ing economics

Interesting day for Asia with Bank of Korea rate meeting plus Indian inflation ahead of FOMC minutes and US PPI inflation tonight Source: shutterstock Macro outlook Global Markets: The turmoil that threatened to spread across markets from the UK’s Gilts market looked marginally less ominous for a while yesterday. 2Y Gilt yields retreated to the tune of 14.9bp, though their 10Y counterparts fell only 3.4bp. 2Y German bond yields also fell 5.7bp and were down 4.1bp in the 10Y Bund. It remains to be seen whether this calm will hold, as Bank of England (BoE) Governor, Andrew Bailey, noted that the BoE Gilt buying programme would still end this Friday.  Many pension funds seem to think that this is not long enough to make the necessary adjustments to their funds and there is a lot of speculation that the Friday deadline will have to be extended. US Treasury yields did their own thing yesterday. 10Y US Treasury yields rose 6.6bp to 3.9

India: Reserve Bank hikes and keeps tightening stance

(INR) "Reserve Bank of India hikes rates by 40bp" - ING Economics

ING Economics ING Economics 04.05.2022 22:16
In an unscheduled meeting, the Reserve Bank of India (RBI) just hiked policy rates by 40bp to 4.4%. More hikes will follow Reserve Bank of India Governor Shaktikanta Das   4.40% Repo rate Surprise 40bp hike  Higher than expected It was only a matter of time... but this suggests concern is mounting It didn't take long for the RBI to reconsider its stance at the April meeting, where, despite inflation coming within a whisker of 7.0% year-on-year, rates were left unchanged. At that meeting, the members of the Monetary Policy Committee (MPC) voted unanimously on the following statement, which was that policy should "remain accommodative while focusing on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth". The main impetus for this unscheduled hike seems to have been a re-think of the inflation outlook, with RBI Governor Shaktikanta Das commenting: "Core inflation is likely to remain elevated in the coming months, reflecting high domestic pump prices and pressures from prices of essential medicines. Renewed lockdowns and supply chain disruptions due to the resurgence of Covid-19 infections in major economies could sustain higher logistics costs for longer. All these factors impart significant upside risks to the inflation trajectory set out in the April statement of the MPC". Prices of gasoline in the bigger cities are already up about INR10 since mid-March, and with food prices likely to get an additional upward lift from Indonesia's palm-oil export ban, already high food prices are likely to rise further. The RBI may have been emboldened to move now by the bigger-than-expected Reserve Bank Australia hike earlier in the week, and possibly also felt that the rupee could be vulnerable to the Fed's likely 50bp rate rise within only a few hours of this decision.   Indian headline inflation by component (contribution to YoY%) Source: CEIC, ING Alakazam – rate hikes! In terms of what we should expect now that the rate hike genie has been released from the bottle, the simple answer is "more". Just how much and how soon will presumably be a function of how much further inflation rises, the extent to which this spills into second round wage and price effects, and how long this then persists.  The latest statement adds that "the MPC expects inflation to rule at elevated levels, warranting resolute and calibrated steps to anchor inflation expectations and contain second-round effects". The addition of the word "calibrated" suggests that the RBI is not going to panic and start aggressively hiking, as does the repeated inclusion of the "remain accommodative..." phrase.  That said, the balance of risk seems skewed to policy accommodation being reduced overall, even if it still remains somewhat supportive, and that seems to suggest that policy rates should at least begin to close the gap with inflation, even if only marginally and cautiously. With this in mind, we have raised our end-of-year forecast for the repo rate to 5.4%. One aspect we completely agree with the RBI on is that "heightened uncertainty surrounds the inflation trajectory". Geopolitical tensions, supply chain disruptions and the vagaries of whatever the monsoon will throw at the Indian economy this year mean that our new forecasts, like the latest forward guidance from the RBI, should be treated as "work in progress", not a hard expectation.   TagsReserve Bank of India RBI INR Indian rupee Indian rate policy   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
WTI Oil Shows Signs of Short-Term Uptrend Amid Medium-Term Uptrend Phase

FX Talking - Feeling the squeeze | Introduction, EUR/USD & USD/JPY | ING Economics

ING Economics ING Economics 10.05.2022 11:47
Global financial markets have started to really feel the squeeze as the Fed pushes ahead with aggressive tightening at a time when events in Europe and China are repricing global growth prospects lower. This is clearly a bullish environment for the dollar – a currency that tends to correlate inversely with the global growth cycle. In what should be a difficult period for equity and credit markets, we would expect the dollar to stay strong this summer. After all, we are still at the stage of front-loaded Fed tightening. Doubts about the end of globalisation and the need for structurally higher interest rates should also maintain FX volatility at its recently elevated level. In practice, we think this means that EUR/USD can trade in a pretty wide range for the rest of the year – perhaps 1.00-1.10 with a downside bias over coming months. USD/JPY gains over 130 may well be harder work now, but GBP looks increasingly vulnerable given that investors still price the Bank of England’s Bank Rate well over 2.00% this year. Read next: FX Daily: Beware of short-lived rallies | ING Economics| FXMAG.COM Elsewhere in Europe, currencies in the Central and Eastern Europe region remain very volatile and under pressure. The zloty would be our preferred pick on a longer-term view, while the forint remains fragile as twin deficits return to focus. Personnel changes at the Czech National Bank have raised uncertainty around the path of the most favoured currency – the Czech koruna. Risk aversion and the China slowdown are making life hard for many commodity currencies. Most vulnerable look the likes of the Brazilian real and South African rand – with close links to China. The renminbi itself remains fragile, with USD/CNY risk to 6.80. Developed markets EUR/USD Push Me, Pull Me Current spot: 1.0522 The dollar is being pulled higher by the Fed’s decision to take some steam out of the US economy by hitting the monetary brakes hard. 75bp of tightening has been seen so far this year and another 200bp could be seen by December. US 10-year real interest rates have turned positive, in a sustainable way, for the first time since 2019. These could well rise another 75-100bp. And the dollar is being pushed higher by weakening growth prospects in Europe and China, where the war and lockdowns have added to supply chain dysfunction and hit growth prospects EUR/USD is a pro-cyclical currency, and the cycle doesn’t look good. We cannot rule out EUR/USD at parity this year. Read next: Rates Spark: Markets are doing central bankers’ job | ING Economics| FXMAG.COM USD/JPY Official concern and stretched valuations may help JPY Current spot: 131.22 The USD/JPY rally has temporarily stalled around the 130 area. Limiting the move may be two factors: i) Japan’s Ministry of Finance expressed ‘extreme concern’ with the recent spike to 131 – suggesting intervention may not be far off. ii) USD/JPY looks pretty stretched on our medium-term BEER valuation model. We think we’re now in the hard yards of the USD/JPY rally. That it is not to say that USD/JPY cannot push further were US Treasury yields to push substantially higher, but the move will be hard work. Given a tough risk environment (higher real rates, weaker growth, credit markets unprotected) JPY can outperform on crosses. Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment 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
Central Banks' Rates Outlook: Fed Treads Cautiously, ECB Prepares for Hike

Gas Price Has Increased As The Transportation Had Been Limited Because Of The Ukrainian War, NYMEX WTI Went Below $100 Yesterday, But The End Fuel Crisis And Supply Chain Issues May Be Far From Now | ING Economics

