jerome powell

Asia Morning Bites

South Korea's inflation comes in below expectations. US non-farm payroll release later tonight. Powell slated to speak again at the weekend.

 

Global Macro and Markets

    Global markets:  Despite some reasonably strong data, US Treasury yields dipped slightly on Thursday. 2Y yields were down less than a basis point, but only after dropping below 4.14% and then recovering later on. 10Y yields followed a similar pattern of decline and recovery taking them down 3.2bp to 3.97%. Jerome Powell has a TV interview scheduled for the weekend, which could be interesting if he deviates from the recent message at the FOMC. Currencies also had a choppy day. EURUSD dropped below 1.08 at one point but is back up to 1.0874 now. Likewise, the AUD came close to dropping through 65 cents but has recovered to 0.6575 now. Cable did even better, finishing up on the day after a less dovish than expected Bank of England meeting. The JPY was roughly unchanged at 146.47. Other Asian FX

Dollar falls to one-week low as Powell pushes back against 75 bp hike

Dollar (USD) falls to one-week low as Powell pushes back against 75 bp hike

Ed Moya Ed Moya 05.05.2022 16:04
Fed hikes by a half-point A historic Fed decision is in the books and Fed Chair Powell did not disappoint. The Fed delivered the first-rate hike in 22 years and signaled more rate increases are appropriate and that the balance sheet runoff will begin in June.  Growth is cooling and that could get a lot worse as the Ukraine invasion will continue to drive upward pressure on prices.  Wall Street still believes the Fed will be able to deliver a soft landing and that is good news for equities.  The key takeaway from the Fed is that they are not ready to consider larger rate hikes.  Risky assets got a boost after Fed Chair Powell said, ““So a 75 basis point increase is not something that the committee is actively considering.”  Inflation is not slowing down anytime soon, but that is not scaring Powell as his confidence grows that he can remove the option of Volcker-type rate hikes. US stocks surged after Fed Chair Powell signaled he can slow inflation without triggering a recession. It seems risky assets can rally now that Wall Street has fully priced in the rest of the year’s rate hikes by the Fed.      Cryptos ApeCoin, the token used for the Bored Ape Yacht Club network, surged after Elon Musk changed his Twitter profile picture to an image showing several avatars.  The crypto market continues to react to anything that Elon Musk does, but the lack of a Bored Ape endorsement and a tweet that said “seems kinda fungible” made ApeCoin give back most of its gains.  Bitcoin rallied after Fed Chair Powell ruled out larger interest rate hikes.   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.
Oil Range-Bound, Gold Struggles Amid US Interest Rate Concerns

Forex: EUR/USD May Drive Us Crazy Today! Today's Powell's Speech At Jackson Hole Meeting Is Being Awaited As A Top-Class Blockbuster!

ING Economics ING Economics 26.08.2022 11:04
Today's speech by Jerome Powell in Jackson Hole has been regarded as a pivotal event for markets. However, Powell may refrain from deviating too much from market's expectations, and a reiteration of data dependency could put off part of the market reaction until next week's payrolls data. Still, a consolidation of the hawkish pricing can help the dollar Markets will be scanning Powell's speech today from a number of different perspectives   Monday 29 August is a national holiday in the UK, we'll resume publication of the FX Daily on Tuesday 30 August. USD: Powell may not want to shock the markets (in either direction) Fed Chair Jerome Powell will deliver his much-awaited keynote speech at the Jackson Hole Symposium at 1500 GMT today. Yesterday, comments by other Fed officials largely fell on the hawkish side of the spectrum. The arch-hawk James Bullard stressed once again the need for front-loading of rate hikes, suggesting rates should be raised to the 3.75-4.0% mark by the end of this year. The host of the Symposium, Kansas City Fed President Esther George, also said high inflation warrants more hikes, but highlighted the importance of incoming labour data (next week) to determine the size of September’s hike. Markets will be scanning Powell’s speech today from a number of different perspectives: inflation, growth outlook, front-loading, and any hint of easing in 2023. All these factors can play a different role in driving the reaction in the FX market, although we see a quite elevated risk that Powell may end up broadly matching the generally hawkish market expectations and avert any significant market shock. On the inflation side, the speech will take place shortly before the release of PCE inflation numbers for July, which are expected to have eased slightly but remain well above 6%. There’s simply not enough evidence or interest by the Fed to sound any less concerned on the inflation picture at this point, and a firm reiteration that additional forceful tightening to curb price pressures could remain at the core of Powell’s message today. Our suspicion is also that today’s speech will keep the notion of data dependency well intact, and potentially put off a big chunk of what could have been today’s market reaction until next week when US jobs figures are released. Looking at the implications for the dollar, we think that markets may find enough reason to push their peak rate pricing a bit closer to the 4.0% mark today and stir away from pricing back more than the current 1-2 rate cuts in 2023, which should ultimately offer some support to the dollar into next weeks’ payrolls release. We think DXY may touch 110.00 in the coming days, if not today.   Despite not being our baseline case, the downside risks to the dollar are non-negligible today. A more alarming tone on recession and any hints that the Fed will be more considerate when it comes to tightening to avert a major dampening impact on the economy would likely trigger an asymmetric negative reaction on the dollar, considering a rather stretched long positioning and short-term overvaluation, especially against European currencies.  Francesco Pesole EUR: Fair value converging to spot? Today’s price action in EUR/USD should be entirely driven by the dollar reaction to Powell’s speech, unless some further developments on the gas crisis story come to the fore. As we expect a moderately dollar-positive impact from Powell, we think EUR/USD may re-test the 0.9900 support. As discussed in recent research notes, the ongoing short-term undervaluation in EUR/USD is quite significant (around 5%), but a shrinking of the risk premium seems unlikely given the major threats to the eurozone’s economic outlook and may instead be triggered by a re-widening of the Fed-ECB rate expectations differential – i.e. with the fair value converging to spot and not the other way around. The minutes of the ECB’s July meeting released yesterday didn’t bring anything new to the table. Interestingly, concerns about a weak euro have become a very central theme within the Governing Council: expect to hear more on this topic from an intensifying ECB speakers activity next week, even though the ECB’s ability to offer a solid floor to the euro has proven blatantly limited given the persistence of high energy prices. Francesco Pesole GBP: Still driven by external factors The pound will lack any domestic drivers today, and Cable should move mostly in line with the dollar reaction to Jackson Hole. A break below the 1.1730 lows from earlier this week may well be on the cards on the back of USD strengthening, as 1.1500 (the 2020 flash crash bottom) is no longer looking like a remote possibility. It will be interesting to see EUR/GBP reaction to today’s speech by Powell. We could see a small recovery in the pair in a hawkish scenario where risk sentiment is hit, considering GBP is normally more sensitive to global risk moves, but the low appetite for EUR longs should keep a cap on the pair for now.    Francesco Pesole CEE: Zloty testing stronger levels Given the completely empty calendar in the region today, the market will wait for the next move at the global level, i.e. the outcome from Jackson Hole. In the meantime, the CEE floaters decided to test stronger levels for the first time in a while, but in the case of the Hungarian forint it was short-lived and we think that even the Polish zloty does not deserve yesterday's gains at this point. The forint, which has been heavily driven by gas prices, has been pulled back to weaker levels and this is negative news for the zloty as well. However, zloty was supported yesterday by a rise in market expectations for a rate hike and could thus benefit from a rising interest rate differential for the first time in a while. In our view, however, this is not enough and if bets on rate hikes do not increase further, the zloty will revert back to 4.770 EUR/PLN in our view. However, markets are already expecting more than a 50bp rate hike at the September National Bank of Poland meeting at this point, which we already think is a very aggressive expectation given the NBP's dovish rhetoric and worse-than-expected economic data. Therefore, we do not expect the interest rate differential to be supportive of the zloty. Thus, CEE floating currencies remain mainly driven by global influence. Frantisek Taborsky Read this article on THINK TagsJackson Hole FX Daily FX Dollar CEE Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Australian dollar against US dollar decreased amid weak China CPI data

Reserve Bank of Australia raised the interest rate, hints at further hikes

Marc Chandler Marc Chandler 07.02.2023 13:29
February 07, 2023  $USD, Currency Movement, EMU, Japan, PRC, RBA, Trade Overview:  After large moves yesterday, the capital markets ae quieter today. Stocks are mostly firmer, and the 10-year US yield is a little softer near 3.62%. Strong nominal wage increases in Japan and a hawkish hike by the Reserve Bank of Australia helped their respectively currencies recover, though remain within yesterday's ranges. The euro briefly traded below $1.07, and sterling has been sold through $1.20. That said, a consolidative tone the main feature today through the European morning.  Gold has steadied after falling $63 an ounce last week. News that China boosted its gold holdings for the third consecutive month should be placed within the context of its overall reserve growth. Consider that the dollar value of its reserve rose by nearly $56.8 bln last month. Its gold purchases were less than $800 mln. March WTI is recovering from yesterday's drop to a two-month low near $72.25 to approach $76 today. News that Saudi Arabia unexpectedly lifted prices for Asian customers ostensibly helped crude extend the recovery that began yesterday. US natgas is steady after snapping a three-day slide at the end of last week.  Asia Pacific  Winter bonuses helped lift Japanese labor cash earnings in December. Winter bonuses rose almost 7.6% year-over-year. wages rose 1.9%, the most since 1997. Labor shortages in what would be consider core services in the US, helped lift base pay in those sectors. Real wages rose by 0.1%, the first positive reading since last March. The spring round of wage agreements is anxiously awaited, but most economists look for something less than 3%, a threshold identified by the Bank of Japan, after a 2.2% increase last year. At the end of January, Japan reported a 1.1% rise in retail sales, exceeding the median forecast in Bloomberg's survey for a 0.7% increase. The November decline deepened in the revision (-1.3% vs. -1.1%). Household spending, a broader category, more like real US personal consumption expenditures, fell 1.2% year-over-year in November, the first such contraction since last May, and fell 1.3% in December. Month-over-month real spending fell 2.1% in December after a 0.9% contraction in November. As widely expected, the Reserve Bank of Australia hiked its cash target rate by 25 bp to 3.35%. The RBA warned of further hikes in the "coming months." It expects CPI to come down to 4.75% this year from 8.4% in Q4 22 and to 2-3% by mid-2025. The formal monetary statement at the end of the week is expected to offer more insight, but the immediate takeaway was to lift expectations for the terminal rate to closer to 4.0%. The combination of stronger than expected inflation and optimism over the re-opening of China helped lift the Australian dollar by slightly more than 3.5% in January, to lead the G10 currencies. The sell-off, ostensibly triggered by the dramatic US dollar rally after the incredible jobs data has seen it fall nearly 2.4% here in February before today's bounce. The re-opening of China and an apparent rapprochement with Beijing may help Australia's trade going forward, but its exports fell in each of the last three months of 2022 and the trade surplus fell to a four-month low in December. Still, Australia is benefitting from the positive terms of trade shock. Consider that in 2022, it recorded a trade surplus of A$139.6 bln. In 2019, the surplus was about A$66.6 bln. Read next: BP raised the Q4 dividend to 6.61p taking the total dividend for the year to 24.08p, as well as adding another share buyback for Q1 of $2.75bn| FXMAG.COM The dollar gapped higher against the yen yesterday and today has been confined to yesterday's range (~JPY131.50-JPY132.90). The gap, which has added significance as it appears on the weekly bar charts not just the daily, is found between JPY131.20-50. We suspect that it is what technicians refer to as a "normal" gap and will be filled shortly. Our target for the Australian dollar's pullback was $0.6850 ahead of next week's CPI. It nearly reached it yesterday (~$0.6855). The seemingly hawkish hike by the RBA has seen the Aussie recover but not above yesterday's high (~$0.6965). It may take a move above $0.7000 to lift the technical tone. The US dollar is also consolidating within the range seen yesterday against the Chinese yuan (~CNY6.7710-CNY6.8055). If it were a free-floating currency, we would note that the five-day moving average looks poised to cross above the 20-day moving average for the first time since last November. China reported its reserves rose to $3.184 trillion in January, the highest level since last March and the fourth consecutive increase. Valuation adjustments, given the dollar's decline. News that China boosted its gold holdings (~15 tons, which cost about $770 mln). To keep it in perspective, consider that the dollar value of reserves rose by about $57 bln last month. The PBOC set the dollar's reference rate at CNY6.7967. The median estimate in Bloomberg's survey was for CNY6.7948. Europe Germany and Spain reported December industrial production figures. The aggregate report for the eurozone is due on February 15. German output fell by a whopping 3.1%, well beyond the 0.8% fall expected. In line with expectations and the biggest drop since last March. Note that unlike the US, for example, German industrial production includes construction, which has been a particularly weak sector. The construction PMI average 41.6 in November-December last year, the weakest two-month period since May-June 2020 as Covid was ravaging and supply disruptions were widespread. For its part, Spain's industrial output snapped a three-month drop, rising 0.8% in December, well better than the 0.2% expected. Recall, Spain defied expectations that it contracted in Q4 22 and instead grew by 0.2%. Still, household consumption and business investment fell in Q4. The government has cut the VAT on many food items, subsidies to cushion the higher energy prices have been extended, and the minimum wage hiked (8% or about $100 a month). France, hobbled by rail strikes today, reported a larger than expected December trade shortfall of 14.9 bln euros. The median forecast was for a 12 bln deficit. Last year, France recorded an average monthly trade deficit of 13.65 bln euros, which was nearly twice the average deficit in 2021 (~7.2 bln euros). Before Covid and the Russian invasion of Ukraine, the average monthly deficit in 2019 was about 4.8 bln euros. The current account deficit widened to what appears to be a record of 8.5 bln euros in December and brings the 2022 deficit to 50 bln euros from a surplus of about 8.6 bln euro in 2021 and 12.8 bln euros in 2019. Our target for the euro of $1.07 ahead of next week's US CPI was not aggressive enough. The euro briefly dipped below there today before steadying the in European morning. Initial resistance is now seen near $1.0750. A convincing break of the $1.07 area would target the $1.0615 area next. Sterling also extended yesterday's losses and to trade to almost $1.1985. We have suggested a retest of last month's low near $1.1860 was possible before the US CPI. Ahead of that, we note the 200-day moving average is near $1.1950 today. America In terms of market reaction, the US trade figures have been eclipsed by the employment report and the CPI. Moreover, we already know that net exports added about 0.8 percentage points to Q4 GDP. However, this does not appear likely to repeat itself soon. The advanced December report on merchandise trade signals a deterioration. The merchandise deficit rose to $90.3 bln from $82.9 bln in November. Still, through November the US trade deficit averaged $80.6 bln a month last year and averaged $70.4 bln in 2021. In 2019, before Covid struck, the average monthly trade shortfall was about $46.6 bln. Even though some producers use China as an export platform for shipments back to the US, the US trade deficit with China averaged nearly $32.7 bln a month through November last year. The US deficit averaged $29.5 bln in 2021 and $28.6 bln in 2019. Canada reports its December merchandise trade balance. The surplus, which surged to nearly C$4.2 bln last May, has been shrinking. In fact, it fell into deficit in November (small, C$41 mln deficit). The surplus is the Sept-Nov period was C$216 mln, but for the first 11 months of 2022, it averaged $1.8 bln. A C$500 mln deficit is the median forecast in Bloomberg survey for December. Nevertheless, we find the Canadian dollar more sensitive to the general risk environment and periodically, the change in oil prices, than its monthly trade figures. Fed Chair Powell will be interviewed at the Economic Club in Washington at midday. His reaction to the jobs data may be of most interest. Atlanta Fed's Bostic said yesterday IF the economic strength were to persist, the Fed funds terminal rate would likely be higher. President Biden's State of the Union address will be delivered later today. The press reports it will include a billionaire tax and a proposal to quadruple the tax on share buybacks.   We saw potential for the dollar to rise toward CAD1.3550 ahead of next week's CPI. It reached CAD1.3475 yesterday and is trading within yesterday's range (~CAD1.3390-CAD1.3475) so far today. There are options for around $900 mln struck in the CAD1.3480-CAD1.3500 area that expire today. We note that the five-day moving average is set to cross above the 20-day moving average today or tomorrow for the first time since late December. Initial support is seen in the CAD1.3370-90 today. We had projected the dollar to rise into the MXN19.30-50 area. The greenback briefly traded above MXN19.29 yesterday. It is consolidating in a narrow range between roughly MXN19.07 and MXN19.18 today. We anticipate it holding above MXN18.99.    Disclaimer
UK Jobs Report Strengthens Case for June Rate Hike and Signals Caution on Rate Cuts

Key events in developed markets next week - 03.03.2023

ING Economics ING Economics 03.03.2023 14:42
With inflation data undershooting expectations, and GDP growth stalling, we have much more confidence that the Bank of Canada will leave rates unchanged next week. For the UK, the economy is likely to register an overall first-quarter GDP decline, and we expect a technical recession in the first half of this year In this article US: Job growth set to moderate after debatable January employment surge Canada: Bank of Canada to keep rates on hold UK: GDP still set for first quarter decline, despite likely January rebound Source: Shutterstock   US: Job growth set to moderate after debatable January employment surge Financial markets are fully buying into the Federal Reserve’s higher-for-longer narrative on interest rates with the US 2Y Treasury yield fast approaching 5% and the 10Y breaking above 4%. Strong activity at the start of the year and a surprise jump in core inflation now means that 25bp rate hikes at the March, May and June FOMC meetings are the minimum expectations from the Federal Reserve. In fact, markets are pricing a 25% chance that the Fed moves by 50bp at the March FOMC meeting. There are two events to watch next week that will have an important bearing on the near-term outlook for monetary policy. Firstly, Federal Reserve Chair Jerome Powell will be appearing before Congress to present the central bank’s Semi-Annual Monetary Policy Report. His testimony will be closely followed for hints as to whether he thinks there should be a re-acceleration in the Fed’s policy tightening or whether having hiked rates so far and so fast that the more modest 25bp incremental moves remain the most sensible course of action to take. He will be appearing before the Senate on Tuesday and the House of Representatives on Wednesday. After that, all eyes will be on the February jobs report after the blowout 517,000 jump in January payrolls caught everyone by surprise. It was 200,000 higher than even the most optimistic forecasts out there and didn’t tally with any of the business surveys such as the ISMs, the ADP jobs report or numbers from the National Federation of Independent Businesses. On a non-seasonally adjusted basis, payrolls actually fell 2.5mn, which wasn’t far away from the 2.6mn drop in 2021 and 2.8mn drop in 2022. It is therefore likely that labour hoarding in the form of reduced seasonal layoffs post the holiday season was responsible for the strength while 'generous' seasonal adjustment factors appear to have provided an additional boost to generate the seasonally adjusted 517,000 gain. Significantly, the fact that full-time employment has flat-lined since March 2022, meaning all the job creation has been in part-time positions, was largely overlooked. We have pencilled in a 200,000 jobs gain for February but we have next to no confidence. Any random guess between -500k and +500k would be just as valid as our own guestimate. Business surveys of employment remain soft and job loss announcements are up 440% year-on-year and there is a high chance of revisions to January’s 517,000 jump. Given that pretty much anything could happen in this report, the likelihood of significant market volatility in the hours and potentially days around the jobs report is high. Read next: NAGA analyst on Eurozone inflation: This is likely to trigger a more restrictive monetary policy from the ECB for two reasons | FXMAG.COM Canada: Bank of Canada to keep rates on hold We have much more confidence that the Bank of Canada will leave policy rates unchanged next week. At the 25 January BoC policy meeting, the governing council stated that it expects to “hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases” at upcoming meetings. The data since then has shown inflation undershooting expectations and GDP growth stalling, yet the economy continuing to create jobs. We will get an update on Canadian jobs at the end of the week and we wouldn’t be surprised to see a correction lower given the volatility in the series. Read our full preview here. UK: GDP still set for first quarter decline, despite likely January rebound UK economic output fell sharply in December, and probably only partially rebounded in January. Admittedly, these monthly GDP figures have been hard to read, owing to distortions surrounding both the Queen’s funeral last September and then the World Cup (which threw around consumer services activity). That December plunge, however, means that the economy is likely to register an overall first-quarter GDP decline (our current forecast is for a 0.2% fall). The underlying trend in the economy appears to be one of very gradual contraction, thanks in part to an ongoing downtrend in retail spending. We’re expecting a technical recession in the UK in the first half of this year, albeit one that’s not much to write home about. The fall in wholesale gas prices should help consumer bills fall by the summer, which should limit further damage to consumer spending. Key events in developed markets next week Source: Refinitiv, ING TagsUS United Kingdom Canada Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment 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

Asia Morning Bites - 07.03.2023

ING Economics ING Economics 07.03.2023 09:43
RBA hiking again later this morning, Powell testimony later today  Source: shutterstock Global Macro and Markets Global Markets: US stocks ran out of steam on Monday after two days of gains. The S&P 500 did manage to finish up from the previous day’s close, but only just, and was headed downwards for most of the session after opening higher. The NASDAQ finished slightly lower.  There was a somewhat similar picture from Chinese stocks. The CSI 300 dropped 0.52%, maybe a little disappointed with the Two Sessions' 5.0% grow targets and the absence of big stimulus programmes. The Hang Seng Index was fractionally up on the previous day. US Treasury yields were 3bp higher yesterday, but the 10Y lost 0.6bp to settle at 3.958%, though dropped below 3.90% at one stage and rose to almost 3.99% too, so plenty of intra-day action. EURUSD rose in late trading and is looking to threaten 1.07, though is currently just under that level at 1.0682. But ahead of this morning’s RBA decision (see more below), the AUD looks tired, dropping to 0.6731. The GBP is fairly steady at 1.2026, as is the JPY at 135.94. Asian FX moves yesterday were dominated by CNY weakness, the CNH lost 0.8% on the day and is now at 6.9510. G-7 Macro: It was a quiet day in the G-7 as far as macro releases are concerned, and it remains very quiet today. German factory orders and wholesale inventories from the US are the only releases of note aside from Japanese cash earnings, which are already released and registering a disappointing 0.8%YoY gain that will encourage new Governor Ueda to leave policy in supportive mode. We do, however, get Fed Chair Jerome Powell, who testifies to the Senate Banking Committee today, which could add a bit of spice to markets. There has been plenty to note in ECB space too, with the hawks and doves pushing for dominance. ECB Governing Council member, Holzmann yesterday suggested four more 50bp hikes this year before the peak in rates (which would come at 5% if so). Though there are plenty of more dovish views too from other members.   Australia: The RBA meet to decide rate policy this morning, and despite some weaker-than-expected recent labour, GDP and inflation data, the consensus of forecasters is unanimous in looking for another 25bp rate hike.  We can’t disagree. Inflation remains above 7% (7.4% January) and we will need to see a lot more falls in inflation before we can start talking about a pause, never mind a pivot. Philippines: February inflation is set for release this morning.  The market consensus is at 8.9%YoY while we expect headline inflation to settle at 8.7%.  Price pressures remain evident, especially in food items, and we expect high inflation to persist for the rest of the year.  Elevated inflation should prompt another rate hike by the Bangko Sentral ng Pilipinas (BSP) but recent comments from Governor Medalla suggest only a 25bps rate hike at the 23 March meeting.    China: Exports in February will probably fall about 10%YoY while imports should fall less (we expect a 4%YoY contraction). Imports will be mainly supported by domestic demand but exports will continue to face headwinds from the demand-sapping impact of high inflation in external markets. Taiwan: Taiwan’s exports will continue to fall at about a 15-20% YoY pace due to the falling demand for semiconductors. We do not expect a recovery of Taiwan’s trade in 1H23 as global economies are weakening in general and the China recovery is not enough to fill the gap. Read next: In crude oil, we are increasingly likely to see a year of two distinctive halves| FXMAG.COM What to look out for: RBA meeting and Powell testimony South Korea GDP (7 March) RBA meeting and Australia trade (7 March) Philippines CPI inflation (7 March) Thailand CPI inflation (7 March) Taiwan trade and CPI inflation (7 March) China trade balance (7 March) Fed’s Powell speaks (7 March) Japan trade balance (8 March) US trade balance and ADP employment (8 March) Fed’s Powell speaks (8 March) Japan GDP (9 March) China CPI inflation (9 March) Malaysia BNM policy meeting (9 March) US initial jobless claims (9 March) Fed’s Barr speaks (9 March) Japan PPI inflation (10 March) US NFP (10 March) 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
Issue on the US debt ceiling persists, Joe Biden goes back to the US

Rates Spark: Powell takes markets for a spin

ING Economics ING Economics 07.03.2023 10:37
Powell’s spin on the latest economic data matters less than the data itself. Don’t expect much clarity on 50bp hikes or the terminal rates but note that the hawkish re-pricing is helpful. At the ECB, data dependence is mainly wage dependence and on consumer inflation expectations US Federal Reserve Chair Jerome Powell Don't expect Powell to rule anything out Jerome Powell’s Congressional testimony is today’s main event. It is near certain that the Fed chairman’s tone will reflect better economic data since January, and more specifically inflation. Both make his disinflation optimism at the February meeting look misplaced. What markets would like to know is something more specific. Firstly, how high will the Federal Open Market Committee revise its estimate of the terminal rates in this cycle? Secondly, is the Fed going to revert to 50bp hike increments in March after a downshift to 25bp in February? On both counts, we think markets will be disappointed. There is still one jobs and one inflation report before the next Fed meeting so it wouldn’t make sense for the Fed to give up some optionality by guiding markets on one outcome or the other. Even if our hunch is that reverting to 50bp hikes is still the minority outcome compared to a longer string of 25bp hikes at the coming meetings, it is fair to say that the recent hawkish re-pricing is helpful in the fight against inflation. This is one more reason for Powell not to take anything off the table. Central bank commentary should lose its importance compared to the economic data guiding it The last point to make is that the Fed’s professed data dependence means central bank commentary should lose its importance compared to the economic data guiding it. The caveat is of course that this supposes market participants are understanding the Fed’s reaction function correctly. Given the shift in tone from late 2022 to early 2023, we wouldn’t blame investors for being confused. Given recent data, whatever Powell says, we wouldn’t be surprised if markets conclude that erring on the hawkish side is the correct strategy. Even if we find dollar rates high, we doubt today’s speech will prove the catalyst of a reversal of the February Treasury sell off. Don't expect Powell to rule anything out as inflation break-evens are rising again Source: Refinitiv, ING ECB: Data dependence is wage dependence As the self-imposed European Central Bank’s pre-meeting quiet period is due to start on Thursday, we’re likely to see more unscheduled attempts to skew expectations. There is clearly a range of opinions between the doves (eg, Mario Centeno yesterday) and hawks (Robert Holzmann). On the dovish side, focus seems to increasingly be on celebrating the drop in headline inflation forecast owing to the fall in energy prices, while the hawks flagged the acceleration of core inflation to push for further 50bp hikes beyond the one already signalled in March. ECB has struggled to kick its forward guidance habit Despite the stated data dependence aim, the ECB has struggled to kick its forward guidance habit. This is to say that we do not rule out further attempts to guide markets towards certain outcomes at the May and later meetings. One key variable going forward, as chief economist Philip Lane highlighted in a speech yesterday, will be wages. A jump in inflation expectations was another risk he stressed, which means today’s ECB survey of consumer expectations should receive a great deal of attention. Meanwhile, market-based inflation compensation are on a tear. Barring a sudden turn of event, these risks are going to keep EUR rates high. In fact, we would expect them to narrow the gap with their US peers. The EUR curve is power-flattening, with core inflation keeping the ECB hawkish Source: Refinitiv, ING Today's events and market view An upside surprise in German factory orders in January on better foreign demand should further slow the bond rally. Today’s economic calendar is relatively thin with only Spain’s industrial production in the morning and the US wholesale inventories in the afternoon. The ECB’s survey of consumer expectations, including questions on inflation, will probably gather more attention. Read next: In crude oil, we are increasingly likely to see a year of two distinctive halves| FXMAG.COM Instead the focus in European hours will be on supply. The European Union mandated banks for the launch of a long 10Y benchmark. This will be alongside auctions from Austria (10Y/30Y) and Germany (10Y Linker). Away from the eurozone, bonds supply will be short in maturity, with a 2Y gilt and 3Y T-note auctions in the UK and US respectively.   Last but not least, Fed Chair Powell is on the docket for the first day of his two days of testimony before Congress. Dollar rates are close to the top of their range for this year but we doubt Powell's intervention is what will make them come down. 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
Euro's Rally Stalls as Focus Turns to Inflation and Data Disappointments

