Solar, Coupang, Rivian Automotive Wednesday 1 Mar: Royal Bank of Canada, Beiersdorf, Reckitt Benckiser, Kuehne + Nagel, Salesforce, Lowe’s, Snowflake, NIO Thursday 2 Mar: Anheuser-Busch InBev, Argenx, Yunnan Energy New Material, Toronto-Dominion Bank, Fortum, Veolia Environment, Merck, Hapag-Lloyd, CRH, London Stock Exchange, Haleon, Flutter Entertainment, Universal Music Group, Broadcom, Costco, VMware, Marvell Technology, Dell Technologies   For Saxo’s live economic and news calendar click here.  
The Commodities Feed: US announces SPR purchase

Crude Oil Remains Anchored Near The Lower, US PCE inflation data on Friday spooked the market

Saxo Bank Saxo Bank 27.02.2023 09:42
Summary:  US PCE inflation data on Friday spooked the market as the Fed terminal rate for this year was taken higher still, with discussion of the risk of larger hikes even afoot. Both the US S&P 500 Index and Nasdaq 100 touched their 200-day moving averages intraday on Friday as yields jumped. This week’s focus still on geopolitical developments, faltering confidence in the China re-opening narrative and US Feb. ISM Surveys Wednesday and Friday, with the key US employment figures not up until next week. What is our trading focus? US equities (US500.I and USNAS100.I): bonds will continue to dictate where equities go US equities continued their decline on Friday with S&P 500 futures declined 1.1% to the lowest close since around mid-January as US inflation figures (PCE deflator) surprised to the upside. As we have explained in recent equity notes the equity market will be driven by the talk about structural inflation over the coming months and how that discussion recalibrates long-term US bond yields to higher levels. In late April and May when the Q1 earnings are released the discussion about margin compression will heat up again, so there are plenty of downside risks still in equities in 2023. Hang Seng Index (HSI.I) and CSI300 (000300.I) slid amid economic, policy, and geopolitical uncertainties Hang Seng Index and CSI300 extended their declines with both indices falling around 0.4-0.5%. Investors trimmed positions as sentiment was dampened by resurge of tension between the U.S. and China over Russia and Ukraine and the lack of substantive recovery in the Chinese economy aside from credit expansion and survey data. China’s central bank emphasized in its Q4 Report on the Execution of Monetary Policy that the monetary policy must be stable and not bring about excessive liquidity that induces excessive investment, a surge in debts, and asset bubbles. Investors interpreted that as a signal to lower the expectations of the market on aggressive monetary easing. The CCP’s central committee is holding a meeting from 26-28 February to decide on the recommendation list of candidates for top government posts to be sent to the National People’s Congress to finalize during the latter’s meeting commencing from 5 March. FX: Japanese yen touched YTD lows, GBP in focus with Brexit talks The dollar strength was back in focus as hot core January PCE inflation data on Friday took the repricing of the Fed’s path higher once again. With 2-year yields surging to their fresh highs, along with BOJ governor nominee Kazuo Ueda’s continued push for a loose monetary policy coming against market’s hawkish expectations, the Japanese yen plunged to its lowest levels this year, with USDJPY testing 136.50 overnight. Also worth watch will be AUDUSD which plunged in close sights of 0.67 as risk sentiment and commodity prices are taking a beating. Elsewhere, UK PM Sunak is making headlines with reports saying that he may have won big concessions in the looming Brexit deal, with reports suggesting that an agreement between the UK and European Union on Northern Ireland appears to be very close. UK PM Sunak and EU head Ursula Von Der Leyen will hold talks mid-day on Monday. These are being described as 'final talks'. This will be followed by a news conference and Sunak’s statement to the parliament. GBPUSD dropped below 1.20 with the 200DMA at 1.1928 in focus. Crude oil remains anchored near lower end of range Crude oil remains anchored near the lower end of its the established range that has prevailed since the end of 2022, in Brent between $80 and $89, and WTI between $82 and $73. Overall, the sentiment across markets, including commodities, suffered another blow last week after traders and investors in response to another hot US inflation data increased forecasts for US interest rates. Higher rates may hurt economic growth and with that fuel demand from consumers. China meanwhile remains on a recovery track but for now it has only prevented an even deeper selloff in crude oil. A disruption in oil supply to Poland via the Druzhba pipeline from Russia, a day after Poland delivered its first Leopard tanks to Ukraine, is having a limited impact. Speculators meanwhile hold an elevated long position in Brent according to COT data released on Friday (see below). In focus this week, the annual International Energy Week which kicks off in London on Tuesday. Gold (XAUUSD) slumps towards next area of support The US dollar reached a multi-week peak in the aftermath of hot US data and together with higher yields have weighed on the yellow metal, with gold risking further weakness towards the 200DMA at $1776 amid a tough macro environment. US ISM PMIs in focus this week, along with more Fed speakers, as a guide to high how interest rates could go. Silver (XAGUSD) fell harder, down 2.5% on Friday and closing with a weekly loss of 4.5%, breaking below the 200DMA at $21. The gold-silver ratio meanwhile has spiked to 87.80 high, a 16% underperformance relative to gold since mid-December. Copper trades below $4 support With the US PCE data further aggravating concerns on Fed’s rate hike path and bringing the 2-year yields to fresh highs, base metals plummeted. Copper prices plunged to a seven-week low below the key $4 support with the next key support being the 200DMA at $3.77, the break above which triggered January’s surge. Incongruent signs of a pickup in Chinese demand also continue to underpin, and the PMI reports this week will be key to signal whether activity levels are picking up. However, with supply over time potentially struggling to keep up with demand, we view the current weakness as temporary and part of the general loss of confidence that has hit markets this month. Yields on US Treasuries (TLT:Xmas, IEF:xnas, SHY:xnas) jump after hot core PCE inflation data The hot core US January PCE inflation data released on Friday (more below) shocked US yields to new cycle highs, with the 2-year treasury benchmark yield reaching above 4.8% for the first time since 2007 as the market moved to completely price in at least a 25bp hike each at the March, May, and June FOMC meeting plus about a 25% chance that the hike in March is 50bps, bringing the terminal rate to 5.4. The Jun-Dec 2023 spread narrowed 11bps to -11.5bps, almost entirely eliminating expectations for rate cuts in the second half of 2023. Ten-year yields poked toward the recent cycle highs just shy of 4.00% and the 2-10 yield slope closed the week at a new multi-decade inversion record of –89 basis points (an intraday spike on Feb. 15 saw it briefly below –90 bps). What is going on? Hot US PCE brings Fed terminal rate expectations up to 5.4% The PCE deflator for January came in hotter-than-expected, and together with upward revisions to the previous month’s prints these sent a strong hawkish signal to the markets reinforcing the Fed’s higher-for-longer message. The Core PCE rose 4.7% Y/Y, accelerating from the upwardly revised 4.6% and above the expected 4.3%. The M/M rose 0.6%, hotter than the expected and upwardly revised prior of 0.4%. This brought an upward repricing of the Fed path, with increasing calls for 50 bps at the March meeting and the terminal rate now priced in at 5.4% (82+ bps of further hiking from current level) and the end-2023 expectation at –12 bps relative to peak rates, Fed members remain cautious on the path of inflation Fed voter Jefferson spoke about labor market strength on Friday, saying that ongoing imbalance between supply/demand for labour suggests high inflation may come down only slowly and said the argument that policymakers should accept that disinflation will be costly is well-reasoned. Bullard (non-voter) was on the wires again as well, and reaffirmed the need to move quickly to shield credibility. Collins, also a non-voter, said that recent US data affirms the case for more rate hikes. Mester (non-voter) said the Fed has to do "a little more" on rate hikes saying the new inflation data affirms the case for more rate hikes to get inflation back to target. Geopolitics remains in focus with China’s peace proposal talks After threats from US about making public the information on China supplying weapons to Russia, China came up with a 12-point peace proposal on Friday to be a neutral mediator in the Russia-Ukraine conflict. Reports suggested that China’s proposal took a clear anti-West stance, condemning NATO extension and sanctions against Russia, but Ukrainian President Volodymyr Zelensky has signaled he's open to China's new ceasefire plan and meeting President Xi. How these events turn this week will be key to watch, especially US comments and support to Ukraine if it was to accept China as a mediator. COT data shows unwavering support for higher Brent prices The ICE Futures Europe exchange released four weeks' worth of delayed COT data on Friday with reporting now up to date following the January cyber-attack on ION Trading UK, which caused delays in trades being reported. The US CFTC meanwhile released one COT report for the week ending January 31 with data unlikely to be up to date for another three weeks. ICE Brent data showed unwavering support for higher prices with funds holding a net long of 277k lots, a 16-month high and the weakest gross short position at 28k since 2011. The ICE gasoil (diesel) net long meanwhile dropped to 33.7k lots and lowest since November 2020. The futures contract (FPH3) trades near a one-year low with refinery margins under pressure as Middle East and Asian shipments replace supply from Russia. Food price inflation continues to ease One year on from the Russian attack on Ukraine which triggered a surge in wheat, corn and edible oils we a seeing prices continuing to deflate. Global wheat prices remain under pressure from a flood of Russian supplies forcing EU and US sellers to lower prices to stay competitive. In Chicago the soon to expire March wheat contract trades near a 17-month low, down 48% from the March 2022 panic peak while Paris Milling wheat has declined by 38%. The focus is turning to the outlook for global wheat crops this year. According to Bloomberg, US farmers are likely to plant more than analysts expect, and nearly all of France’s soft-wheat crop is in good to very good shape. Traders are also watching talks on the Ukraine grain-export deal, which is up for renewal in March. Berkshire Hathaway Q4 operating earnings miss estimates Warren Buffett’s holding company Berkshire Hathaway announced over the weekend operating earnings of $6.7bn vs est. $7.3bn driven by weaker results in its railroad and insurance businesses due to higher input costs for materials and labour. Berkshire Hathaway is still striking a positive outlook on the US economy. Warren Buffett also talks about the repurchases saying that they are not all bad if they are bought below the fair value. Woodside Energy reported profits triple in 2022 Following the theme of strong energy company earnings reports Woodside’s bottom line profits rose 228% fuelled by the rise of oil and gas prices, but also as Woodside output rose over 70%, after it acquired BHP’s oil and gas business. Woodside reported a larger final dividend of $1.44 per share, up from $1.05 a year ago. Its full year dividends payout stands at $4.8bn. On top of that, Woodside is now seeking opportunities to expand again narrowing in on potential buying assets in the Gulf of Mexico. Woodside’s record profit results follow a set of strong numbers from oil and gas producers including Shell, BP and Santos. This also sets the tone for energy companies in 2023. Woodside Energy shares ended 1.5% higher on Monday in Australia. Keep an eye on US and London listed Woodside.  Read next: Pfizer Is In The Early Stages Of An Acquisition Of Biotech Company Seagen, Twitter's Staff Has Shrunk Since Elon Musk Took Over| FXMAG.COM What are we watching next? China Government Work Report is delivered on 5 March This year’s Government Work Report will be delivered on 5 March. This will provide more details on policy action for urbanization and the property market. There will likely be two main points of interest: affordability (measures to increase accessibility to mortgage loans) and rural construction (focus on rural land transfers and reduction of complexity in regulation). With further stimulus measures in sight, we are confident that China will probably announce a higher GDP target at the upcoming National People’s Congress – meaning 5.5 %. US ISM surveys to be the next test for yields and US dollar The recent data out of the US has shown firm inflation and growth dynamics, prompting an upward repricing of the Fed’s path and bringing yields to critical levels. The ISM surveys this week will be key to watch for further direction, with the manufacturing survey out on Wednesday and services out on Friday. The consensus is for the manufacturing ISM to improve to 48.0 in February from 47.4 in January, but still in contraction (below 50) for a fourth consecutive month. The ISM services index saw a surge to 55.2 in January after a drop to 49.2 in December, partially a reflection of winter weather trends. Gains are likely to moderate, and consensus expects 54.5. EVs in focus – Tesla Investor Day and Li Auto and NIO report earnings China reopening theme is under strain, with the Asian reporting season underway, and this week brings earnings reports from two large EV manufacturers. Li Auto (02015:xhkg/LI:xnas) reported on Monday before China open while Nio (09866:xhkg/NIO:xnas) reports on Wednesday. It will be key to watch how Tesla’s steep discounts and the end of government subsidies impacts the outlooks for these two Chinese EV manufacturers which got off to a slow start this year, and whether the decline in lithium prices lifts the outlook higher. Tesla (TSLA:xnas) will hold an Investor Day event on March 1 in what could be one of the key days of the year for the electric vehicle giant. Nio, Li Auto and XPeng (09868:xhkg/XPEV:xnys) also report February deliveries this week, and China’s EV and battery giant BYD (01211:xhkg/BYD:xnys) should release February sales by Friday. Occidental earnings preview Oil and gas companies have again reported the best earnings growth this US and Australian corporate reporting season - with increased profits and higher dividends from Shell, BP and Santos. Occidental Petroleum’s outlook will be a focus today, as well as Canadian Natural Resources results later in the week. Occidental is expected to report its highest-ever Q4 net income, with the US energy giant set to benefit from high energy prices amid tight supplies. The oil and gas giant generated about $2.8bn in free cash flow in the period after years of austerity and debt reduction, according to Bloomberg consensus. Investors will closely monitor its 2023 spending and capital-returns outlook with adjusted EPS of $1.79 expected. Occidental's shares are down 6.6% this year. Earnings to watch Today’s key US earnings releases are Occidental Petroleum, Li Auto, and Zoom Video with a preview of Occidental Petroleum in the section above. Zoom Video will be watched as many retail investors still have a big interest in this pandemic winning company with analysts expecting FY23 Q4 (ending 31 Jan) up 3% y/y and EBITDA of $353mn up from $278mn a year ago. Li Auto is also in focus as the electric vehicle adoption continues to accelerate with Chinese production expected to expand more rapidly in 2023 as the zero-Covid policy has ended. Analysts expect Li Auto revenue growth of 66% y/y. The three other key earnings we are watching this are Salesforce, Snowflake, and Coupang which we highlight in our earnings watch note from last Friday. Monday: Woodside Energy, Alcon, Occidental Petroleum, Workday, Li Auto, Zoom Video Tuesday: Bayer, Moncler, ASM International, Target, Monster Beverage, HP, First Solar, Coupang, Rivian Automotive Wednesday: Royal Bank of Canada, Beiersdorf, Reckitt Benckiser, Kuehne + Nagel, Salesforce, Lowe’s, Snowflake, NIO Thursday: Anheuser-Busch InBev, Argenx, Yunnan Energy New Material, Toronto-Dominion Bank, Fortum, Veolia Environment, Merck, Hapag-Lloyd, CRH, London Stock Exchange, Haleon, Flutter Entertainment, Universal Music Group, Broadcom, Costco, VMware, Marvell Technology, Dell Technologies Economic calendar highlights for today (times GMT) 1000 – Eurozone Feb. Confidence Surveys 1330 – US Jan. Preliminary Durable Goods Orders  1530 – US Feb. Dallas Fed Manufacturing Activity 1530 – US Fed’s Jefferson (Voter) to speak 1700 – ECB Chief Economist Lane to speak 2350 – Japan Jan. Industrial Production 0000 – New Zealand Feb. ANZ Business Confidence 0030 – Australia Jan. Retail Sales Source:Financial Markets Today: Quick Take – February 27, 2023 | Saxo Group (home.saxo)
UK PMI Weakness Supports Pause in Bank of England's Tightening Cycle

Inflation Risks Continue To Point Towards Further Acceleration

Saxo Bank Saxo Bank 27.02.2023 11:15
Summary:  Markets have been spooked recently by higher US inflation reinforcing the higher-for-longer interest rates rhetoric. Inflation risks continue to point towards further acceleration despite the easing of supply chain disruptions, mostly driven by services cost pressures underpinned by high wages. China’s reopening and the no-landing narrative will also bring fears of an additional inflationary impulse, along with structural issues of deglobalization and energy crunch. Broader expectations last year were inflation will fall back towards target in 2023, allowing central banks to cool down their pace of policy tightening. We have been in the inflation higher-for-longer camp since the days it has been called “transitory”, and a rude awakening for the markets is happening now bringing inflation expectations higher. January inflation data for the US and the Eurozone came in hot, fueling bets that central banks will have to do more to bring prices under control. Meanwhile, wages remain high due to the demand/supply imbalance in labor market further aggravating inflation concerns. US inflation concerns aggravate Fed’s preferred inflation gauge, the PCE deflator, came in hotter-than-expected for January. In addition, upward revisions to the previous month’s prints sent a strong hawkish signal to the markets reinforcing the Fed’s higher-for-longer message. Core PCE rose 4.7% YoY, accelerating from the upwardly revised 4.6% and above the expected 4.3% and the Fed’s target of 2%. The MoM rose 0.6%, hotter-than-expected and upwardly revised prior of 0.4%. This comes on top of a hot January CPI as well as PPI, all together underscoring persistent inflationary pressures and the need for the Fed to continue hiking rates. Supply chain disruptions easing, but risks won’t go away The cost of shopping containers have retreated from the covid-era peaks. Spot rates from Asia to the US West Coast, which increased more than 15-fold during the pandemic, have since returned to pre-Covid levels. Still, prices remain significantly higher that the pre-covid times, such as the short-term prices for containers from Europe to the US East Coast are still more than double what they were in late-2019. More importantly, risks remain elevated amid a rapidly deglobalizing world. The geopolitical tensions never went away since the year-ago Russian invasion of Ukraine, but have accelerated meaningfully again the last few weeks as we approached the one-year anniversary of the war. Alongside, rising tensions over Taiwan and the US-China relations have become an increasing focus. So even if spot prices in shipping are easing, the contracts have been renegotiated at higher prices in 2021 and 2022 at much higher rates, and the potential for discount remains limited for now given the high risk environment. That is a key reason why the disinflation in goods prices, which was highlighted by Chair Powell at the February FOMC, has quickly reversed and remains volatile at best. It’s hard to get comfortable about the trend in goods inflation, let alone the surging services inflation. Source: Freightos, Bloomberg, Saxo Wage pressures are a key concern Despite widespread news of tech layoffs, the January jobs growth of +517k sent a shockwave to the markets. Unemployment rate touched a 53-year low as service providers expanded their activities. Likewise, jobless claims data and surveys on unemployment all continue to point at hiring and wages would remain on an upward path. With the demand and supply imbalance in the labor markets continuing, companies are feeling wage pressures eat into their margins. As the US consumer is still holding up well even in the wake of high inflation and interest rates, companies with pricing power will pass on these wage costs to the consumers, thereby creating more upside pressures to inflation and a potential wage-price spiral. Re-acceleration of cyclical growth Transition from a recession to a goldilocks/soft-landing narrative to the current no-landing/acceleration narrative isn’t all positive for the markets. The Atlanta Fed GDPNow model estimate for real GDP growth in Q1 is now at 2.7% from 0.7%, which is hardly a sign of recession or stagnation. Overall, recent economic data suggests that the US economy is reheating, and the market is moving to price that in by bringing the terminal rate forecast higher and driving out the rate cuts priced in for this year to 2024. This also brings back the risk of higher inflation. The reopening of the Chinese economy also brings fears of an inflationary impulse through commodity and raw material prices. Cleveland Fed economists Randal Verbrugge and Saeed Zaman have said that it will likely take US inflation many more years than central bankers and financial markets expect to close in on 2% without a deep recession. Upward repricing of the Fed path Beyond cyclical risks, inflation continues to face upside threat from structural factors such as shortage of labor, deglobalization as well as the energy supply crunch. US breakevens are signalling renewed concern that inflation will stay elevated in the shorter term, with the 2-year rate above 3% for the first time since August 2022 and the 10-year rate holding at around 2.5%. As such, market expectations of the Fed path have seen a dramatic shift from expecting a pause/pivot to now pricing in a terminal rate of 5.4% from sub-5% a month back. Calls for 6-7% terminal rates have also picked up. But the Fed has already transitioned to a 25bps rate hike pace, and it would potentially be a credibility issue if they were to move back to 50bps rate hike increments. So, a longer tightening cycle looks like the most likely outcome. Source: Bloomberg, Saxo Source: Macro Insights: Inflating inflation fears | Saxo Group (home.saxo)
Spanish economy picks up sharply in February

Spanish headline and core inflation rise again

ING Economics ING Economics 28.02.2023 10:19
Spanish inflation rose for the second consecutive month in February. Core inflation also continues to rise. Although we expect a decline in the coming months, this shows that underlying price pressures in the economy are still very strong Madrid, Spain. We expect Spanish economic growth to fall to 0.8% in 2024 Headline and core inflation continue to rise in February After rising slightly in January, inflation also rose in February to 6.1% from 5.9% last month. Harmonised inflation followed the same move to 6.1% from 5.9% in January. Core inflation reached 7.7% in February from 7.5% last month. Core inflation has now risen continuously for 22 consecutive months. According to the National Institute of Statistics, this recent development can be attributed to the rise in electricity prices this month, as opposed to the decline seen in February last year. Moreover, prices of food and non-alcoholic beverages increased more than in February last year. On the other hand, some factors also put downward pressure on inflation. Prices of fuels and lubricants decreased, in contrast to the increase in February last year. Combined passenger transport prices also remained stable compared to last year. Spanish inflation likely to lag ECB target until second half of 2024 Headline inflation is expected to ease in the coming months due to lower energy prices, but this process will be slow. Inflation is fueled by food prices and persistently high core inflation. Companies selling price expectations remain high. Any rise in production costs is only slowly being passed on in higher sales prices, leaving further price increases in the pipeline. The resilient eurozone economy also makes it easier for companies to implement new price increases, which contributes to the persistence of high core inflation. Although the pace and magnitude of the decline in inflation remain highly uncertain and depend on highly volatile energy prices, we expect Spanish inflation to be around 4.3% for the full year 2023, reaching 2.7% by the end of the year. It will probably take until the second half of 2024 for headline inflation to return to the ECB's 2% target. Extra interest rate hikes will hamper economic recovery As we expect the ECB to raise interest rates further in the coming months, economic growth will be hampered, especially in interest rate-sensitive sectors such as real estate and business investment. The monetary tightening is to some extent compensated by the sharp fall in energy prices, supporting consumption. Therefore, we still expect growth of 1.3% in 2023, but as the full impact of interest rate hikes will not be felt until 2024, Spanish economic growth is expected to fall to 0.8% in 2024. Read this article on THINK TagsSpain 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
Rates Spark: Balancing data and risk factors

Hawkish ECB May Slow But Not Reverse Euro Selloff

Swissquote Bank Swissquote Bank 28.02.2023 10:26
The Europeans and the Brits finally found an agreement on the very complicated Northern Ireland issue yesterday. But for now, investors warned that they don’t necessarily expect the deal to remove only all of the uncertainty weighing on prices. Brexit deal And if the Windsor Framework could help sterling and small British stocks recover, all the FTSE 100 wants is a rebound in energy and commodity prices, rather than a Brexit deal… Occidental Petroleum  Occidental Petroleum missed earnings and revenue expectations when it announced its Q4 results yesterday, and fell 1.2% in afterhours trading, despite announcing a 38% increase in its dividend and a $3 billion share buyback. Shell Shell, on the other hand, bounced almost 2% higher in Amsterdam yesterday despite a 1% decline in crude oil. European and US markets European and US markets traded in the green yesterday, but the news other than the Windsor Framework was not necessarily encouraging for the central bankers. US core durable orders expanded more than expected, and pending home sales surged 8% thanks to softer mortgage rates on a broad-based decline in yields. The latter data remained consistent with the strong and the resilient US economy, calling for more rate hikes from the Federal Reserve (Fed) to slow inflation. Stocks market So despite yesterday’s relief, the US yields will certainly remain under a decent positive pressure. And higher yields will, at some point, weigh on equity valuations. The S&P500 tested the 200-DMA, which stands at 3940, to the downside last Friday. A fall below that level is expected to accelerate the selloff. Watch the full episode to find out more! 0:00 Intro 0:42 EU & UK finally agrees on Northern Ireland! 3:53 Occidental Petroleum falls after earnings 4:13 Shell up on Goldman upgrade 5:47 Crude oil under pressure 6:24 Equity rally at risk 8:13 Hawkish ECB may slow but not reverse euro selloff 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. #Northern #Ireland #Brexit #deal #Windsor #Framework #USD #EUR #inflation #Fed #ECB #expectations #Crude #Oil #nat #gas #Occidental #Petroleum #Shell #EVPass #Stoxx #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
The Bank Of Canada Paused Rates Hiking, The ADP Employment Report Had A 242K Increase In Jobs

There Is A Strong Chance Of The Canadian Economy Tipping Into A Recession By Mid-2023

Kenny Fisher Kenny Fisher 28.02.2023 14:57
Canadian GDP expected to slow in Q4 It’s a very light data calendar for Canadian releases this week, with today’s GDP report the sole tier-1 event. Canada’s economy is expected to slow to 1.5% y/y in the fourth quarter, following a solid 2.9% gain in Q3. A slowdown in economic activity is what the Bank of Canada is looking for, as inflation remains public enemy number one.  CPI is moving in the right direction as it fell to 5.9% in January, down from 6.3% in December. The BoC is optimistic that the downturn will continue, with a forecast that inflation will fall to 3% by mid-2023 and hit the 2% target by the end of the year. The BoC will have to tread carefully in this tricky economic landscape. The economy is cooling and while inflation is easing, it remains much higher than the 2% target and will require additional rate hikes which will make a soft landing a difficult endeavour. If growth continues to weaken in 2023, there is a strong chance of the economy tipping into a recession by mid-2023. The Bank meets next on March 8 and the markets are expecting a 0.25% hike for the second straight time. The Bank would like to take a pause in its tightening cycle but this will require a substantial drop in inflation. In the US, strong employment and consumer data and stubborn inflation have supported the Fed’s hawkish stance and there is talk of the Fed raising rates as high as 6%. It was only a few weeks ago that the markets were talking about a ‘one and done’ rate hike in March, followed by a long pause and perhaps some cuts by year’s end. This has all changed as the US economy has proven to be surprisingly resilient, despite rising rates and high inflation. The markets are currently pricing in three more rate hikes this year, but that could change in a hurry if key releases in February show that the economy is slowing down.   USD/CAD Technical There is resistance at 1.3701 and 1.3794 1.3570 is under strong pressure in support. 1.3478 is the next support line 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 European Economy Has Demonstrated Amazing Resiliency Following The Supply Shock Of The Russian Invasion Of Ukraine

ECB Terminal Rate Pricing Briefly Touched 4%, Focus Today Is On Commodities

Saxo Bank Saxo Bank 01.03.2023 08:22
Summary:  Hot Spanish and French inflation data, along with a soft US consumer confidence report and month-end flows, made for a bumpy ride in equities and bonds to close the month of February. Dollar strength however prevailed at the close of the month despite a bump higher in EUR and GBP earlier in the day. A big miss in Australia’s Q4 GDP and January inflation saw AUDUSD plunge 30bps. Target beat earnings estimates but missed margins and lowered annual guidance. On watch today will be China PMIs, German inflation and US ISM manufacturing.   What’s happening in markets? Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) slipped on falls in consumer confidence and Chicago PMI The major U.S. equity indices posted their second negative month in three - despite starting the year higher. Treasury yields are denting sentiment amid fears that higher Fed Reserve rates would remain in place for longer after inflation fears have been creeping back into the market - while stronger European inflation data strengthened the case for more hikes. On Tuesday, the S&P 500 dropped 0.3% and Nasdaq 100 slipped 0.1% following an unexpected decline in the Conference Board Consumer Confidence and a weaker Chicago PMI print. Most sectors within the S&P500 were down while materials, communication services, and financials inched up. Target (TGT:xnys) gained 1% after the discount store chain beat earnings estimates but missed margins and lowered annual guidance. With traders again reducing bets that the Fed will cut rates this year, the S&P 500 was down 2.6% last month. In contrast, European indices closed in gains for the month of February, with France’s CAC up 2.7%, Euro Stoxx 600 up 1.8% and German DAX up 1.6% despite a big surge in European yields as well. Yields on the short end of the US Treasury curve (TLT:Xmas, IEF:xnas, SHY:xnas) climbed on hotter-than-expected inflation prints in France and Spain Yields on U.S. Treasuries climbed in early trading following the sell-off in European government bonds in response to hot inflation prints in France and Italy. The long end of the Treasury curve recovered after the Chicago PMI, Richmond Fed Manufacturing Index, and Conference Board Consumer Confidence unexpectedly slipped. The 10-year notes pared most losses and finished Tuesday only 1bp cheaper at 3.92% while the yield on the 2-year was 4bps higher at 4.82%. The 2-10 year curve flattened to -89. Hong Kong’s Hang Seng Index (HSI.I) and China’s CSI300 (000300.I) ended a three-month streak of gains The Hang Seng Index and CSI300 index finished February with the first monthly loss since October 2022, ending a three-month streak of gains. In February, Hang Seng Index fell sharply by 9.4% while A-shares’ broad benchmark CSI300 outperformed, sliding moderately by 2.1%. The weakness in Hang Seng Index was driven by large declines in mega-cap e-Commerce platforms. Weighed on by the prospect of intensifying competition, JD.com (09618:xhkg) tumbled 25%, Meituan (03690:xhkg) down 22.4%, and Alibaba (09988:xhkg) down 19.6% over the month. Baidu (09888:xhkg) bucked the market trend and weakness among peers, climbing 1.8% on traction gained in AI-generated content solutions. In the near term, investors will be having a gauge into the strength of the economic recovery from the official NBS Manufacturing PMI, Non-manufacturing PMI, and Caixin China Manufacturing PMI scheduled to release today. After that, the focus will be on the State Council’s Government Work Report which includes, among other items, the growth target for 2023, delivered to the National People’s Congress on 5 March, and then the reshuffling of top leadership in the State Council and other key offices of the Chinese government during the National People’s Congress. Australian equities (ASXSP200.I) retreat back to January levels, with markets pricing in more Fed and RBA hikes Focus today is on commodities – with oil and copper moving higher, while the broad market is being pressured with markets adjusting to higher for longer CPI. We will be watching the reaction to China PMIs - which are expected to boost sentiment in commodities. Short term pressure continues for the Australia dollar after GDP and CPI slowed Australian GDP data showed fourth-quarter economic growth slowed down to pace of 2.7% YoY as expected- quashed by higher inflation and interest rates. Meanwhile, headline monthly CPI showed inflation is cooling – falling to a pace of 7.4% YoY vs the 8.1% price growth forecast. This theoretically pressures the Aussie dollar lower in the shorter term, while the US dollar is continuing to move up – with the dollar index up 4% from its lows - with the market pricing in more Fed rate hikes and potentially no Fed cuts this year – which is in line with our view. Our view is that the Aussie dollar could see strength return in Q2, and we maintain a longer-term bullish view on the Aussie dollar in line with our positive commodity outlook. In other news, Sydney property prices, the bellwether of the Australia market, rose for the first time in 13 months in February in - this is a positive sign for home values – but goes against the grain of what the RBA expected and supports the notion of the RBA keeping rates higher for longer. FX: AUD and JPY were the laggards last month as dollar regained ground The dollar closed firmer at the end of the month which spelled inflation concerns coming back and sent the short-end yields surging to record highs. AUDUSD was the weakest on the G10 board as a beating of the risk sentiment and weaker metal prices saw pair test 0.67 despite the return of RBA’s hawkish stance. Yen had a double blow from surging yields and Ueda’s dovish read, and USDJPY tested 137 last night before getting back below 136.50. EURUSD touched highs of 1.0650 after the French/Spanish inflation prints last night but is back below 1.0570 now. GBPUSD also got in close sights of 1.2150 but back closer to 1.2000 now. Commodities: Copper and oil nudge up - we think the commodity bull market run will be on pause till Q2   The oil prices rose 1.5% with traders reading between the lines at IEA commentary - which alluded to Chinese demand rising - while there is a bigger worry for the EU - should there be a complete halt to Russian flows - which would be a bullish scenario for oil and perhaps see prices move back up to last year's unsustainable highs. As for other commodities - Copper moved further above the key $4 mark after rising almost 2%. Aluminium rose 0.6%, while other metals were lower. At Saxo - our view is that the Commodity bull market will be on pause - before restarting strongly in Q2 with material demand expected to rise from China. Crude oil showing some early signs of life A rally in crude oil prices to the top of last week’s trading range is suggesting some early signs of a recovery towards the top of the trading range that has been established since late 2022. With the Fed rate hikes now well priced in by the markets, focus is moving back to sanctions on Russia that continue to threaten supplies. Meanwhile, sentiment on China demand recovery may be back with the Two Sessions likely to announce a strong policy commitment to growth rebound this year. This is offsetting global demand concerns emanating from API data showing a 10th straight weekly crude build. WTI prices touched $78 overnight and Brent was at $84.   What to consider? US consumer confidence in a surprise drop, labor market strength intact The Conference Board's US consumer confidence index saw a surprise fall to 102.9 in February (vs. exp 108.5) from January’s 106 which was also revised lower from 107.1. The present situation index looked resilient at 152.8 from 151.1 and reaching its highest levels since April 2022, but the forward expectations index declined to 69.7 from 76.0 previously. While the headline figures may be a small input for the Fed, the labor-supply mismatch has become more evident from the consumer confidence report. The report showed that the labor differential improved to 41.5 in February from 37 in the prior month, rising for a third consecutive month and reaching its highest levels since April 2022. The differential represents the percentage of respondents who say jobs “are plentiful” less those who say jobs “are hard to get”. Its rise could be an early indication of labor market strength heading into next week’s payrolls and JOLTs reports. Focus turns to ISM manufacturing survey today which is expected to accelerate but still remain in contraction. ECB rate hike bets pick up after higher French and Spanish inflation Consumer prices in France jumped by a record 7.2% YoY in February as food and services costs increased, while Spain saw a stronger-than-expected 6.1% YoY advance. The strong inflation now results mostly from companies passing through to consumers higher prices in the service sector and higher food prices. Looking at the French data, food prices (price increase of+14.5% YoY) contribute twice more to inflation than energy prices. The increase of prices in the service sector (which represents about 50% of the CPI basket) is another source of worry. Expect it to get worse in the short-term. We also see a similar trend in most European countries (the situation is even uglier in the CEE region), with the first print of German February inflation due today and the Eurozone print due tomorrow. Euro bonds slid with German yields up 7bps and Spanish yields up 6bps as ECB terminal rate pricing briefly touched 4%. China PMIs are expected to show further recovery in the economy Scheduled to release on Wednesday, the official NBS Manufacturing PMI, according to survey from Bloomberg, is expected to bounce further into expansion at 50.6 in February from 50.1 in January and the Non-manufacturing PMI is forecasted to climb to 54.9 from 54.4. Despite the sluggishness in exports, Caixin China PMI is expected to return to the expansionary territory at 50.7 in February, from 49.2 in January. The Emerging Industries PMI jumped to 62.5 in February from 50.9 in January adding to the favourable forecasts for the NBS and Caixin PMIs. Target’s earnings beat with stronger-than-expected sales growth but margins missed and annual guidance weaker-than-expected Target (TGT:xnys) reported FYQ4 (ending Jan 31, 2023) EPS of USD1.89, nearly 28% above the consensus estimate of USD1.48. The earnings beat was driven by a stronger-than-expected 0.7% Y/Y growth in same-store sales and a 1.3% Y/Y growth in total sales, while both were expected to fall. Notable strength was found in food and beverage, beauty, and household essentials. Discretionary categories remained soft. Weakness, however, showed up in the gross margins which declined to 22.7% in Q4 from 25.7% in the prior-year quarter. EBIT margins fell to 3.7% from 6.8% a year ago. For the current fiscal year’s annual guidance, the management is expecting between a low-single-digit decline and a low-single-digit increase in same-store sales and a below-consensus operating income of about USD 4.9 billion. Brewers results on watch amid the reopening trade   Budweiser Brewing Co (1876 HK), the Asia distributor - is due to release results today. Q4 revenue is expected to get a little boost from the FIFA World Cup trading - but is still expected to dive. Its outlook could be tainted as higher beer taxes are ahead for South Korea - while Budweiser’s APAC brands are on notice with proposed liqueur taxes there looming – which could slow business growth. The world’s largest brewer Anheuser-Busch InBev SA/NV (BUD) reports on Thursday, and could see higher volatility - for more click here. EV makers on watch: Tesla bolsters efforts to boost production, Rivian gives lacklustre outlook Tesla is continuing to march ahead with its lofty EV production goals - and now looks set to build a plant in northern Mexico. The news precedes Wednesday's reveal of Elon Musk's next phase "master plan," which will test the resurgent enthusiasm for the EV maker. Further details of the Mexico plan are expected to also be released this week. Meanwhile, Tesla’s competitor, Rivian forecasts 50,000 EVs will be produced this year – which was weaker than the market expected. Its fourth quarter revenue also missed expectations making $663 million – vs the $717 million consensus expected.     For what to watch in the markets this week – read or watch our Saxo Spotlight. For a global look at markets – tune into our Podcast. Source: Markets Today: Crude oil and copper recover – 1 March 2023 | Saxo Group (home.saxo)
Rates Spark: Bracing for more

Rates Spark: Update on the rates view in light of latest impulses

ING Economics ING Economics 01.03.2023 08:25
The latest French and Spanish inflation numbers chime with recent US inflation numbers that show some stickiness attached to the inflation narrative. It keeps both the European Central Bank and the Federal Reserve in hiking mode. Here we update on the cycle for rates ahead, noting 5% and 3% as key levels on the horizon for both ends of the curve The cycle we expect on the front end; dominated by hikes for now Given what we know, we agree that the Fed will hike by 25bp per meeting for the next three meetings. That takes the funds rate range to a peak of 5.25% - 5.50% by June. Here’s where the Fed stops. It’s also reasonably consistent with the dot plot, which will make the Fed feel good about itself. Moreover, the cumulative delivery of 550bp of rate hikes (all the way from zero) is quite a dramatic rise in the cost of leverage for households and corporates. Even if it just holds there for a number of months it will add stresses and strains to the economy. The increased cost of leverage has an impact effect, a cumulative effect and a persistence strain The increased cost of leverage has an impact effect, a cumulative effect and a persistence strain. Even if players had ridden through the rate hike process to date and have felt some tolerable pain, that pain will continue to cumulate. US corporates will be in no mood to go on investment sprees in such an environment. And even though there has been a reluctance for employers to shed employees (as it was tough to get them in in the first place), in all probability lay-offs are liable to creep in as we progress further through 2023. There is a moment where inflation and higher rate costs really hit home. And this is why we think the Fed stops, and furthermore why we think the Fed will subsequently engineer some sizeable cuts. Our Chief International Economist James Knightley thinks the Fed can be in the rate cutting game by end-2023, and in any case through 2024 watch out for at least 200bp of interest rate cuts. Why? By the third quarter of the year the realisation will grow that the inflation threat has been significantly downsized, and the Fed will then focus on its second mandate, which is to facilitate a strong jobs market. By this time, employment reports will have turned to low to negative, requiring some support from the Fed, to prevent ongoing (by then) rises in the unemployment rate. Then we get pause and then cuts, with 3% and 5% handles key levels for market rates The 5% handle for the funds rate in all probability gets reduced down to a 3% handle. In fact we have the funds rate bottoming out at 3% flat in 2024. And before the funds rate gets to 3%, the 10yr Treasury yield is liable to get down there ahead of that. As higher interest rates really begin to bite and the recessionary tendency takes hold in the second half of 2023 the 10yr yield is liable to overshoot to the downside, getting to that 3% level. However, note that we characterise this as an overshoot. What we are saying here is 10yr yield should not go below 3%. Or course it could. But it really shouldn’t. And if it does, it should only be temporary. We are in a new world here where there is a more inflation prone set of circumstances This reflects our view that we are in a new world here where there is a more inflation prone set of circumstances that does not merit super-low rates like we’ve had in the previous decade and a half. Those super-lows were brought on by the Great Financial Crisis and reaction to the pandemic. Mean reversion to the 2% area seen for the US 10yr yield through these years does not make much sense going forward. We’d view 3% as a more suitable starting point, which can be broken out as 2% - 2.5% inflation and 0.5% to 1% real rate. In consequence that’s our target for the Fed funds rate bottom, and if that’s the bottom for the Fed, then the 10yr should not really be going below it. Which brings us to the pivot narrative. We’ve been a bit frustrated with the market obsession with this term throughout 2022. There is no pivot. There is a hiking phase (ongoing), a pause phase (second and third quarters of this year) and then a cutting phase that we believe starts in the fourth quarter and really takes hold through 2024. This cutting phase helps to cushion an economy that had finally caved to the prior interest rate elevation pressure. It can’t be overdone though as the US economy is more prone to inflation going forward. Bringing jobs back home does not mean cheaper jobs; de-globalization the same.   That’s based on what we know. Throw in another crisis and we go off on another tangent. Geo-politics always has the potential to engineer that too. But until it happens, it cannot be fully discounted. That all being said, one of the logical reasons for the remarkable early and deep inversion of the US curve is that longer maturities are a bit nervous about the future. Putin’s war in Ukraine shows how uncertain the wider world is, and how impacts from such events become global really quickly. And its ongoing. The Fed does what it can to focus on the US economy. The markets watch the Fed, and lots of other stuff that pushes things around; always quite a complex web. 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
Asia Morning Bites - 04.05.2023