ING Economics ING Economics 11.05.2022 15:01
Your daily roundup of commodities news and ING views Gas storage tank Energy Oil sold off with risk assets on Monday, but it failed to follow equities higher yesterday. Instead, downward pressure on the market continued, which saw NYMEX WTI settle below US$100/bbl. Growth concerns continue to weigh on commodities, and a stronger USD only adds further downward pressure to the complex. This weakness has continued in early trading this morning after the API reported that US crude oil inventories increased by 1.62MMbbls - the market was expecting a small draw. In addition, API numbers also showed an increase in refined product inventories. Gasoline and distillate fuel oil inventories increased by 823Mbbls and 662Mbbls respectively. If today’s EIA report shows similar numbers, it would be the first weekly increase for US gasoline inventories since late March and the first for distillates since early April. However, the middle distillate market is still very tight and so we would expect US heating oil cracks to remain well supported. In fact, middle distillate cracks around the world should remain well supported, given the tightness in the market and concerns over Russian gasoil exports. The EIA released its latest Short Term Energy Outlook yesterday. The report cut expectations for US oil production growth for 2022 from around 833Mbbls/d to 731Mbbls/d, which implies US oil output averaging 11.91MMbbls/d this year. However, for 2023, supply is expected to grow by 940Mbbls/d (largely unchanged from last month), which would see US output hitting a record 12.85MMbbls/d. Obviously, the biggest concern for the global oil market is around supply in the short to medium term, given the uncertainty over Russian supply. And the downward revisions to 2022 output estimates will do little to ease these concerns. European natural gas prices showed some strength yesterday. TTF rallied by more than 5%, settling close to EUR99/MWh. This strength came after Ukraine’s gas grid operator (GTSOU) declared force majeure on the transit of Russian gas through Sokhranivka, which accounts for about a third of Russian gas transited via Ukraine. GTSOU has said that it is not possible to continue operations through Sokhranivka due to Russia's military aggression in the region. GTSOU said that gas can be rerouted through Sudzha (another entry point), Gazprom has reportedly said that this is not technically possible. Dutch gas network operator, Gasunie has said that it has contracted a second FSRU (floating storage and regasification unit) for the next 5 years, which would allow it to regas LNG imports at Eemshaven in the north of Groningen. The FSRU is expected to arrive in the third quarter of this year, and along with another FSRU already contracted, would provide a total of 8bcm of regasification capacity at Eemshaven. This regasification capacity would exceed the roughly 6bcm of natural gas that the Netherlands imports from Russia every year. The big question though is if there is enough LNG supply to fully use this capacity, particularly with Germany also securing 4 FSRUs, with an annual capacity of as much as 29bcm. Some of this capacity in Germany is also expected to come into operation ahead of the next winter.   Metals Base metals continued to decline in London amid fragile market sentiment. Copper initially rallied but was unable to hold onto these gains at the close. Shanghai is going into the hardest phase of lockdowns, weighing heavily on sentiment as local authorities vow to bring the Covid wave under control at the community level by the end of this week. Meanwhile, the China Car Passenger Association (CAPM) confirmed that retail passenger vehicle sales plunged by 36% in April, its biggest monthly decline since March 2020. LME aluminium prices continue to fall and have largely ignored a steep decline in on-warrant stocks and a large number of cancelled warrants from Asia, signalling further declines. As of Tuesday, on-warrant stocks have fallen to a record low of 294kt, whilst total closing stocks dropped to 560kt - the lowest since 2005. Antaike has reported that China’s aluminium demand fell 5.5% YoY to 3.3mt last month (the biggest decline since March 2020), primarily impacted by the closure of auto producers due to Covid-related lockdowns. In contrast, the impact on Chinese supply has been rather limited so far, with operating capacity rising to 40.31mt by the end of April. As we also pointed out yesterday, Antaike also believes that the recent Covid outbreak has had a larger impact on demand than the early 2020 lockdowns. Agriculture Data from Brazil’s sugar industry group, UNICA show that sugar production in Center-South Brazil increased to 934kt over the 2nd half of April 2022 compared to only around 127kt over the first half of April as more mills started operations; although it is still significantly lower than the 1.52mt of sugar produced over the same period last season. Sugar cane crushing was down around 20% YoY to 23.8mt over the period with the sugar mix falling to 37.2% compared to 44.5% a year ago. Cumulative sugar production so far this season in CS-Brazil is down around 51% YoY to 1.1mt, reflecting a slow start to the crushing season. High energy prices continue to be supportive for ethanol production with mills allocating more cane towards biofuel supply. TagsSugar Russia-Ukraine Natural gas EIA Covid-19 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
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
Turbulent Times for Currencies: USD Dominates, SEK Shines

Hong Kong's And Malaysia's GDP Are Printed Today So Does US Michigan Sentiment | Asia Morning Bites | ING Economics

ING Economics ING Economics 13.05.2022 11:33
Just in case markets need another excuse to panic - its Friday the 13th In this article Macro outlook What to look out for: US sentiment Source: shutterstock Macro outlook Global: US stocks took a breather yesterday, and both the S&P500 and NASDAQ finished broadly unchanged, though it was a choppy session with big swings in both directions. The same cannot be said about the benchmark FX index, EURUSD, which plunged to new lows of 1.0380 from the low-1.05s yesterday. The plunge dragged the AUD with it, which is now 0.685, though the JPY seems to be catching a bid here, and it has dropped back to 128.50. With the exception of the JPY, Asian FX was all down against the USD yesterday with the CNY showing little sign of halting its recent slide. Treasury yields were lower again, 2s falling more than 10s. 10Y US Treasury yields are now down 36bp from their May 5 peak at 2.86%. Have US treasury yields already seen their peak for this cycle?  Discuss… really, I’d be interested in your thoughts…I’m not sure what the answer is but it must be worth considering… Data wise, it is a quiet day with the US University of Michigan consumer confidence index and associated inflation expectations measures. We’ve had Powell and Daly re-iterating the idea that the next FOMC meetings will deliver 50bp hikes, not 75bp, though this doesn’t seem to be enough to quell market anxiety anymore. Kashkari has a speaking engagement today on energy and inflation, so we’ll see if he has better luck. India: Late yesterday, India released April CPI, which came in at 7.8%YoY, a fair bit higher than the 7.4% consensus expectation. The upside surprise was partly food-related but was also supported by strength in the fuel and light component and transport (all reflecting higher energy prices) as well as clothing. Now that the RBI is in hiking mode after their 40bp hike this month, it may be worth considering if the next move will need to be 50bp? India also releases April trade data today. The market consensus is for the deficit to widen to -$20bn – for choice, I’d probably go wider still, reflecting domestic economic strength and higher-priced imported commodities. China: Beijing has three days of residents staying at home for Covid testing. Though not officially considered a “lockdown” the economic impacts will be similar. The zero-Covid policy is once again confirmed. Damage to the economy is difficult to estimate from the uncertainty of the timing and duration of lockdown. Guangdong province is experiencing floods from heavy rainfall. This may also affect the operations of some factories, adding another headwind to manufacturing and exports.  South Korea: The government has proposed its 2nd supplementary budget worth 59.4 trillion won, of which 36.4 trillion won is allocated to the central government and 70% of the budget is allocated to compensate small business owners. The size of cash transfer is at least 6 million won to 10 million won each (USD450 – 800). The remaining 23 trillion won is earmarked to transfer to local government.  No bond issuance is required as the budget is mostly financed through excess tax revenue of 53 trillion won and expenditure restructuring. This is expected to provide some relief to the bond market due to better supply conditions. However, higher-than-expected government spending could add further upside risk to the current CPI forecast of 4.6% in 2022 and trigger more aggressive monetary tightening. For now, we think that the Bank of Korea would stop at 2.25% and try not to go beyond that. What to look out for: US sentiment 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
EUR/USD Faces Resistance at 1.0774 Amid Inflation and Stagflation Concerns

