Manufacturing PMIs

FX Daily: Unwinding the spurious dollar rally

The dollar strengthened across the board yesterday with no clear catalyst. We suspect that in an environment that keeps pricing large Fed cuts, USD rallies aren’t very sustainable. We’ll be awaiting the next leap higher in short-term USD rates to endorse a dollar rebound. Today, the focus is on PMIs and the Bank of Canada, which may disappoint dovish bets.

 

USD: Sticky Fed cut bets hinder USD rebound

The dollar rebounded sharply yesterday as the risk-on mood generated by Beijing’s reported stock support package evaporated during London trading hours. The Hang Seng is having another good day today, even though Beijing’s measures appear an emergency and temporary solution, more a symptomatic treatment rather than addressing fundamental economic concerns.

European and US equities failed to follow the Hang Seng's gains yesterday but also showed broad resilience. The rise in US rates did not look large enough to justify the rota

EUR Reacts to ECB's Dovish Hike, Now More Influenced by the USD

UK Mortgage Approvals Show Promising Rebound, Fueling Optimism for Housing Market Recovery

Michael Hewson Michael Hewson 29.05.2023 09:11
UK Mortgage Approvals (Apr) – 31/05 We've started to see a modest improvement in mortgage approvals since the start of the year, after they hit a low of 39.6k back in January, as the sharp rise in interest rates at the end of last year weighed on demand for property as well as house prices.   As energy prices have come down, along with lower rates, demand for mortgages has started to pick up again with March approvals rising to 52k, while net consumer credit has also started to improve after similar weakness at the end of last year.   With inflationary pressures starting to subside we could see this trend continue in the coming months, as long as energy prices remain at their current levels, and the Bank of England starts to signal it is close to being done on raising rates.     Manufacturing PMIs (May) – 01/06 Last week saw the latest flash PMIs show that manufacturing activity in France and Germany remained weak, while in Germany activity deteriorated further to its lowest levels since June 2020, when economies were still reeling from the effects of pandemic lockdowns.   We also found out that the German economy was in recession after Q1 GDP was revised lower to -0.3%. The UK and US on the other hand were able to see a modest pickup in economic activity. It is clear that manufacturing globally is in a difficult place, we're also seeing it in China, as well as copper and iron ore prices, which suggests that global demand is weakening sharply.   Italy and Spain economic activity is also expected to see further weakness in manufacturing when their latest PMIs are released later this week.
US August CPI: Impact on USD/JPY and Trading Strategies

US Jobs Market Confounds Expectations, RBA Rate Decision Looms, and Manufacturing PMIs Signal Concerns

Michael Hewson Michael Hewson 03.07.2023 08:35
US non-farm payrolls (Jun) – 07/07 – the US jobs market has continued to confound expectations for all this year, and it is this factor that is making the Federal Reserve's job in trying to return inflation to its target rate much harder to achieve. When the May payrolls report was released a month ago, we once again saw a bumper number, this time of 339k, with April revised up to 294k. The resilience of the jobs market has also been a little embarrassing for the economics profession, comfortably beating forecasts for the 14th month in succession. It also presents a problem for the Federal Reserve in the context of whether to to stick or twist when it comes to more rate hikes in the coming months. We've already seen a pause in June, however the commitment to raise rates by another 50bps by year end has got markets a little nervous, driving yields higher at the short end of the yield curve. For June, forecasts are again for a number below 300k, at 213k. We did see a rise in the unemployment rate from 3.4% to 3.7% while the participation rate remained steady at 62.6%. Wages also remained steady at 4.3%, however we also know that job vacancies after briefly dipping below 10m in March, rose strongly again in April to 10.1m. Against this sort of backdrop the Federal Reserve had to downgrade its forecast for end of year unemployment from 4.5% to 4.1%. Even with this adjustment it's hard to see how this will play out unless we see a significant rise in the participation rate, and vacancies start to disappear.         RBA rate decision – 04/07 – having paused earlier this year when it came to their own rate hiking cycle the RBA now appears to be playing catchup. Having caught the markets by surprise in April by hiking rates by 25bps, they followed that up in May by another 25bps rate increase pushing the cash rate up to 4.1%. The sudden hawkish shift in stance appears to have been prompted by stinging criticism over its failure to spot early enough the inflation surge seen at the end of 2021, and through 2022. They were hardly unique in this, with other central banks being similarly caught out, however their response has been fairly tepid, in comparison to the likes of the RBNZ where rates are much higher at 5.5%. This suggests that the RBA might feel it has to overcompensate in the opposite direction, running the risk of them tightening too hard and unsettling the housing market. Will the RBA raise rates again or decide to wait and see.               Manufacturing PMIs (Jun) – 03/07 –. recent flash PMI numbers suggest that the underperformance in manufacturing has continued in June with activity in Germany falling to its lowest level since March 2020, at 41, and the initial Covid lockdowns. In France we saw similar weakness albeit slightly higher at 45.5. Of slightly great concern has been weakness in Chinese economic activity with weak demand there feeding into a global narrative that the economy is slowing, weighed down by higher costs and varying degrees of supply chain disruption. Economic activity in Italy and Spain has also been weak, however on the plus side they have managed to outperform France and Germany. If the eurozone is to avoid a 3rd quarter of negative growth then it is Italy and Spain that might allow them to do it. 
Recent Economic Developments and Upcoming Events in the UK, EU, Eurozone, and US