Australia: Growth and inflation both slow

ING Economics ING Economics 01.03.2023 08:32
A double whammy of slowing growth and moderating inflation, but it won't be enough to get the central bank to pause next week Governor of the Reserve Bank of Australia, Philip Lowe 0.5% 4Q22 GDP growth QoQ sa Lower than expected 4Q22 GDP growth slows, and looks like it will slow further Despite some stronger private investment data earlier in the week, which led to the consensus of forecasters revising up their expectations for today's GDP release, the published growth figure actually came in quite a bit weaker than the 0.8% quarter-on-quarter expectation, growing only 0.5% from the previous three months.  Following some slightly softer monthly labour reports, is this finally conclusive evidence that the economy is slowing? It certainly looks that way.  Contribution to QoQ GDP Growth Source: CEIC, ING Consumer spending falling, inventories rising To work out what exactly is going on, we've calculated the contributions to quarter-on-quarter seasonally adjusted GDP growth broken down into some of its main constituents, to see what is weakening, and what is holding up better, and compared this over the last three quarters.  When you do this, you see that the total GDP growth rate has declined at a very steady pace over the last few quarters. Much of that decline can be laid at the feet of private consumption, the growth rate of which has dropped steadily over this period. Helping to pull the total down this quarter, net exports were also a drag.  Somewhat worryingly, the fourth quarter GDP growth total would have been closer to zero had it not been for some inventory building, some of which will probably prove to have been involuntary, and will reverse in the coming quarters.  So in short, it does look as if there is more to this than just some statistical noise, and we could be looking at a sub 0.5% QoQ figure for the first quarter. Inflation falls are broadly spread Source: CEIC, ING Inflation also fell sharply January inflation also dropped sharply following its surge higher in December, dropping to 7.4%, a full percentage point below the December figure.  We have performed a similar breakdown of the inflation numbers to see what is driving this result, and what we find is very different to the GDP numbers.  Whereas the GDP figures appear to have some obvious drivers for the latest weakness, this is much less apparent in inflation, where the contributions to inflation have remained very steady, but slightly weaker across a wide range of components. Even the reversal of the big surge in holiday prices, which helped lift the inflation rate in December, had a relatively modest impact on the inflation rate in January. The recreation sub-component which encompasses holiday travel dropped back 0.3pp in terms of its overall contribution to the inflation total. Accounting for the rest of the drop in today's inflation rate, were small declines across a wide range of items.  That actually sounds like a more solid slowdown in inflation than if it were just the result of, say, food price swings or gasoline costs for example. And indeed, the inflation rate excluding volatile items fell to 7.2% from 8.1%, suggesting that this was a fairly broad-based, though at this stage, modest, decline in core inflation.  Should the RBA take notice? Combined with the GDP numbers, these latest inflation figures may prompt thoughts of a different tack by the Reserve Bank of Australia, coming just a week before its next rate-setting meeting. However, we think this would be a bit premature. And financial markets seem to agree.  For one thing, the inflation rate, though sharply down, remains well above 7%, a rate that hardly indicates a pause is likely anytime soon. Moreover, today's drop in inflation, though broad-based, only reverses last month's spike, so we really aren't any better off yet, even if the signs for further declines are a little more promising. And finally, the RBA at its last rate-setting meeting provided very strong forward guidance that suggested inflation would not return to its 2-3% target range until 2025. This is a forecast we completely disagree with, but that is irrelevant to the fact that the RBA will want to maintain its hawkish credentials right up until the point that either the market calls its bluff or policymakers drop the pretence and admit things are going better than they had predicted.  Markets have scaled back their expectations for RBA tightening following today's figures, and the implied peak rate from cash rate futures in October has dropped back to  4.182% from 4.275% the day before. But markets are still pricing in a much greater than 50% chance of a rate hike next week, and after some initial weakness, the Australian dollar has shrugged off the data and has appreciated for most of the day.  Read this article on THINK TagsReserve Bank of Australia RBA rate policy Australian inflation Australian 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
Economic Data From China Positively Affected Copper, Aluminum, Zinc And Iron Ore

Economic Data From China Positively Affected Copper, Aluminum, Zinc And Iron Ore

Saxo Bank Saxo Bank 01.03.2023 09:22
Summary:  US equities posted an uninspiring session, as the price action is bottled up ahead of the key support of the 200-day moving average in the major indices. Overnight, China’s official Manufacturing PMI ripped higher in February with its strongest reading since 2012, strong suggesting that the China re-opening is swing into motion. Hot inflation data from France and Spain pulled ECB expectations sharply higher yesterday, with German Feb. CPI up today. What is our trading focus? US equities (US500.I and USNAS100.I): caught between growth and inflation US equities headed lower yesterday with S&P 500 futures closing at the 3,975 level. The index futures are trying to rebound this morning following stronger than expected China February PMI figures suggesting the economy is responding positively to the reopening. This growth impulse lifted Hang Seng futures by 4.2% and breathed fresh air into commodities. The growth impulse from China will keep inflation pressures high in the global economy and that could force long-term bond yields in the US and Europe higher from current levels which will make equities caught between responding positive to growth or negatively to inflation and potentially higher interest rates. Hang Seng Index (HSI.I) and CSI300 (000300.I) jumped on strong China PMIs Hang Seng Index surged 3.5% and CSI300 gained 1.7% by in the morning session following the release of strong PMI data much above consensus estimates. The headline official NBS Manufacturing PMI surged (more below). The NBS non-manufacturing PMI and the Caixin Manufacturing PMI, also released today, both bounced strongly and signaled economic expansion. Mega-cap China internet names surged 5-7% and EV stocks jumped 5-8%. In A-shares, telcos, digital economy, software, gaming, and media stocks led the charge higher. FX: AUD and JPY were the laggards last month as dollar regained ground The dollar closed firmer at the end of the month as inflation concerns returned and sent the short-end yields surging to 15-year highs. AUDUSD was the weakest on the G10 board as a beating of the risk sentiment and weaker metal prices saw pair test 0.67 despite the return of RBA’s hawkish stance. Yen had a double blow from surging yields and the dovish read of Ueda’s nomination hearing for the Bank of Japan governorship, and USDJPY tested close to 137 yesterday before reversing back below 136.50. EURUSD touched highs of 1.0650 after the French/Spanish inflation prints yesterday but is back below 1.0600 this morning. GBPUSD nearly hit 1.2150 yesterday after the N. Ireland border announcement, but is back closer to 1.2050 this morning. Crude oil recovers as strong China PMI re-ignites demand focus Brent crude trades near $84 and WTI at $77.50 as both futures markets continue to recover from the latest the macroeconomic related selloff. With a hawkish Fed having been priced in, the dollar has started to weaken allowing traders to return their focus to an ongoing recovery in China. The strength of which was confirmed overnight when China’s PMI data showed across the board strength. The official headline surged to 52.6 and highest since 2012 while production and new orders improving markedly and new export orders move well above 50 and into expansion territory for the first time in 23 months. Increased tightness is being signaled through steepening prompt spreads with Brent trading at 59 cents a barrel from a recent 34 cent low. Also supporting are reports that Russia is struggling to find new buyers with million of barrels currently stored at sea. Ahead of EIA’s weekly stock report, the API said US inventories rose 6.2m barrels last week. Short-term momentum indicators point to higher prices with Brent once looking to challenge the downtrend from last March around $84.50. Silver led gold higher, but more work needed to shift sentiment Precious metals trade higher for a third day after the market concluded the latest round of hawkish comments from US FOMC members and additional rate hikes were now being fully priced in. Continued strength in US yields, near recent highs, have been offset by weaker dollar, allowing buyers once again to gain the upper hand. Silver, down around 12% in January, led the recovery which gathered speed overnight following the release of stronger than expected economic data in China (see below). The gold-silver ratio which yesterday hit a four-month high at 88.4 (ounces of silver to one ounce of gold) has since retraced to around 86.80. Gold as a minimum needs to break $1864, and silver $22 to signal an end to the current corrections Industrial metals jump on strong China rebound Copper and not least aluminum, zinc and iron ore traded higher following a batch of economic data from China showed improved factory activity as well as rising home sales, both driving expectations for an accelerated demand recovery, thereby once again replacing concerns about the economic impact of additional US rate hikes. Having found support below $4, the HG copper futures contract trades back above its 21DMA, a sign momentum is turning positive again. Since mid January the price has traded within a 30 cents downward trending channel, and for that to change, the price needs to break above $4.20, some 2% above the current level. Focus now turns to on China’s “Two Sessions” starting at the weekend. Yields on US Treasuries (TLT:Xmas, IEF:xnas, SHY:xnas) steady near recent highs US Treasury yields staid pinned near recent cycle highs, with the 2-year trading above 4.8% this morning again and the 10-year benchmark hovering just below 4.00%. Yields were dragged higher yesterday by a fresh surge in European short yields on the French and Spanish CPI data for February (see below) and stayed elevated in the US despite the weak February Consumer Confidence print. The next test for the US treasury market is perhaps the February ISM Services survey on Friday. What is going on? China's economy shows strong recovery as PMI’s beat expectations The official NBS China Manufactuing PMI surged to 52.6 in February, the highest level since 2012, from 50.1 in January. The strength was across the board with the Production sub-index and New Orders sub-index improving markedly to 56.7 and 54.1 respectively. When a diffusion index goes above 50, it signals expansion. The export sector, which has until now been sluggish, showed signs of a strong recovery. The New Export Orders sub-index in the NBS survey unexpectedly surged to 54.1 in February from 46.1 in January and was the first time returning to the expansion territory in 23 months. The Caixin Manufacturing PMI, which covers smaller and more private enterprises in the export-oriented coastal regions of China relative to those covered in the NBS survey, also recovered strongly to 51.6 in February from 49.2 in January and the new order sub-index in the Caixin survey bounced to 52.2 from 49.3. The NBS non-manufacturing PMI continued to accelerate well into expansion, rising to 56.3 from 54.4. Both major sub-indices rose further, with the Services sub-index advancing to 55.6 and the Construction sub-index soaring to 60.2. US consumer confidence in a surprise drop, labor market strength intact The Conference Board's US consumer confidence index saw a surprise fall to 102.9 in February (vs. exp 108.5) from January’s 106 which was also revised lower from 107.1. The present situation index looked resilient at 152.8 from 151.1 and reaching its highest levels since April 2022, but the forward expectations index declined to 69.7 from 76.0 previously. While the headline figures may be a small input for the Fed, the labor-supply mismatch has become more evident from the consumer confidence report. The report showed that the labor differential improved to 41.5 in February from 37 in the prior month, rising for a third consecutive month and reaching its highest levels since April 2022. The differential represents the percentage of respondents who say jobs “are plentiful” less those who say jobs “are hard to get”. Its rise could be an early indication of labor market strength heading into next week’s February Payrolls data. Focus turns to ISM manufacturing survey today which is expected to improve but still remain in contraction. ECB rate hike bets pick up after higher French and Spanish inflation Consumer prices in France jumped by a record 7.2% YoY in February as food and services costs increased, while Spain saw a stronger-than-expected 6.1% YoY advance. The strong inflation now results mostly from companies passing through to consumers higher prices in the service sector and higher food prices. Looking at the French data, food prices (price increase of+14.5% YoY) contribute twice more to inflation than energy prices. The increase of prices in the service sector (which represents about 50% of the CPI basket) is another source of worry. Expect it to get worse in the short-term. We also see a similar trend in most European countries (the situation is even uglier in the CEE region), with the first print of German February inflation due today and the Eurozone print due tomorrow. Euro bonds slid with German yields up 7bps and Spanish yields up 6bps as ECB terminal rate pricing briefly touched 4%. AUD swings to a gain after China’s economy shows signs of a stronger rebound After China's manufacturing activity hit a decade high as noted above, the Australian dollar against the US dollar (AUDUSD) rose sharply. Iron ore, copper and aluminium prices all gained. This supported the AUDUSD pair rebounding from 10-week lows, which it hit earlier after Australian GDP slowed to pace of 2.7% YoY in Q4 as expected while headline monthly CPI cooled to 7.4% YoY, vs the 8.1% growth forecast. Short covering also added to the Aussie dollar whipsawing higher. What are we watching next? Tesla Investor Day Tesla’s annual ‘Investor Day’ is scheduled for tonight at 21:00 GMT and will be livestreamed on Tesla’s website. Elon Musk has teased in tweets that the Investor Day presentation will revolve around the part 3 in his ‘Master Plan’ which was first announced back in 2006 and Elon Musk has specially written that the ‘Master Plan 3’ is about ‘the path to a fully sustainable energy future for Earth...’ suggesting it might be around energy. One the key variables in the path to electrifying society is about energy production, energy storage, and the electric grid, and as such it might be that Tesla will aim solve these issues so Tesla’s growth is not constrained too early by the lack of investments and solutions on the infrastructure side of the equation. Germany’s Feb. CPI data today, Eurozone Feb. CPI tomorrow After French and Spanish February CPI readings sparked higher expectations for the ECB as noted above, we will get a look at German regional CPI releases this morning for February and the nationwide data this afternoon at 1300 GMT, with the German 2-year yield having leaped to nearly 3.20% yesterday after starting the weak below 2.9%. Expectations are for a reading of +0.5% MoM and +8.5% YoY vs. +8.75 in January, with the “EU Harmonized” reading seen slowing to +9.0% YoY vs. 9.2% in Jan. Earnings to watch Today’s key US earnings releases to watch are Salesforce (reporting after the close), Snowflake (reporting after the close), and NIO (reporting before the open). Analysts expect Salesforce to report 9% y/y revenue growth for the quarter that ended in January and EBITDA of $2.67bn up from $1.02bn a year ago as the software application maker is under pressure from several activist investors to improve profitability. Analysts expect Snowflake to report revenue growth of 50% y/y in the quarter that ended in January and EBITDA of $25mn up from $-146mn a year ago. NIO, that finally ramped up its EV production in Q4 after several quarters of slow increases, is expected to report 73% y/y revenue growth but still delivering an operating loss of CNY -3.4bn. Wednesday: Royal Bank of Canada, Beiersdorf, Reckitt Benckiser, Kuehne + Nagel, Salesforce, Lowe’s, Snowflake, NIO Thursday: Anheuser-Busch InBev, Argenx, Yunnan Energy New Material, Toronto-Dominion Bank, Fortum, Veolia Environment, Merck, Hapag-Lloyd, CRH, London Stock Exchange, Haleon, Flutter Entertainment, Universal Music Group, Broadcom, Costco, VMware, Marvell Technology, Dell Technologies Economic calendar highlights for today (times GMT) 0815-0900 – Eurozone Final Feb. Manufacturing PMI 0855 – Germany Feb. Unemployment Change / Claims 0930 – UK Jan. Mortgage Approvals 1000 – UK Bank of England Governor Andrew Bailey to speak 1300 – Germany Feb. CPI 1500 – US Feb. ISM Manufacturing 1530 – EIA's Weekly Crude and Fuel Stock Report 1830 – Mexico Central Bank Inflation Report 0030 – Australia Jan. Building Approvals   Source:Financial Markets Today: Quick Take – March 1, 2023 | Saxo Group (home.saxo)
Indonesia Inflation Returns to Target, but Bank Indonesia Likely to Maintain Rates Until Year-End

Indonesia: Headline inflation ticks higher but core sustains downtrend

ING Economics ING Economics 01.03.2023 09:45
Slowing core inflation gives Bank Indonesia a reason to stay dovish Jakarta, the capital of Indonesia 5.5% YoY headline inflation   Higher than expected Headline inflation rises to 5.5% due to uptick in food Price pressures remain evident with February inflation moving past expectations to settle at 5.5% year-on-year and up 0.2% from the previous month. Food inflation was the main driver for today’s upside surprise, rising 7.2% compared to 5.8% in January and up 0.5% from the previous month. Other sectors that saw elevated inflation were transportation (13.6%), household equipment (4%) personal care & services (5.6%) and restaurants (4.1%). Elevated inflation for basic food items and personal services could challenge household spending in the coming months and weigh on growth prospects.  However, despite the uptick in headline inflation, core inflation edged lower to 3.1% from 3.3% as all sectors outside food inflation recorded slower inflation compared to the previous month.       Moderating core inflation gives BI some breathing room Source: Badan Pusat Statistik BI still likely dovish despite headline inflation miss Despite the upside in headline inflation, we expect Bank Indonesia (BI) to retain its relatively dovish stance given the decline in core inflation. BI Governor Warjiyo recently reiterated his stance that the central bank would not need to hike rates further this year and falling core inflation supports this view. However, given that overall headline inflation remains well above target and could stay elevated in the near term, we believe that BI will not have room to cut rates until the headline reading trends back towards target.  Thus we are looking at a possible protracted pause from BI with the performance of the Indonesian rupiah likely the only factor that could convince BI to adjust its current dovish stance.      Read this article on THINK TagsIndonesian rupiah Indonesian CPI 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
Euro and European bond yields decreased after the ECB decision. The end of tightening may be close

European Markets Look Set To Start The New Month Higher

Michael Hewson Michael Hewson 01.03.2023 10:44
After such a positive start to the year, with two successive monthly gains, European markets have performed remarkably well against a backdrop of a sharp rise in interest rates. US markets on the other hand closed lower as well as giving up some of their January gains.   Year to date we've seen the DAX rise 10.3% and the FTSE100 add 5.7%, against a backdrop that has seen German and UK rates surge against a backdrop of stickier than expected inflationary pressure.   These gains have inevitably prompted speculation as to how sustainable they are, and for now the progress we've seen thus far does look steady and sustainable. Much will depend on how high rates eventually settle and in that there are many strands of opinion.   Markets are continuing to price in the prospect that rates will eventually fall back to a lower baseline, with very few investors willing to countenance the idea that rates are likely to remain high for some time to come, and even longer.   Much will depend on high sticky inflation is likely to be, and on current evidence there is little sign that it is slowing, which means we could see at least 2-3 more rate hikes in the coming months, and rates could stay at these levels through 2024 and into 2025.   Today's final manufacturing PMIs from Spain, Italy, France, Germany and the UK are set to point to a mixed outlook when it comes to economic activity, with manufacturing expected to show an improvement to 49 and 51 in Spain and Italy and declines to 47.5 and 46.3 in France and Germany respectively.   Yesterday inflation in France hit a record high of 7.2% in February, driven by increases in food and services prices, while in Spain it edged back up to 6.1%. While we've seen slowdowns in the price of energy which generally tends to help the manufacturing sector, there has been divergent reactions to the milder winter. Italy and Spain appear to be more resilient, however France and Germany appear to be heading in the wrong direction.   One part of that is higher inflation, with today's German CPI for February expected to only decline modestly to 9%, from 9.2%, however there is a risk of an upside surprise given yesterday's readings from Spain and France. The sticky inflation outlook is already shifting rate hike expectations for the ECB, and a possible 4% pause rate.   We also have more economic data from the UK, where consumers are being similarly squeezed by higher prices and some shortages.  UK manufacturing PMI is expected to be confirmed at 49.2, an increase from 47.   Mortgage approvals have also been in decline in the face of the slowing economy and falling house prices. At the end of last year approvals fell to their lowest levels since May 2020 at 35.6k and could see a modest pickup in January to 38.5k, however it is clear that higher rates are weighing on demand for mortgages, as well as property.   Net consumer credit has slowed from the levels we were seeing in the summer, falling to £500m at the end of last year. This could see a modest pickup to £800m in January.   Moving on to the US economy, we have ISM manufacturing which will tee us up nicely for the services report on Friday, which helped reinforce the hawkish tilt that we saw post January payrolls.   Manufacturing ISM is forecast to improve modestly to 48, still in contraction, along with prices paid which is currently disinflationary at 44.5. European markets look set to start the new month higher after Asia markets got a lift from the latest China manufacturing and services PMI numbers for February, which showed that manufacturing activity jumped to its highest level since 2012 at 52.6. Services also improved to 56.3, giving the China reopening story some added legs, after what has been a slow start since restrictions started to get eased back in December.   EUR/USD – looks to have posted a bullish day reversal off support at the 1.0530 area earlier this week. We need to push through the 1.0640 area to open up a move higher, and back towards the 50-day SMA at 1.0730. While below 1.0730, the bias remains for a test of the January lows at 1.0480/85. GBP/USD – retested the 50-day SMA at 1.2150 yesterday, and which needs to break to retarget the 1.2300 area. Support remains at the lows this week at the 200-day SMA at 1.1920/30. A break of 1.1900 retargets the 1.1830 area. EUR/GBP – slipped back from the 0.8830/40 area and has drifted down to the 100-day SMA at 0.8750. While below the 0.8830 we could see further declines towards the 0.8720 level. USD/JPY – ran into resistance at the 200-day SMA at 136.90/00. Interim support at 133.60, and below that at 132.60, and 50-day SMA.   FTSE100 is expected to open 20 points higher at 7,896 DAX is expected to open 37 points higher at 15,402 CAC40 is expected to open 5 points higher at 7,281 Email: marketcomment@cmcmarkets.com Follow CMC Markets on Twitter: @cmcmarkets Follow Michael Hewson (Chief Market Analyst) on Twitter: @mhewson_CMC
The RBA’s aggressive rate tightening cycle will be continued

Inflation In Australia Eased More Than Expected

Ipek Ozkardeskaya Ipek Ozkardeskaya 01.03.2023 10:48
Uh oh! Inflation in Europe took the wrong direction in February. The data released yesterday printed a record inflation of 7.2% in France and ticked higher to 6.1% in Spain. Both were higher than expected, of course, and cranked up the hawkish European Central Bank (ECB) rate expectations.   For the first time, the market pricing pointed out that the ECB's deposit rate would reach 4%, 150bp higher than where it stands right now. That means more 50bp hike will be on the mene after the next ECB meeting's almost certain 50bp hike.   What does that mean for investors?  First, it means higher bond yields, as the hawkish ECB expectations directly impact the bond yields, sending them higher. As such, German, French, Italian and Spanish 10-year yields are now at the highest levels in more than a decade. They are at levels reached during the European debt crisis at the start of 2010s.   Higher yields are good for the euro - even if it won't necessarily reverse the negative trend against the dollar, it should at least slow the selloff.   But hotter-than-expected inflation is not necessarily good for the European stocks, as higher inflation means higher ECB rates, higher ECB rates mean higher bond yields, higher bond yields mean more expensive financing for companies, more expensive financing for companies means less projects, less manufacturing, less services, and that, in return, means lower revenues for companies.   Though a stronger euro helps companies eke out better profits as a stronger currency makes raw material and energy costs more affordable for European businesses, higher yields could weigh more on the balance than a stronger euro. Therefore, what's probably next for the Stoxx 600 is a downside correction, following a 23% rally between last October and this February.  Today, we will get hold of the German inflation figures along with the final manufacturing PMI data for the Eurozone countries, and tomorrow morning, the Italian CPI numbers will fall in before the Eurozone flash CPI estimate for February. The expectation is that inflation in the Eurozone may have slowed to 8.2% from 8.6% printed a month ago. Or it may have not slowed as much.   Higher inflation combined with soft growth is the worst possible scenario for stocks.  Slower Aussie inflation, stronger China PMI  Inflation in Australia eased more than expected in January, from last month's record 8.4% to 7.4% versus 8% expected by analysts. But growth also slowed in Q4.   The Aussie-dollar first dipped then rebounded. The better-than-expected PMI data from China boosted iron ore prices, and helped throw a floor under the Aussie's selloff, at around the 100-DMA, 0.6740. But clearing support at this level would only take another wave of hawkish Federal Reserve (Fed) pricing, which would boost the dollar appetite and send the pair below the 100-DMA. The downside risks prevail.  Speaking of the Fed expectations  Cooling US house prices for a seventh straight month, and ugly Richmond manufacturing index cooled the hawkish Fed pressures yesterday, but the S&P500 couldn't hold on to its gains above the 50-DMA, and closed yesterday's session below this level. As a result, the month of February ended with a 2.7% loss for the S&P500, and with mounting pressure from the bears.   The key support to watch in S&P500 is the 200-DMA, near 3940. There are warnings that a fall below this level could trigger a $50 billion selloff, according to JP Morgan.  Elsewhere, well crude oil jumped yesterday, although the latest API data showed another 6.2 million barrel build last week in the US crude inventories. The strong PMI data from China certainly helped keeping the oil bulls alert, but the 50-DMA offers, a touch below the $78pb, may be hard to clear defying the massive builds in US crude inventories week after week. The more official EIA data is due today, and remember last week, the EIA data was even bigger than the API. 
Expect the ECB to keep increasing rates at the short-term, at least until the summer

CPI Report Cranked Up The Hawkish ECB Rate Expectations

Swissquote Bank Swissquote Bank 01.03.2023 11:02
Inflation in Europe took the wrong direction in February. The data released yesterday printed a record inflation of 7.2% in France and ticked higher to 6.1% in Spain. Both were higher than expected, of course, and cranked up the hawkish European Central Bank (ECB) rate expectations. US market In the US, cooling US house prices for a seventh straight month, and ugly Richmond manufacturing index cooled the hawkish Federal Reserve (Fed pressures yesterday, but the S&P500 couldn’t hold on to its gains above the 50-DMA, and closed yesterday’s session below this level. As a result, the month of February ended with a 2.7% loss for the S&P500, and with mounting pressure from the bears. Crude Oil Elsewhere, crude oil jumped yesterday, although the latest API data showed another 6.2 million barrel build last week in the US crude inventories. The strong PMI data from China certainly helped keeping the oil bulls alert. It also helped Aussie rebound following soft CPI data. Read next: Elon Musk Is Richest Man Again, The State Bank Of India Had Raised $1 Billion From Global Banks| FXMAG.COM Stocks In individual stocks, Target and Zoom gained after results, while Rivian lost 10% in after hours trading on mixed results and soft outlook. Watch the full episode to find out more! 0:00 Intro 0:36 Hot European inflation boosts ECB hawks 5:24 Strong China PMI counter soft AUD inflation, but... 6:30 S&P500 closes the month 2.7% down 7:59 Crude oil gains but solid inventory data could limit rally 8:44 Target, Zoom gain, Rivian tanks post earnings 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. #Eurozone #inflation #ECB #rate #hike #EUR #USD #AUD #Crude #Oil #Target #Zoom #Rivian #earnings #Stoxx #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
Asia Morning Bites - 10.05.2023

Saxo Bank Podcast: PMI Reports From China Suggest The Fastest Rate Of Expansion In China's Manufacturing Sector In More Than A Decade

Saxo Bank Saxo Bank 01.03.2023 11:16
Summary:  Today we look at the stunning official February Manufacturing PMI numbers out China overnight, which suggested the most rapid pace of expansion in China's manufacturing sector in over a decade. We look at how this development propagated through commodities and currencies, as well as the impact on EU rates after hot CPI numbers from France and Spain yesterday. Thoughts on inflation and real growth, stocks and earnings to watch, weakening US Consumer Confidence expectations and what that signals and more also on today's pod, which features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are available via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Read next: Elon Musk Is Richest Man Again, The State Bank Of India Had Raised $1 Billion From Global Banks| FXMAG.COM   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com Source: Podcast: The China reopening narrative tries to get back on the rails | Saxo Group (home.saxo)
Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

Hotter-Than-Expected EU Inflation Data, Euro Is Recovering

Swissquote Bank Swissquote Bank 02.03.2023 10:40
Hotter-than-expected inflation data pushes the European yields higher. The higher yields support recovery in the euro, but not the European stock valuations. A slowing economic growth Across the Atlantic Ocean, the news is not great, either. The ISM manufacturing index revealed a slower contraction in February, but the improvement compared to the last month was less than expected.A slowing economic growth is not bad news for the Federal Reserve (Fed), but the mounting price pressure is. This is what the ISM report revealed yesterday, and further fueled Fed hawks. Fed Activity on Fed funds futures now gives more than 30% chance for a 50bp hike at the next meeting, and Fed swaps price in a peak Fed rate of around 5.5%. This number was around 4.9% at the start of the year. Yields Consequently, the US 2-year yield continues its steady climb toward to 5% mark, and the 10-year spiked above the 4% psychological level yesterday.The S&P500 tested the critical 200-DMA to the downside. There is major speculation about an aggressive selloff below this 200-DMA level. And given the persistent positive pressure on the yields, clearing the 200-DMA support is not a matter of if, but a matter of when. Read next: Twitter Employees Are Overburdened As Elon Musk Tries To Run Twitter With Fewer Staff| FXMAG.COM Watch the full episode to find out more! 0:00 Intro 0:37 European inflation pressures yields and euro higher, equities lower 4:03 Just a matter of time before S&P500 slips below 200-DMA 8:41 Crude oil gains, but China-led rally may never materialize 10:02 Why Elon Musk’s Master Plan III was a flop? 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. #Eurozone #inflation #ECB #rate #hike #EUR #USD #Crude #Oil #Tesla #Master #Plan #EV #Stoxx #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
EXMO.COM analyst: Currently, Tesla is still trying to conquer the market by prioritising revenue over profit

Saxo Bank Podcast: Tesla's investor event, Eurozone-wide inflation print and more

Saxo Bank Saxo Bank 02.03.2023 11:04
Summary:  Today we look at the market closing on a weak note on a fresh rise in Treasury yields and then spilling lower in later trading after Tesla's investor event was a damp squib. Elsewhere, inflation remains very much on the brain in Europe, with today's Eurozone-wide inflation print for February rounding out the set of February CPI reports across the bloc. In FX, sterling feels the heat on dithering BoE governor Bailey. In commodities, the latest on copper and crude oil and in equities, thoughts on where we are in the current historic drawdown. Today's pod features Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are available via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Read next: Twitter Employees Are Overburdened As Elon Musk Tries To Run Twitter With Fewer Staff| FXMAG.COM   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: Podcast: Tesla nothingburger and 4.0% 10-yr yield sets market on tilt | Saxo Group (home.saxo)
Earnings season: Tesla stock price slipped after yesterday's news. The best selling car in Q1 was Model Y

Tesla Intends To Cut Assembly Costs, The White House Released The National Cyber Strategy

Kamila Szypuła Kamila Szypuła 02.03.2023 11:59
The car market is developing under the leadership of Tesla. The White House has tried to ensure security in cyberspace. In this article: The National Cyber Strategy Tesla’s official plan Inflation The National Cyber Strategy Security is a very important issue both nationally and personally. Cyber security in particular requires continuous innovation. The White House released the National Cyber Strategy on Thursday. The strategy is intended to show how the Biden administration intends to defend the US against the rapidly growing number of online threats. A key element of the new framework is shifting the burden of cybersecurity from individuals, small businesses and local governments to software developers and other institutions with the necessary resources and expertise. The White House proposes that legislation define the liability of software developers who fail to take reasonable precautions to protect their products and services. The strategy also includes a greater emphasis on encouraging long-term investment in cybersecurity, even for urgent threats White House aims to shift cybersecurity burden from individuals and small businesses to tech providers https://t.co/z31gOW6dGV — CNBC (@CNBC) March 2, 2023 Read next: Twitter Employees Are Overburdened As Elon Musk Tries To Run Twitter With Fewer Staff| FXMAG.COM Tesla’s official plan More than a dozen Tesla executives, led by Musk, discussed everything from the official plan for the world to introduce sustainable energy to the company's innovations in managing its operations, from manufacturing to services. Tesla intends to cut assembly costs in half on future generations of cars, engineers told investors on Wednesday. Tesla's chief financial officer, Zach Kirkhorn, and others have highlighted their commitment to lowering production costs. However, no details were given on when the new generation cars will be launched and what models will be offered. Tesla will cut assembly costs by half in future generations of cars, engineers told investors, but Chief Executive Elon Musk did not unveil when it will debut its affordable electric vehicle https://t.co/y6cXun7wbI $TSLA pic.twitter.com/uRDaLb3eyp — Reuters Business (@ReutersBiz) March 2, 2023 Inflation Monetary theory in economics consisted of different schools of thought rather than a single unified model. Each of these schools emphasizes different forces driving inflation and prescribes a distinct policy response. Different times presented different challenges. The revival of inflation now requires another change of emphasis in monetary policy. After a long period of low interest rates and low inflation, the world economy is entering a phase characterized by high inflation and high levels of public and private debt. Central banks seem to act as directors of modern economies, setting interest rates to stabilize inflation. Monetary policy requires a modified approach that is resilient to sudden and unexpected changes in the macroeconomic scenario. To address these issues, central banks should return to a monetary approach that prioritizes stabilizing inflation expectations. Policy cannot be tightened until inflation sets in. Instead, central banks should act as soon as red flags emerge. JUST RELEASED: The latest edition of F&D magazine delves into how high inflation and mounting levels of public and private debt are impacting monetary policy. Check it out ➡️ https://t.co/bfJzqo3H4c pic.twitter.com/JSTL3IX5YA — IMF (@IMFNews) March 1, 2023
Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

Eurozone inflation stickier than expected in February

ING Economics ING Economics 02.03.2023 12:06
Inflation decreased from 8.6 to 8.5% in February with core inflation rising to 5.6%. While some forward-looking indicators for inflation are improving, the faster pace of underlying inflation means the European Central Bank has no reason to stop hiking anytime soon   The small decline in headline inflation mixed with a jump in core inflation is far from what the ECB had been hoping for. The increase in food inflation stands out, jumping from 14.1 to 15% in February. Services inflation is also a clear worry, which increased from 4.4 to 4.8%. With wage growth on the rise, concerns are that services inflation could prove sticky at high levels. But also energy inflation did not drop in line with the market price developments, thanks in part to French changes in the tariff shield. The silver lining is that core inflation increases were mainly due to base effects. Using our own seasonal adjustment, we find that the monthly increase in core prices was in fact slightly down from January. So perhaps not as alarming as it looks at first sight, but then again, at 0.5% month-on-month, core inflation is still growing at an annualised pace above 6%. So still nowhere near the ECB target for the moment. How bad is this exactly? The February reading is a clear setback, but forward-looking indicators show that the declining trend in inflation is set to continue. March will show a much faster drop in headline inflation as the huge jump from last March will fall out of the year-on-year comparison. Energy inflation is set to turn negative soon, possibly already in March. But the question is how fast other price categories will see declines and if inflation proves to be stickier than expected. We do see producer prices for food showing smaller increases and outright declines in food commodity prices, which should lead to slower consumer food inflation over the course of the year. Goods inflation is also set to fade in the months ahead as input costs have improved markedly and selling price expectations from manufacturers are falling quickly. The big worry to us is around services inflation as faster wage growth could make services inflation sticky. Still, the smaller-than-expected decline in inflation in February is important as the ECB takes current underlying inflation seriously as a factor for determining policy. That was not lost on markets this week as yields surged on the back of the higher inflation readings from Spain, France and Germany already released earlier. At the same time, it is also important not to put too much emphasis on this one figure. A rate hike at the March ECB meeting is more or less a given at 50 basis points and May is still quite some time away. There is a clear risk of the ECB having to do more, but ECB Chief Economist Philip Lane also indicated earlier this week that a lot is pointing in the right direction for inflation to come under control. The difference between disappointing current inflation and optimism about forward-looking indicators will likely bring about more debate between hawks and doves ahead of the post-March meetings. Before May, we will have quite some data to judge as to whether February was a blip or inflation does indeed remain stickier than expected. Read this article on THINK TagsInflation 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
What are the possible scenarios for EUR/USD? Euro against US dollar - inidicator analysis

Despite The Decline Euro Remains Above 1.06, GBP/USD Is Trading Below 1.20

Kamila Szypuła Kamila Szypuła 02.03.2023 12:52
An improvement in risk sentiment after the publication of upbeat macroeconomic data from China made it difficult for the US dollar to find demand on Wednesday. USD/JPY The USD/JPY pair in the Asian session recouped losses and rose towards 136.80. At the beginning of the European session, the yen dropped significantly to 136.2540, but quickly began to recover. At the time of writing, USD/JPY is trading at 136.7450 So far, the Japanese yen has been stable this week in a period where the US dollar has weakened significantly against most of its G-10 peers. The yen's lack of strength may reflect the belief that the new Governor of the Bank of Japan (BoJ) Kazuo Ueda will maintain the very loose monetary policy of his predecessor. EUR/USD The euro pair is in a downtrend. It started the day high above 1.0670 but dropped to trade around 1.0620. The euro fell against the dollar on Thursday after data showed inflation in the euro zone was not as high as investors had feared based on national readings in recent days. Eurozone inflation eased to 8.5% in February from 8.6% a month earlier on lower energy prices. The core inflation rate in the Euro Area rose for a third successive month hitting a fresh record high of 5.6% in February. The core CPI which excludes prices of energy, food, alcohol and tobacco went up 0.8%. The core number reinforces the idea that without decreases in energy prices inflation remains sticky and adding credence to the recent hawkish rhetoric from ECB policymakers. Investors now see the ECB's 2.5% deposit rate rising by a combined 100 basis points in March and May, then to around 4.1% at the turn of the year. Read next: Tesla Intends To Cut Assembly Costs, The White House Released The National Cyber Strategy | FXMAG.COM GBP/USD The pound pair against the euro is down today. GBP/USD traded below 1.20 again. GBP/USD extended its decline and dropped below 1.2000 on Thursday after failing to capitalize on Wednesday's US dollar (USD) weakness. The couple looks delicate. The British pound loses against the US dollar this Thursday as the dollar finds some support. Last night, Fed officials (Kashkari and Bostic) maintained their hawkish stance. From the UK's perspective, the Brexit deal between the Prime Minister and the EU. Trade disputes with Northern Ireland have now been resolved, but the most surprising aspect of the deal was the favorable reception from some senior Brexiteers who praised the new concessions. While this is positive for the overall UK economy, the currency remains driven by central bank policy. The Brexit deal could bring short-term relief to the pound against the USD. AUD/USD The Australian movement is similar to its European counterparts. The AUD/USD pair remains above 0.67 despite a significant drop from 0.6767 to 0.6730. Source: finance.yahoo.com, investing.com
Are crude oil prices rebounding on the back of a possible debt ceiling deal?