FX Daily: Dollar can hold gains on limited Powell pushback

ING Economics ING Economics 07.03.2023 10:44
The highlight of today's FX session will be Fed Chair Powell's first leg of his monetary policy testimony to Congress. He speaks in the Senate at 16CET today. While welcoming the start of a broad disinflation process in early February, we doubt Powell will push back much against expectations of another 75bp+ of Fed hikes. This should see the $ hold gains Federal Reserve Chair Jerome Powell USD: Little incentive for Powell to push back Monday's overnight FX session was another quiet one. The highlight was a dovish 25bp hike from the Reserve Bank of Australia (RBA). It still promised more monetary tightening ahead, but the language softened on the immediacy and magnitude of further rate increases and prompted yields at the short end of the Australian curve to drop 13bp and AUD/USD to drop 0.5/0.7%. Elsewhere, what was seen as encouraging Chinese net trade figures failed to budge USD/CNH from the 6.94 area. On to today and the highlight will be Fed Chair Jerome Powell's testimony on monetary policy. This comes at a time when the market has priced in 25bp hikes at the March, May, and June meetings plus is half thinking about another 25bp hike in the third quarter. The big, hawkish adjustment in Fed tightening expectations was driven by the data last month, not Fed speak. Having said that, however, there were a few FOMC non-voters pushing the view that the Fed should have hiked 50bp on 1 February rather than 25bp. Interesting for markets today will be whether Powell does say the Fed would be open to 50bp hikes in the future – presumably, he cannot rule that out. He may also now be drawn out on what the Fed considers the terminal rate (5.40/5.50% is priced at the moment). He may try to elaborate on remarks made on 1 February that the broad disinflation process has started, but with inflation proving sticky (not just in the US, but around the world), consumption and employment trends staying firm and risk assets supported, it would seem unlikely he chooses to push the 'all-clear' inflation narrative today. His remarks can probably see the dollar gently bid. A better chance of the dollar and US yields reversing February strength probably comes with Friday's US February jobs release, where ING's US economist, James Knightley, looks for a softer number.  It does not look like we have any hawkish ECB members due to speak today (hawkish ECB comments having helped European currencies and weakened the dollar yesterday), which suggests DXY might nudge back to the top of a short-term 104.00-105.00 range. In the medium term, we retain the view that the dollar will break lower later this year – please see our latest FX talking update. Chris Turner EUR: European hawks in focus Helping EUR/USD yesterday were comments from ECB ultra hawk, Robert Holzmann, that the ECB should deliver four more 50bp rate hikes. That would take the deposit rate to 4.50% versus the already aggressive 4.00% currently priced. ECB Chief Economist Philip Lane tried to calm things down by suggesting the ECB should not go onto autopilot after what should be a 50bp hike this month. But the market is more sensitive to the hawks given the sticky inflation data. We do not see any ECB speakers scheduled today. Data today will be the ECB consumer expectations survey released at 10CET, though January retail sales data released yesterday mildly disappointed. As above, Powell's testimony should dominate today and might nudge EUR/USD back to the lower end of the 1.0600-1.0700 range. Elsewhere today we have a rare speech on monetary policy from Swiss National Bank (SNB) president Thomas Jordan. He speaks at 19CET today. He will probably have had to tweak his speech after yesterday's release of Swiss February CPI data, which rose 0.7% month-on-month, matching the highs from last summer. The SNB takes its inflation-targeting mandate very literally and this inflation data should prompt some sharply hawkish rhetoric. We and the market look for a 50bp SNB hike on 23 March. And the market looks for a further 50-75bp of tightening after that. Anyone in need of securing CHF balances or CHF funding in the near term should probably do so before tonight's speech. Chris Turner   GBP: Strong second-tier data fail to lift sterling Following on from stronger service sector confidence data, yesterday saw a very positive PMI release for the UK construction sector. And this morning's BRC Like-For-Like Retail sales data has also come in at a strong 4.9% year-on-year for February. This strong second-tier data have not had much impact on sterling, however, where hawkish ECB remarks have dominated and EUR/GBP has pushed back to the top of its 0.88-0.89 range. We suspect that will be the direction of travel this year – helped later in the year when the Bank of England shifts into a formal pause with its tightening cycle. Cable is trading well inside last week's 1.1925-1.2145 range and we would have a slight downside bias given Powell's testimony today. Chris Turner ILS: Shekel searches for stability As we discuss in this month’s FX Talking publication, the normally stable shekel has been hit hard over the last month. USD/ILS has risen 10% – seemingly on the Israeli government’s desire to push through very contentious judicial reform. Opponents of this proposed policy in Israel's lucrative tech sector have even suggested that IPO proceeds would not be brought back to Israel unless this policy proposal was altered. The Israeli foreign minister criticising the Bank of Israel’s (BoI's) recent 50bp hike has not helped the shekel either. Yesterday, however, the shekel got a lift from the Israeli president suggesting that an agreement on judicial reform was ‘closer than ever’. Details to back those comments were scant. At the same time, we noted that the February release of BoI FX reserve data suggests there had been no FX intervention to support the shekel last month. That may come as a disappointment to some looking for the very interventionist BoI to step into the market. Perhaps the criticism over the rate hike made FX intervention too political? We do like the shekel multi-quarter and it had been one of our top picks for the year assuming the dollar bear trend does re-assert itself in the second half. But investors will very probably want to see some concrete political agreement on these judicial reforms before rebuilding long positions in the shekel. Chris Turner Read this article on THINK TagsFX Dollar Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment 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 cheat sheet: Difficult to pull away from the Fed

According to Rick Rieder (BlackRock) the high level of employment will likely keep inflation high and warrant a 6% interest rate for the Fed

Michalis Efthymiou Michalis Efthymiou 08.03.2023 10:45
The EUR/USD saw its largest decline in over a month as investors no longer can ignore signals that the Fed’s Fund Rate will indeed significantly increase. Many investors believed the Fund Rate would only slightly increase as the rate is already considerably high; however, this is not likely to stop the Fed. The asset over the past 24 hours has declined by 1.25%. EUR/USD - The US Dollar Surges on the Fed’s Hawkish Tone During yesterday’s market analysis, we mentioned the resistance level at 1.0688 and the bearish breakout level at 1.06675. Analysts have been cautious, especially considering the Fed’s ultra-hawkish tone. The bearish breakout level was indeed triggered, giving a signal to traders, and the price eventually declined by 1.10%. Technical analysis still points towards a downward trend in the medium to longer term. Though, investors will be cautious about a retracement and the current loss of momentum. Ideally, traders will be looking for momentum to increase again. EUR/USD 30-Minute Chart on March 8th The next interest hike is almost certainly a 50 basis point hike, and the terminal rate will officially increase to 6%. The Chairmen, Mr. Jerome Powell, has advised that the economy, specifically employment, has been more resilient than expected. The chairmen added, “if economic data indicate that faster tightening is warranted, we will be prepared to increase the pace”. Therefore, the decision will again largely depend on this month’s data. However, most economists believe the employment figures and Consumer Price Index will need to be considerably low to persuade members of the FOMC. Read the second part of the update by NAGA: The latest report from the US Commodity Futures Trading Commission indicates that investors believe the price of Gold will decline| FXMAG.COM Blackrock has been the latest investment bank to comment on the Fed’s latest comments. Rick Rieder from the Global Fixed Income Department advises that the high level of employment will likely keep inflation high and warrant a 6% interest rate for the Fed. A 6% interest rate would significantly change the pricing of the Dollar, but more so, the US stock market.
Fed's Kashkari is open to a rate pause next month. Hopefully, this week's minutes give us a few more details

Fed Chair testimony summary: Powell emphasized that the final decision has not been made and it would largely depend on the jobs data coming out on Friday

Santa Zvaigzne Sproge Santa Zvaigzne Sproge 09.03.2023 11:21
Fed Chair, Jerome Powell testified yesterday, so markets have more information to digest in the following days as everybody is awaiting the next Fed decision later this month. What's more, we're between higher-than-expected ADP print and tomorrow's NFP, so the US dollar may find itself in the eye of the storm shortly. Let's hear from Santa Zvaigzne-Sproge (Conotoxia), who summarizes yesterday's testimony. The final decision has not been made and it would largely depend on the jobs data coming out on Friday Santa Zvaigzne-Sproge (Conotoxia): Mr. Powell’s testimony on Tuesday was cautiously awaited by the majority of investors. His sentiment during the speech signaled that the Fed is ready to continue raising the interest rates if economic data continues to come out stronger than anticipated. The same message was reaffirmed by him also on Wednesday’s Q&A session. Although, he emphasized that the final decision has not been made and it would largely depend on the jobs data coming out on Friday, 10/03 at 13:30 GMT and inflation readings coming out on Tuesday, 14/03 at 12:30 GMT. While such an answer may not provide clarity on the upcoming interest rate decision, it gives a valuable pointer to investors about what macroeconomic data should be watched in the upcoming days for more clarity. The probability of a 50bp rate hike increased to 69% during Mr. Powell’s speech on Tuesday but hiked to 77.1% after Wednesday’s Q&A session, according to CME Group data Investors should be ready that not only the terminal rate previously anticipated at 5.1% may go higher, but also that the slower rate hike in the previous month may have been short-lived and we may expect a return to a 50bp rate hike in the Fed meeting later this month if the above-mentioned data come out higher than expected. The probability of a 50bp rate hike increased to 69% during Mr. Powell’s speech on Tuesday but hiked to 77.1% after Wednesday’s Q&A session, according to CME Group data. At a current benchmark interest rate in the range of 4.5% – 4.75%, half a percent would increase the range to 5% - 5.25%. The Fed official appeared to be more cautious about ending the tightening cycle of monetary policy prematurely rather than keeping it tight for more than necessary Mr. Powell focused on lower inflation in the housing market and softening of the labor market as the key components of driving inflation to its target level. He also admitted that monetary policy affects economic stability and inflation with a certain time lag, meaning that the full effect of the previous interest rate hikes may still have some time to realize. Nevertheless, the Fed official appeared to be more cautious about ending the tightening cycle of monetary policy prematurely rather than keeping it tight for more than necessary. Read next: According to Rick Rieder (BlackRock) the high level of employment will likely keep inflation high and warrant a 6% interest rate for the Fed | FXMAG.COM S&P500 dropped 0.61% in the first five minutes of Mr. Powell’s speech on Tuesday and continued the downtrend until the end of the day giving up 1.45% The better-than-expected economic data leading to Mr. Powell’s speech may have prepared, or at least warned, investors of the potential further interest rate hikes, therefore financial markets took a hit on Tuesday but did not collapse. S&P500 dropped 0.61% in the first five minutes of Mr. Powell’s speech on Tuesday and continued the downtrend until the end of the day giving up 1.45%. Gold lost ground already before Mr. Powell’s speech giving up nearly 2% of its value during the whole trading day. On Wednesday, the market consolidated with S&P500 finishing the day with +0.14% and gold finishing the day with +0.07% although it tried to move higher intraday. 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.
FX Daily: Hawkish Riksbank can lift the krona today

It seems that a 50bp Fed rate hike is unprobable. What's more, even a 25bp variant is now being questioned

Marc Chandler Marc Chandler 13.03.2023 15:27
March 13, 2023  $USD, China, Crisis, Currency Movement, Dodd-Frank, Europe, Federal Reserve, Iran, Japan, Saudi Arabia Overview:  The US banking crisis has overwhelmed other market drivers. The strong measures announced as Asia Pacific trading got under way was embraced by the market even though moral hazard issues and gaps in the Dodd-Frank regulatory framework were exposed. The dollar is trading heavily. The prospect of a 50 bp Fed hike next week has evaporated and some are doubting that a 25 bp increase will be delivered. Rate hike expectations for the ECB this week and the BOE next week have been shaved, and the market now favors the RBA to join Canada in pausing as early its meeting next month. Outside of China, Hong Kong, Taiwan and South Korea, equities have traded heavily. The Nikkei was off 1.1% and Europe's Stoxx 600 is more than 2% lower, its biggest loss so far this year. US equity futures have lost the early upside momentum. The most dramatic action is in the debt market, where US 10-year yields are off 14 bp to 3.56%. European benchmark yields are down 13-20 bp, and the 10-year JGB yield is down 10 bp (to slip below 0.30%). US and European two-year yields are off even more (23-35 bp) as the banking crisis is seen impacting the outlook for monetary policy. Lower rates and a weaker dollar saw gold gap higher and approach $1894 before consolidating. May crude has fallen around 1.7% to about $75.40 and give back its pre-weekend gains.  Asia Pacific While China's Xi's third term at pinnacle of state and party signaled continuity, there was much speculation of the changing of top financial officials. However, yesterday it was announced that PBOC Governor, and the finance and commerce ministers have been given new terms. Notably, PBOC Governor Yi and Finance Minister Liu had reached the mandatory retirement age and were dropped from the leadership ranks of the Communist Party last year. Maintaining some of the top personnel at the same a new more centralized and powerful financial regulatory signals a type of balance. Separately, Li Qiang succeeded Li Keqiang as premier. As widely expected, other Xi loyalists were promoted to more senior positions. Of note, Li Shangfu, who has previously been sanctioned by the US will become the new defense minister.  Before the weekend, the Japanese government agreed to join the alternative trade dispute resolution mechanism at the World Trade Organization that had been initiated by the EU to circumvent that US blocking of the appellate process. The "Multi-Party Interim Appeal Arbitration Arrangement as a little more than 50 member, including the EU, China, Brazil, Australia, Canada and Colombia. The first ruling of the parallel mechanism issued at the end of last year in dispute over "French fries between Colombia and the EU (Colombia imposed anti-dumping duties on frozen potato exports from Belgium, Netherlands and Germany).  Read next: To Protect Customer Deposit, SVB UK Will Be Sold To HSBC, The Food Crisis Is Getting Worse| FXMAG.COM For at least a couple of years, Saudi Arabia and Iran were working toward a detente, working through intermediaries (Iraq and Oman). China stepped in relatively late in the process and a deal was struck before the weekend to normalize diplomatic ties. Saudi officials kept US officials apprised along the way, according to press reports. After agreement was announced, the White House said that it supported any efforts to de-escalate the tensions. There is hope that exchange of ambassadors will facilitate a comprehensive peace agreement between the Saudi-led coalition and the Ansarallah resistance in Yemen that could be announced over the next couple of weeks that will be more than the extension of the agreement that ended last October. Yet, it may be too much to expect a rapprochement between Saudi Arabia and Iran. There are still various national interests that divide the two besides the Sunni-Shiite tensions. Meanwhile, Iran's uranium-enrichment is thought to be getting close to weapons-grade and it has been developing longer-range ballistic missiles. Separately, the Saudis have expressed interest in joining the Shanghai Cooperation Organization. Often it seems, many Americans view the world in stark terms of either "with us" or "against us" but the reality is often more nuanced and complicated. The dollar nicked JPY133.00 in the European morning after briefly trading above JPY135.00 in early Asia Pacific turnover. We had cautioned that a sustained break of JPY134 weakens the technical outlook and suggests potential toward JPY132.00. The drop in US rates also dragged down the JGB yield and eases pressure on the BOJ's yield curve control. After posting a bearish outside down day ahead of the weekend, the Australian dollar rallied to a four-day high near $0.6680 before stalling. The $0.6700 area needs to be overcome to lift the tone, and the inability to remain above the pre-weekend high (~$0.6640) is disappointing. The futures market has practically given up on the idea of an RBA rate hike next month. The greenback returned to the CNY6.8665 area after trading above CNY6.9700 before the weekend. The low set earlier this month was around CNBY6.8625. The dollar recovered to back to a little above CNY6.90, where it has steadied. The PBOC set the dollar's reference rate a little stronger than expected (CNY6.9375 vs. CNY6.9366), which seemed to have signaled a desire to temper the dollar's weakness.  Europe The fear of a crisis that spurred a sharp drop in US rates ahead of the weekend pushed European rates sharply lower too. The two-year German note yield tumbled 18 bp (to about 3.10%). That was the biggest single day decline in eight months. The ECB meets this week, and many market participants recall the ECB's hike in 2008 after Bear Stearns ignoble sale and the failure of Lehman. The swaps market shaved the odds of a 50 bp hike this week from nearly a done deal in the middle of last week to a still-confident 80% chance ahead of the weekend and now near 70%. In the risk-off rally, peripheral European debt did not rally as much as the core, which makes intuitive sense, but it illustrates a channel of contagion. To compete with US and China subsidies to more environmentally friendly technologies, the EU proposes to relax the state aid rules. The changes are temporary and will extend through the end of 2025 and allows governments to match the support offered by other countries for targeting investments in a range of industries, including batteries, solar panels, wind turbines, heat pumps, and the production and recycling of rare earth elements. Governments can provide higher levels of support to individual companies where there is a real risk of investment being drawn away from Europe. There appears to be two key safeguards. First, this "forbearance" is not to foster competition between EU members. Second, the rules attempt to ensure that the poor parts of the EU can also have easier access to funds. Since budget rules were relaxed since Russia's invasion of Ukraine, Germany and France accounted for around 70% of state aid measures, which underscore the fear of destabilizing divergence. The euro rose slightly above $1.0735, its best level since the middle of last month. However, it has not been able to sustain the break of $1.0700 and pulled back to around $1.0665 in the European morning. The intraday momentum indicators are overextended, and provided the $1.0650 hold, another try at $1.07 seems reasonable. A break of $1.0650, though, could see $1.06. While ECB rate expectations have been reduced by the US financial crisis, in the UK, the immediate impact is on expectations for Wednesday's spring budget. The UK arm of SVB was sold to HSBC. Sterling traded to $1.2140, a new high for March. It reached almost $1.2115 before the weekend. Like the euro, sterling's upside momentum faded, and it approached initial support near $1.2050 in the European morning. The market also is less confident of a BOE rate hike next week. In the swap market, the odds of a quarter point hike have fallen from almost 100% to 60%. The intraday momentum indicators are also overextended and provided the initial support holds can retest the $1.2100 area in North America. America The US Treasury, Federal Reserve, and FDIC have attempted to ringfence the potential banking crisis, with Signature Bank closed, as well by NY state officials. The Federal Reserve announced a new facility (Bank Term Funding Program), which allows banks to exchange their government, agency, and MBS debt at par for cash for up to one-year. The Treasury will make available $25 bln from the Exchange Stabilization Fund (similarly used during the Great Financial Crisis) to backstop the new Fed facility, but Fed officials do not expect to need it. The cost of accessing the BTFP is one-year OIS plus 10 bp. By accepting the long-term high-quality assets, like Treasuries, agencies, and MBS at par rather than a market prices, more liquidity is available. The collateral requirements of the discount window now will be the same as for the new Bank Term Funding Program, which means a smaller haircut and therefore less unattractive option. The FDIC is invoking the "systemic risk exception" and will cover the gap between the sale of SVB assets and the deposits. Officials confirmed what the market already suspected (revealed preferences) that there were several other banks that were vulnerable. The FDIC is funded by a levy on banks not taxpayers. There may be moral hazard issues here as the uninsured depositors are treated as insured, but not shareholders or necessarily creditors. This is the first post-Dodd-Frank financial crisis, and more work is clearly needed.    The combination of the drop in US rates and the rally in stocks helped lift the Canadian dollar. Before the weekend, the greenback set a new high for the year near CAD1.3860 and today approached CAD1.3710. The Bank of Canada's pause, which had looked like an anomaly before now seems a bit prescient. Still, as the US dollar has returned to previous support around CAD1.3750, which is now serving as resistance. Above there, scope extends back to the CAD1.3785 area. The US dollar has traded on both sides of its pre-weekend range against the Mexican peso (~MXN18.27-MXN18.5950). The close is key for this price action and settlement above the pre-weekend high would suggest corrective forces have not run their course. A move above MXN18.66 could target MXN18.76 initially. However, the intraday momentum indicator is overbought, and this is the kind of peso pullback for which some had been waiting or hoping to offer a new opportunity.    Disclaimer
The Japanese Yen Retreats as USD/JPY Gains Momentum

Market Disappointment Despite Blinken-Xi Handshake: China's Loan Rates and RBA Minutes Awaited

ING Economics ING Economics 20.06.2023 07:27
Asia Morning Bites Blinken-Xi handshake fails to boost markets. RBA minutes and China's loan prime rate will be released this morning.   Global Macro and Markets Global markets: With the US off on vacation yesterday, there is no US equity market to track this morning in Asia time, though equity futures are not looking very positive and that may be the main directional steer in early trading today. Chinese stocks reversed course yesterday and dropped. The Hang Seng was down 0.64%, while the CSI 300 fell 0.82%. In the absence of any US Treasury news, European bond yields drifted higher. The 10Y Bund yield rose 4.3bp to 2.513%. 10Y Gilt yields rose 7.9bp to 4.483% ahead of this week’s expected Bank of England rate hike. EURUSD edged lower yesterday and is 1.0922 currently. G-10 currencies were also softer against the USD, though the JPY was steady at 141.94. Most Asian currencies were also softer against the USD. The CNY pushed back up to 7.1635, while the KRW, the region’s worst-performing currency on the day, rose to 1281.86.   G-7 macro:  Downbeat markets occurred despite a Blinken-Xi handshake, which had been viewed as an indication of successful talks on winding down US-China tensions. The talks are thought to lay the groundwork for a Biden-Xi summit later this year. It is another quiet day for Macro today.  Besides US housing starts and permit data for May, we have German PPI data and not a lot else. We have a few Fed speakers today (Bullard, Williams) before the main act tomorrow when Jerome Powell starts his testimony to Congress.   China:  After the recent cuts in the 7-day reverse repo rate and the 1Y MLF rate, loan prime rates (LPR) will almost certainly be cut today. The 1Y loan prime rate should also fall 10bp to 3.55%. The 5Y LPR is thought likely to fall 15bp to 4.15%.   Australia:  The minutes from the Reserve Bank of Australia’s (RBA) last meeting, where they surprised markets with a 25bp hike, are released this morning. Any hint as to what to expect at the July meeting would be welcome following a period where communication has not been particularly effective. Clarity is unlikely though.    What to look out for: China loan prime rate, RBA minutes plus Fed speakers China 1 and 5-year loan prime rate (20 June) Australia RBA minutes (20 June) Japan industrial production F (20 June) Taiwan export orders (20 June) US building permits and housing starts (20 June) Fed’s Bullard and Williams speak (20 June) South Korea PPI (21 June) Australia Westpac leading index (21 June) US MBA mortgage applications (21 June) Fed’s Powell speaks (21 June) Fed’s Goolsbee speaks (21 June) Philippines BSP policy meeting (22 June) Indonesia BI policy meeting (22 June) US initial jobless claims (22 June) Fed’s Waller, Bowman and Mester speak (22 June) Japan CPI inflation and Jibun PMI (23 June) Singapore CPI inflation (23 June) Thailand trade balance (23 June) Fed’s Barkin and Bullard speak (23 June)
Government Bond Auctions: Italy, Germany, and Portugal Offerings

GBP/USD: Strong Upward Trend Raises Concerns and Questions

InstaForex Analysis InstaForex Analysis 20.06.2023 09:35
The GBP/USD currency pair experienced a slight correction on Monday but remained in a strong, short-term, upward trend. The current trend period raises many questions, as we have discussed before. Such explosive growth, reminiscent of Bitcoin, often serves as a precursor to a prolonged decline. Traders are using the last chance to buy in fully, but they will soon start to take profits on long positions, which will be a harbinger of a new downward trend. Of course, this is just a hypothesis, and any hypothesis requires confirmation. So far, there are none.   However, let's draw traders' attention again: even in the short term, the pound shows such strong growth that it needs to be more consistent with the macroeconomic and fundamental background. Over the past few months, we have repeatedly mentioned that we expect a decline in the British pound. The decline has yet to begin, and the British currency cannot even correct itself properly, especially in the 24-hour time frame. Let's ask ourselves: Is the British economy really that strong, and is the Bank of England's stance aggressive enough for the pound to show a rise of 2500 in three quarters? The answer is obvious. Of course, part of this trend should be attributed to a simple technical correction after a significant decline.   Another part of the trend is the pound's recovery after Liz Truss's departure. But even with these two "buts," it seems too much. Interestingly, such a momentum trend can continue for some time. The market sees that the pound is growing and logically continues to buy, even though there are no grounds for it. Therefore, the conclusion remains the same: the pound is rising illogically, and at any moment, this growth may end with a crash, but the upward trend can continue for as long as the market deems necessary, largely ignoring the fundamental background.   Events this week may cause a decline in the pound This week, the Bank of England will hold its regular meeting in the UK. The key rate is likely to increase for the thirteenth consecutive time, which is unsurprising. We receive very few comments and forecasts from Bank of England representatives, making it extremely difficult to predict the regulator's future actions. However, the market does not doubt that monetary policy will be tightened again.   If so, this decision has already been priced in. However, if even one "dovish" hint comes from the Bank of England's corridors, it could end badly for the pound. It is evident to everyone that the Bank of England can only maintain elevated interest rates for a limited period. The rate has already reached 4.5%, and after a deceleration in the tightening pace, two 0.25% rate hikes have already been implemented. This week might witness the occurrence of the third and final hike. The British economy has teetered on the brink of recession for four consecutive quarters, and each subsequent rate increase further raises the likelihood of a recession commencing within this year. However, we have been aware of all these factors for quite some time.       On Monday, there were no noteworthy developments concerning the dollar or the pound. Tuesday will also have scarce news. The real excitement will commence on Wednesday when Jerome Powell, the Chairman of the Federal Reserve, makes his debut appearance in Congress. This event might go unnoticed, as Mr. Powell will provide an account of the Federal Reserve's operations and respond to inquiries from senators and congress members. Since the Federal Reserve is an independent entity not subject to the control of the US government, Powell has no reason to fear. He will not face job loss and can address questions according to his own judgment. It is no secret that US authorities would prefer a less aggressive monetary policy since the regulator's actions have led to a banking crisis. But again, Powell and his colleagues have a different view on this matter: inflation is their top priority. We do not expect any "dovish" statements from Jerome. Accordingly, we do not expect the dollar to weaken after his speeches in Congress. The pound has excellent chances of starting a decline this week if the fundamental background means anything to the market.    
Resilient UK Economy in May Points to Promising Outlook