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

Michael Hewson Michael Hewson 03.07.2023 09:20
The last six months have been an eventful one for equity markets in general with many of the questions that we were faced with at the start of the year, still just as relevant now.   The main question was whether the rebound that started from the lows back in October was simply part of a bear market rally, or whether it was the beginning of a move towards new record highs.   Others included how many more rate hikes could we expect to see, and when would rates start to come down again, with markets pricing in rate cuts in the second part of 2023.   We got the answer to the main question with new record highs for the FTSE100, CAC 40 and the DAX, while US markets also managed to continue their strong performance, breaking out of their own downtrend from their 2021 peaks, during February, shrugging off a March wobble in the process.   Despite the records highs being set by European markets in the first half of this year, one index above all the others has disappointed, that being the FTSE100, which managed to get off to a flier in the early part of the year, hitting a record high above 8,000, before sinking to a six-month low in the space of 4 weeks. Of all the major indices its greater weighting towards banks, and commodities has seen it underperform, largely due to the weakness of the rebound in the Chinese economy, and the fall in oil and gas prices.   The FTSE100 aside, what has been surprising is that, aside from a couple of exceptions, the stock market gains of the last few months have given few signs of disappearing despite interest rates that are significantly higher than they were at the start of the year, with little sign that they will come down any time soon.   That fact alone is a significant shift from where we were at the start of the year, where we had bond markets pricing in rate cuts as soon as Q3 of this year. This always came across as wishful thinking on the markets part, however we've shifted to the other side of the spectrum of market pricing in the prospect of another 100bps of rate hikes by the Bank of England by the end of the year.   In the same way that rate cuts by year end proved to be mispriced, at the start of the year, this pricing by the market could well go the same way.   One thing that has come as a surprise is how resilient equity markets have been in the face of a much sharper rise in 2-year yields from where we were in early January.   What's more there is no sign that central banks are in any mood to slow down their pace of rate hikes, something that is very much reflected in the way 2-year yields have pushed higher this year. US 2-year yields are higher by almost 50bps year to date, UK 2-year gilt yields by an astonishing 169bps, and German 2-year yields by 43bps.   This big jump in UK yields has seen the pound outperform against its peers, rising by 5% against the US dollar, and by as much as 13.5% against the Japanese yen.   While financial markets try to determine how many more rate hikes are coming, the next question is how long they will have to stay at current levels, and what happens when the deflation that is already being seen in the PPI numbers starts to manifest itself in the core inflation numbers.   For now, there is little evidence of that happening with the focus this week more on the continued divergence between manufacturing and the services sector in the form of the PMI numbers, as well as the US payrolls numbers on Friday.     Today's manufacturing PMIs are set to confirm the weak nature of this part of the global economy, with Spain, Italy, France, and Germany PMIs all forecast to slip back to 47.9, 45.3, 45.5, and 41 respectively. UK and US are also expected to remain soft at 46.2 and 46.3 respectively, while the US ISM manufacturing survey, is also forecast to remain below 50, at 47.2, with prices paid at 44.     Markets are already pricing in further rate hikes this month from the Federal Reserve, as well as the ECB, followed by the Bank of England in August, however the bigger question is what comes after these. One suspects we may not see many more after these hikes, however for now markets seem reluctant to come to that conclusion.   That said as we look towards H2 the bigger question is having seen such a positive H1, is there anything left in the tank, to build on those gains over the course of the rest of the year?   A decent Asia session looks set to translate into a positive start for European markets although current unrest in France is likely to prompt questions about economic activity there in the coming weeks.         EUR/USD – finding support at the 1.0830/40 area and 50-day SMA for now, with resistance remaining at the 1.1000 area. A break below the lows last week opens the way for a potential move towards 1.0780.     GBP/USD – still holding above the 50-day SMA at 1.2540, as well as trend line support from the March lows. If this holds, the bias remains for a move back to the 1.3000 area. Currently have resistance at 1.2770.       EUR/GBP – capped last week just below resistance at the 50-day SMA which is now at 0.8663. Behind that we have 0.8720. Support comes in at the 0.8570/80 area.     USD/JPY – saw a key reversal day after popping above 145.00 last week. We currently have support at the 143.80 area, with a break below targeting the 142.50 area. Above 145.20 opens up 147.50.      FTSE100 is expected to open 32 points higher at 7,563     DAX is expected to open 50 points higher at 16,198     CAC40 is expected to open 30 points higher at 7,430
Services PMIs and Fed Minutes: Analyzing Market Focus and Central Bank Strategy