Strong China Data Boosts Energy, Eurozone Core CPI Hit A Record

Swissquote Bank Swissquote Bank 03.03.2023 11:59
The Eurozone’s flash CPI estimate looked as ugly as it smelled beforehand. Inflation in the Eurozone is estimated to have barely eased to 8.5% from 8.6% printed a month earlier, while core inflation advanced to a record of 5.6%, from 5.3% printed previously. CPI The latest CPI update confirmed the European Central Bank (ECB) hawks’ aggressive positioning for further rate hikes and pushed the European yields further up yesterday, but despite higher yields across the board, the Stoxx 600 closed Thursday’s session 0.50% higher. Jobs data Across the Atlantic Ocean, fresh jobs data came to fan the inflation worries yesterday in the US. US Yields US yields advanced but the S&P500 could avoid a further selloff, though it briefly stepped below the most-watched 200-DMA. EU and  US stock markets But for both the European and US stock markets, the rising yields call for downside correction. Watch the full episode to find out more! 0:00 Intro 0:32 Higher Eurozone inflation boosts EZ yields 2:24 … but Stoxx resist 5:01 Latest US jobs data points at heated inflation, as well 6:38 … S&P500 also resists to rising yields 8:36 USD upbeat, dollar-yen clears key resistance 8:58 Strong China data boosts energy, but… 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. #Eurozone #inflation #US #jobs #data #Fed #ECB #rate #hike #EUR #USD #JPY #Crude #Oil #Stoxx #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
French Industrial Production Rebounds in July Amid Weak Demand and Gloomy Outlook

Post-Pandemic Consumption Habits Shifted From Services To Durable Goods

Conotoxia Comments Conotoxia Comments 03.03.2023 12:05
In order to more accurately predict the future of the economy and financial markets, it is important not only to use graphs and technical analysis, but also to understand the current economic situation and the factors influencing it. In this text, we will focus on analysing detailed data and interpreting it to answer the question of how these factors may affect financial markets. Inflation in the price of services, not products Source: FRED, Durables and service price inflation Above, the green colour shows US CPI inflation. The blue colour indicates the price change in the durable goods sector and the red colour the inflation of the services sector. As could be seen from the above data, during the pandemic, demand for durable goods increased dramatically, resulting in higher inflation in this sector. However, the situation has started to reverse in recent months, with prices in the durable goods sector starting to fall by more than 1% year-on-year. In October 2022, inflation in the services sector surpassed inflation in the durable goods sector for the first time since the start of the pandemic. It appears that the further direction of inflation may depend on the sectors adapting to changing consumption habits. Source: FRED, Change in consumer consumption Post-pandemic consumption habits shifted from services to durable goods in a way not seen before. Consumption of durable goods and services fell significantly in the first months of the pandemic. This difference appears to have resulted from fiscal support and a change in consumer habits caused by the pandemic, shifting demand from services, such as eating out in restaurants and travel, to purchases of furniture and fitness equipment. The graph above shows changes in personal consumption expenditure, where demand for durable goods is shown in blue and services in red. However, we could see a renewed shift in trends in consumer habits from durables, whose demand has hardly increased, to services, whose demand has been growing steadily since the beginning of 2021. This would confirm rising inflation in the services sector and falling inflation in durable goods. Source: FRED, Price inflation for the shelter, and non-shelter market Changes in the CPI consumer price index presents an interesting price trend in the rental market. According to the data, from January 2022 to January 2023, the rental cost index increased by 7.9%, which is more than 2 percentage points above the overall inflation rate of 6.3%. For all types of costs other than rent, the price index started to decrease from June 2022. This may mean that the peak inflation episode is coming to an end, at least as far as prices outside the rental market are concerned. It could also mean that investing in rental property is one of the most effective ways to combat inflation. Probability of recession still low Source: FRED, Smoothed probability of recession One model for estimating the probability of a recession in the US is the Markov model, which uses four monthly variables: non-farm payrolls, the index of industrial production, real personal income excluding transfers and real trade and industry turnover. It appears that the increasing likelihood of a recession may be affecting the S&P 500 Index (US500) in a negative way. Nevertheless, current values of almost 5% may imply a low probability of a recession. We could conclude from this that the lows on the previously mentioned index may be behind us. Source: Conotoxia MT5, US500, Daily A labour market that means companies don't want to hire? Source: Fred, change in the number of current and new job vacancies compared to 2020 In the chart above, the number of current job vacancies in the market against 2020 levels is shown in red and the change in new job vacancies in the market is shown in blue. We could see that after the pandemic slump in the labour market we are now above pre-pandemic levels. Nevertheless, we could see a stagnation in the job offers market from the beginning of 2022. Source: FRED, Number of economically inactive persons The labour force includes people who are currently employed or actively seeking employment. The pandemic has caused a significant proportion of the workforce to lose their jobs. The graph above shows a spike in the number of people out of the workforce in spring 2020, which has since declined but is still higher than pre-pandemic levels. The extended red trend line shows that there are now around 2.2 million more people outside the workforce than expected based on trends leading up to the pandemic, contributing to the current shortfall in the workforce. Grzegorz Dróżdż, Market Analyst 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. 76,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Saxo Bank Podcast: The Bank Of Japan Meeting And More

Japan: Inflation may have peaked in January

ING Economics ING Economics 03.03.2023 12:10
Inflation has cooled sharply in Japan, mainly due to the government's energy subsidy programme. The labour market has tightened further led by the service industry. Meanwhile, the central bank's new governor Kazuo Ueda won't rush to exit easing monetary policy   New Bank of Japan governor Kazuo Ueda 3.4% Tokyo CPI inflation %YoY Higher than expected 2.4% Jobless rate   Lower than expected Tokyo inflation dropped sharply in February Tokyo inflation dropped to 3.4% year-on-year in February from 4.4% in January, mostly due to the government subsidy programme which discounted energy fees. Energy prices rose 5.3% in February, much slower than the 26.0% rise in January. Looking ahead, inflation is expected to decelerate further in March due to the high base last year. This downward trend of inflation will buy time for new Bank of Japan governor Kazuo Ueda to not have to make any urgent policy changes.  Labour market conditions tightened further in February The unemployment rate stood at 2.4% in January (vs 2.5% in December), the lowest since the pre-pandemic level in February 2020. The jobs-to-applications ratio fell to 1.35 (vs 1.36 in December), marking the first decline since August 2020. We believe that the employment situation is improving, especially in the service industry such as accommodation and restaurant services, thanks to the recovery of tourism demand due to the government's travel voucher – essentially a gift card given to Japanese residents to use on domestic travel – and the return of foreign tourists. But, manufacturing jobs will likely decline as exports are expected to be sluggish for a while. Also, although some companies face labour shortages, they are reluctant to hire for new positions because their margins have been squeezed with higher input costs. If inflation continues to slow, then it could have a positive impact on future hiring. If this happens, the sustainable inflation that the Bank of Japan has been hoping for may be achievable.  Labour market continues to improve Source: CEIC Service PMI rose more than expected to 54 in February Service PMI continued to expand in February, staying above the neutral 50 level for a sixth consecutive month. New orders and overseas demand grew on the back of the receding impact of Covid-19 and increasing demand in the hospitality and travel industries. The employment index has also returned above 50, which is reflected in today's solid labour market report. However, manufacturing PMI declined to 47.7 in February (vs 48.9 in January), partially offsetting the gains in services. We believe that the service-led recovery will continue in the current quarter while manufacturing is expected to remain sluggish for the time being.   Service PMI rose in March Source: CEIC Bank of Japan (BoJ) watch After carefully reviewing Ueda’s remarks at the two-day parliamentary hearing, we have updated our BoJ forecast. First, we think that the possibility of policy review under the new governorship has decreased as he has repeatedly emphasised that he is not pursuing the need to revise the joint statement with the government in 2013. However, we still believe that the possibility of delaying the request for review until after next year should remain open, as the revision can provide the BoJ with more flexibility to carry out its policy instruments. Meanwhile, he stressed that it is appropriate to continue with monetary easing thus we think he won’t rush to make policy adjustments at his inaugural meeting in April, but will take the first step towards normalisation as early as June. By June, he will know the results of the spring salary negotiations and have enough time to monitor the impact of the December policy adjustment. But, wage pick-up and improvement in the labour market should be strong enough to convince him to make his first move. In that sense, today’s data delivered mixed signals for the inflation outlook. The improved labour report provides a positive signal for the labour market and sustainable inflation, but the quick drop in inflation shows that the higher-than-usual inflation is mostly driven by cost-push factors. Thus, for the coming months, the Bank of Japan will monitor how fast inflation slows and how tight labour conditions can support sustainable inflation and adjust its policy accordingly.    It's worth noting that the outgoing BoJ governor Haruhiko Kuroda is well known for delivering surprises to the market, so he may give up the yield curve control policy without leaving it to his successor. But, we still think that Kuroda will leave the decision to the new governor by standing pat at the upcoming March meeting. Read this article on THINK TagsUnemployment rate Japan PMI Japan inflation 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
Spanish economy picks up sharply in February

Spanish economy picks up sharply in February

ING Economics ING Economics 03.03.2023 12:13
In February, Spain's service sector experienced a significant pick-up in activity, while the manufacturing sector recorded growth for the first time since June 2022. However, the downside of this is that inflation will remain high for longer Spain's service sector saw increased activity in February Spanish economy shows surprising growth in both services and manufacturing sectors In February, the Spanish economy surprised to the upside with stronger-than-expected growth in both the services and manufacturing sectors. The Services PMI, which was announced today, reached 56.7, the highest level since April last year, with increased activity, new business, and a pick-up in employment compared to January. Earlier this week, the manufacturing PMI also climbed to 50.7 from 48.8 in January, indicating the first growth since June last year and exceeding expectations. However, underlying demand is still weak as order books shrank, although at a slower pace thanks to a cautious pick-up in demand. Pick-up in Spanish economy raises inflationary concerns However, the pick-up in the Spanish economy comes with the downside of inflationary pressures accelerating again in February. Input and sales prices increased compared to January, indicating that underlying price pressures are still very high. The sharp rise in energy prices and input costs last year is still being passed on to sales prices, and with demand and activity picking up, it becomes easier for companies to implement new price increases. The increase in employment in both manufacturing and services sectors, due to the tight labour market, could also lead to stronger wage growth and thereby fuel inflation. As a result, core inflation might still rise further in the coming months. Despite the rebound, interest rate hikes will further slow growth While the Spanish economy has shown a strong rebound in activity, it is still too early to conclude that this recovery will be sustained throughout the year. While supply issues and falling energy prices may provide a boost to activity, the ECB's interest rate policy is expected to constrain economic growth. The ECB is set to increase interest rates above its neutral level of 2% in the near future, pushing rates further into restrictive territory. This is likely to impact interest rate-sensitive sectors like the real estate market and business investment. This year, Spanish GDP growth is projected to reach 1.3%, but with the full impact of the interest rate hikes expected only next year, the expansion is expected to slow down to 0.8% in 2024. Read this article on THINK TagsSpain PMI 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
Oanda Podcast: US Jobs Report, SVB Financial Fallout And More

US: Smoke, mirrors and uncertainty by the truckload

ING Economics ING Economics 04.03.2023 10:41
Firm numbers for the start of the year have led the market to embrace a higher-for-longer narrative for interest rates. The Federal Reserve is indeed set to raise interest rates more than we expected, but higher borrowing costs in an environment of tightening lending standards and weak sentiment runs the risk of a bad reaction down the line In this article A higher interest rate peak, but cuts will come Weather and seasonal adjustments provided a boost It isn't hard to find areas for concern Disinflation leaves the door open to rate cuts before year end   Shutterstock A higher interest rate peak, but cuts will come Until recently, the market narrative had been that the most aggressive and rapid pace of Federal Reserve interest rate increases in 40 years would inevitably lead to a major slowdown in economic activity, with the Fed set to revert to rate cuts in the second half of the year as inflation subsided. However, the data released for January suggests the economy is still running hot, with half a million jobs added and retail sales jumping higher. Inflation is also proving to be stickier than expected, leading the market to price at least three further 25bp rate hikes by June. Federal Reserve comments suggest a strong appetite to continue hiking interest rates and we now think it more likely than not that it will seek to raise the Fed funds target range to 5.25-5.50% in the second quarter. That said, we do not think that the economy is in as strong a position as the data prints indicate and continue to expect strong disinflation from the late second quarter onwards, with the Fed eventually cutting rates from December. Weather and seasonal adjustments provided a boost The January numbers have benefited from fine weather, especially considering the wintery conditions in December which led to depressed activity and disrupted holiday plans. Favourable seasonal adjustment factors also appear to have lifted the data. For example, the raw unadjusted data shows that retail sales fell 16% month-on-month in January 2023, which was comparable to the 15.5% drop in 2021 and the 17.4% drop in 2022. Yet on a 'seasonally adjusted' basis, which tries to smooth out seasonal holiday and working day effects, the 16% drop turned into a 3% gain. Likewise, the raw 2.5 million drop in January unadjusted payrolls wasn’t far from the 2.6mn decline in 2021 and 2.8mn fall in 2022 – and yet on a seasonally adjusted basis, we saw a 517,000 gain. Retail sales rose 3%, but the raw data doesn't look as rosy – MoM changes in retail sales by month and year Macrobond, ING   The weather has since deteriorated and we don’t expect as much support from the seasonal adjustment calculations over the coming months. Consequently, there are likely to be more headwinds to activity for February and March, especially if warmer temperatures merely brought forward consumer activity that would eventually have come about anyway (a new home search or a car purchase, for example). It isn't hard to find areas for concern Moreover, there are fundamental areas of weakness. Despite the positive reaction to the 517,000 job 'gain', the fact that full-time employment has flatlined since March 2022 (meaning that all job creation has been for part-time positions) was largely overlooked. Job lay-off announcements are also on the rise, so we're nervous that the jobs report may look fine on the surface while a compositional shift away from higher paid full-time jobs to lower paid, less secure, part-time positions could be taking place. On top of this, the Federal Reserve’s Senior Loan Officer survey shows that banks are sensing the economy is coming under pressure and are rapidly tightening lending standards for both households and businesses. This is restricting the availability of credit to the economy at a time when borrowing costs are moving higher once more, and is likely to intensify the pressure on struggling households and businesses. The chart below shows how, over the past 30 years or so, the phenomenon of banks pulling back access to credit has led to the unemployment rate climbing within nine months. Tighter bank lending standards lead to rising unemployment Macrobond, ING   We also know that household finances are coming under more pressure, with household savings rates in a 4-5% range after having been 6-9% pre-pandemic and up at 30%+ during the pandemic. At the same time, the proportion of income devoted to servicing debt repayments on consumer loans has risen to its highest since 2009. Then there is the renewed rise in mortgage rates that led to mortgage applications for home purchases dropping to a 28-year low last week – the monthly mortgage payment on a $400,000 mortgage taken out 12 months ago is now the same as for a $260,000 mortgage taken out today! With business confidence remaining weak, we suspect a more defensive mindset amongst corporate America will weigh on capex spending, adding to concerns about potential future job losses. Disinflation leaves the door open to rate cuts before year end Inflation has been running hotter than we expected, but the disinflation story remains in play with shelter-related components set to drag inflation sharply lower from the third quarter onwards. House prices are already falling, and this has led to rents topping out in all major cities. It's just a matter of time before this is reflected within the CPI and PCE deflator reports. We also expect the weakening activity to put downward pressure on corporate profit margins, which should also help lower inflation later in the year. Given the Federal Reserve has a dual mandate of targeting inflation at 2% and maximising employment, we still think interest rate cuts remain on the cards for 2023. However, our previous call of a third-quarter start looks ambitious. We are now forecasting the first 50bp cut in December, with the bulk of the rate cuts occurring in 2024. TagsUS Recession Inflattion Federal Reserve   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
Euro and European bond yields decreased after the ECB decision. The end of tightening may be close

Eurozone: Better than expected doesn’t mean good

ING Economics ING Economics 04.03.2023 10:45
Lower energy prices have boosted both business and consumer confidence. However, the better growth outlook will slow the decline in core inflation, pushing the ECB to act more forcefully. A terminal deposit rate of at least 3.50% now seems likely. Consequently, the economy will slow down in 2H and 2024’s growth is likely to be weaker than 2023’s expansion In this article Black or red zero Shaky recovery Stubborn inflation A more hawkish ECB   Shutterstock The President of European Central Bank Christine Lagarde delivers a speech at the European Parliament in Strasbourg, eastern France - 15 February 2023   Black or red zero After the recent downward revision of German GDP growth figures for the fourth quarter of 2022 to -0.4% quarter-on-quarter (which might also lead to a small negative figure for the eurozone) the jury is still out on whether a winter (technical) recession has now been avoided after all. Not that it matters much, because we are basically talking about a black or a red zero. What is more important is whether the underlying momentum is improving or not. The good news is that the PMI composite indicator rose for the fourth consecutive month in February on the back of improving supply chains, rising demand and a reduction of order backlogs. While the European Commission’s economic sentiment indicator took a breather in February after three months of growing confidence, the picture still reflects a healing consumer. The assessment of activity over the past three months in services and in the retail sector points to growing consumption, after a weak fourth quarter. That said, it is not unlikely that some of the demand will be satisfied out of currently bloated inventories. The bottom line is that growth in the first quarter is still likely to hover around 0%, but also that the economy has gradually entered recovery territory. Eurozone confidence is improving Refinitiv Datastream Shaky recovery Even though falling gas prices are providing the economy with some oxygen, it is too early for optimism. Energy prices are unlikely to remain at the current low level for the whole of the year, although we now believe that any increase will remain limited. Fiscal policy, which is still a tailwind, is likely to get less stimulative in the second half of the year. And of course, the ECB’s monetary tightening will eventually act as a brake on growth. According to its own models, the negative impact on real GDP growth of the current monetary tightening is estimated to be around 1.5 percentage points on average over the three years from 2022 to 2024, with the biggest impact in 2023 and 2024. After a stronger growth figure in the second quarter, we see the expansion softening again in the second half of the year. For the whole of the year, this results in a small upward revision in our growth forecast to 0.8%. However, with the biggest impact of fiscal and (additional) monetary tightening felt next year, we have downgraded 2024 GDP growth to only 0.7%. Stubborn inflation Headline inflation is now on a downward path on the back of the year-on-year decline in energy prices. However, core inflation unexpectedly climbed to 5.6% in February, the highest level since the start of the Monetary Union. That said, looking at price expectations in the business surveys, it seems as if we’re also close to the peak in core inflation, though it might still take several months before a clear downturn sets in. The fact that consumption is picking up is certainly not helping to get inflation down rapidly. On the back of falling energy price inflation, we have decreased our headline inflation estimate to 5.5% for 2023, while for 2024 we now anticipate 2.6% headline inflation. Price expectations are not coming down as fast in all sectors Refinitiv Datastream A more hawkish ECB The ECB already signalled another 50 basis point rate hike in March, but it now looks all but certain that the tightening cycle will go further after that. With a strong downturn averted, core inflation rather sticky, and medium-term consumer inflation expectations back up to 3%, the ECB is probably not done yet at a deposit rate of 3.0%. Board member Isabel Schnabel even described an anticipated 3.50% terminal rate by markets as being “priced for perfection”. In that regard, a higher terminal rate could be envisaged. However, for the time being, we stick with two additional 25bp rate hikes in the second quarter and the deposit rate remaining at that level until the fourth quarter of 2024. With short-term rates remaining high for longer, we have also raised our bond yield forecast, with the 10yr Bund hovering around 2.50% in the first half of the year, before a modest rally brings it back to 2.25% by the end of 2023. 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
Euro and European bond yields decreased after the ECB decision. The end of tightening may be close

Eurozone: Better than expected doesn’t mean good - 04.03.2023

ING Economics ING Economics 04.03.2023 10:45
Lower energy prices have boosted both business and consumer confidence. However, the better growth outlook will slow the decline in core inflation, pushing the ECB to act more forcefully. A terminal deposit rate of at least 3.50% now seems likely. Consequently, the economy will slow down in 2H and 2024’s growth is likely to be weaker than 2023’s expansion In this article Black or red zero Shaky recovery Stubborn inflation A more hawkish ECB   Shutterstock The President of European Central Bank Christine Lagarde delivers a speech at the European Parliament in Strasbourg, eastern France - 15 February 2023   Black or red zero After the recent downward revision of German GDP growth figures for the fourth quarter of 2022 to -0.4% quarter-on-quarter (which might also lead to a small negative figure for the eurozone) the jury is still out on whether a winter (technical) recession has now been avoided after all. Not that it matters much, because we are basically talking about a black or a red zero. What is more important is whether the underlying momentum is improving or not. The good news is that the PMI composite indicator rose for the fourth consecutive month in February on the back of improving supply chains, rising demand and a reduction of order backlogs. While the European Commission’s economic sentiment indicator took a breather in February after three months of growing confidence, the picture still reflects a healing consumer. The assessment of activity over the past three months in services and in the retail sector points to growing consumption, after a weak fourth quarter. That said, it is not unlikely that some of the demand will be satisfied out of currently bloated inventories. The bottom line is that growth in the first quarter is still likely to hover around 0%, but also that the economy has gradually entered recovery territory. Eurozone confidence is improving Refinitiv Datastream Shaky recovery Even though falling gas prices are providing the economy with some oxygen, it is too early for optimism. Energy prices are unlikely to remain at the current low level for the whole of the year, although we now believe that any increase will remain limited. Fiscal policy, which is still a tailwind, is likely to get less stimulative in the second half of the year. And of course, the ECB’s monetary tightening will eventually act as a brake on growth. According to its own models, the negative impact on real GDP growth of the current monetary tightening is estimated to be around 1.5 percentage points on average over the three years from 2022 to 2024, with the biggest impact in 2023 and 2024. After a stronger growth figure in the second quarter, we see the expansion softening again in the second half of the year. For the whole of the year, this results in a small upward revision in our growth forecast to 0.8%. However, with the biggest impact of fiscal and (additional) monetary tightening felt next year, we have downgraded 2024 GDP growth to only 0.7%. Stubborn inflation Headline inflation is now on a downward path on the back of the year-on-year decline in energy prices. However, core inflation unexpectedly climbed to 5.6% in February, the highest level since the start of the Monetary Union. That said, looking at price expectations in the business surveys, it seems as if we’re also close to the peak in core inflation, though it might still take several months before a clear downturn sets in. The fact that consumption is picking up is certainly not helping to get inflation down rapidly. On the back of falling energy price inflation, we have decreased our headline inflation estimate to 5.5% for 2023, while for 2024 we now anticipate 2.6% headline inflation. Price expectations are not coming down as fast in all sectors Refinitiv Datastream A more hawkish ECB The ECB already signalled another 50 basis point rate hike in March, but it now looks all but certain that the tightening cycle will go further after that. With a strong downturn averted, core inflation rather sticky, and medium-term consumer inflation expectations back up to 3%, the ECB is probably not done yet at a deposit rate of 3.0%. Board member Isabel Schnabel even described an anticipated 3.50% terminal rate by markets as being “priced for perfection”. In that regard, a higher terminal rate could be envisaged. However, for the time being, we stick with two additional 25bp rate hikes in the second quarter and the deposit rate remaining at that level until the fourth quarter of 2024. With short-term rates remaining high for longer, we have also raised our bond yield forecast, with the 10yr Bund hovering around 2.50% in the first half of the year, before a modest rally brings it back to 2.25% by the end of 2023. 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
FX Markets React to Rising US Rates: Implications and Outlook

A last hurrah for Asian inflation

ING Economics ING Economics 04.03.2023 10:54
The US is not alone in seeing an unwelcome acceleration in inflation in January – a number of Asian economies have seen something similar. But for many of Asia's economies, this is likely to be the peak, or if not, close to it   In this article It has been a bad start to the year for inflation in Asia A mixed bag of reasons for stubborn inflation Policy prognosis equally mixed   Shutterstock It has been a bad start to the year for inflation in Asia As well as the unwelcome resilience of inflation in the US and Europe, a number of Asian economies have provided upside misses to consensus inflation forecasts in the last month or two.  The biggest upset was in Australia, where monthly inflation rates in December jumped up to 8.4% year-on-year from 7.3% previously, a gain of more than a full percentage point. This has proved short-lived, with the January inflation figures already retreating back to 7.4%. There were also big increases in inflation in India and the Philippines.  Besides the reversal in Australian inflation, most other economies in the region have seen at least some small increase in the inflation rate between December 2022 and January 2023, and only in Thailand were the declines also particularly substantial with the year-on-year inflation rate dropping to 5.02% from 5.89%.  Inflation is still rising in most Asian economies CEIC, ING A mixed bag of reasons for stubborn inflation Exactly why inflation across most of the region staged a further increase in January seems to differ from economy to economy. Doing a lot of the damage to the Australian numbers in December was an eye-popping 30% increase in the costs of holidays – as reopening collided with seasonal holidays. That dropped out again in January, but it doesn't tell us much about the months ahead.  In India, food, as is often the case, was the main culprit. Rising wheat prices coupled with smaller declines in vegetable prices than in the previous month were responsible for much of the increase in the year-on-year rate, though base effects also played their role.    Japan's inflation, as the Bank of Japan has been keen to point out as it sticks to its ultra-easy monetary policy, remains largely driven by supply-side factors. Exclude food and energy, and the core rate is only 1.9% YoY even as headline inflation rose to 4.2% in January from 4.0% in December. The Philippines is a slightly different story, with contributions from almost all categories, presenting Bangko Sentral ng Pilipinas (BSP) – the central bank of the Philippines – with more of a price-taming headache than many of its Asian peers. And inflation rates also continued to push higher in Vietnam, Taiwan, South Korea and Singapore in January.   Policy prognosis equally mixed With a mixed bag of reasons for the persistence of inflation across the region, there is no single policy remedy or likely outcome as we head further into the year. For some economies, the January figures do look like the last hurrah of earlier price increases. And with last year's price levels strongly affected from February onwards by the Russian invasion of Ukraine, year-on-year comparisons should help to bring year-on-year inflation rates down, absent any further positive price-level shocks, which against the backdrop of tense geopolitics and increasingly frequent climate change-related extreme weather events, is not a caveat you can lightly make these days. Certainly, there are some economies in Asia where the inflation-taming struggle is not yet won, and the backdrop of a Federal Reserve also hard at work squeezing inflation out of the US economy will keep central banks of the more inflation-challenged economies in tightening mode.  For others, it has felt for a few months now that the worst of the inflation crisis has passed. And while it may not be the right time to start talking about an Asian pivot, if inflation rates do begin to ease lower over the middle of the year, the monetary tightening already put in place across the region could begin to look not only adequate but perhaps a little excessive, raising the prospect of some paring of rates further down the line. For now, though, such thoughts are not even on the long-range radar, though it would probably only take a month of benign price data to bring such thoughts back into view.    TagsAsian rates Asian inflation Asian economics   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 Bank Of Canada Is Preparing To Announce Its Final 25bp Hike

The Days Of Relentless Rate Hikes By Bank Of Canada May Be About To Draw To A Close

Kamila Szypuła Kamila Szypuła 04.03.2023 12:56
On Wednesday, the Bank of Canada unveils its latest interest rate policy. Many expect the Governor of the Bank of Canada, Tiff Macklem, to deliver on his promise to hold off on interest rate hikes. Interest rates It's been almost exactly a year since the Bank of Canada began aggressively raising its key overnight lending rate. Since then, Canadian households have struggled with ever-increasing debt payments. Borrowing costs have increased by a staggering 425 basis points in the last 12 months. GDP is slowing, inflation is slowing, and wage growth is moderate. However, economists agree that it is enough to convince the Bank of Canada to catch up and finally give some respite to households struggling with rising debt payments and looming mortgage renewals. The Bank of Canada will keep its key interest rate unchanged at 4.50% until the end of the year Taking a decision on interest rates next week, both Charbonneau and Janzen believe the Bank of Canada has done enough to warrant a pause in interest rate hikes. However, the central bank was in a very different place last March, facing heavy criticism for taking too long to contain rising inflation. Inflation The consumer price index has fluctuated between one and two percent for most of the last few decades. As the effects of the COVID-19 pandemic began to perpetuate, inflation began to pick up. The most recent inflation data suggests the country is inching closer to normal price growth. Canada’s annual inflation rate slowed to 5.9 per cent in January, down from the peak of 8.1 per cent reached in the summer. GDP Statistics Canada's latest GDP report shows that the Canadian economy tumbled into the fourth quarter with zero growth, but under the disappointing figures was resilient consumer spending keeping the economy afloat. While that report showed a much bleaker economy than forecasters had expected, the federal agency's preliminary estimates showed the economy rebounded in January with a 0.3 percent increase. The GDP figures simply "confirm" that the Bank of Canada will not raise interest rates when it announces its decision on Wednesday. Labour Market Canadian employers added 150,000 jobs in January. This is about 10 times more than economists expected. Economists agree that another 5,000 jobs will be added on Friday after the February data is released. Wages have never increased as much as prices. So workers have actually lost purchasing power over the past two years. Statistics Canada said wage growth peaked last November at 5.6 percent. And while a strong labor market is good news for workers, Bank of Canada Governor Tiff Macklem has repeatedly said that a tight labor market is a symptom of an overheating economy that fuels inflation. If demand weakens, companies struggling with lower sales are likely to change their hiring plans, causing unemployment to rise. Source: ivnesting.com
Eurozone economy boosted by service sector growth

CEE: Inflation finally heading down but still sticky

ING Economics ING Economics 05.03.2023 07:26
Central and Eastern Europe is flirting with a technical recession. Inflation numbers are finally starting to head down but we are clearly in for a bumpy and sticky ride. So rate cuts will be later rather than sooner, though still on course for this year In this article Poland: Lower inflation but rate cut is not in sight Czech Republic: Record strong koruna Hungary: Waiting for more evidence that better days are coming Romania: Rates to remain unchanged for rest of year   Shutterstock Marton Kekesi of Hungary in action during the Men's Super-G race at the FIS Alpine Skiing World Championships in Courchevel, France, 09 February 2023 Poland: Lower inflation but rate cut is not in sight Poland’s economy proved resilient in light of multiple shocks last year (war, high energy prices, sharp interest rate hikes), but the beginning of this year looks difficult. Activity data for January was worse than expected (industrial production, retail sales), growth in the first quarter will be negative in year-on-year terms, but still less so than expected a few months ago. Overall, we expect just 1% growth in 2023 compared to 4.9% in 2022. Our above-consensus view is supported by the better eurozone outlook. The primary reasons behind the GDP slowdown in 2023 are the high base effects from the post-Covid reopening, the disinvestments in inventories as well as the erosion of disposable incomes and private consumption due to the negative inflation surprise in 2022. Although CPI inflation turned out lower than expected in January, it was still 17.2% year-on-year with core inflation close to 12% YoY. This is far from an acceptable level. Base effects and global disinflationary forces should bring the headline inflation rate into single digits in December, but the core rate should stay persistently high. In our view, this will not justify interest rate cuts later in the year, but we cannot exclude such a signalling move by the Monetary Policy Council late this year. In mid-February, local markets paid careful attention to a spokesman from the European Court of Justice who suggested that banks may not charge interest on CHF mortgages terminated by courts. If re-confirmed by the future ECJ verdict, this would be favourable to credit takers and affect banks’ balance sheets. So far, the equity and bond market reaction has been rather muted because in the last few years, banks have already added high provisions and if they are given more time, they can absorb the shock. Still, this may impair credit creation and banks' willingness to buy domestic debt, to some extent. That is why the government is mulling a kind of legislative change to share the losses on CHF loans between banks and clients. CPI in CEE region (%, YoY) Macrobond, ING Czech Republic: Record strong koruna The Czech GDP report will likely confirm that the economy entered a recession in the second half of 2022. Business sentiment indicators suggest that even at the beginning of the first quarter this year, the economy has remained in negative territory. The recession has mainly been driven by the continuous strong decline in consumer spending as high energy prices weigh on household purchasing power. Still, the labour market has not seen a significant impact and the economy should return to soft growth in the second half of this year driven by the gradual improvement in external demand and investment. Inflation likely peaked in January and the February report will likely show a gradual moderation. Despite the expected softening in inflation, the central bank will likely maintain its prudent stance in terms of advocating for the current level of interest rates for a longer period. On the fiscal side, a discussion is opening up on the consolidation of the state budget deficit next year. The Ministry of Finance has signalled a CZK70bn reduction from the originally planned CZK295bn. The Czech koruna has been breaking historically strong levels in recent weeks. Currently, the koruna is the strongest since July 2008. Domestic conditions, i.e. falling interest rate differentials and the current account deficit, do not support such levels. However, within the CEE region, the koruna seems to offer the best story. Although the Czech National Bank is not actively intervening, it is still prepared to limit the upward movement. In addition, interest rates appear to be staying higher for longer. So together with a stable carry, this still seems to be the most popular currency in the region. Hungary: Waiting for more evidence that better days are coming The Hungarian economy slumped into a technical recession during the second half of 2022. We are still waiting for hard evidence on whether the downturn continued in early 2023 or whether the economy has started to rebound. Our assumption, considering the very strong inflation data and its impact on purchasing power, is that Hungary is facing one more quarter of falling real GDP on a quarterly basis. However, as the labour market looks resilient enough and surveys suggest improvement in economic sentiment in 12 months, we foresee a rebound from the middle of this year. This will be fuelled by better export activity, with rising capacity and still-strong order levels in manufacturing early on. By the end of the year, the return of positive real wage growth might improve domestic demand as well. We see this translating into 0.7% GDP growth in 2023 as a whole with some upside risks, followed by a 3.6% full-year performance in 2024. As good as this sounds, it comes with a significant caveat: this quick rebound might slow down or even keep inflation from descending further after reaching high single-digit territory (8-9% YoY) in the fourth quarter. In our view, the peak in headline inflation might be behind us with January's 25.7% year-on-year reading. Anecdotal evidence shows a pivot in food, fuel and energy prices, translating into easing price pressures from February. However, as wage growth will remain high and yet another round of energy price increases might come in the autumn, cost-side pressures and catch-up domestic demand might result in stronger repricing. We think that the road from the peak in inflation to single-digit territory might prove to be easier than getting prices down to the central bank’s target range during 2024. That’s why we think the pivot from the National Bank of Hungary will be gradual and slow, ensuring that the real interest rate environment remains positive during the easing cycle. Romania: Rates to remain unchanged for rest of year The economy expanded in the fourth quarter of 2022 by 1.1% versus the previous quarter and by 4.6% when compared to the fourth quarter of 2021. This takes the full 2022 GDP growth to 4.8%, which is perhaps among the better figures that one could have hoped for. The available high-frequency data suggests that it’s been a strong quarter for construction activity, which expanded by 7.4% versus the third quarter. Services for companies were also around 2.0% higher while retail sales rose by 0.8%. Industrial production lagged at -2.1%. On the inflation front, we see the peak as behind us at 16.8% in November and we anticipate a gradual shift lower throughout 2023. We estimate year-end inflation at 7.4% with risks slightly to the downside. The main factors weighing on prices are base effects, energy price caps, and international energy and food prices stabilisation while upside forces include cost increases not yet fully passed-through, wage pressures and still negative real rates. The National Bank of Romania is likely to maintain the current course of its monetary policy, meaning the key rate should remain unchanged at 7.00% for the rest of the year. Shorter-term market rates – which are more dependent on interbank liquidity situation – might have neared a bottom, though that doesn’t necessarily mean that an upward trajectory is to follow. In essence, we expect stability around current levels. The liquidity picture is more likely to remain accommodative, though the surplus could shrink to more manageable levels (say RON5bn-10bn). Should the inflation trajectory surprise (even mildly) to the downside, we wouldn't rule out a modest rate cut by the end of 2023. TagsCEE region     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 RBA’s aggressive rate tightening cycle will be continued

High Inflation Is Forcing The RBA To Raise Interest Rates Again

Kamila Szypuła Kamila Szypuła 05.03.2023 09:56
Mortgage rates are expected to rise again for the 10th straight after the Reserve Bank board meeting on Tuesday. Interest rates The Reserve Bank has raised the official interest rate in the last nine consecutive meetings, raising the cash rate from 0.1 percent in early May last year to 3.35 percent after its first meeting this year in February. Financial markets and economists expect RBA Governor Philip Lowe to announce another quarter-point increase in the cash rate on Tuesday afternoon, while signaling even more rate hikes for the rest of the year. This means the Reserve Bank is poised to raise official interest rates to a new 10-year high of 3.6 per cent to quell cost-of-living pressures that have forced record numbers of Australians to hold multiple jobs to make ends meet. What's more, the March interest rate hike may not be the last one this year. The three major banks predict interest rates will receive three 0.25 percent increases in March, April and May. If the prediction comes true, Australia will face its highest cash exchange rate in 11 years. The main reason The reason the RBA is raising interest rates is to keep inflation under control. Inflation hit a three-decade high of 7.8 percent in December, well above the RBA's target rate of 2 to 3 percent. After the first monthly meeting in February, Dr. Lowe noted that further interest rate hikes may be needed to overcome inflation. Problems in the housing sector Declining levels of new mortgages and home approvals show that the RBA's aggressive monetary policy tightening is causing pain across the housing sector. Over the past week, the number of indicators suggesting problems in the housing market has increased. According to the Australian Bureau of Statistics (ABS), home loans fell 5.3% in January, after falling 4.3% in January. in December. Over the past 12 months, they have fallen by a record 35 percent. The number of first home buyers taking out a loan fell to its lowest level in five years. Loans to first-time buyers fell 8.1 percent in January after falling 4.1 percent in December. These loans are down 57.5 percent from their peak in early 2021 and are now 27.5 percent lower than their immediate pre-COVID level. The decline in lending contributes to a sharp decline in home approvals, which fell 27.6 percent in January. It was the largest monthly decline since at least 1979. If interest rates continue to rise to the projected peak of 4.1 percent, mortgage holders will be left with a very expensive bill. While the immediate future looks bleak, both economists and banks estimate the central bank could start cutting interest rates within a year. There are also signs that the job market is starting to cool down Job vacancies as measured by ABS fell to 440,100 in December, down 11.2 percent or 55,100 from September's level. There was also a decrease of 0.4%. percentage of job vacancies in the entire economy. The overall labor market remains tight, but data suggest people are struggling with cost of living pressures. The number of people working in multiple jobs increased by 1.7 percent to a record high of 925,000, with the percentage of people working in multiple jobs increasing to 6.8 percent of all employees. The highest number of people in positions are employed in the sectors of education and training, healthcare and administrative support.
Korea: Consumer inflation moderated more than expected in February

Korea: Consumer inflation moderated more than expected in February

ING Economics ING Economics 06.03.2023 09:06
Consumer inflation is expected to decelerate at a faster pace than the previous quarter in the coming months. The impact of the drop in jeonse prices (rental) has finally begun to appear in the index and base effects should also contribute to the slowdown  4.8% Consumer price inflation Year-on-year Lower than expected Both headline and core inflation moderated in February Headline inflation rose 4.8% year-on-year in February (vs 5.2% in January and 5.0% market consensus). The increase was mainly driven by utility prices (28.4%) and manufactured food prices (10.4%), yet some other major prices, such as oil (-1.1%) and rental prices (1.1%) stabilised. In terms of the monthly change, oil prices dropped -1.3% (month-on-month, not seasonally-adjuted) while rental prices also declined (-0.05%) for the first time since August 2019.  As we have previously noted, the drop in market-observed housing and jeonse (rental) prices has begun to appear in the index and the monthly decline is expected to continue for the time being. We expect inflation in March to stabilise even more sharply on the back of a high base last year. In addition, a one-time mobile data provision programme is expected to lower mobile service prices and oil prices will continue to fall. The government has been asking local governments not to raise some public service charges at least during the first half of the year, thus inflation is expected to reach 3% at the end of the second quarter.  Rental prices will likely drag down CPI from now on Source: CEIC BoK Watch The Bank of Korea is expected to continue to monitor how the inflation path evolves according to changes in internal and external conditions. If inflation slows to around 3% by the end of the second quarter, the BoK will begin adjusting its policy stance toward easing and eventually deliver a rate cut in the fourth quarter. We revised our BoK outlook last week, delaying the 25bp rate cut to the fourth quarter, as the Federal Reserve's terminal rate is set to rise to 5.5%. But, as uncertainty surrounding commodity prices is particularly high due to the geopolitical situation and the reopening of China, the Bank of Korea will likely keep its hawkish stance throughout the first half of the year. Read this article on THINK TagsKorea inflation CPI inflation 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
China’s Foreign Minister Qin Gang Downplayed Russia’s Invasion Into Ukraine