Limited Market Activity and Focus on Building Permits: An Analysis of Monday's Trading Conditions

InstaForex Analysis InstaForex Analysis 20.06.2023 09:40
Monday was uneventful. There are no significant economic reports scheduled for Monday and Tuesday, and all the fundamental events are of secondary importance. Monday was a low volume trading day and both pairs had a slight inclination to correct after a strong rally last week.   The same situation will probably persist today. Among the economic events, the only one worth mentioning is the report on the number of building permits issued in the United States. Even with an empty events calendar, such a report can still provoke a market reaction. But what kind of reaction exactly?   For example, on Friday, when volatility was also quite low, the US Consumer Sentiment Index triggered a 30-point reaction (approximately). We might witness the same reaction today. The main point is that volatility is still low, which makes it difficult to trade, regardless of whether there are reports or not.   Analysis of fundamental events: Among today's fundamental events, the speeches by European Central Bank representatives Andrea Enria, Luis de Guindos, and Elizabeth McCaul stand out. De Guindos has already spoken earlier, and Enria and McCaul clearly carry less weight in the eyes of traders compared to Schnabel and Lane.   Therefore, if traders did not react to yesterday's speeches, it is even less likely that they would today. In the US, you can look forward to the speeches of Federal Reserve officials John Williams and James Bullard. However, Bullard does not have voting rights this year, so his hawkish stance (which is expected) is unlikely to affect morale. As for John Williams, the US central bank held a meeting just last week and we have already heard all the necessary information.   Furthermore, on Wednesday and Thursday, Fed Chairman Jerome Powell's speeches in Congress will attract much more attention. General conclusions: There are few important fundamental and economic events.   You can pay attention to the report on the number of building permits issued in the United States, as it is the only event that can truly provoke a reaction on a potentially low volume trading day. Basic trading rules: 1) The strength of the signal depends on the time period during which the signal was formed (a rebound or a break). The shorter this period, the stronger the signal. 2) If two or more trades were opened at some level following false signals, i.e. those signals that did not lead the price to Take Profit level or the nearest target levels, then any consequent signals near this level should be ignored. 3) During the flat trend, any currency pair may form a lot of false signals or do not produce any signals at all. In any case, the flat trend is not the best condition for trading. 4) Trades are opened in the time period between the beginning of the European session and until the middle of the American one when all deals should be closed manually. 5) We can pay attention to the MACD signals in the 30M time frame only if there is good volatility and a definite trend confirmed by a trend line or a trend channel.  
Global Wheat Balance Continues to Tighten for Another Season

Monday's Uncertainty: Low Volatility, Speeches, and Trading Rules

InstaForex Analysis InstaForex Analysis 20.06.2023 09:43
Monday was uneventful. There are no significant economic reports scheduled for Monday and Tuesday, and all the fundamental events are of secondary importance. Monday was a low volume trading day and both pairs had a slight inclination to correct after a strong rally last week.   The same situation will probably persist today. Among the economic events, the only one worth mentioning is the report on the number of building permits issued in the United States. Even with an empty events calendar, such a report can still provoke a market reaction. But what kind of reaction exactly? For example, on Friday, when volatility was also quite low, the US Consumer Sentiment Index triggered a 30-point reaction (approximately). We might witness the same reaction today.   The main point is that volatility is still low, which makes it difficult to trade, regardless of whether there are reports or not. Analysis of fundamental events: Among today's fundamental events, the speeches by European Central Bank representatives Andrea Enria, Luis de Guindos, and Elizabeth McCaul stand out. De Guindos has already spoken earlier, and Enria and McCaul clearly carry less weight in the eyes of traders compared to Schnabel and Lane. Therefore, if traders did not react to yesterday's speeches, it is even less likely that they would today. In the US, you can look forward to the speeches of Federal Reserve officials John Williams and James Bullard. However, Bullard does not have voting rights this year, so his hawkish stance (which is expected) is unlikely to affect morale.   As for John Williams, the US central bank held a meeting just last week and we have already heard all the necessary information. Furthermore, on Wednesday and Thursday, Fed Chairman Jerome Powell's speeches in Congress will attract much more attention. General conclusions: There are few important fundamental and economic events.   You can pay attention to the report on the number of building permits issued in the United States, as it is the only event that can truly provoke a reaction on a potentially low volume trading day. Basic trading rules: 1) The strength of the signal depends on the time period during which the signal was formed (a rebound or a break). The shorter this period, the stronger the signal. 2) If two or more trades were opened at some level following false signals, i.e. those signals that did not lead the price to Take Profit level or the nearest target levels, then any consequent signals near this level should be ignored. 3) During the flat trend, any currency pair may form a lot of false signals or do not produce any signals at all. In any case, the flat trend is not the best condition for trading. 4) Trades are opened in the time period between the beginning of the European session and until the middle of the American one when all deals should be closed manually. 5) We can pay attention to the MACD signals in the 30M time frame only if there is good volatility and a definite trend confirmed by a trend line or a trend channel. 6) If two key levels are too close to each   
Oil Prices Find Stability within New Range Amid Market Factors

Asia Morning Bites: Korean Trade Data, Powell's Testimony, and Global Market Trends"

ING Economics ING Economics 21.06.2023 08:29
Asia Morning Bites Early Korean Trade data showed a surprise gain in June, and a separate release also shows pipeline price pressures diminishing. Jerome Powell starts his 2-day testimony to the US Congress.   Global Macro and Markets Global markets: US stocks returned from vacation to resume their decline, though didn’t fall much and firmed up a bit after opening lower. The NASDAQ fell just 0.16% and the S&P 500 lost 0.47% on the day. Equity futures remain negative though, so more declines beckon today. Chinese stocks also fell. The CSI 300 was also only slightly down but the Hang Seng index fell 1.54%. US Treasury yields declined slightly too. The yield on the 2Y note fell 2.9bp to 4.685%, while 10Y yields fell 4.1bp to 3.721%.   EURUSD is almost unchanged from this time yesterday at about 1.0922, after testing both higher and lower. The AUD is lower though, falling to 0.6788. GBP is also a bit weaker ahead of this week’s Bank of England rate hike. But the JPY has rallied a bit, moving to 141.308, down from a high of 142.251 yesterday. The PHP also made some gains yesterday, though most of the Asian pack made slight losses against the USD yesterday. The TWD and CNY were both down about 0.25-0.3%. USDCNY is now 7.1809. G-7 macro: US housing starts and permits jumped strongly in May. The annualized rate of starts jumped from 1340 thousand to 1631 thousand. And permits were also stronger, suggesting more gains in the pipeline.   There isn’t much else on the macro calendar today, apart from Jerome Powell who will testify in front of Congress today for the start of his 2-day grilling. So expect plenty of headlines from that, although we doubt he will stray too far from the June FOMC comments. There’s also a fairly packed ECB schedule of speakers today to provide a variety of views on how high terminal rates for the Eurozone will be, and just as importantly, when they will reach that point. South Korea: Early June exports (1-20 days) rebounded 5.3%YoY – the first gain in ten months. As expected, chip exports (-23.5%) and exports to China (-12.5%) were particularly weak while exports to the US rose firmly (18.4%), probably due to robust auto exports. Korea’s exports have bottomed out from the fourth quarter of last year, but the recovery has been pretty shallow. Imports dropped -11.2% during the period on the back of falling global commodity prices. We believe that the trade balance will return to a surplus by the end of the third quarter. Meanwhile, price pressures continue to diminish as producer price inflation decelerated to 0.6%YoY in May from 1.6% in April. PPI declined 0.3% MoM (nsa) after a 0.1% drop in April. This morning, the government announced that there would be no electricity fee hike for the third quarter. As we argued earlier, ahead of the national election in April next year, it is likely that electricity rates will be held steady. As global commodity prices have fallen sharply, this would also support the freezing of electricity fees.   We look for consumer price inflation to reach the 2%-3% range from June We forecast a 2.7% YoY rate for inflation in June (vs 3.3% in May) and for inflation to stay in this range until the end of this year. Pipeline prices suggest price declines continue due to falling global commodity prices and recent KRW appreciation. Import prices have already dropped for three months in a row and producer prices are expected to fall in YoY terms from June. Thus, we believe that the Bank of Korea will take a pause on hiking in 3Q24. Currently, we have marked a rate cut in 4Q23, but depending on the Fed’s rate cut timing, the BoK’s cut may come later, perhaps in the first quarter of next year. But, for now, we are keeping our current BoK forecast as it is.   What to look out for: Powell's testimony before US congress South Korea PPI (21 June) Australia Westpac leading index (21 June) US MBA mortgage applications (21 June) Fed’s Powell speaks (21 June) Fed’s Goolsbee speaks (21 June) Philippines BSP policy meeting (22 June) Indonesia BI policy meeting (22 June) US initial jobless claims (22 June) Fed’s Waller, Bowman and Mester speak (22 June) Japan CPI inflation and Jibun PMI (23 June) Singapore CPI inflation (23 June) Thailand trade balance (23 June) Fed’s Barkin and Bullard speak (23 June)
Market Highlights: US CPI, ECB Meeting, and Oil Prices

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

Michael Hewson Michael Hewson 21.06.2023 08:32
UK CPI set to tee up tomorrow's Bank of England rate decision    We've seen a lacklustre start to the week for markets in Europe, as well as the US as disappointment over a weak China stimulus plan, gave investors the excuse to start taking some profits after the gains of recent weeks. Weakness in energy prices also reinforced doubts about the sustainability of the global economy as we head towards the second half of this year.   As we look towards today's European open the main focus is on the latest UK inflation numbers for May ahead of tomorrow's Bank of England rate decision.   Today's UK CPI numbers could make tomorrow's rate decision a much less complicated decision than it might be, especially if the numbers show a clear direction of travel when it comes to a slowing of price pressures. Nonetheless, whatever today's inflation numbers are, we still expect to see a 25bps rate hike tomorrow, however what we won't want to see is another upside surprise given recent volatility in short term gilt yields.   When the April inflation numbers were released, there was a widespread expectation that headline inflation would fall back sharply below 10% and to the lowest levels since March last year. That did indeed happen, although not by as much as markets had expected, falling to 8.7%.       It was also encouraging to see PPI input and output prices slow more than expected in April on an annual basis, to 3.9% and 5.4% respectively.   Unfortunately, this is where the good news ended as while we saw inflation fall back in April it wasn't as deep a fall as expected with many hoping that we'd see headline inflation slow to 8.2%. The month-on-month figure was much hotter than expected at 1.2% and core prices surged from 6.2% to 6.8%, and the highest level since 1990.   The areas where inflation is still looking hot is around grocery prices which saw an annual rise of 19.1%, only modestly lower than the 19.2% in March, while services inflation in hotels and restaurants slowed from 11.3% to 10.2%. Since then, food price inflation has slowed to levels of around 16.5%, still very high, while today's headline number is forecast to slow to 8.5%. More worryingly core prices aren't expected to change at all, remaining at 6.8%, however if we are to look for crumbs of comfort then we should be looking at PPI where in China and Germany we are in deflation.   Given that this tends to be more forward-looking we could find that by Q3 headline CPI could fall quite sharply. Both PPI input and output prices are expected to both decline on a month-on-month basis, while year on year input prices are expected to rise by 1.1%.   In the afternoon, market attention will shift to Washington DC and today's testimony by Fed chair Jerome Powell to US lawmakers in the wake of last week's decision to hold rates at their current levels, while issuing rather hawkish guidance that they expect to hike rates by another 50bps by year end.   This was a little surprising given that inflation appears to be a problem that could be subsiding. Powell is likely to also face further questions from his nemesis Democrat Senator Elizabeth Warren who is likely to further press the Federal Reserve Chairman on the costs that further rate hikes might have in terms of higher unemployment.   Her dislike for Powell is well documented calling him a "dangerous man", however despite these comments her fears of higher unemployment haven't materialised despite 500bps of rate hikes in the past 15 months.   We could also get further insights into last week's discussions with a raft of Fed speakers from the likes of Christopher Waller, Michelle Bowman, James Bullard and Loretta Mester this week.          EUR/USD – currently holding above the 50-day SMA at 1.0870/80 which should act as support. We still remain on course for a move towards the April highs at the 1.1095 area, while above 1.0850.     GBP/USD – slipped back from 1.2845/50 area sliding below 1.2750 with the next support at the 1.2680 area. Still on course for a move towards the 1.3000 area, while above the 50-day SMA currently at 1.2510.      EUR/GBP – found support at the 0.8515/20 area with resistance at the 0.8580 level. While below the 0.8620 area bias remains for a move toward the 0.8470/80 area.     USD/JPY – slipped back from just below the next resistance at 142.50 which is 61.8% retracement of the 151.95/127.20 down move. Above 142.50 targets the 145.00 area. Support now comes in at 140.20/30.      FTSE100 is expected to open 4 points higher at 7,573     DAX is expected to open 42 points higher at 16,153     CAC40 is expected to open 3 points higher at 7,297     By Michael Hewson (Chief Market Analyst at CMC Markets UK)
US August CPI: Impact on USD/JPY and Trading Strategies

NZD/USD down 1.3% this week! Powell to testify before a House Committee on Wednesday

Kenny Fisher Kenny Fisher 21.06.2023 08:45
NZD/USD is down 1.3% this week New Zealand consumer confidence rises Powell to testify before a House Committee on Wednesday The New Zealand dollar is sharply lower for a second straight day. In the North American session, NZD/USD is trading at 0.6148, down 0.83%.   New Zealand consumer confidence rises New Zealand Westpac consumer confidence accelerated to 83.1 in May, up from 77.7 in April and above the consensus of 76.2 points. Still, this is a low level as consumers remain pessimistic about economic conditions. The Westpac survey found that even though household incomes were higher due to strong wage growth, household finances were squeezed for two reasons. First, the cost-of-living crisis has hurt households, with inflation climbing 6.7% over the past year. Second, high interest rates have impacted on many households as mortgage rates have shot up. Weak consumer confidence, which could well translate into a drop in consumer spending, would not be bad news at all for the Reserve Bank of New Zealand, which needs the economy to slow in order to pause interest rate hikes. The benchmark rate currently stands at 5.50% and the RBNZ meets next on July 12th. Last week’s GDP report for the first quarter showed growth contracted by 0.1%, which means that technically New Zealand is in a recession, with two consecutive quarters of negative growth. In the US, this week’s data calendar is very light. There are no tier-1 releases on Tuesday and the markets are looking ahead to Wednesday, with Jerome Powell testifying before the House Financial Services Committee. Powell will likely be grilled by lawmakers on the Fed’s unconventional interest rate path, as the Fed paused last week after ten straight hikes but has signalled that it plans to renew hiking at next month’s meeting. . NZD/USD Technical NZD/USD is putting strong pressure on support at 0.6147. Below, there is support at 0.6056 0.6198 and 0.6276 are the next resistance lines  
Japan's Economic Outlook: BoJ Policy and Scenarios

EUR/USD: Low Volatility Persists as Market Awaits Directional Catalysts

InstaForex Analysis InstaForex Analysis 21.06.2023 09:47
The EUR/USD pair has been going through low volatility and volume. The chart above may suggest that the pair moved quite actively, but in reality, there was only a 53-pip range between the day's high and low. Thus, we have witnessed the third consecutive boring and uninteresting day. Yesterday's only notable report was the number of approved construction permits in the United States. The report turned out slightly better than expected, which helped strengthen the dollar to some extent. But what kind of reaction are we talking about?   A mere 20 pips, which is not interesting at all and does not affect the current technical picture. The pair continues to correct sluggishly downward against an empty calendar. Yesterday, one signal was even formed. During the European trading session, the pair rebounded from the level of 1.0943 and then moved down by the aforementioned 50 pips. However, the price could not reach the target level by the end of the day, and no further signals were formed. Therefore, it was advisable to manually close the sell trade anywhere closer to the evening. It was possible to earn around 30 pips from it, which is not bad considering the current volatility. COT report: On Friday, a new COT report for June 6 was released. In the last 9 months, COT reports have fully corresponded to what is happening on the market. The chart above clearly shows that the net position of big traders (the second indicator) began to grow again in September 2022.   At the same time, the euro resumed an upward movement. The net position of non-commercial traders is bullish. The euro is trading at its highs against the US dollar. I have already mentioned that a fairly high value of the "net position" indicates the end of the uptrend. The first indicator also signals such a possibility as the red and green lines are very far from each other. It often occurs before the end of the trend. The euro tried to start falling a few months ago but there was only a pullback. During the last reporting week, the number of long positions of the "Non-commercial" group of traders decreased by 5,700 and the number of short positions rose by 1,500. The number of long positions is higher than the number of short ones. This is a very large gap. The number of long positions is 59,000 higher than short ones.     The difference is more than three times. The correction has begun. Yet, it may not be a correction but the start of a new downtrend. At this time, it is clear that the pair is likely to resume a downward movement without COT reports. 1H chart of EUR/USD In the 1-hour chart, the pair is trying to start an uptrend but there are no drivers for growth. Last week, there were many events that bolstered its rise. However, in the medium term, there are still no reasons to go long. Technical indicators signal an uptrend.   It would be better not to sell the pair now. We need to wait at least for consolidation below the trend line and the target level. On June 21, trading levels are seen at 1.0581, 1.0658-1.0669, 1.0762, 1.0806, 1.0868, 1.0943, 1.1092, 1.1137, as well as the Senkou Span B line (1.0766) and the Kijun-sen line (1.0889) lines. Ichimoku indicator lines can move intraday, which should be taken into account when determining trading signals. There are also support and resistance although no signals are made near these levels.   Signals could be made when the price either breaks or bounces from these extreme levels. Do not forget to place Stop Loss at the breakeven point when the price goes by 15 pips in the right direction. In case of a false breakout, it could save you from possible losses. Several ECB and Fed officials are scheduled to deliver speeches today. However, traders are likely to ignore their statements. Federal Reserve Chairman Jerome Powell will deliver an important speech in Congress. The main focus is on that.  
Euro Gets a Boost from ECB's Inflation Forecasts

Rates Spark: The Concern of Curve Inversion and Central Bank Impact on Market Sentiment

ING Economics ING Economics 21.06.2023 09:51
Rates Spark: The worry about curve inversion Hawkish central banks and low market growth expectations have kept rates in a range. This has largely benefitted risk appetite but is also resulting in a more inverted curve, hardly an encouraging macro signal.   Powell and Schnabel might accelerate the curve inversion trend today We tend to be sceptical of the overall impact central bank comments can have on day-to-day market rate movements. One reason is the abundance of central bank communication. The other is their data-dependent setting (see yesterday’s note) which put economic releases firmly in the driving seat of market moves. Unfortunately, today is, like yesterday, much heavier on central bank communication than on economic data. This means the signal to noise ratio is likely to remain low. Still, today’s headliner, Fed chair Jerome Powell, is probably the world’s most watched central banker, so his testimony will carry weight with investors. Similarly, we think Isabel Schnabel’s interventions are amongst the most listened to out of the European Central Bank (ECB).   This year in rates has been characterised by a tug-of-war between hawkish central banks and pessimistic markets, at least when it comes to growth. A hawkish tone in the face of sticky core inflation makes sense but central banks have hurt their credibility by reinforcing their message with overly upbeat growth forecasts.    This makes sense up to a point, as markets are much more likely to believe a hawkish central bank if economic growth allows it to tighten policy further. However it seems markets collectively disagree with central banks’ forecasts, by pricing subsequent rate cuts. In short, central banks’ sphere of influence doesn’t extend much beyond the front-end of the curve.
Crypto needs a breather. Crypto Market Gains 3.9% Despite Stock Indexes' Decline; Bitcoin Consolidates as Challenges Persist

Crypto needs a breather. Crypto Market Gains 3.9% Despite Stock Indexes' Decline; Bitcoin Consolidates as Challenges Persist

Alex Kuptsikevich Alex Kuptsikevich 22.06.2023 10:15
Market picture The crypto market has gained another 3.9% in the past 24 hours, reaching a capitalisation of $1.18 trillion. It has diverged from the stock indices, which have fallen sharply in the previous days due to expectations of a rate hike. Bitcoin has surged more than 15% in two days, revisiting the area of April highs just above 30k. However, this is where the recovery has paused. Bitcoin needs to consolidate a bit before it can resume its ascent. Moreover, there are doubts that the cryptocurrency rally will continue soon, as the stock indices create a challenging environment for risk-sensitive assets across the board. The technical targets for the BTCUSD correction are the 29.3 and 28.5 levels, 76.4% and 61.8% of the latest rally, respectively. If the decline is halted at either of these levels, we could expect new multi-month highs soon.     News background The official launch of the new crypto exchange EDX Markets boosted Bitcoin’s rise. The project is backed by financial giants Citadel Securities, Fidelity Investments and Charles Schwab. The market also reacted positively to BlackRock’s application to the SEC for a spot bitcoin ETF, filed last week. Grayscale Investments’ GBTC bitcoin fund saw its trading volume increase five-fold to $80 million after BlackRock’s filing with the SEC. Following BlackRock, three other major investment firms - WisdomTree, Invesco and Bitwise - also applied for a spot bitcoin ETF. Fed chief Jerome Powell said the regulator considers payment stablecoins as money and therefore has to regulate their issuance. He said it would be a “grave error” to allow large amounts of private funds to be created without oversight. Stablecoins and DeFi projects could be the following targets of the SEC’s crackdown, according to investment bank Berenberg. After suing major exchanges, the SEC may now go after the issuers of the two largest stablecoins, Tether (USDT) and USD Coin (USDC).
EUR: German IFO Data and Central Bank Hawkishness Impact Euro/USD Range Trade

European Stocks Set to Open Lower Following Powell's Testimony as Inflation Concerns Persist

Craig Erlam Craig Erlam 22.06.2023 11:52
European stocks are poised to open a little lower on Thursday, tracking moves we saw in the US on Wednesday following Jerome Powell's appearance in Congress. The Fed Chair appeared before the House Financial Services Committee and very much stuck to last week's script, which should come as a surprise to no one. Inflation is not under control and the vast majority at the Fed believe more rate hikes will be warranted was the message, although we got that from the dot plot.   For once, markets are buying what the Fed is selling and have priced in a 70% chance of a hike in July. But that's where they believe it ends with the easing cycle then starting around the turn of the year so the Fed and the markets aren't entirely on the same page. The data will likely determine whether markets remain in agreement on July as I imagine it will take less to convince investors that another hike isn't warranted than the Fed.   Will the BoE be tempted to hike by 50 basis points? What the Bank of England would do to be in a position to be debating whether another rate hike or two is even necessary. Instead today, the debate will be whether 25 basis points is even enough or if it should revert back to 50. The central bank has made almost no progress in getting inflation back to 2%, in fact, core inflation is still rising which should be causing some alarm on the MPC. Aside from the decision itself, the vote will be very interesting today. At each of the last three meetings, two policymakers have voted for a pause. Will they stand firm today or accept that more is needed and what will that hawkish pivot do to interest rate expectations? They're already pretty hawkish, with the terminal rate seen at around 6% early next year but that could cement the view that much more is needed.   Oil remains choppy but edging towards the upper end of its range Oil prices remain very volatile as we've seen over the last week. Trading has been very choppy as traders have tried to reconcile weaker Chinese growth, slightly more modest support from the PBOC, more hawkish central banks, and resilient economies. We appear to be in a position where we're either waiting for the economy to break or for central banks to achieve their soft landing aims. Brent remains in its lower trading range for this year between $70-$80 but we are getting closer to the upper end of that and there's still plenty of momentum in the move. A break above $80 could be a very bullish development and suggest traders are feeling less pessimistic about the economy.   Gold sell-off losing momentum ahead of the BoE Gold has been seriously testing its recent range lows over the last 48 hours but so far it's struggling to generate enough momentum for a significant move lower. Despite Powell's hawkish delivery in Congress, the yellow metal recovered earlier losses to close only marginally lower on the day, albeit below the lower end of the $1,940-$1,980 range it previously largely traded within. Ahead of day two of his testimony, this time in front of the Senate, gold is trading relatively flat and potentially in need of another bearish catalyst. The sell-off is losing momentum although it could get an extra nudge from the BoE if we see a more hawkish shift.
Market Reaction to Eurozone Inflation Report: Euro Steady as Data Leaves Impact Limited

Asia Morning Bites: Japanese Inflation Rises, Anticipation of BOJ Policy Adjustment

ING Economics ING Economics 23.06.2023 12:00
Asia Morning Bites Japanese core inflation excluding food and energy edges higher in May - tees up the Bank of Japan for a July tweak to policy.   Global Macro and Markets Global markets:  After several days of decline, US stocks turned around on Thursday, and equity futures indicate that they may have a little further to go today. The S&P 500 rose 0.37%, while the NASDAQ rose 0.95%. China was out for Dragon Boat Day and will be out today too.  US Treasury yields went higher again. The Yield on both the 2Y note and the 10Y bond rose 7.6bp, taking 10Y yields to 3.795%. 10Y UK Gilt yields fell 3.8bp after the larger-than-expected Bank of England hike. EURUSD pushed above 1.10 yesterday, despite the rise in US yields, but it could not hold on to its gains and has retreated back to 1.0956 – not much changed from 24 hours ago.  G-10 currencies including the AUD and JPY lost ground to the USD, but GBP was steadier, helped by higher rates. Most Asian currencies weakened against the USD yesterday. The THB rose to 35.075, and the SGD rose to 1.3447. USDCNH has risen to 7.1957 and topped 7.20 overnight.   G-7 macro: There were further hawkish comments from Jerome Powell overnight, who said that the US may need one or two more rate hikes. Barkin also indicated that he was happy to see rates go higher. The main macro release from the US for the day was existing home sales. Lack of supply seems to be helping house prices to remain supported, as James Knightley writes here. Initial jobless claims held on to the recent highs at 264K, though continuing claims drifted a little lower. Not quite a smoking gun for the labour market, but it is becoming a little more interesting. The Bank of England’s 50bp hike took markets by surprise. James Smith and Chris Turner write about it here. James notes, “We’re tempted to say that today’s 50bp move won’t become a new trend, but two further 25bp hikes seem like the most likely route after today’s meeting”. Today is another quiet day for macro releases, with nothing of note from the US and only retail sales from the UK to look at.   Japan:  May inflation data came out slightly higher than expected. The headline inflation rate was 3.2% YoY in May (vs 3.5% in April, 3.2% market consensus) but core (3.2%) and "core-core" (4.3%) inflation beat market expectations. Inflation excluding food and energy even rose from 4.1% in April. The headline CPI index was unchanged month-on-month, but goods prices fell 0.1% MoM sa, while service prices rose 0.1%. Housing, transportation, telecommunications, and entertainment prices continued to rise, while utilities fell again. We think there are signs of inflationary pressure building up on the supply side, but it is certainly not strong enough for the BoJ to bring about immediate tightening.Looking ahead, the current energy subsidy program will end in September and some power companies will begin to raise electricity fees again. Thus, we see headline inflation staying above 2% for a considerable time. We expect June Tokyo inflation, released next week, will also pick up again.  We think that the BoJ will upgrade its inflation outlook in July and a yield curve control (YCC) tweak is still possible despite the dovish comments from several board members. They will probably justify their action by saying that a YCC tweak is not a tightening, but instead, that it is done to improve market functionality. Another reason that we think a July tweak is possible is that a shift in YCC may need to come as a surprise to avoid a large bond selloff. Singapore:  May inflation is set for release today.  The market consensus points to a slight softening in inflation with core and headline inflation slipping to 4.7%YoY and 5.4%YoY, respectively.  Continued robust domestic demand is preventing price pressures from dissipating quickly.  Despite the dip in inflation, the MAS will likely be on notice monitoring price developments with core inflation still well above target.  
GBP: Softer Ahead of CPI Risk Event