GBP/USD: Trapped Between Trend Lines, Market Reaction Minimal to GDP Report

InstaForex Analysis InstaForex Analysis 03.07.2023 11:12
On Friday, the GBP/USD pair did not even try to extend its downward movement. Take note that there was an ascending trend line during the entire bearish correction period (already two weeks), and the British currency does not seem like it is going to fall anytime soon.   At the same time, a new descending trend line has formed on the hourly chart, causing the pair to be trapped between two trend lines. On Friday, the UK released its GDP report. If it did provoke a market reaction, it was minimal, as its value for the first quarter fully coincided with the forecasts. There were no significant reports in the US, and secondary data such as personal income and spending, as well as the Personal Consumption Expenditures Price Index with the Consumer Sentiment Index, were unlikely to add pressure on the dollar. Especially considering that the USD has started falling in the morning. Therefore, we tend to believe that the nature of the movements were more technical. It was almost impossible to predict the upward reversal in the morning. On the hourly chart, a new support area was formed at 1.2598-1.2605, from which the pair rebounded. Currently, it is located between the Senkou Span B and Kijun-sen lines, and has also tested the trend line. There's a high probability of a rebound and a new downtrend, but the movement is currently volatile. The only signal was formed at the beginning of the US session when the price broke through the Ichimoku indicator lines and the level of 1.2693. It was not the best signal, and traders could only gain 10 pips. But it's better than false signals or losses.     COT report: According to the latest report, non-commercial traders opened 2,800 long positions and closed 2,500 short ones. The net position increased by 5,300 in just a week and continues to grow. Over the past 9-10 months, the net position has been on the rise. We are approaching a point where the net position has grown too much to expect further growth. We assume that a prolonged bear run may soon begin, even though COT reports suggest a bullish continuation. It is becoming increasingly difficult to believe in it with each passing day. We can hardly explain why the uptrend should go on. However, there are currently no technical sell signals. The pound has gained about 2,500 pips. Therefore, a bearish correction is now needed. Otherwise, a bullish continuation would make no sense. Overall, non-commercial traders hold 52,300 sell positions and 104,400 long ones. Such a gap suggests the end of the uptrend. We do not see the pair extending growth in the long term.     1H chart of GBP/USD In the 1-hour chart, GBP/USD maintains a bullish bias, although it is correcting at the moment. The ascending trend line serves as a buy signal. However, we still believe that the British currency is overvalued and should fall in the medium term. The fundamental backdrop for the pound is getting weaker. The dollar also lacks a fundamental advantage but has already lost 2,500 pips over the past 10 months and requires a correction. On July 3, trading levels are seen at 1.2349, 1.2429-1.2445, 1.2520, 1.2598-1.2605, 1.2693, 1.2762, 1.2863, 1.2981-1.2987. The Senkou Span B (1.2737) and Kijun-sen (1.2674) may also generate signals when the price either breaks or bounces off them. A Stop Loss should be placed at the breakeven point when the price goes 20 pips in the right direction. Ichimoku indicator lines can move intraday, which should be taken into account when determining trading signals. There are also support and resistance which can be used for locking in profits. On Monday, manufacturing PMIs are scheduled for release in both the UK and the US. All the reports, except for the US ISM, will be released in the second estimate, which is unlikely to surprise traders. However, the ISM index may show an unexpected value and, accordingly, stir some market reaction.   Indicators on charts: Resistance/support - thick red lines, near which the trend may stop. They do not make trading signals.   The Kijun-sen and Senkou Span B lines are the Ichimoku indicator lines moved to the hourly timeframe from the 4-hour timeframe. They are also strong lines. Extreme levels are thin red lines, from which the price used to bounce earlier. They can produce trading signals. Yellow lines are trend lines, trend channels, and other technical patterns. Indicator 1 on the COT chart is the size of the net position of each trader category. Indicator 2 on the COT chart is the size of the net position for the Non-commercial group of traders.  
Australian Employment Surges in August Amid Part-Time Gains, While US Retail Sales and PPI Beat Expectations