The War In Ukraine Seems To Have Reached An Impasse, The Goal For This Year For China Is To Increase GDP By 5%

Kamila Szypuła Kamila Szypuła 06.03.2023 09:56
After more than a year of war, the situation seems to be at an impasse, and the current signals from Bakhmut are not clear. The markets are focused on economic objectives that have been outdone by the second largest economy in the world. In this article: The war in Ukraine Two Sessions The war in Ukraine The war in Ukraine appears to have reached a stalemate, with Russian forces reporting some gains in eastern Donbass. Bakhmut's status is unclear after conflicting reports over the weekend about how much of the city was controlled by Russian forces and whether Ukrainian forces had begun withdrawing from parts of the city. Volodymyr Nazarenko, the commander of the Ukrainian troops in Bakhmut, said in Telegram Sunday that "there are no decisions or orders regarding retreat" and that "the defense is holding on" However, analysts at the Institute for the Study of War think tank said on Sunday that Ukrainian forces appeared to be conducting a "limited tactical retreat" in Bakhmut. ISW reported that Ukrainian forces may be withdrawing from their positions on the eastern bank of the Bakhmutka River, which crosses the eastern flank of the city. However, he added that while Russian sources claim that their forces have occupied the eastern, northern and southern parts of Bakhmut and claim to be reporting from positions in eastern Bakhmut, he cannot independently verify these claims. Moreover, German Chancellor Olaf Scholz said on Sunday that Russia's complete withdrawal from Ukraine would be the basis for future peace talks. Scholz, like U.S. President Joe Biden, said Germany would support Ukraine "as long as necessary," but Berlin was criticized for delaying giving Kiev weapons, especially Leopard 2 tanks, which it had been asking for for months. Time could be running out for Ukrainian forces in besieged Bakhmut; Russia turns to 'vintage' tanks https://t.co/hH9oeo83uu — CNBC (@CNBC) March 6, 2023 Read next: Discontinuation Of The Silvergate Exchange Network, What Does It Mean To Burn Crypto?| FXMAG.COM Two Sessions "Two Sessions" is an annual parliamentary meeting that brings together delegates from all over China to discuss and approve national priorities, which includes the National People's Congress and the Chinese People's Political Consultative Conference, this year is short-lived and the goals they set are relatively briefly. This year, the purpose of the meeting was to formalize the government titles for the new prime minister, deputy prime ministers and heads of ministries, as well as annual targets for GDP growth, inflation and employment. China aims to increase GDP by "about 5%" in 2023, which may seem low given last year's 3%, which was the country's weakest performance in decades. Moreover, China only repeated its commitments to increase household spending by raising incomes. The fiscal deficit is set at 3% of GDP this year, a marginal increase from 2022, and there are no plans for direct transfers to spur purchases. At the same time, Beijing remains committed to reining in real estate speculation, which will limit the industry's ability to drive growth. Among the events already announced, China's new foreign minister Qin Gang is due to hold his first press conference on Tuesday morning. From Breakingviews - China gives itself easy GDP homework https://t.co/Y43VcTot8g — Reuters Business (@ReutersBiz) March 6, 2023
GBP: Approaching 1.2000 Level Amid Rate Dynamics

Saxo Bank Podcast: The Strong Comeback In Equity Markets, Inflation Expectations, China's Policy Signals And More

Saxo Bank Saxo Bank 06.03.2023 11:25
Summary:  Today we look at the strong comeback in equity markets Friday as yields dipped sharply, providing some relief after the recent strong ramp higher. Still, it is interesting to note that inflation expectations may be undergoing a sea change as well, which has come to the aid of gold. Elsewhere, we gauge the market reaction to China's policy signals, note the busy week ahead on the central bank front, with the RBA up tonight, Fed Chair Powell out speaking in testimony before Congressional panels tomorrow and Wednesday and the Bank of Japan on Friday, which will be Governor Kuroda's final meeting. This and much more on today's pod features Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are available via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.     Source: Podcast: Bulls celebrate yield dip. Heavy central bank calendar this week | Saxo Group (home.saxo)
Hawkish Fed Minutes Spark US Market Decline to One-Month Lows on August 17, 2023

The Key Focus Will Be On How Powell Sees The US Labour Market

Michael Hewson Michael Hewson 07.03.2023 08:36
We saw a broadly positive start to the week yesterday, with the France CAC40 posting a new record high of 7,401, while the FTSE100 lagged over disappointment around China's GDP target for 2023. This disappointment weighed on the mining sector yesterday after China set its 2023 GDP target at a fairly modest 5%, pointing to weaker demand for commodities. This target, which is below last year's 5.5% target, suggests that the Chinese government is less likely to be as generous when it comes to helping to stimulate demand and economic activity. This focus on stability appears to be an acknowledgment that recent years have been far too generous and created areas of financial instability and that the focus now is a more conservative approach. Today's China trade numbers for February have seen a marked improvement in the wake of the sharp slowdown seen in the last 2 months of 2022, which saw the various rolling restrictions and lockdowns impact the Chinese economy markedly. In Q4 the Chinese economy stagnated to the tune of growth of 0%, equating to annual GDP growth of 3%. With today's trade numbers for the months of January and February covering the period over the Chinese New Year, we now have a better idea of how much the relaxation of lockdown restrictions may have unleashed pent-up demand, although they also come against a backdrop of the stronger comparatives of a year ago before the Omicron wave had taken hold. Today's numbers have seen exports slide by -6.8%, which was slightly better than expected, while imports slid by -10.2% which was more than expected. The Reserve Bank of Australia also raised rates as expected by 0.25% to 3.6%, as the central bank continues to navigate concerns about upending the mortgage market, against a backdrop of inflation that still looks very sticky. While the guidance was hawkish there was a slight softening bias suggesting the bank might be close to a pause, with the Australian dollar slipping back a touch. Today's main focus will be on the first day of testimony from Fed chairman Jay Powell to US lawmakers with questions likely to focus on the resilience of the US economy. There'll be the usual showboating by some US politicians who will want the Fed to go easy when it comes to future rate hikes, along with those who think the Fed has dropped the ball when it comes to inflation. The key focus will be on how Powell sees the US labour market, and whether the FOMC think that economic conditions have improved or deteriorated since the last Fed meeting. Markets will also be paying attention to whether Powell continues to peddle the same narrative of disinflation, which was a hallmark of his last press conference. If he acknowledges that inflation could be much stickier than the Fed thought over a month ago, that could prompt a pullback in US equity markets. What is notable is that while US equity markets have recovered to the same levels, they were at the time of the February Fed meeting, after another strong finish yesterday, bond yields are much higher, with the US 2-year yield over 80bps higher, which suggests that once again there is a disconnect between what bond markets are pricing on inflation, and what equity markets are pricing. Today's European open looks set to be a positive one on the back of yesterday's strong US close. On the currencies front the euro outperformed yesterday as more ECB policymakers touted the prospect of further multiple 50bps rate hikes in the aftermath of the expected 50bps hike that is due to be delivered next week. Austrian central bank governor Robert Holzmann said the ECB should do 50bps hikes in March, May, June, and July, potentially taking the main financing rate to 5%. These comments followed comments from ECB chief economist Philip Lane who also acknowledged the need for further hikes, beyond next week's meeting, stating that current high levels of inflation continue to be a concern for the ECB, and that core inflation momentum remains strong. EUR/USD – continues to range trade between the recent peaks around the 1.0700 area and above trend line support from the recent 1.0530 lows. We need to push through the 50-day SMA at 1.0730 to open up 1.0820. While below 1.0730, the bias remains for a test of the January lows at 1.0480/85.GBP/USD – continues to range trade between the 1.1920 area and the 200-day SMA, and the 50-day SMA at 1.2150 which remains a key resistance area. A break of 1.1900 retargets the 1.1830 area, while a break of the 1.2150 area is needed to retarget the 1.2300 area.EUR/GBP – retesting trend line resistance at 0.8900 from the January peaks last week. Above 0.8900 targets the 0.8980 area. We need to push below support at the 0.8820/30 area to retarget the 0.8780 area.USD/JPY – still below the 200-day SMA at 136.90/00 which is currently capping further gains. Support comes in at the 135.20 area. We also have interim support at 133.60. A break above 137.00 could see a move to 138.20. FTSE100 is expected to open 13 points higher at 7,943DAX is expected to open 17 points higher at 15,670CAC40 is expected to open 9 points higher at 7,382Email: marketcomment@cmcmarkets.comFollow CMC Markets on Twitter: @cmcmarketsFollow Michael Hewson (Chief Market Analyst) on Twitter: @mhewson_CMC
The RBA Raised The Rates By 25bp As Expected

The RBA Raised The Rates By 25bp As Expected

Ipek Ozkardeskaya Ipek Ozkardeskaya 07.03.2023 08:40
The week started with worries that China setting its growth target to 5%, a meagre target for a post-pandemic kick-off, could mean a slower global growth ahead.   Today, the latest, and mixed trade figures further raised a couple of eyebrows regarding whether we are expecting too much from China. The decline in Chinese exports was less dramatic than expected, but imports fell more than 10% in February from a year ago.     Nasdaq's Golden China Dragon index kicked off the week down, while the S&P500 was better bid at the open, with gains up to 1%. But the gains melted to the close and all three major US indices closed Monday's session flat to very slightly positive. Still the S&P500 is heading to Powell's semi-annual testimony above the 4000 mark.   Today, all eyes and all ears are on  Federal Reserve (Fed) Chair Jerome Powell and what he thinks about the latest set of economic data.   Since the latest FOMC meeting, we saw a blowout NFP number, an uptick in inflation figures, lower-than-expected decline in the S&P500 earnings, and overall encouraging economic activity data.   And that's a problem. The fact that the US jobs market, or economic activity don't react to higher Fed rates is a problem for Fed, because it makes the Fed's arms less efficient for fighting against inflation. Many would argue that changes in rates take time to filter into the economy but the Fed's tightening campaign began in November 2021 - 17 months ago, the rate hikes began roughly a year ago. It's about time we start seeing the impact of higher rates through data.   Alas, half-a-million NFP read, with the lowest unemployment rate of the past half a decade and uptick in inflation are indeed worrying.  US crude above 100-DMA  Disenchanting growth target from China was expected to keep the oil bears in charge of the market, but the 100-DMA got surprisingly cleared to the upside yesterday.   Warning of tight global supply and rising Chinese demand from CERAWeek conference and Estonian foreign minister's idea that the EU should halve the Russian oil cap helped pushing the price of a barrel above the critical 100-DMA level.   Tight global supply, war, sanctions on Russia oil and the rising Chinese and global demand tilt the balance for higher oil prices in the medium run. But higher energy prices mean higher inflation, and higher inflation means tighter monetary policies which, in return, increase the global recession odds, and could weigh on oil prices.   Elsewhere  The Reserve Bank of Australia (RBA) raised the rates by 25bp as expected and said that there could be more rate hikes on the pipeline depending on the data, but the AUDUSD slipped below 67 cents.   The EURUSD extended gains and flirted with the 1.07 mark yesterday on the back of a surprisingly softer US dollar into Powell's testimony.   Gold sold off into the $1860 mark.   Hawkish Powell could reverse losses in the dollar later today. 
DPX Token Registered A 24-Hour Return Of 11.11%

The Twelvefold Collection Collected A Total Of 3,246 Bids During The 24-Hour Auction, More Frequent Reporting On The Flow Of Money To And From Israel

Kamila Szypuła Kamila Szypuła 07.03.2023 11:30
A large sale of the collection is an important event for the NFT market. Further banking regulations are also being observed. In this article: China The flow of money Banking and inflation The TwelveFold China At the National People's Congress on Sunday, the Chinese government announced a goal of "around 5%" gross domestic product growth in 2023 - the lowest level in more than three decades and below the 5.5% expected by economists. The administration also proposed a modest increase in fiscal support for the economy. President Xi Jinping and other officials have targeted the West for limiting China's growth prospects as relations between Beijing and Washington continue to deteriorate. Beijing is well aware that the U.S. will look to curtail its global influence by growing the “technology gap”. Negative reactions and further investment restrictions are therefore likely, at least from the US. How China's shifting growth picture could hit global markets https://t.co/isZYv12CJp — CNBC (@CNBC) March 7, 2023 The flow of money The Bank of Israel has instructed local banks to report more frequently about the flow of money into and out of Israel. The new directive comes at a time of instability in the Israeli shekel. Analysts have linked the results of the shekel to uncertainty over Prime Minister Benjamin Netanyahu's plan to change Israel's judicial system. Critics of the changes say Netanyahu is taking steps that will damage Israel's democratic checks and balances, enable corruption and lead to diplomatic isolation. The Bank of Israel has instructed local banks to report more frequently on the movement of money in and out of Israel, a central bank spokesperson said. More here: https://t.co/PoOluu5MI5 — Reuters Business (@ReutersBiz) March 7, 2023 Banking and inflation These are difficult times for central bankers. The increase in inflation in 2021 took many central banks by surprise. The challenges would have been much tougher had it not been for the significant improvements in central banking over the past three decades - in particular, advances in what is known as the inflation target. Under the inflation target, central banks make a clear commitment to a long-term inflation target and strive to achieve it by changing the interest rate policy that they control. Raising interest rates, such as what central banks are doing now, tends to bring down inflation by reducing spending on housing and other interest rate sensitive goods. Former Swedish central banker @leosven led the inflation-targeting revolution. Read a profile of him in the latest F&D. https://t.co/cGsIdEteS2 pic.twitter.com/xNC7MZNnj0 — IMF (@IMFNews) March 7, 2023 The TwelveFold The high-profile and controversial auction of Yuga Labs' debut Bitcoin NFT collection ended on Monday. The TwelveFold collection collected a total of 3,246 bids during the 24-hour auction that began on Sunday. Of these, the highest bid was 7.1159 BTC, or around $159,500. The lowest successful bid was 2.2501 BTC, which is just over $50,000. Yuga, the $4 billion company behind Bored Ape Yacht Club's dominant collection of NFTs, previously only hosted NFTs on the Ethereum blockchain. NEWS: @yugalabs' auction of its debut #Bitcoin NFT collection, TwelveFold, raises $16.5M with 288 successful bidders.📰 https://t.co/iJVTndsYGj pic.twitter.com/eK4keX4e6j — CoinGecko (@coingecko) March 7, 2023
US dollar pressured by Euro and Swiss franc. EUR and CHF supported by data and a rate hike

The SNB Does Not Provide Forward Guidance For Its Rate Policy

Kenny Fisher Kenny Fisher 07.03.2023 14:16
USD/CHF has rebounded on Tuesday, ending a rally that saw the Swiss franc climb over 1%. In the European session, USD/CHF is trading at 0.9344, up 0.40%. Swiss inflation higher than expected Switzerland released the February inflation report on Monday and the reading was higher than expected. CPI rose 0.7% m/m, up from 0.6% in February and above the 0.4% forecast. On an annualized basis, CPI climbed 3.4%, edging up from 3.3% and higher than the forecast of 3.1%. These inflation numbers would be a dream come true for most major central banks, which are struggling with inflation levels two or three times higher. Still, the Swiss National Bank is concerned about high inflation, as its target is 0-2%. The SNB was widely expected to raise rate by 50 basis points at the rate meeting on March 23 and the uptick in February inflation cements the likelihood of such a move. Swiss National Bank Chair Jordan will make an appearance later today and is likely to address the rise in inflation. The SNB does not provide forward guidance for its rate policy, but the central bank has projected an inflation rate of 2.4% for 2023. With the cash rate currently at 1%, it’s a safe bet that we’ll see another hike in June of either 25 or 50 basis points. The continuing tightening should provide a boost to the Swiss franc, but traders should keep in mind that the SNB has not hesitated to intervene in the foreign exchange market when the Swiss franc became too strong for its liking. In the US, Federal Reserve Chair Powell will be in the spotlight as he testifies before a Senate committee later today. The Fed has remained hawkish and after a host of strong January releases, the markets have shifted their expectations closer to the Fed’s stance. It was only a few weeks ago that the markets were projecting a pause followed by rate cuts, but this has changed to pricing in three more rate hikes this year. There is a lot of uncertainty in the air about inflation and interest rates and the markets are hoping that Powell’s comments will provide some clarity.   USD/CHF Technical There is resistance at 0.9381 and 0.9420 0.9304 and 0.9224 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.
Long-Term Yields Soar Amidst Hawkish Fed: Will They Reach 5%?

ECB preview: 50bp next week but how far will the ECB still go?

ING Economics ING Economics 09.03.2023 08:20
A 50bp rate hike next week looks like a done deal. The more heated debate at the European Central Bank will be about the path for monetary policy beyond the March meeting The President of European Central Bank Christine Lagarde delivers a speech at the European Parliament in Strasbourg, eastern France - 15 February 2023 Source: Shutterstock   ECB president Christine Lagarde’s de facto pre-announcement at the February meeting, the ECB discussion reflected in the minutes of the meeting and official comments since the February meeting all show that a 50bp rate hike next week is a done deal. The discussion will rather focus on steps beyond the March meeting and how to communicate them. Stagnating economy and stubbornly high inflation While there have been some positive developments in confidence indicators since the start of the year, hard data is still anything but rosy. Interestingly, two downward revisions of German GDP data and one downward revision of Irish GDP data brought the eurozone economy at the brink of recession in the fourth quarter of 2022 and another stagnation in the first quarter cannot yet be excluded. As regards sentiment indicators, consumer confidence remains low and actual assessment components are still weak. After the inventory build-up at the end of last year, production could still remain sluggish. It is far from certain that the Chinese reopening will be sufficient to shift the eurozone economy into a higher gear. Since the start of the year, hard data is still anything but rosy Lower energy prices have led to lower headline inflation than expected in December and will continue to push down headline inflation further. As of March, there should be a sharp negative base effect from energy prices. Also, the ECB’s very own consumer expectations survey this week showed a further drop in consumers’ inflation expectations. At the same time, however, core inflation continued to increase and there are no signs of a peak, yet. Selling price expectations in industry have come down significantly but remain close to all-time highs in services, suggesting that the pass-through of higher input prices to consumers is far from being over. Add to this higher nominal wage growth this year and next year and it is easy to understand the ECB’s concern about stubbornly high core inflation. Macro developments since the February meeting have not brought any relief for inflation and the inflation outlook, which is why a 50bp rate hike looks like a done deal. Heated discussion about path and pace of monetary policy beyond next week's meeting Up to now, the ECB has been surprisingly unanimous on rate hikes. Recent comments by ECB officials, however, suggest that the debate at the ECB will become more heated again. While chief economist Philip Lane and others argue for a more cautious approach, which could lead to a slowing of the rate hike pace and a not so far away pause or end, the hawkish camp, currently headed by Isabel Schnabel, argues in favour of further firm tightening. The publication of a new round of macro projections at next week’s meeting will do little to change the actual rate decision but will give clear insights in where the discussion within the ECB about future rate hikes is heading to. New projections to show lower inflation in 2024 and 2025 Compared with the December forecasts, the external environment and the so-called technical assumptions have changed drastically. Remember that back in December, the ECB had still penciled in gas prices to average 120 euro per MWh in 2023 and 98 euro in 2024; based on market futures. These futures would currently result in average prices of around 50 euro per MWh for this year and next year. The other most significant change stems from interest rates, as 3m Euribor rates should now average almost 100bp more and 10-year bond yields around 60bp more than in the December forecasts. Add to this lower oil prices and a stronger euro exchange rate and anything other than a downward revision of the ECB’s inflation projections for 2024 and 2025 would be a strong surprise. Anything other than a downward revision would also indicate that the ECB has actually become more alarmed about underlying inflation. Back in December, the ECB had expected headline inflation to average 3.4% and 2.3% in 2024 and 2025 respectively, and core inflation at 2.8% and 2.4%. Finally, we will have a very close eye on the ECB’s growth projections. Not so much on the actual numbers but on the underlying profile. If the ECB sticks to its previous view that the eurozone economy will return to pre-pandemic growth rates already in the second half of this year, the risk of further rate hike overshooting increases. If the ECB gets closer to our own view of rather subdued growth going into 2024, our call of the terminal rate for the deposit rate at 3.5% looks realistic. Several options for the ECB beyond next week's meeting If the hawks remain in the driver’s seat, the growth outlook becomes more upbeat and inflation remains stubbornly high, there is a high risk that the ECB could actually continue with 50bp rate hikes. In such a scenario, the ECB would bring policy rates to new historical highs, even if the risk of a policy mistake increases. We are still surprised to see that even the hawks at the ECB seem to underestimate the risk aggressive monetary policy tightening can (and will) have on the economy. If the opposition of the doves increases, the ECB will have to take a more moderate approach to further monetary policy tightening. In such a scenario, which is our base-case scenario, the ECB would hike rates by 25bp in May and June and then pause its hiking cycle. In this scenario, the argument prevails that it will simply take some time before the full impact of the ECB’s tightening so far will materialise.   Our base-case scenario is for the ECB to hike rates by 25bp in May and June and then pause its hiking cycle Don’t expect that a final decision on what will come after the March meeting will already be taken next week. Between March and the next meeting in May, important data releases like an update of the Bank Lending Survey and initial first-quarter GDP growth data will be available. These are two important pieces of evidence that could tilt the balance in either direction; continue hiking rates until actual inflation comes down or prepare to pause to better assess the impact of the rate hikes so far. An instrument to bring hawks and doves closer together is obviously Quantitative Tightening. More aggressive policy rate hikes against a very slow reduction of the ECB’s bond portfolio or less aggressive rate hikes but a faster reduction of the bond portfolio could be the trade-off. In any case, with the recent repricing in financial markets of the ECB's next steps, the heat is on. Not only for the ECB but also for ECB president Lagarde at the press conference. In the past, fine-tuning of market expectations at the press conference often failed. Therefore, it could very well be that the ECB chooses a very defensive communication strategy, stressing the meeting-by-meeting approach and (hopefully) suppressing any need to give forward guidance. Read this article on THINK TagsMonetary policy Inflation 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
Asia Morning Bites: Inflation Data in Focus, FOMC, ECB, and BoJ Meetings Ahead

Unchanged rates in Poland amid slightly lower inflation projections

ING Economics ING Economics 09.03.2023 08:25
The MPC left interest rates unchanged (the main rate at 6.75%), as widely expected. The inflation projections are lower but we don't see a breakthrough here. All indications are that the next move by the Council will be a rate cut, but the start of the monetary easing cycle will not begin earlier than 2024 in our view, due to persistently high inflation risks Monetary Policy Council statement sounds more dovish than a year ago The statement sounds more dovish than a month ago. Admittedly, it no longer says that foreign hikes will help disinflation in Poland, but the MPC notes many global disinflationary factors such as: weaker economic growth in main economies and falling commodity prices. At the same time, the Council points to domestic disinflationary factors: a weakening of GDP growth, including consumption, as well as lower credit dynamics. Also, high wage growth is no longer mentioned. The central bank still expects that the monetary tightening in previous months should have an impact on lowering inflation "towards the inflation target", but the return to the National Bank of Poland target "will be gradual". No breakthrough in the projections The NBP released the new projections for CPI and GDP. As expected, short-term (2023) expectations for inflation have been lowered, but nevertheless the projections for 2024-25 have not changed significantly (for 2023 a decrease of 1.25 percentage points, for 2024 by 0.2pp, for 2025 unchanged). Therefore, we do not see a breakthrough in inflation projections. They are lower, but this is due to the softening of external supply shocks and lower starting point in fourth quarter of 2022 and first quarter of 2023. The MPC is talking a lot about domestic disinflationary factors, but the conclusions from the data are not very optimistic. Core inflation, unlike CPI, did not slow down in 4Q22-1Q23, in Poland and abroad. The new CPI projections indicate the persistence and longevity of the inflation shock. The NBP projections for GDP are almost unchanged vs November iteration. According to the NBP, GDP this year is now expected to grow by 0.9% year over year (range -0.1% to 1.8%) compared to 0.7% year over year (range -0.3% to 1.6%) expected  in the November projection. We expect a cautious optimism during the governor's press conference tomorrow Market attention now shifts to tomorrow's press conference by NBP President Adam Glapiński. The NBP is facing mixed signals. On the one hand, lower inflation in the fourth quarter of 2022 and first quarter of 2023 than expected by the NBP and the market, as well as weakness in consumption (year-on-year declines in 4Q22 and probably 1Q23), warrant a slightly more dovish stance. On the other hand, the trajectory of core inflation remains uncomfortably high, and wage growth has turned out to be stronger than the central bank expected. Moreover, the projection continues to point to a high level of inflation over the 2025 horizon. We assume that the governor will be optimistic tomorrow, but cautious about declaring the end of the tightening cycle or cuts. Major central banks are concerned about the persistence of core inflation and we also point out that core prices have been 'sticky' in Poland for a long time as well. In such an environment, we see no room for interest rate cuts this year. However, all indications are that the next move by the MPC will be a rate cut, but the start of the monetary easing cycle will not begin earlier than 2024 in our view, due to persistently high inflation risks. The new CPI projections indicate the persistence and longevity of the inflation shock The NBP projection for CPI and GDP vs ING forecasts Source: NBP, GUS, ING Read this article on THINK TagsPoland MPC Poland Monetary policy Emerging Markets 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 USD/MXN Pair’s Further Moves Rely On The Mexican Inflation Data

The USD/MXN Pair’s Further Moves Rely On The Mexican Inflation Data

TeleTrade Comments TeleTrade Comments 09.03.2023 08:42
USD/MXN retreats towards multi-year low as US Dollar struggles to cheer risk-off mood. US Dollar grinds despite President Biden’s controversial tax proposal, higher yields and hawkish Fed bets. Banxico shows more clarity over rate hike than Fed with no talks of policy pivot fueling Mexican Peso. USD/MXN eases to 17.96 during early Thursday, after a failed attempt to recover from the lowest levels since September 2017, tested the previous day. The quote’s latest weakness pays little to the risk-off mood while bracing for the key Mexican inflation data. Market sentiment sours as US President Joe Biden’s proposal for higher taxes appears an extra economic burden amid the looming recession woes. That said, Biden proposes raising corporation tax from 21% to 28% in his latest budget guide ahead of Friday’s release. The US Leader also aims for a 25% billionaire tax and large levies on rich investors. Additionally, disappointment from China’s inflation data also dims the prospects of recovery in the world’s second-largest economy and weighs on the risk profile and should have favored the US Dollar’s haven demand. On the same line Fed Chairman Powell repeated his hawkish calls of readiness to lift the rate while highlighting stronger-than-expected inflation pressure. The same bolstered bets for the Fed’s 50 bps rate hike but the Testimony 2.0 didn’t have anything new from what’s already heard on Tuesday and hence the US Dollar traders were mostly afraid of taking any major steps. Alternatively, Banxico appears more clear in its hawkish monetary policy bias and has already signaled a further rate hike in its latest monetary policy meeting where the Mexican central bank lifted the benchmark rate by 50 bps. Against this backdrop, S&P 500 Futures reverses the previous day’s bounce off a one-week low while refreshing the intraday bottom around 3,985. On the same line, the US 10-year Treasury bond yields rise to 3.99%, up one basis point (bp), whereas the two-year counterpart pares intraday losses near 5.05% at the latest. It’s worth noting that US yield curve inversion widened to the highest levels since 1981 and propelled the recession fears the previous day. Although the bears are in the driver’s seat, the USD/MXN pair’s further moves rely on the Mexican Inflation data for February. That said, downbeat forecasts for the Headline Inflation, Core Inflation and 12-month Inflation, join the recent challenge to sentiment to prod the bears. Technical analysis A daily closing below April 2018 lows surrounding 17.93 becomes necessary for the bears to keep the reins. That said, the oversold RSI (14) challenges USD/MXN pair’s further downside.  
UK PMI Weakness Supports Pause in Bank of England's Tightening Cycle

Chinese Inflation Slows, Powell Tried To Walk Back A Part Of His Hawkish Comments

Swissquote Bank Swissquote Bank 09.03.2023 10:36
We could see some relief, and correction after two difficult days for risk assets, but investors will likely refrain from opening fresh positions before Friday’s US jobs data, because only God knows what could happen when the data falls in. Risks are two-sided, as soft data could easily spur a risk rally. Watch the full episode to find out more! 0:00 Intro 0:42 Why European stocks should’ve reacted more to the hawkish Powell? 3:53 Powell’s attempt to cool Fed hawks was spoiled by fresh data 6:43 Catch your breath before Friday’s US jobs data 7:42 Wasn’t gold supposed to have a good year? 8:32 Crude oil sold after hitting 100-DMA 9:48 Chinese inflation slows… 10:09 The ’ TikTok bill 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 #Powell #testimony #inflation #jobs #economic #data #USD #EUR #XAU #Crude #oil #Occidental #Petroleum #China #TikTok #ban #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
Indonesia Inflation Returns to Target, but Bank Indonesia Likely to Maintain Rates Until Year-End

Indonesia: Looking to consumption to carry the load

ING Economics ING Economics 09.03.2023 12:52
A more challenging global landscape means Indonesia will look to domestic consumption to bolster growth aspirations in 2023 Jakarta, the capital of Indonesia   Indonesia’s economy grew by 5.3% in 2022, which was the fastest pace of expansion in almost a decade. Economic growth was underpinned by robust household spending as well as a healthy dose of manufacturing and exports. Domestic consumption was brisk with Covid-19 restrictions fully eased and headline inflation staying relatively well-behaved in the first half of the year. Meanwhile, Indonesia’s export sector benefited from the commodity price rise in 2022 as demand for energy and oil increased due to the fallout from the Ukraine war. Surging exports in turn helped support domestic manufacturing, which boosted growth further.       Economic growth Indonesia is expected to churn out another solid growth performance in 2023, however challenges to the outlook have surfaced. The Bank of Indonesia (BI) expects growth to settle at the upper end of the forecast range of 4.5-5.3%, banking on private consumption, investments and exports to match last year’s growth. Given our expectation of a sustained moderation in commodity prices, we believe Indonesia will need to rely more heavily on household consumption and investment outlays to do the heavy-lifting as the boost from exports fades. Exports and the external balance: fading commodity boom The glow from the 2022 commodity boom had faded by the fourth quarter of 2022 and this development will likely impact Indonesia’s external position while also having a negative impact on manufacturing activity. Global prices for coal and palm oil, two of the major exports in Indonesia, have fallen sharply from their 2022 highs which would translate to more modest export growth and trade surpluses. Indonesia’s record trade surplus coincided with sharp price increases for these commodities which also helped deliver the highest current account % of GDP ratio (1.05%) since 2010.  On top of its impact on the external balance, fading export flows may also impact economic growth by way of weaker mining and manufacturing activity. Mining and related industrial activity (oil and gas refinery) accounts for 9.1% of total GDP and softer demand for exports could also weigh on economic activities related to the mining and refining of these export products.   Mineral fuels and oils account for 37% of total exports Source: Badan Pusat Statistik Commodity boom not likely in 2023 Source: ICE-Futures Europe commodities and MDE-Bursa Malaysia Consumption here to save the day? Depends on inflation With the boon from the export sector fading this year, Indonesia will be looking to domestic consumption to deliver the bulk of growth. The outlook for domestic consumption does have some upside after inflation appears to have peaked in late 2022. Headline inflation slowed to 5.5% year-on-year as of February (vs the 6% peak) while core inflation moved closer to target at 3.1%YoY.  Despite inflation coming down from its peak, however, price pressures remain evident with inflation still quite high for major items such as food (7.2%YoY), transport (13.6%) and utilities (3.4%). If headline inflation does eventually slow, this development could be supportive of household spending (53% of economic activity last year) and growth momentum overall.   One economic variable we will be watching carefully to approximate domestic consumption is retail sales. Retail sales, which had been relatively healthy in the first half of 2022, showed signs of slowing when faced with the sharp uptick in prices. If inflation does continue to slide this year, retail sales could potentially recover and provide some lift to overall growth. If inflation fails to slow, however, we could see only modest gains in retail sales with household spending only partially able to compensate for softer export receipts and weaker mining and manufacturing activity. Inflation moderates somewhat, dips from peak of 6% Source: Badan Pusat Statistik Improvement in retail sales dependent on inflation trajectory Source: Badan Pusat Statistik and Bank Indonesia BI now in the mood to support growth, but does it have the space? Faced with accelerating inflation in late 2022, BI had little choice but to join fellow regional central banks in hiking rates aggressively. The central bank rattled off a string of aggressive tightening in the second half of last year, lifting policy rates by a total of 225bps to steady the Indonesian rupiah (IDR) and combat inflationary pressures.  However, after seeing inflation moderate, BI Governor Perry Warjiyo declared victory over inflation and left policy rates untouched at the 16 February meeting. Warjiyo went so far as to indicate that he need not hike rates for the rest of the year suggesting that the current policy rate of 5.75% will be the peak for this tightening cycle. Dovish commentary from Warjiyo clearly shows that BI is now shifting its focus to bolstering growth to help offset the challenging global landscape.  Industry trends show that bank lending growth remained healthy despite the aggressive 225bps worth of tightening from BI and investment outlays could very well be a source of growth this year. Lending activity may have been supported by BI’s “macroprudential policies” such as the 0% downpayment for automotive loans, and looser loan-to-value ratios for property lending among others.  Furthermore, at least so far, growth in bank lending appears to have come without any detrimental impact on quality as the latest non-performing loan ratio slipped to 2.4%, the lowest since the start of the pandemic. Sustained economic expansion and the end of BI’s rate hike cycle bode well for bank lending, but with BI likely prevented from cutting policy rates further, the upside for capital formation may face some constraints. Loan growth not at the expense of quality. Can it be sustained? Source: Bank Indonesia Policy uncertainty as attention shifts to 2024 election This could prove to be a pivotal year as this will be the last full year of President Jokowi with the presidential election fast approaching in February 2024. Indonesia’s elections will go ahead as planned despite a recent court ruling postponing the polls for two years.  Current polls show no clear-cut favourites with three names surfacing as potential successors to Jokowi. General Subianto (Gerindra party) who lost to Jokowi in 2014, Java Governor Ganjar (PDI-P) and forever Java Governor Anies (independent) are all still very much in the race. Very recently, Anies was nominated by three major parties with the incumbent PDI-P still yet to nominate their candidate. We believe attention will shift to the presidential elections with not much reform or legislation likely to take place between now and February 2024.    Market outlook: IDR pressured, rates on hold and growth likely to slow from last year Indonesia is set to post another year of decent growth in 2023 although challenges, especially on the external front, suggest that the pace of expansion could slow from last year.  The economy will be missing the boost coming from the export sector as global demand fades, impacting both net exports and the mining sector's contribution to overall GDP growth.  Slower export receipts suggest a weaker external balance with the current account possibly slipping back into negative territory. A current account in deficit means that the IDR will face pressure throughout the year and the currency will likely lag any regional rally.  Meanwhile, fresh from declaring victory over inflation, we believe BI will be hard-pressed to cut rates at least in the near term as inflation will likely stay elevated. The projected long pause by BI means that the upside to capital formation and investment outlays could be capped despite some promising growth seen in bank lending.  Overall, the challenging external headwinds mean that Indonesia will be relying on domestic consumption and capital formation to drive growth momentum. And although we expect both household spending and investment activity to improve this year, the challenges posed by stubbornly high inflation and the inability on BI’s end to cut rates further point to an economic expansion that could very well fall short of last year’s growth mark.       Source: ING Estimates 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
Asia week ahead: RBA policy meeting plus regional trade data

