market reaction

Rates Spark: Debt ceiling deal adds to bond angst A deal to raise the US debt ceiling increases selling pressure on Treasuries, but will also result in tighter financial conditions for the economy. This opens upside to EUR rates but a soggy economic backdrop means wider rate differentials near-term.   Once approved, the debt limit deal paves the way to a liquid crunch  The deal between President Biden and House leader McCarthy amounts to the removal of a tail risk for financial markets, that of a US default. Even if this was a tiny probability event to begin with, it'll allow markets to focus on the more important debate: whether the Fed is indeed done with its hiking cycle. The budget deal, which lifts the debt limit for two years and caps some categories of government spending, still needs to be approved by the House tomorrow.   The outcome of the vote is uncertain but the likely opposition by some Republicans means Democrat votes will be key. We expect the run-up to the vote to see Treasury Yields gradually climb higher if more lawmakers come out in favour of the deal.   Money markets can expect a $500bn liquidity drain over the coming months Beyond tomorrow, US rates will quickly look past the deal and turn their attention to the Treasury's task of rebuilding its cash buffer at the Fed. Two aspects matter here. On the liquidity front, money markets can expect a $500bn drain over the coming months as more debt is issued. In a context of $95bn/month Quantitative Tightening (QT) and of likely tightening of at least some banks' funding conditions, this should amount to an additional drag on financial conditions for the broader economy.   This should ultimately draw a line under the US Treasury selloff but, should the new borrowing come with an increase in maturity, some of that support may be weakened.   The case for a June hike has strengthened after Friday's higher than expected core PCE print and Treasuries are set to trade softly into Friday's jobs report as recent prints have demonstrated the labour market's resilience. 4% yield for 10Y now seems a more achievable level.   Weak European data prevents EUR rates from rising as fast as their US peers        

10Y US Treasury yields are more than 60bp away from the peak they reached in early March, prior to the regional banking crisis. The Fed has been pushing a more hawkish line disappointed by the lack of progress on the inflation front, but end-2023 Sofr futures still price a rate that is 50bp below the early March peak.   At least so far, this doesn’t feel like a wholesale reappraisal of the market’s macro view although a more forceful Fed communication at the 14 June meeting, with potentially a hike and a higher end-2023 median dot, could push us closer to this year’s peak in rates.     ECB pricing is hard to move but markets look to the BoE for guidance In Europe, today’s inflation prints from France, Germany, and Italy will, in addition to yesterday’s Spanish release, give us a pretty good idea of where the eurozone-wide number will fall tomorrow. If the drop in Spain’s core inflation is any guide, EUR markets will struggle to follow their US peers higher.   Add to this that it is difficult for euro rates to price a path for policy rates that materially diverges from their US peers. Even if the Fed hikes in June or July, the EUR swap curve already prices ECB hikes at both meetings. Swaps assign a low probability to another hike in September for now.   That probability may well rise but we think any labour-market induced sell-off in US Treasuries will reflect, in part, in wider rates differentials between the two currencies.   It is difficult for euro rates to price a path for policy rates that materially diverges from their US peers  

FXMAG.COM: Could you please comment on the US NFP? On Friday, the US will publish the employment data for May 2023. The average forecast suggests NFP growth by 180 thousand after rising to 253 thousand earlier.This is not a confident expectation. After a winter during which the US employment market added over 200 thousand new jobs per month, these statistics look modest. However, in this case, high digits might imply a threat to the US economy. If the Federal Reserve System sees that companies continue to compete for high-skilled workers, it might continue with its tough monetary policy.Strong employment market data will encourage further interest rate hikes to prevent inflation from rising.The situation turns out paradoxical. Good employment reports are no longer seen positively because they could be the basis for a further rise in crediting costs.Data that differs from forecasts will cause increased volatility in the US stock market.

There will be limited macro data on Monday, but the fact that there will be some is already a good sign. Mondays often lack both fundamental news and macroeconomics, which negatively affects the nature of movements and volatility. Tomorrow, business activity indices in the service sectors will be published in the European Union, the United Kingdom, and the United States.   We cannot say that these are extravagant data, especially since they will be the second estimates for May. In other words, the market is already familiar with the preliminary estimates. The business activity index in the UK and the ISM index in the US can be considered somewhat important.   However, unexpected values or deviations from forecasts are needed to trigger a market reaction. Without such influence, there won't be much impact on traders' sentiment.     There will be limited macro data on Monday, but the fact that there will be some is already a good sign. Mondays often lack both fundamental news and macroeconomics, which negatively affects the nature of movements and volatility. Tomorrow, business activity indices in the service sectors will be published in the European Union, the United Kingdom, and the United States.   We cannot say that these are extravagant data, especially since they will be the second estimates for May.   In other words, the market is already familiar with the preliminary estimates. The business activity index in the UK and the ISM index in the US can be considered somewhat important. However, unexpected values or deviations from forecasts are needed to trigger a market reaction. Without such influence, there won't be much impact on traders' sentiment.     Analysis of fundamental events: No significant fundamental events are scheduled for Monday. Both currency pairs corrected downwards on Friday, but the short-term upward trends are still intact. However, in the medium-term, a further decline in the euro and the pound is more likely. We believe it is advisable to pay attention to higher charts at the moment. In our weekend articles, we extensively discussed the key points to watch for in the coming week. We recommend reviewing those articles.     General conclusions: Monday will have few important events, but some of the reports may influence market sentiment and consequently affect the movement of major currency pairs. It is crucial to understand the medium-term direction of the euro and the pound this week.   As we have mentioned before, a short-term upward trend has formed, but a downward trend still persists in the longer term. Therefore, the battle between bulls and bears this week will not only be interesting but also significant. 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 other (about 5-15 pips), then this is a support or resistance area.   How to read charts: Support and Resistance price levels can serve as targets when buying or selling. You can place Take Profit levels near them. Red lines are channels or trend lines that display the current trend and show which direction is better to trade. MACD indicator (14,22,3) is a histogram and a signal line showing when it is better to enter the market when they cross.   This indicator is better to be used in combination with trend channels or trend lines. Important speeches and reports that are always reflected in the economic calendars can greatly influence the movement of a currency pair. Therefore, during such events, it is recommended to trade as carefully as possible or exit the market in order to avoid a sharp price reversal against the previous movement. Beginners should remember that every trade cannot be profitable.   The development of a reliable strategy and money management are the key to success in trading over a long period of time.  