Volatility Continues: Fed's Hawkish Stance Dampens Market Sentiment

ING Economics ING Economics 23.06.2023 11:40
The Commodities Feed: Oil dips following hawkish comments from Fed Chair Powell The oil market has been unable to escape the pressure from a more hawkish Federal Reserve. And this is despite a supportive inventory report from the Energy Information Administration (EIA)   Energy – Fed talk pressures the energy complex The oil market buckled yesterday as a result of further hawkish comments from Federal Reserve Chair Jerome Powell during his second day of congressional testimony. ICE Brent fell almost 3.9% on the day towards US$74/bbl. And this weakness has continued this morning. A more hawkish Fed overshadowed what was a fairly constructive EIA report. US commercial crude oil inventories fell by 3.38MMbbls over the last week, more than the 1.2MMbbls draw the American Petroleum Institute (API) reported the previous day and more than the market was expecting. Crude oil exports played a part in this draw, rising by 1.27MMbbls/d WoW to 4.54MMbbls/d. On the product side, small builds of 479Mbbls and 434Mbbls were seen in gasoline and distillate fuel oil respectively. In addition, implied US oil demand (total product supplied) hit 20.93MMbbls/d over the week – the highest number seen since December. Middle distillates remain well supported with the prompt ICE gasoil crack remaining above US$20/bbl, whilst the prompt time spread remains in deep backwardation. The latest data from Insights Global show that gasoil inventories in the Amsterdam-Rotterdam-Antwerp (ARA) region continue to decline with them now standing at 2.04mt, which is below the five-year average and levels not seen since the start of the year. Refinery outages appear to be driving this tightness, which should continue to support middle distillates at least in the short term. There is very little on the calendar today for energy markets. Baker Hughes will release rig count data and if it continues to follow the trend seen so far this year, we can expect a further decline in drilling activity. Higher costs have likely contributed to slower drilling activity. The latest Dallas Fed Energy Survey shows that 60% of producers see drilling and completion costs per well to end this year higher than where they ended 2022. Today's other regular release on the calendar is the latest positioning data from the Commodity Futures Trading Commission (CFTC) and ICE. Given the move in the oil market over the last reporting week and the increase in open interest, we could see the net speculative long in ICE Brent having grown over the week. This is even more the case for ICE gasoil, where open interest has increased from a little under 706k lots to more than 720k lots over the reporting week.  
Market Sentiment and Fed Policy Uncertainty: Impact on August Performance

The Commodities Feed: Implications of Positive US Macro Data on Oil Prices and Brent-Dubai Spread

ING Economics ING Economics 28.06.2023 08:03
The Commodities Feed: Positive US macro data increases likelihood of further rate hikes Oil prices came under pressure yesterday despite better-than-expected macro data from the US. The oil market instead is focused on the implications of this stronger data - the potential for further rate hikes.   Energy - Brent-Dubai spread flip The oil market sold off quite aggressively yesterday following a raft of stronger-than-expected data from the US with durable goods orders surprisingly climbing in May. New home purchases also came in much better than expected, whilst consumer confidence rose to its highest level since early 2022. This strong set of data once again suggests that the Fed will likely have to hike rates further, which is obviously aligned with Jerome Powell’s testimony last week. Equity markets took the data as a positive sign. However, the oil market did not. ICE Brent settled almost 2.6% lower yesterday.   Overnight the API released weekly US inventory numbers which showed that US crude oil inventories fell by 2.41MMbbls over the last week, which is more than the roughly 1.5MMbbls decline the market was expecting. As for refined products, gasoline inventories fell by 2.85MMbbls, while distillate fuel oil stocks increased by 780Mbbls. The more widely followed EIA report will be released later today.   The Brent-Dubai spread has continued to see significant weakness over the last month  - a trend that has been at play since late last year. However, the spread now sees Brent trading at a discount to Dubai. This is fairly unusual, as the Dubai benchmark reflects a lower quality of crude oil relative to Brent. OPEC+ supply cuts have played an important role in the narrowing of the spread, while the expectation that Saudi Arabia may extend its additional voluntary cut of 1MMbbls/d beyond July will also be contributing to the relative strength in Dubai. However, the move in the spread should see Asian buyers looking to the Atlantic Basin for cheaper barrels.    
Challenges Loom Over Eurozone's Economic Outlook: Inflation, Interest Rates, and Uncertainty Ahead

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  
Bank of England's Rate Dilemma: A September Hike and the Uncertain Path Ahead

GBP/USD Shows Minimal Volatility Amid Uncertainty and Overbought Conditions

InstaForex Analysis InstaForex Analysis 28.06.2023 09:13
The GBP/USD currency pair continued to trade with minimal volatility on Tuesday. The chart below clearly shows the volatility values over the past 30 days. The average value has decreased significantly in recent months. It should be understood that 90 points represent two days at 120 points and three days at 70 points. Trading the pair during these "three days at 70" would be extremely inconvenient and difficult.   The British pound has minimally corrected towards the moving average line but has not formed any signals around it. It continues to rise, but its prospects are still highly uncertain due to having already risen by 2500 points and still needing help to correct properly. As we can see, last week, the Bank of England raised the interest rate by 0.5%, but the pound did not show any growth afterward.       In other words, the British currency, which in 2023 takes any opportunity to rise, refuses to do so when it receives the strongest growth factor! Perhaps the market has already priced in all the Bank of England rate hikes? Its key rate has already risen to 5%, so how many more tightening measures can be objectively expected?   How many of them have the market not yet "discounted"? We did not expect such a strong rate hike from the Bank of England, but even in this case, the essence of the matter remains the same. The Bank of England is still close to completing its tightening cycle. Let's remind ourselves that the US dollar started to decline at the first signs of inflation slowing down. In other words, the market has already factored in almost all future rate hikes by the Federal Reserve in advance. We expect something similar from the British pound at the moment. In the 24-hour timeframe, it is evident that there are almost no corrections within the current upward trend. Occasionally, the pair retraces from its local highs by 10-20%, no more.   Therefore, we still believe that the pound is overbought and has risen too strongly, and we expect a decline. The Chief Economist of the Bank of England may surprise the market. There will be a few fundamental events in the UK this week. Today, the Chief Economist of the Bank of England, Hugh Pill, will deliver a speech, and it will be one of the first appearances by a representative of the British regulator after the regulator raised the rate for the thirteenth consecutive time. Thus, Pill's speech has the potential to be very interesting, but it should be noted that he may very well avoid discussing monetary policy. Therefore, it will all depend on what Mr. Pill communicates.   Naturally, the market will await new information on how much more monetary policy tightening is planned in the UK. Jerome Powell's speech should generate less interest among traders, as the head of the Federal Reserve has been speaking quite frequently lately, and the market more or less understands what to expect from the Fed in the upcoming meetings.   The following can be expected: a rate hike of 0.25% is almost guaranteed in July, and then by the end of the year, at most, one more hike can be expected. Inflation in the US is declining at the highest rates, so raising the rate to 5.75% would be excessive. However, the Federal Reserve is in a hurry to suppress inflation and return to normalcy.   And at the moment, the dollar is hardly reacting to all the efforts of the Fed. It has been falling for almost ten months in a row. Thus, overall, the situation remains the same. The pound may continue to rise, but it has long been due for a downward correction of at least 500-600 points. The average volatility of the GBP/USD pair over the past five trading days is 81 points.   For the pound/dollar pair, this value is considered "average." Therefore, on Wednesday, June 28th, we expect movements within a range limited by the levels of 1.2649 and 1.2811. A reversal of the Heiken Ashi indicator downwards will signal a new downward movement phase.  
SEK Update: Encouraging Data Offers Relief Amid Growth Concerns

Sintra's Hawkish Message: Impact on Major Central Banks and FX Market

ING Economics ING Economics 29.06.2023 09:13
FX Daily: How “contagious” are Sintra's hawks? The ECB’s message in Sintra has been firmly hawkish and has helped the euro. Today, a panel with Lagarde, Powell, Bailey and the BoJ’s Ueda will tell us if other major central banks will follow such hawkish rhetoric. It should be the case for Powell (backed by strong data) and Bailey (too early to push back against hike bets), but is Ueda ready to talk up the yen?   USD: Room for rebound The dollar has traded on the soft side since the start of the week, but US data has come in on the strong side, which makes us reluctant to think the dollar has much further to fall in the second half of the week and ahead of today’s Sintra speech by Federal Reserve Chair Jerome Powell.   Yesterday, all US data releases beat consensus. Durable goods orders rose in May despite expectations for a drop and the S&P Case Shiller US house price index rose for a third month in a row in April as tight supply keeps prices supported despite weak buyer demand in response to surging mortgage rates. Home sales also rose more than expected and consumer confidence jumped to 109.7, the highest since January 2022 (despite being considerably below pre-pandemic levels). Today, the US data calendar is lighter: MBA mortgage applications and wholesale inventories.   While those are not the set of data points either the markets or the Fed primarily focus on, they surely point to some resilience in key parts of the US economy and would underpin a reiteration of a hawkish message by Powell today. That would probably take the shape of a further endorsement of dot plot rate hike projections (two more before the peak) with potentially an additional pushback against rate cuts.   Markets continue to price only another 28bp of tightening and a 73% implied probability of a July hike, so there is still ample room for a hawkish repricing in the USD curve. We’d be cautious when jumping on a dollar bear trend before the data gives a more solid basis to justify the market's dot plot gap.
US and European Equity Futures Mixed Amid Economic Concerns and Yield Surge

Assessing the Disinflationary Impact on FX Markets: Outlook for the Dollar and Potential Reversal Signals

ING Economics ING Economics 17.07.2023 10:41
FX Daily: How much more fuel in the disinflation tank? Last week’s US disinflation shock altered the FX landscape, but a few days without key data releases will tell us whether that impulse can keep the dollar on the back foot as the FOMC risk event draws nearer. EUR/USD appears a bit overstretched in the short term and could face a correction this week.   USD: Some caveats to the bearish narrative On Friday, we published FX Talking: The dollar’s break point, where we discuss our updated views on G10 and EM currencies and present our latest forecasts. The radical shift in the FX positioning picture since the US CPI and PPI releases last week now forces a reassessment of the dollar outlook. The Commodity Futures Trading Commission (CFTC) data on speculative positioning offers little help in understanding how much dollar positioning has changed since the latest reported positions were as of Tuesday, before the inflation report. Back then, the weighted aggregate positioning against reported G9 currencies (i.e., G10 excluding SEK and NOK) had already inched into net-short territory (-2% of open interest, in our calculations). When making the parallel with the November-December 2022 dollar decline, positioning shows a key difference. At the end of October 2022, markets were still speculatively long on the dollar (around 10% of open interest against CFTC-reported G9). Another important factor – especially for EUR/USD – is the degree to which other central banks outside of the US can still surprise on the hawkish side, which is significantly lower than it was last autumn. These caveats to the rather compelling bearish dollar story mean that it may not be one-way traffic from here in FX, even if we see the dollar weaken further into year-end. On the fundamental side, the disinflation story puts risk assets on a sweet spot, favours a re-steepening of the US yield curve and should make pro-cyclical currencies more attractive. However, the Federal Reserve may not turn into a USD-negative that swiftly. Our US economist still sees a 25bp hike next week as likely. It is fully priced in, but will the Fed be ready to throw the towel on more hikes just yet? Core inflation is declining, but the jobs market remains very tight and other economic indicators remain resilient. The dot plot is still showing another hike before a peak and Fed Chair Jerome Powell may prefer to err on the hawkish side, especially through a rate cut pushback (first cut priced in for the first quarter of 2024). This week will be interesting to watch since the lack of tier-one data in the US will offer a clue on how FX markets will trade from now on; the question is whether investors now see enough reasons to add short positions on the dollar ahead of the FOMC or take a more cautious approach. The latter – which appears marginally more likely in our eyes – may see the dollar reclaim some portions of recent losses. DXY could find some support after climbing back above 100.00.
Riksbank's Potential Rate Hike Amid Economic Challenges: Analysis and Outlook

Asia Morning Bites: Fed's Impact on Global Markets, Focus on ECB and BoJ Decisions

ING Economics ING Economics 28.07.2023 08:24
Asia Morning Bites After the Fed, attention now shifts to the BoJ tomorrow and ECB later today.   Global Macro and Markets Global markets:  US equities didn’t hate Jerome Powell’s message last night at the FOMC following the latest 25bp rate hike. But they didn’t love it either. That probably suggests Powell got it about right in terms of the overall tone. (see our detailed note here). The door is left wide open for more hikes, the question is, will they actually deliver?   The S&P 500 was down just 0.02%, while the NASDAQ fell only 0.12%. Practically flat on the day. Chinese stocks were a bit more subdued also, maybe figuring that the earlier Politburo comments were more hot air than cold cash, and the CSI 300 drifted 0.21% lower, while the Hang Seng index fell 0.36%. US Treasury markets clearly felt that they were appropriately priced for the FOMC message, and 2Y yields came off just 2.3bp, while the 10Y dropped just 1.8bp to 3.867%. These slight yield reductions enabled the EUR to claw a little ground back against the USD, and EURUSD rose to 1.1083. Other G-10 currencies – GBP and  JPY made gains against the USD, though the AUD lost some ground after their June inflation figures, which on the whole, could have been better even though they did show inflation still dropping (see our note here for more detail). Asian FX had a mixed day. The CNY has begun to drift weaker again after its Politburo-induced strengthening earlier. But there were some positive outcomes from the THB and MYR. G-7 macro:  After the FOMC excitement, which turned out not to be so exciting after all, it’s the turn of the ECB today. Here’s a cheat sheet from our European economists, rates and FX strategists, who think that they may veer towards a more data-dependent strategy after this meeting, which could be viewed as a slightly dovish tilt and lead to a weaker EUR. On top of that, we also get Advance 2Q GDP from the US, with a consensus view of 1.8%QoQ annualized growth – only slightly down from 2.0% in 1Q23. Any upside surprise is likely to see bond yields pushing higher again. China: Industrial profits data for June will not likely buck the trend of other weak data. Industrial production growth remained weak in June, while producer price inflation turned more negative. So a  further dip from May’s -12.6%YoY outcome seems possible. What to look out for: ECB and BoJ China industrial profits (27 July) ECB policy decision (27 July) US personal consumption, durable goods orders initial jobless claims (27 July) South Korea industrial production (28 July) Japan Tokyo CPI and BoJ policy (28 July) Australia PPI (28 July) US personal spending, core PCE, University of Michigan sentiment (28 July)
EU Investigates Chinese Electric Vehicle Subsidies, Impact on the EV Market

FX Daily: Fed Patience Supports Risk Assets, Eyes on ECB Meeting

ING Economics ING Economics 28.07.2023 08:26
FX Daily: Fed patience provides breathing room for risk assets The market reaction to last night's FOMC statement was a mildly positive one, as Chair Powell's acknowledgement that the Fed could afford to be a little patient saw US yields and the dollar soften slightly. Today, all eyes will be on the ECB, where a 25bp hike is widely expected along with the door being left open for another hike in September.   USD: A little early to chase the dollar lower In the end, the dollar tracked US yields and marginally softened after yesterday's FOMC rate decision and press conference. Fed Chair Jerome Powell delivered another credible performance, and it seemed that markets – perhaps because of positioning – latched onto comments that the Fed "could afford to be a little patient" as a result of all the tightening implemented so far. US two-year yields edged some 7-8 bps lower, and December 2024 futures contracts priced Fed Funds some eight ticks lower at 4.07%, embracing five 25bp cuts in 2024. One of the clearest messages coming through from the press conference was that Chair Powell felt the Fed was "not in an environment where we want to provide a lot of forward guidance". In other words: listen to the data, not the Fed. On that subject, he highlighted that by the time of the next meeting on September 20th, the Fed would have two new CPI reports, two new job reports, and the Employment Cost Index (which will be released tomorrow).  While the dollar is a little lower today post-Fed, we would not chase the move just yet and prefer to take our cue from the data, starting with tomorrow's ECI. As we discussed in our FOMC review, the carry trade environment will still be popular and with overnight deposit rates at 5.25%, the dollar is clearly not a funding currency. Beyond the ECB meeting today, the US calendar should see some downward revisions to second quarter GDP, durable goods orders, and initial jobless claims. Of these, claims might be the most important given the ongoing need to see tight conditions ease in the US labour market. Barring any hawkish surprise from the ECB today, DXY should trade within a 100.60-101.20 range.
Europe's Economic Concerns Weigh as Higher Rates Keep US Markets Cautious

US Interest Rate Speculation and Market Sentiment: Insights from July FOMC Minutes and Soft Landing Narrative

ING Economics ING Economics 11.08.2023 14:28
We expect the minutes from the July Federal Open Market Committee (FOMC) meeting will continue to exhibit hawkish sentiments with the Fed wary about signalling an imminent peak in US interest rates, with markets fully embracing the soft landing story. Meanwhile, in the UK, inflation and wage data will be released. US markets have fully embraced the soft landing story Markets have fully embraced the soft landing story in the United States whereby growth is respectable while inflation is slowing nicely, offering the Fed the opportunity to call time on interest rate hikes and eventually cut rates in early 2024 to cushion the economy from a hard landing, as high borrowing costs and tight lending conditions inevitably take their toll. There is a lot that could go wrong though, most notably the abrupt hard stop in credit expansion seen since March and its impact on economic activity – but that is a medium-term story. In the near term, the upcoming data is unlikely to support market sentiment, with retail sales looking set to post a decent figure thanks in part to Amazon Prime Day lifting spending, higher gasoline prices boosting the value of gasoline station sales, and vehicle sales ticking higher. However, there will be areas of weakness with chain stores seeing poor sales in recent months, suggesting a risk that the year-on-year rate of retail sales growth will slow to a crawl in the next couple of months. Meanwhile, the minutes of the July FOMC meeting will continue to exhibit hawkish sentiments with the Fed wary about signalling an imminent peak in US interest rates, fearing that this could intensify 2024 interest rate cut expectations and in turn trigger a sharp fall in Treasury yields that would be detrimental to the fight to get inflation back to target. Nonetheless, recent Fed comments have suggested that some members of the committee think they may have done enough with the latest inflation data likely to see more members thinking along those lines. The next big Fed event will be the Jackson Hole symposium between 24-26 August, where we expect to hear Fed Chair Jerome Powell give a bit more guidance on the potential near-term path for policy rates. Rounding out the numbers, we will likely see manufacturing production flat-lining after nine consecutive contraction prints from the ISM index. Industrial production overall may rise thanks to higher utility usage.   Retail sales vs weekly Johnson Redbook sales    
Crude Conundrum: Will Oil Prices Reach $100pb Amid Supply Cuts and Inflation Concerns?

Metals Update: Gold Faces Struggles Amid Fed Uncertainty

ING Economics ING Economics 21.08.2023 10:01
Metals - Gold struggles The gold market remains under pressure, with spot prices now trading below US$1,900/oz. The realisation that we are unlikely to see the Fed start cutting rates this year has weighed on gold. In fact, recent US macro data suggests that there is still the possibility that the Fed may have more work to do when it comes to monetary tightening. We could see some volatility later this week in gold prices with Jerome Powell set to talk at Jackson Hole on Friday, possibly providing some insight on Fed policy for the remainder of the year. Higher rates have seen 10 year real yields hit their highest levels since 2009 recently, and they continue to edge closer towards 2%. The stronger rate environment combined with USD strength is certainly not proving supportive for gold. ETF holdings in gold have seen 12 consecutive weeks of outflows - over this period we have seen outflows of around 4moz, leaving total ETF gold holdings at around 90moz. Speculators also reduced their net long in COMEX gold by  29,042 lots to 46,540 lots over the last reporting week. The latest trade data from China Customs show that imports of unwrought aluminium and products rose 20% YoY to 231.5kt in July. This leaves cumulative imports over the first seven months of the year at 1.43mt, up 12.2% YoY. On the export side, alumina exports jumped by 266% YoY to 130kt last month, while YTD exports have risen by 16% YoY to 700kt. This increase is driven largely by stronger flows to Russia.
Crude Conundrum: Will Oil Prices Reach $100pb Amid Supply Cuts and Inflation Concerns?

Metals Update: Gold Faces Struggles Amid Fed Uncertainty - 21.08.2023

ING Economics ING Economics 21.08.2023 10:01
Metals - Gold struggles The gold market remains under pressure, with spot prices now trading below US$1,900/oz. The realisation that we are unlikely to see the Fed start cutting rates this year has weighed on gold. In fact, recent US macro data suggests that there is still the possibility that the Fed may have more work to do when it comes to monetary tightening. We could see some volatility later this week in gold prices with Jerome Powell set to talk at Jackson Hole on Friday, possibly providing some insight on Fed policy for the remainder of the year. Higher rates have seen 10 year real yields hit their highest levels since 2009 recently, and they continue to edge closer towards 2%. The stronger rate environment combined with USD strength is certainly not proving supportive for gold. ETF holdings in gold have seen 12 consecutive weeks of outflows - over this period we have seen outflows of around 4moz, leaving total ETF gold holdings at around 90moz. Speculators also reduced their net long in COMEX gold by  29,042 lots to 46,540 lots over the last reporting week. The latest trade data from China Customs show that imports of unwrought aluminium and products rose 20% YoY to 231.5kt in July. This leaves cumulative imports over the first seven months of the year at 1.43mt, up 12.2% YoY. On the export side, alumina exports jumped by 266% YoY to 130kt last month, while YTD exports have risen by 16% YoY to 700kt. This increase is driven largely by stronger flows to Russia.
EUR/USD Downtrend Continues Amidst Jackson Hole Symposium Anticipation

EUR/USD Downtrend Continues Amidst Jackson Hole Symposium Anticipation

InstaForex Analysis InstaForex Analysis 21.08.2023 13:24
The downtrend prevails for the EUR/USD pair, falling for the fifth consecutive week. In mid-July, the pair reached a multi-month high at 1.1276, but then sellers took over, as the dollar strengthened and the euro weakened. Last week, bears managed to settle around the 1.08 figure, but they couldn't stay below the support level of 1.0850 (the lower line of the Bollinger Bands indicator on the daily chart), even though they tested this target. The driver of the bearish movement was the USD, which strengthened amid mixed inflation data, hawkish Federal Reserve minutes, decent economic reports, and growing risk-off sentiment. The euro obediently followed the greenback, seemingly content with its role as a "follower" rather than a "leader." This week, the focus will be on the dollar, which, in turn, is anticipating the key event of the month. The event in question is the annual economic symposium held in Jackson Hole, Wyoming. The significance of this event cannot be overstated. The Jackson Hole symposium is often referred to as a "barometer" for the sentiment of central banks in leading countries. As is known, the forum is attended by central bank leaders from major countries (usually at the level of chairmen or their deputies), finance ministers, leading economists and analysts, and heads of the world's largest conglomerates and banking giants. For three days, they discuss pressing issues, crystallize certain signals, and define the main points of further steps.   Typically, the financial elite discusses the most urgent issues at the time. For example, in 2015, the main topic was the crash on the Shanghai Stock Exchange, in 2016 the discussions focused on the consequences of Brexit, and in 2017 the expansion of bond spreads and the next steps of the Fed and European Central Bank were discussed. In 2018, the central topic of the meeting was the trade war between the US and China (or rather its consequences), in 2019, the global trade conflict was discussed again, as well as the impending Brexit. In 2020, the sole topic was the coronavirus crisis, in 2021, the aftermath of the crisis. The key issue discussed at Jackson Hole last year was inflation. It is evident that participants at this week's meeting will also focus on this issue, given the grim macroeconomic news from China. During the three-day symposium, which starts on August 24th, many central bank heads and representatives will speak and may outline their future course of actions in the context of monetary policy prospects. In particular, Fed Chair Jerome Powell is expected to speak on Friday – if he adopts a hawkish stance, the US dollar will get another boost across the market, including against the euro. The latest US data maintains the intrigue on the Fed chair's stance, so we can guarantee the volatility for the EUR/USD pair (as well as other dollar pairs). In short, the recent inflation reports have been somewhat contradictory.   The Consumer Price Index in July showed an uptrend – for the first time in the last 12 months. The indicator rose to 3.2% year-on-year after June's result of 3.0%. However, the core CPI decreased to 4.7% (the lowest level since July 2021). The Producer Price Index was in the "green" – both in annual and monthly terms. The PPI rose by 0.8%, compared to a forecast of 0.3%. The indicator had been steadily declining for 12 months, but it accelerated last month (for comparison, in June 2022 the PPI was at 11.3%, in June 2023, it was already at 0.1%). The core PPI also consistently declined over several months but remained at June's level in July, i.e., at 2.4%. The report on the Import Price Index similarly favored the greenback. According to data published last week, the index in monthly terms was above zero for the first time since April 2023. It is also necessary to recall the latest Non-farm Payrolls, specifically the "green hue" of the pro-inflationary indicator. The level of average hourly wage increased by 4.4% YoY in July, while experts expected a decrease to 4.1% (the indicator has been at 4.4% for four consecutive months). The question emerges - will Powell focus on the acceleration of the CPI and the dynamics of the PPI? Or will the core CPI and the basic PCE index, which showed a slowdown in inflationary processes, be the focus of his speech? According to data from the CME FedWatch Tool, the chances of a quarter point rate hike at the September meeting is currently only 11%. The likelihood of a rate hike at the November meeting is 33%. Powell may reinforce hawkish expectations regarding the Fed's future course of actions if he is concerned about the growth of the aforementioned inflation indicators. In this case, the Fed Chair will trigger a dollar rally, as a result of which the EUR/USD pair may not only fall to the base of the 8th figure but also test the support level of 1.0750 (Kijun-sen line on the daily chart).   However, if Powell focuses on the side effects of aggressive monetary policy (especially in light of recent decisions by rating agencies Moody's and Fitch), the dollar will be under pressure: in this case, EUR/USD buyers may be able to return the pair to the range of 1.0950-1.1030. Of course, apart from the economic symposium, EUR/USD traders will react to other fundamental factors in the background during the upcoming week (PMI indices, IFO, orders for durable goods, secondary housing sales in the US). However, Powell's speech is the main event not only of the upcoming week but probably of the whole of August in general.    
Stocks Rebound Amid Rising Volatility: Analysis and Outlook