In China Core Inflation Excluding Food And Energy Fell To 0.6%

Marc Chandler Marc Chandler 10.03.2023 09:12
Overview: Seeing the drama he inspired on Tuesday, the Fed chair tried soft-pedaling the idea that he was signaling a 50 bp hike in March. The market did not buy it. And the odds, discounted by the Fed funds futures rose a little above 70% from about 62% at Tuesday's close. The two-year note yield solidified its foothold above the 5% mark. With the Bank of Canada confirming its pause, the Reserve Bank of Australia does not seem that far behind, and even the Bank of England Governor Baily has recently pushed against the aggressive market pricing, saying that the central bank has moved away from the "presumption" that more rate hikes are needed. The dollar remains firm but mostly consolidating today, ahead of tomorrow's employment report. Some position adjusting ahead of the conclusion of the BOJ's meeting is lifting the yen today, which is the best performing G10 currency, gaining about 0.85%. The US 10-year yield is little changed, slightly below 4% today, while European benchmark yields are mostly 3-4 bp higher. Asia Pacific equity markets were mixed, with Japan and Australia rising and China, Hong Kong, South Korea, Taiwan, and India falling. Europe's Stoxx 600 is off 0.6% to nearly double this loss. US index futures are trading softer. With the greenback and US rates consolidating, gold is finding a reprieve after falling from around $1858 on Monday to a little below $1810 yesterday. April WTI is stuck in a tight range a little above yesterday's low (~$76.10). Lastly, we note that there is much talk about the tax hikes that will be in President Biden's budget proposals. We suggest, given the configuration of Congress that is more about political messaging, perhaps ahead of a formal declaration that he will seek re-election than the actual budget that will be eventually passed. Asia Pacific  China reported February consumer and producer prices, and both were weaker than expected. The end of the Lunar New Year holiday saw food, transportation, and recreation prices moderate, and the year-over-year rate of CPI slow to 1.0% from 2.1% in January. Food price inflation slowed to 2.6% year-over-year from 6.2% in January. Core inflation, excluding food and energy slowed to 0.6% from 1.0%. The new forecast/targets announced at the start of this week's National People's Congress has CPI rising to 3% this year. The market (median forecast in Bloomberg's survey) was at 2.4%. Producer prices fell 1.4% year-over-year, a larger decline than expected after a -0.8% pace in January. It was fifth consecutive monthly decline.  Even with fiscal and monetary stimulus, the Japanese economy continues to struggle and that constrains the policy options of the new leadership at the central bank. Growth in Q4 was revised from 0.2% quarter-over-quarter to flat. The revision is owed to weaker private consumption (0.3% rather than 0.5%). Net exports blunted some of the impact and was revised to 0.4% boost to GDP from 0.3%. Separately, the weekly Ministry of Finance report on portfolio flows shows that Japanese investors turned sellers of global bonds last week for the first time since the end of January. In the first nine weeks of the year, Japanese investors have bought JPY5.35 trillion or about $39.6 bln of foreign bonds. In the first nine weeks of 2022, Japanese investors sold around JPY1.66 trillion foreign bonds. Softer US rates and some anxiety over the conclusion of the Bank of Japan meeting tomorrow has seen the yen strengthen. The US dollar is pulling back from the three-month high set yesterday near JPY137.90 yesterday to almost JPY136.10 today. The week's low was set Monday slightly above JPY135.35. Large options set to expire today at JPY137 (~$1.4 bln) and JPY136.50 (~$1.05 bln) may have added fuel to the pullback. Options for $2.6 bln expire tomorrow at JPY136.00. Ahead of the BOJ meeting and the US employment data, a few hours later tomorrow, overnight yen volatility has spiked to over 41% from around 11.25% late yesterday. The Australian dollar is consolidating losses that took it to a new low since last November (~$0.6570) yesterday. It is inside yesterday's range and needs to rise above the high (~$0.6630) to lift the tone. It seems likely to spend the North American session consolidating. The dollar is also confined to a narrow range inside yesterday's price action against the Chinese yuan. The PBOC set the dollar's reference rate tightly against expectations, unlikely yesterday, when it was set notably weaker. The fix was at CNY6.9666, which is the strongest of the year, while the median in Bloomberg's survey was for CNY6.9667. Europe There is a light European economic calendar today. The next big event is the ECB meeting on March 16, where the staff will also update the economic forecasts. It we take a step back; we note that Germany's 10-year yield rose from around 2% in mid-January to 2.77% last week. The 10-year breakeven (the difference between the inflation-linked and conventional yields) also widened from about 2% to a little above 2.65% last week. However, it has collapsed to almost 2.40% and is near 2.44% now. That is to say that most of the rise in the nominal yield can be explained by an increase in the market-measure of inflation expectations. The higher-for-longer on rates, and the overnight index swaps show a 4.07% policy rate in October, a 70 bp increase since the end of January, seems to be souring the economic outlook. While the inversion of the US 2-10 curve draws much attention, the German curve is also inverted. At nearly 70 bp, the inversion is the most in more than 30 years and is nearly twice as inverted as it was at the end of January. Sweden's economy unexpected grew and grew strongly in January. The 2.0% monthly GDP gain contrasts with the median forecast in Bloomberg's survey for a 0.1% contraction. Household consumption rose by 0.5% (as much as it declined in December), and private sector production and services expanded strongly. The one source of weakness in today's reports was the 20.2% drop in industrial orders, which tends to be a volatile series. It had gains 23.3% in December. The euro is confined to a narrow range between about $1.0540 and $1.0570. There are options for almost 1.8 bln euros at $1.06 that expire today and 1.2 bln euros that expire there tomorrow. The near-term risk still seems to be on the downside and the 1.3 bln euros in options that expire tomorrow at $1.05 may still draw the price action. Yesterday's low was near $1.0525. The UK reports January GDP figures tomorrow and a small gain is expected after the 0.5% contraction in December. The British Chamber of Commerce became the latest to signal that the UK may avoid a recession. Sterling approached $1.18 yesterday and has recovered to almost $1.1890 today. The 200-day moving average is slightly above $1.19. There are options for almost GBP620 mln that expire there tomorrow. America Since Monday, the odds of a 50 bp hike by the Fed on March 22 has risen from about a 25% chance to around a 70% chance. This seems excessive, but arguably prudent ahead of tomorrow's jobs report. The terminal rate expectation has risen to 5.65%, up nearly 20 bp since Monday's settlement, and reflects a recognition of the increased risk of a 5.75% peak. The Beige Book, prepared for the upcoming FOMC meeting, was mixed. While it noted inflation pressures remained widespread, price increases moderated in many districts and prices are expected to continue to moderate. At the same time, growth was said to have accelerated slightly at the start of the year, but the pace in Q3 22 and Q4 22 were already above the Fed's long-term non-inflationary pace. Labor market conditions were "solid," though few districts reported businesses were becoming less flexible with some reduction of remote work options. That seems to be consistent with some easing of the tightness and several districts cited the lack of available childcare impeding work force participation. Some districts report easing of wage pressures, and this was seen as a trend in the coming months. As widely expected, the Bank of Canada stood pat, leaving the overnight target rate at 4.5%. Amid the more general theme of "higher for longer" the Canadian dollar was punished for the less aggressive posture and the Canadian dollar was the weakest of the G10 currencies, losing about 0.25% to fall to new four-month lows. The central bank's statement recognized the tightness of the labor market, and the need for inflation expectation to ease some more, but concluded that on balance the economy is evolving as expected. That includes CPI still falling to around 3% by midyear. It was at 5.9% in January, though the core measures were closer to 5%.  The Bank of Canada is putting emphasis on the cumulative effect of the tightening and the weaker growth to drive down inflation. Still, the market is doubtful that the pause is the peak. The swaps market is pricing about a 25% chance of a hike at next meeting on April 12, down a little bit from Tuesday. However, it is completed discounted by the July 12 meeting, slightly more confident than earlier in the week. That said, the market is still in flux and tomorrow's jobs report is an important data point, though the Bank of Canada will see the March figures (due April 6) before it meets, as well as the February CPI (March 21). In addition, the Bank of Canada may feel less comfortable if the policy rate with the Fed exceeds 100 bp.  Mexico reports February CPI today. It is expected to have slowed to 8.35% on the headline (from 8.45%) and 7.68% at the core level (from 7.91%). Headline CPI peaked slightly above 8.50% last November. The core rate peaked last August and September at 8.70%. The stickiness of price pressures spurred the central bank to lift the overnight target rate by 50 bp at its February 9 meeting. Most had expected a quarter-point move. Banxico meets on March 30 and the risk of another 50 bp hike has increased primarily because of the shift in Fed expectations. The median forecast in Bloomberg's survey sees inflation ending the year around 5.8%.  The US dollar marginally extended yesterday's gains against the Canadian dollar to a little through CAD1.3815 before coming back offered in the European morning and trading to almost CAD1.3790. It is consolidating in a narrow range just inside the upper Bollinger Band (~CAD1.3825). A break of the CAD1.3750 is needed to help stabilize the technical tone. That seems unlikely ahead of tomorrow's jobs reports. Fed Chair Powell's initial comments on Tuesday saw the greenback spike up to almost MXN18.18. However, this was greeted with fresh dollar sales and peso purchases. The dollar recorded a marginally new five-year low today near MXN17.90. It is difficult to talk about meaningful support, but the next important chart area is near MXN17.50. The lower Bollinger Band is near MXN17.85 today.  Disclaimer
The Collapse Of The SVB Triggered A Massive Rally In Bond Markets

Municipal Bond Fundamentals Will Remain Supportive Throughout 2023

Franklin Templeton Franklin Templeton 11.03.2023 09:45
While 2023 has started on shaky ground for the municipal bond market, there are reasons to be optimistic for more stability ahead, according to Jennifer Johnston, Franklin Templeton Fixed Income’s Director of Municipal Bond Research. While 2023 has started on shaky ground for the municipal bond market, there are reasons to be optimistic for more stability ahead, according to Jennifer Johnston, Franklin Templeton Fixed Income’s Director of Municipal Bond Research. She explains why California’s issues don’t reflect all states and offers reasons for optimism. Check out the video below featuring Jennifer and Jack Mcgee, senior product manager, Franklin Templeton Fixed Income, to hear more thoughts on muni bonds, including sectors to watch. As we reflect on the disappointing performance of municipal bonds in 2022 and even so far in 2023, the fundamentals really have not been a driving force. In fact, in many cases we have actually seen a peak in terms of muni bond credit quality, and many municipalities are actually stronger today than they were prior to COVID-19. Hopefully, state and local governments have prepared themselves for the next rainy day. Coming into 2023, municipal bond fundamentals were strong as most state and local issuers utilized COVID-19 relief funds to address pandemic costs and economic challenges so the shore up rainy day funds and position themselves for a potential economic slowdown. States in particular entered the year with very strong balance sheets that surpassed levels seen before the pandemic. California an outlier, not an example Following a huge surplus in the prior fiscal year, California now projects a large projected deficit in California for fiscal 2024. California’s budget deficit has gotten a lot of media attention given the state’s sheer size. But the deficit was not a surprise to us as we have been monitoring the state monthly and we think it’s an outlier for a few reasons. However, we feel this volatility is not a trend we see nationwide. California is highly reliant on income taxes as a main revenue source. California’s income tax structure is very progressive and as a result it has a high reliance on capital gains taxes, which were muted during last year’s overall market downturn. We still feel California can utilize its reserve funds (which are the highest in its history) and other budget measures to preserve its fiscal strength over this coming year. We think California can weather this year’s challenges. In contrast, most other states are reporting higher-than-expected income and sales tax receipts. Illinois, for example, is a stronger credit than before the pandemic. The state is projecting an additional US$1.2 billion in revenue since the last projection in November. The state has utilized its surpluses smartly and has prepaid pension expenses and debt. It really has seen a turnaround. The impact of inflation   Inflation not only hits consumers, it hits governments too. Wage inflation has created challenges, but it also increases income taxes, so that can actually have a positive impact for states. Sales taxes also increase as the price of goods increase, and we’ve seen good performance in sales taxes. To combat inflation, interest rates are rising, however, so the cost of borrowing for governments is going up. The good news is that rainy day funds are near all-time highs as states used federal support funds to pay down debt and reduce expenses. So in sum, higher inflation, wage increases, and additional borrowing costs are having a negative impact on budgets, but these are being partially offset with higher tax revenue from additional economic activity. Last year saw many rating upgrades across several states, reflecting their strong financial positions. We continue to evaluate issuers individually, but as a whole, we feel municipal bond fundamentals will remain supportive of the sector throughout 2023. We anticipate that states have the tools to manage the challenging environment. As investors, we think there is always opportunity—and that is still the case today. WHAT ARE THE RISKS? All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Because municipal bonds are sensitive to interest rate movements, a municipal bond portfolio’s yield and value will fluctuate with market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the portfolio’s value may decline. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value.
Euro and European bond yields decreased after the ECB decision. The end of tightening may be close

A 50bp Rate Hike Next Week In Eurozone Looks Like A Done Deal

Kamila Szypuła Kamila Szypuła 11.03.2023 10:31
Thursday's European Central Bank interest-rate decision and U.S. inflation data on Tuesday will be the main focus next week. Interest rates The ECB, Fed, Bank of England (BoE) and other central banks have aggressively raised interest rates in an attempt to bring inflation back to the 2% target. The UK and US raised their benchmark interest rates from near zero a year ago to 4% and 4.5% respectively, while the corresponding ECB rate is up to 2.5% Interest rate expectations in the Eurozone and the US have been rising recently, putting these two developments in the spotlight. The ECB is widely expected to raise interest rates by 50 basis points, taking the deposit rate to 3.00%. Inflation still too high The world's major economies have been battling rapid inflation for almost two years. After many years of very slow price growth, in 2022 annual inflation in many economies reached double-digit values. This was due to supply chain disruptions in response to COVID-19 and the war in Ukraine, which has pushed up energy and food prices. In the euro zone core inflation increased from 5.3% in January to 5.6% in February. In addition to the main factors influencing inflation, other equally important reasons can be indicated. The reason why core inflation remains elevated may be the fact that unemployment is so low . For example, in the service sector in the Eurozone, we see wages rising as companies compete to pay for workers. Another factor was companies raising prices faster than usual to maintain their profit margins. As most consumers already know all too well, increased inflation lowers the standard of living. This means people can buy fewer items for the same amount of money, making weekly shopping more and more stressful. As signaled by Powell (the head of the Fed) and Lagarde (ECB), the latest inflation data indicate the need for further aggressive interest rate increases. Now 50bp and May too? March's move was well signaled by the central bank, focusing on any signals as to how far and how quickly interest rates will rise in the future, in particular whether the ECB will go ahead with another 50 basis point hike in May. Some analysts raised their ECB interest rate forecasts due to recent strong inflation data, which pushed eurozone bond yields higher. Comments from ECB President Christine Lagarde at the press conference following Thursday's decision will be crucial for the eurozone, especially after ECB policymaker Robert Holzmann called for three more moves of 50bps after this month's meeting. Expect the worst? While there have been some positive developments in confidence metrics since the start of the year, the hard data is still far from rosy. Interestingly, two downward revisions of German GDP data and one downward revision of Irish GDP data brought the Eurozone economy to the brink of recession in Q4 2022 and another stagnation in Q1 cannot yet be ruled out. The ECB's own consumer expectations survey this week showed a further decline in consumer inflation expectations. At the same time, however, core inflation continued to rise and so far there are no signs of a peak. Industry selling price expectations have dropped significantly but remain close to all-time highs for services. Source: investing.com
The Commodities Digest: US Crude Oil Inventories Decline Amidst Growing Supply Risks

Week Ahead: US CPI And ECB Decision Will Be In Focus

Michael Hewson Michael Hewson 12.03.2023 10:07
UK Spring Budget – 15/03 – the last few months have been challenging ones for the UK economy, in the aftermath of the emergency Autumn budget, with the main narrative from those times being peak pessimism. At the time we had the OBR, IMF, and the Bank of England all doubling down with deeply depressing outlooks for the UK economy. All of them were uniformly pessimistic about the prospects for the UK economy arguing that the economy was already in recession and likely to be so for at least 2 years. Since those dark days in October as well as the political upheaval and market turbulence that followed, inflation has started to come down albeit slowly, while industrial unrest has grown. Consumer spending has been weak with retail sales showing sharp falls at the end of last year. On the plus side tax revenues proved to be extremely resilient, helped by higher-than-expected inflows from self-assessment of £21.9bn, as well as strong inflows from Capital Gains tax, which contributed £13.2bn in January. This is good news for the Chancellor of the Exchequer as it means that the UK government has borrowed £30.6bn less than OBR forecasts. It also potentially gives him more wriggle room in this week's budget to rethink some of the recent tax hikes, specifically the increase in corporation tax, which has been widely criticised. At a time when the UK economy needs all the help it can get it beggars belief that a UK Chancellor seems to think raising taxes on highly stretched businesses is a good idea. We've already seen and heard from several companies taking the decision to postpone or cancel investment programs in the wake of the prospect of higher tax and regulatory burdens, while other companies are looking at moving away from the UK completely. It's an absolute fallacy that higher tax rates mean higher tax revenue, despite the UK Treasury pushing back on keeping the rate unchanged. Looking at it another way 19% of something is better than 25% of nothing, and that's the outcome that HMRC and the Treasury might be facing. It's strange that so many people fail to understand that concept, large companies are mobile, but people are not. There has also been speculation that the Chancellor may well extend the energy support scheme for businesses, as well as freezing the energy price cap for consumers at its current level of £2,500 given the recent sharp decline in energy prices. A further freeze on fuel duty also seems likely. The super deduction which expires in April could well be replaced with measures that allow offsetting against profits. In short, this week's budget is the ideal opportunity for the government to stop running scared, push back on the Treasury, and start to take measures to stimulate investment and innovation, champion business, push back on the siren calls for more taxes which are self-defeating, and don't raise the sums claimed. US CPI (Feb) – 14/03 – with the Federal Reserve in a blackout period ahead of next week's FOMC meeting there has been much discussion over whether the Fed got it right when they downshifted their rate hiking cycle in February when they raised rates by 25bps, following on from a similar slowdown in December of 50bps. Since the 25bps rate move, US economic data has shifted up a gear, with retail sales in January surging 3%, and US payrolls growth also showing a strong start to the year. Inflation measures have also ticked higher in contrast to the disinflation narrative that Powell encouraged at his last press conference. While headline inflation slowed in January from 6.5% to 6.4%, markets had been expecting a larger fall, with core prices also proving to be sticker at 5.6%. Since those numbers were released subsequent inflation measures were revised higher, with PPI measures in December revised up, meaning that core PPI instead of coming in at 4.9% in January, came in at 5.4%. This week's February CPI numbers are forecast to show another slowdown, from 6.4% to 6%, and for core prices to come in at 5.4%. With the Fed due to hike by another 25bps next week, this week's numbers, along with the PPI numbers due on the 15th could well dictate whether we're set for another 2 or 3 rate hikes in the next few months. UK Unemployment/wages (Jan) – 14/03 – UK labour market has been one of the bright spots of the UK economy, even accounting for the fact that wages are lagging inflation. The most recent wage numbers showed wage growth jumped sharply in the three months to December, rising from 6.5% to 6.7%. What was also notable was that payrolled employees rose by 102k in January which in turn reinforces the tight nature of the UK labour market with headline inflation still in double-digit territory. Private sector pay continues to lead with an average of 7.3%, compared to 4.2% in the public sector. Unemployment remained steady at 3.7%, however given the gains seen in payrolled employees in January, this could see a fall to 3.6% in this week's January numbers. Furthermore, resilience in wages data will make it much harder for the Bank of England to procrastinate over its rate-hiking policies. Bank of England governor Andrew Bailey may like markets to think that the MPC is almost done when it comes to rate hikes, however with headline CPI still above 10% and core prices and wages growth well above 6% he may be able to kid some of the people some of the time, but he is unlikely to be able to push back against at least another 50bps of hikes between now and the summer. US Retail Sales (Feb) - 15/03 – having seen the US consumer retrench at the end of last year, with two successive monthly declines of over -1%, there had been an expectation that January would see a rebound in spending, especially given the strength of the jobs report a few days earlier. What no one was quite prepared for was a 3% gain as the US consumer came roaring back with a vengeance. Even the control group measure which is used to calculate the GDP contribution, rose by 1.7%, meaning that the consumer rebound was broad-based. The big question is whether this was maintained into February and if it has then it will have significant ramifications for Fed policy with respect to guidance next week when the Fed meets to decide on its forward guidance as well as the trajectory of its dot plot guidance for further rate hikes. ECB Rate Meeting – 16/03 – we already know that the ECB is set to hike by another 50bps this week, with the wider question being how many more hikes the governing council has in its locker. The hawks on the ECB have been becoming ever more vocal led by Bundesbank head Joachim Nagel who, despite the real prospect that the German economy is in a recession is calling for more aggressive action on sticky inflation. The most recent ECB minutes showed that a number of governing council members wanted to go harder than a 50bps move at the last meeting and wanted to go by 75bps. They only relented because of the pledge to do another 50bps this month, as central bankers weigh up the risks of overtightening, as opposed to doing too little and allowing inflation to become entrenched. These calls for tighter policy have been echoed by other ECB members, like Austria's Robert Holzmann who has called for 50bps in March, May, June, and July. Markets have already started to price in an ECB terminal rate of over 4% meaning that any further rises in long-term yields in countries like Italy could cause real-term problems in the long run if sustained. With core CPI already at a fresh record high this month of 5.6% and headline inflation back on the increase in Spain, France, and Germany the ECB is continuing to play catchup, while also needing to remain mindful of financial stability. China Retail Sales (Feb) – 15/03 – having seen retail sales collapse at the end of last year this week's Chinese retail sales numbers have the potential to provide a significant upside surprise after lockdown restrictions started to get eased in December. The recent China trade numbers pointed to a modest improvement in domestic demand, and with the period also including Chinese New Year, there would appear to be a decent probability of a bit of so-called revenge spending, as consumers celebrate coming out of lockdown with a bit of a spending spree. A rather modest rebound of 3.5% is expected, following on from two months of declines, while industrial production is expected to also see a rebound to 3.2% from a 1.3% rise in the previous month. Deliveroo FY22 – 16/03 – the Deliveroo share price appears to have found a bit of a base around the 80p area. At its last trading update, there was a positive response to its Q3 trading update, despite the company downgrading its full-year guidance on sales growth. The uplift was hugely welcome given that the shares are well below their 390p IPO price, which suggests that a lot of pessimism may be already in the price. Gross Transaction Value (GTV) saw an increase of 8% year on year, with the UK operation outperforming international markets, rising by 11%. Consequently, Deliveroo downgraded its full-year guidance on GTV growth to between 4% to 8%, due to concerns about consumer disposable income. There was some good news as EBITDA margins were revised higher to between -1.2% and -1.5%, which suggests the company is making progress on reducing its costs by way of lower marketing spend. In its Q4 update in January, the shares popped to a 2-month high before sliding back again, after announcing that it generated over £1bn of UK GTV for the first time ever, a rise of 9%, pushing total GTV up to £1.8bn. For the full year Deliveroo said it expects to deliver just over £7bn of GTV across all operations, a rise of 7%, and that its adjusted earnings almost achieved breakeven during the second half of the year. This number is expected to continue to improve into the next fiscal year with EBITDA margins revised up from the previous -1.2% and -1.5%, to -1%. In an attempt to streamline its operations further, Deliveroo also took the decision to exit its Australia operation back in January. Balfour Beatty FY 22 – 15/03 – after upgrading its profit expectations for the year back in December the shares have moved up to their highest levels since 2008. It's been a long road back for a business that was on the brink back in 2013, and also got caught up in the Carillion fallout 5 years ago when it had to take millions of pounds of write-downs. Under the stewardship of CEO Leo Quinn refocussed its efforts on higher margin work in all of its markets, primarily in the US and UK, while disposing of underperforming or non-performing assets. This focus on higher margin work has realised £65m in profits in respect of the disposal of five assets. Its order book is expected to be around 5% ahead of last year, as is full-year revenue. In January Balfour Beatty announced another contract win of £1.2bn in respect of the Lower Thames Crossing which involves the design and delivery of 10 miles of new roads connecting the M25 at junction 19 and the A13 with a river crossing at Tilbury Essex. The company also set out a plan in January to buy back up to a further £50m of shares to be completed by May. Adobe Q1 23 – 15/03 – Adobe shares took a swan dive to their lowest levels since March 2020 last September after the company downgraded its Q4 revenue numbers. These came in as expected at $4.53bn in December, while profits beat expectations, coming in at $3.60c a share. On guidance, Adobe said they expected revenues of $4.6bn to $4.64bn for Q1 while keeping its full-year estimates unchanged. The company was on the receiving end of some unwelcome news last month after its $20bn deal to acquire Figma, a mobile web interface design company, was reported to be the subject of an antitrust investigation by the DOJ with a view to blocking the deal. Profits are expected to come in at $3.67c a share. Williams-Sonoma Q4 23 – 16/03 – this high-end retailer has seen its share price tread water over the last few months but it remains a popular brand amongst US consumers at the upper end of the income scale. In Q3 the owner of Pottery Barn reported record revenues for the quarter of $2.19bn, beating forecasts. Profits fell slightly short of forecasts, although they were still up from a year ago at $3.72c a share. Due to concerns over the outlook the retailer declined to reiterate its previous full-year guidance of mid to high single digital annual net revenue growth, due to high levels of "macro uncertainty" and elevated inventories, sending the shares lower, although we've seen a modest recovery since then. Inventory levels are expected to come down in Q4, however, they are still 33% above the levels they were a year ago. Profits for Q4 are expected to come in at $5.46c a share. FedEx Q3 23 – 16/03 – after falling sharply back in September last year to two-year lows, after issuing a surprise profit warning, the shares have slowly clawed back their lost ground, and are up over 40% from that trough. In December FedEx beat those lowered Q2 expectations on profits, returning $3.18c a share, although they missed on revenues, which came in at $22.8bn. The outperformance came about due to the company increasing its prices, as well as announcing widescale cost reductions back in September. FedEx also said it would be cutting another $1bn in costs on top of the $2.7bn it announced previously. FedEx also reinstated earnings guidance for the full year, announcing a new target of between $13 and $14 a share. The big jump in retail sales seen in the US economy at the start of this year augurs well for a decent number for Q3 for FedEx with profits expected to come in at $2.74c a share. For further comment from Michael Hewson, please call 0203 003 8905 or 07824 660632Email: marketcomment@cmcmarkets.comFollow CMC Markets on Twitter: @cmcmarketsFollow Michael Hewson (Chief Market Analyst) on Twitter: @mhewson_CMC
The Commodities Digest: US Crude Oil Inventories Decline Amidst Growing Supply Risks

Another Decline In Inflation In The US Is Expected

Kamila Szypuła Kamila Szypuła 12.03.2023 11:15
US CPI data will be a key economic event that steers market movements. Previous data Inflation rose by 0.5% in January after rising by 0.1% in December, according to the Consumer Price Index published on Tuesday. The CPI increased by 6.4% compared to the same period in 2022. Both figures were higher than expected. Super-basic services inflation, which is central to the Fed and excludes food, energy and shelter, rose 0.2% in a month and was 4% higher than a year ago. Inflation picked up in early 2023 as rising housing, gas and fuel prices took a toll on consumers. Rising shelter costs accounted for about half of the monthly increase, the Bureau of Labor Statistics said in a report. This component accounts for more than a third of the index and was up 0.7% over the month and was 7.9% higher than a year ago. Energy also made a significant contribution, with 2% and 8.7% respectively, while food costs increased by 0.5% and 10.1% respectively. Rising prices meant a loss of workers' real wages. According to a separate BLS report, which adjusts wages for inflation, average hourly earnings fell 0.2% over the month and fell 1.8% from a year ago. While price increases have been declining in recent months, January data shows that inflation continues to be a force in the US economy, which is threatened with recession this year. Forecast As for February's inflation performance, inflation is expected to decline once again to 6.0% (Y/Y) and to 0.4% (M/M). Core inflation is expected to remain unchanged. Other important data The long-awaited US non-farm payrolls report for February showed that US employers created 311,000 jobs. new jobs compared to the forecast 205 thousand. While the headline figures were impressive, showing that the US labor market is still strong, the unemployment rate rose to 3.6% vs. expected 3.40% and average hourly wage at 4.6% y/y vs. forecast 4.70% y/y. Recession and the Fed According to TS Lombard chief economist Steven Blitz, the US Federal Reserve cannot break the cycle of interest rate hikes until the country enters a recession. The Fed is unclear about the ceiling for interest rate hikes in the absence of such an economic slowdown. Powell told lawmakers on Tuesday that stronger-than-expected economic data in recent weeks suggested "the final level of interest rates is likely to be higher than previously projected" as the central bank looks to bring inflation back to earth. The next meeting of the Federal Open Market Committee on monetary policy, on March 21 and 22, will be crucial for global equity markets, with investors closely watching whether policy makers decide to raise interest rates by 25 or 50 basis points. Market expectations for the final Fed funds rate were around 5.1% in December, but they have been rising steadily. When inflation-adjusted GDP fell in the first two quarters of 2022, a huge number of economists and policymakers announced that a recession had arrived. In fact, none of that was true. The onset of a recession does not depend on a single factor, real GDP, but on reading a series of economic statistics simultaneously. In 2022, the economy has not experienced a single month where all of these economic indicators have fallen, much less for at least the next few months needed to meet the definition of a recession. Over the past year or so, a bunch of economists have repeatedly announced that a recession is just around the corner, based in part on reading economic indicators from the past before recessions, and what they saw as an almost inevitable decline, given the recent similarities with these past relationships. Clearly, the economy is under some downward pressure due to the Federal Reserve's increase in the federal funds rate target, but the US economy may well avoid recession. Source: investing.com
US Inflation Eases, but Fed's Influence Remains Crucial

The Focus This Week Will Be Whether The U.S. Regulators Succeed In Calming Down The Markets’ Concern About The U.S. Banking System

Saxo Bank Saxo Bank 13.03.2023 08:17
Summary:  U.S. regulators moved to calm markets by backstopping depositors in full. The Fed’s monetary policy has been complicated and market expectations swung from a faster pace back to downshifts and earlier pause as the crisis of Silicon Valley Bank and Signature Bank unfolded. Investors’ number one focus this week will be whether the U.S. regulators succeed in calming down the markets’ concern about the U.S. banking system and avoiding systemic risks. The US CPI, PPI, and retail sales data, while being important, may take a back seat in terms of market focus. China will monitor the retail sales data coming out from China this Wednesday to gauge the strength of the Chinese economic recovery. SVB contagion limited by authorities, but risks could remain As risks of a contagion from the US bank SVB’s collapse rose last week, authorities have stepped in to contain the risks and prevent a broader impact on the financial sector. Equity futures have responded positively to the news of a backstop funding, but Treasury yields continued to slide and the US dollar weakness also extended further. The headlines around this will continue to be key to watch this week as there may be lingering fears for depositors for not just the SVB but also more broadly in the US banking sector. President Biden’s address on Monday morning will be key to watch. The development has also complicated the Fed’s monetary policy outlook further, and March rate hike expectations have reversed back from 50bps to now 25bps again with calls for a pause also gaining traction and financial stability concerns arise. However, the Fed’s response to the situation asserts that financial risks remain under control, while the inflation risks may continue to be an issue, suggesting potential yield curve bull steepening.  Investors should remain on guard after the SVB fallout spread to Signature Bank. Market to search for concentration risk clues We all know the US’ 16th largest bank, SVB, on Friday was taken over by the FDIC. Then regulators took control of another bank, Signature Bank. We know the Fed offered an emergency bank term funding program, to SVB depositors, so they can access money from Monday, while authorities suggest Signature Bank depositors would also be supported. This is not only the biggest bank failure since the 2008 financial crisis, but also, risk still remains. Now investors and option holders may be forced to take risk off the table for those assets that are embroiled in the saga. Secondly - it’s really vital to consider the ripple effects of the banking fallout. With Continuous Disclosure obligations for listed companies, we expect companies involved with SVB or Signature bank to disclose their exposure and or relationship over the coming days. This has already started to occur in Australia- with companies on the ASX such as Xero (XRO) revealing they have a 1% of their cash and cash equivalents with SVB. Thirdly – consider the market will be searching for opportunity to de risk – perhaps selling out of firms that are prone to concentration risk or could potentially be under financial duress. That may include financial institutions that have concentrated (not diversified) client's books and revenue streams. Or those companies that have lent money to high-risk technology companies or starts ups. For the investor, it could be worth considering reviewing your portfolio, to ensure the company’s asset quality and clientele are not at risk. Upside in US CPI is also unlikely to make Fed go for 50bps in March US inflation has been the talk of town for several months now, although the focus has lately turned to financial contagion risks that may stop the Fed from switching back to a higher rate hike path trajectory. Still, February CPI – due to be released on Tuesday – will be a big test after last month’s print reversed the disinflation narrative that the markets had started to accept, and continued to point at sticky services inflation. Headline consumer prices are expected to rise +0.4% MoM in February, cooling slightly vs the +0.5% in January, with the annual rate seen easing to 6.0% YoY from 6.4% previously. Core CPI is expected to rise +0.4% MoM in February, matching the January pace, though the annual rate is likely to fall to 5.5% YoY from 5.6% in January. Overall message is likely to remain that inflation remains stubbornly high, especially after tough weather conditions in California, but the risk of a 50bps rate hike from the Fed in March remains low as the central bank becomes wary of “something breaking”. Other US data of note this week includes PPI and retail sales for February, both of which are expected to show a modest cooling but still remain high. Consensus expectations are for February producer prices to rise by +0.3% MoM (prev. +0.7%) or 5.4% YoY (prev. 6.0%). Retail sales are expected to cool from January jump of 3.0% MoM on warmer weather and expected to come in cooler at +0.2% MoM. If the January outperformance in US data is not repeated, and the contagion fears continue, we could see Fed expectations being pulled back significantly this week as the market is in panic mode. China retail sales are expected to bounce strongly China is scheduled to release retail sales, industrial production and fixed asset investment this Wednesday. Investors will focus on the retail sales data for a gauge of the strength of the recovery of consumption after the economy reopened. Consensus estimates expects retail sales to bounce strongly to a growth of year-on-year growth of 3.5% in the first two months of the year, after declining 0.2% in January. Industrial production is expected to come in at +2.5% Y/Y year-to-date. European Central Bank to go for another 50bps rate hike this week The ECB is still expected to hike the deposit rate by 50bps to 3.0% at the March 16 announcement, given what was said in the February meeting and recent commentaries. Focus will be on the guidance for the path of interest rates from here, as well as on the comments around the risks of a financial contagion spreading from the SVB collapse. Recent data such as an upside surprise in core inflation has prompted ECB pricing to shift to a terminal rate of 4% by July, suggesting a lot of room for give back if financial risks broaden. If the central banks stays away from guiding for another 50bps in May, that could come as a dovish surprise for markets. The latest inflation forecasts will also be key, with core inflation expectations likely to be revised higher for 2023 after strong reads in January and February. UK budget on watch for growth and fiscal picture; jobs data key for BOE The UK Chancellor of the Exchequer Jeremy Hunt will be delivering the spring budget on March 15, which will be a key watch especially after the market turmoil in September when Hunt's predecessor Kwasi Kwarteng and former Prime Minister Liz Truss unveiled lavish tax cuts roiling the markets. Expectations are for the Hunt to prioritize keeping public finances steady, announce less near-term borrowing but only a marginally improved medium-term fiscal outlook. Lower energy prices will also likely boost the short-term growth outlook, helping recession fears recede, although longer-term growth may remain marred with low labor force participation and weak productivity growth. Before the focus turns to UK budget on Wednesday, the UK labor market data will be released on Tuesday and investors will be scrambling to gauge how much room does the BOE have to tighten further. Bloomberg consensus expects the unemployment rate to rise to 3.8% in the three months to January from 3.7% previously, with headline jobs growth likely to ease to 60k from 102k in January. However, even with a slightly softer jobs report, the BOE is expected to continue its hiking cycle in March as activity data has been stronger than expected, but the trend in labor market from here will be key to see where BOE could pause its tightening cycle.  Australian pulse checks: business and consumer confidence and jobs numbers Australia business and consumer confidence, numbers released on Tuesday will give a gauge of how the economy is feeling after the RBA made its 10th rate hike, with businesses and consumers likely to lean into the RBA’s comments that it could pause rate hikes soon. Later in the week on Thursday, the all-important unemployment rate will be released for February – with Bloomberg’s consensus suggesting the jobless rate will fall from 3.7 to 3.6%, with 50,000 jobs expected to be added last month. If the data shows employment is rising, contrary to what the RBA expects, then the Australian dollar would likely gain pace, as the RBA would gain power to keep rising rates by 0.25% for the next few months, with the market expecting hikes can made till September. Macro data on watch this week: Monday 13 March India CPI (Feb) Tuesday 14 March US CPI & Core CPI (Feb) U.K. Employment (Jan) & Payrolls (Feb) Australian consumer and business confidence Wednesday 15 March US Retail sales (Feb) US PPI & Core PPI (Feb) Eurozone Industrial production (Jan) UK Budget Japan BoJ monetary policy meeting minutes (17-18 Jan) China Retail sales, industrial production, & fixed asset investment (Feb) Thursday 16 March US Housing starts & building permits (Feb) US Initial jobless claims Australian employment data – jobless rate (Feb) ECB policy rate decision Japan exports (Feb) Japan Machinery orders (Jan) Friday 17 March US Industrial production (Feb) US university of Michigan Consumer Sentiment Survey (Feb) UK BoE/Ipsos Inflation next 12 months (Feb) Japan Tertiary industry activity (Jan)   Earnings on watch this week: Tuesday: Volkswagen, Lennar, Foxconn Wednesday: Adobe, Constellation Software, BMW, E.ON, Ping An Insurance, Alimentation Couche-Tard Inc Thursday: FedEx, Dollar General, Enel, Li Ning Friday: Vonovia, Longfor, CMOC Group Lt Source: Saxo Spotlight: What’s on the radar for investors & traders this week? | Saxo Group (home.saxo)
Inflation Numbers Signal Potential Pause in Fed Rate Hikes Amid Softening Categories