No macro data scheduled for release on Tuesday. Only relatively unimportant reports on retail sales in the European Union and the Construction PMI in the UK can be highlighted.     However, it should be noted that the Construction PMI will be released in its second estimate, so there is practically no chance of a market reaction. Only if the actual value deviates significantly from the forecast, which rarely happens in second estimates. As for the retail sales report, it is not a particularly important one. If there is any reaction, it will be minimal.     There are no scheduled fundamental events for Tuesday, not even ones that are of secondary importance. Both currency pairs are currently in a suspended state as it is not entirely clear which direction they will move in this week. In the medium term, both pairs are expected to resume their decline, while in the short term, the downtrends have been broken, making a rise more likely. The fundamental and macroeconomic backdrop this week is very weak, so the movements can be weak and non-trending.     General conclusions: There will be hardly any important events on Tuesday, so we expect low volatility and weak intraday trend movements. There is a minimal probability that the market will react to the two reports mentioned earlier, but it is indeed very weak. It is unlikely that we will get an answer about the current trend in the market by Tuesday.   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 other (about 5-15 pips), then this is a support or resistance area.   How to read charts: Support and Resistance price levels can serve as targets when buying or selling. You can place Take Profit levels near them. Red lines are channels or trend lines that display the current trend and show which direction is better to trade. MACD indicator (14,22,3) is a histogram and a signal line showing when it is better to enter the market when they cross. This indicator is better to be used in combination with trend channels or trend lines. Important speeches and reports that are always reflected in the economic calendars can greatly influence the movement of a currency pair. Therefore, during such events, it is recommended to trade as carefully as possible or exit the market in order to avoid a sharp price reversal against the previous movement. Beginners should remember that every trade cannot be profitable. The development of a reliable strategy and money management are the key to success in trading over a long period of time.  

What events may affect market sentiment on June 7? Analysis of fundamental data for beginners. On Wednesday, there will be very few macroeconomic reports. We can mention the US balance of trade report, but I can't even remember the last time this report provoked any market reaction. Therefore, we should probably expect the market to go into a "half-holiday" state again today. Volatility could range from 50 to 70 pips for both instruments, which makes it challenging to trade.   But there's nothing we can do if there are no news and reports, the market has no reason to be active. Analysis of fundamental events: Among the fundamental events, the only notable one is the speech by European Central Bank Vice President Luis de Guindos. As we approach the June ECB meeting, his comments may help traders understand the central bank's plans for this month. However, traders are already aware of these things.   The probability of a new quarter point rate hike is 100%, and there are simply no other options. Therefore, even if de Guindos hints at further tightening, it will not support the euro or create pressure on it. It would be different if de Guindos outlines the future prospects for the ECB rate, as there has been recent information suggesting that the June hike may be the last in the tightening cycle. But for now, it's only rumors.     General conclusions: On Wednesday, there will be hardly any significant events, so we expect low volatility and weak intraday movements. Theoretically, de Guindos' speech could turn out to be interesting, but in reality, we have witnessed a large number of speeches by ECB committee members in the last two weeks. It is unlikely that de Guindos will reveal anything fundamentally new today.     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 other (about 5-15 pips), then this is a support or resistance area.   How to read charts: Support and Resistance price levels can serve as targets when buying or selling. You can place Take Profit levels near them. Red lines are channels or trend lines that display the current trend and show which direction is better to trade. MACD indicator (14,22,3) is a histogram and a signal line showing when it is better to enter the market when they cross. This indicator is better to be used in combination with trend channels or trend lines. Important speeches and reports that are always reflected in the economic calendars can greatly influence the movement of a currency pair.   Therefore, during such events, it is recommended to trade as carefully as possible or exit the market in order to avoid a sharp price reversal against the previous movement. Beginners should remember that every trade cannot be profitable. The development of a reliable strategy and money management are the key to success in trading over a long period of time.    