Eurozone Manufacturing Contracts as Euro Remains Steady; US ISM Manufacturing PMI Weakens; US PCE Index Slows, Fed Rate Hike Still Expected

Kenny Fisher Kenny Fisher 04.07.2023 08:40
Manufacturing PMIs point to contraction across the eurozone but euro remains steady US ISM Manufacturing PMI weakens US PCE Index slows but Fed still expected to hike in July EUR/USD is almost unchanged on Monday, trading at 1.0909.   Eurozone manufacturing continues to sputter The eurozone manufacturing sector has been in poor shape for months and the downturn worsened worse in June. The eurozone PMI slowed to 43.4 in June, down from 44.8 and shy of the consensus of 43.6 points. Germany, the largest economy in the bloc, looked even worse, as the PMI fell to 40.6, down from 43.2 and below the consensus of 41.0 points. Spain, Italy and France also reported readings below 50, which separates contraction from expansion. Manufacturing in the eurozone has now contracted for 12 straight months and the PMI reading was the lowest since May 2020. Customer demand has fallen sharply and manufacturing employment declined in June for the first time since January 2021. These latest numbers indicate that manufacturing is in trouble, but this is nothing really new and the euro shrugged off the weak numbers. The news wasn’t much better in the US, as ISM Manufacturing PMI eased to 46.0 in June, down from 46.8 in May. ISM Manufacturing Employment contracted as well, falling from 51.4 to 48.4 and missing the consensus of 50.5 points. The week wrapped up with inflation releases showing that deceleration is alive and well. On Friday, the PCE Price Index, which is the Fed’s preferred inflation indicator, declined from 0.4% to 0.1% in June. As well, UoM Inflation Expectations dropped to 3.3% in June, down from 4.2% in May and the lowest since March 2021. Inflation may be headed in the right direction, but the Fed is still widely expected to raise rates at the July 12th meeting. Traders have priced in a 25-basis point hike at 86%, according to the CME FedWatch tool.   EUR/USD Technical EUR/USD is putting pressure on support at 1.0908. This is followed by support at 1.0838 1.0980 and 1.1050 are the next resistance lines    
ECB Meeting Uncertainty: Rate Hike or Pause, Market Positions Reflect Tension

Manufacturing PMIs and RBA Rates in Focus: European and US Markets Show Resilience