Key events in EMEA next week | ING Economics

ING Economics ING Economics 13.05.2022 13:14
Preliminary GDP readings in Poland, Hungary and Romania are the key figures to look out for next week The pre-election spending spree of the Hungarian government has provided a boost to household incomes Share    Download article as PDF Hungary: Upside GDP surprise expected following the pre-election spending spree In Hungary, the main calendar event of the next week is the release of the first-quarter GDP data. As this is only a flash estimate, we hardly get any information about the growth structure. But we are expecting a major upside surprise in economic activity, taking into consideration the first quarter output of the industry, retail and construction sectors. With massive quarter-on-quarter performances in these areas, we are looking for an acceleration in GDP growth. This great outcome can be seen as a temporary phenomenon, as the pre-election spending spree of the government gave a boost to the real disposable income of households alongside the roughly 20% minimum wage increase. EMEA Economic Calendar Refinitiv, ING, *GMT TagsHungary 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
Steady BoE Rate Expectations Amid Empty Event Calendar in the UK

European telecoms outlook for 2022 | ING Economics

ING Economics ING Economics 19.05.2022 08:53
After years of heavy pressure on revenues in the telecom sector, we make a call for near-term revenue stabilisation. From an operational perspective, the main themes for the telecom sector are the build-out of 5G and fibre networks. To improve the relative position of the sector regulators should review their measures to provide a more level playing field Source: Shutterstock War has a limited impact on the telecom sector European- and US-based telecom operators are rather insulated from the conflict in Ukraine. Major operators have no sales in the region, the exception being VEON, which is largely exposed, since it is active in Russia and Ukraine. Telekom Austria had only 7.4% of its FY 2021 revenues coming from Belarus. For now, the impact of the war seems limited, with most companies maintaining their 2022 outlook. Typically, demand for telecom services grows in line with GDP. If a severe recession would hit the global economy, telecom operators and handset vendors probably have to adjust revenue expectations in line with GDP expectations, on average. In Europe, however, service revenues have historically already been under pressure because of strong competition. We do not foresee a substantial impact on the financial solidity of companies resulting from this crisis. The biggest risk for the sector comes from cyberwarfare The biggest risk for the sector comes from cyberwarfare. State sponsored hackers could engage at some point in cyberwarfare, something the US government warns about. Hackers could try to impair (local) infrastructure, while telecom companies have to up their defenses. Interestingly, so far, we have seen limited impact from cyberwarfare that could possibly have been initiated as a part of the war in Ukraine. However, we are starting to see revenue stabilisation in a couple of markets. For example, the market leaders in the Dutch, French, Belgian and German markets are close to revenue stabilisation. This is mainly driven by new broadband products, which are often offered with mobile services in a bundled product. Restructuring programmes continue to modernise the back-office of the operators and to phase out legacy technologies. Once programmes are over, this could be a tailwind for profitability. Despite good traction from bundled products and new high ARPU fibre products, many incumbents have segments that see price pressure, often in the business segments. This explains why we see positive trends in the sector, while revenues are not showing strong positive growth rates. Domestic revenue trends European telecom operators Source: Company, ING Aiming for a level playing field The European Commission aims for gigabit broadband for all households as well as for a fast 5G mobile connection in populated areas, which should be reached by 2030. It also aims to rein in some large technology companies. It has published proposals for the Digital Services Act (DSA) and the Digital Markets Act (DMA) which should reduce the dominance of the large technology platforms and create a level playing field with other sectors in Europe. The EU member states and European Parliament said they welcome the proposals. These are now subject to formal approval by the two co-legislators before they will be applicable. Hopefully, the competitive position of telecom companies will improve as well at some point in the future. Competition has been promoted... and this has lowered prices for telecom services as well Regulation has seriously impaired the profitability of telecom companies through tariff measures (for broadband wholesale access and roaming tariffs). Competition has been promoted, with four mobile operators in many European countries. This has lowered prices for telecom services as well. Governments have raised a lot of money through spectrum auctions and often incentivised new operators entering the market. Finally, product differentiation has been difficult because of net neutrality regulations. As a consequence, free cash flow has been under pressure from both weaker revenues, as well as heavy investments and dividends. Read next: Altcoins: What Is Monero? Explaining XMR. Untraceable Cryptocurrency!? | FXMAG.COM A case in point is Telecom Italia, which had a solid investment grade rating in 2005, but is now rated in high yield territory. The Italian market is characterised by heavy competition, while the company explains that its fixed network faces relatively high regulatory pressure from a multitude of measures. The company faces substantial pressure on revenues, as can be seen in the figure above. The interim result is that the company is investigating a break-up, having ramifications for the speed of the broadband roll-out in Italy. The downward pressure on credit ratings has been more widespread in the European telecom sector since most companies have already seen rating downgrades. This is illustrated in the table below. Downward rating pressure for European telecom operators Source: S&P Read next: Altcoins: What Is Litecoin (LTC)? A Deeper Look Into The Litecoin Platform| FXMAG.COM As a result, telecom companies have been at the wrong spot in the value chain, while companies that sell telecom equipment, media content or cloud storage have performed very well, as is shown in the figure below. While large technology companies have the means to invest in new (transatlantic) fibre networks, incumbents often can’t fund all of their network investments from their cash flows. In our opinion regulators should pay attention to a call by the European Telecom Network Organisation (ETNO) in which they ask for a fair contribution for the network investment costs from companies that extensively use broadband networks. Since 2015, unregulated firms did profit from internet with market cap. growth Source: Refinitiv Sector trends contribute to revenue stability Nevertheless, broadband connectivity will likely improve across Europe and 5G is here to stay. The private sector is investing heavily, but there are also plans to invest €13bn in digital connectivity as part of the European Resilience and Recovery Plan. Typically, customer retention is relatively healthy for fibre products, especially when combined in a fixed-mobile converged offer. Net mobile networks and services could also contribute to the goal of revenue stability and eventually growing revenues. This year, 5G products and services will likely become widespread. However, it will be key for mobile operators to find good pricing policies for these new 5G services.   Read this article on THINK TagsTelecom sector European telecoms Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment 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: (GBP/USD) British Pound To US Dollar May Shock You!

Eurozone: PMI drops slightly as inflation pressures remain | ING Economics

ING Economics ING Economics 24.05.2022 14:22
Eurozone: PMI drops slightly as inflation pressures remain The composite PMI fell from 55.8 to 54.9 in May, still signalling decent expansion. With inflation pressures remaining close to all-time highs, this keeps hawkish pressure on the ECB to act quickly despite growth concerns Christine Lagarde, president of the European Central Bank   Squeezed purchasing power, weak consumer confidence, and tightening financial conditions are just a few of the headwinds the eurozone is facing at the moment. Nevertheless, the PMI doesn’t indicate that this is translating into a contracting economy so far, but we do see the first signs of weakness coming through. This is mainly because of the service sector still profiting from fading pandemic restrictions. The May data showed some weakening as the service sector PMI fell from 57.7 to 56.3. While still signalling strong expansion, it is a sign that the reopening boom has started to fade. The manufacturing PMI signalled stalling growth in April, but the indicator improved modestly in May from 50.7 to 51.2. Bugged by input shortages related to the war in Ukraine and lockdowns in China, the sector is having problems with production. At the same time, new orders also decreased for the first time since mid-2020, showing early demand concerns. Inflationary pressures are barely abating though. Input costs have slightly dropped from record highs, and selling price expectations remain close to April’s record high. Some early signs of improvement are unlikely to translate quickly into a fading inflation rate. Moreover, hiring intentions remain strong for now, which will add to labour shortages and subsequently to wage pressures. For the ECB, this is a hawkish signal. The growth outlook is clearly worsening, but the current impact of high inflation and the war is not yet contractionary according to the survey. We have seen ECB doves pushing back at a 50 basis point hike in July, but this PMI release will likely continue the conversation about whether President Christine Lagarde’s promise of no more negative rates by the end of 3Q will already be accomplished at the July meeting, or whether it will be 25bp in July and again in September. The next stop in terms of the ECB's data-driven lift-off is May inflation data, due out next week. 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
Neither a Crypto Borrower nor a Lender Be