US regulators closed Signature Bank, HSBC has announced to acquire SVB’s UK

Saxo Bank Saxo Bank 13.03.2023 10:23
Summary:  US equity futures are rallying, the dollar is lower, and Treasury yields have extended their declines following a busy weekend which resulted in regulators backstopping uninsured bank deposits at SVB Financial and Signature Bank. Traders have dialed back Fed rate-hike bets to just one while the yield curve has flattened as bank deposits are being converted to short maturity bonds. Gold jumped in response to these developments but whether the overall improved risk appetite can be maintained remains to be seen, and for this we need to watch credit spreads and default swaps. What is our trading focus? US equities (US500.I and USNAS100.I): be wary of the short-term celebration A busy weekend in the US for regulators have ended with a backstop of all insured and uninsured deposits of SVB Financial and Signature Bank including a new “Bank Term Funding Program” that will offer 1-year loans to banks on easier terms than normal. The Fed is also relaxing terms for lending through its discount window. US equity futures are rallying this morning with S&P 500 futures up 1.4% trading around the 3,955 level (just above the 200-day moving average), but our stance is that investors should be extremely cautious of celebrating too early. The lessons from the Great Financial Crisis and the Euro Crisis are that the early cracks and the first rescue attempt by regulators are often not enough as these events to not happen in vacuum. At this point we simply do not have enough information to guess the secondary effects from this event so investors should remain cautious. Investors should monitor money market spreads, yield curve shape, flows in USD etc., instead of equities this week for information what is happening in the system. Chinese equities (HK50.I and 02846:xhkg): Rally as US backstops depositors Hong Kong and Chinese stocks rallied as U.S. regulators rolled out plans to prevent the woes in Silicon Valley Bank and Signature Bank to turn into systemic risks. Hang Seng Index jumped 1.8% and CSI300 rallied 0.6%. China’s Two Sessions concluded this morning. President Xi secured a third term and his ally Li Qiang took the position of Premier, both being widely expected. The People’s Bank of China’s Yi Qang unexpectedly remains as the central bank’s governor. Nonetheless, his appointment is likely to be transitory pending the establishment of the National Financial Supervision Bureau. Energy, consumer, and internet stocks led the advance of the Hang Seng Index. In A-shares, SOE telcos outperformed. Belt-and-Road-Initiative-related stocks were well bid. FX: Dollar on the backfoot as Fed rate hike expectations recede on financial risks The dollar trades sharply lower following the Sunday announcement from the US authorities that it will backstop bank deposits to avert a deepening crisis after the SVB collapse. With short-end US yields collapsing and the market pricing just one rate hike before a December cut, the dollar index has dropped to a near a one-month low while the euro after finding firm support around €1.035 last week has rallied back above €1.07. AUDUSD pushed back above 0.66 to highs of 0.6672 in Asian session amid a recovery in sentiment. NZDUSD also pierced above the 200DMA to reach 0.62. GBPUSD rose above the 1.21 handle again with this week’s focus being the Spring budget and the labor market data. ECB’s hike remains in focus, and EURUSD taking another look above 1.07 as risk sentiment improved this morning in Asia.  Crude oil prices bounce as risk sentiment improves but economic outlook still weighing Crude oil prices continue to ebb and flow with the general level of risk sentiment and prices are higher overnight after US authorities stepped in over the weekend to restrain the SVB contagion. The result being a commodity supportive drop in the dollar as interest rates collapse and rate hikes are being priced out of the market. However, the risk of a US recession has strengthened on the back of these developments and with that in mind the short-term outlook points to continued range bound trading. Meanwhile, the spread between Brent and Dubai narrowed to USD2.70/bbl, as Dubai crude gained against the global benchmark, suggesting robust Asian demand. Both Brent and WTI will be facing resistance at their 21- and 50-DMA levels, both currently meeting at 83.75 and 77.70 respectively. Also, in focus this week are monthly oil market reports from OPEC and IEA Gold making a fresh stride higher despite easing banking sector crisis concerns Gold together with US government bonds have seen strong safe-haven demand since Friday as the SVB fallout has led to concerns about contagion in the banking sector. Two of gold’s main engines, the dollar and treasury yields have both seen a sharp drop since Friday and together with technical levels being broken and hedge funds holding a much-reduced long position, the market briefly managed to touch $1890 overnight. Despite the Sunday announcement from the US authorities, gold will likely benefit from continued worries about the financial system, increased recession worries and a swap market now pricing in just one rate hike ahead of a December cut. Support at $1871 and $1858 while a break above $1900 is needed to signal a reversal of the February correction. Treasury yields plunged on safe-haven bids amid banking woes and Fed speculation The Silicon Valley Bank Incident has since Friday driven continued safe-haven demand for bonds while the swap market is now pricing in just one more 25 bps rate hike, down from four since Thursday, with the first cut now priced in for December as recession worries and financial stability takes centre stage.  Prices of Treasuries climbed, and yields fell sharply, with the 2-year yield falling to 4.4% after briefly trading above 5% last week. Traders are now speculating whether the contagion of the crisis to other banks, and the widening of credit spreads will sway the Fed in favour of keeping the next hike at a modest 25bps, or even pausing earlier than expected. These speculations are supported by the slight 0.2% month-over-month or 4.6% year-over-year increase in average hourly earnings, and an increase in the labor force participation rate to 62.5% in February. Given the package rolled out by the regulators will backstop depositors but not unsecured creditors and the Fed may downshift, the front end of the Treasury curve is likely to remain in high demand. What is going on? US authorities step in to restrain the SVB contagion – what to watch from here? The US authorities have stepped in with a liquidity backstop of uninsured deposits and announced a new lending program for banks to prevent the risks of contagion from the collapse of Silicon Valley Bank (SVB) on Friday. Fed pause bets for March are increasing, but the authorities’ response on containing the financial risks suggests that the room to fight against inflation has been maintained. Risks to inflation also tilt further to the upside with the added liquidity measures, and the long-run impact on US tech sector innovation will remain key to consider in portfolios. Read more here. HSBC acquires SVB’s UK unit HSBC has announced to acquire SVB’s UK unit after meetings over the weekend highlighted the importance of SVB UK in relation to the UK’s VC and startup ecosystem risking wider economic implications if a plan to safeguard deposits was not found. Signature Bank closed by US regulators Yesterday, US regulators closed Signature Bank which was another smaller US bank that came under pressure Thursday and Friday last week. The bank is less connected to the startup ecosystem but has connections to the cryptocurrency industry which was rattled with the liquidation of Silvergate Capital last week. Signature Bank’s insured and uninsured deposits will be accessible to customers on the same basis and under the emergency process as with SVB Financial. ECB monetary policy meeting on Thursday There is little doubt the ECB will hike interest rates by 50-basis point this week, to 3 %. The uncertainty about the magnitude of the monetary policy tightening beyond the March meeting is high, however. Our baseline is that the ECB will certainly signal another 50-basis point hike in May and give no real guidance after that. There is another possibility: the ECB could confirm it will continue hiking rates by 50-basis point in the coming meetings and could open the door to a faster reduction of holdings after June. This would be a hawkish scenario, in theory good for the euro. But we think the likelihood it will happen is small. Ahead of Thursday's meeting, the money market forecasts that the terminal rate in the eurozone will be slightly above 4 %. Nomura is currently the most hawkish bank. Its economists call for 50-basis point hikes in March, May, June followed by 25-basis points in July, leaving the terminal rate at 4.25 %. US nonfarm payrolls remained elevated in February Nonfarm payrolls in the US rose by 311k last month, less than the January's blowout print of 504k (revised down from an initially stated 517k) but remaining elevated and above consensus expectations of 215k. While the headline continued to reaffirm a tight labor market, other indicators from the report were weak. Average hourly earnings rose +0.2% MoM in February, lower than the expected and last month’s +0.3% MoM. The annual rate of average hourly earnings rose from +4.4% in January to +4.6% YoY, a touch short of the 4.7% that the market was expecting. The unemployment also picked up by 0.2% pts to 3.6% against market expectations of no change, as participation rose 0.1% pt to 62.5%. The data remained short of cementing a 50bps rate hike possibility for March, also given the recent concerns on the US banking sector from the SVB collapse. Focus now turns to CPI release on Tuesday to further shape Fed expectations. China's February aggregate financing surged beyond expectations with 9.9% y/y Growth China's aggregate financing growth in February was much better than expected, reaching RMB 3160 billion, far above the RMB2300 consensus estimate. The outstanding aggregate financing growth also accelerated to 9.9% year-on-year (Y/Y) in February, up from 9.4% Y/Y in January. Furthermore, M2 increased at a faster pace in February, growing 12.9% Y/Y, up from January's 12.6%. What are we watching next? US inflation figures Tomorrow, the first estimate of the US February CPI will be released followed on Wednesday by the February PPI. The CPI is certainly the most important data point to focus on this week. This is the latest major US data release before the FOMC March meeting of 21-22 March. The Cleveland Fed produces nowcasts of inflation based on recent publicly observable price moves. According to their latest forecast, the monthly inflation will come in at a similar level to January for February. If so, that is not encouraging. A 50-basis point interest rate hike is certainly not a done-deal in March. But this is a clear possibility. Credit and money markets Besides the focus on US inflation figures this week, we will be watching financial conditions in the financial markets with a key focus on credit and money market rates and spreads to gauge risks in the banking system. In addition, Bitcoin will be monitored for understanding risks in the wider cryptocurrency system as this part of the market is where the highest marginal risk-taking takes place. Finally , June and December Fed Funds Rate futures should be monitored for assessing the market’s pricing of monetary policy off this event. Earnings to watch This week’s key earnings are Volkswagen, BMW, Adobe, and FedEx with tomorrow’s focus on Volkswagen where everything is about the EV outlook as it is increasingly looking like VW is having difficulties to keep up with the production ramp up at Tesla and BYD. Analysts expect FY23 revenue growth of 2% y/y for Volkswagen which if realized will prove to low to satisfy investors when the leading EV-makers such as Tesla and BYD are growing much faster. Later this week we will focus on Adobe and FedEx. Tuesday: Foxconn, Volkswagen, Generali Wednesday: Constellation Software, BMW, E.ON, Ping An Insurance, Prudential, Inditex, Adobe, Lennar Thursday: Verbund, Rheinmetall, KE Holdings, Enel, FedEx, Dollar General Friday: Vonovia Economic calendar highlights for today (times GMT) No major releases today Source: Global Market Quick Take: Europe – March 13, 2023 | Saxo Group (home.saxo)
Key Economic Events and Earnings Reports to Watch in US, Eurozone, and UK Next Week

Economic Data Could Remain Under The Shadow Of The Bank Crisis

Swissquote Bank Swissquote Bank 13.03.2023 10:53
The Silicon Valley Bank (SVB) and Signature Bank collapsed.SVB’s flash crash raised questions that other similar local banks in the US could also experience liquidity issues and may not be able to pay their depositors back, unless they also start selling their probably loss-making portfolios. The bank crisis The US authorities now step in to avoid contagion. The bank crisis will likely interfere with Federal Reserve (Fed) rate hike expectations. Fed Activity in Fed funds futures now assesses more than 98% chance for a 25bp hike in March, not because the US jobs data was soft enough to overhaul rate hike expectations last Friday, but because the Fed can’t ignore the issues caused by the steep interest rate increases in the banking sector and can’t afford to trigger a financial crisis to bring inflation back to 2%. CPI Tomorrow’s US inflation data is still important, but the developments across the banking sector could overshadow the data. Watch the full episode to find out more! 0:00 Intro 0:43 US bank crisis widens as SVB, Signature Bank collapse 5:49 The bank crisis hammers Fed expectations 8:05 Economic data could remain under the shadow of the bank crisis 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. #SVB #Signature #Bank #collapse #bank #crisis #Fed #rate #expectations #USD #NFP #inflation #jobs #data #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
BRICS Summit's Expansion Discussion: Impact on De-dollarisation Speed

The Federal Reserve Will Launch An Internal Probe To The Supervision Of Silicon Valley Bank

Saxo Bank Saxo Bank 14.03.2023 09:11
Summary:  An historic move in interest rates accelerated yesterday as investors rushed to price an end to the current Fed hiking cycle and even an eventual easing starting as early as Q3 after US officials moved to prevent contagion in the US banking sector. The US 2-year treasury yield, which traded above 5.0% mid-last week, traded below 4.0% late yesterday. The US dollar is down sharply, gold and bitcoin are soaring, and equities can’t decide whether to sell off on the uncertainty or celebrate the sharp drop in yields. What is our trading focus? US equities (US500.I and USNAS100.I): has the dust settled post SVB Financial bailout? Yesterday’s session saw big moves across US government bonds with especially the US 2-year yield declining 60 basis points as many corporates likely converted deposits into short-term bonds to reduce deposit risk. In equities mega caps were seen as safe havens with Apple shares gaining 1.5% while the broader S&P 500 Index was flat, and the Russell 2000 Index was down 1.5%. US financial conditions tightened to the tightest levels since late September and thus under those circumstances the S&P 500 Index should be trading closer to 3,600 than the close of 3,855 yesterday. Moves in times of crisis are always exaggerated and often not consistent so investors should continue to be cautious and not celebrate too early despite equities help up yesterday. The key indicators to monitor remain US bond yields, USD, FRA-OIS spreads (interbank stress), VIX, credit default swaps, and banking stocks. FX: USD weakens as market prices imminent end of Fed hiking cycle The USD continued to slide on Monday as US yields at the front end of the curve suffered an historic collapse, with Fed expectations revised lower (read below), although a floor in US rates was found in early Asian trading near 4.00% for the US 2-year yield. AUDUSD touched highs of 0.6717 late yesterday before reversing to 0.6650. GBPUSD found resistance ahead of 1.22 and focus turns to labor market data in the UK today before the budget announcement tomorrow, although incoming data feels suddenly less urgent than just a week ago, given the uncertainty the turmoil in the financial sector has generated since late last week. EURUSD touched 1.0750 with a 50bps rate hike still on the table this week from the ECB, although the probability for a hike of that size has dropped significantly, and ECB tightening expectations have seen a sharp downgrade since late last week. JPY and CHF continued to outperform, with USDJPY staying below 134 and USDCHF testing support at 0.91. Crude oil tests strength of support near bottom of current range Crude oil prices closed lower by 2.5% on Monday as banking sector concerns continued to challenge growth and demand dependent commodities from cotton and copper to crude oil. However, expectations of a less aggressive Fed monetary policy helped crude oil find support with WTI and Brent both finding support in the bottom 20% of their current ranges. In Brent, the prompt month backwardation remains elevated around 50 cents while the contango in WTI has not widened despite the current weakness, both signalling a discrepancy between current robust fundamentals and the overall weak sentiment. Ahead of today’s US CPI print, OPEC is scheduled to issue its monthly market report, while the International Energy Agency will follow on Wednesday. Gold and silver benefitting from the yield collapse Gold broke above $1900 barrier on Monday as flight to safety continued despite the efforts of US regulators to reduce the risk of contagion from the SVB collapse. The massive drop in 2-year Treasury yields of the order of 60bps as well as market now pricing in as many as four rate cuts this year (from four hikes less than a week ago) have seen the dollar come off considerably from its highs and brought the precious metals back in focus. Since the SVB news broke late Thursday, gold has gained 4.2% while silver has added a massive 8.5%, and with several rate cuts now priced in, and short end yields unlikely to continue their decline, the risk of a profit taking ahead of the CPI print has risen. Support levels that may get challenged in gold are 1900 followed by 1890 and 1872. Copper looks to China for support Copper trades back above $4 after managing to find support around $3.94, the December high. With the arrival of the peak season and the drop in copper prices, consumption in China is expected to continue to recover, potentially offsetting growth concerns elsewhere Massive bull steepening in US Treasuries as investors flocked to 2-year Treasuries On the back of U.S. regional bank turmoil, investors quickly repriced the front end of the Treasury curve and removed additional future rate hikes in this tightening cycle. Investors flocked to 2-year Treasuries in safe-haven bids and traders closed out curve-flattening positions. Yields on the 2-year plunged 61bps to 3.98% while the 10-year yields fell “only” 13bps to close at 3.57%. The 2-10-year curve steepened to -46bps, after hitting as inverted as -110bps last week. What is going on? Fed launches SVB probe as bank stocks tumble the most since the Covid-19 crash The Federal Reserve will launch an internal probe to the supervision of Silicon Valley Bank after its collapse sparked criticism by the central bank oversight. The KBW Bank Index declined 12% yesterday extending last week’s rout that saw the index slide 16%. In biggest declines were among banks such as First Republic Bank (-62%), Western Alliance Bancorp (-47%), and California-based PacWest Bancorp (-21%) as depositors and investors were nervous about smaller financial institutions. Larger financial institutions were not immune to the risk-off with Charles Schwab shares declining 12%. Credit Suisse has found material weakness in financial reporting The Swiss-based investment bank was forced to postpone the release of its annual report last week due to US regulators and the morning the bank says that it has identified material weaknesses in its financial procedures for 2021 and 2022. The bank is working on remediating those errors. Credit Suisse 5-year CDS prices hit a new all-time high yesterday at 485. Bank worries bring a significant shift in Fed expectations Bonds continued to soar as markets digested the measures of the US regulators to stem contagion from the collapse of SVB. But that continued to complicate the path of monetary policy with the Fed having broken something. As markets continued to re-assess the path of monetary policy from here, 2-year Treasury yields plunged 61bps to below 4%, the biggest one-day slump in four decades, while 10-years dropped 16bps. The CME FedWatch tool now shows a 35% chance of no move from the Fed next week, and 65% probability of a 25bps rate hike. Fed Funds futures are now pricing in a terminal rate of 4.8% as early as May (down from 5.7% in July earlier) and as much as 100bps of rate cuts this year (compared to one 25bps rate cut expected last week). What are we watching next? US CPI will still get some attention, even if incoming data’s importance has fallen sharply US inflation has been the talk of town for several months now, although the focus has lately turned chiefly to financial contagion risks that may stop the Fed from switching back to a higher rate hike path trajectory. In fact, several banks are now calling for a pause next week, with one also expecting a rate cut and an end to quantitative tightening. Still, the US February CPI – due to be released today – will be a big test after last month’s print reversed the disinflation narrative in goods inflation and continued to point at sticky services inflation. Headline consumer prices are expected to rise +0.4% m/m in February, cooling slightly vs the +0.5% in January, with the annual rate seen easing to 6.0% YoY from 6.4% previously. Core CPI is expected to rise +0.4% m/m in February, matching the January pace, though the annual rate is expected to fall to 5.5% y/y from 5.6% in January. Despite the SVB’s failure, we still believe the February CPI release will be particularly relevant for the FOMC’s March policy decision as the Fed may try to pretend that it can focus on business as usual. Evidence of economic resilience and persistent price pressures would prolong the Fed’s tightening cycle. However, by year-end, we expect the U.S. economy will start to experience more significant disinflationary pressures. NFIB survey for February Given that small businesses are particularly sensitive to domestic economic dynamics, sentiment among small business owners will provide an update on inflationary conditions and the labor market situation. Earnings to watch Volkswagen earnings are the big focus today at 9:00 CET but VW’s investment plans have already been surfaced increasing to €180bn in investments during 2023-2027 which is 13% higher than previously announced and with 70% going to EV. Next key US earnings are Adobe and Lennar tomorrow with analysts expecting Adobe’s revenue growth at 9% y/y which is unchanged from a year ago suggesting the growth rate is stabilising. Analysts are also expecting Adobe to show meaningful improvement in operating income as the software maker has reduced costs. Lennar is expected to report -3% y/y and –41 q/q revenue growth for FY23 Q1 (ended 28 Feb) and a significant hit to EBITDA at $725mn down from $1,527mn. Tuesday: Foxconn, Volkswagen, Generali Wednesday: Constellation Software, BMW, E.ON, Ping An Insurance, Prudential, Inditex, Adobe, Lennar Thursday: Verbund, Rheinmetall, KE Holdings, Enel, FedEx, Dollar General Friday: Vonovia Economic calendar highlights for today (times GMT) During the day: OPEC’s Monthly Oil Market Report 1230 – US Feb. CPI 1230 – Canada Jan Manufacturing Sales MoM 2030 – API's Weekly Crude and Fuel Stock Report 2120 – US Fed’s Bowman (Voter) to speak   Source: Global Market Quick Take: Europe – March 14, 2023 | Saxo Group (home.saxo)
European Markets Await Central Bank Meetings After Strong Dow Performance

Credit Suisse Group Management Will Not Receive Bonuses

Kamila Szypuła Kamila Szypuła 14.03.2023 10:11
The year 2022 was extremely difficult in many ways. Rising inflation and interest rates, Russia's invasion of Ukraine and other numerous crises. The effects of all this are already visible. For Credit Suisse, it is evident in the losses and the lack of bonuses. In this article: The direction for Volkswagen is electrification and digitalization Meta is ending with NFT? Without Bonuses High inflation and tech sector The direction for Volkswagen is electrification and digitalization The German auto giant earlier this month reported an operating profit for the full year 2022 of €22.5 billion, an increase of 13% over the previous year, with deliveries of batteries and electric vehicles (BEVs) up 26%. BEV's expansion was driven by 68 percent growth in China, while the company also completed the groundbreaking electrification of its plant in Chattanooga, Tennessee. Volkswagen announced plans to invest €180 billion ($192.6 billion) between 2023 and 2027, more than two-thirds of which will go to electrification and digitalization. Arno Antlitz, Chief Financial Officer and Chief Operating Officer of the Volkswagen Group, said the strong financial position should enable the company to continue investing in electrification and digitization even in a "difficult economic environment. Volkswagen announces five-year $193 billion investment plan as electrification gathers pace https://t.co/G4WlC68YeS — CNBC (@CNBC) March 14, 2023 Meta is ending with NFT? The meta introduces significant changes. Some of these changes relate to messengers and others to the NFT market. Meta through Instagram and Facebook ceases to support NFT. There are comments from Meta has jumped on the hype train without actually being involved in the ecosystem and in this current economy they are looking to cut costs. NEWS: Instagram and Facebook winds down support for NFTs as cost cutting and reprioritization measure kicks in at Meta — CoinGecko (@coingecko) March 13, 2023 Without bonuses In February, Credit Suisse Group reported that 2022 was its biggest annual loss since the global financial crisis in 2008. Furthermore, Credit Suisse group management received 32.2 million Swiss francs ($35.27 million) in fixed compensation while waiving bonuses for the first time in over 15 years. Credit Suisse executive board will not receive a bonus for 2022 https://t.co/iyqPeViPCM pic.twitter.com/B7Oy7SlnLM — Reuters Business (@ReutersBiz) March 14, 2023 High inflation and tech sector High inflation in everyday life is felt, but is it also felt in the technological sector? Given that macro factors are increasingly present in TMT discussions, we are launching a series of reports examining the fundamental impact on the sector. UBS believes ISPs face the biggest challenge in the inflation scenario. Furthermore, UBS believes that the Tech segment is best positioned in a higher inflation scenario. Even though a significant part of the operating costs of companies is indexed by inflation. How is inflation affecting the Latin America Technology, Media & Telecom sector? Why do internet service providers face the most challenges, and what’s our take on Large Telcos and Tech? Read the latest update from #UBSResearch to find out more. #shareUBS — UBS (@UBS) March 13, 2023
Kiwi Faces Depreciation Pressure: RBNZ Expected to Hold Rates Amidst Downward Momentum

ECB Expectations Soften Sharply, No Consensus About What The Fed Will Do Next

Swissquote Bank Swissquote Bank 14.03.2023 10:22
Monday was yet another ugly day for bank stocks around the world, as the selling pressure continued following the SVB debacle in the US last week. The money flew into the safe havens. Yields Treasury yields around the world tumbled sharply. The S&P500 was flat, while technology stocks and gold rallied. Fed For now, the pricing on Fed funds futures suggests that there is slightly more than 70% chance of a 25bp hike next month, and slightly less than 30% chance for no rate hike. US CPI But the expectations could easily change after US CPI data due later today. Both headline and core inflation are expected to have eased in February, but investors are cautious given that last month’s disappointment could be repeated this month. Eurozone In the Eurozone, traders now see less than a 50% chance for another 50bp hike from the European Central Bank (ECB) this Thursday, and the expectation of the peak ECB rate fell below 3.5%, from around 4% last week. But despite the softening ECB expectations, the EURUSD flirted with 1.0750 yesterday, as the US dollar sank deeper across the board. Watch the full episode to find out more! 0:00 Intro 0:42 Banks down, treasuries up 3:35 No consensus about what the Fed will do next 4:14 How could US CPI shape Fed expectations? 7:06 Tech, gold rally on tumbling yields 8:42 ECB expectations soften sharply, as well. 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. #US #inflation #CPI #data #bank #crisis #Fed #rate #expectations #USD #ECB #EUR #XAU #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
US Inflation Eases, but Fed's Influence Remains Crucial

US financial stability trumps near-term inflation

ING Economics ING Economics 14.03.2023 15:09
US core inflation came in hotter and has nudged expectations for a rate hike higher. While the Fed is probably inclined to hike 25bp, this is contigent of calm being restored to the financial system. Irrespective of this, the fallout from recent events will inevitably lead to a tightening of lending conditions which will weigh on growth and inflation 0.5% MoM increase in core inflation   Higher than expected Hot inflation lifts rate hike chances Headline US CPI rose 0.4% month-on-month in February, as expected, but core (ex food and energy) was up 0.5%, versus the 0.4% consensus. As a result, the annual rate of headline inflation slows to 6% from 6.4% while the annual rate of core inflation moderates to 5.5% from 5.6%. On the face of it this supports the case for a Federal Reserve rate hike next week (we are up to about 19bp priced now), but that is still contingent on market calm. Financial stability risks always trump near-term inflation worries. The details show shelter costs remain elevated, rising 0.8% MoM while airline fares jumped 6.4%, recreation increased 0.9% while apparel rose 0.8% MoM for the second month in a row. On the softer side, used car prices fell sharply again despite car auction prices suggesting the opposite while medical care costs continue to ease. But inflation to fall as economic conditions deteriorate Despite the strength in today’s core inflation measure, we expect inflation to slow rapidly through the second half of 2023 as the decline in house prices, which is leading to a flat lining in new rent agreements eventually feeds through into the CPI. This is not the only reason though. This has been the most aggressive monetary policy tightening cycle for 40 years and by going harder and faster into restrictive territory the Federal Reserve naturally has less control over the outcome. Higher borrowing costs have been accompanied by a rapid tightening in lending conditions, which will increasingly weigh on credit flow. Banks will become increasingly cautious on the back of the SVB/Signature fallout and regulators will be more watchful, which will in turn make banks even more cautious. This will restrict access to credit and put up its cost, further weighing on the economy and eroding corporate pricing power. Tight lending standards will get tighter, hitting the economy hard Source: Macrobond, ING Corporate profit margins will increasingly be squeezed This was again evident in today’s National Federation of Independent Businesses survey on the economy. The proportion of companies that said they raised prices over the previous three months dropped to 38% in February from 42% in January. This is the lowest reading since April 2021 (having hit 66% in March last year). More importantly, the proportion of companies looking to raise prices over the coming three months dropped back to 25% from 29% – close to the 24% figure hit in December. As the chart below shows, this has a good lead quality on core CPI and suggests sub 3% inflation by year-end.   NFIB price plans series points to a rapid slowdown in core inflation Source: Macrobond, ING   Companies, particularly in the small business sector "remain doubtful that business conditions will get better in coming months", according to the survey. Bank failures will not make them any more cheerful and intensifying competition is likely to mean profit margin squeezes and slower inflation.  Fed probably still inclined to hike rates next week, but cuts are coming So where does this leave us with the Fed next week? We don’t see the need to hike rates. The tightening of lending conditions that will inevitably result from the fallout of the past few days heightens the risk of a hard economic landing and inflation returning to target by early next year. We do think there is an inclination for the Fed to hike if conditions allow. Longer term our view on the high chance of rate cuts before year-end has only been reinforced by recent developments. Read this article on THINK TagsUS Interest rates Inflation Federal Reserve
Upcoming Central Bank Meetings and China's LPR Rates: Asia's Economic Outlook

EUR/USD Outlook: Can China's Recovery Help Rescue the Euro?

ING Economics ING Economics 30.05.2023 08:49
EUR: Can China come to the euro's rescue? EUR/USD has quietly slipped below support at 1.0700/1.0720 and may be gently making its way to the March lows at 1.0515/0530. As we mentioned last week, we think   EUR/USD is relatively cheap given the massive reversal in energy prices over the last year and that, in time, the 1.05/1.07 area will come to be seen as a summer base.   Helping that proposition would be some kind of recovery in China. The release of the China Beige Book has shown some recovery in the China manufacturing sector in May.   Official May Chinese PMI figures are released later this week. A bounceback here, helping to reverse the recent run-up in USD/CNH, could provide the euro with some support.   For today, the eurozone focus will be on the release of industrial and consumer confidence figures for May. Consensus expects some further deterioration here and if so this should keep EUR/USD on the soft side. We will also hear from a raft of ECB speakers today.   Expect more hawkish rhetoric especially in advance of the May eurozone CPI data on Thursday. Consensus expects core eurozone CPI to edge lower to 5.5% year-on-year in May. Another upside surprise here – feeding the sticky inflation narrative – warns that investors could return to pricing a 4.00% ECB deposit rate.   - Chris Turner
Gold's Resilience Tested Amid Rising Dollar and Bond Yields

CEE: US Dollar Continues to Haunt the Region's FX Market

ING Economics ING Economics 30.05.2023 09:01
CEE: US dollar remains the region's nightmare The second print of first quarter GDP in the Czech Republic will be published today. Besides the GDP breakdown, we will also see the wage bill, which has been mentioned several times by the Czech National Bank as a potential reason for a rate hike in June.   Tomorrow, inflation for May and the details of first quarter GDP in Poland will be published. We expect headline inflation to fall from 14.7% to 13.0% YoY, below market expectations, mainly due to fuel and energy prices. On Thursday, we will see PMI numbers across the region, where we expect a slight deterioration in sentiment across the board.   Later, we will see state budget data in the Czech Republic, which posted its worst-ever result in April, raising questions about additional government bond issuance. The European Parliament is also scheduled to hold a session on Thursday, which is expected to cover the Hungarian EU presidency and is also likely to touch on the topic of EU money and the rule of law.   The FX market, as usual in recent weeks, will be dominated by the global story and the US dollar. So, even this week, CEE FX will not be in a bed of roses. We still see the Polish zloty as the most vulnerable, which despite some weakening in the past week remains near record highs. The market has built up a significant long position in PLN over the past two months.   Plus, we may hear more election noise. Moreover, the significant fall in inflation should push the interest rate differential lower. Thus, we see EUR/PLN around 4.540.   The Czech koruna remains the most sensitive currency in the region against the US dollar, which should be the main driver this week. On the other hand, the reversal in the rate differential has been indicating a reversal in EUR/CZK for a few days now.   Thus, at least a stable EUR/USD could allow the koruna to move toward 23.600. The Hungarian forint can expect a headline attack from the European Parliament this week, and given the current strong levels, we could easily see weaker levels again closer to 375 EUR/HUF.   However, we believe the market will use any spike to build long positions in HUF again.
Key US Economic Reports Awaited: Impact on Euro and Pound Forecast

Key US Economic Reports Awaited: Impact on Euro and Pound Forecast

InstaForex Analysis InstaForex Analysis 02.06.2023 11:20
On Friday, there will be a few macroeconomic reports, but all of them will be very important. Neither the European Union nor the United Kingdom will issue data today. All the information will come from the US. There will be three reports, two of which are of the highest significance. Nonfarm Payrolls show the number of jobs created in a month outside the agricultural sector. This is a key labor market indicator. It is expected that 180-190 thousand jobs were created in May. Any number lower than this will be considered negative.       The unemployment rate is the second key labor market indicator. It is expected that by the end of May, the rate will increase to 3.5%. However, even 3.6% should not shock traders as it is still a very low value, close to the lowest one recorded 50 years ago. The average hourly earnings is the last report that will be issued today.   This indicator has a direct impact on the inflation rate. The annual increase in wages should not exceed the previous month's value. However, this data is less significant than the first two reports. Analysis of fundamental events:     There are no fundamental events planned for Friday. In recent days, both pairs have been showing a persistent desire to grow, which is not always justified by specific factors. If the growth in the euro makes sense, the pound's appreciation is raising many questions. However, the short-term trend has changed to ascending for both pairs. Thus, further growth can be expected unless the reports from the US are much stronger than the forecasts.   General conclusions: On Friday, there will be two important reports. Both of them will be published at the start of the US trading session. There will be no important events in the first half of the day. Also, yesterday, it was reported that the US House of Representatives approved an increase in the debt ceiling. Thus, there will be no default in the US. Yesterday's fall in the dollar was partially caused by this event. However, it is not logical. The market could have priced in the approval of the increase (since there were no other options, really), and now it could be benefiting from short orders. Nevertheless, we still expect a stronger drop from the euro and the pound.   Basis trading rules: 1) The strength of a signal is judged by the time it took to form the signal (a bounce or overcoming level). The less time it took, the stronger the signal is. 2) If two or more trades were opened around any level based on false signals, then all subsequent signals from this level should be ignored. 3) In a flat market, any pair can form a multitude of false signals or not form them at all. In any case, at the first signs of a flat movement, it is better to stop trading. 4) Trades are opened in the time period between the beginning of the European session and the middle of the US one when all trades should be manually closed. 5) In the 30-minute period, you can trade using signals from the MACD indicator only when there is good volatility and a trend, which is confirmed by a trend line or a trend channel. 6) If two levels are located too close to each other (from 5 to 15 pips), they should be considered as a support or resistance area.     What we see on the chart: Price levels of support and resistance are levels that act as targets when opening buy or sell orders. Take profit levels can be placed near them. Red lines are channels or trend lines that show the current trend and indicate in which direction it is preferable to trade now. MACD indicator (14,22,3) is a histogram and signal line, that is an auxiliary indicator, which can also be used as a source of signals. Important speeches and reports (always included in the macroeconomic calendar) can have a significant influence on the movement of a currency pair. Therefore, during their release, you should trade with maximum caution or exit the market to avoid a sharp price reversal against the previous movement. Beginners should remember that not every trade can be profitable. A clear strategy and money management are key to success in long-term trading.      
Economic Slowdown in France: Falling Consumption and Easing Inflationary Pressures

Economic Slowdown in France: Falling Consumption and Easing Inflationary Pressures

ING Economics ING Economics 31.05.2023 10:44
France: consumption plunges while inflation moderates The second quarter got off to a poor start in France, with household consumption falling for the third consecutive month in April, and the outlook has been revised downwards. Against a backdrop of falling demand, inflationary pressures are moderating more quickly than expected.   Consumption continues to plummet In April, for the third consecutive month, consumer spending on goods fell. This time, the fall was 1% over the month, following a 0.8% fall in March. Household consumption of goods is now 4.3% lower than a year ago and 6.3% below its pre-pandemic level. The fall is due to lower energy consumption (-1.9% over one month) and a further fall in food consumption. Food consumption is now 11% below its pandemic level.   The magnitude of the fall shows the significant impact of the inflationary context and the fall in purchasing power, which has led households to significantly alter their consumption habits.   These figures were eagerly awaited, as they are the first real activity data available for the second quarter. And we can now say that the second quarter got off to a poor start. It is clear that the French economy is slowing sharply. It is unlikely that consumption will make a positive contribution to GDP growth in the second quarter, especially as the slowdown is beginning to have an impact on the labour market, as suggested by the employment climate data published by INSEE last week.   The prospect of a recovery later in the year seems to be fading. This has led us to revise our growth outlook slightly downwards. We are now expecting GDP growth of 0.6% in 2023 and 0.7% in 2024, with the risks still tilted to the downside. Although France escaped recession last winter, today's indicators are a reminder that a recession in the coming months cannot be ruled out.   Strong moderation in inflationary pressures Against this backdrop of falling demand, inflationary pressures are moderating. As expected, the pace of consumer price inflation eased in France in May. Inflation stood at 5.1%, down from 5.9% in April, while the harmonised index, which is important for the ECB, reached 6% in May, compared to 6.9% in April. The good news is that the fall in inflation is now visible in all consumer categories. Energy inflation fell sharply to 2% year-on-year in May.   Unlike in other European countries, it remains positive, however, as the rise in household energy bills did only take place at the start of 2023, rather than in 2022, as a result of the "tariff shield" introduced by the government last year. Food inflation remains very high but is starting to fall, to 14.1% in May from 15% in April.   At 4.1% year-on-year, compared with 4.6% in April, growth in the prices of manufactured goods is also moderating, as is that of services, which stood at 3% compared with 3.2% in April. These last two developments are very good news, as they signal that the inflation peak is behind us, but also that inflation is likely to fall rapidly over the coming months. Indeed, the signs of moderation in inflationary pressures are mounting.   For example, tensions in supply chains have disappeared and the growth in industrial producer prices, which gives an indication of changes in production costs for the manufacturing sector, slowed sharply to 5% year-on-year in April (compared with 9.5% in March). Over one month, producer prices fell sharply, by 4.1%, after +1.2% in the previous month. This indicates that growth in the prices of manufactured goods is set to slow markedly over the coming months.   Furthermore, business forecasts for selling prices fell sharply in May, particularly in the industrial and construction sectors, but also in services. Inflation in services should therefore continue to weaken over the coming months.   Finally, given the fall in agricultural commodity prices on international markets and the weakness of demand, food inflation should continue to fall gradually, and more rapidly once the impact of the price agreement between food producers and big retailers has been absorbed, i.e. during the summer. Ultimately, inflation is likely to fall over the coming months, helped by weak demand. We are expecting inflation to average 4.7% over the year (5.7% for harmonised inflation).
USD/JPY Climbs to Multi-Year High as BOJ Stands Firm on Policy

Dilemma for ECB as Energy Prices Fall, Core Inflation Holds Strong

Michael Hewson Michael Hewson 29.05.2023 09:08
EU CPI flash (May) – 01/06 The fall in energy prices over the last few months has seen headline inflation across Europe decline quite sharply in recent months. Having hit a peak of 10.7% back in October the headline number fell back to 6.9% in March only to tick higher in April to 7%.     Core prices have proved to be somewhat sticker, these hit a record high of 5.7% in March and only slipped back to 5.6% in April. This presents a problem for the European Central Bank with growing splits on the governing council as to how many more rate hikes are coming over the next few months.   The chatter from central bank officials has been very hawkish of late, with talk of more 50bps rate hikes, however few believe the ECB will be able to continue to hike if the Federal Reserve starts its rate pause in June.   This week's flash May CPI could well make the ECB's life more difficult if prices start to tick higher again and raise the prospect that rates may have to either go higher or stay at current levels for much longer. Expectations are for another fall in the annual rate to 6.4%, however core prices don't appear to be going anywhere with a modest tick down to 5.5% expected.   By Michael Hewson (Chief Market Analyst at CMC Markets UK)
Germany's Disinflationary Trend Gains Momentum, Despite Drop in Headline Inflation

Germany's Disinflationary Trend Gains Momentum, Despite Drop in Headline Inflation

ING Economics ING Economics 31.05.2023 15:34
Disinflationary trend in Germany gains momentum in May Another drop in headline inflation suggests that the disinflationary trend in Germany is gradually broadening. However, it will not (yet) stop the European Central Bank from hiking rates again.   German headline inflation continued its downward trend, coming in at 6.1% year-on-year in May (from 7.2% YoY in April). Today’s data marks the next stage of a gradually broadening disinflationary process as the drop in headline inflation is no longer exclusively the result of base effects but also the result of dropping prices.   Headline inflation has now dropped from its winter peak of 8.8% to 6.1% YoY and the HICP measure came in at 6.3% YoY, from an 11.6% peak in October last year. For the first time this year, prices actually dropped compared with last month, mainly for energy and food but also for transportation as a result of the newly introduced €49 ticket for public transportation.   Disinflationary trend gradually broadening   Today’s drop in headline inflation will support the view of those who advocated that the inflation surge in the eurozone was mainly a long but transitory energy and food price shock with an unpleasant pass-through to the rest of the economy.   If you believe this argument, today’s drop in headline inflation marks the next stage of a longer disinflationary trend: first, it was negative base effects pushing down headline inflation, and now it is actually falling prices in the same categories accelerating the disinflation. However, signs that the disinflationary process is actually spreading to other parts of the economy are still missing. According to available regional data, even the base effect outside of energy and food is still very limited.   Looking ahead, let’s not forget that inflation data in Germany and many other European countries this year will be surrounded by more statistical noise than usual, making it harder for the European Central Bank to take this data at face value.   Government intervention and interference, whether that's temporary or permanent, and has taken place this year or last, will blur the picture.   In Germany, for example, the newly introduced €49 ticket already helped to push down inflation in May. However, the reversal of last year’s negative base effects from the energy relief package for the summer months should automatically push up headline inflation again between June and August. It will take until the end of the year for headline inflation to fall into the 3%-4% range.   Beyond that statistical noise, the German and European inflation outlook is highly affected by two opposing drivers. Lower-than-expected energy prices due to the warm winter weather are likely to push down headline inflation faster than recent forecasts suggest.   On the other hand, recent wage settlements and still decent pipeline pressure in services are likely to keep core inflation high. We continue to expect that German headline inflation will average around 6% this year.   Weak growth and dropping inflation but ECB will continue hiking For the ECB, macro data released since the May meeting has had something for everyone. The eurozone economy has turned out to be less resilient than anticipated a few weeks ago and confidence indicators, with all the caveats currently attached to them, point to a weakening of growth momentum again.   As headline inflation is gradually retreating, the risk increases that any additional rate hike could quickly turn out to be a policy mistake; at least in a few months from now. However, at the same time, the ECB seems to have given up linking policy decisions too close to their own forecasts (rightly so) and has put more than usual emphasis on actual inflation developments. With this in mind, the unwritten law that high inflation can only be defeated for good with positive real interest rates remains a strong argument for the ECB hawks.   As we have learned over the last 12 months, the ECB seems to prefer to go too high with rates rather than stop prematurely. This is why we expect the ECB to continue hiking by 25bp at its next meeting in two weeks from now.
Indonesia Inflation Returns to Target, but Bank Indonesia Likely to Maintain Rates Until Year-End

Indonesia Inflation Returns to Target, but Bank Indonesia Likely to Maintain Rates Until Year-End

ING Economics ING Economics 05.06.2023 10:11
Indonesia: Inflation back within target but BI likely on hold until end of year. Headline inflation finally reverted to target in May, with headline inflation slipping to 4.0% year-on-year   Headline inflation back to target after a year Headline inflation slipped below expectations to 4.0% YoY, roughly 0.1% higher compared to the previous month. Inflation is back within Bank Indonesia's (BI) 2-4% target after 12 months and will likely stay within target for the rest of the year. Headline inflation enjoyed a much more pronounced moderation this year, sliding back within target even ahead of BI's expectations. Lower energy and food prices from a year ago level helped push headline inflation lower or unchanged across all items in the CPI basket. Meanwhile, core inflation was also down, dipping to 2.7% YoY and also lower than market expectations (2.8%).       Price stability objective reached but BI likely on hold to steady the IDR Bank Indonesia was one of the first central banks in the region to pause its tightening cycle earlier this year. BI Governor Perry Warjiyo who had expected inflation to slow gradually and revert to target by 3Q, has kept rates at 5.75% since the 16 February policy meeting. Despite the quick reversion to target for inflation, we believe BI will carry out an extended pause to shore up support for the Indonesian rupiah, which was down roughly 2.15% for the month of May. Thus we expect BI to retain policy rates at 5.75% until the end of the year and only consider cutting policy rates should global central banks opt to ease monetary policy.
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Insights from Squared Financial Analyst: Market Resilience and Regulatory Outlook