Stocks Rebound Amid Rising Volatility: Analysis and Outlook

Ipek Ozkardeskaya Ipek Ozkardeskaya 22.08.2023 08:42
Stocks rebound, but volatility rises.  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank       Stocks rebounded on Monday, in a move that looked more like a correction than a reaction to fresh news, as there was no fresh news that went against the slowing China rhetoric, nor against the fear that we will hear something sufficiently hawkish this Friday from Jerome Powell's Jackson Hole speech. At this point, the hawkish Federal Reserve (Fed) expectations are mostly priced in, leaving room for some up and down moves. So yesterday's session was not only marked by a rebound in the S&P500 from the October to July ascending baseline, but also by a visible rise in volatility. Nasdaq 100 jumped 1.65% as well, but the US 2-year yield returned well above 5%, and the 10-year yield pushed to a fresh high since 2007.     One interesting thing is, in 2007, when the US 10-year yield was at these levels, the positioning in the market was deeply negative – meaning that investors expected the yields to rebound, while today the positioning is deeply positive, meaning that investors expect the yields to bounce lower. And that's understandable: the US 10-year yield was on a steady falling path in 2007, so there was a reason for investors to expect a rebound – which did not happen. In a similar way, today, we are just coming out of a long period of near zero rates, so for our eyes, the actual levels seem very high. That explains why many asset managers expect the yields to fall. There is also a growing interest in US 10-year TIPS – which are protected against inflation, and which hit the 2% mark for the first time since the GFC as well. But there is not much reason other than our low comparison levels that gives reason to an imminent reversal in market direction. The US data is strong, the labour market is tight, and inflation is slowing but 'significant upside risks' prevail. A recent study warned that unless the monthly CPI stays below the 0.2%, inflation is headed higher in 2024. So there is a chance that we won't see a downside correction in the US 10-year yield, and if that's not the case, the selloff could extend until the 10-year yield settles somewhere between 5-5.50%.     Anyway, the market mood got significantly better yesterday. Tech stocks fueled the rally in the US, as Nvidia jumped 8.5% yesterday, a day before the release of its Q2 results. Nvidia'd better meet its $11bn sales forecast for last quarter, otherwise, there is a chance that we will see a sizeable downside correction.     In Europe, oil stocks shouldered yesterday's rally, as the barrel of US crude made an attempt above the $82pb, on lower OPEC+ exports and on the back of a golden cross formation on a daily chart where the 50-DMA crossed above the 200-DMA. But yesterday, that wasn't the case. Oil's positive attempt remained short-lived, on the contrary, and the barrel of crude is preparing to test the $80pb support to the downside again this morning. The market is driven by two major forces: the supply tightness and the Chinese demand expectations. These days, the Chinese demand expectations are very much in focus, which could help the oil bears take advantage for selling the recent rally in oil prices. But tighter OPEC rhetoric will remain a major support into the 200-DMA, near $76pb.  
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US Banks React to Fresh Rating Downgrades as Nvidia Earnings Take Center Stage

Ipek Ozkardeskaya Ipek Ozkardeskaya 23.08.2023 10:05
US banks fall on fresh rating downgrades, Nvidia earnings in focus  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank     The market mood turned sour again, and the S&P500 fell after a short relief. S&P's bank rating downgrades – which came a few days after Moody's downgraded some US small and mid-sized banks and Fitch downgraded the US' rating, came as a reminder that the rising rates won't be benign for banks as depositors move their funds into higher interest-bearing accounts, increasing banks' funding costs. The decline in bank deposits squeezes liquidity, while the value of securities that they hold in their portfolios decline. Plus, regional banks continue to face the risk of a sharp decline in commercial real estate loans. As a result, the S&P500 fell 0.28% on Tuesday, Invesco's KBW bank ETF dived more than 2.50%.       Elsewhere, the rising rates and declining purchasing power finally start showing in some retailers' quarterly announcements. Macy's for example sank 14% yesterday on rising credit card delinquencies and Dick's Sporting Goods slumped more than 24% on 'elevated inventory shrink – in particular theft. Both companies gave a morose outlook for consumer demand moving forward. Could that be a sign of potentially slower consumer spending in the next few months? We will see that. For now, the latest US data remains strong, the Fed expectations are hawkish, no one sees Jerome Powell back off with the Fed's tightening policy, and the US yields are rising. The US 2-year yield pushes higher above the 5% mark, while the 10-year yield struggles near 4.30%, where it sees decent resistance. In one hand, there is a strong demand for US 10-year papers at these levels as many asset managers consider that the levels are good entre points. On the other hand, the hawkish Fed expectations, prospects of – maybe – higher rates, which will be held for a prolonged period of time continue pressuring the yields higher along with the US Treasury's plan to issue more bonds in H2 – as they issued too many T-bills so far to fund their deficit.       And there is one more thing weighing on US treasuries and that's China. Yes, the sluggish Chinese growth is tempering energy and commodity prices and doesn't add to inflationary pressures. But Beijing adds on the US Treasury selloff as it fights against a softer yuan. The People's Bank of China (PBoC) set its daily yuan fixing surprisingly higher than expected this week in a move that Bloomberg described as the most forceful on record.       When the USD/CNY rallies due to higher US and lower Chinese yields, the Chinese sell their US denominated assets to defend yuan. And doing so, they contribute to the further strengthening of the US yields, and the US dollar is pressured higher on the back of stronger yields. Then, the cycle starts all over again. A stronger dollar, and weaker yuan forces the PBoC to sell USD assets. The UST selloff pushes US yields higher and strengthens the dollar and the yields.   
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FX Daily: Anticipating Jackson Hole - PMIs, Yuan Stability, and Nvidia Earnings Take Center Stage

ING Economics ING Economics 23.08.2023 10:18
FX Daily: A busy day ahead of Jackson Hole While the People's Bank of China continues its battle to keep the USD/CNY under 7.30, markets will take a close look at PMIs today. The main focus will be on the eurozone – Germany in particular – and the UK. In the US, Nvidia’s quarterly results are seen as pivotal for the AI-led equity run.   USD: Nvidia results in focus The Jackson Hole Economic Symposium starts tomorrow and should become the overwhelmingly predominant driver for currency markets. For now, investors are keeping a close eye on China and how effectively Beijing is defending its own currency. The 7.30 level in USD/CNY has emerged as the discomfort level for Chinese authorities, and a full session below that mark yesterday and overnight has prompted some optimistic calls that the worst is past us for the yuan’s mini currency “crisis”. It seems a bit premature, but the intent from the People's Bank of China (PBoC) to put a line in the sand at 7.30 is now clear, and would admittedly require another substantial deterioration in sentiment to accept a higher barrier for the pair. USD/CNH drops normally bring the dollar lower across the board. For now, the renminbi is stable rather than truly rebounding, which allowed a small EUR/USD drop yesterday. Markets will be looking at PMIs across developed economies today. The surveys have a larger market impact in European markets but have recently also been looked at with interest in the US, where consensus is expecting few changes from the July read. New home sales are also on the calendar. Another event to keep an eye on today will be the release of quarterly results from Nvidia. The firm is a key player in the AI space and some see today’s results as a key turning point for the recent AI-led equity rally. The impact will likely extend to the currency market. Still, with Jackson Hole kicking off tomorrow and the material risk of Fed Chair Jerome Powell reiterating a hawkish message, any dollar bearish trend may struggle to find solid momentum.
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FX Focus: Turkey in the Spotlight Ahead of Jackson Hole Symposium

ING Economics ING Economics 24.08.2023 11:02
FX Daily: Attention turns to Turkey Ahead of tomorrow's main event of the week – speeches at the Fed's Jackson Hole symposium – attention today will turn to Turkey. In focus will be whether the Central Bank of Turkey accelerates its policy tightening in a return to a more orthodox policy. Consensus suggests probably not. Elsewhere, the dollar should remain steady, with jobs in focus.   USD: Focus on the jobs market The dollar and US yields were knocked off their highs yesterday as an annual benchmark revision (up to March 2023) deducted 306,000 from the reported US payroll growth figures. Several expectations had in fact looked for a 500,000 reduction. The market reaction (a 10bp drop in the US yield curve) looked a little exaggerated but perhaps proves a reminder that the employment story is the most important US variable right now. In other words, US disinflation is welcome, but if the unemployment rate remains at its lows and consumption stays strong, inflation may never make it back to 2% on a sustainable basis.    For that reason, look out for the weekly initial jobless claims data today, where any tick higher to the 250,000 area could slightly weigh on US yields and the dollar. We would not expect big moves, however, before Federal Reserve Chair Jerome Powell's 1605CET speech tomorrow at the Fed's Jackson Hole symposium. Given that the risk environment is a little better bid today – with Nvidia's results keeping the tech boom alive – DXY could trade slightly offered in a 103.15 to 103.50 range.
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Asia Morning Bites: BoK and BI Meetings, G-7 PMI Data, and Global Market Insights

ING Economics ING Economics 24.08.2023 11:58
Asia Morning Bites BoK and BI meet today to discuss policy. G-7 PMI data undermine the higher-for-longer narrative.   Global Macro and Markets Global markets:  US stocks moved higher on Wednesday despite the backdrop of a thin macro calendar and anxiety ahead of the Jackson Hole symposium. The main catalyst for the move seems to have been some capitulation by bond bears, as bond yields tumbled. Yields were down in Europe after some weaker-than-anticipated PMI figures and were matched by falls in US yields as US PMI data also undershot expectations. The 2Y Treasury yield fell 7.9bp to 4.967%, and the 10 Treasury yield fell 13.2bp to 4.192%. So far, with bond yields down across the board, it hasn’t done too much to FX relativities. EURUSD remains roughly unchanged at 1.0863, though the AUD has caught some support from the drop in US yields, and is up to 0.6479 now. Cable dropped sharply in late trading yesterday before recovering most of the ground lost taking it back to 1.2718, and the JPY is looking stronger today at 144.67.  Asian  FX was mixed. The gainers included the CNY, where the PBoC seems to be winning the war of attrition with markets for the moment, and taking the CNY to 7.2786. After their earlier spike, CNH tomorrow next forward points have dropped back, suggesting the short squeeze from higher funding costs has done its work for now. The CNY’s gains have helped lift currencies across the region, including the SGD and VND. Propping up the bottom of the pack, the PHP and THB both weakened against the USD yesterday.   G-7 macro:  Big drops in Europe’s service sector PMI for August yesterday started the ball rolling for markets. The headline service sector index dropped from 50.9 to 48.3, a contractionary reading, offsetting the slightly higher but still recessionary manufacturing gain from 42.7 to 43.7. The US PMIs released later showed a similar pattern, though the drop in the US service sector PMI to 51.0 from 52.3 still leaves it in weak expansion territory, not recession. There was no respite for the US  manufacturing PMI though, which dropped further from 49.0 to 47.0. If soft survey data like this is backed up shortly by "hard" activity data and labour market figures, then the market's higher-for-longer belief will come under substantial pressure, with negative implications for both bond yields and the USD. That’s still a big if, but the probability has been nudged a little following these numbers. It is also going to make it harder for Jerome Powell to get the nuance right in his Friday speech. If he talks up the data-dependency of policy, then these recent softer releases must play into a less hawkish outlook…? Today’s data isn’t terribly exciting. Jobless claims and durable goods are the main US releases.   South Korea:  The Bank of Korea will meet this morning. We are in line with the market view expecting another “hawkish pause”. At today’s meeting, we think that the BoK will likely strengthen its hawkish stance because inflation will likely reaccelerate in the coming months.  This will be reinforced by the fact that the KRW has also been quite volatile and because household debt is increasing again. The updated economic outlook will be released after the announcement of the policy rate decision. We expect a small downward revision to the GDP forecast mainly due to rising concern over China’s slowdown and the sluggish export recovery. The inflation forecast is likely to remain unchanged, which will support the Bank of Korea’s hawkish stance on monetary policy.   Indonesia:  Bank Indonesia (BI) meets today to discuss policy.  Market expectations point to BI keeping rates unchanged at 5.75% today despite moderating inflation.  Pressure on the IDR is one reason why the central bank could opt for a pause.  But we would not rule out a surprise hike from Governor Warjiyo since the trade surplus, a key source of support for the IDR, has narrowed significantly this year.  A rate hike from BI could help steady IDR now that interest rate differentials have collapsed to a mere 25bps.      What to look out for: BoK and BI meetings, Jackson Hole conference on Friday South Korea PPI inflation and BoK policy meeting (24 August) Indonesia BI policy meeting (24 August) Hong Kong trade balance (24 August) US initial jobless claims and durable goods orders (24 August) Japan Tokyo CPI inflation (25 August) Malaysia CPI inflation (25 August) Singapore industrial production (25 August) US Univ of Michigan Sentiment (25 August)
EUR/USD Movement Analysis: False Breakthrough and Volatility Ahead of Powell's Speech

EUR/USD Movement Analysis: False Breakthrough and Volatility Ahead of Powell's Speech

InstaForex Analysis InstaForex Analysis 24.08.2023 12:54
EUR/USD Yesterday, the euro broke through the key support level at 1.0834. By the end of the day, the euro had risen by 17 points. The nature of this movement suggests that this breakthrough was false. This morning, the price continues to rise above the 1.0865 level. The Marlin oscillator continues its upward turn. Market participants are concerned that tomorrow, Federal Reserve Chairman Jerome Powell will confirm the idea of a strong American economy and hint at another rate hike(possibly by 0.50%).   The concern arises from the fact that seemingly obvious things might be interpreted differently by the Fed itself, implying that there might be no further tightening. Generally, the Jackson Hole conference doesn't discuss specific issues, such as a rate hike in a month or two, so there will be opportunities for speculation in interpreting Powell's words. Considering the increased volatility of the EUR/USD pair, it might reach the target range of 1.0924/42 regardless of the tone set by the Fed chair. The question is about the euro's medium-term perspective.   On the four-hour chart, following the false downward movement, the price returned above the MACD line, and the Marlin oscillator entered the positive territory. An uptrend in the short-term, and the target range of 1.0924/42 is in sight. Consolidating above this range will open up the next target at 1.1012.  
EUR/USD Analysis: Continuing Corrections Amidst European Economic Woes

EUR/USD Analysis: Continuing Corrections Amidst European Economic Woes

InstaForex Analysis InstaForex Analysis 24.08.2023 13:44
The EUR/USD currency pair moved upwards and downwards over the past day. Such a movement does not surprise us, as we have repeatedly mentioned that the current move to the south is fairly weak, and corrections and pullbacks occur quite frequently. So it's not surprising that the euro initially dropped and then increased.     Overall, it continues to decline, just not very rapidly or hastily. Yesterday showed us what many had realized long ago. The European economy is just shy of sliding into a recession. For several quarters, GDP indicators have been teetering on the brink of negative values. But what can one expect when the European Central Bank regularly raises its rate? It's worth noting that the GDP is going through tough times with a not-so-high key rate, especially when compared to rates in the UK and the US, where they are much higher.   While the British economy is also struggling, the American economy is growing briskly, giving the dollar a strong advantage. We will discuss business activity indices. For now, it's worth noting that the downward trend for the pair continues, but the CCI indicator went into the oversold zone yesterday. This is a strong buying signal, so we can expect a stronger upward correction soon. Especially since, on the 24-hour timeframe, we are still looking for a confident breakthrough of the Ichimoku cloud. Thus, the pair continues its correction within the global upward trend, but the main movement can resume anytime. What are the fundamental reasons for this? There aren't any. However, it's important to remember that the forex market doesn't always move strictly with fundamentals and macroeconomics.     The European economy is sliding into the abyss. The service sector in the European Union and Germany has fallen below the "waterline." If the manufacturing sector has been in the negative business activity zone for over a year, the service sector entered it in August. Now, both sectors in Germany and the EU are below the key level of 50.0, which does not bode well for the European economy. For instance, business activity indices in the US could be in better shape but still higher than in the EU or Germany.   Hence, we can only state the obvious: US statistics continue to outperform European ones. It's worth noting that the American currency has been falling for almost a year now. This happens when the Federal Reserve's rate rises faster and stronger, and the US economy appears much more stable and confident than the European one. Recognizing this fact leads us to believe that the European currency is extremely overbought and unjustifiably expensive. Based on this, we anticipate a further decline in the European Union's currency.   This week, we are awaiting the speeches by Jerome Powell and Christine Lagarde. Although we think both officials will only provide a little significant information, the market might still grasp certain hints. Both leaders hint at a pause in September; if one doesn't, it might support their country's currency. Given the sharp decline in business activity in the European Union, we believe the likelihood of "dovish" rhetoric from Christine Lagarde is much higher. But the Federal Reserve has also adopted a "two meetings – one hike" policy, so Powell is unlikely to discuss the need for immediate tightening without seeing the August inflation report.       The average volatility of the EUR/USD currency pair over the last five trading days as of August 24 is 65 points and is characterized as "average." Therefore, we anticipate the pair to move between levels 1.0809 and 1.0939 on Thursday. A downturn in the Heiken Ashi indicator will signal a resumption of the downward movement.   Nearest support levels: S1 – 1.0803 S2 – 1.0742 S3 – 1.0681   Nearest resistance levels: R1 – 1.0864 R2 – 1.0925 R3 – 1.0986     Trading recommendations: The EUR/USD pair currently maintains a downward trend. New short positions should be considered with targets at 1.0803 and 1.0742 in case of a downward reversal in the Heiken Ashi indicator or a price rebound from the moving average. Long positions can be considered if the price consolidates above the moving average, with targets at 1.0939 and 1.0986.   Explanations for illustrations: Linear regression channels – help determine the current trend. The current trend is strong if both are directed in the same direction. Moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction in which trading should proceed. Murray levels – target levels for movements and corrections. Volatility levels (red lines) – the probable price channel in which the pair will operate in the next 24 hours, based on current volatility indicators. The CCI indicator – its entry into the oversold area (below -250) or overbought area (above +250) indicates that a trend reversal in the opposite direction is approaching.  
Taming the Dollar: Assessing Powell's Hawkish Tone Amidst BRICS Expansion

Taming the Dollar: Assessing Powell's Hawkish Tone Amidst BRICS Expansion

Ipek Ozkardeskaya Ipek Ozkardeskaya 25.08.2023 09:22
Yes, Mr. Powell?  Those who expected the US dollar to tumble because BRICS are enlarging their alliance with top oil producers were disappointed yesterday. The US dollar extended gains to the strongest levels since the beginning of summer, as traders positioned for a hawkish speech from the Federal Reserve despite two Fed members hinting that the end of the Fed tightening is certainly near.   Boston Fed's Susan Collins said yesterday that we may be 'near a place where we can hold rates for a substantial amount of time', and Philadelphia Fed President Patrick Harker said that the Fed has 'probably done enough' and should keep the rates at restrictive levels and watch the impact on the economy.   Looking at the projections, the Fed's median rate showed in June that the Fed could increase rate one more time and stop, but pricing in the market suggests that the Fed may already be done with its rate hikes.   Bond investors are particularly focused on whether the Fed is willing to revise the neutral rate, r* - a rate at which the economy neither slows nor speeds up, higher. Any hint of a potential upside revision to the neutral rate could trigger a further bond sell-off.   Note that Jerome Powell has made it clear that the Fed itself doesn't know where this hypothetical r* stands.  But one thing looks increasingly plausible to everyone and that's what Bullard said: 'the probabilities are that we are in a new regime that will be a higher interest-rate regime', therefore a higher neutral-rate regime.   And that's best for President Biden, as inflation is one of the most effective ways to... deflate debt.  
Analyzing Central Bank Statements: Powell vs. Lagarde and Their Impact on EUR/USD and GBP/USD

Analyzing Central Bank Statements: Powell vs. Lagarde and Their Impact on EUR/USD and GBP/USD

InstaForex Analysis InstaForex Analysis 25.08.2023 10:01
While we've understood Federal Reserve Chair Jerome Powell's potential rhetoric, what about European Central Bank President Christine Lagarde's statement? That's much more complicated. The ECB's rate is below the Fed's, yet inflation in the European Union is higher. This single factor suggests that the ECB should agree to additional tightening. However, in recent months, we've repeatedly heard that a pause is needed. A pause doesn't mean the end of the tightening process, but, in a manner of speaking, its final stretch. If Lagarde hints at such a scenario in her speech, the euro will dip even further in the market.     The second crucial factor is the state of the European economy. GDP has been stagnant for almost four quarters, and PMIs keep falling. As a result, every new rate hike will push the European economy into an even deeper hole. It's important for the ECB to maintain a balance between the rate and the economy. Every subsequent ECB meeting is now a mystery. Some members of the Governing Council believe in another rate hike, while others insist on a pause. Lagarde is set to guide the market on Friday. In my opinion, the chances of a dovish stance from Lagarde is much higher. Even if she announces that the current course will be maintained, it doesn't mean all members of the Governing Council will support her stance. From this perspective, the Fed appears to be a more cohesive entity, so the preliminary verdict is as follows: Powell's hawkish stance is more likely, while Lagarde's is "conditionally-hawkish".   This means a further decline for the EUR/USD. As for the GBP/USD, a lot hinges on the 1.2618 mark. A successful attempt to break through it will signal the market's readiness to continue selling, regardless of Powell's remarks in Jackson Hole. Based on all the above, I don't expect the market mood to change on Friday. Both instruments might start forming corrective upward waves, but so far, there are no signs for either. Hence, it's too early to talk about a strong increase in demand for the euro and the pound.     Based on the conducted analysis, I came to the conclusion that the upward wave pattern is complete. I still believe that targets in the 1.0500-1.0600 range are quite realistic, and with these targets in mind, I advise selling the instrument. The a-b-c structure appears complete and convincing. Therefore, I advise selling the instrument with targets set around the 1.0788 and 1.0637 marks. I believe that the bearish segment will persist, and a successful attempt at 1.0880 indicates the market's readiness for new short positions. The wave pattern of the GBP/USD pair suggests a decline within the downtrend segment. There is a risk of ending the current downward wave if it is wave "d" and not "1". In that case, wave 5 could start from current levels. However, in my opinion, we are currently seeing the construction of a corrective wave within a new downtrend segment. If this is the case, the instrument will not rise much above the 1.2840 mark, and then a new downward wave will commence. We should brace for new short positions.  
Fed Chair Powell Signals Cautious Approach to Monetary Policy, Suggests Rates to Remain Elevated

Fed Chair Powell Signals Cautious Approach to Monetary Policy, Suggests Rates to Remain Elevated

ING Economics ING Economics 28.08.2023 09:13
Powell signals Fed to tread carefully, but that rates will stay high Chair Powell acknowledges that monetary policy is “restrictive” and that policymakers will “proceed carefully” in determining whether to hike rates further. September is set for a pause, but robust growth 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. 2% remains the target with the Fed prepared to hike further In his Jackson Hole address, Federal Reserve Chair Jerome Powell reaffirmed that the Fed remains focused on hitting the 2% inflation target and keeping it there. He spends a considerable amount of time breaking down inflation into different components and explaining the drivers, but as is usually the case, emphasises the non-energy, non-housing services. This remains the stickiest portion given relatively high labour input costs in a tight jobs market environment. Here, “some further progress… will be essential to restoring price stability”, but the expectation is that “restrictive monetary policy” will bring supply and demand into better balance and it will come down. In fact, the description “restrictive” with regards to monetary policy is used on seven occasions in his speech with higher borrowing costs and tighter lending conditions acknowledged as factors that will act as a brake on the economy and slow inflation to 2% over time. But Powell is wary the recent strength in activity data mean that the “economy may not be cooling as expected”. In turn, this “could put further progress on inflation at risk and could warrant further tightening of monetary policy.” As a result, the Fed "are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective". Monetary policy signalled to stay tight Nonetheless, he acknowledges that monetary policy assessment is “complicated by uncertainty about the duration of the lags” between implementation and the real world impact. With real interest rates “well above mainstream estimates for the neutral policy rate” there is clearly a concern that the Fed don’t want to tighten too much. This view point was echoed in the minutes to the July FOMC meeting that said  “a number of participants judged that… it was important that the Committee's decisions balance the risk of an inadvertent overtightening of policy against the cost of an insufficient tightening”. With Chair Powell concluding that “we will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data” we expect the Fed to leave the Fed funds target range unchanged at 5.25-5.5% at the September meeting. However, given the tight jobs market and strong third quarter activity the Fed will continue to signal the potential for one further rate rise before year-end in their forecast update, and will likely scale back the median forecast for 100bp of rate cuts in 2024 that it published in June.   We think rates have peaked and cuts will come in 2024 We don't think it will carry through with that final forecast hike though. The combination of higher borrowing costs, which is resulting in mortgage rates, credit card, auto loan and personal loan borrowing costs hitting two-decade plus highs, together with less credit availability, pandemic-era savings being run down and student loan repayments restarting should intensify the financial squeeze in the fourth quarter and beyond. So while the US economy may well expand at more than a 3% annualised rate in the current quarter, we expect to see a weaker performance in the fourth quarter together with further significant progress on inflation returning towards target. Our base case continues to be interest rate cuts through 2024 as monetary policy is relaxed to a more neutral footing.
Quiet Start for Japanese Yen as USD/JPY Trades Higher