Neither a Crypto Borrower nor a Lender Be

David Merkel David Merkel 30.06.2022 08:49
Image credit: Diverse Stock Photos || Would that those shiny coins were the real thing. Metal coins are real. Code, not so. As I have said before, look at the underlying economics of an investment rather than its external form. It doesn’t matter whether it is public or private. The form of an investment does not affect its returns, for the most part. I grew up in investing as a risk manager within life insurance and fixed income. We faced three main risks: credit, liquidity, and duration. We had lesser risks as well, like FX, sovereigns, convexity, etc. My main goal was to see the firm survive under all reasonable circumstances. My secondary goal was to improve profitability over those same circumstances. In doing that, we could make some small “side bets.” Buy an underpriced Canadian dollar bond. Buy a broken convertible bond of a beaten down company. Buy underpriced MBS where the models are overstating refinancing risk. Things like that. We could not make those side bets too large, but we could put a few on to try to make some money for the firm. We would match assets against our likely liability cashflows. We knew that 99%+ of the time, we would be fine. I can’t imagine what the so-called crypto banks are thinking. Much as they deride banking generally, they don’t have the vaguest idea of what they are doing. They should hire an investment actuary to limit what they do. Imagine a world where banks don’t care about currency risk, and some fail because the temptation to reach for yield causes them to buy asset in currencies that are weak… leading them to lose capital on net. This is the nature of crypto lending and borrowing. As Aristotle might have said, “Crypto is sterile.” It doesn’t produce anything. So don’t lend out crypto for a return… you may lose you principal in the process. There is no good reason why you should earn a return exceeding Treasuries plus 1% in lending crypto. But no one in crypto considers risk control. In one sense, I’m not sure how it could be done, unless you limit yourself to one major cryptocurrency — Bitcoin or Ethereum. The grand questions should be: Can I be sure of making payments over the next three months?Is my leverage low enough that the mélange of assets that I own will be able to cover my liabilities? Is there anything I can do to promote long-term survival? With cryptocurrency banks and stablecoins these concerns are ignored. They take risks that no bank or insurance company would take and with far less capital than would be reasonable. I encourage you to sell your crypto and buy gold, stocks, bonds, and other dollar-denominated assets.
The Collapse Of The Silicon Valley Bank Weakened The Dollar And USD/JPY But Supported EUR/USD, AUD/USD, And GBP/USD

University Of Michigan Sentiment Index Is Released Today

ING Economics ING Economics 12.08.2022 08:28
Today's data should further underpin the notion that US inflation (expectation) has peaked. But this alone will not be enough to swing the FOMC around just yet. We may see more steepening near term, but we do not think that we have seen the last of the late-cycle flattening dynamic as the Fed is still set on ratcheting up the key rate More data to underpin the notion of the inflation peak having passed With today’s University of Michigan consumer sentiment release and the accompanying consumer inflation expectations, markets are set to get another piece of data that should underpin the notion that the peak in inflation has now been seen. Already yesterday, producer prices posted an even bigger undershoot versus expectations than the CPI the day before. Headline prices fell month over month with the drop in fuel prices clearly of help. Overall the reports have helped turn around market expectations towards a 50bp hike in September and respective pricing is now only implying a 40% perceived chance of a larger 75bp hike. One soft CPI reading is probably not enough to swing around the FOMC However, one soft CPI reading is probably not enough to swing around the FOMC. We will likely not have heard the last from the Fed in terms of hawkishness. Officials continue to reiterate that the Fed’s job is not done yet. Looking ahead into the next weeks we have the FOMC minutes and the Jackson Hole symposium, which could drive that message home again. And not to forget, there is still one more CPI and one more jobs report to come before the September FOMC meeting. The steepening we are now seeing may look a bit premature with a Fed set on a path to deliver more hikes, taking the Fed funds rate eventually to 3.50-3.75% before the year is out. The Fed's hawkish tone and lower inflaiton have put real yields up Source: Refinitiv, ING   For now the US curve still stands notably steeper, with the initial post CPI bull steepening having morphing into a bear steepening, where even the front end pared some of the first move lower. The later dynamic may in part be owed to the long-end Treasury supply with yesterday’s 30Y auction trailing despite the concession going into the event. Perhaps it is a sign of the Fed further losing grip of the long end. Now seen a tad less aggressive it may have allowed inflation expectations creep back into the long end – the 10Y inflation swap has entirely retraced the post CPI move lower. But less aggressive tightening may also help allay recession fears. It was actually real yields that have risen again, especially yesterday with the 10Y now at 0.15% again after having flirted with the zero line early in the week. Markets on summer tour with US events With many of the upcoming events still revolving around the Fed outlook the US market will likely remain in the driving seat. But it should turn more quiet in the next week with perhaps finally some sense of summer pause setting in – especially as much of Europe is observing a public holiday on Monday. The evolving energy crisis will remian the underlying theme in Europe Data calendars are looking more quiet as well. While we have the FOMC minutes and also housing data to consider in the US and over in Europe a ZEW reading – one dares ask whether it can get any worse than it already is – the underlying theme in Europe will remain that of the evolving energy crisis. The summer drought is seeing dramatically falling levels on one of Europe’s most important waterways, aggravating the energy crunch. A key level for navigability is expected to be undershot these days.   Today's events and market view Data leaves the US in the driving seat with all eyes on the University of Michigan sentiment index. As our economists recount, it has plunged as the cost-of-living crisis and falling equity markets sapped spending power and confidence. However, the drop in gasoline prices should now provide some relief and support. Consequently, they expect the index to bounce far more than the consensus is looking for while inflation expectations may also drop back a little. Thus more to underpin the notion of the inflation peak having passed – and for now the market may see some more steepening. Eventually we think we have not seen the last of the late-cycle flattening dynamic yet. 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
United Kingdom: Inflation Is Expected To Hit 11%

Eurozone: Industrial Production Declined By Over 2% And May Decrease Further

ING Economics ING Economics 14.09.2022 13:15
July industrial production fell by 2.3%, reversing gains made in May and June. While Irish volatility plays a large part in recent swings, we expect manufacturing weakness to continue over the second half of 2022 – mainly due to an environment of slowing new orders and continued supply-side problems For the months ahead, the outlook remains relatively bleak While we saw a decent end to the second quarter for manufacturing, data confirms that industrial production in July was flat at best, and is likely to decline. Looking at production categories, capital goods production saw a large drop which was mainly related to big Irish swings that relate to large multinational activity. Other goods saw more of a mixed bag in terms of production. Durable consumer goods production was down, which is also true for intermediate goods. Non-durable consumer goods production partially reversed a large decline seen in June. In terms of the larger countries, Germany, Spain and France all saw production decrease significantly in July. Italy and The Netherlands saw a modest improvement at the start of the third quarter. For the months ahead, the outlook remains relatively bleak. The energy crisis has started to result in production cuts across the eurozone for the most gas-intensive producers and other supply problems have faded but not disappeared. On top of that, demand for goods is also weakening. Businesses reported that new orders slowed again in August, which means that inventories are rising and backlogs of work are falling. Overall, this suggests modest production expectations for the second half of the year in manufacturing for now. Read this article on THINK TagsGDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Much Business May Shift To Eastern Economies

South Korean Won (KRW): What Can We Expect From Bank Of Korea (BoK)?