FXMAG Team FXMAG Team 22.06.2023 11:01
We recently had the opportunity to speak with an analyst from Squared Financial to discuss the current market situation. With the crypto market showing resilience and gaining 3.9% in the past 24 hours, reaching a capitalisation of $1.18 trillion, it has diverged from the downward trend seen in stock indices due to expectations of a rate hike.  Bitcoin, in particular, has experienced a surge of over 15% in just two days, revisiting the April highs. However, as we delve deeper into the market dynamics, doubts arise regarding the sustainability of the cryptocurrency rally amidst the challenging environment created by the stock indices.   FXMAG.COM: How will a mid-term Fed and ECB decision last week affect EUR/USD? The Federal Reserve delivered a hawkish pause. Markets were anticipating a pause with a possibility of one more rate hike in July followed by a rate cut by the end of the year. However, the Federal Reserve hinted at two more hikes and no rate cuts this year. Markets had to price in such a scenario. However, the ECB was more hawkish than the Federal Reserve, keeping the door open for further hikes on higher inflation expectations, sending the Euro over 1.09. In the meantime, the Dollar Index is showing signs that the downside trend has resumed. Yet it needs more time to confirm. Another weekly close below 102.60's would confirm that. On the other hand, this would be a confirmation that the Euro's upside trend has resumed as well, which could be targeting 1.11 within two weeks. FXMAG.COM: How will Thursday's (22.06) SNB interest rate decision affect CHF quotes? Switzerland's Core Inflation rate ticked below 2.0% in its latest release, which is the lowest core inflation rate since November of last year. The annual inflation rate in Switzerland eased to 2.2% in May 2023 from 2.6% in the previous month in line with market forecasts. There is no reason for any surprise by the Swiss National Bank. A 25bps is highly possible, but what matters the most is if the SNB hints at a pause. If so, CHF is likely to weaken. FXMAG.COM: Is there a chance that the U.S. SEC oversight will finally approve the application of some investment company to authorize the creation of an ETF with exposure to BTC, and how will that affect the price of this cryptocurrency and others? It is highly possible that the SEC will authorize crypto-related ETFs especially those with exposure to BTC. Despite all the headwinds the Crypto market had over the past few months, we saw some stabilization. Moreover, when it comes to the price and time method, it suggested that BTC ended its bear market back in March. The application of major investment companies sparked another wave of optimism, yet tough regulations are still needed.
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Canada's Inflation Eases as US Durable Goods Orders Accelerate, Impacting CAD/USD Exchange Rate

Kenny Fisher Kenny Fisher 28.06.2023 08:46
Canada’s inflation rate eases US Durable Goods Orders accelerate The Canadian dollar spiked and gained 50 points after Canada released the May inflation report but has pared these gains. USD/CAD is unchanged at 1.3158.   Canadian inflation heads lower Canada’s inflation rate fell sharply in May to 3.4%, down from 4.4% in April. As expected, much of that decline was due to lower gasoline prices. Still, this is the lowest inflation rate since June 2021.The core rate, which is comprised of three indicators, fell to an average of 3.8% in May, down from 4.2% a month earlier. The decline should please policy makers at the Bank of Canada, as inflation slowly but surely moves closer to the 2% target. The BoC cited the surprise upswing in inflation in April as one reason for its decision to hike rates earlier this month. With headline and core inflation falling in May, will that be enough to prevent another rate increase in July? Not so fast. The BoC has said its rate decisions will be data-dependent, and there is the GDP on Friday and employment next week, both of which will factor in the rate decision. The US released a host of releases today, giving the markets plenty to digest. Durable Goods Orders jumped 1.7% in June, up from an upwardly revised 1.2% in May and crushing the consensus of -1%. The core rate rebounded with a 0.6% gain, up from -0.6% and above the consensus of -0.1%. Later today, the US publishes the Conference Board Consumer Confidence and New Home Sales. Wednesday is a light day on the data calendar, with the Fed will in the spotlight. Fed Chair Jerome Powell will participate in a “policy panel” at the ECB Banking Forum in Sintra, Portugal, and investors will be looking for some insights into Fed rate policy. As well, the Fed releases its annual “stress tests” for major lenders, which assess the ability of lenders to survive a severe economic crisis. The stress tests will attract more attention than in previous years, due to the recent banking crisis which saw Silicon Valley Bank and two other banks collapse.   USD/CAD Technical There is resistance at 1.3197 and 1.3254 1.3123 and 1.3066 are providing support  
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The Growing Share of Home Improvement Market and Increasing Importance of Renovation in Europe

ING Economics ING Economics 03.07.2023 12:17
Share of home improvement market increases The share of the R&M market has steadily increased over the past 15 years. In 2008, 48% of EU production volume consisted of R&M works. This has gradually increased to more than 54% in 2022. When we compare the different subsectors, renovation is the largest in the residential sector. We expect that the renovation share will increase further as the need for energy efficiency measures increases due to high energy prices and sustainability legislation, such as the Energy Performance of Buildings Directive (EPBD IV: see below) which aims to ensure a higher sustainability rate.   Share of renovation increases slowly in the building sector Renovation share of total building production   Share of R&M differsThe share of the R&M market varies among countries. Typically, countries with a higher GDP per capita have a relatively larger R&M market. There are several reasons for this: Less developed countries are often catching up and therefore they are investing heavily in new buildings and infrastructure. That results in a relatively lower share of R&M. Well-developed countries often have a larger stock of older buildings and infrastructure that requires regular maintenance and renovation. As structures age, they need repairs, upgrades and modernisation to ensure safety, functionality and efficiency. Developed countries typically have stricter building codes, safety regulations and environmental standards. Compliance with these regulations often requires periodic upgrades and renovations. This narrative holds true for Europe, resulting in relatively higher renovation shares in Western European countries. There, the renovation market is approximately 55% of the total building volume. In Eastern Europe, where there is still a lot of catching up (new building) being done, the renovation sector has a smaller share of the total construction output (approximately 33%).   Share of renovation market is higher in Western Europe Renovation share of total building production, 2022     Renovation costs on the riseIn recent years, the cost of house improvements has increased, surpassing the inflation rate in the European Union. In addition, energy prices have seen an even greater increase, making energy efficiency measures still more financially beneficial than they were in the past.
Swiss Inflation Falls Below Expectations; US Markets Closed, Fed Minutes Awaited

Swiss Inflation Falls Below Expectations; US Markets Closed, Fed Minutes Awaited

Kenny Fisher Kenny Fisher 04.07.2023 15:48
Swiss inflation lower than expected US markets closed on Tuesday Fed minutes will be released on Wednesday The Swiss franc is showing little movement on Tuesday, trading at 0.8959 in the European session. US markets are closed for the July Fourth holiday and we can expect a quiet day for USD/CHF.   Swiss inflation falls to 1.7% Switzerland’s inflation rate dipped in June to 1.7% y/y, down from 2.2% in May and just below the consensus of 1.8%. On a monthly basis, inflation rose 0.1%, down from 0.3% and below the consensus of 0.2%. Core inflation eased to 1.8% y/y, down from 1.9%. Swiss National Bank President Jordan has often complained that inflation remains too high, although other central bankers, who are grappling with much higher inflation, would be happy to change places. Both the headline and core rates have now dropped into the Bank’s target range of 0%-2%, which should lend support to the SNB taking a pause at the September meeting. However, Jordan has been quite hawkish and one positive inflation report may not be enough to convince the SNB that the decline in inflation is temporary. The markets have priced in a 66% probability of a 0.25% in September, which would bring the cash rate to an even 2.0%. US markets are closed today, but Wednesday should be a busy session as the Fed releases the minutes from the June meeting. The markets are widely expecting a rate hike in July, and there are growing concerns that if the Fed continues to hike, the economy will tip into a recession.  The spread between 2-year and 10-year Treasury note yields deepened to a 42-year high on Wednesday, raising fears of a recession. A yield curve inversion is considered a reliable indication of a recession and the current inversion has been in place since July, raising fears about the direction of the US economy.   USD/CHF Technical USD/CHF is testing support at 0.8961. Below, there is support at 0.8904 0.9009 and 0.9081 are the next resistance lines  
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Asia Morning Bites: Philippine Inflation and Singapore Retail Sales Awaited

ING Economics ING Economics 05.07.2023 08:17
Asia Morning Bites Philippine inflation and Singapore retail sales are all slated for release today.   Global Macro and Markets Global markets:  With the US on vacation yesterday, there wasn’t much going on in global markets. Chinese stocks made small gains, while European bourses were mostly in the red. Bond markets generally saw yields make small declines at the front end of the yield curve, but 10Y yields rose slightly except in the UK and Australia, where they dropped very slightly following the RBA’s (Reserve Bank of Australia) no-change rate decision. In currency space, EURUSD moved lower to 1.0881. The AUD dropped sharply after the RBA but recovered and ended slightly higher on the day at 0.6692. Cable also made gains, rising to just under 1.2740 before easing back down to 1.2714. The JPY made slight gains and is currently 144.47. Most of the Asia FX pack made gains against the USD, led by the KRW and THB. The CNY moved down to 7.2163 G-7 macro: A slight shrinkage in Germany’s trade balance yesterday was the main data from Tuesday. Here’s Carsten Brzeski’s take on the data. European Service sector and composite PMI numbers dominate the calendar today. The US releases final durable goods numbers and vehicle sales. Australia: The RBA left rates on hold at 4.1% yesterday, though signalled a willingness to hike again dependent on the flow of data. Our expectation is that the RBA will hold fire again in August, as we expect further downward progress in inflation, but that they will hike once more in September, as inflation progress at that point may be hampered by electricity price rises in July (data released later). We think (hope) that this will be the last hike in the current cycle.    Singapore:  Retail sales for May will be reported today.  Market consensus points to a modest 1.9%YoY gain.  Sales may have been supported by a resurgence of visitor arrivals, countering the likely negative fallout from still elevated inflation.  We can expect this trend of modest expansion to continue in the near term until inflation cools off further by the end of the year.     Philippines:  Inflation numbers will be released this morning. June inflation will likely slow down further from the 6.1%YoY expansion recorded in the previous month with consensus suggesting a slide to 5.5%YoY.  Moderating inflation will give newly minted Governor Remolona space to extend the BSP's recent pause and we could see the central bank on hold for at least the next couple of meetings.      What to look out for: Japan Jibun PMI services (5 July) Philippines CPI inflation (5 July) China Caixin PMI services (5 July) Thailand CPI inflation (5 July) Singapore retail sales (5 July) US factory orders and durable goods (5 July) FOMC minutes (6 July) Australia trade (6 July) Malaysia BNM meeting (6 July) Taiwan CPI inflation (6 July) US ADP employment, initial jobless claims, trade balance, ISM services (6 July) South Korea BOP balance (7 July) Taiwan trade (7 July) US NFP (7 July)
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Central Bank Policy Meeting in Canada and Inflation Outlook in Czech Republic and Hungary

ING Economics ING Economics 07.07.2023 11:48
Canada: central bank policy meeting In Canada, the highlight will be the Bank of Canada policy meeting. It hiked interest rates by 25bp last month having left them untouched since the last hike in January. We don’t see last month’s move as a one-off. To restart the hiking process means that the BoC feels it has unfinished business, and with the jobs market looking tight and inflation running above target we expect the BoC to hike by a further 25bp. Czech Republic: Inflation to fall below 10% for the first time since January last year We expect prices to have risen at a similar pace in June as in May by 0.2% MoM. This should translate into a drop from 11.1% to 9.6% YoY, returning to single-digit territory for the first time since last January. We expect stable food prices and modest growth in fuel prices after the massive drop in the previous month. We should also see small increases in housing (0.2%) and the rest of the consumer basket with no significant driver this time around. Hungary: June monthly budget to accumulate a wider deficit Next week will be rather quiet in Hungary except for Monday. We are going to see the preliminary trade balance data in May. Though export activity has shown some volatility recently, the continued contraction of domestic demand and the demand destruction in energy will help in scaling back import activity. As a result, we see yet another widening of the trade surplus. After a strong May, we see the June monthly budget balance accumulating a wider deficit mainly on the weaker stream of indirect revenues.            
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New Zealand Central Bank Hits Pause After 12 Consecutive Rate Hikes: Manufacturing Stalls and Inflation Expected to Decline

Kenny Fisher Kenny Fisher 12.07.2023 13:23
New Zealand’s central bank takes a pause after 12 consecutive hikes New Zealand Manufacturing PMI expected to show manufacturing is stalled US inflation expected to decline to 3.1% The New Zealand dollar showed some gains after the Reserve Bank of New Zealand paused rates, but has given up most of those gains. In the European session, NZD/USD is trading at 0.6206, up 0.14%.   RBNZ takes a breather There was no dramatic surprise from the RBNZ, which kept interest rates on hold at Wednesday’s meeting, as expected. The central bank has been aggressive, raising rates 12 straight times since August 2021 until Wednesday’s meeting. This leaves the cash rate at 5.50%. The RBNZ had signalled that it would take a break, with Deputy Governor Hawkesby stating last month that there would be a “high bar” for the RBNZ to continue raising rates. Today’s rate statement said that interest rates were constraining inflation “as anticipated and required”, adding that “the Committee is confident that with interest rates remaining at a restrictive level for some time, consumer price inflation will return to within its target range.” The RBNZ did not issue any updated forecasts or a press conference with Governor Orr, which might have resulted in some volatility from the New Zealand dollar. The central bank has tightened rates by some 525 basis points, which has dampened the economy and chilled consumer spending. Is this current rate-tightening cycle done? The central bank would like to think so, but that will depend to a large extent on whether inflation continues to move lower toward the Bank’s inflation target of 1-3%. The pause will provide policymakers with some time to monitor the direction of the economy and particularly inflation. If inflation proves to be more persistent than expected, there’s every reason to expect the aggressive RBNZ to deliver another rate hike later in the year. New Zealand releases Manufacturing PMI for June on Wednesday after the rate decision. The manufacturing sector has contracted for three straight months, with readings below the 50.0 line, which separates contraction from expansion. The PMI is expected to rise from 48.9 to 49.8, which would point to almost no change in manufacturing activity. The US will release the June inflation report later in the day. Headline inflation is expected to fall from 4.0% to 3.1%, but core CPI is expected to rise to 5.3%, up from 5.0%. If core CPI does accelerate, that could raise market expectations for a September rate hike. A rate increase is all but a given at the July 27th meeting, with the probability of a rate hike at 92%, according to the CME FedWatch tool.   NZD/USD Technical 0.6184 is a weak support level. Below, there is support at 0.6148 0.6260 and 0.6383 are the next resistance lines  
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Examining Macroeconomic Indicators: Insights into the British Economy and the Role of the Bank of England

Antreas Themistokleous Antreas Themistokleous 13.07.2023 13:57
Recent macroeconomic readings, including wages, GDP, and industrial production, have provided valuable insights into the current state of the British economy. These key indicators have prompted discussions about the depth of the potential recession and the future actions of the Bank of England (BoE). To gain a better understanding of these developments, we turn to Antreas Themistokleous, an expert in the field. The release of major economic data from the UK this week shed light on the condition of the British economy. The unemployment rate for May saw a 0.2% increase, reaching 4%, and the number of unemployment claims surpassed expectations, indicating a higher demand for unemployment benefits. On the other hand, average earnings experienced a 0.2% growth, while year-over-year GDP showed a decline of -0.4%. Although the GDP figure was not as dire as anticipated, it still reflects a subpar performance compared to the same period last year. Industrial production also fell by 2.3%, aligning with market forecasts.     FXMAG.COM: What do this week's macroeconomic readings - wages, GDP, industrial production - tell us about the state of the British economy? Will the recession be deep? Will the BoE continue to raise rates?   Antreas Themistokleous:  This week we saw major economic data from the UK being released that could help in determining the state of the British economy. Unemployment rate for the month of May increased by 0.2% pushing the figure to 4% while the Claimants came out to be worse than expected, missing expectations of negative 22,000 claims to a positive 25,700. This means more people claimed for unemployment benefits in May and that was reflected in the official unemployment rate.  On the other hand average earnings have increased by 0.2% while the year over year GDP growth came out at -0.4%. Even though the GDP was expected to be worse , at -0.7% , it still shows that the British economy did not perform very well compared to the same month last year. Industrial production recorded a negative 2.3% perfectly aligned with market expectations.    Inflation rate for the month of June is expected to be published on the 19th where the market expects a further decline of around 0.4%. If this is confirmed it would be the yearly low and could potentially boost the quid against its pairs, especially USD and the Euro at least in the short term.    Even though inflation might be coming down, it does so at a very slow pace so the Bank of England could still have a hawkish stance at their next meeting on the 3rd of August. In June, the Bank of England increased interest rates for the 13th time in a row, by 50 basis points to 5% while some analysts argue that they could peak around 5.75% by the end of this year.    By paying attention to the labor market and the economic growth we will be able to gauge the consequences of the rate hikes by the central bank and how it could affect the overall economy. Recession fears are still hovering above the heads of the British since they are not “out of the woods” just yet but the stance of the central bank in regards to their monetary policy will be closely monitored by market participants.       
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Examining Eurozone's Industrial Production: Insights into the State of the European Economy and Industry

Antreas Themistokleous Antreas Themistokleous 13.07.2023 14:04
Recent industrial production data from the Eurozone paints a concerning picture for the European economy and industry. According to Eurostat data, industrial production in Europe declined by 2% year over year in May, exceeding expectations of a 1% decrease. This raises questions about the broader impact on the European economy. The industrial sector plays a crucial role in any economy as it encompasses the processing and transformation of raw materials into finished and semi-finished products. This sector significantly influences other parts of the economy, including the housing market, retail sector, consumer spending, and ultimately, inflation. Changes in industrial production directly affect the supply and availability of products, which can have broader implications for the overall economic landscape.     FXMAG.COM: What does the industrial production reading from the Eurozone tell us about the state of the European economy and European industry?   Antreas Themistokleous: The industrial production in Europe for the month of May has declined by 2% year over year according to Eurostat data. This came out to be worse than the expectations of only 1% so how does that affect the European economy?    First of all the industrial sector is a major component of an economy since it's responsible for the processing and the transformation of natural products (raw materials) into other finished and semi-finished products which in turn assist in other parts of the economy such as the housing market, the retail sector. In addition it affects the consumer spending and inevitably inflation since it directly affects the supply and availability of products to be consumed.    Inflation data is another major component that affects an economy and the European inflation rate has shown some steady decline since the high of 10.6% in October 2022. Currently the rate is at 6.1% and on the 19th the official rate for the month of June will be published. Expectations are for a further decline of around 0.6% which if confirmed could influence the decisions of the European Central Bank in regards to their monetary policy and inevitably their interest rate decision on their next meeting on the 27th of July.    The interest rate set by the ECB is currently at 4% while the market is expecting the central bank to proceed with another step hike , 0.25%, at their meeting in late July. If the expectations are correct then we might see some boost for the Euro against its pairs while unemployment is holding stable at 6.5% for the last two months.   All in all the European economy seems to be at a stagnant phase. Inflation seems to be stickier than expected resulting in continued hawkish stance by the central bank to increase interest rates in an effort to discourage economic activity in the market. On the other hand unemployment is near a 25 year low adding to the buying power of consumers pushing inflation figures to the upside creating what temporarily seems to be a never ending cycle when it comes to fighting inflation.   
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Bank of England's Bold Move: Implications for the British Economy and GBP

Alex Kuptsikevich Alex Kuptsikevich 03.08.2023 10:54
In our conversation with Alex Kuptsikevich, an analyst from FXPro, we delve into the Bank of England's recent decision on interest rates and its implications for the British economy and the GBP. The central bank's move to raise its key interest rate by 25 basis points to 5.25% is a significant step, marking the highest rate since 2008. This decision comes as Britain grapples with one of the highest inflation rates among developed nations, leaving little room for inaction. Unlike the Federal Reserve and the European Central Bank, the Bank of England cannot afford to take a wait-and-see approach. The soaring inflation necessitates swift action, and indications suggest that the central bank may not stop raising interest rates until it reaches 5.75%, matching the peak of monetary tightening seen in 2007.   FXMAG: What is your assessment of the Bank of England's decision on interest rates? Should we still expect a hike in the Isles? And what's next for the GBP in the context of the BoE's decision? The Bank of England is expected to raise its key interest rate by 25 points to 5.25%, the highest since 2008. Britain's inflation rate, one of the highest in the developed world, makes it impossible to pause and look around - a privilege the Fed has used and the ECB may do in September. It is worth bracing for indications that the BoE will not stop raising interest rates before the end of the year, taking the rate to 5.75% - the peak of monetary tightening in 2007.   The Bank of England's hawkish stance is also likely to attract buyers to the Pound, which has weakened over the past three weeks. An appreciating currency will suppress imported inflation and dampen consumer demand, helping to bring CPI back to the 2% target. With explicit hawkish comments from the central bank, GBP can avoid breaking the upward trend of recent months and accelerating its decline.  
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Analyzing Oil Price Trends and Inflation Projections: Insights from RoboForex Analyst

Andrey Goilov Andrey Goilov 05.08.2023 11:00
In the intricate web of global economics, few elements have as profound an impact as the price of oil and inflation rates. These two factors are not only interconnected but also indicative of the overall health and trajectory of economies around the world. In an exclusive conversation with RoboForex analyst, we delve into the intricate dynamics that are currently shaping the oil market and U.S. inflation trends, offering insights into what lies ahead.     FXMAG.COM: How long can the oil price rise? Since 28 June, Brent has increased in price by 18% and is approaching resistance at 87 USD. A breakout beyond this level could result in further price growth, with the potential to reach 100 USD. However, the PMI, which tracks business activity in the manufacturing sectors of the US and Europe, fell below 50 again in July. This decline signals a slowdown in economic activity and, as a result, a decrease in demand for oil. To stabilise oil prices, OPEC+ members, particularly Saudi Arabia, reduced production by 1 million barrels per day in July and continued into August. Russia also joined in August, announcing a cut in oil exports by 500 thousand barrels per day. The decline in business activity in the US and EU along with reduced oil production could potentially stabilise the price in the range of 83-87 USD per barrel, but this balance could be disrupted by China and the US. In China, regulators are urging local authorities to accelerate bond sales to finance infrastructure projects and support the economy. The funds allocated for this purpose must be spent by November 2023. China is putting words into action, and this move could increase the demand for oil. Meanwhile, strategic oil reserves in the US have been depleted to the lowest level since 1983, reaching 354 million barrels, as they were sold to control fuel prices. The potential re-entry of the US into the oil market to replenish reserves could further push oil prices upward. On 1 August, it was reported that the US administration cancelled an order to purchase 6 million barrels of oil for reserve replenishment due to high prices. This indicates that the authorities are following a strategic approach to buying oil and potentially increasing demand – by monitoring the situation and waiting for the right moment to buy. In addition, the impact of the ongoing trend towards green energy is adding fuel to the fire, resulting in a lack of investments in the US oil industry. This is evident from the reduced number of active drilling rigs, which, according to Baker Hughes, decreased from 618 to 522 since the beginning of the year. Production cuts, China's economic stimulus, replenishment of strategic reserves in the US, and underinvestment in the oil sector – all these factors act as catalysts for potential further growth in crude oil prices. Consequently, we can assume that the price of oil in Q3 may continue to rise. The only event that could change this scenario is a global economic recession.     FXMAG.COM: Will inflation continue to fall in the U.S. in the third quarter? Since August 2022, the annual inflation rate in the US has been steadily decreasing, and according to July data, it has reached 3%. The Fed aims to achieve an inflation rate of 2%. To combat inflation, the Fed is raising interest rates and reducing its balance sheet to cool down the economy. Additionally, to curb fuel prices, the US government has turned to selling off strategic oil reserves, which also impacts the inflation level, leading to US oil reserves falling to levels not seen in 40 years. As a result, fuel prices in the US have been on a decline since August 2022, and during the same period, the inflation rate has also been decreasing. However, this trend reversed in June 2023. Along with the increase in the price of crude oil, petrol, and diesel prices in the US surged, surpassing the values seen in April. This could have a negative effect on the inflation rate. To control fuel prices, the US government can no longer rely on strategic reserves; instead, it is now attempting to replenish them, which could lead to a further increase in oil prices, and, consequently, fuel prices in the US. Another factor that may impact inflation is the unexpectedly high number of new jobs, reaching 324 thousand in July, compared to the forecasted 189 thousand. The data on the number of jobs in the US has significantly exceeded forecasts for the fourth consecutive month. As more people work and earn an income, the demand for goods and services increases, which is another factor supporting inflation growth. As a result, the decline in the inflation rate may halt in Q3, and if oil prices and job numbers continue their upward trend, we may even see a slight increase in inflation in September or October.     Visit RoboForex
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UK Inflation and Wage Data: Shaping the Path for the Bank of England After November

ING Economics ING Economics 11.08.2023 14:29
UK inflation and wage data to help shape BoE path after November The Bank of England has made it abundantly clear that it’s watching services inflation and wage data, and not a whole lot else, to judge how many further rate hikes are needed. We discussed recently why a September pause is unlikely but not totally out of the question, and why we think a November hike can hopefully be avoided. But that latter prediction hinges on the data showing a bit of improvement, and here’s what we expect over the next week: Jobs/wages (Tuesday): The jobs market has been cooling, and we expect to see further signs of improving worker supply in next week’s figures. Indeed there’s a risk that the unemployment rate ticks another 0.1pp higher. For now though wage pressures remain strong and we think private sector wage growth will remain at 7.7% (measured as the last three month’s average compared to the same period last year). That will slip back over the next few readings, but the downtrend is going to be slow. We tend to agree with the BoE’s forecasts that this will have only fallen to around 6% by year-end. Inflation (Wednesday): Household energy bills fell by almost 20% in July, so it should be no surprise that the headline inflation rate should have fallen by more than one percentage point. A further improvement in food inflation should also help. But the BoE is watching services CPI and expects this to nudge up from 7.2% to 7.3% on a year-on-year basis. While the start of summer holidays leaves plenty of scope for package holidays/air fares to throw this around, we think the risk to that Bank of England forecast is to a lower reading. We expect services inflation to remain flat or in fact go slightly lower, and if so, that would support our tentatively held view that the Bank will only hike once more. Retail sales (Friday): If June’s decent retail figures were helped by warmer weather, then the washout that was July should see a bit of weakness creep back in. July was the sixth wettest on record. Ultimately though the retail figures are of little consequence to the Bank of England right now, which is squarely focused on inflation.      
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UK Retail Sales Decline Amid Weather and Economic Factors

Kenny Fisher Kenny Fisher 21.08.2023 12:58
UK retail sales post a sharp decline Rainy weather and high prices weighed on consumer spending The British pound has given up ground on Friday after several days of modest gains. In the European session, GBP/USD is trading at 1.2736, down 0.07%.   UK retail sales decline more than expected The weather in the UK continues to have a major impact on consumer spending. The June retail sales report was stronger than expected, with record-hot weather contributing to an increase in spending. July brought cold and rainy weather, which led to a decline in spending as shoppers preferred to stay home. Retail sales declined -1.2% m/m in July, down from +0.6% in June and below the consensus estimate of -0.5%. The UK consumer’s spending appetite isn’t only dependent on the weather, of course. Consumer spending has been surprisingly resilient in a tough economic environment, but high inflation and rising interest rates are taking their toll. The cost-of-living crisis has created a situation in which sales volumes are falling but the value of goods purchased has been rising – in other words, consumer purchasing power has been falling as consumers are spending more to buy less. What is bad for consumers may be welcome news for the Bank of  England, whose battle with inflation hasn’t gone all that well. The BoE has raised interest rates to 5.25% in order to curb inflation, but a tight labour market and strong consumer spending have contributed to high inflation, which is currently running at a 6.8% clip. If the cracks we saw this week in the labour market and consumer spending continue, it could mean that the BoE has finally turned the corner in its tenacious battle to bring inflation closer to the 2% target.   GBP/USD TechnicalNew button GBP/USD is testing support at 1.2787. Below, there is support at 1.2634  1.2879 and 1.2940 are the next resistance lines  
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GBP: Fluctuating Rates Ahead of PMI Data Release

ING Economics ING Economics 23.08.2023 10:21
GBP: Volatile pricing ahead of PMIs Bank of England rate expectations have been quite volatile since the upside surprise in wages and CPI last week. The miss in retail sales on Friday saw peak Bank rate expectations as measured in the Sonia rate drop more than 10bp. Markets are currently looking at 5.95-6.0%, but today’s PMI release in the UK may well move pricing again. Consensus is expecting some slowdown in both manufacturing (already in contraction territory) and services (to 51.0). The Bank of England will also look at the details of the survey searching for evidence that price pressures are abating. EUR/GBP can make another attempt at breaking 0.8500 today, although the sustainability of sub-0.8500 levels is questionable unless markets price in more rate hikes in the UK or price out tightening in the eurozone.
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Australia's Rate Hike Prospects Hang in the Balance as Inflation Dips Below 5%

ING Economics ING Economics 30.08.2023 09:40
Australia: Rate hike forecast is hanging by a thread The headline inflation rate has now fallen below 5% which will encourage thoughts that the RBA tightening cycle has peaked - though progress over the next few months will be harder. Our final 25bp rate hike call for 4Q23 is hanging by a thread.   This was much lower than expected We were not expecting Australian inflation to fall markedly this month. Large electricity tariff hikes were going to be part of today's figures, and incorporating these into our forecasts, it looked more likely that inflation would at best fall only a little, or more likely, would remain roughly unchanged with an outside chance that it actually rose a bit.  So the fall in inflation to 4.9% YoY in July from 5.4% was a shock, albeit a welcome one.  We did see the housing component rise by 1.3% over the previous month, up from 0.3% MoM in June, and this will have been where the electricity tariff increases will be evident. But declines in food and beverage prices as well as holidays (part of the recreation subindex) look to have offset all of that and more, and there was a large rump of the CPI basket, especially on the service side (education, health, finance) where prices apparently did not move at all in July, which will have helped pull the average for the whole basket down.     Australian CPI MoM% change by component   Progress over the coming months may be slow From a month ago, the CPI index rose only 0.25%, which if maintained over the medium term, would bring the inflation rate back within the RBA's 2-3% target range over the coming 12 months. But month-on-month increases really do need to stay down at these sorts of rates or lower, since base effects, including this month (last year's July CPI index rose 0.7%MoM) have been doing a lot of the hard work in bringing inflation down recently.  Over the next three months, the corresponding 2022 monthly increases were all 0.3%, so if July's CPI increase is maintained for the next three months, we will see inflation falling only by a further 0.1-0.2pp. Any upside deviation from this, and inflation may start to edge higher again, and for that reason alone, we are holding on to the final 25bp rate hike in 4Q23, but we admit, we are a lot less comfortable with this view than we were yesterday.   A final rate hike for the RBA looks more doubtful If, in addition to a decent run of inflation date over the next month, we also see some corroboration from the real economy, for example, a repeat of last month's softer labour market data, then we will almost certainly trim out the final cut. At that point, the question will change to consideration of when and how the RBA might begin to row back from its current restrictive setting. Will this be a modest reduction to take policy rates back to a more neutral setting in the face of a fairly soft landing, or will it be cutting more aggressively to shore up a more rapidly slowing economy? In truth, we don't know the answer to this. Our expectation is for the former scenario, but there are a great many moving parts to this, including how the external environment (China and the United States in particular) shape up. And we won't be ruling out more downbeat scenarios until we have much more evidence to support the soft-lending hypothesis. The AUD quickly shrugged off the weaker inflation print. Broader USD trends will probably be more important in the coming months for the AUD than any marginal changes to RBA policy expectations.      
Treading Carefully: Federal Reserve's Rate Hike Pause, ECB and Bank of England on the Horizon

Treading Carefully: Federal Reserve's Rate Hike Pause, ECB and Bank of England on the Horizon

ING Economics ING Economics 01.09.2023 09:27
We think the Federal Reserve has finished hiking rates, and the ECB and Bank of England aren't far behind.   Federal Reserve At the recent Jackson Hole Fed symposium, Fed Chair Jerome Powell acknowledged that monetary policy is “restrictive” and that policymakers will “proceed carefully” in determining whether to hike interest rates further. September appears set for a pause given recent encouraging signals on inflation and labour costs, but robust activity data means the door remains ajar for a further potential hike. Markets see a 50-50 chance of a final hike while we think rates have most probably peaked. Households are rapidly running down pandemic-era savings, and rising consumer loan delinquencies indicate growing stresses that will be intensified by the restart of student loan repayments. Amid weakening global activity, we are, unfortunately, in the camp that fears this is more of a downturn-delayed rather than recession-averted story. Fortunately, we think that inflation will continue to slow rapidly and this will afford the Federal Reserve the flexibility to respond swiftly to this challenging environment with interest rate cuts through 2024.  
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Consumer Spending Strength, Sustainability Concerns, and Excess Savings

ING Economics ING Economics 01.09.2023 10:13
Consumer spending is strong, but is unlikely to be sustainable We then turn to personal spending, which was strong, rising 0.8% MoM nominally and 0.6% MoM in real terms. This gives a really strong platform for third quarter GDP growth, which we are currently estimating to come in at an annualised rate of somewhere between 3% and 3.5%. However, the key question is how sustainable this is – we don't think it is. The robust jobs market certainly provides a strong base, but wage growth has been tracking below the rate of inflation. Note incomes rose just 0.2% MoM in July. Maybe it is that confidence of job security that is encouraging households to seek to maintain their lifestyles amidst a cost-of-living crisis, via running down savings accrued during the pandemic and supplementing this with credit card borrowing. The problem is savings are finite and the banks are tightening lending standards significantly. Credit card borrowing costs are the highest since records began in 1972 so there is going to be a lot of pain out there. The chart below shows the monthly flows of excess savings since the start of the pandemic. Fiscal support (stimulus checks and expanded unemployment benefits) more than offset falling income resulting from job losses in 2020. Meanwhile, less spending versus the baseline due to Covid constraints further boosted the accumulation of savings.   Contributions of monthly changes in income and spending to the flow of savings ($bn)     Then through 2021 spending picked up, but then through 2022-2023 the nominal pick-up in incomes has been less than the increase in spending. Consequently we have seen savings flows reverse and now we are running them down each and every month, which is not sustainable over the long term.    Stock of excess savings peaked at $2.2tn, but we have been aggressively running this down ($tn)   Excess savings will soon be exhausted and financial pressures will intensify Based on this data, the $2.2tn of excess savings accumulated during the pandemic, $1.3tn has already been spent. At the current run-rate it will all be gone by the end of the second quarter of 2024 and for low and middle incomes that point will come far sooner. With banks far more reluctant to provide unsecured consumer credit, based on the Federal Reserve’s Senior Loan Officer Opinion survey, the clear threat is that many struggling households may soon find their credit cards are being maxed out and they can’t obtain more credit. With student loan repayments restarting, we expect consumer spending to slow meaningfully from late fourth quarter onwards and turn negative in early 2024.
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Metals Surge on China's Property Sector Stimulus and Positive Economic Data

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

Kelvin Wong Kelvin Wong 01.09.2023 11:32
Swiss retail sales decline by 2.3% Swiss inflation expected to dip to 1.5% US unemployment claims drop to 228,000 US PCE Price Index rises by 3.3%     The Swiss franc has lost ground on Thursday. In the North American session, USD/CHF is trading at 0.8835, up 0.59%. Thursday’s Swiss retail sales for July looked awful, falling 2.3% m/m. This follows a revised gain of 1.5% in June. Market attention has now shifted to Swiss inflation, which will be released on Friday. Swiss inflation dropped to 1.6% in July, the lowest level since July 2022. The downtrend is expected to continue in August with a consensus estimate of 1.5%. Policy makers at the Swiss National Bank have to be pleased with the inflation rate. Switzerland boasts the lowest inflation rate in the developed world and both headline and core inflation are comfortably nestled in the central bank’s inflation target range of 0%-2%. Still, the SNB remains wary about inflation, with concerns that increases in rents and electricity prices could push inflation back up to 2%. Food inflation remains high and rose from 5.1% to 5.3% in July. Unlike other major central banks, the SNB meets quarterly, which magnifies the significance of each rate decision. At the June meeting, the central bank raised rates to 1.75% from 1.50% and hinted that further hikes were coming. The SNB has projected inflation will hit 2.2% in 2023 and 2024, above its target. That means the SNB expects to have to continue raising rates, although, as is the case with many other central banks, the peak rate appears to be close at hand. In the US, unemployment claims dropped to 228,000 last week, down from a revised 232,000 and below the estimate of 236,000. All eyes will be on Friday’s job report, with nonfarm payrolls expected to dip to 170,000, down from 187,000.   The Fed’s favourite inflation gauge, the PCE Price Index, increased in July by 0.2% for a second straight month, lower than the estimate of 0.3%. On an annualized basis, the PCE Price Index climbed 3.3% in July, up from 3.0% in June. Service prices rose by 0.4% in July, up from 0.3% from the previous month. The numbers indicate that the Fed’s battle with inflation is far from over, and the final phase of pushing inflation down to 2% may prove the most difficult. . USD/CHF Technical USD/CHF is testing resistance at 0.8827. Above, there is resistance at 0.8895 0.8779 and 0.8711 are providing support
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Risk Factors Affecting Mercor's Business and Operations

GPW’s Analytical Coverage Support Programme 3.0 GPW’s Analytical Coverage Support Programme 3.0 08.09.2023 15:22
Mercor is exposed to a number of internal and external risks related to running a business, the most important of which are: ■ Economic situation in cubature and high-rise construction. The Company's clients are mainly general contractors. The weaker economic situation in the construction industry may translate into a decrease in demand for the Company's products/services and deterioration of financial results. ■ Prices of production materials. An increase in the prices of production materials in relation to the planned level at the time of submitting the offer may result in an increase in costs and deterioration of the Company's profitability. ■ Availability of significant raw material resources. In its production process, the Company mainly uses steel, aluminum and polycarbonate. Lower availability of raw materials may adversely affect the Company's ability to fulfill the signed contracts and cause an increase in the prices of these raw materials. ■ War in Ukraine. The ongoing armed conflict between Russia and Ukraine has a direct and indirect impact. The indirect impact is a possible change in investors' moods and preferences, increase in prices and problems with the availability of production and energy raw materials, potential disruptions in supply chains. In addition, Mercor holds a 55% share in the share capital of the company in Ukraine (TOB MERCOR UKRAINA sp. z o.o.) and a 55% share in the share capital of the company in Russia (OOO Mercor-PROOF LLC). Loss of control or other unfavorable events may result in a write-off, showing a loss in the financial statements and loss of markets. ■ Change in interest rates. Mercor has debt due to credits, loans and finance leases. An increase in interest rates may result in an increased cost of servicing this debt. ■ Changes in exchange rates. The Group has its branches and production plants abroad and concludes transactions in currencies other than the functional one. The Group uses hedging by concluding forward transactions, but it is not possible to completely eliminate the impact of changes in exchange rates. ■ Inflation rate. Higher prices may adversely affect the Company's profitability. In addition, higher inflation may increase employees' wage expectations. ■ Counterparty credit risk. In the event of a deterioration in the liquidity situation of customers, the Company may experience problems with recovering receivables on time. ■ Availability of workers with appropriate qualifications. The company provides its customers with ready-made solutions in the field of fire protection in buildings, for which it is necessary to have adequately qualified employees. The shortage of employees may adversely affect the ability to implement an appropriate number of projects and decrease revenues. ■ Risk of unfavorable tax decisions. There is a risk that the correctness of the calculated taxes will be questioned by the tax authorities and a risk of issuance of decisions unfavorable to the Company    
Tesla's Market Surge, Apple's Recovery, and Market Dynamics: A Snapshot