Michael Hewson Michael Hewson 01.08.2023 10:14
Manufacturing PMIs in focus, as RBA keeps rates unchanged     European markets finished the month of July on a rather subdued note, even allowing for another month of solid gains, although we did see another new record high for the DAX, while the CAC 40 posted a record monthly close. The euro Stoxx 50 also posted its highest monthly finish since October 2007. Both the FTSE100 and FTSE250 also fared reasonably well, with the FTSE100 closing at a 2-month high, helped by a rebound in house builders on the back of easing interest rate rise expectations. US markets also started the final day of July on the front foot before slipping back from their intraday highs, on the back of some end of month profit taking, drawing a line under a 5th successive month of gains. While there is a growing degree of confidence that last week's rate hikes from the Federal Reserve and the European Central Bank might be the prelude to a lengthy pause, there is rising realisation that rates may well have to stay at current levels for quite a while yet.     Nonetheless, despite this apprehension Asia markets have seen a positive session, despite weaker Chinese PMI numbers and this looks set to translate into a modestly positive start for markets in Europe this morning. This week we can expect the Bank of England to follow suit with another rate hike of its own, while this morning the RBA took the decision to keep rates unchanged at 4.1%. The decision was finely balanced with many expecting a rate hike, however the Australian central bank appears to have erred on the side of caution, given last week's weaker than expected Q2 CPI reading, and the weakness in recent PMI numbers.     The RBA went on to alter their inflation forecast to predict that prices would return to target in late 2025, while also revising up their GDP growth targets for this year and next year. The central bank did keep the door open to further hikes in the future. The Australian dollar slid back giving up some of the gains it made yesterday, while the ASX200 pushed back up towards its recent highs.     Today's economic agenda shifts the focus back to the weakness of the manufacturing sector, as well as the resilience of the US labour market, as we look to a flat open. In Germany especially, the performance of the manufacturing sector has been dire with July manufacturing PMI expected to be confirmed at 38.8, the lowest level since the manufacturing sector was shut down due to Covid. In France, manufacturing PMI is expected to slow to 44.5, while only modest improvements are expected in Spain and Italy of 48.3 and 44.3. The UK manufacturing numbers are expected to slow to 45, from 46.5.     Even the US economy hasn't managed to escape the manufacturing slump with the latest ISM manufacturing survey for July expected to show a modest improvement from 46 to 46.9, with prices paid expected to see a modest improvement to 44, from 41.8. It is clear that the manufacturing sector is experiencing a clear deflationary impulse which is likely to continue to act as a drag on prices in the coming months. The bigger question is whether this translates into a similar drag on the services sector, and here prices are proving to be slightly stickier.     One major concern to the slowing prices narrative has been the recent gains in oil prices, which yesterday saw their biggest monthly gain in over a year, over concerns that Saudi Arabia will go further and extend their production cuts into September. This rise in prices over the last 4 weeks is already feeding into higher prices at the fuel pumps, which if sustained could impact on consumer demand in the coming weeks.      We also get an insight into the US labour market with the latest JOLTS job openings numbers for June which are expected to show a fall from 9.82m vacancies to 9.6m, which would be a 2-year low. While such a move would be welcome it's also important to remember that vacancies are still over 2m higher than they were at their pre-pandemic peaks, back in mid-2018. This number needs to come down a lot further before we can infer that the falls in vacancies might lead to a moderation in wage growth.     EUR/USD – currently have support at the 1.0940 lows from last week with further support at the 50-day SMA as well as the 1.0850 area. Resistance currently at last week's high at 1.1150.     GBP/USD – support currently at the 1.2750 area as well as trend line support from the March lows at 1.2710, and the 50-day SMA at 1.2700. While above this key support the uptrend from the March lows remains intact. Resistance at the 1.3000 area.         EUR/GBP – currently range trading between resistance at the 0.8600 area, with the risk of a return to the recent lows at 0.8500/10. Above the 0.8600 area targets the July highs at 0.8700/10.     USD/JPY – broken above the 142.00 area, opening up the risk of a move back to the previous peaks at 145.00. We need to see a move back above 142.60 for this to unfold. Support comes in at yesterday's lows at 140.70.     FTSE100 is expected to open 3 points higher at 7,702     DAX is expected to open 13 points higher at 16,459     CAC40 is expected to open 5 points higher at 7,502     By Michael Hewson (Chief Market Analyst at CMC Markets UK)
Key Economic Events and Corporate Earnings Reports for the Week Ahead – September 5-9, 2023

Eurozone Core Inflation Surprises, GDP Accelerates to 0.3%: EUR/USD Holds Steady

Ed Moya Ed Moya 01.08.2023 13:32
Eurozone core inflation surprises on the upside Eurozone GDP accelerates to 0.3% The euro is showing little movement on Monday. In the North American session, EUR/USD is trading at 1.1023, up 0.06%. It has been a wild ride for the euro over the past two weeks. On July 18th, EUR/USD hit its highest level since February 2022, but the same day, the euro began a slide which saw it drop almost 300 points. Interestingly, the euro had a muted reaction to Monday’s eurozone inflation and GDP reports. Eurozone inflation for June was within expectations. Headline CPI dropped from 5.5% to 5.3% y/y, matching the consensus estimate. Core CPI remained steady at 5.5%, a notch higher than the consensus of 5.4%. Core CPI, which is closely watched by the ECB, hasn’t improved much from the 5.7% gain in March, which marked a record high. The inflation report shows that inflation remains stubbornly high, and will provide support to ECB members who favor a rate hike at the September meeting. The ECB raised interest rates last week, which came as no surprise as the ECB had signalled that it would do so. What happens next is anyone’s guess. ECB Lagarde said at last week’s meeting that “the September meeting will be deliberately data-dependent”. This didn’t clear up any uncertainty or really say anything, as the ECB has abandoned forward guidance and made rate decisions based on key data, especially inflation and employment reports. The ECB could go either way in September – inflation remains well above the 2% target, which would support a hike, but the eurozone economy remains weak and some members may wish to pause in order to avoid a recession. There was a bright spot in Monday’s releases as eurozone GDP rose to 0.3% in the second quarter, up from 0.0% in Q1. We’ll get a look at German and eurozone Manufacturing PMIs on Tuesday. EUR/USD Technical EUR/USD is testing resistance at 1.1037. The next resistance line is 1.1130 There is support at 1.0924 and 1.0831    
Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