ING Economics ING Economics 16.09.2022 10:14
China data dump the main highlight for Friday Source: shutterstock Macro outlook Global Markets: US stocks did not follow through on their Wednesday bounce, and stock futures for once were an unreliable guide to the opening price. The S&P opened down on the previous close and despite a couple of attempts to rally, it was a fairly clear downtrend for most of the session, leaving it 1.13% down from the previous day to sit on recent lows. If they are to be believed, then equity futures suggest we will break lower today, which could then see the market look to re-test the June and July lows. The NASDAQ was down 1.43%. Bond yields continued their upward march, with the 2Y yield rising 7.7bp to 3.865%. This time, 10Y yields also followed, but as usual, by rather less, rising 4.4bp to 3.449%. EURUSD bounced around yesterday, but showed little overall direction, currently trading at 0,9989, but with an intraday low of 0.9956 and an intraday high of 1.0018. The AUD has slipped below 0.67 despite a nondescript labour report on Thursday, and Cable slid steadily on Thursday to reach the mid-1.14s. The JPY rally also seems to have run out of steam, as was widely expected, and has risen back to 143.36, giving it just a small buffer between the 145 level that seems to be the current line in the sand for the Bank of Japan. There was widespread weakness across the Asian FX pack on Thursday, and this will probably continue into the weekend. The CNY led the weakness, coming within sniffing distance of USDCNY7.0 even as the PBoC left the 1Y MLF rate unchanged yesterday.  We expect this USDCNY level to be breached, probably sooner than later. G-7 Macro: US Retail sales for August were rather mixed, with the headline 0.3%MoM gains driven mainly by auto sales, while the control group, which gives the least volatile readings, was flat on the month. James Knightley writes about these numbers here. US industrial production for August was slightly softer than expected too, falling 0.2%MoM against expectations for no change. See here for more details on these numbers and why we see further weakness ahead. Today’s main release is the US University of Michigan consumer sentiment survey for September. Consensus is forecasting a slight improvement to 60 from 58.2, though this would still be a very weak reading. South Korea: The jobless rate for August unexpectedly fell to its historical low of 2.5% beating the market consensus of 3.0% and last month’s 2.9% reading. Labour market participation declined to 63.9% (vs 64.1% in July), seemingly due to unfavourable weather conditions. Manufacturing employment has now increased for three months in a row and services employment was also solid, boosted by reopening and holiday effects. We expect the unemployment rate to rise again to 3% in the coming months but the relatively tight labour market will likely continue for a while. In a separate report, import prices fell for the second consecutive month in August (-0.9% MoM NSA) mainly due to a drop in global oil prices. We think that global oil prices are a more dominant factor determining import prices than the KRW currently. As long as global commodity prices remain stable, then import price inflation should slow in the months ahead. Data released today will support a 25bp hike by the Bank of Korea (BoK) in October. There is a growing opinion that the BoK may take another “big step” in October to catch up with faster rate hikes by the US Fed and to mitigate recent currency depreciation. However, we believe the BoK will take “normal” steps due to more downside risks to growth and signs that it has passed the high in  inflation. Singapore: Singapore's August non-oil domestic exports (NODX) surprised on the upside, rising 11.4% YoY vs the 8.3% estimate and benefiting from a favorable base.  NODX, however, contracted from the previous month (-3.9%) weighed down by the slowdown in electronics, which fell by 4.5% YoY.  Pharmaceuticals posted a 68.8% YoY gain but was entirely due to base effects and was not a major driver of the headline result.  Exports to China fell sharply in July and this decline extended to August (-18.2%).  We expect NODX to moderate further in the coming months as global growth slows.  What to look out for: China activity data South Korea unemployment (16 September) Singapore NODX (16 September) China industrial production, retail sales and fixed asset (16 September) US University of Michigan expectations (16 September) 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 Turkish Central Bank Cut Its Policy Rate by150bp | Credit Suisse Outflows Benefit UBS

What Can We Expect From Central Bank Of Turkey (CBT)? A Big Package Of Polish Economy Data Is Coming

ING Economics ING Economics 16.09.2022 15:00
Despite the Central Bank of Turkey implying in its forward guidance that further rate cuts are ahead, we believe it will keep the policy rate unchanged for now to assess the impact of recent moves. For Poland, we forecast that unemployment will remain at 4.9% whilst PPI inflation will decline to 24.5% In this article Turkey: Expecting the CBT to keep rates unchanged this month Poland: Key data for the week ahead Hungary: Further widening of the current account deficit Source: Shutterstock   Turkey: Expecting the CBT to keep rates unchanged this month While the Central Bank of Turkey (CBT) cut the policy rate last month in a surprise move, it did issue forward guidance implying further rate cuts were ahead, citing some loss in economic momentum. The CBT moves will likely be determined by FX developments, as the tourism season comes to end, as well as the growth outlook. We expect the CBT to keep the policy rate unchanged this month to see the impact of recent moves, though the risks are on the downside. Poland: Key data for the week ahead Industrial output: Annual growth of industrial production moderated to a single-digit pace in July (7.6%), but is projected to improve somewhat in August (9.8%) amid the less negative impact of the number of working days in year-on-year terms. The output should be supported by shorter summer production halts in the automotive industry and house appliances plants. Electricity production was also rather solid. Output was reduced in some energy-intensive industries due to the soaring price of natural gas. PPI inflation: We forecast that PPI inflation declined to 24.5%YoY in August from 24.9%YoY in July as prices in the manufacture of coke and refined petroleum products eased. Annual growth of metal products manufacture also declined. Unless we see yet another upswing in energy and industrial commodities, the producers’ prices should continue to decline. We believe that the peak is most likely behind us. Enterprise wages: In July, enterprise wages jumped up by 15.8%YoY boosted by one-off payments and compensations for high inflation in the mining, energy and foresting sectors. In August, growth is expected to be lower, albeit still at a double-digit level. Nevertheless, real wages in the enterprise sector are projected to turn negative again. The labour market remains tight, which is what drives wages upwards. Enterprise employment: Average paid employment went up by 2.3%YoY in July, with the number of posts increasing by 11,000 people versus the previous month. In August we expect a seasonal decline, but smaller than last year, which should drive annual employment growth up to 2.4%YoY. Despite signs of slowing activity, particularly in industry and construction, demand for labour remains solid, especially in services. Unemployment rate: The labour market is drained from skilled workers and even the inflow of refugees from Ukraine that have assimilated quite well and are active in the labour market is not putting upward pressure on the unemployment rate so far. Since January the number of unemployed people is on a downward path and the registered unemployment rate is projected to remain at 4.9% for the second month in a row in April. Hungary: Further widening of the current account deficit The National Bank of Hungary will release the second quarter current account balance and it is expected to be in the same ballpark that we saw during the first quarter. A roughly €2tr deficit is the result of the rising energy bill of the country, deteriorating the balance of goods in an extreme manner. An early estimation of the July balance suggests further widening of the current account deficit. When it comes to the labour market, we see wage growth accelerating further, as the price-wage spiral has started. More and more companies have announced extra compensation for employees (either one-off or mid-year salary hikes) in the last couple of months, which will be visible in the wage statistics as well. On the other hand, the news has also been about companies planning redundancies in the future (various surveys put the share of these corporates between 25-50%), thus we won’t be surprised if the unemployment rate reflects that development, moving a bit higher compared to the previous month. Key events in EMEA next week Source: Refinitiv, ING TagsTurkey Poland industrial production 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
Copper prices hit lowest level this year. Crude oil decreased second day in a row. BoE went for a 25bp hike