FX Daily: Jumping on the inflation swing Today’s CPI release in the US is arguably the biggest risk event of the week. This is because it can tilt the balance ahead of a 'toss-up' FOMC announcement tomorrow, and because anything ECB related may well play second fiddle to moves in USD rates. A 0.4% MoM core consensus read should, in our view, allow the Fed to stay on hold, but may not hit the dollar just yet.   USD: Small deviations in core inflation can have huge implications The currency and rates markets approached this week with a very elevated beta to data releases as markets remained on the lookout for hints on the activity and employment outlook ahead of the Fed’s policy announcement tomorrow. Inflation, however, remains the single most important input in the FOMC’s decision-making equation, and today’s CPI numbers for May likely have a make-or-break potential for a 25bp hike tomorrow, which is currently priced in with a 23% implied probability.   The median consensus estimate for the month-on-month core CPI read – which will effectively move markets – is 0.4%, with estimates ranging from 0.3% to 0.5%. A 0.4% MoM print (translating into a 5.2% core year-on-year rate) is also our economics team's call, and one that would in our view allow the majority of FOMC members to favour a hawkish hold over a 25bp hike tomorrow. It would probably take a 0.3% read to price out the residual 23% implied probability of a hike tomorrow, meaning that the dollar does not need to fall much on a consensus print today.   The spectrum of market reaction is much wider in the event of a 0.5% MoM core inflation read. We think the odds would likely swing in favour of a hike tomorrow, and markets could push their implied probability above 50%, sending the dollar higher across the board. The most visible consequence in G10 FX would probably be another jump in USD/JPY (ultra-sensitive to Fed pricing) and a potential break above the 140.90 end-of-May recent highs.   In terms of the headline measure, the consensus is expecting a month-on-month 0.1% change, translating into a slowdown from 4.9% to 4.1% YoY. But it will almost entirely be up to the core rate to drive the market reaction.

To hike or to hold for the Fed this week     When the Federal Reserve last met at the beginning of May raising rates by 25bps as expected, the market reaction was relatively benign. There was little in the way of surprises with a change in the statement seeing the removal of the line that signalled more rate hikes were coming, in a welcome sign that the US central bank was close to calling a halt on rate hikes.     Despite this signalling of a possible pause, US 2-year yields are higher now than they were at the time of the last meeting.     This is primarily due to markets repricing the likelihood of rate cuts well into next year due to resilience in the labour market as well as core inflation. Some of the recent briefings from various Fed officials do suggest that a divergence of views is forming on how to move next, with a slight bias towards signalling a pause tomorrow and looking to July for the next rate hike.      At the time this didn't appear to be too problematic for the central bank given how far ahead the Federal Reserve is when it comes to its rate hiking cycle. The jobs market still looks strong, and wages are now trending above headline CPI meaning that there may be some on the FOMC who are more concerned at the message a holding of rates might send, especially given that the RBA and Bank of Canada both unexpectedly hiked rates this past few days.     With both Fed chair Jay Powell leaning towards a pause, and potential deputy Chair Philip Jefferson entertaining similar thoughts in comments made just before the blackout period, the Fed has made itself a hostage to expectations, with the ECB set to raise rates later this week, and the Bank of England set to hike next week, after today's big jump in wage growth.       This presents the Fed with a problem given that it will be very much the outlier if it holds tomorrow. Nonetheless there does appear to be increasing evidence that a pause is exactly what we will get, with the problem being in what sort of message that sends to markets, especially if markets take away the message that the Fed is done.     If the message you want to send is that another hike will come in July, why wait when the only extra data of note between now and then is another CPI and payrolls report. You then must consider the possibility that these reports might well come in weaker, undermining the commitment to July and undermining the narrative for a further hike that you say is coming, thus loosening financial conditions in the process.     While headline inflation may well be close to falling below 4% the outlook for core prices remains sticky, and at 5% on a quarterly basis, and this will be an additional challenge for the US central bank, when it updates its economic projections, and dot plots.   The Fed currently expects unemployment to rise to a median target of 4.5% by the end of this year. Is that even remotely credible now given we are currently at 3.7%, while its core PCE inflation target is 3.6%, and median GDP is at 0.4%.     As markets look to parse this week's new projections the key question will be this, is the US economy likely to be in a significantly different place between now and then, and if it isn't then surely, it's better to hike now rather than procrastinate for another 5 weeks, especially if you are, as often claimed "data dependant".       By Michael Hewson (Chief Market Analyst at CMC Markets UK)  

FX Daily: Hard times to sell a hawkish narrative The Fed paused yesterday but signalled two more hikes in its dot plot. Markets, however, are not trusting the new projections, and barely price in one more 25bp increase to the peak, likely due to recent softish inflation figures. The ECB won’t have an easier task selling such hawkish rhetoric today, and EUR/USD faces some moderate downside risks.   USD: Dollar bulls can cling on to the dot plot The Federal Reserve matched market expectations for a hold yesterday, but definitely surprised on the hawkish side with its messaging. As discussed in our Fed review note, the FOMC retained maximum flexibility as it signalled openness to further rate increases: the updated dot plot rate projections were reviewed considerably higher from March, and the median projection now includes two more rate hikes in 2023, before 100bp of cuts in 2024. Remember that the March dot plot signalled we had reached the end of the tightening cycle, now only two FOMC members see rates being held at 5.25% until year-end.   The dollar had come into the FOMC announcement with a bearish tone, as PPI figures released yesterday morning showed more encouraging signs of a slowdown in inflation and prompted markets to fully price out a rate hike later in the day.   Despite the hawkish surprise contained in the Fed message – primarily in the dot plot – the dollar failed to rebound. That is because there was an evident dislocation between the Fed’s hawkish signals and the market reaction: investors are carefully weighing the evidence of slowing inflation from the CPI and PPI data, and appear – so far – reluctant to align with the Fed’s projections. The Fed funds futures curve prices in 17bp of tightening for July, and 22bp to the peak.   The post-FOMC pricing is telling us that markets accord higher credibility to data than the Fed’s communication, so more evidence of US disinflation/economic slowdown can prompt more dollar weakness moving ahead. However, with markets underpricing rate hikes compared to the dot plot, we’d be cautious before jumping on a bearish dollar trend just yet, given the high risk of market pricing converging to the Fed’s projections and pushing short-term swap rates higher again.   So, dollar bulls can probably cling on to the hawkish dot plot for now, or at least until (and if) data indicates more unequivocally that there is no longer a necessity to raise rates.   This morning, we are seeing the dollar recovering some ground, although that appears to be primarily driven by the weak activity data out of China and fresh rate cuts by the People's Bank of China.    