European Markets React to US Rating Downgrade and Economic Concerns

Michael Hewson Michael Hewson 02.08.2023 08:22
European markets set to open lower after US rating downgrade     We saw a negative start to August for European markets with the DAX leading the way lower, having only put in a new record high the day before, after poor manufacturing PMIs and disappointing earnings prompted profit taking.   Yesterday's weakness appears to have been prompted by concern that the economy is a little bit weaker than perhaps people would like, raising concern for earnings growth heading into the second half of the year. US markets also finished the day lower, although closing well off the lows of the day with the Dow managing to eke out a gain. US yields also finished the day higher, on the rising realisation that rates may well have to stay at current levels for quite a while yet.     This profit taking has continued overnight after Fitch downgraded the US credit rating to AA+ from AAA, while simultaneously boosting demand for haven assets, with Asia markets falling sharply, and which looks set to translate into a sharply lower European open.   The increase in crude oil prices over the past 4 weeks is also raising concern that the falls in input prices that we've seen over the last few months might start to hit a floor and start rising again. Yesterday we got another snapshot of the US labour market as US job openings (JOLTS) fell to their lowest levels since April 2021, although they are still well above the levels, they were pre-pandemic. The latest employment component in the July ISM manufacturing survey also slowed to its lowest level since July 2020.     Today we get the latest insight into private sector hiring with the ADP employment report for July which is unlikely to repeat the bumper 497k seen in the June numbers. We should also be prepared for a downward revision to that report with July expected to see a more moderate 190k, as we look towards Friday's more important non-farm payrolls numbers. While stocks slipped back yesterday the US dollar rose to a 3-week high, gaining ground across the board on the grounds of the broader resilience of the US economy.     EUR/USD – still finding support at the 1.0940 lows from last week with further support at the 50-day SMA as well as the 1.0850 area. Resistance currently at last week's high at 1.1150.     GBP/USD – has continued to slide lower towards trend line support from the March lows at 1.2710, and the 50-day SMA at 1.2700. While above this key support the uptrend from the March lows remains intact. Resistance at the 1.3000 area.         EUR/GBP – popped briefly above the resistance at the 0.8600 area, before slipping back again, with the risk of a return to the recent lows at 0.8500/10. We need to see a concerted move above 0.8620 to target the July highs at 0.8700/10.     USD/JPY – continues to move through the 142.00 area, with the next target at the previous peaks at 145.00. Support comes in at this week's lows at 140.70.     FTSE100 is expected to open 30 points lower at 7,636     DAX is expected to open 88 points lower at 16,152     CAC40 is expected to open 36 points lower at 7,370   By Michael Hewson (Chief Market Analyst at CMC Markets UK)  
Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