Poland: Industrial Production Increased By Almost 11%

ING Economics ING Economics 20.09.2022 12:29
Industrial output expanded by 10.9% YoY in August even though manufacturers face soaring energy prices and uncertainty about the availability of energy sources this winter. At the same time, producers’ prices continued running at ¼ level higher than in the corresponding period of 2021 and higher costs will continue to be passed on to retail prices August's production reading is a signal of economic resilience   Industrial production rose by 10.9% year-on-year in August (ING: 9.8%YoY; consensus: 9.7%YoY), following an increase of 7.1%YoY in July (revised from 7.6%YoY). The higher annual growth rate than the month before was due in part to calendar effects (a negative pattern of working days in July). Production was also supported by a smaller scale of shutdowns in the automotive and house appliances sectors in August. Production of motor vehicles, trailers and semi-trailers increased by 40%YoY and electrical appliances by 23.9%YoY. Interestingly, while the second quarter saw month-on-month declines in seasonally-adjusted production, the third quarter has brought a rebound in the level of output. No manufacturing recession in 3Q22 Industrial output (MoM SA)   We find the August production reading a positive signal of economic resilience, given poor leading indicators, weaker orders and high energy and commodity prices as well as uncertainty about the availability of energy in the autumn-winter period. We observe a gradual cooling down rather than a sudden and abrupt halt in activity as suggested by the latest manufacturing PMI index readings. We estimate that there will be an increase in 3Q22 GDP on a quarter-on-quarter seasonally-adjusted basis and that annualised growth will be close to 3%. In other words, we do not see a technical recession in 3Q22, but we still expect the second half of the year to be markedly worse for the Polish economy than the first with the most risk still in winter. Producer prices increased by 25.5% YoY in August, i.e. at the same pace as in July (after revision), despite another marked decline in fuel production prices (-6.5% month-on-month). Prices in manufacturing increased by 20.2%YoY and in mining and quarrying by 30.4%YoY. However, the greatest pressure was seen from energy prices, which rose in August at a double-digit rate (10.0%MoM) for the second month in a row and are already nearly 80% higher than a year earlier. Overall, the producers’ prices index (PPI) is around ¼ higher than a year ago, and the process of passing on rising production costs to final prices will continue in the coming months. This confirms our concern that the next few months will bring a new wave of retail price increases. We do not share the optimism of the Monetary Policy Council representatives who speak of a stabilisation or decline in CPI inflation before the end of the year. We rather expect an adjustment of prices and the economy to face another price surge, this time an energy shock. In our view, the expansionary nature of fiscal policy will even increase beyond what we see in 2022, making it easier to still pass on high costs to retail prices. Nevertheless, rate hikes are coming to an end. Recent comments show that the National Bank of Poland (NBP) is rather targeting a decline in the annual CPI (in our view possible by the end of 2023) and a 'soft landing' of the economy, while CPI at 2.5%YoY is a seemingly forgotten target. An important factor that reduces the effectiveness of the rate hikes so far 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 imagine a rate cut in 2023. With that in place, we may face another cycle of rate hikes in 2024. The way to fight inflation on the monetary and budgetary policy fronts in Poland differs from the approach of other countries, where central banks and governments communicate that domestic demand and labour market need to cool down and wage growth to moderate below the rate of inflation. All of this is to avoid a repeat of the 1970s scenario in the US when it took a couple of cycles of rate hikes to bring inflation down to required levels. The ultimate cost of fighting it was greater than the cooling of the economy at the start of a period of high inflation. 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
FX: The Gap Versus The FX spot Rate In Poland Is Already The Largest In The CEE Region

Poland: Employment In The Corporate Sector Up, Wages Up Less Than In July. Let's See The Labour Market Data

ING Economics ING Economics 20.09.2022 13:27
In August, employment in the corporate sector rose 2.4% year-on-year as expected, up from 2.3% in July, underlining strong labour demand. However, wages were weaker, rising 12.7% YoY (consensus 13.9%), following a string of hikes and bonuses which brought growth to 15.8% YoY in July Inflation is outpacing wage growth in Poland   The lower year-on-year wage growth in August likely resulted from fewer wage hikes, bonuses and inflation benefits, which boosted the July figure. Those pay increases were primarily seen in the mining, energy and forestry categories. Some companies likely waited to boost pay until the personal income tax reduction took effect in July. As those effects faded in August, wage growth again fell below inflation (16.1% YoY). Companies may also be limiting salary increases in anticipation of a strong increase in the minimum wage next year (in January and July). As a result, for the last four months, wage growth has only outpaced inflation in July. The impact of this has been reflected in disappointing retail sales data, where there has been a clear decline in demand for durable goods, among other things. However, the overall health of the labour market remains good. Labour demand is strong despite growing refugee employment (now over 400,000 of those coming after 24 Feb). These people are most likely largely unaccounted for in the statistics (only full-time employees are counted), indicating that the number of jobs being created is impressive. Strong labour demand suggests continued high wage pressure in the months ahead. However, it may slow temporarily in the second half of the year as companies prepare for the 20% minimum wage hike in 2023. We assume some stabilisation in annual wage growth before the end of 2022 but a 20% increase in the minimum wage is likely next year despite the economic slowdown. Strong growth in the wage bill (taking into account the hiring of Ukrainian workers) is outpacing labour productivity. Along with the government's expansionary fiscal policy, this is another argument for keeping inflation stubbornly high. Real wages in decline CPI and nominal wages (YoY) Read this article on THINK TagsPoland wages 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
Manning the Renminbi Barricade: Navigating FX Markets Amid Chinese Defenses

Eurozone: What Can We Expect From Belgian Construction Sector?