EUR: No easy task for Lagarde today It’s European Central Bank decision day, and our call for a 25bp rate hike is fully in line with consensus and market expectations. In our ECB Cheat Sheet, we outline four different scenarios along with implications for EUR rates and EUR/USD: in our base case, today’s rate increase will be paired with an attempt to convey a hawkish tone and leave the door open for more tightening ahead. Markets are almost fully pricing in another hike in July, and the focus will primarily be on President Christine Lagarde’s press conference and whether she will offer hints that the Governing Council is leaning in favour of a July move. Staff projections will also be released but may not gather too much attention or drive much of the market reaction.   Given the market's strong conviction about another 25bp hike in July (or September at the latest), the bar for a hawkish surprise is probably set quite high today. The ECB may need to signal several more hikes to trigger a significant jump in the euro and that does not look very likely considering the recent signs of decelerating inflation and deteriorating growth outlook. In other words, there is still the interest for the ECB to sound hawkish today, but we suspect that might not be enough to send the euro higher, and we see some moderate downside risks for EUR/USD today. We could see EUR/USD drop back to the 1.0750 handle today, although developments on the US data side will continue to drive the large majority of trends in the pair moving ahead, with ECB policy playing second fiddle, in our view.

In the wake of the recent Federal Reserve (Fed) decision and its implications for the financial markets, we reached out to experts, analysts, and economists from HF markets to gain their insights on the current situation. Our focus revolves around two key areas: the Fed's decision and its impact on the gold market. With these topics in mind, we explore the potential outlook for gold prices in the coming weeks and discuss the market's response to the FOMC (Federal Open Market Committee) decision.   Gold Market Analysis When considering the trajectory of gold prices in the near future, experts express skepticism regarding the likelihood of reaching a new all-time high for XAU. While certain central banks, including Turkey, China, and India (which added 2 tonnes to its reserves in May), have increased their gold purchases to diversify their reserves away from the US dollar, investors, speculators, and hedge funds focus on other factors. Notably, gold is currently trading at a premium compared to its valuation against the US 10-year real interest rate. Recent price movements indicate a potential further decline, with a possible target range of $1860 or even lower to $1785. FXMAG.COM: Could you give as your point of view about how the gold prices would behave in next weeks? Is there a chance that there will be new ATH? Marco Turatti – HFM Market Analyst: It seems unlikely that we will see a new all-time high for XAU soon. Its price has so far been supported by increased purchases by certain central banks, such as Turkey, China and others (India added 2 tonnes to its reserves in May). The aim is to differentiate its reserves from the USD.  But investors, speculators and hedge funds look at other fundamentals and gold is very expensive compared to where it should trade against, for example, the US 10-year real interest rate. Just today it broke $1940, and could continue to the $1860 zone, if not lower to $1785.    Fed's Decision and Market Reaction Regarding the FOMC decision, experts highlight the surprise factor. Many anticipated that the Fed would approach the peak and initiate rate cuts in the coming months. However, the Fed's stance indicates that the official rate could reach 5.75% in 2023, with Chairman Jerome Powell stating that no cuts are expected for approximately two years. This stands in contrast to the Dot Plot projections. The Fed also expressed optimism regarding the new growth and job outlook.     FXMAG.COM: Could you please comment on the FOMC decision? Marco Turatti – HFM Market Analyst: The Fed really surprised: a lot of people thought we were close to the peak and ready to cut rates this year, but this is not the case. The official rate will probably reach 5.75% in 2023 and Jerome Powell says there will be no cuts for about 2 years (which is different from what the Dot Plot says).  They were also quite optimistic about the new growth/jobs outlook. The market didn't really go anywhere: yes, there was a lot of up and down movement in both indices and the USD, but at the end the day it ended with the US500 flat and the USDIndex having recovered 103.  Now there will be time in the coming hours to better process the central bank's message. Today (15/06) we are seeing declines in the stock market futures and this makes sense for equities (also given the emphasis on labour market monitoring, the Fed wants it weaker).  One direct and clear reaction we are noticing, however, has obviously been the rise in rates along the whole curve, which is weighing on gold.