European Markets React to US Rating Downgrade and Economic Concerns - 02.08.2023

Michael Hewson Michael Hewson 02.08.2023 08:22
European markets set to open lower after US rating downgrade     We saw a negative start to August for European markets with the DAX leading the way lower, having only put in a new record high the day before, after poor manufacturing PMIs and disappointing earnings prompted profit taking.   Yesterday's weakness appears to have been prompted by concern that the economy is a little bit weaker than perhaps people would like, raising concern for earnings growth heading into the second half of the year. US markets also finished the day lower, although closing well off the lows of the day with the Dow managing to eke out a gain. US yields also finished the day higher, on the rising realisation that rates may well have to stay at current levels for quite a while yet.     This profit taking has continued overnight after Fitch downgraded the US credit rating to AA+ from AAA, while simultaneously boosting demand for haven assets, with Asia markets falling sharply, and which looks set to translate into a sharply lower European open.   The increase in crude oil prices over the past 4 weeks is also raising concern that the falls in input prices that we've seen over the last few months might start to hit a floor and start rising again. Yesterday we got another snapshot of the US labour market as US job openings (JOLTS) fell to their lowest levels since April 2021, although they are still well above the levels, they were pre-pandemic. The latest employment component in the July ISM manufacturing survey also slowed to its lowest level since July 2020.     Today we get the latest insight into private sector hiring with the ADP employment report for July which is unlikely to repeat the bumper 497k seen in the June numbers. We should also be prepared for a downward revision to that report with July expected to see a more moderate 190k, as we look towards Friday's more important non-farm payrolls numbers. While stocks slipped back yesterday the US dollar rose to a 3-week high, gaining ground across the board on the grounds of the broader resilience of the US economy.     EUR/USD – still finding support at the 1.0940 lows from last week with further support at the 50-day SMA as well as the 1.0850 area. Resistance currently at last week's high at 1.1150.     GBP/USD – has continued to slide lower towards trend line support from the March lows at 1.2710, and the 50-day SMA at 1.2700. While above this key support the uptrend from the March lows remains intact. Resistance at the 1.3000 area.         EUR/GBP – popped briefly above the resistance at the 0.8600 area, before slipping back again, with the risk of a return to the recent lows at 0.8500/10. We need to see a concerted move above 0.8620 to target the July highs at 0.8700/10.     USD/JPY – continues to move through the 142.00 area, with the next target at the previous peaks at 145.00. Support comes in at this week's lows at 140.70.     FTSE100 is expected to open 30 points lower at 7,636     DAX is expected to open 88 points lower at 16,152     CAC40 is expected to open 36 points lower at 7,370   By Michael Hewson (Chief Market Analyst at CMC Markets UK)  
Industrial Metals Monthly Report: Challenging Global Economic Growth Clouds Metals Outlook

Industrial Metals Monthly Report: Challenging Global Economic Growth Clouds Metals Outlook

ING Economics ING Economics 10.08.2023 08:51
Industrial Metals Monthly: Dim global economic growth clouds metals outlook Our new monthly report looks at the performance of iron ore, copper, aluminium and other industrial metals, and their outlook for the rest of the year.   Industrial metals struggle in the first half of the year as China demand disappoints   China's economic activity loses more steam in July Prices for industrial metals remained mostly volatile in the first half of the year amid an uneven economic recovery in China.  Beijing has set a cautious growth target of 5% this year, the lowest in decades. In the second quarter, the economy added 6.3% compared with the same period last year, when Shanghai and other big cities were in strict lockdown, but growth was just 0.8% in quarter-on-quarter terms. Last month’s data releases offered new evidence that China’s overall economic momentum was weak at the start of the second half of the year, but have also raised hopes of more government stimulus measures as the top metal-consuming country slides into deflation. China’s consumer and producer prices both declined in July from a year ago as demand has continued to weaken. The consumer price index dropped by 0.3% last month from a year earlier, while producer prices, which are heavily driven by the cost of commodities and raw materials, fell for a tenth consecutive month, contracting by 4.4% in July from a year earlier. This marks the first time since November 2020 that both consumer and producer prices registered contractions. Meanwhile, the manufacturing and property sectors, which are crucial for industrial metals demand, are struggling to turn around. Manufacturing activity in China contracted again in July, proving that the economy’s recovery remains under pressure. China’s official manufacturing PMI climbed to 49.3 in July, from 49.0 in June. The sector has been in contraction since April. The Caixin manufacturing PMI fell back into contraction, dropping to 49.2 in July, from 50.5 in June, reflecting flagging demand for Chinese exports. Similarly, China’s property sector continues to struggle. In June, home sales dropped by 18% from a year earlier, while residential construction fell by 10%. Overall, China’s post-reopening recovery has disappointed so far this year. Chinese government continues to promise more support, including for the beleaguered property sector, but measures have lacked detail so far. At last month's Political Bureau of the Communist Party of China's Central Committee meeting, the announcement of continued stimulus for China's economy lifted metals prices toward the end of July. However, the optimism quickly subsided as the scale of the stimulus promised was somewhat disappointing and details are yet to emerge of specific policy steps that would benefit industrial metals. We believe metals will stay under pressure in the second half of the year as the sluggish recovery in China will likely continue to weigh on demand, with most industrial metals remaining dependent on economic stimulus from the world’s biggest consumer of metals. However, if China introduces stimulus measures, in particular for the property sector, this will boost metals demand and support higher prices. We believe that any improvements in metals prices will depend on the eventual implementation of China’s stimulus measures and actual demand improvement.   China's recovery is showing fatigue   Weak trade data highlight struggling recovery Plunging trade in July fuelled more concerns about China's growth prospects. Exports fell by 14.5% in dollar terms last month from a year earlier, the worst decline since the start of the Covid-19 pandemic in February 2020. Imports contracted by 12.4%, reflecting weak domestic demand, leaving a trade surplus of $80.6bn for the month. Flagging industrial activity also capped China’s metals imports. Iron ore imports fell by 2.1% in July to 93.5 million tonnes, a three-month low, as steel output declined over the month.   Copper ore imports slide to nine-month low   Imports of unwrought copper and products fell by 3% on a daily basis in July to 451,000 tonnes. They are now down 11% year-to-date. Meanwhile, copper ore imports slid to a nine-month low. The premium paid for refined metal at the port of Yangshan, which acts as a measure of import demand, has been on a downtrend too. It recently stood at $31.50/t, down from its record highs of $152.50/t in October last year.   Weak external demand remains a challenge for China's recovery   Global economic outlook remains dim World manufacturing PMIs also continued to struggle in July, mostly staying below the expansion level. This ongoing weakness, especially in the US and Europe, continues to be a drag on demand for industrial metals. Although China dictates most of the industrial metals prices, weak external demand also caps gains. In the US, while economic data releases in July indicated that the consumer price index dipped to its lowest in June since March 2021, the US Federal Reserve proceeded with a 25 basis-point interest rate increase at its July meeting. And at the start of August, Fed policymaker Michelle Bowman said more rises may be needed in the inflation battle after a mixed jobs report, further dampening demand for industrial metals.   Manufacturing PMIs stagnate globally    
Unraveling the Dollar Rally: Assessing the Factors Behind the Surprising Rebound and Market Dynamics