Quiet Start for Japanese Yen as USD/JPY Trades Higher

Kenny Fisher Kenny Fisher 29.08.2023 10:31
The Japanese yen is trading quietly at the start of the week. In the North American session, USD/JPY is trading at 146.60, up 0.11%. The yen has plunged 3.05% in August against the US dollar and is trading at its lowest levels since November 2022.   Powell, Ueda speak at Jackson Hole  There was a degree of anticipation as major central bankers gathered at the Jackson Hole summit. The meeting has been used as a launch-pad for shifts in policy, but one would be hard-pressed to point to any dramatic news from the summit. Bank of Governor Kazuo Ueda stayed true to his script that underlying inflation remains lower than the BoJ’s target of 2% and as a result, the BoJ will stick with the current ultra-easy policy. Ueda has followed his predecessor Haruhiko Kuroda and insisted that he will not lift interest rates until there is evidence that domestic demand and stronger wage growth replace cost-push factors and keep inflation sustainably around the 2% target. Ueda continues to argue that inflation is below target and that he expects inflation to fall, but core inflation indicators continue to point to broad-based inflationary pressures and have remained above the 2% target for around 15 months. Still, the BoJ is sticking to its loose policy and trying to dampen speculation that it will tighten policy. The BoJ tweaked its yield curve control policy in July but at the time, Ueda insisted that the move was not a step towards normalization of policy. Federal Chair Jerome Powell delivered the keynote speech on Friday, but anyone looking for dramatic headlines walked away disappointed. Powell reiterated that the battle to lower inflation to the 2% target “still has a long way to go”. Powell was somewhat hawkish with regard to interest rates, saying that the Fed would “proceed carefully” with regard to raising rates or putting rates on hold and waiting for additional data. There was no mention of rate cuts, a signal that the Fed isn’t looking to trim rates anytime soon. The future markets responded by raising the odds of a rate hike in September to 21%, up from 14% a week ago.   USD/JPY Technical There is resistance at 147.19 and 147.95 145.86 and 145.10 are providing support    
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Jerome Powell's Enigmatic Speech at Jackson Hole: A Bumpy Landing Ahead, According to Franklin Templeton

Franklin Templeton Franklin Templeton 31.08.2023 10:48
According to Franklin Templeton, in his day, Federal Reserve (Fed) Chairman Alan Greenspan was (in)famous for his irascible obscurity—often speaking without being fully understood. In this year’s much-anticipated speech at the Fed’s annual central bankers’ gathering in Jackson Hole, Chairman Jerome Powell appears to have employed Greenspan’s speechwriter. Powell said a lot about the economy and inflation, but he obscured a great deal about future Fed policy. Yet beneath the (intended?) fog of his remarks was a worrisome message for devotees of soft-landing scenarios. Fasten seatbelts—the arriving passengers won’t enjoy a view of the majestic Tetons and should brace for a bumpy landing.    In his day, Federal Reserve (Fed) Chairman Alan Greenspan was (in)famous for his irascible obscurity—often speaking without being fully understood. In this year’s much-anticipated speech at the Fed’s annual central bankers’ gathering in Jackson Hole, Chairman Jerome Powell appears to have employed Greenspan’s speechwriter. Powell said a lot about the economy and inflation, but he obscured a great deal about future Fed policy. Yet beneath the (intended?) fog of his remarks was a worrisome message for devotees of soft-landing scenarios. Fasten seatbelts—the arriving passengers won’t enjoy a view of the majestic Tetons and should brace for a bumpy landing. The initial market response has been minimal. Equity and bond prices bounced around immediately after the speech, but diverged somewhat by the close as stocks finished higher while bond yields rose. We’re not sure that’s right and here’s why:   Powell’s key points To begin, Powell’s speech was a somewhat dull resuscitation of recent economic data, with a focus on the details of core personal consumption expenditures inflation (the Fed’s preferred measure). Having noted welcome declines in goods inflation and a probable decline in shelter inflation, Powell emphasized that non-housing core services inflation has been less responsive to either changes in the economy or to Fed tightening. Powell also remarked that current Fed policy is already “restrictive,” meaning that the real (inflation-adjusted) fed funds rate is above broadly accepted ranges of what constitutes its “neutral” level. But Powell carefully avoided saying what comes next. He noted that it could be a longer pause or additional rate hikes. But by failing to mention rate cuts, he sent his clearest message of the speech, namely that the Fed is either on hold with an already restrictive stance or might hike rates further. Easing anytime soon, however, is off the table.   Slave to dead economists? That’s the clearest message from Powell. Parsing his other “Greenspan-esque” remarks, it seems the Fed is sticking to the view that the achievement of its 2% inflation objective requires “slack” in the economy. “Slack” is, of course, a euphemism for job losses. That idea stems from the Phillips Curve—first developed over 60 years ago—which purports to show an inverse relationship between inflation and unemployment (i.e., higher unemployment leads to lower inflation). But many economists are less certain. The Phillips Curve has never depicted a stable relationship between joblessness and inflation, and in recent decades it has been even less reliable. In fact, many measures of US inflation have fallen significantly this year without the unemployment rate rising. However, it seems as though most Federal Open Market Committee members side with Powell’s Phillips Curve approach. If so, then the Fed is indeed laying down a marker for investors. Specifically, the implication is that policy must remain restrictive (or become more restrictive) until the unemployment rate rises. Also, the Fed’s threshold level of “slack” appears to be at least a 4.0% US unemployment rate (up from 3.6%). If so, the Fed is signaling that despite (or because of) the fog that surrounds our understanding of inflation dynamics, a bumpy landing is an unavoidable necessity.  
Europe's Economic Concerns Weigh as Higher Rates Keep US Markets Cautious

Gold Rises as Soft US Data Fuels Hopes of a Federal Reserve Rate Hike Pause

ING Economics ING Economics 01.09.2023 11:48
Gold gains after data fuels hopes of a Fed pause Gold prices are moving higher following the latest batch of softer-than-expected US economic data, which has caused investors to trim bets on a Federal Reserve hike next month.   US economic data in focus Ten-year Treasury yields have continued to decline after recently hitting levels last seen in 2007, after US data releases this week signalled that the US economy is cooling, easing pressure on the Federal Reserve to continue raising rates. US inflation in July was in line with expectations, second-quarter economic growth was revised lower, and private payrolls increased less than expected in August. This followed data released earlier this week that showed job openings have fallen to their lowest level since early 2021. Focus will now turn to the headline US labour market report which is due later today. The latest data releases have lowered expectations that the Fed will raise interest rates this year. The central bank hiked rates by 25 basis points at its July meeting as economic data was strong. Both higher rates and yields are typically negative for non-interest-bearing gold.   Gold holds above $1,900/oz Gold has been unable to break the $2,000 level since mid-May     Federal Reserve Chair Jerome Powell said at the Jackson Hole conference last week that the Fed plans to keep policy restrictive until it is confident that inflation is steadily moving down toward its target. We will need to keep a close eye on US data releases in the coming weeks, which could shed more light on what the Fed may do. We believe gold will remain volatile in the near term given the implications of the uncertainty of persistent inflation on the US economy, and its trajectory will be influenced by US economic data in the coming weeks. We believe the threat of further action from the Fed will continue to keep the lid on gold prices for now.   ETFs continue to see outflows The rebound in gold prices has failed to draw buying interest from investors in exchange-traded funds or the Comex futures market. Gold ETF positioning, typically a strong driver of price direction, has been falling with holdings tumbling for a third month in August.   Hedge funds turn more bearish on gold   Hedge funds and other large speculators have also reduced their net long positions in gold, according to the latest CFTC data for the week ending 22 August. Net long positions in gold fell by 44.75% to 79.9 tonnes, equivalent to 25,695 contracts. Open interest decreased to 581,386 contracts from 598,932 contracts. Outright long positions declined by 7.33% or 28.5 tonnes, to 360.1 tonnes or 115,766 contracts. Short positions rose by 14.89% to 280.2 tonnes or 90,071 contracts          
Inflation Resurgence in Australia: RBA's Rate Cycle Uncertainty

Turbulent Times for Australian Consumer Confidence and Business Conditions

Ed Moya Ed Moya 13.09.2023 08:59
Australia’s consumer confidence falls sharply Australia’s business conditions improve Markets eye US inflation report on Wednesday The Australian dollar has edged lower on Tuesday after starting the week with massive gains. In the North American session, AUD/USD is trading at 0.6412, down 0.28%. Australia’s consumer confidence slides Australian consumers are in a sour mood, as they feel the squeeze of high interest rates and stubborn inflation, which has led to heavily-debted households. The Westpac Consumer Sentiment Index fell by 1.5% in September to 79.7, following a decline of 0.4% in August. This missed the consensus estimate of 0.6%. Consumer sentiment remains at its lowest levels since 2020, during the Covid pandemic. The corporate sector is showing more confidence than consumers, as businesses have shown stronger resilience to higher rates and increasing inflationary pressures than consumers. NAB Business Conditions climbed to 13 in August, up from 11, while business confidence remained at 2 points, indicative of slight optimism. The Australian dollar roared out of the gates on Monday, gaining 0.85%. The driver of the uptick was China’s August inflation release. CPI rose 0.1% y/y, after a surprise decline of 0.3% in July. China’s slowdown has raised alarm bells about the impact it will have on global growth, and the Asian giant is Australia’s number one trading partner. The Aussie is sensitive to economic developments in China, as we saw on Monday, and China’s Industrial Production, which will be released on Friday, could be a market-mover for the Aussie. Next week features a host of central bank meetings, and one of the most closely watched will be the Federal Reserve meeting on September 20th. Jerome Powell has broadcast loud and clear that the battle against inflation isn’t over and rate hikes remain on the table, but are the markets paying attention? Investors have priced in a pause in September at 93% and are talking about rate hikes in 2024.   The US releases the August inflation report on Wednesday, which is unlikely to change expectations about a September hold, although the inflation release could have an impact on the Fed’s rate path for the final quarter of the year. . AUD/USD Technical AUD/USD is putting strong pressure on support at 0.6405. Below, there is support at 0.6330 There is resistance at 0.6453 and 0.6528    
Euro Plummets After 25bp Rate Hike, Lagarde's Reassurance Falls on Deaf Ears: Market Analysis

Euro Plummets After 25bp Rate Hike, Lagarde's Reassurance Falls on Deaf Ears: Market Analysis

Ipek Ozkardeskaya Ipek Ozkardeskaya 15.09.2023 08:25
Euro tanks after 25bp hike, Lagarde goes unheard By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Investors didn't buy the rumour of a European Central Bank (ECB) rate hike but heavily sold the ECB's intention to stop hiking the rates in the close future. The ECB raised the rates by 25bp yesterday and said that it 'now considers that the key ECB rates reached levels that, maintained for sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target'. And that was it for the euro bears. ECB Chief Christine Lagarde tried to convince investors that the ECB rates are not necessarily at their peak and that the future decisions will depend on the incoming data. But in vain. The EURUSD sank below 1.07 after the decision and the EZ yields melted as many were rubbing their eyes to understand why a 25bp hike didn't even spark a minor rebound given that the decision was not warranted, on the contrary, the expectations were mixed into the meeting!   In fact, many euro bears also jumped on a trade yesterday as Lagarde announced that the ECB significantly pulled its economic projections to the downside. BUT, in the meantime, the ECB revised its inflation expectations higher as well. Therefore, it's naïve to think that the ECB can't continue hiking rates with such a sour economic outlook. They can. They can, because they have a single mandate – price stability. As such, the market certainly remains too enthusiastically, and unrealistically dovish about the ECB. When I hear 'data dependency', I immediately look at energy prices and you know what I see there: further inflation pressures and a real possibility for further rate hikes.   Oil extends gains The barrel of US crude traded past $91 yesterday, and Brent is getting ready to test the $95pb level. The better-than-expected industrial production, retail sales data from China this morning and news that the People's Bank of China (PBoC) cut the required reserves for banks for the second time this year to boost market liquidity are giving a further support to the oil bulls looking for reasons to ignore the overbought market conditions.   But the rising oil prices are not benign, and the hawkish ECB is not necessarily positive for the euro, and here is why: the data released in the US yesterday showed that both retail sales and PPI got a decent boost because of higher gasoline prices in August. But it also showed that spending more on gasoline didn't get Americans to spend less elsewhere. And that's inflationary. Consequently, the latest developments will, at some point, awaken the Federal Reserve (Fed) hawks, and increase the risk of a further selloff for the EURUSD. There is no chance that Jerome Powell will announce the end of the rate hikes next week. He will only say that the trajectory of core inflation is soothing, but rising energy prices is a risk that they must manage. The dollar index could soon take out a major Fibonacci resistance, the 38.2% retracement on last year's meltdown (near 105.40), and step into the medium-term bullish consolidation zone. Hence the EURUSD could well be forced below a critical Fibonacci retracement, its own 38.2% level, near 1.0615.   PS: US government drama and shutdown risk could eventually soften US outlook and temporarily prevent the Fed hawks from forcefully coming back.   ARM gains 25%   In the equity markets, ARM went public yesterday, and nailed its first day on Nasdaq. The share price rose 25% and closed above $63. It wasn't as impressive as Rivian, for example which had jumped more than 50% during its first hours of trading, But hopefully, ARM will have a more stable cruise. Arm currently estimates that '70% of the world's population uses Arm-based products', in their PCs, cars, smartphones and so. And growth is the only possible direction for the chip designer with AI's sudden arrival to our lives. 
Not much relief, after all: Markets React to Political Uncertainties and Hawkish Fed Rhetoric - 05.10.2023

Not much relief, after all: Markets React to Political Uncertainties and Hawkish Fed Rhetoric

Markus Helsing Markus Helsing 05.10.2023 08:31
Not much relief, after all By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Relief that came with the news of a temporary avoidance of a potential government shutdown remained short lived. Sentiment in stocks markets turned rapidly sour, both in Europe and in the US, while the US treasury yields didn't even react positively to the no shutdown news in the first place. The selloff in the US 10-year bonds accelerated instead; the 10-year yield hit the 4.70% mark, whereas the 2-year yield remained steady-ish at around the 5.10% level, as the Federal Reserve (Fed) Chair Jerome Powell didn't say much regarding the future of the monetary policy yesterday, but his colleagues continued to sound hawkish. Fed's Michelle Bowman said that multiple more interest rate hikes could be needed to tame inflation, while Micheal Barr repeated that the rates are likely restrictive enough, but they should stay higher for longer. Sufficiently hawkish words combined to a set of still-contracting-but-better-than-expected manufacturing PMI data justified the positive pressure on US sovereigns.   The gap between the US 2 and 10-year yields is now closing, but not necessarily for 'good' reasons. Normally, you would've expected the short-term yields to ease more rapidly than the long-term yields when approaching the end of a tightening cycle, with the expectations of future rate cuts kicking in. But what we see today is bear steepening where the 10-year yield accelerates faster than the 2-year yield. The  latter suggests rising inflation expectations where investors prefer to buy short-term papers and to wait for the rate hikes to end before returning to long-term papers. The US political uncertainties and a potential government shutdown before the end of the year, and an eventual US credit downgrade likely add an additional downside pressure in long dated US papers.   The rising yields do no good to stocks. But interestingly, yesterday, the S&P5500 closed flat but the more rate-sensitive Nasdaq stocks were up. The US dollar index extended gains past the 107 level; the index has now recovered half of losses it recorded since a year ago, when the dollar depreciation had started.   The AUDUSD extended losses to the lowest levels since last November as the Reserve Bank of Australia (RBA) maintained its policy rate unchanged at the first meeting under its new Governor Michelle Bullock. This is the 4th consecutive month pause for the RBA. The bank said that there may be more tightening in the horizon to bring inflation back to the 2-3% range (inflation currently stands at 5.2%). But the fact that Australians biggest trading partner, China, is not doing well, the fact that real estate market in Australia is battered by rising rates and the fact that the Chinese property crisis is now taking a toll on Australia's steel exports toward China are factors that could keep Australian growth below target and prevent the RBA from hiking further. If China doesn't get well soon, Australia will see its iron ore revenues, among others, melt in the next few years, and that's negative for the Aussie in the medium run.  Elsewhere, the EURUSD sank below the 1.05 level on the back of accelerated dollar purchases and softening European Central Bank (ECB) expectations following last week's lower-than-expected inflation figures. Cable slipped below a critical Fibonacci support yesterday, and is headed toward the 1.20 psychological mark. The weakening pound is not bad news for the British FTSE100, as around 80% of the FTSE100 companies' revenues come from abroad, and they are dollar denominated. Plus, cheaper sterling makes the energy-rich FTSE100 more affordable for foreign investors. Even though FTSE100 fell with sliding oil prices yesterday - and this year's performance is less than ideal compared to European and American - London's stock market is closing the gap with Paris, and rising oil prices and waning appetite for luxury stuff could well offer London its status of Europe's biggest stock market, yet again.  Speaking of oil prices, crude oil sank below $90pb level yesterday, partly due to the overbought market conditions that resulted from a more than a 40% rally since end of June, and partly because the 'higher for longer rates' expectations increased odds for recession.    
Not much relief, after all: Markets React to Political Uncertainties and Hawkish Fed Rhetoric - 05.10.2023

Not much relief, after all: Markets React to Political Uncertainties and Hawkish Fed Rhetoric - 05.10.2023

Markus Helsing Markus Helsing 05.10.2023 08:31
Not much relief, after all By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Relief that came with the news of a temporary avoidance of a potential government shutdown remained short lived. Sentiment in stocks markets turned rapidly sour, both in Europe and in the US, while the US treasury yields didn't even react positively to the no shutdown news in the first place. The selloff in the US 10-year bonds accelerated instead; the 10-year yield hit the 4.70% mark, whereas the 2-year yield remained steady-ish at around the 5.10% level, as the Federal Reserve (Fed) Chair Jerome Powell didn't say much regarding the future of the monetary policy yesterday, but his colleagues continued to sound hawkish. Fed's Michelle Bowman said that multiple more interest rate hikes could be needed to tame inflation, while Micheal Barr repeated that the rates are likely restrictive enough, but they should stay higher for longer. Sufficiently hawkish words combined to a set of still-contracting-but-better-than-expected manufacturing PMI data justified the positive pressure on US sovereigns.   The gap between the US 2 and 10-year yields is now closing, but not necessarily for 'good' reasons. Normally, you would've expected the short-term yields to ease more rapidly than the long-term yields when approaching the end of a tightening cycle, with the expectations of future rate cuts kicking in. But what we see today is bear steepening where the 10-year yield accelerates faster than the 2-year yield. The  latter suggests rising inflation expectations where investors prefer to buy short-term papers and to wait for the rate hikes to end before returning to long-term papers. The US political uncertainties and a potential government shutdown before the end of the year, and an eventual US credit downgrade likely add an additional downside pressure in long dated US papers.   The rising yields do no good to stocks. But interestingly, yesterday, the S&P5500 closed flat but the more rate-sensitive Nasdaq stocks were up. The US dollar index extended gains past the 107 level; the index has now recovered half of losses it recorded since a year ago, when the dollar depreciation had started.   The AUDUSD extended losses to the lowest levels since last November as the Reserve Bank of Australia (RBA) maintained its policy rate unchanged at the first meeting under its new Governor Michelle Bullock. This is the 4th consecutive month pause for the RBA. The bank said that there may be more tightening in the horizon to bring inflation back to the 2-3% range (inflation currently stands at 5.2%). But the fact that Australians biggest trading partner, China, is not doing well, the fact that real estate market in Australia is battered by rising rates and the fact that the Chinese property crisis is now taking a toll on Australia's steel exports toward China are factors that could keep Australian growth below target and prevent the RBA from hiking further. If China doesn't get well soon, Australia will see its iron ore revenues, among others, melt in the next few years, and that's negative for the Aussie in the medium run.  Elsewhere, the EURUSD sank below the 1.05 level on the back of accelerated dollar purchases and softening European Central Bank (ECB) expectations following last week's lower-than-expected inflation figures. Cable slipped below a critical Fibonacci support yesterday, and is headed toward the 1.20 psychological mark. The weakening pound is not bad news for the British FTSE100, as around 80% of the FTSE100 companies' revenues come from abroad, and they are dollar denominated. Plus, cheaper sterling makes the energy-rich FTSE100 more affordable for foreign investors. Even though FTSE100 fell with sliding oil prices yesterday - and this year's performance is less than ideal compared to European and American - London's stock market is closing the gap with Paris, and rising oil prices and waning appetite for luxury stuff could well offer London its status of Europe's biggest stock market, yet again.  Speaking of oil prices, crude oil sank below $90pb level yesterday, partly due to the overbought market conditions that resulted from a more than a 40% rally since end of June, and partly because the 'higher for longer rates' expectations increased odds for recession.    
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Fed Continues Rate Hikes Amid Strong Growth, Inflation Concerns

ING Economics ING Economics 02.11.2023 12:26
Don't expect the Fed to stop amid strong growth, higher inflation.  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank    The US dollar was bid on Tuesday thanks to a rapid selloff in the Japanese yen, after the Bank of Japan (BoJ) announced mini policy loosening steps that didn't find buyers. Loosening the upper limit on the 10-year JGB yield in the context of a YCC policy is not enough when considering that the BoJ should drop it altogether and for good.   But on the contrary, not only that the BoJ is not giving up on its YCC policy, but is on track to match its record annual bond purchases. Almost all the Japanese 10-year bonds are held by the BoJ – which in my opinion will become illegal one day - and the BoJ hasn't yet moved an inch towards normalization of its rate policy whereas the major central bank rate hikes start plateauing after more than a 1.5 year of aggressive rate hikes. So, no wonder the yen got smashed yesterday. The USDJPY spiked past 151, even though the uptick in the US - Japan 10-year yield spread – which also ticked up because of a jump in the Japanese 10-year yield, didn't attract the yen longs. The only thing that holds traders back from more aggressive selling is the fear of a direct FX intervention. If that happens, there is a good reason to buy a dip.   Zooming out of Japan, the US dollar index consolidated a touch below last month peak. The US consumer confidence index dropped to a 5-month low, but the latest wages data continued to give signs of strength. Yes strength – I am sorry. The employment cost index, a top-notch gauge of what employers spend on compensation, rose 1.1% in Q3 – slightly higher than a quarter earlier. Wages and salaries rose 4.6% - above the US headline CPI, and well above 3% as before the pandemic. And that was before the UAW reached a jaw-dropping deal with Detroit's 3 carmakers where they nailed a 25% increase in wages and around 150% increase in compensations for the low-paid tier of temporary workers. The ADP data is expected reveal around 150K new private job additions in October, and JOLTS data is expected to show a drop in job openings. On Friday, we will have a look at the official figures. The latter won't impact the Federal Reserve (Fed) expectations for this week's policy decision. But any further strength in US jobs data will reinforce a potentially hawkish stance from the Fed policymakers this week.   The Fed.  We know that the Fed is not done hiking the interest rates. We know that Jerome Powell won't call the end of the policy tightening after seeing a blowout growth data – which showed that the US GDP grew almost 5% in Q3 (that's more than China!), and inflation ticked higher because Americans kept spending. Duh! And if people kept spending their savings it was because they didn't necessarily feel threatened to lose their jobs, or remain jobless for long. So yes, the jobs market strength is playing tricks on the Fed, and it's clearly not loose enough. The chances are that we won't hear anything soothingly dovish. 'The higher yields help us do the job' is the best it will get.   You know where growth is not strong?  China is not doing brilliant and this week's economic data in China showed that the Chinese factory sector slipped back into contraction and the Eurozone economies announced gloomy GDP updates, as well. The German economy contracted in Q3, the French and Italian economies stagnated, the overall Eurozone growth fell 0.1% on a quarterly basis.   But at least, inflation slowed. As a result of soft growth and inflation data, the EURUSD couldn't extend gains above the 50-DMA and sank below the 1.06 level yesterday. The positive trend is losing momentum, the divergence between the strength of the US economy versus its European counterparts, and the divergence between the Fed and the European Central Bank (ECB) outlooks play in favour of a deeper depreciation in the euro against the greenback.  Crude approaching $80pb crossroads  US crude slipped below its 100-DMA yesterday as buyers became rare on news that Israel's ground offensive is not as violent as expected. A 1.3mio barrel build in US crude inventories may have helped the bears to push the selloff below the $82pb level. Yet, oil bears will certainly hit a decent support near the $80p level because at this level, they know that Saudi has their back. And the risks of geopolitical nature remain clearly tilted to the upside. For those who bet that we will see a dip near the $80pb level, it is soon time to roll up the sleeves.   Worst since the pandemic, and yet...  The S&P500 rose on the last day of October but recorded its longest monthly slide since the pandemic. Still, the index kicks off the new month a touch above the major 38.2% retracement which should distinguish between the continuation of last year's rally, and a slide into the medium-term bearish consolidation zone. The next direction will depend on whether the US yields will consolidate and eventually come lower, or they will continue their journey higher. In the second scenario, we will likely see major US stock indices sink into a bearish trend. 
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Immobile Fed: Anticipating a Pause with a Nod to Higher Yields

ING Economics ING Economics 02.11.2023 12:28
FX Daily: Immobile Fed to give a nod to higher yields We expect the Fed to pause today, in line with expectations. There is a mild risk of a dollar correction, but that should be short-lived. Japanese authorities are stepping up efforts to contain unwanted volatility in rates and FX, but we suspect markets will keep pushing USD/JPY higher and into the new intervention level.   USD: A quiet Fed meeting The Federal Reserve is in a desirable position as it prepares to announce policy this evening thanks to the combined effect of rate hikes and higher Treasury yields keeping pressure on prices. The economy has proven resilient so far. In the art of central banking, inaction is action, and inaction is broadly what we expect from the Fed today as we discuss in our preview. A pause is widely expected by markets and economists, as numerous FOMC members signalled higher Treasury yields were adding enough extra tightening of financial conditions to stay put. One question for today is to what extent the statement and Fed Chair Jerome Powell will acknowledge this non-monetary tightening of financial conditions. It’s unlikely the Fed wants to drop any dovish hints at this stage, but a market that is well positioned for a broadly unchanged policy message could be rather sensitive to the wording on this topic and may interpret an “official” recognition of tighter financial conditions as an implicit signal more tightening is off the table. The typically cautious Powell may anyway try to mitigate any dovish interpretation of the statement during the press conference. After all, the Fed dot plot still says one more hike by year-end and has a strong commitment to higher rates for longer. The first of these two statements was never taken at face value, but the latter is what is contributing to higher yields. Expect no divergence from it. The Fed isn’t the only event in the US calendar today, and markets will likely move on the ADP payrolls release (although these are unreliable), JOLTS jobs openings and the ISM manufacturing figures for October. There is room for a short-lived dollar correction today as markets will be on the hunt for implicit admissions that another hike is actually off the table with higher yields. Positioning adjustments have favoured some dollar slips recently but they have not lasted, as the overall message by the Fed has been one of higher for longer with a hawkish bias. That message won’t change today (barring any great surprises) and we think that buying the dips in any dollar correction will remain a popular trade, especially given the more and more unstable ground on which other major currencies (JPY, EUR) are standing.
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AUD Weakens Post RBA Hike, Oil Takes a Hit: Market Analysis by Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank

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

InstaForex Analysis InstaForex Analysis 08.11.2023 13:49
Analysis of transactions and tips for trading EUR/USD Further decline became limited because the test of 1.0681 coincided with the sharp downward move of the MACD line from zero. This happened even though several Fed representatives hinted at the possible continuation of the rate hike cycle and the lesser chance of a reduction in borrowing costs. Today, CPI data for Germany and retail sales report for the eurozone will come out, but it will not have much impact on the market. Instead, the speech of ECB Executive Board member Philip Lane will generate interest, as well as the speech of Fed Chairman Jerome Powell.     For long positions: Buy when euro hits 1.0700 (green line on the chart) and take profit at the price of 1.0730. Growth will occur after protecting the support at 1.0680. However, when buying, make sure that the MACD line lies above zero or rises from it. Euro can also be bought after two consecutive price tests of 1.0681, but the MACD line should be in the oversold area as only by that will the market reverse to 1.0700 and 1.0730. For short positions: Sell when euro reaches 1.0681 (red line on the chart) and take profit at the price of 1.0656. Pressure will increase after an unsuccessful attempt to hit the daily high, as well as weak data from the eurozone. However, when selling, make sure that the MACD line lies under zero or drops down from it. Euro can also be sold after two consecutive price tests of 1.0700, but the MACD line should be in the overbought area as only by that will the market reverse to 1.0681 and 1.0656.     What's on the chart: Thin green line - entry price at which you can buy EUR/USD Thick green line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further growth above this level is unlikely. Thin red line - entry price at which you can sell EUR/USD Thick red line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further decline below this level is unlikely. MACD line- it is important to be guided by overbought and oversold areas when entering the market   Important: Novice traders need to be very careful when making decisions about entering the market. Before the release of important reports, it is best to stay out of the market to avoid being caught in sharp fluctuations in the rate. If you decide to trade during the release of news, then always place stop orders to minimize losses. Without placing stop orders, you can very quickly lose your entire deposit, especially if you do not use money management and trade large volumes.
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US Yields Surge, Equities Drop, and Oil Rebounds: A Market Recap

Ipek Ozkardeskaya Ipek Ozkardeskaya 10.11.2023 09:58
US yields spike, equities fall, oil rebounds By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Bad. Yesterday's 30-year treasury auction in the US was bad. And this time, the bad auction got the anticipated reaction. The US Treasuries saw a sharp selloff - especially in the 20 and 30-year papers. The US 30-year yield jumped 22bp, the 20-year yield jumped more than 20bp, while the 10-year yield jumped 18bp to above 4.60%.   Then, the Federal Reserve (Fed) Chair Jerome Powell's speech at an IMF event was hawkish. Powell repeated that the FOMC will move 'carefully' and that the Fed won't hesitate to raise the interest rates again, if needed. The US 2-year yield is back above the 5% level.   Of course, the sudden jump in US yields hit appetite in US stocks yesterday. The S&P500 fell 0.80%, and Nasdaq fell 0.82%. The US bond auction brought along a lot of volatility, questions, and uncertainty.  At 5%, the US 2-year yield is still 50bp below the upper limit of the Fed funds target range. Therefore, if the Fed could convince investors that the rates will stay high for long, this part of the curve has potential to shift higher. On the longer end, we could reasonably expect the US 10-year yield to remain below the 5% mark – and even ease gently if economic growth slows and the job market loosens. A wider inversion between the US 2-10-year yield should boost the odds a higher of US recession. But hey, we are used to the inverted yield curve, and we believe that it won't necessarily bring along recession. Goldman sees only a 15% chance of US recession next year. 
EUR/USD Rejected at 1.1000: Anticipating Rangebound Trading and Assessing ECB Dovish Bets

US Dollar Rises as Bond Market Ignites: A Look at Dollar's Resurgence

ING Economics ING Economics 10.11.2023 10:03
FX Daily: Bond bears give new energy to the dollar A very soft 30-year Treasury auction and hawkish comments by Powell triggered a rebound in US yields and the dollar yesterday. Dynamics in the rates market will remain key while awaiting market-moving US data. In the UK, growth numbers in line with expectations, while in Norway, inflation surprised to the upside. USD: Auction and Powell trigger dollar rebound The dollar chased the spike in US yields yesterday following a big tailing in the 30-year Treasury auction and hawkish comments by Fed Chair Jerome Powell. Speaking at the IMF conference, Powell warned against reading too much into the softer inflation figures and cautioned that the inflation battle remains long, with another hike still possible. If we look at the Fed Funds future curve, it is clear that markets remain highly doubtful another hike will be delivered at all, but Powell’s remarks probably represent the culmination of a pushback against the recent dovish repricing. Remember that in last week’s FOMC announcement, the admission that financial conditions had tightened came with the caveat that the impact on the economy and inflation would have depended on how long rates would have been kept elevated. The hawkish rhetoric pushed by Powell suggests that the Fed still prefers higher Treasury yields doing the tightening rather than hiking again, and that is exactly what markets are interpreting. The soft auction for long-dated Treasuries also signals the post-NFP correction in rates may well have been overdone and could set a new floor for yields unless data point to a worsening US outlook. Today’s highlights in the US calendar are the University of Michigan surveys. Particular focus will be on the 1-year inflation gauge, which is expected to fall from 4.2% to 4.0%. On the Fed side, we’ll hear from Lorie Logan, Raphael Bostic and Mary Daly. Dynamics across the US yield curve will have a big say in whether the dollar can hold on to its new gains. Anyway, we had called for a recovery in DXY to 106.00 as the Fed would have likely pushed back against the dovish repricing. The rebound in yields should put a floor under the dollar, but we suspect some reassurances from the data side will be needed for another big jump in the greenback.
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Asia Morning Bites: Rising US Treasury Yields Impact Asian FX, RBA's Monetary Statement, and India's Industrial Production Report

ING Economics ING Economics 10.11.2023 10:24
Asia Morning Bites Rising US Treasury yields should weigh on Asian FX today. Also, the RBA has released its latest monetary statement and India will report industrial production later.   Global macro and markets: Global markets:  A disappointing auction for 30Y Treasuries yesterday fed through to higher yields across the curve.  The yield on the 30Y bond rose 15bp to 4.765%, and that lifted yields on the 10Y (+14.9bp to 4.624%) and also the 2Y (+8.8bp to 5.02%). Despite nosing below 4.5% the other day, it looks for now as if yields are happier this side of that line, though will get tested again next week as US inflation numbers look set to drop sharply. Our US economist, James Knightley, thinks that US inflation could drop to around the target range by 2Q24.  Jerome Powell took a tough line in his remarks early this morning at the IMF conference, saying that the Fed wouldn’t hesitate to hike if needed and that the inflation fight had a long way to go. These comments may also have helped to lift yields. Powell’s tone makes sense. There is no point in corralling the market into expecting cuts until shortly before they look necessary. However, there will come a point where the rhetoric and the macro diverge to such an extent that either markets call the Fed’s bluff, and start to price in cuts, or the Fed has to do an abrupt turn and throw in the towel. For now, though, further tough talk is likely. Whether this transforms into tough action will depend on the run of the macro data. Higher yields gave the USD another lift, and EURUSD dropped back to 1.0665. The AUD, which has been trading heavily since the RBA hike, dropped to 0.6360.  Cable is down to 1.2216 and the JPY has risen up to 151.35. Asian FX was slightly softer yesterday against the USD, and will likely soften further today in line with the overnight G-10 FX moves. USDCNY is back to 7.2846 and pushing back in the direction of 7.30. US stocks don’t like these higher yields, and the S&P 500 dropped 0.81% yesterday. The NASDAQ was down 0.94%. Chinese stocks were mixed to flattish, with the CSI 300 up just 0.05% and the Hang Seng down 0.33%. G-7 macro:  There was nothing too exciting on the macro calendar yesterday. Even the weekly US jobless claims were close to expectations, with a slight overshoot for the continued claims numbers. There is no US data to speak of today, and UK production and trade figures dominate the G-7 calendar. These won’t have any broader bearing on markets outside the UK. Australia:  The RBA has released its November statement on monetary policy. We did not think that the statement released with the earlier rate hike decision was particularly dovish, though the market certainly seemed to think so. We don't think this longer more detailed statement is particularly dovish either, but the link is included above, so have a read and make up your own mind. Once again, the market seems to have decided that whatever the content of the statement, lower yields are the way to go. We think that a bit of reflection may see that view reverse in time. That said, we do think rates have probably peaked. But there are risks to this view. The first is that inflation may well increase again when October data is released. Secondly, the monthly run rate (MoM% increase in the price level) has been 0.6% for the last two months, and that is way too high to be consistent with the RBA's inflation target. So that needs to drop, or there is still a chance, in our opinion, that rates have to rise again next year.   India:  September production data will be released later this evening, and the consensus forecast is for a drop from the 10.3% YoY rate of growth recorded in August, to just 7.0% in September. This would be consistent with a decline in the level of production, as implied by the sub-50 PMI index in September. We wouldn’t be surprised if the production growth figure came in a fair bit higher than that, as we aren’t convinced that, despite the PMI numbers, we will see an actual contraction in activity in September. What to look out for: India industrial production and Fed speakers India industrial production (10 November) US University of Michigan sentiment (10 November) Fed Bostic and Logan speak (10 November)
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Tightening Financial Conditions and Weakening Prices: US Inflation on Track for 2% Next Summer

ING Economics ING Economics 10.11.2023 10:39
US could soon see 2% inflation After encouraging inflation data in early summer, progress stalled in August and September amid robust consumer activity. But with tighter financial and credit conditions set to weigh further on corporate pricing power, supplemented by slowing rents and falling gasoline and used car prices, we expect to see inflation move close to 2% in 2Q.   Progress being made, but the Fed wants much more At the recent FOMC press conference, Federal Reserve Chair Jerome Powell said that the economy has “been able to achieve pretty significant progress on inflation without seeing the kind of increase in unemployment that has been very typical of rate hiking cycles like this one”. Nonetheless, there was the acknowledgement that “the process of getting inflation sustainably down to 2% has a long way to go”. Headline US consumer price inflation has indeed fallen sharply from a peak of 9.1% year-on-year in June 2022, hitting a low of 3% in June 2023. However, this stalled in August and September with the annual rate rebounding to 3.7% as higher energy costs and resilience in some of the core (ex-food and energy) components re-emerged amid a strong summer for consumer spending. The annual rate of core inflation has continued to soften from a peak of 6.6% in September 2022 to 4.1% currently, but it is still running at more than double the 2% target. In an environment where the economy has just posted 4.9% annualised GDP growth in the third quarter and unemployment is only 3.9%, there are several hawks on the FOMC who continue to make the case for additional interest rate rises, arguing that they cannot take chances and allow any opportunity for inflation pressures to reignite.   Contributions to US annual consumer price inflation (YoY%)   But the Fed's work is most probably done The Fed is still officially forecasting one further 25bp interest rate rise this year, but we doubt it will follow through. The Fed last hiked rates in July and since then financial and credit conditions have tightened, with residential mortgages and car loans now having 8%+ interest rates while credit card borrowing costs are at all-time highs and corporate lending rates are moving higher. It isn’t just the rise in borrowing costs that will act as a brake on economic activity and constrain inflation pressures. The Federal Reserve’s Senior Loan Officer Opinion survey shows that banks are increasingly reluctant to lend. This combination of sharply higher borrowing costs and reduced credit availability tends to be toxic for growth. The Fed itself has reported significant weakness in loan demand while commercial bank lending data shows a clear topping out in the amount of borrowing conducted by households and businesses. With real household disposable incomes falling for the past four months amid evidence of increasing numbers of households having exhausted pandemic-era savings, we expect to see GDP contract in at least two quarters in 2024. In this environment, we see the slowdown in inflation regaining momentum in early 2024.   Corporate pricing power is waning With business attitudes becoming more cautious on the economic outlook we are seeing a reduction in price intention surveys. The chart below shows the relationship between the National Federation of Independent Businesses' (NFIB) survey on the proportion of members expecting to raise prices in coming months and the annual rate of core inflation. It suggests that conditions are normalising, with core inflation set to return to historical trends.   NFIB price intentions surveys suggest corporate pricing power is normalising   While concerns about the outlook for demand are a key factor limiting the desire for companies to raise prices further, a more benign cost backdrop has also helped the situation. The annual rate of producer price inflation has slowed from 11.7% to 2.2%, having dropped to just 0.3% year-on-year in June while import prices are falling outright in year-on-year terms. There are also signs of labour market slack emerging, with unemployment starting to tick higher and average hourly earnings growth slowing to 4.1% from near 6% just 18 months ago. Perhaps more importantly, non-farm productivity surged in the third quarter with unit labour costs falling at a 0.8% annualised rate. With cost pressures seemingly abating from all angles, this should argue for core services ex-housing, a component that the Fed has been keeping a careful eye on, to soften quite substantially over coming months.   Fed's "supercore" inflation should slow more rapidly   Energy and vehicle price falls to depress inflation Another area of recent encouragement is energy prices. The fear had been that the conflict in the Middle East would have consequences for energy markets but, so far, we have seen energy prices soften. Gasoline prices in the US have fallen 50 cents/gallon between mid-September and early November, leaving prices at the lowest level since early March. Gasoline has a 3.6% weighting in the CPI basket. Our commodity strategists remain wary, warning of the risk that an escalation in the conflict could lead to oil and gas supply disruptions from some key producers in the region, most notably Iran. For now though, energy prices will depress inflation rates and could mean at least one or two month-on-month outright declines in headline prices with lower energy prices limiting any upside potential from airline fares (0.5% weight in the CPI basket). On top of this, we expect to see new and used vehicle prices (combined 6.9% weighting in the CPI basket) being vulnerable to further price falls in an environment where car loan borrowing costs are soaring. New vehicle prices have risen more than 20% since 2020 amid supply problems and strong demand while used vehicle prices rose more than 50%, according to both the CPI measure and Manheim car auction prices. Prices for used cars have fallen this year but still stand 35% above those of 2020. Experian data suggests the average new car loan payment is now around $730 per month while for second-hand cars it is now $530 per month. With car insurance costs having risen rapidly as well (up 18.9% YoY with a 2.7% weighting in the CPI basket), the cost of buying and owning a vehicle is increasingly prohibitive for many households and we suspect we will see incentives increasingly capping the upside for vehicle prices. It is also important to remember that the surge in insurance costs is a lagged response to the higher cost of vehicles – and therefore insured value – and that too should slow rapidly (but not fall) over coming months.   Gasoline prices and oil prices surprise to the downside   Rent slowdown will be the big disinflationary force in early 2024 The big disinflationary influence should come from housing over the next couple of quarters. The chart below shows the relationship between Zillow rents and the CPI housing components. This is important because owners’ equivalent rent is the single biggest individual component of the basket of goods and services used to construct the CPI index, accounting for 25.6% of the headline index and 32.2% of the core index. Meanwhile, primary rents account for 7.6% of the headline index and 9.6% of the core. If the relationship holds and the CPI housing components slow to 3% YoY inflation, the one-third weighting that housing has in the headline rate and 41.8% weighting in the core will subtract around 1.3 percentage points of headline inflation and 1.7ppt off core annual inflation rates.   Rents point to major housing cost disinflation   On track for 2% inflation next summer There are some components on which there is less certainty, such as medical care, but we are increasingly confident that inflationary pressures will continue to subside and this means that the Federal Reserve will not need to raise interest rates any further. Next week’s October CPI report may not show huge progress with headline CPI expected to be flat on the month and core prices rising 0.3% month-on-month, but we expect headline inflation to slow to 3.3% in the December report with the annual rate of core inflation coming down to 3.7%. Sharper declines are likely in the first half of 2024. Chair Jerome Powell in a speech to the Economic Club of New York acknowledged that “given the fast pace of the tightening, there may still be meaningful tightening in the pipeline”. This will only intensify the disinflationary pressures that are building in an economy that is showing signs of cooling. We forecast headline inflation to be in a 2-2.5% range from April onwards with core CPI testing 2% in the second quarter. With growth concerns likely to increase over the same period, this should give the Fed the flexibility to respond with interest rate cuts. We wouldn’t necessarily describe it as stimulus, but rather to move monetary policy to a more neutral footing, with the Fed funds rate expected to end 2024 at 4% versus the consensus forecast and market pricing of 4.5%.   ING CPI forecasts (YoY%)
Federal Reserve's Stance: Holding Rates Steady Amidst Market Expectations, with a Cautionary Tone on Overly Aggressive Rate Cut Pricings

Turbulent Markets: Powell's Hawkish Turn Sparks Rate Cut Speculations

ING Economics ING Economics 04.12.2023 13:42
Global Macro and Markets Global markets:  Fed Chair, Jerome Powell, tried to sound a hawkish tone at his speaking event on Friday, talking down the likelihood of rate cuts. But markets latched onto a remark that policy was now “well into restrictive territory” as a clue that there was a greater chance of rate cuts next year than Powell was letting on. 2Y Treasury yields plunged 14.2bp to 4.538%, while the yield on 10Y Treasuries dropped 13.1bp to 4.196%. So far, there has been no obvious response from EURUSD, which you’d imagine would rise given the magnitude of this fall in US bond yields. However, the falls were matched very closely by falls in European bond yields on Friday too, as markets seem to be swinging around to the idea of meaningful ECB cuts as well.  The AUD rose sharply though, rising to 0.6687. Cable was also up to 1.2721. And the JPY has plunged to 146.33, its strongest since 11 September. Asian FX was mixed on Friday, though we can expect the laggards (KRW, TWD and MYR) to make up ground today. The rest of the pack will also likely follow the G-10 lead. Rising rate cut expectations gave US stocks another reason to rally on Friday, though the gains were relatively muted. The S&P 500 and NASDAQ rose slightly over half a per cent. G-7 macro:  Friday’s main data release was the manufacturing ISM index. This was unchanged at 46.7, a weaker outcome than had been expected. With non-farm payrolls due on Friday, the drop in the employment index from 46.8 to 45.8 probably carried more weight than the increase in the new orders index from 45.5 to 48.3. Both indices, as well as the headline, remain in contraction territory. Today is relatively light for macro data. We get the final US durable goods orders figures for October, along with the October factory orders figures which are derived from them. China:  China Evergrande Group is due to have its future determined today by a Hong Kong court hearing to determine whether a creditor request for the company to be wound up will be granted. The Group has outstanding liabilities of around $327bn. Liquidation will place China’s housing market, which has been showing signs of declining at a more rapid pace in recent months, under further downward pressure.   India:  Ahead of next year’s lower house elections, India’s ruling BJP party has won three state elections at the weekend, taking two of them from opposition parties.   What to look out for: South Korea GDP and China Caixin PMI services later in the week US durable goods and factory orders (4 December) South Korea GDP (5 December) Japan Tokyo CPI inflation and Jibun PMI services (5 December) Philippines CPI inflation (5 December) China Caixin PMI services (5 December) RBA meeting (5 December) Singapore retail sales (5 December) US JOLTS and ISM services (5 December) Australia GDP (6 December) Taiwan CPI inflation (6 December) US ADP employment and trade balance (6 December) Australia trade (7 December)China trade (7 December) Thailand CPI inflation (7 December) US initial jobless claims (7 December) Japan GDP (8 December) India RBI meeting (8 December) Taiwan trade (8 December) US NFP (8 December)
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Market Musings: Powell's Mixed Signals, Oil's OPEC Struggles, and FX Crossroads

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

Kenny Fisher Kenny Fisher 04.12.2023 14:37
AUD/USD lower on Monday RBA likely to maintain rates on Tuesday The Australian dollar has started the week in negative territory. In the European session, AUD/USD is trading at 0.6648, down 0.40%. The Australian dollar is coming off a strong week, with gains of 1.38%. RBA expected to hold rates The Reserve Bank of Australia is expected to hold rates at 4.35% at its Tuesday rate meeting. The central bank has paused for four straight months and the markets don’t expect any further hikes. Still, the RBA could send a hawkish message along with the pause to dampen speculation about a rate hike in 2024, with inflation still high at 4.9%, which is well above the 2% target. Powell sends mixed message, dollar slumps Federal Reserve chair Jerome Powell spoke on Friday, and his split message sent the US dollar sharply lower against most of the majors, including the Australian dollar which jumped 1.06%. Powell noted that monetary policy is “well into restrictive territory” and that inflation is “moving in the right direction”. The markets interpreted these remarks as signals that the Fed is done with rate tightening. Although Powell warned that it was premature to assume that the Fed had achieved a “sufficiently restrictive stance”, investors viewed the remarks as dovish and the US dollar fell sharply.   The futures markets have priced in a rate cut in March at 59% and in May at 87%, according to the CME FedWatch tool. The Fed clearly doesn’t share this stance, as most Fed members who spoke last week supported the case for holding rates at current levels for some time. This disconnect between the Fed and the markets is likely to continue as the Fed is unlikely to discuss rate cuts while inflation remains above the 2% target. The markets are looking at a rate cut in late 2024, but a lot could happen until then. If the economy cools more quickly than expected, the RBA would have to give thought to cutting rates in order to boost growth.   AUD/USD Technical AUD/USD tested support at 0.6639 earlier. Below, there is support at 0.6603 0.6712 and 0.6748 are the next resistance lines
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Eurozone Inflation Drops to 2.4%, ECB Faces Divergence with Market Expectations

Kenny Fisher Kenny Fisher 04.12.2023 15:04
Eurozone inflation falls to 2.4% US ISM Manufacturing PMI expected to improve to 47.6 Fed Chair Powell will deliver remarks in Atlanta The euro is showing limited movement on Friday. In the European session, EUR/USD is trading at 1.0897, up 0.09%. Eurozone inflation falls more than expected Eurozone inflation has been falling and the November report brought good tidings. Headline inflation ease to 2.4% y/y, down from 2.9% in October and below the market consensus of 2.7%. A sharp drop in energy prices was a key driver in the significant decline. Core inflation, which is running higher than the headline figure, dropped to 3.6%, down from  4.2% in October and below the market consensus of 3.9%. The soft inflation report sent EUR/USD lower by 0.74% on Thursday, but ECB policy makers are no doubt pleased by the release, as it indicates that the central bank’s aggressive tightening continues to curb inflation. Headline CPI has dropped to its lowest level since July 2021 and is closing in on the 2% inflation target. Still, core CPI, which excludes food and energy and is a better gauge of inflation trends, will need to come down significantly before the ECB can claim that the battle against inflation is over. The ECB has signalled a ‘higher-for-longer policy’, and hasn’t given any indications that it plans to cut rates anytime soon. This has resulted in a significant disconnect with the financial markets, as traders believe that the ECB will have to respond to falling inflation and weak growth by trimming rates. The markets have brought forward expectations of a rate cut to April due to the soft inflation report. Just one month ago, the markets had priced in an initial rate cut in July. It will be interesting to see if ECB President Lagarde clings to the higher-for-longer stance or will she acknowledge the possibility of rate cuts in 2024. The US wraps up the week with the ISM Manufacturing PMI. The manufacturing sector has been in a prolonged slump and the PMI has indicated contraction for twelve consecutive months. The PMI is expected to improve to 47.6 in November, compared to 46.7 in October. A reading below 50 indicates contraction.   Investors will be listening closely to Jerome Powell’s remarks today, looking for hints about upcoming rate decisions. Powell has stuck to his script of a ‘higher for longer’ rate policy, but the markets have priced in a rate cut in May at 84%. . EUR/USD Technical There is resistance at 1.0920 and 1.0986 1.0873 and 1.0807 are the next support levels
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Canadian Dollar Strengthens as Job Growth Expected, USD/CAD Faces Resistance Amid Economic Challenges

Kenny Fisher Kenny Fisher 04.12.2023 15:05
Canada’s job growth expected to expand by 15,000 US ISM Manufacturing PMI projected to accelerate to 47.6 The Canadian dollar continues to gain ground against a slumping US dollar. In the European session, USD/CAD is trading at 1.3529, down 0.23%. The Canadian currency is poised to post a third straight winning week against the greenback and soared 2.25% in November. It is a busy Friday, with Canada releasing the employment report, the US publishing the ISM Manufacturing PMI and Fed Chair Powell speaking at an event in Atlanta. Canada’s labour market has softened but remains in good shape and has shown expansion for three straight months. The economy is expected to have added 15,000 jobs in November, slightly lower than the 17,500 reading in October. The market consensus for the unemployment rate stands at 5.8%, compared to 5.7% in October. Canada’s GDP posts negative growth This week’s GDP report was another reminder that the economy remains weak. Third-quarter GDP declined by 0.3% q/q, below the revised o.3% gain in Q2 and the first decline since the second quarter of 2021. High interest rates have cooled the economy and exports were down in the third quarter as global demand remains weak. On an annualized basis, GDP slid 1.1% in the third quarter, compared to a revised 1.4% gain in Q2 and shy of the market consensus of 0.2%. The US wraps up the week with the ISM Manufacturing PMI. The manufacturing sector has been in a prolonged slump and the PMI has indicated contraction for twelve consecutive months. The PMI is expected to improve to 47.6 in November, compared to 46.7 in October. A reading below 50 indicates contraction.   Investors will be listening closely to Jerome Powell’s remarks today, looking for hints about upcoming rate decisions. Powell has stuck to his script of a ‘higher for longer’ rate policy, but the markets have priced in a rate cut in May at 84%. . USD/CAD Technical USD/CAD tested resistance at 1.3564 in the Asian session. Above, there is resistance at 1.3665 1.3494 and 1.3434 are providing support    
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The Countdown to the Currency Market's 'Dead Season': What to Expect for EUR/USD in the Coming Weeks