In the end it all boils down to data That tension between persistently high inflation and recession fears is of course a wider and ongoing market theme. Indeed, yesterday’s market reaction to the ECB and the quick fade was probably more down to mixed US data releases that came out just when Lagarde was set to speak.   More hints that US pipeline pressures are easing came from import prices falling faster than expected. And we also saw the weekly jobless claims grind higher again suggesting a softening of the jobs market. As our economist notes, probably not enough to deter the Fed from a potential hike in July following the hawkish pause this week, but enough to keep the market concerned about the outlook. As opposed to the bear flattening in EUR, the US curve bull flattened with the 10Y UST yield dipping towards 3.7% Overall, central banks this week have given themselves the flexibility and room to tighten policies further should data warrant it, keeping upward pressure on front-end rates. Yield curves could invert further but given how far they already stretch, long-end rates could still follow higher in the near term. Only the Bank of Japan (BoJ) bucked the hawkish trend set by the Fed and ECB (and likely continued by the BoE next week) today by leaving policy rates unchanged and dismissing calls for an adjustment higher of its yield curve control cap, currently standing at 0.5%. The lack of action today and the view put forward that the current spike in inflation will prove temporary leaves the market guessing about the timing of a potential normalisation of the BoJ's policy setting.   The long-end reflects markets skepticism with 2s10s curves inverting further Today's events and market view Some calm may return to markets after the key events of this week. It probably won't last too long with UK inflation and the Bank of England decision lined up for next week. And in the US we will also see Fed Chair Jerome Powell giving testimony to Congress.  As for today, in the eurozone we will see the release of the final inflation figures for May, but more attention should go to the usual flurry of ECB speakers in the wake of the meeting, though Lagarde pointed out the “broad consensus” around yesterday’s decision. And it seems the ECB has been successful in curbing the market's preoccupation with the terminal rate level and focussing it on a high-for-longer discussion – note the pricing out of future rate cuts as a driver of the front-end move higher since last week. The main US data release today is the University of Michigan consumer confidence survey, which also includes measures of longer-term inflation expectations. The consensus is for a slight downtick in the latter to 4.1% year-on-year for the 1-year horizon and to 3% for the 5 to 10-year inflation. But we will also see a number of Fed speakers for the first time after the FOMC meeting. In the end, the data will remain the key, for central banks to assess whether they have done enough on inflation, or markets to discern whether too much has been done already to hurt the economy.

On Thursday, the ECB raised three key interest rates by 25 basis points, taking the benchmark lending rate to 4%, the highest since 2008. It also confirmed its intention to refuse to refinance coupons and maturing bonds, accelerating quantitative easing - another parameter of policy tightening.     Markets had anticipated this move, so the attention of traders and journalists was, as usual, focused on the comments that would determine the trajectory of future actions. In contrast to Fed Chairman Powell, ECB President Lagarde was much more reassuring about future moves. She confidently stated that a few more hikes would be needed, leaving little doubt about a hike at the next meeting. This sharply contrasted with Powell, who highlighted a July hike as the more likely scenario but did not rule out the possibility of no hike. Lagarde pointed to the strength of the labour market and rising core inflation as factors in domestic price pressures. Despite the reversal to a lower inflation trend, she maintained that the ECB still has ground to cover to contain inflation.     It took some time for the markets to appreciate the seriousness of the ECB's stance. An initial 0.5% rise in EURUSD on the release of the commentary, which did not soften the tone significantly from May, picked up after the press conference and continued for the rest of the day, giving EURUSD a 1.1% gain, with the pair stabilising around 1.0950. The pair's technical disposition should also be considered, as it adds to the amplitude. After rising above 1.0880, the EURUSD crossed the 50-day moving average, and a decisive take of this level further supports the buyers' resolve. The EURUSD has been trading in a broad bullish corridor since the beginning of the year after bouncing off its lower boundary earlier this month and confirming the seriousness of the short-term uptrend with yesterday's strong move. The bulls are now focusing on the 1.1050 area, the April high.     However, given the upward bias of the move, the pair could be as high as 1.1100 by the end of the month. The 1.1200 area will be the next major milestone, through which the ultra-long 200-week moving average trend passes, and many pivot points are concentrated. The dollar will struggle there.

The global tourism industry has faced unprecedented challenges during the COVID-19 pandemic and companies in the sector have suffered significant losses. However, as the world recovers and travel restrictions finally come to an end, the industry is now poised for a resurgence. A successful summer season on the horizon brings new hope to the afflicted industry. As travel resumes, equity prices in the tourism and travel sector are expected to show positive momentum. The market reaction to the reopening of borders and the resumption of international travel is likely to be reflected in the share prices of companies in the industry.   While the industry is on track to recover, it is important to note that reaching pre-pandemic levels may not happen immediately for all companies. The losses incurred during the pandemic have had a significant impact on the financial position of many tourism enterprises. Some companies are still striving to recover losses and restore financial stability, but here’s a look at the prospects for individual sectors of the tourism industry:   Airlines: Companies such as Lufthansa and other major airlines have been hit hard by the pandemic. As demand for travel increases, airline shares are expected to rise. However, the recovery of airline inventories will depend on various factors, including vaccination rates, travel regulations and consumer confidence in air travel.   Online booking platforms: Platforms such as Airbnb and Booking.com are likely are likely to benefit from the resurgence of the travel industry. As travelers start planning their trips, the demand for online booking services is expected to increase. Hence, these platforms may see their stock prices rise as they gain momentum.    Hotels: The hospitality sector has faced major challenges during the pandemic. As travel resumes, hotels are expected to reopen. However, the pace of recovery may vary depending on factors such as location, travel restrictions and the ability to meet changing consumer preferences, such as an increased focus on hygiene.    In terms of the impact of inflation on the travel industry, rising prices have the potential to affect both the market and share prices. Higher prices may lead to higher spending on travel-related services, which may affect consumer behavior and demand. Companies operating in the travel industry will need to carefully manage their pricing strategy to balance profitability and affordability for customers.   When it comes to investment opportunities, it is extremely important to do a thorough research and consider various factors before making an investment decision. While the share prices of some travel companies may have risen significantly, there may still be room for growth. Further development of stock prices in the near future will depend on factors such as the pace of the global recovery, travel trends, company performance and market dynamics against the backdrop of Fed policy.

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.  