Unraveling the Dollar Rally: Assessing the Factors Behind the Surprising Rebound and Market Dynamics

ING Economics ING Economics 25.01.2024 15:02
FX Daily: Unwinding the spurious dollar rally The dollar strengthened across the board yesterday with no clear catalyst. We suspect that in an environment that keeps pricing large Fed cuts, USD rallies aren’t very sustainable. We’ll be awaiting the next leap higher in short-term USD rates to endorse a dollar rebound. Today, the focus is on PMIs and the Bank of Canada, which may disappoint dovish bets.   USD: Sticky Fed cut bets hinder USD rebound The dollar rebounded sharply yesterday as the risk-on mood generated by Beijing’s reported stock support package evaporated during London trading hours. The Hang Seng is having another good day today, even though Beijing’s measures appear an emergency and temporary solution, more a symptomatic treatment rather than addressing fundamental economic concerns. European and US equities failed to follow the Hang Seng's gains yesterday but also showed broad resilience. The rise in US rates did not look large enough to justify the rotation from European FX (EUR and GBP) back into the dollar. In all, we admit the dollar jump was quite surprising, and without a clear catalyst, and therefore see room for the dollar correction initiated overnight to extend today. One dynamic to keep an eye on – however – is the impact on markets of US Republican Primaries. The underperformance of the Mexican peso since the start of the week may be indicating markets are pricing in a larger chance of Donald Trump winning the presidency after Ron DeSantis endorsed him. Trump won the New Hampshire primary yesterday, securing 55% of votes and casting serious doubt on the future of Nikki Haley’s campaign. It all seems rather premature, but Banxico is also on the brink of a rate cutting cycle – as discussed here by our rates team – which can compound to keeping the peso soft. This should not translate into a one-way direction for the peso though, we still expect to see high demand in the dips, not least due to the preserved carry attractiveness and our view of a US dollar decline. Today, the focus will be on S&P Global PMIs across developed countries. Markets have become gradually more sensitive to this US survey, even though the ISM remains the main reference. Expectations are for a tiny decline in manufacturing PMIs (already in contraction area) and a stabilisation in services. We don’t have a strong bearish view on the dollar in the short-term, but yesterday’s moves did appear overdone in an environment where Fed funds futures still price in 130/140bp of cuts this year. We’ll be more convinced of the sustainability of a near-term dollar rebound once short-term Treasury yields take another leap higher (two-year rates are down nearly 10bp since yesterday). Revamped rate hike bets in Japan are pushing USD/JPY lower this morning, favouring a broader dollar correction which could have legs today. Francesco

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