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

Ipek Ozkardeskaya Ipek Ozkardeskaya 12.09.2023 08:49
Tesla fuels market rally By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank    Tesla jumped 10% yesterday and reversed morose mood due to the Apple-led selloff. Tesla shares flirted with the $275 per share on Monday, thanks to Morgan Stanley analysts who said that its Dojo supercomputer may add as much as $500bn to its market value, as it would mean a faster adoption of robotaxis and network services. As a result, MS raised its price target from $250 to $400 a share.   Tesla rally helped the S&P500 make a return above its 50-DMA, as Nasdaq 100 jumped more than 1%. Apple recorded a second day of steady trading after shedding almost $200bn in market value last week because of Chinese bans on its devices in government offices, and Qualcomm, which was impacted by the waves of the same quake, recovered nearly 4%, after Apple announced an extension to its chip deal with the company for 3 more years. Making chips in house to power Apple devices would take longer than thought.   Speaking of chips and their makers, ARM which prepares to announce its IPO price tomorrow, has been oversubscribed by 10 times already and bankers will stop taking orders by today. The promising demand could also encourage an upward revision to the IPO price, and we could eventually see the kind of market debut that we like!    Today, at 10am local time, Apple will show off its new products to reverse the Chinese-muddied headlines to its favour before the crucial holiday selling season. The Chinese ban of Apple devices in government offices sounds more terrible than it really is, as the real impact on sales will likely remain limited at around 1%.   In the bonds market, the US 2-year yield is steady around the 5% mark before tomorrow's much-expected US inflation data. The major fear is a stronger-than-expected uptick in headline inflation, or lower-than-expected easing in core inflation. The Federal Reserve (Fed) is torn between further tightening or wait-and-see as focus shifts to melting US savings, which fell significantly faster than the rest of the DM, and which could explain the resilience in US spending and growth, but which also warns that the US consumers are now running out of money, and they will have to stop spending. So, are we finally going to have that Wile E Coyote moment? Janet Yellen doesn't think so, she is on the contrary confident that the US will manage a soft landing, that the Fed will break inflation's back without pushing economy into recession. Wishful thinking?   But everyone comes to agree on the fact that the Eurozone is not looking good. The EU Commission itself cut the outlook for the euro-area economy. It now expects GDP to rise only 0.8% this year, and not 1.1% as it forecasted earlier, as Germany will probably contract 0.4% this year. The slowing euro-area economy has already softened the European Central Bank (ECB) doves' hands over the past weeks. Consequently, the EURUSD gained marginally yesterday despite the fresh EU commission outlook cut and should continue gently drifting higher into Thursday's ECB meeting. There is no clarity regarding what the ECB will decide this week. The economy is slowing but inflation will unlikely to continue its journey south, giving the ECB a reason to opt for a 'hawkish' pause, or a 'normal' 25bp hike. 
Rates Spark: Preparing for Key Market Events and Hawkish Risks

Rates Spark: Preparing for Key Market Events and Hawkish Risks

ING Economics ING Economics 12.09.2023 09:13
Rates Spark: Slowly gearing up to the key events Markets are gearing up to this week’s main events. It is not just about this Thursday’s ECB meeting, but also about crucial data in the US and UK ahead of next week’s respective central bank meetings. Front-loaded issuance is helping to keep rates elevated, but we also expect hawkish risks to make a bearish case for rates this week.   Front end themes developing in a bear-steepening environment With central banks seen to be approachig their tightening cycle peaks it is only natural that the upcoming meetings are in the spotlight, kicking off with the ECB decison this Thursday.  With regards to central bank communications both the ECB and the Fed are in the pre-meeting black-out periods but we did hear from the BoE’s most hawkish member Catherine Mann yesterday, who noted that it was best to err on the side of further tightening. With regards to the market pricing of the BoE decision outcome, we have seen a notable shift towards the sense that the end of the tightening cycle is nearing. The implied probability for a hike next week had slipped below 80% at the end of last week – late last month the market was still more than fully pricing a 25bp hike.  The main focus in the US this week is still on data however, with the  August CPI release tomorrow. Our economist has flagged the risk of the month-on-month core inflation rate accelerating slightly. While that won’t move the needle for next week’s Fed decision, where a pause is widely anticipated, it would indicate hawkish risks to the broader Fed outlook. The market is attaching a 50% chance to another Fed hike by year-end.      Front loaded corporate issuance activity ahead of the events, especially in the US, is keeping upward pressure on rates. Markets will also have US Treasury supply in mind, where we saw a softer 3Y auction yesterday. The 10Y and 30Y reopenings follow today and tomorrow. It is a similar story in Europe, where we also saw the EU announcing a 7Y deal and – with greater market impact – the UK announcing a syndicated reopening of a 50Y Gilt which weighed on the long end of the curve.     10Y yields are again approaching the upper end of recent ranges
US Industry Shows Strength as Inflation Expectations Decline

US Industry Shows Strength as Inflation Expectations Decline

ING Economics ING Economics 18.09.2023 09:14
US industry posts solid gains, inflation expectations plunge Another respectable industrial production report while the University of Michigan reported a big plunge in inflation expectations. All this should be music to the ears of the Federal Reserve as it seeks a soft landing for the economy and a return to 2% inflation.   Decent industrial output, but strike action could weigh in coming months As with the retail sales report, the US industrial production number beat expectations in August, but the downward revisions to July means that on balance the level of activity is broadly in line with what was expected. This has been a bit of a trend of late with big prints subsequently getting some chunky downward revisions, be it in manufacturing, consumer spending, jobs or GDP. In terms of today’s numbers, US industrial production rose 0.4% in August versus the 01% expected, but there was a 0.3pp downward revision to July's growth (from 1% to 0.7%). Manufacturing rose 0.1% as expected, but there was a 0.1pp downward revisions to July from 0.5% to 0.4% growth. Auto output fell 5% month-on-month after a 5.1% jump the previous month with manufacturing ex vehicles rising 0.7%, led by a 2% jump in machinery manufacturing. Outside of manufacturing, which makes up 74% of total industrial output, utilities output rose 0.9% while mining increased 1.4%.  On balance the report is OK and is stronger than what is implied by the manufacturing ISM report, which has been in contraction territory for 10 consecutive months. However, auto output is up near record highs. Strip this out and the chart below shows there is a much tighter relationship between the ISM and non-auto related manufacturing. Today’s report won’t swing the Fed debate in either direction meaningfully. The key story for manufacturing next month will be how much the UAW strike action hits output. So far it is starting out modestly with just 12,700 on strike, but could quickly escalate and hit output hard.   ISM manufacturing index versus non-auto manufacturing output (YoY%)   US consumer inflation expectations fall sharply University of Michigan confidence fell more than expected to 67.7 from 69.5 (consensus 69.0). The perception on current conditions fell six points while expectations rose 0.8 points. Remember this index is much more responsive to inflation-related issues while the Conference Board measure of confidence is more reflective of the labour market (hence why the Conference Board suggests everything is great, with unemployment below 4%, yet the University of Michigan measure of sentiment suggests the world is on the cusp of falling apart).   Rising gasoline prices are the likely culprit depressing today's report as households feel the hit to spending power it generates elsewhere. Yet, rather bizarrely, we have some big declines in inflation expectations which should be music to the ears of the Fed. 1Y inflation expectations are down to 3.1% from 3.5% – it is actually below the current level of inflation – while 5-10Y expectations dropped from 3% to 2.7%. Both are really big surprises, but the usual caveat applies that they use fairly small sample sizes and things can swing. Nonethless, on balance this is further evidence that backs the Federal Reserve's claims that it can achieve a soft landing for the economy while returning inflation sustainably to target.
Asia Morning Bites: Australia's CPI Inflation Report and Chinese Industrial Profits

Asia Morning Bites: Australia's CPI Inflation Report and Chinese Industrial Profits

ING Economics ING Economics 27.09.2023 12:52
Asia Morning Bites Australia's August CPI inflation report should show inflation rising again. The fall in Chinese industrial profits may be moderating.   Global Macro and Markets Global markets:  For a change, US Treasury yields didn’t rise yesterday. Nor did they fall particularly. The yield on the 2Y UST was down just 0.4bp to 5.121%, while that on the 10Y bond rose just 0.2bp to leave it at 4.536%. This was despite Neel Kashkari, a voter on the FOMC this year, saying that he thought even a soft-landing scenario would probably require one more rate hike this year. Michelle Bowman talked about the need to cool the economy to bring rents down in line with wage growth, though she did not explicitly outline a path for rates. But she implied more was needed. With this, it feels as if markets are listening and choosing to believe that in the end, the Fed will not carry through on their threats to raise rates again, either because the threat lacks credibility, or because they believe that the growth and inflation evidence will turn sufficiently to make it unnecessary. It’s a tough call to make and leaves upside as well as downside risk. Kashkari and Bowman are both due to speak again today. US Stocks cooled on Tuesday. The S&P 500 dropped 1.47% while the NASDAQ fell 1.57%. Equity futures are looking mildly positive. It was also another off-day for Chinese stocks. The Hang Seng fell 1.48%, while the CSI 300 fell 0.58%.   The risk-off sentiment may be helping the USD, which has pushed even lower overnight, dropping to 1.0570. The AUD has declined below the 64 cent level, though may get a boost from CPI inflation data later on today. Cable has dropped to 1.2148, and the JPY has risen to 149.07, a level at which you have to think there could be some more verbal intervention (Finance Minister Suzuki has already waded in) and close to a level where physical intervention may occur. The CNY has held roughly level at 7.3112, though the rest of the Asia pack was weaker against the USD. The KRW and THB, together with the IDR were the weakest currencies in the region yesterday. G-7 macro:  US new home sales fell a little more than expected in August, dropping 8.7% MoM to a 675K annual pace. The Conference Board consumer confidence index was down slightly, breaking down into a slightly stronger present situation response, but a sharply weaker expectations survey. Germany also releases consumer confidence figures from GfK today. The only US data of note is the August durable goods orders and shipments figures.   Australia: A combination of base effects wearing off, and higher gasoline and food prices will take Australia’s monthly inflation rate for August back up again after the surprising decline in July. The inflation rate should push back from the July 4.9% YoY rate to a little over 5%. The consensus estimate sits at 5.2%, which is not far from our estimate of 5.1%. While this does not immediately threaten the market’s view that the RBA has peaked in its rate cycle, a few more results like this, plus some economic resilience may spur thoughts that there is still one more hike to come. We certainly are not ruling another hike out.   China: Industrial profits figures for August are released this morning. The year-on-year decline in this series has been moderating, and we expect this to continue, though probably still leaving profits down from a year ago.   What to look out for: Australia inflation Australia CPI inflation (27 September) China industrial profits (27 September) Japan machine tool orders (27 September) US durable goods orders and MBA mortgage applications (27 September) Australia retail sales (28 September) US initial jobless claims, personal consumption, pending home sales (28 September) Fed's Powell, Goolsbee and Barkin speak (29 September) Japan Tokyo CPI inflation and labor report (29 September) Thailand trade (29 September) US University of Michigan sentiment, personal spending (29 September)
Australian CPI Expected to Rise to 5.2%: Impact on AUD/USD and RBA's Rate Hike Dilemma

Australian CPI Expected to Rise to 5.2%: Impact on AUD/USD and RBA's Rate Hike Dilemma

Ed Moya Ed Moya 27.09.2023 13:43
Australian CPI expected to rise to 5.2% The Australian dollar is in negative territory on Tuesday. In the North American session, AUD/USD is trading at 0.6405, down 0.28%. Australian CPI expected to rise Australia releases the CPI report on Wednesday. In July, CPI eased to 4.9%, beating expectations and dropping to the lowest inflation rate since February 2022. CPI is expected to rise to 5.2% in August. Inflation remains more than double the 2% target, and the core rate is also high, with the trimmed mean dropping from 6.0% to 5.6% in August. The RBA has raised rates to 4.1%, the highest level since 2012. Have interest rates peaked? That is the thousand-dollar question. The futures markets have priced in a final rate hike before the end of the year at 35%, as investors are betting the Reserve Bank of Australia is likely done with rate tightening. The Australian economy has cooled off as a result of the RBA’s tightening, and the slowdown in China could tip the economy into a recession if rates were to move higher. The central bank is understandably more hawkish, as policy makers don’t want to close the door on further tightening with inflation still well above the target. The new RBA Governor, Michelle Bullock, has warned that the door remains open to further rate hikes and said that upcoming decisions will be based on key data. The RBA minutes from the September meeting indicated that members considered a rate hike, but in the end, opted to pause rates.   In the US, Consumer Board (CB) Consumer Confidence slipped to 103.0 in August, down sharply from a revised July read of 108.7 and shy of the market consensus of 105.5. This marked a 4-month low. Consumers noted concern over rising gasoline prices and high interest rates and the percentage of consumers who expect a recession rose in September, according to the CB. This does not bode well for consumer spending, a key driver of US growth. . AUD/USD Technical AUD/USD is putting pressure on support at 0.6380. The next support line is 0.6320 There is resistance at 0.6446 and 0.6506    
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Bank of England's Interest Rate Dilemma Amid High Inflation

InstaForex Analysis InstaForex Analysis 27.09.2023 13:46
In order to understand how the Bank of England is going to act at the remaining two meetings in 2023, we need to consider its potential for raising interest rates. The first and most crucial indicator that the central bank (and the markets) has been relying on for some time is inflation. However, as of September, inflation remains extremely high, well above the target level. One might assume that the BoE will continue to hike rates, but in September, it took a pause. A pause can only mean two things: either the BoE is preparing to end the tightening process, or it has already completed it     BoE Governor Andrew Bailey and some other members of the BoE's Monetary Policy Committee have mentioned that they expect inflation to drop to 5% by the end of the year. A 5% inflation rate is still very high, 2.5 times above the target. If the BoE is already prepared to conclude its tightening, it may not achieve the target. Furthermore, there's no guarantee that inflation won't start accelerating again.   For instance, US inflation has been rising for the past two months. All I want to convey with these arguments is that it's still too early to assume that inflation can return to 2% at the current interest rate level. Based on that, I believe that the BoE has exhausted its potential for rate hikes, and this is the main reason for the pause in September. Now, the central bank will only raise rates if inflation starts to accelerate significantly. And in that case, the 2% target may be forgotten for several years even with a peak rate, but we could still see 1-2 more emergency rate hikes. I also want to note that the BoE (like the European Central Bank) is counting on holding rates at the peak level for an extended period to bring inflation back to 2%. This was mentioned after last week's meeting.   The Monetary Policy Committee expects inflation to slow down further, but Bailey says cutting rates would be "very premature". Four out of nine committee members voted for a rate hike at the previous meeting. In addition, the Monetary Policy Committee said its balance sheet of government debt will shrink by £100 billion. Based on the analysis conducted, I came to the conclusion that a downward wave pattern is being formed.   I still believe that targets in the 1.0500-1.0600 range for the downtrend are quite feasible, especially since they are quite near. Therefore, I will continue to sell the instrument. Since the downward wave did not end near the 1.0637 level, we can expect the pair to fall to the 1.05 level and slightly below. However, the second corrective wave will start sooner or later.     The wave pattern of the GBP/USD instrument suggests a decline within the downtrend. At most, the British pound can expect the formation of wave 2 or b in the near future. However, even with a corrective wave, there are still significant challenges. At this time, I would remain cautious about selling, as there may be a corrective upward wave forming in the near future, but for now we have not seen any signals for this wave yet.  
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Asia Morning Bites: BoJ Policy Speculation and Chinese PMI Data in Focus

ING Economics ING Economics 02.11.2023 11:49
Asia Morning Bites Following rising speculation, will the BoJ tweak policy today? Chinese PMI data also due. Global Macro and Markets Global markets:  US stocks bounced off recent lows on Monday. Both the NASDAQ and S&P 500 gained more than a per cent ahead of this week’s expected no-change  FOMC meeting. Equity futures suggest that today’s open may take back some of these gains. Chinese stocks also had a reasonable day. The CSI 300 rose 0.6%, but the Hang Seng was more or less unchanged on the day. US Treasury yields also rose on Monday. 2Y UST yields rose 5.2bp to 5.054%, while 10Y yields rose 6bp to 4.894%. There was no macro data of note for the US on Monday driving these moves, and this close to the FOMC meeting, no Fed speakers either due to the blackout period. Despite the rise in yields, the USD had a softer day. EURUSD rose to 1.0613 in spite of weak GDP and inflation figures (see below) and also the failure of the EU and Australia to agree on a free trade deal due to disagreements over agriculture access. The AUD rose to 0.6366, Cable rallied to 1.2165, and the JPY dropped back briefly through 149 on speculation of further tweaks to BoJ policy at today’s meeting (see below), though it is currently 149.14. Other Asian FX also rallied against the USD on Monday. The THB and KRW led gains. The CNY dropped to 7.311. G-7 macro:  German GDP was slightly less awful in 3Q23 than expected, but still fell 0.1%QoQ (see here for more by Carsten Brzeski). The flip side of this is that this economic weakness is weighing on inflation, which fell to 3.8% YoY in October, down more than expected from the September rate of 4.5%. Eurozone GDP and inflation are released today, so with the German figures already out, there is some chance of an undershoot to the respective consensus expectations of 0.0% QoQ and 3.0%YoY for these figures. House price data and the Conference Board’s consumer confidence survey are today’s US data offerings. None of these releases look likely to alter the expectation for a pause at the Fed’s 2 November meeting. China:  Official PMI data is due at 0930 (HKT/SGT) today. Both manufacturing and non-manufacturing surveys are expected to confirm the slight firming in activity suggested by other recent activity data. Japan:  The BoJ has its policy meeting today. Speculation has been growing over the last couple of days that they may take steps to relieve pressure on Japanese government bonds (JGBs) and the JPY. Yesterday, local news media Nikkei, reported that the BoJ may allow the upper limit for 10Y JGBs to rise above 1% and also make some adjustments to their bond purchase operations. The latest quarterly outlook report will also be closely watched. We think that the BoJ will revise up its FY24 inflation forecast to above 2%, but leave untouched the FY25 forecast number. That way, they can maintain that sustainable inflation is not yet reached or that they are not yet confident about reaching the sustainable inflation target, which will buy them some more time to keep their negative interest rate policy until next year. Still, if FY24 inflation is above 2% then the market’s expectations for a policy change in early 2024 will rise. Japan's September monthly activity data was a bit soft.  September industrial production (IP) rebounded less than expected (0.2% MoM sa vs -0.7% in August, 2.5% market consensus) while retail sales unexpectedly dropped -0.1% (vs revised 0.2% in August). As September IP and retail sales were softer than expected, we think 3Q23 GDP is likely to record a small contraction. However, labour market conditions remained tight and showed some improvement. The jobless rate edged down to 2.6% in September (vs 2.7% in August, 2.6% market consensus) and labour participation rose to 63.3% from the previous month’s 63.1%. Also, the job-to-applications ratio was unchanged at 1.29. South Korea:  Monthly activity data was solid as suggested by 3Q23 GDP (0.6% QoQ sa). All industry industrial production (IP) rose for a second month (1.1% MoM sa) in September with manufacturing (1.9% MoM sa), services (0.4%), construction (2.5%), and public administration (2.3%).  Among manufacturing industries, semiconductors (12.9%) and machinery (5.1%) were big gainers, offsetting a big drop in motor production (-7.5%). Solid demand for high-end chips, which are higher value-added and have higher prices than legacy chips, is the main reason for the rise in chip production. Meanwhile, production cuts in legacy chips continued as inventory levels came down, and we believe that this differentiated trend will continue for the time being. We think October exports will finally bounce back after twelve months of year-on-year declines on the back of a recovery in semiconductors. Other activity data also made gains. Retail sales (0.2%) rebounded marginally after having fallen for the previous two months. Equipment investment gained (8.7%) with increases in transportation (12.6%) such as aircraft, and special machinery (7.3%) such as semiconductor manufacturing machines. Construction also rose 2.5% despite the contraction in residential building construction as civil engineering rose solidly (20.0%). September monthly activity data showed some recovery in the domestic economy but forward-looking data such as machinery orders (-20.4% YoY) and construction orders (-44.1%) all fell, suggesting a cloudy outlook for the current quarter and we expect 4Q23 GDP to decelerate.   What to look out for: BoJ meeting and China PMI reports South Korea industrial production (31 October) BoJ meeting, Japan retail sales, industrial production and labour data (31 October) China PMI manufacturing and non-manufacturing (31 October) Taiwan GDP (31 October) Philippines bank lending (31 October) US Conference board confidence (31 October) Australia Judo PMI manufacturing (1 November) South Korea trade (1 November) Regional PMI manufacturing (1 November) Indonesia CPI inflation (1 November) US ISM manufacturing, ADP report, JOLTS report (1 November) FOMC decision (2 November) South Korea CPI inflation (2 November) Australia trade balance (2 November) Malaysia BNM policy (2 November) US factory orders and initial jobless claims (2 November) Australia retail sales (3 November) China Caixin PMI services (3 November) Singapore retail sales (3 November) US NFP and ISM services (3 November)
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Curious Market Response as RBA Implements Expected Rate Hike

ING Economics ING Economics 07.11.2023 15:46
RBA hikes rates - market reaction is curious Although the RBA hike was expected by the majority of the forecast community, markets were not completely sold on the idea, which is why it is curious that the AUD weakened on the decision and that bond yields fell.   RBA hikes but AUD softens It was no surprise that the RBA hiked the cash rate by 25bp today. Only three of the Bloomberg consensus expected the RBA to hold rates steady today. We were not among them. However, the market pricing was more circumspect, with only about a 59% probability of a hike priced in to today's meeting.  All of which makes the subsequent market reaction quite strange.  The AUD made a very brief run stronger on the announcement, but almost immediately fell back, dropping to about 0.643 from about 0.652 prior to the announcement.  Australian government bond yields also declined. 10Y government bond yields fell from about 4.76% to 4.70% and yields on 2Y government bonds fell from 4.37% to 4.31%. There was a slight decline in US Treasury yields at the same time, which may have influenced things, but it isn't a particularly satisfactory explanation.      RBA statement was reasonably hawkish This market reaction cannot either be put down to the accompanying statement by the RBA, which in our view leant in a hawkish direction.  The justification the RBA gave for today's hike was the slow progress being made towards their target inflation range, the arrival at which was put back to late 2025. The RBA also judged that the weight of information received since the previous meeting raised the chances that inflation would remain higher for longer.  The RBA's statement also kept the door open to the possibility of further hikes, saying that "Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks". Thanks to base effects, next month's inflation data will probably show another increase (see chart above). However, we don't think the RBA will respond again so soon if inflation does indeed rise. After that, when the November and December figures are released, absent the floods and energy shortages of last year, we should see inflation resume its downward trend, which may be enough to cement the view that this was the last hike this cycle after all.  The risk to this view comes from the current run rate for inflation. For the last 2 months, the CPI index has risen by 0.6% MoM. This isn't consistent with an inflation rate between 2-3% but rather one closer to 7%. So this also needs to slow down considerably over the coming months. If it doesn't, then instead of the rate cuts that we expect could be on the radar by mid-2024, we might still be looking at some further tightening before we can call this rate cycle truly over. As the RBA notes in their statement, "There are still significant uncertainties around the outlook".  
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Canada's Inflation Slides to 3.1% as Fed Signals Continued Caution: USD/CAD Reaction

Kenny Fisher Kenny Fisher 23.11.2023 15:37
Canada’s inflation rate falls to 3.1% Fed minutes indicate rates to remain restrictive The Canadian dollar continues to have a quiet week. In the North American session, USD/CAD is trading at 1.3723, up 0.14%. Canada’s inflation declines to 3.1% Canada’s inflation rate fell to 3.1% y/y in October, down sharply from 3.8% in September and below the consensus estimate of 3.2%. Monthly, inflation edged up to 0.1%, up from -0.1% in September and matching the consensus estimate. Two key core rate gauges dropped to an average of 3.55%, down from 3.8% in September. The drop in inflation is an encouraging sign for Bank of Canada policy makers that its rate policy is working, as inflation continues to head lower. For the markets, the decline will support expectations that the current tightening cycle is done and that the central bank will trim rates in mid-2024. The inflation print has likely closed the door on further hikes, but don’t expect to hear that from anyone at the BoC, which doesn’t want to give a false impression that inflation has been beaten, as there is still more work to do to reach the 2% target. Fed preaches caution At the November meeting, Fed Chair Powell said in his post-meeting remarks that the Fed would have to exercise caution. Tuesday’s FOMC minutes echoed Powell’s comments and also mentioned the need to “proceed carefully”. The minutes gave no indication that members had discussed rate cuts, noting that members felt that the current policy was restrictive and pushing inflation lower. The markets have a different take and have priced in a rate cut sometime in mid-2024, with inflation falling and the US economy continuing to lose steam. The Fed will likely continue to sound hawkish and warn that rate hikes are still on the table, but is anyone listening?   USD/CAD Technical USD/CAD is testing resistance at 1.3741. Above, there is resistance at 1.3776 There is support at 1.3660 and 1.3628  
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Analyzing EURCAD: Inflation Rates, Technicals, and Sentiment Indicators

Kenny Fisher Kenny Fisher 04.12.2023 14:51
This article goes over different tools and indicators covering EURCAD, in some cases, cross-pairs can provide trade setups of a different nature as the US Dollar is partially taken out of the equation. Trading in financial markets requires an overview of different types of tools and the same applies to forex trading. Talking points Inflation Rate Overview – European Union and Canada Daily Chart Technical analysis Sentiment Indicators: Commitment of Traders report, and OANDA’s order book. Relative Rotation Graph Inflation Rate Overview – European Union and Canada   Source: Bloomberg Terminal   Inflation Rates globally are declining faster than expected and as global Central banks continue to tread carefully, traders continue to speculate on Central banks’ moves and are sometimes overwhelmed by conflicting central bankers’ comments or analyst’s opinions. Many Market participants are convinced that the recent decline in inflation suggests that Central banks should consider rate cuts, but Central banks still have concerns about inflation returning in any form. The latest CPI report from the EU shows inflation continues to decline reaching 2.4%, close to The European Central Bank (ECB) target of 2%. The current CPI may suggest that the ECB can hold interest rates at its current level but doesn’t warrant any rate cuts. ECB Nagel commented this morning that “Inflation risks are skewed to the upside”. The next CPI release is scheduled for December 19th, 2023, please check the economic calendar and your local time. In Canada, it’s a slightly different story, although the inflation rate is also declining the same as it is globally, it is declining at a slower pace than the EU. The inflation rate currently stands at 3.1%, down from its highs of 8.0% seen in June 2022. Daily Chart Technical analysis   Source: Tradingview.com   EURCAD price broke and closed below an intermediate trendline identified on the above daily timeframe chart, with no pullback to retest the broken level so far. The broken level was also a confluence of Support represented by 3 commonly used Moving average periods, EMA9, MA,9, MA21, and the monthly pivot point at 1.4800 Applying the weekly Stochastic indicator onto the Daily timeframe to smooth the readings suggests that EURCAD may be overbought and shows that %K just crossed below %D along with the break below the intermediate trendline mentioned above. Applying Daily RSI with its default period of 14 shows that RSI is so far in line with price action, however, it is currently neutral near level 50. MACD line crossed below its signal line and the Histogram is also turning bearish.       Sentiment Indicators: Commitment of Traders report, and OANDA’s order book Source: Tradingview.com   The Commitment of Traders report offers insights about positioning changes in the futures market, although delayed, it still helps as a sentiment tool in a trader’s arsenal. Comparing Position levels on the latest COT report shows that Large Speculators on both currencies are favoring long positions, however, it also suggests that the Canadian Dollar is closer to its extreme than the Euro, thus a higher probability of Sentiment change. The above chart is for EURUSD and USDCAD side by side with the COT report applied to both. (COT for Canadian Dollar is inverted, CADUSD) OANDA’s Orderbook Indicator   Source: OANDA.com   Another sentiment tool is the OANDA Orderbook Indicator, the above image reflects an aggregate view of pending entry orders on EURCAD for OANDA’s clients, the data falls under the Retail Traders category. The above image suggests that Retail traders are looking to buy as the price falls and sell as it rises, this is the typical retail trader sentiment and needs to be thought of carefully as Retail Traders can sometimes be in the opposite direction in trendy markets. The order book also reflects price levels that have the highest number of pending orders, these levels can be critical as the price continues to move regardless of direction. It is also important to note that the order book percentages include exit orders such as Stops and limits, we can continue to follow up on position percentage changes. Relative Rotation Graph   Source: Optuma.com   The Relative Rotation graph RRG (A measurement for Momentum and Relative strength) on the daily time frame shows EURUSD, GBPUSD, AUDUSD, and NZDUSD are currently in the Leading Quadrant, with EURUSD leading the pack and CADUSD attempting to catch up from the Improving quadrant. The arrow direction for all pairs except CAD is so far pointing south towards the weakening quadrant.  
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China's Caixin Manufacturing Shows Marginal Growth, Boosts Australian Dollar

Kenny Fisher Kenny Fisher 02.01.2024 13:20
China Caixin Manufacturing posts slight growth The Australian dollar is in positive territory on Tuesday. In the European session, AUD/USD is trading at 0.6826, up 0.22%. The week between Christmas and New Year’s was subdued in the currency markets. Still, the Australian dollar hit a six-month high on Christmas Day, rising to 0.6871. The Aussie ended the year on a roll, gaining 3.1% in December. China’s Caixin Manufacturing PMI ticked up to 50.8 in December, up from 50.7 in November and above the consensus of 50.4. This was the highest reading since August, but the reading points to stagnation in manufacturing. The reading was better than the official Manufacturing PMI release on Saturday of 49.0 which indicates contraction. The non-manufacturing PMI edged up to 50.4, compared to 50.2 in November. Activity in the non-manufacturing sector has been minimal over the past six months, as China remains mired in an economic slowdown as we move into 2024. Where is RBA headed? The Reserve Bank of Australia meets next on February 6 and it’s anyone’s guess what the central bank has in mind for 2024. The RBA has raised interest rates just once since June and held the cash rate at 4.35% at the December meeting. It’s likely that the RBA is done with raising rates, but the timing of a rate cut is unclear. Many economists are circling September for the first rate cut, while Bank of America is predicting a rate cut only in 2025. The markets are more optimistic and have priced in a rate cut in mid-2024. What all the views can agree on is that the inflation rate will play a critical role in determining the RBA’s rate path. Inflation has fallen to 4.9% but remains much higher than the RBA’s target band of 2-3%. Australia will release the December inflation report on January 10 and the release should be treated as a market-mover.   AUD/USD Technical AUD/USD is testing resistance at 0.6812. Next, there is resistance at 0.6845 0.6779 and 0.6746 are providing support  
European Markets Rebound Amid Global Uncertainty, US PPI Miss, and Rate Cut Speculation

European Markets Rebound Amid Global Uncertainty, US PPI Miss, and Rate Cut Speculation

ING Economics ING Economics 16.01.2024 12:12
European markets finished a choppy week with a modest rebound, with the FTSE100 breaking a 3-day losing streak, although it still fell for the second week in succession having sunk to a 3-week low midweek. US markets also had a more positive week with the S&P500 briefly pushing above the 4,800 level for the first time in 2 years.    The catalyst for Friday's push higher was a downside miss in US PPI for December which pulled forward speculation yet again about central bank rate cuts, which helped pull the US 2-year yield to its lowest level since May last year.   We also saw similar sharp declines in UK and German 2-year yields as well, although the market enthusiasm and pricing for rate cuts isn't anywhere near as aggressive as it is for the prospect of a cut in US rates. This comes across as a little bizarre given that of all the major economies now the US appears to be in much better shape, and therefore in less need of the stimulus of a rate cut. Last week's PPI numbers served to overshadow a hotter than expected CPI figure which saw headline inflation in the US push up from 3.1% to 3.4%, the second time we've seen US inflation rebound from the 3% level since June last year.     This uncertainty suggests that markets could be jumping the gun when it comes to the likelihood of March rate cuts, and it is the 2-year yield where this is being priced most aggressively. With earnings season now under way in the US with the first set of Q4 bank results garnering a rather mixed market reaction, although there was nothing significant in the numbers to suggest that the US consumer was feeling the pressure from current interest rate levels. Today the US is off for Martin Luther King Day which means markets in Europe could well be more subdued than normal, and so far this year there hasn't been that much to get particularly excited about anyway. The markets already know that the Federal Reserve is done when it comes to further rate increases, and currently have six 25bps rate cuts priced in for this year. That seems rather a lot and is more than the three the Fed have in their dot plot projections.     Nonetheless while markets in Europe and the US have got off to an uncertain start, one index that hasn't is the Nikkei 225 which has raced out of the blocks, pushing up to its highest levels in 34 years and up over 5% year to date already, and in so doing has got people speculating whether we can see a return to those 1989 peaks of 38,957. This week the focus is set to be very much on the UK economy in the wake of Friday's better than expected November GDP numbers, which raised the prospect that the economy may have avoided a technical recession at the end of last year, as a rebound in services activity saw the economy expand by 0.3%. This week we get data for wages and unemployment for November, as well as December CPI and retail sales, all of which have the potential to shift the dial on the timing of a first rate cut from the Bank of England. With inflation still almost double the Bank of England's 2% target and wage growth still upwards of 7% the idea that the central bank would look at cutting rates much before the summer seems unlikely. That said many are suggesting that inflation could be back at 2% by April, however even if that were the case we won't find out until the middle of May when the numbers are released. Against this sort of backdrop, it would be unlikely if he Bank of England were to act on rates until it sees the whites of the eyes of a lower inflation rate, especially since at the last meeting we still had 3 members of the MPC voting for a hike. It's unlikely they will vote the same way in February but nonetheless they are unlikely to go from hiking to cutting with only one meeting in between unless the wheels come off in spectacular fashion.     EUR/USD – currently looking to move higher but needs to move above the 1.1000 area to signal further gains. Short term support still at 1.0875 and the 200-day SMA at 1.0830. A break above 1.1030 has the potential to target the December peaks at 1.1140. GBP/USD – currently finding resistance at the 1.2800 area last week, slipping back to 1.2690 but remains in the wider uptrend with support just above the 1.2600 area. We need to get above 1.2800 to target the 1.3000 area. EUR/GBP – ran out of steam at the 0.8620 area last week, although we also have resistance at the 0.8670 area. Still have support just above the 0.8570/80 area, with the main support at the December lows at 0.8545. USD/JPY – ran into resistance at the 50-day SMA at 146.40 last week. Support currently at the 200-day SMA now at 143.80. We need to push above last week's high above 146.40 to keep 148.00 in sight or risk a return to 140.00. FTSE100 is expected to open 11 points higher at 7,636 DAX is expected to open 65 points higher at 16,769 CAC40 is expected to open 19 points higher at 7,484
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Decoding Australian Inflation: Unraveling the November Numbers and Debunking Rate Cut Predictions

ING Economics ING Economics 16.01.2024 12:30
What's really going on with Australian inflation A sharp drop in November inflation is encouraging thoughts of RBA easing by May, with more rate reductions by the end of the year. We think this is unlikely. Indeed, it is easier to make the case for further hikes.   Where we are right now The November inflation release showed a further decline in the headline inflation rate to 4.3% YoY, a sharp drop from the 4.9% rate achieved in October and also a little lower than the consensus estimate of 4.4%. On the day, there was some weakness in the AUD as the market took the numbers as corroboration for their fairly entrenched view that the Reserve Bank of Australia has finished hiking rates and was well on the way to easing.   But we're not totally convinced. And we're going to outline why the inflation data isn't as good as it may look at first glance. In doing so, we will at least raise some doubt about the view that rates have peaked. We think they may have, but a residual upside risk still exists, which could also help support the Aussie dollar. So, what happened in November? We prefer to start any analysis of inflation from the perspective of the CPI index, how it's changing month-on-month, and only then what this means to the annual year-on-year inflation rate. That means that fluctuations in the price level a year ago are given a fair chance to affect the inflation rate but have little or no bearing on what the price level is doing now, and we can focus more on monthly fluctuations and their trend run-rate (in practice, the annualised 3m and 6m rates). That also gives us more of a forward look at what we may expect in the coming months. The month-on-month rate for CPI in November came in at 0.33%. If that were repeated for 12 months, it would deliver just over 4% inflation. Fortunately, the trend is not quite so high. The 3m annualised rate is only 2.3%, but this incorporates the 0.33% MoM decline in October, which will drop out of the trend once January data is available and so will probably push higher again. The 6m annualised figure, which dilutes single-month spikes and dips more than the 3m trend, is still running at 4.2% - way above the Reserve Bank of Australia's 2-3% target. Australian annualised CPI %, 3m and 6m
Rates Spark: Navigating US CPI Data and Foreign Appetite for USTs

Rates Spark: Navigating US CPI Data and Foreign Appetite for USTs

ING Economics ING Economics 15.02.2024 11:01
Rates Spark: Treasuries need better than the consensus CPI outcome Markets are awaiting Tuesday’s US CPI release which should give confirmation that the disinflation trend continues. But that's not enough, as a consensus month-on-month outcome would still be a tad too hot for comfort. Looking further ahead, foreign buyers aren't absorbing large UST supply, putting upward pressure on term premium.   US CPI inflation will fall, but Treasury yields are still at risk of rising We're a bit troubled about Tuesday’s CPI report. On the one hand, year-on-year rates will fall, with practical certainty. That's because of a base effect. For January 2023 there was a 0.5% increase on the month, so anything less than this will bring the year-on-year inflation rate down, for both headline and core. So why are we troubled? It's the size of the month-on-month increases. Headline is expected at 0.2% and core at 0.3% MoM. The 0.2% reading is just about okay, especially if it is rounded up to 0.2%. But the 0.3% on core is not okay. That annualises to 4%, which is clearly too high. And it's been at 0.3% MoM for the past two months, and if repeated it would be three of the last four months. Again, that annualises to 4%. If we get the anticipated 0.3%, we doubt there can be a positive reaction. At the other extreme, a 0.4% outcome would be a huge negative surprise, one that would likely cause the probability for a May cut to move comfortably south of 50%. That would throw the easing inflation story up in the air, bringing US Treasury yield with them. But this is unlikely, as the tendency has been for inflation to dip as opposed to spike. We assume a consensus outcome for inflation, and given that, we'd expect to see the 10yr Treasury yield creeping towards 4.25%. For the market to conjure up a positive reaction to the inevitable fall in year-on-year rates, there needs to be a 0.2% MoM outcome for core   Foreign UST appetite not enough to absorb issuance The ECB's Lane spoke about financial flows and shared data that showed renewed interest by foreign investors in eurozone debt securities. Lane notes that foreign investors were a significant seller of eurozone government debt securities in 2021-2022, which matches the period of significant ECB balance sheet expansion. The trend reversed in 2023 when the ECB started unwinding its balance sheet and foreigners became net buyers again. With high debt issuance and a shrinking ECB balance sheet, the growing interest of foreign buyers is welcomed to keep long-end euro yields from rising too much.   In the US the amount of government debt to absorb in the coming years is even larger and foreign investors do not seem to come to the rescue. Looking at US foreign holding statistics in the figure below, we see that foreign holdings are diminishing as a share of total USTs. The significant issuance during the pandemic was not matched by an uptake from foreigners. Instead, as Lane also argued, in the eurozone the central bank was the big buyer. Looking at the downward trend of relative foreign holdings, it seems unlikely that foreign buyers have enough appetite to absorb the increase of USTs from the Fed and the Treasury in the coming years. Low demand from foreign buyers for USTs will have an upward effect on term premia, leading to structurally steeper curves.   Foreign UST holdings as share of public debt in decline   Tuesday's key data and events The main driver of markets will be the US CPI numbers of January. In the shadow of this we have Germany's ZEW survey in the eurozone. The UK's data-heavy week will kick off with employment figures on Tuesday, followed later this week by CPI and GDP data.  We have Italian 3y, 6y and 20y auctions totalling EUR 8.5bn, a GBP 1.5bn 9y Gilt Linker, and a EUR 5bn German Bobl auction.

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