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   

Unibail’s new hybrid and debt swap illustrates the large extension risk Real estate firm Unibail has decided to take an uncommon approach by offering hybrid bondholders a debt swap. We see this as somewhat positive for hybrid markets and shows issuers' willingness to adapt to market conditions and please investors, but it also illustrates the large extension risk for some issuers, particularly in distressed sectors.   The hybrid market has been under some pressure in recent months with much higher interest rates causing a large amount of uncertainty around extension risk for hybrids. But we see significant value in hybrids, namely from frequent (non-real estate) issuers. There is decent tightening potential in hybrids when compared to BB spreads and equity. The news yesterday from Unibail-Rodamco-Westfield, the commercial real estate firm that operates the Westfield brand, that it is offering its hybrid bondholders a debt swap, is somewhat positive for the hybrid space, in our opinion.   It is of course not as positive as an outright call and does illustrate the large extension risk for some issuers, particularly in distressed sectors, but it does compensate more than not calling. We initially saw three options for Unibail with the upcoming call on its hybrid bond (ULFP2.125 PERP); call the bond, not call the bond, and call and tender the rest of the curve and remove itself from the hybrid market. The company instead decided to take an uncommon approach of offering hybrid bondholders a debt swap, exchanging the current bond paying a coupon of 2.125% with a new standard structure corporate hybrid bond (Deeply Subordinated Perpetual Fixed Rate Resettable Perp-NC 5.25) with a coupon of 7.25%. There is also a small tender of the rest of the bond that is not getting exchanged, totalling no more than €200m. The firm will exchange 84% (€1.05bn) of the original size and tender up to 16% (max €200m).   We think this is somewhat positive for the hybrid market as it shows issuers' willingness to adapt to market conditions and please investors, instead of resorting to simply not calling the bond. This could be another option for a very selective hybrid refinancing. There was a similar exchange seen by Banco Comercial Portuguese back in November, which decided to not call a T2 bond but exchange fully instead. The market reaction has been positive for the Unibail curve, but the corporate hybrid index did widen by 4bp while the senior index remained unchanged yesterday. However, hybrids still sit 3bp tighter on the week. The other outstanding hybrid on the Unibail curve (ULFP2.875 PERP) tightened by 182bp yesterday.  

Yesterday, on the hourly chart, the GBP/USD pair experienced a rebound from the corrective level of 127.2% (1.2777), then dropped nearly to 1.2676 and returned to the 1.2777 level. Another rebound from this level will favor the American currency, leading to a decline toward the Fibonacci level of 100.0% (1.2676). If the pair's rate closes above 1.2777, it increases the likelihood of further growth towards the next corrective level of 161.8% (1.2905).   Trading volumes have been sufficiently high recently, and trader sentiment remains bullish. In a few hours today, the Bank of England will announce its decision on the interest rate.   According to forecasts, the rate will increase by 0.25% again, with 7 out of 9 MPC committee members voting in favor of the hike. This decision has already been factored into current prices, but bullish traders are currently very strong and can accommodate the same rate hike twice.   There is no scheduled speech by Andrew Bailey in the economic events calendar; we must rely on meeting minutes and accompanying letters. Despite yesterday's weak inflation report, the market does not expect a 0.50% rate increase today. As a result, Powell's second speech may have an even greater impact on the pair's movement, but the issue is that these two events almost coincide. When the Fed President's speech begins, it will be difficult to determine whether or not the market pays attention to it.     Therefore, we should anticipate active trading today, but it doesn't necessarily mean the pair will move in one direction. It could be a situation similar to yesterday. On the 4-hour chart, the pair has reversed in favor of the British pound and resumed upward toward the 1.2860 level after two bullish divergences were formed in the RSI and CCI indicators. There are no new emerging divergences observed in any indicators today. If the pair's rate rebounds from the 1.2860 level, it would indicate a reversal in favor of the US dollar, resulting in a decline toward the Fibonacci level of 100.0% (1.2674).  