ING Economics ING Economics 10.10.2022 15:02
Activity in the Belgian construction sector is starting to slow. Although order books are still well filled, new orders are coming in more slowly. For this year, we forecast 2.5% growth for the Belgian construction sector, but next year growth will come to a halt Belgian construction activity still 6.1% below its pre-pandemic level Construction activity in Belgium in the first seven months of this year was 0.4% lower than during the same period last year. The war in Ukraine has put activity under pressure even more. In July, construction activity was 1.1% lower than in February before the outbreak of war in Ukraine. In the European Union, construction activity was still up 3.7% for the first seven months of this year, thanks to a strong start to the year. Yet the European average has also been under strong pressure since the war in Ukraine. Construction activity in the EU has declined by 2.2% since February. Rising costs due to sharply increased energy and construction material prices, combined with growing uncertainty due to the war in Ukraine, are weighing on construction activity. As a result, it will take longer to fully recover from the Covid-19 hit. Construction activity in Belgium fell more sharply than the European average during the first lockdown. The recovery afterwards was also weaker. In July 2022, construction volume in Belgium was still 6.1% lower than in July 2019, the same month before the pandemic, while activity in the European Union was already 1.9% above its pre-pandemic level. Fig. 1. Construction production index (July 2019 = 100) Source: Eurostat Construction business confidence down sharply since start of Ukraine war According to the European Commission's confidence indicator, sentiment in the construction sector has fallen sharply since the start of the war. Rising costs and problems in global supply chains have weighed on profitability and caused a lot of construction sites to experience delays. Although pressure on supply chains is still high, it is beginning to normalise. While the pressure on building material prices seemed to ease somewhat during the summer, the prices of energy-intensive building materials rose sharply again in September. Unlike the situation in the spring, this further increase in building material prices is no longer due to higher commodity prices on international markets, but due to higher energy costs, which make the production process of building materials more expensive. From a survey by Embuild, eight in 10 respondents expect further price increases for these materials over the next three months. A number of Belgian producers have already reduced or halted production, which in turn could affect the availability and delivery time of these materials. Falling demand will also make it more difficult to pass on price increases, putting pressure on the industry's profitability. Fig. 2. Evolution of confidence in the construction industry Source: European Commission More companies planning to raise prices again These cost hikes are again increasing sales prices. The European Commission's business survey shows that the net balance of construction companies planning to increase their selling prices rose again in September. Price pressure seemed to have eased somewhat recently, but once again more contractors feel compelled to raise their prices further. However, as demand begins to decline, it is becoming increasingly difficult to pass on these higher costs to the end customer which is putting pressure on profitability. In a survey by Embuild, half of the construction companies already said they were having trouble paying their invoices in the short term. For now, the volume of work is still decent, but the industry is concerned about shrinking order books. Fig. 3. Sales price expectations in the Belgian construction sector Source: European Commission Alongside increased material costs, the sector faces other headwinds In addition to the sharply increased cost of building materials, the construction industry is also struggling with a number of other problems, including shortages of labour and building materials. Although pressure on global supply chains has improved somewhat since early summer, there are still many delays and difficulties in obtaining certain materials. The number of contractors reporting that a lack of materials is hindering production is still quite a bit higher than before the Covid-19 pandemic. In addition, the industry is also struggling to find suitable labour which is holding back activity. Although this figure has come down somewhat recently due to declining demand, this continues to hamper the sector. Fig. 4. Factors hindering activity Source: European Commission Higher mortgage rates weigh on residential market Higher interest rates on a mortgage loan will dampen demand for new residential projects. Mortgage rates on a 20-year term have already doubled this year from 1.4% at the beginning of the year to nearly 3% by the end of September. This translates into a declining number of applications for new mortgage credit for new construction projects. The number of mortgage loans registered in August was 24% lower than in the same month last year. Although it's important to say that the number was exceptionally high last year, partly because many homeowners took advantage of low interest rates to refinance their mortgage loans. We expect these mortgage rates to continue to hover at these higher levels. On top of that, the ongoing war in Ukraine is creating additional uncertainty that may cause people to postpone new construction and renovation projects. All of these factors are translating into declining demand for new projects. Thus, there are fewer new construction projects in the pipeline. The number of licensed new residential buildings decreased by 3.4% in the first five months of 2022 compared to the same period in 2021. Moreover, economic uncertainty is making more households postpone their renovation projects. The European Commission's latest consumer survey shows that the intentions of Belgians to carry out improvement works on their own homes in the next 12 months fell to the lowest level in 12 years in the third quarter. Fig. 5. Belgian's intention to carry out improvement works on own home in the next 12 months Source: European Commission Belgium's residential construction sector likely to hold up better than other countries' On the other hand, purchasing power in Belgium is holding up much better than the European average. According to the Federal Planning Bureau, purchasing power will decline only 0.1% this year thanks to automatic wage indexation and strong job creation. For next year, it predicts a 0.7% increase in purchasing power. As a result, the Belgian residential real estate market, and thus the residential construction sector, is likely to hold up better than in neighbouring countries. In addition, uncertainty due to the ongoing war in Ukraine combined with sharply increased prices for energy and building materials will cause many households to postpone non-urgent beautification and renovation projects. As we expect the Belgian economy to head towards a recession in the winter months, residential construction activity will also weaken further in the second half of the year. The start of 2023 will be difficult. It is likely that the residential construction market will only recover from the second quarter of next year. Negative business sentiment will further dampen the non-residential sector The outlook for the non-residential sector is strongly dependent on the economic context of the companies that need these types of properties. There is little optimism on their part. In September, business confidence fell for the sixth consecutive month. The decline was strongest in manufacturing, but confidence also crumbled further in the service sector. Energy-intensive companies are particularly hard hit by high energy prices. Given the likelihood of the economy slipping further into recession, we expect business confidence to weaken further. The negative sentiment will encourage companies to invest less in non-residential real estate. In September, the component measuring confidence in the construction sector for non-residential buildings (such as commercial spaces, job stores, bank offices, sports complexes, office buildings, etc.) improved slightly but is still strongly negative. Sentiment also fell sharply for government projects in September Public construction projects held up a little better, but confidence also fell sharply in September. Many public clients have had to postpone plans in recent months due to the sharp increase in the cost of building materials and increased operating costs due to high inflation. Notwithstanding, public investments are usually less cyclical and the need for more investment in public infrastructure is still very high. We expect this branch to suffer less from the upcoming recession. Rising headwinds will put brakes on growth in 2023 Although the construction industry started the year well, the sector is facing increasing headwinds. Supply problems have improved but are not yet completely gone. Higher mortgage rates and declining consumer confidence are making builders hesitant about new projects. On top of that, the industry is facing new price increases for energy-intensive building materials. For now, contractors still have plenty of work as they are still catching up due to the supply problems caused by the Covid crisis. Therefore, we still expect the sector to grow by 2.5% this year. For 2023, we expect stagnation, or possibly even a slight contraction in activity. Read this article on THINK TagsReal estate Construction 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
Hungarian inflation peak is behind us

Hungary: You Won't Believe How High Is Hungarian Inflation!