InstaForex Analysis InstaForex Analysis 04.12.2023 15:07
It's early December, which means traders have very little time left before the start of the "dead season." The currency market will be active for a few more weeks before entering the Christmas-New Year lethargy. The EUR/USD pair is no exception here. Typically, life in the FX market slows down after the December meetings of the Federal Reserve and the European Central Bank (on December 12-13 and 14, respectively). For some time, traders reflect on the outcomes of these meetings, but inevitably, "winter holidays" set in. The main feature of the upcoming week is the "silence" of the Fed officials. The so-called "blackout period" started on Saturday: for 10 days leading up to the Fed meeting, officials of the U.S. central bank generally do not speak publicly or grant interviews. Therefore, EUR/USD traders will be focused on economic reports. Let's take a look at the economic calendar and see what awaits us in the coming days.   Monday The first working day is traditionally quite empty for EUR/USD. During the European session, the Sentix investor confidence indicator will be published. This is a leading indicator as it measures investors' sentiment towards the eurozone economy. Since March 2022, the indicator has been in the negative territory, but in November, it showed positive dynamics, rising from -21.9 to -18.6. In December, experts expect a further improvement to -15.0. Also on Monday, ECB President Christine Lagarde is expected to speak. She will participate in a conference that includes a Q&A session. The head of the ECB may comment on the latest eurozone inflation data, although the theme of the meeting, let's say, does not lend itself to such questions (the conference is organized by the French Academy of Ethics and Political Sciences). During the U.S. session, a report on factory orders in America will be published. The volume of total orders is expected to decrease by 2.7% in October, while core orders are expected to increase by only 0.3%. Tuesday On Tuesday, the final estimates of the PMI data for November will be published. According to forecasts, they will coincide with the initial reports (in this case, the market will likely ignore this data). Traders will focus on the ISM Non-Manufacturing Purchasing Managers' Index (PMI), which will be published during the U.S. session. This indicator has declined over the past two months, but according to most experts, it will rise to 52.5 points in November. However, if the index falls into the "red zone," the dollar will come under significant pressure. Let me remind you that the ISM Manufacturing Index published last week did not support the greenback. In November, it reached 46.7 points, against forecasts of an increase to 48.0 (the manufacturing index has been in contraction territory for the 13th consecutive month). In addition, the U.S. Bureau of Labor Statistics will release data on the level of job vacancies and labor turnover. However, considering that the market is anticipating the Non-Farm Payrolls data later in the week, they will likely overlook Tuesday's report.   Wednesday At the start of the European session, we will learn about the October volume of industrial orders in Germany. In annual terms, the indicator has been in the negative territory since July, and judging by forecasts, the situation is not expected to improve in October (forecast -5.6%). The main report of the day will be announced during the U.S. session, which is the non-farm employment in the United States from ADP. This report is considered to play the role of a kind of "harbinger" ahead of the release of official data—although quite often these indicators do not correlate. Nevertheless, the ADP report can trigger increased volatility among dollar pairs, especially if it comes out in the green/red zone. According to experts, 120,000 non-farm jobs were created in November. If the figure falls below the 100,000 mark, the greenback may come under pressure. Also, U.S. data on labor cost will be published (final estimate). This indicator, for the first time since the beginning of 2021, dropped into negative territory in the third quarter. According to forecasts, the final estimate will be revised downwards (from -0.8% to -0.9%). On the same day, ECB Executive Board member Joachim Nagel (head of the Bundesbank) will speak. Before the release of the latest data on eurozone inflation, he voiced rather hawkish theses, allowing for additional interest rate hikes in the foreseeable future. We do not know whether his position will change in light of recent events.   Thursday On this day, we will learn the final estimate of the eurozone Q3 GDP data. According to forecasts, the final result should match the second estimate (-0.1%). During the U.S. session, weekly data on initial jobless claims will be published. Since mid-October, this indicator has fluctuated in the range of 210,000 to 220,000 (except for one week when the count jumped to 233,000). According to forecasts, for the upcoming week, the indicator will come in at 220,000, i.e., at the upper limit of the "established" range. Furthermore, secondary economic reports will be released (wholesale inventories - final estimate, and consumer credit), but they usually do not have any significant impact on the market.   Friday On the last day of the trading week, key U.S. labor market data for the month of November will be published. According to preliminary forecasts, the unemployment rate in November will remain at the October level, i.e., at 3.9%. The number of non-farm payrolls is expected to increase by 185,000 (after a 150,000 increase in October) – meaning the figure will once again fall short of the 200,000 mark. In the private sector, the number of employed is expected to grow by 155,000 (after a 99,000 increase in October). And the average hourly wage level is expected to demonstrate a downtrend again – down to 4.0% YoY (in this case, it will be the lowest value of the indicator since August 2021). Obviously, such a result will not benefit the dollar, especially amid a decrease in CPI, producer price index, and the core PCE index.   On the bullish side, we have the dovish comments from some of the Fed officials (Waller, Goolsby), conflicting signals from Fed Chair Jerome Powell, and a decline in key inflation indicators. On the bearish side, we have the eurozone inflation data. The "red tint" of the latest report put an end to the discussion about the ECB rate hike in the coming months. The euro lost its fundamental trump card, but, as we know, the EUR/USD pair can successfully rise only due to the dollar's weakness. For instance, on Friday, the bears tried to break through to the 1.08 level but eventually failed. In my opinion, in the medium-term perspective (until the release of the NFP data), traders will exercise caution (both sellers and buyers), trading on "neutral territory," i.e., in the range of 1.0850 – 1.0930 (lower and middle Bollinger Bands lines on the 4H timeframe, respectively).
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Anticipation Builds: Focus on CPI Data Ahead of Pivotal FED Decision

Walid Koudmani Walid Koudmani 12.12.2023 14:42
Focus on CPI data ahead of crucial FED decision this week While the decision to maintain current interest rates appears highly probable, the primary focus of the market this week will be on Jerome Powell's upcoming speech as the Federal Reserve Chair has a significant opportunity to impact market sentiments by potentially signaling an end to the rate hike cycle. Nevertheless, such a development should not significantly alter investor expectations as it has been a wide topic of discussion for quite some time, however, a significant deviation from those expectations could lead to some noticeable impacts on USD and potentially even on risk assets.   Despite the gradual normalization of macroeconomic data, shifts are aligning favorably for the Fed as the labor market is also exhibiting signs of stabilization while inflation is clearly slowing down which has prompted investors to engage in speculation regarding the timing of potential rate cuts. In this scenario, there is a potential for a boost in bond prices, accompanied by a concurrent reduction in yields as anticipation of a Fed pivot could drive capital accumulation in bonds, taking advantage of the prevailing, albeit high, interest rates. In either case, focus today will be on US CPI data ahead of tomorrow's FED decision and while it is unlikely that the data will change tomorrow's outcome, it could certainly have a short term impact on global markets. 
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Tectonic Shift: Unexpectedly Dovish Fed Sparks Market Dynamics

ING Economics ING Economics 14.12.2023 13:57
Surprise dovish twist By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The Federal Reserve (Fed) wraps up the year with a resounding finale. The Fed is not bothered to see the US yields fall in preparation for a rate cut. On the contrary, they endorsed the idea of a policy pivot thanks to an encouraging fall in inflation and sounded way more dovish than everybody expected at their announcement yesterday – which clearly exposed that the policy pivot is coming. This is the major take of the final FOMC meeting of the year, and it was totally unexpected. Jerome Powell still said – just for the sake of saying – that 'it is far too early to declare victory' over inflation, but the committee lowered their inflation forecasts for this year and the next, and the so-called dot plot – which plots where the Fed officials see the interest rates going – plotted a 75bp cut in Fed funds rate next year. The median expectation now suggests that the Fed rate will be lowered to 4.6% by the end of next year. And that's quite a big change compared to last time the Fed President spoke to say that the rates would stay high for long. It now appears that the rates won't stay high for so long. The first Fed rate cut is now expected to happen in March, with more than 85% probability.  As a result, the US 2-year yield – which captures the Fed rate bets – sank to 4.33% yesterday, and with the dovish message that the Fed sent to the market, the 4.50% level that I saw as a support at the start of this week should now act like a resistance. The US 10-year yield sank below 4%, reflecting the idea that the policy pivot suggests some meaningful slowdown in the US economy. The falling yields sent the S&P500 above the 4700 mark, to the highest levels in almost two years and the Dow Jones Industrial Index hit a record high. There is no reason to stop believing that the S&P500 will soon renew record as well, unless there is a meaningful decline in earnings expectations.   The dovish Fed echoed loudly across the FX markets as well. The US dollar was sharply sold, the EURUSD rebounded back above the 1.09 level, Cable extended gains to 1.2650 and the USDJPY fell almost 1.80% yesterday and slipped below the 141 level this morning. Trend and momentum indicators are comfortably negative, the fundamentals – meaning the narrowing divergence between the more dovish Fed and the more hawkish Bank of Japan (BoJ) – are comfortably positive for the yen, hence price rallies in the USDJPY are now seen as opportunities to strengthen the short USDJPY positions.  Now today, it's the European Central Bank (ECB) and the Bank of England's (BoE) turn to give their final policy verdict for this year. And both Mme Lagarde and Mr. Bailey are certainly annoyed to see the Fed go so soft yesterday, as Christine Lagarde had said herself that no reduction in rates should be expected in the next few quarters. It will be interesting to see if ECB and BoE officials feel comfortable about giving up their tough stance. I still believe that Lagarde will repeat that it's too early to talk about rate cuts, in which case we could see the EURUSD jump above the 1.10 level and finish the year above this level.   Across the Channel, the situation is less obvious. The UK economic outlook is not bright, and wages show signs of slowing. One big argument is that inflation has more than halved in the UK since the start of this year. Yes. But inflation in the UK – though halved – stands at 4.6% which is more than twice the BoE's 2% target. The latter makes the BoE less inclined to initiate rate cuts compared to the other two major central banks.   
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Rates Puzzle: Powell's Silence and Central Banks' Divergence

ING Economics ING Economics 14.12.2023 14:00
Rates Spark: Does the Fed know something we dont? The surprise from the FOMC was partly the extra 25bp implied cut added to 2024, but it was more the lack of pushback from Chair Powell on the 2024 rate cut narrative. He almost endorsed it, which leads us to question whether he knows something of significance that we don't. Today's focus is on the ECB and BoE policy meetings.   Chair Powell validates the move from 5% to 4% on the 10yr yield Such was Federal Reserve Chair Jerome Powell's phraseology at the press conference that one must suspect that he knows more than we know. And its not about the macro data. We can see that. It's more about what the Fed might be seeing under the hood. Perhaps in commercial real estate, or single family residential rentals or private credit, or another other area of the system that might find itself overexposed to rate hikes delivered, under water and vulnerable to breaking. We don't know of course, but a Fed chair that stands up asserts that he understands the dangers they run by keeping rates too high for too long is one that looks like he's ringing alarm bells. Along with the Fed, the market too has added an additional 25bp rate cut for 2024, now at 150bp cumulative. The entire curve has shifter lower, led by real rates. The 2/10yr curve has gapped steeper too. This is a meaningful outcome. The question now is whether the 2yr can really break free and head lower as a driver of the yield curve, steepening it out from the front end. That traditionally happens on a three month run in ahead of an actual rate cut. We’re on the cusp if this, but not quite there just yet. It’s been a remarkable ongoing market move, especially as it has been interlaced with some tailed auctions, indicative of resistance to the falling market rates narrative (in the long end). But there’s been little from Chair Powell and the FOMC to stand in the way of this. Recent data has not really validated the dramatic fall in yields. But today the Fed has helped to do so. A far more hawkish Fed had been anticipated. The question ahead is where is fair value for the 10yr. We think it’s 4%. It’s premised off the view that the funds rate gets to 3% and we are adding a 100bp curve to that. We are about to sail below 4% though as a theme for 2024, with 3.5% the target. But the move below 4% towards 3.5% will be an overshoot process. If something breaks, we fast track all of that and jump to a new environment. That has not happened as of yet, but we think the stakes have risen.   ECB to push back against early cut expectations With a first rate cut more than fully discounted by April and on overall anticipated easing of 135bp over 2024, the market’s expectations of European Central Bank policy stand in stark contrast to the official line of rates having to remain high for longer. But since the last meeting in particular the inflation data has surprised to the downside, which even influential ECB officials like Isabel Schnabel had to acknowledge. The prospect of further hikes is clearly off the table, but she warned that central banks will have to be more cautious. That also meant that the ECB should be more careful with regards to making statements about what will happen in the next six months. The ECB’s new growth and inflation forecasts will have to be lowered, the crucial question is just by how much. Also taking it from Schnabel, the ECB is unlikely to give any longer rate guidance, which would only mean a truer meeting-by-meeting and data dependent approach. Still, the ECB is unlikely to endorse the aggressive market pricing, especially that of cuts already early in the year. So far the communication has been that one is particularly concerned about the development of upcoming wage negotiations which makes pricing for March rate cuts look premature. But how can the ECB still convey a hawkish tilt? One possibility is using communication about plans to shrink the balance sheet. We do not think there will be concrete decisions yet, but the ECB could state that it has begun discussing to potentially end PEPP reinvestments earlier than planned.   BoE likely reiterate rates will stay restrictive for an extended period Expectations of policy easing have further deepened ahead of today’s Bank of England monetary policy committee meeting. A first rate cut is now fully discounted by June with an overall expected easing of close to 100bp over 2024. One reason for growing expectations was a downside surprise in wage growth which saw private sector regular pay growth fall to 7.3% year-on-year from 7.8% YoY. Another trigger was yesterday’s disappointing GDP growth for October which means we are potentially on track for a fractionally negative overall fourth quarter figure. The BoE is likely to reiterate the guidance from November, where it said it expected rates to stay restrictive for “an extended period.  A hold is also widely anticipated by the market, but the recent data could convince some of the three MPC’s hawks who had still voted for a hike in November to back down from that position toward a ‘no change’.    Today's events and market view The central bank meetings are clearly the focus today given how far market expectations of policy easing have come. There may well be some disappointment in store for pricing of rate cuts as early as March. But further out we must acknowledge that the shift lower in rates is also driven by a drop in inflation expectations. The 10Y EUR inflation swap for instance has come down all the way from levels closer to 2.6% in October to currently 2.15%. Even central banks themselves have become more positive about the disinflationary tendencies taking hold. On the heels of the FOMC meeting rates markets in the US will look out for the initial jobless claims as well as retail sales data today. we will also get import and export prices.
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Turbulent Times for Currencies: Bank of England's Pause and Federal Reserve's Rate Cut Projections

Kenny Fisher Kenny Fisher 14.12.2023 14:40
Bank of England expected to pause Federal Reserve projects three rate cuts in 2024 The British pound continues to move higher on Thursday. In the European session, GBP/USD is trading at 1.2648, up 0.24%. The US dollar took a tumble on Wednesday after the Federal Reserve gave the nod to rate cuts in 2024. This helped the pound recover after losing ground in the aftermath of a soft UK GDP report on Wednesday. Bank of England expected to stand pat The Federal Reserve created quite a buzz in the financial markets on Wednesday after the Fed signalled that it expected to trim rates in 2024. Will Bank of England Governor Andrew Bailey provide an encore at today’s meeting? The BoE is widely expected to maintain the cash rate at 5.25% for a third straight time. There is little doubt that the BoE’s aggressive rate-tightening is over, with inflation falling and the UK economy limping along. The key question is whether Bailey will change his stance and signal that rate cuts are on the way, as Fed Chair Powell did at the Fed meeting. Bailey has been hawkish, saying that rates will remain in restrictive territory for an extended period (“higher for longer”) and that there is more work needed to bring inflation back down to the Bank’s 2% target. Bailey has said that it’s premature to talk about rate cuts, but the markets aren’t buying it and have priced in five quarter-point rate cuts in 2024, up from three cuts just a few days ago. With a pause widely expected at today’s meeting, the rate statement and Bailey’s press conference could provide some drama and shake up the financial markets, if the BoE shifts from its hawkish stance and acknowledges that it plans to cut rates next year. Powell’s Pivot sends US dollar lower The Federal Reserve maintained the benchmark rate on Wednesday, as expected. What was somewhat surprising was the Fed Chair Powell’s sharp pivot, as he signalled that the Fed expected to trim rates three times in 2024. This forecast comes less than two weeks after Powell said it would be “premature” to speculate about the timing of rate cuts and that the door was still open to further hikes. The rate statement noted that inflation “has eased over the past year but remains elevated”, suggesting that inflation is moving in the right direction but the battle ain’t over yet. . GBP/USD Technical GBP/USD is putting pressure on resistance at 1.2669. Above, there is resistance at 1.2720 There is support at 1.2585 and 1.2534      
Turbulent Times for Currencies: Bank of England's Pause and Federal Reserve's Rate Cut Projections - 14.12.2023

Turbulent Times for Currencies: Bank of England's Pause and Federal Reserve's Rate Cut Projections - 14.12.2023

Kenny Fisher Kenny Fisher 14.12.2023 14:42
Short-term technical analysis suggests a potential countertrend rebound with intermediate resistance at 16,890. China’s top policymakers’ reluctance to focus on making domestic demand revival a top priority for 2024 is likely to put a damper on positive animal spirits in the long term. A focus on making high-tech industrialization a top policy may trigger more headwinds for China and Hong Kong stock markets.   This is a follow-up analysis of our prior report, “Hang Seng Index Technical: Entrenched in a downward spiral” published on 7 December 2023. Click here for a recap. The China and Hong Kong benchmark stock indices have managed to catch a positive feedback loop from yesterday’s risk-on rally triggered by the US Federal Reserve’s dovish guidance. But overall, their major downtrend phases have remained intact since February 2021 with the Hang Seng Index on track to end 2024 with a fifth consecutive yearly loss (2023 year-to-date loss is at 17% at this time of the writing); its worst performing streak since January 2002. A similar weak performance is being reflected in the China CSI 300, on sight for a third consecutive yearly loss with a current year-to-date loss of -12.7% for 2023. The persistent underperformance of China and Hong Kong stock markets against the rest of the world has been driven by past “unfriendly” private sector policies enacted in China, lingering geopolitical tensions with the US, and the right now, heightened deflationary risk spiral due to the liquidity crunch inflicted in the property market where it has a significant wealth effect on China’s society.   China’s top policymakers placed industrialization policy as the top priority for 2024   The recently concluded China’s annual economic work conference attended by the top leadership stated that next year’s priority will be on building a modern industrial system with a focus on developing cutting-edge technologies and artificial intelligence. This year’s priority of boosting domestic demand slipped to second spot for 2024. These 2024 economic goals and initiatives will be formalized and made official during the National People’s Congress, and Chinese People’s Political Consultative Conference (Two Sessions) in March 2024. Hence, it seems that low odds for a significant and sustainable revival of bullish animal spirits for China and the Hong Kong stock markets in 2024 as policymakers are still reluctant to make a shift away from the current targeted approach to adopting more broad-based stimulus measures coupled with structural moves to remove bad assets from property developers’ balance sheets to reverse the chronic weakness seen in the property market. US-China geopolitical tension may see an uptick in 2024 Also, making high-tech industrialization a key priority in 2024 is likely to invite more scrutinization from neo-conservative US politicians that may put a strain on the current US-China geopolitical theatrics that have witnessed a tense rivalry between the two superpowers in obtaining cutting-edge semiconductors chips and peripherals.   The US presidential election will be held in November 2024 and in the run-up to election day, there is likely to be intense debate among the presidential candidates and finger-pointing again at China’s current industrialization policy that needs to be “neutralized” due to its potential national security threat to the US. All in all, it is likely to trigger a bout of “uninvestable” narratives on China’s financial markets that may prevent a sustainable recovery from taking shape in 2024 for China and Hong Kong stock markets.     16,100 is the last line of defence for the Hang Seng Index Fig 1: Hang Seng Index long-term secular trend as of 14 Dec 2023 (Source: TradingView, click to enlarge chart)     The current price actions have managed to retest and held at the long-term secular ascending trendline in place since the Asian Financial Crisis’s August 1998 low now acting as support at 16,100. The long-term monthly RSI momentum indicator has continued to exhibit bearish momentum reading below key parallel resistance at the 50 level which suggests that the 16,100 key major support is vulnerable to a major bearish breakdown. A weekly close below 16,100 may trigger a potential multi-month impulsive downleg sequence within its major downtrend phase to expose the next major support at 12,200 (also the Great Financial Crisis’s swing lows area of October 2008/March 2009). Potential short-term minor countertrend rebound   Fig 2: Hong Kong 33 minor short-term trend as of 14 Dec 2023 (Source: TradingView, click to enlarge chart) In the lens of technical analysis, price actions do not move in vertical directional movements as market participants adjust their behaviours accordingly to the latest related events and news flow. The short-term hourly chart of the Hong Kong 33 Index (a proxy of the Hang Seng Index futures) has staged a bullish breakout above the resistance of a minor descending channel from the 23 November 2023 high which increases the odds that a minor countertrend rebound motion may be in progress. Watch the 16,100 key pivotal support and a clearance above 16,500 may see the next intermediate resistance coming in at 16,890 (the downward sloping 20-day moving average & the 38.2% Fibonacci retracement of the prior down move from 16 November 2023 high to 11 December 2023 low). However, failure to hold at 16,100 invalidates the countertrend rebound scenario to expose the next intermediate supports of 15,890 and 15,500 in the first step.  
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Australian Dollar Rebounds as Federal Reserve Signals Likely Pause; Focus on Job Growth and Rate Expectations

Kenny Fisher Kenny Fisher 14.12.2023 14:47
Australian dollar rebounds Australian job growth expected to decelerate Federal Reserve likely to pause for third straight time The Australian dollar is in positive territory on Wednesday, after three straight losing sessions. In the North American session, AUD/USD is trading at 0.6584, up 0.38%. Will Powell push back against rate cut expectations? Today’s Federal Reserve’s rate announcement will almost certainly be a pause, which would mark the third consecutive time that the Fed held the benchmark rate at the target range of 5.25%-5.50%. That doesn’t mean the meeting isn’t significant, as investors will be looking for clues to the Fed’s rate plans next year. The markets have scaled back their forecasts of rate cuts in 2024 after the stronger-than-expected job report on Friday and yesterday’s inflation release, which showed that inflation remains high. Earlier in December, the markets were pricing in around five quarter-point cuts in 2024 but that has been trimmed to four cuts. That view is miles apart from that of the Fed, which has insisted that it hasn’t shut the door to further rate hikes and has warned that inflation remains too high. If Powell reiterates this hawkish stance and pushes back against rate hike expectations, the market would likely be forced to again reduce expectations of a rate cut.   Australia will release the November job report on Thursday. The economy is expected to have created 11,000 jobs, compared to 55,000 in October. The unemployment rate has been inching higher and is expected to rise to 3.8%, up from 3.7% in November. The Reserve Bank of Australia has repeatedly said that future rate decisions will be data-dependent and the strength of the labour market is a key factor that will be closely watched by RBA policy makers. . AUD/USD Technical AUD/USD is testing resistance at 0.6598. Above, there is resistance at 0.6671 0.6506 and 0.6433 are providing support  
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FX Weekly Update: Anticipating Central Bankers' Impact on Resilient Markets

ING Economics ING Economics 16.01.2024 12:19
FX Daily: Waiting on central bankers to shake data-resistant markets Investors have cemented Fed easing expectations despite some hotter-than-expected US data. We suspect a market reluctant to price out rate cuts will need strong words from the Fed – perhaps Powell himself – to reconnect rate expectations with data. Meanwhile, USD may stay rangebound. This week, Lagarde will speak in Davos, and UK CPI should slow further.   USD: Rate expectations still disjointed from data The first half of January has shown a dislocation between rate expectations and data in the US. The two most important data points for the Federal Reserve, labour and CPI inflation figures, both came in hotter than expected. PPI was a bit softer than consensus on Friday, but that is not enough to justify markets’ reluctance to price out Fed easing. The Fed funds future curve prices in 21bp of cuts in March, and 168bp by year-end. Our view remains that the Fed won’t start cutting before May, and that the total easing package will be 150bp. Accordingly, the rally in short-term USD rates appears overdone, and weakness in the front part of the USD curve should support some recovery in the dollar. However, we suspect that the data may prove insufficient to trigger a USD rebound for now; the consensus view of a dollar decline later this year seems to be making investors keen to sell dollar rallies. Also, the Fed probably needs to send a clearer message that the latest data does not justify the kind of aggressively dovish view embedded in money market pricing. There are a few more Fed speakers lined up this week, but perhaps dollar bears will want to hear it from Fed Chief Jerome Powell, who is not scheduled to speak until the 31 January FOMC announcement. Incidentally, the US data calendar isn’t very busy this week. Retail sales and the University of Michigan inflation expectations will attract the most attention along with jobless claims - which came in well below expectations last week, reinforcing the narrative of a still-tight labour market. We think the dollar will be driven more by other events than data this week, barring major surprises. First, the results of the election in Taiwan have raised again the delicate question of Taipei-Beijing relationships, with tensions among the two seen as a major risk for Asian and global risk sentiment this year. The dollar might benefit from some outflows from exposed EM FX. The situation in the Gulf also looks rather volatile after the US and UK military operations last week, even though the impact on oil prices has been muted so far.   Domestically, we’ll monitor the market reaction to the business tax relief extension currently being discussed in the US Congress. The impact of fiscal support may turn out to be negative for risk sentiment – and positive for the dollar – as markets see a greater risk of sticky inflation and a lower chance of Fed rate cuts. We think the dollar is more at risk of a rebound than a further correction from these levels, although the chances of another rangebound trading week in FX (DXY still hovering in the 102/103 region) are high.
Asia Morning Bites: South Korea's Inflation Below Expectations, Anticipation for US Non-Farm Payroll Release, and Powell's Weekend Address

Asia Morning Bites: South Korea's Inflation Below Expectations, Anticipation for US Non-Farm Payroll Release, and Powell's Weekend Address

ING Economics ING Economics 02.02.2024 15:12
Asia Morning Bites South Korea's inflation comes in below expectations. US non-farm payroll release later tonight. Powell slated to speak again at the weekend.   Global Macro and Markets Global markets:  Despite some reasonably strong data, US Treasury yields dipped slightly on Thursday. 2Y yields were down less than a basis point, but only after dropping below 4.14% and then recovering later on. 10Y yields followed a similar pattern of decline and recovery taking them down 3.2bp to 3.97%. Jerome Powell has a TV interview scheduled for the weekend, which could be interesting if he deviates from the recent message at the FOMC. Currencies also had a choppy day. EURUSD dropped below 1.08 at one point but is back up to 1.0874 now. Likewise, the AUD came close to dropping through 65 cents but has recovered to 0.6575 now. Cable did even better, finishing up on the day after a less dovish than expected Bank of England meeting. The JPY was roughly unchanged at 146.47. Other Asian FX were evenly split with half making small gains, led by the PHP and THB, and half making small losses. The CNY has drifted up to 7.1805. US equities recovered their losses from the previous day. The S&P 500 rose 1.25%, while the NASDAQ gained 1.3%. Equity futures also look quite positive. Chinese stocks had a slightly more positive day. The Hang Seng rose 0.52%, but the CSI only managed a 0.07% gain. G-7 macro: It was an interesting day for US macro yesterday, delivering support for both hawks and doves on the rates outlook. On the dovish side, non-farm productivity rose, and there was also a slight increase in jobless claims figures. On the other hand, the manufacturing ISM rose strongly, even though it remained below the breakeven 50 level and there was a jump in the prices paid component too which jumped up to 52.9 from 45.2. The new orders index was also strong. Later today, there is the US labour report. Following the soft ADP figure earlier this week, there may be some downside risk to the consensus view of a decline in employment growth from 216K in December to 185K in January.    South Korea:  Consumer inflation eased to 2.8% YoY in January (vs 3.2% in December, 2.9% market consensus), back to the 2% level for the first time in six months. But the decline was mainly due to base effects, caused by a one-off energy bill hike last January. Core inflation, excluding agricultural products and oils, also levelled down to 2.6% (vs 3.1% in December). In a monthly comparison, inflation rose 0.4% MoM nsa in January after staying flat in December. Fresh food, utility, and service prices rose, more than offsetting the decline of manufactured food and gasoline prices. The government has decided to freeze utility fees at least for the first quarter of the year and offered some tax cuts on imported goods. If the conflict in the Red Sea escalates further, the fuel subsidy program could be extended beyond March, so the upside risk is quite limited in the near term. Today’s slower-than-expected inflation probably won’t change the BoK’s hawkish stance any time soon. As mentioned earlier, if there were no government subsidies on energy and public services, CPI inflation would have been higher than it is today, and once these programs end, there may be a price spike later this year. So, choppy inflation ahead is expected. The BoK will likely take a wait-and-see approach to gather more evidence about the continued cooling of inflation.

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