Slow start following an eventful weekend.    The weekend was eventful with the unexpected rebellion of the Wagner Group against the Kremlin. Yevgeny Prigozhin's men, who fight for Putin in the deadliest battles in Ukraine walked towards Moscow this weekend as Prigozhin accused the Kremlin of not providing enough arms to his troops. But suddenly, Prigozhin called off the attack following an agreement brokered by Belarus and agreed to go into exile. The Kremlin took back control of the situation, but we haven't seen Vladimit Putin, or Prigozhin talk since then. The Wagner incident may have exposed Putin's weakness, and was the most serious threat to his rule in two decades. It could be a turning point in the war in Ukraine. But nothing is more unsure. According to Volodymyr Zelensky, there are no indications that Wagner fighters are retreating from the battlefield.  The first reaction of the financial markets to Wagner's mini coup was relatively calm. Gold for example, which is a good indication of market stress at this kind of moment, remained flat, and even sold into the $1930 level. The dollar-swissy moved little near the 90 cents level. Crude oil was offered into the $70pb level, as nat gas futures jumped more than 2% at the weekly open, and specific stocks like United Co. Rusal International, a Russian aluminum producer that trades in Hong Kong, gapped lower at the open but recovered losses.  Equities in Asia were mostly under pressure from last week's selloff in the US, while US futures ticked higher and are slightly positive at the time of writing.    The Wagner incident will likely remain broadly ignored by investors, unless there are fresh developments that could change the course of the war in Ukraine. Until then, markets will be back to business as usual. There is nothing much on today's economic calendar, but the rest of the week will be busy with a series of inflation reports from Canada, Australia, Europe, the US, and Japan.     Except for Japan, where the Bank of Japan (BoJ) doesn't seem urged to hike the rates, higher-than-expected inflation figures could further fuel the hawkish central bank expectations and add to the weakening appetite in risk assets.     The Federal Reserve (Fed) will carry its annual bank stress test this week, to see how many more rate hikes the baking sector could take in and the potential for changes in capital requirements down the road. The big banks are likely not very vulnerable to higher capital requirements, yet the profitability of the US regional banks could be at jeopardy and that could cause investors to remain skeptical regarding the US banking stocks altogether. Invesco's KBW bank ETF slipped below its 50-DMA, following recovery in May on the back of decidedly aggressive Fed to continue hiking rates, and stricter requirements could further weigh on appetite.    Zooming out, the S&P500 is down by more than 2% since this month's peak, Nasdaq 100 lost more than 3% while Europe's Stoxx 600 dipped 3.70% between mid-June and now on the back of growing signs that the aggressive central bank rate hikes are finally slowing economic activity around the world. A series of PMI data released last Friday showed that activity in euro area's biggest economies fell to a 5-month low as manufacturing contracted faster and services grew slower than expected. The EURUSD tipped a toe below its 50-DMA last Friday but found buyers below this level. Weak data weakens the European Central Bank (ECB) expectations, but that could easily reverse with a strong inflation read given that the ECB is ready to induce more pain on the Eurozone economy to fight inflation.     Across the Channel, the picture isn't necessarily better. Both services and manufacturing came in softer than expected. And despite the positive surprise on the retail sales front, retail sales in Britain slumped more than 2% in May, due to the rising cost of living that led the Brits back from loosening their purse string. One thing though. UK's largest lenders agreed to give borrowers a 12-month grace period if they missed their mortgage payments as a result of whopping costs of keeping their mortgages due to the aggressively rising interest rates. Unless an accident – in real estate for example, the Bank of England (BoE) will continue hiking the rates and reach a peak rate of 6.25% by December.   The only way to slow down the pace of hikes is to find a solution to the sticky inflation problem. And because the BoE has limited influence on prices, Jeremy Hunt will meet industry regulatory this week to discuss how they could prevent companies from taking advantage of inflation and raising prices more than needed, which adds to inflationary pressures through what we call 'greeflation'. But until he finds a solution, the BoE has no choice but to keep hiking and the UK's 2-year gilt yield has further to run higher, whereas the widening gap between the 2 and 10-year yield hints at growing odds of recession in the UK, which should also prevent the pound from gaining strength on the back of hawkish BoE. Cable will more likely end up going back to 1.25, than extending gains to 1.30.       By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  

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.  

Rates Spark: US resilience persists Inflation is what central banks are focused on, but resilient data is lending their hawkish positions more credibility. 10Y UST yields are testing the top of recent ranges after yesterday's data, and it also looks like front-end yields want to reclaim their pre-SVB highs soon. Key to achieving this will be data, and next week holds another busy slate.   US rates on their way to pre-SVB levels As much as inflation is in the spotlight these days, it was the revision to the US first quarter GDP data that elicited the larger reaction from markets yesterday. They were quick to price in a greater chance for a second hike from the Federal Reserve. It had been flagged as a possibility by Fed Chair Jerome Powell only recently in Sintra, but markets were previously reluctant to price it in. Now they see a 40% chance of it happening, even if not as back-to-back increases. The overall US yield curve shifted higher and the curve inversion has deepened further. The 10Y US Treasury yield is now effectively at 3.85%, and the 2Y is back above 4.8%, stretching the 2-10Y inversion back above 100bp. There's room for the 2Y to rise back to 5%, based on the likelihood that the market prices out the rate cut bias just about discounted for the December 2023 meeting and certainly beyond. Through the end of 2024, markets are more than fully discounting five 25bp rate cuts from the peak. Remember the 2Y was above 5% just before the banking turmoil around Silicon Valley Bank ensued. We can still see the 10Y getting back up to the 4% area. Again, back to where it was before the SVB-induced rally in bonds and sell-off in risk. A lot of this has reversed in the past months or so as risk has been bought and market rates have managed to march higher. There had been some flatlining in the past week or so, but data like yesterday’s maintain the upward pressure. Looking ahead at today’s monthly core PCE reading seen coming in at 4.7%, it reminds us that the US is still closer to a 5% inflation economy. We do think inflation will eventually ease, but for now, it is what it is until proven otherwise.   10Y UST yields are testing the upper end of their recent range   A US focused week ahead While the 4th of July holiday has come to mark the beginning of usually quieter summer conditions, the data calendar is still packed with key releases. Yesterday has highlighted the degree to which the credibility of the Fed’s higher-for-longer narrative hinges on the data. If activity refuses to lie down yields can only rise further.   The first key data set will be the ISMs, in particular the services report on Thursday. Recall that the May report had seen a big downward surprise falling to 50.3 from 51.9, with weaker readings in the past 14 years only seen during the pandemic in 2020. Even the employment sub-component had dropped to below 50, contradicting the earlier strong payrolls report. All eyes will be on whether the services sector joins the manufacturing sector, which looks like it is already in recession with its seven consecutive sub-50 readings. For now, the consensus is for the services report to increase to 51.1. The manufacturing report for June will be out on Monday. The final data highlight is the June employment report. May had seen an extraordinarily strong report with a non-farm payrolls increase of 339k – but it was also a mixed report, with the employment rate jumping to 3.7% and moderating wage growth. For June, the consensus is eyeing a 213k payroll increase and unemployment easing back to 3.6%.   Today's events and market views Inflation data is today’s main focus, both in the eurozone and in the US. As far as the eurozone flash CPI is concerned – where consensus is looking for a 5.6% year-on-year headline and a higher 5.5% core reading – country data over the past days has already provided some indication, with German inflation coming in higher than consensus for instance. In the US, the Fed's favoured inflation measure, the core PCE reading, is expected to stay at 4.7% YoY. The headline rate is expected to drop to 3.8% from 4.4% previously. The upshot from both US and eurozone data should be that the central banks' jobs are far from over, although the backdrop for the Fed does look comparatively more encouraging than for the European Central Bank.  In primary markets, we will only see Italy being active today with 5Y, 10Y and 30Y bond taps of up to €7.5bn in total. 