ING Economics ING Economics 11.10.2022 19:22
Headline inflation made a big leap in September on household energy prices, but underlying price pressures increased as well. However, we see some signs supporting our view that the peak might be close 20.1% Inflation (YoY) ING forecast 19.9% / Previous 15.6% Higher than expected The anatomy of a one-off extreme inflation acceleration There was widespread agreement among analysts that September's headline inflation figure would see an extreme jump. And they were not wrong. Inflation rose by 4.1% on a monthly basis, translating into a 20.1% year-on-year inflation print. The last time the monthly price increase came in above 4% was in January 1996. The main drivers behind the eyebrow-raising 4.5ppt acceleration from August to September came as no surprise. Main drivers of the change in headline CPI (%) Source: HCSO, ING The details Due to the changes in regulation in household utility prices effective from 1 August, the price of electricity, gas and other fuel went up by 62.1% year-on-year. In contrast with the HICP (Eurostat) data, the domestic consumer price index invoice - namely the payment due date counts, which are characteristically for energy services, arrive the month following the consumption. The jump in household energy prices was responsible for 3ppt of the total 4.5ppt acceleration in headline inflation. Household energy prices are subject to change on a quarterly basis and the next price decision comes in December. With the recent drop in gas and electricity prices, we see only a moderate chance for further price increases in utility prices. Price changes in food have remained a key contributor to the monthly price increase. Prices rose by roughly 35% on a yearly basis in this product group, with both processed and unprocessed food showing a significant increase. According to the central bank’s estimate, 75% of the rise in food prices is coming from processed foods. Supply chain issues in agriculture, drought, labour shortage and higher energy bills are all contributing to rising food prices. Fast-moving consumer goods are also getting more expensive as inflation accelerated in household goods and goods for recreation. Inflation in services has remained subdued compared to the headline inflation, although we saw further acceleration to 8.2% YoY. This was fuelled by cultural and educational services as well as by household services. Prices of recreational services dropped by 13.6% compared to August in line with seasonality. The composition of headline inflation (ppt) Source: HCSO, ING A 26-year record has been broken with 20% readings As the most significant upward effect in inflation came from energy prices, it hardly comes as a surprise that the acceleration in core inflation was more moderate than the move in the headline reading. Nonetheless, core inflation moved to 20.7% year-on-year, somewhat below market expectations. This is the first time since September 1996 that both core and headline inflation have moved above 20%. Besides core inflation, the underlying price pressures can also be perceived from the share of items showing above-average inflation. According to our estimate, 44% of the items in the consumer basket have already shown at least a 20% YoY inflation figure in September. Headline and underlying inflation measures (% YoY) Source: HCSO, NBH, ING Some signs point to an upcoming ease in price pressure Inflation in Hungary is expected to strengthen further in the coming months. However, we expect the pace of acceleration to slow down significantly. In practice, we see much lower month-on-month inflation prints going forward, which means we will possibly see the peak in inflation within six months. We see the peak around 21% early next year, as we expect the government to keep the price caps in place, extending them before they expire by the end of the year. Despite all the supply-side shocks, there are some signs that point to a cooling of inflation pressure. The volume of turnover in retail sales has been on a decline for five months (excluding fuel retailing), suggesting a significant reduction in consumption. Households have already started to adjust their demand lower, reacting to higher prices. In line with that, expectations for retail sales prices declined sharply according to the Eurostat survey. On top of that, business price expectations for services fell slightly as well in September. Changes in the expectations for retail sales prices and core inflation Source: Eurostat, HCSO, ING   Somewhat surprisingly, weak forint didn’t spill over into consumer prices of durables. Monthly inflation of industrial goods has been decelerating for three months now and according to the NBH’s data, it is now only 0.8% month-on-month. This is the lowest figure since January 2022. Last but not least, as we pointed out, the two most important contributors behind the acceleration were food and energy. The monthly change in core inflation excluding processed food has been also on a slowing trend since July. Our point here is, that despite the above 20% inflation readings in September, we have seen some signs of changes in some part of the consumer basket. These can provide some restrained optimism that underlying inflation might reach a turning point soon. Our inflation forecast remains broadly unchanged After today’s headline reading, we forecast a 14% average inflation 2022, with a roughly 15% inflation in 2023. The first reason behind the acceleration, that the carry-over effect will give a massive boost to next year’s reading. Secondly, even with the expected ease in underlying price pressure as a result of the recession, the deceleration will be slow during the first half of 2023. We see inflation dropping to 3% only in the second half of 2024. Read this article on THINK TagsInflation Hungary Households 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
South Korean exports shrank, but annual print shows a 6.1% gain in 2022

South Korean Won (KRW) And THB Decreased Yesterday. S&P 500 And Nasdaq Declined A Bit

ING Economics ING Economics 12.10.2022 09:37
Interesting day for Asia with Bank of Korea rate meeting plus Indian inflation ahead of FOMC minutes and US PPI inflation tonight Source: shutterstock Macro outlook Global Markets: The turmoil that threatened to spread across markets from the UK’s Gilts market looked marginally less ominous for a while yesterday. 2Y Gilt yields retreated to the tune of 14.9bp, though their 10Y counterparts fell only 3.4bp. 2Y German bond yields also fell 5.7bp and were down 4.1bp in the 10Y Bund. It remains to be seen whether this calm will hold, as Bank of England (BoE) Governor, Andrew Bailey, noted that the BoE Gilt buying programme would still end this Friday.  Many pension funds seem to think that this is not long enough to make the necessary adjustments to their funds and there is a lot of speculation that the Friday deadline will have to be extended. US Treasury yields did their own thing yesterday. 10Y US Treasury yields rose 6.6bp to 3.947%, bringing 4% back into play as a near-term target. 2Y US Treasury yields were little changed at 4.31%. The pound came under further selling pressure yesterday, dropping to 1.0975 as of writing. EURUSD has ended up virtually unchanged after a very choppy session in US trading. The AUD is now down to 0.6267 and the JPY is nosing up towards the 145.90 level at which the BoJ intervened in mid-September. It looks like this could be an interesting day. Most of the Asian FX pack lost ground to the USD yesterday, led by the KRW which has risen to 1435, and the THB, which is up to 38.12. The CNY made further small losses, rising to 7.1687. Stock markets don’t yet seem to have woken up to what is going on in bond markets, and there were only small losses in the S&P500 and NASDAQ yesterday.  Equity futures are pointing to a small gain at the open. G-7 Macro: Yesterday’s US September small firm business survey (NFIB) rose for a third consecutive month. Most notably, there were slightly lower plans to increase selling prices (51% down from 53% in August and the 65% peak in May). The UK’s labour market data released yesterday showed a faster slowdown than had been expected, which won’t make the fiscal arithmetic any easier for the UK government, trying to make their tax cut plans add up to something that won’t crash the pound or Gilts market. The monthly GDP figures for August in the UK due out today will likely also make for uncomfortable reading. US mortgage applications and PPI numbers ahead of the September CPI release tomorrow as well as the FOMC minutes from the last meeting, will help set the tone for the market for the next 24 hours.     China: China loan growth jumped by almost double from a month ago to CNY247bn. Government bond issuance also jumped. This indicates that government spending will support the GDP growth figure in 3Q22. But fiscal pressure is mounting. India: September CPI due out later tonight will show inflation pushing higher. The consensus is for a rise to 7.4% from 7.0%. We think there is some upside risk to these figures based on some higher food price data over the month. South Korea: The Bank of Korea (BoK)  holds a rate decision meeting today. Both we and the market expect the BoK to raise its base rate by 50bp, considering the faster-than-expected Fed rate hikes, sticky inflation exceeding 5%, and growing inflation risks from the weak won and rebounding global oil prices. Inflation eased down to 5.8%YoY in September and inflation expectations also came down slightly. But the BoK will be very careful in reading too much into the latest figures as inflation is expected to pick up again in October. The market has already started talking about the possibility of another 50bp hike by the BoK at the next MPC meeting in November. We have to listen carefully to Governor Rhee’s comments today, but we think that October CPI is the key for the BoK regarding the next decision. If inflation goes back up to 6%, then another 50bp hike is possible. If not, then they will likely normalize their hiking pace. Japan: The JPY passed 145.9 this morning and if the authorities step in again, it will be no big surprise. Machinery orders fell in August by -5.8% MoM sa (vs 5.3% in July and -2.8% market consensus). The weakness mainly came from foreign orders (-18.9%), pointing to the slowdown in the global economy. Domestic demand orders rose modestly (1.9%). We think that Japan’s economy will stay on a recovery path, boosted by reopening-induced domestic demand. What to look out for: Inflation reports and the FOMC minutes Japan machine orders (12 October) India PPI inflation (12 October) US PPI inflation (12 October) Bank of Korea decision (12 October) FOMC minutes (13 October) Japan PPI inflation (13 October) US CPI inflation and initial jobless claims (13 October) China trade balance, CPI and PPI inflation (14 October) Korea unemployment (14 October) US retail sales and University of Michigan sentiment (14 October) 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

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