The market hardly reacts to final data on PMIs as they mostly coincide with preliminary estimates. Any significant trading movements usually occur during the release of the preliminary estimates. By the time the final data is published, the market has already taken these indicators into account. Furthermore, the preliminary estimates are released simultaneously for all indexes, while the final data is released at different times.   For example, today, only the manufacturing PMIs are slated for release, which have the lowest value among all business activity indexes. In other words, even if today's data differs from the preliminary estimates, which is possible, the market response will be relatively moderate, and so we shouldn't expect any significant movements. The preliminary estimate of the UK manufacturing PMI already revealed a decline from 47.1 points to 46.2 points.   The US PMI also fell from 48.4 points to 46.3 points. Therefore, the preliminary estimate already indicated a noticeable decline in the state of the industry. The GBP/USD pair has slowed down its downward cycle around the 1.2600 level, where a reversal occurred amid the weakening of the dollar positions.       As a result, the price returned above the 1.2700 level. On the four-hour chart, the RSI indicated the possibility of a price reversal when reaching oversold territory. On the same time frame, the Alligator's MAs reversed, indicating a slowdown in the downward cycle. Outlook In order to raise the volume of long positions, the quote needs to stay above the 1.2750 level. In this case, there may be a subsequent stage of recovery in the value of the British pound relative to the recent corrective move.   As for a subsequent downward move, falling below the 1.0650 level could easily reignite short positions. This will result in updating the local low of the corrective cycle. The complex indicator analysis unveiled that in the short-term period, technical indicators are pointing to a bearish bias from the 1.2700 level. In the intraday period, there is a primary signal of the end of the corrective phase. In the mid-term, the indicators are pointing to an uptrend.  

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.  

The Commodities Feed: Further Saudi cuts The oil market initially moved higher after Saudi Arabia announced a rollover of its additional supply cuts into August. However, the market failed to hold onto its gains with these cuts already largely expected.   Energy - Further oil supply cuts It was not too surprising that Saudi Arabia decided to roll over its additional voluntary cuts of 1MMbbls/d from July into August.  The market was largely expecting it, particularly in an environment rife with negative sentiment. However, what was more surprising was Russia announcing that they would reduce exports by 500Mbbls/d in August and also aim to reduce output by the same amount. Furthermore, Algeria will also make a further cut of 20Mbbls/d in August. The market initially reacted positively to the news, however, the gains were short-lived with Brent settling a little over 1% lower on the day. As mentioned, the Saudi cut was largely expected, and in fact, failing to roll over the cut would have put further downward pressure on the market. This leaves the Saudis in a difficult spot for the next few months, as they will have to be careful how they wind down this supply cut in the current environment. Although the Russian announcement was a surprise, there will be doubts within the market over whether Russia will actually make the cuts or not. Their track record this year has not been great. Russia supposedly cut supply by 500Mbbls/d earlier in the year. Yet seaborne crude oil exports from Russia have been above pre-war levels for much of this year. The price action yesterday is also a good illustration of what is driving oil prices at the moment. Fundamentals are not having as much influence on price direction as one would expect. Instead, the uncertain macro outlook is what the market is focused on. And it is difficult seeing this pattern changing significantly in the short term, though the additional cuts do put a stronger floor in place for Brent at around US$70/bbl. Therefore, we can expect the rangebound trading that we have become accustomed to will continue in the short term.

The GBP/USD currency pair was traded with low volatility on Tuesday but still managed to move upwards, while the euro currency stood still and decreased more than it grew. Thus, even on a completely empty Tuesday, the pound sterling found reasons to start moving north again.   The price has re-fixed above the moving average and is still very close to its local maximums, which also coincide with the annual maximums. The British currency still cannot correct down properly, which is especially visible in the 24-hour timeframe. Occasionally, there are downward corrections on the 4-hour timeframe, but in most cases, they are purely formal.   The logic of the movements needs to be improved. Two weeks ago, when the Bank of England unexpectedly raised the rate by 0.5% for many, the pound did not grow. But yesterday, when it was a holiday in the States, it added about 40-50 points. The British economy is still weak and is holding out with the last of its strength not to slide into a recession.   US GDP exceeds forecasts by 0.7% and shows a value of +2% q/q. The Bank of England's rate continues to rise but is still lower than the Fed's. The British regulator can raise the rate several times but will likely stay within the Fed's rate. All this suggests that even if the dollar doesn't have strong reasons to grow now, it certainly has no reasons to fall. However, in most cases, we continue to observe the pair's growth. Only business activity indices in the manufacturing sectors can be highlighted for the first two days of the week. In the US and UK, the indices fell synchronously for June and have long been below the "waterline" of 50.0. Again, the pound did not have an advantage over the dollar due to macroeconomic statistics.     Thursday and Friday promise to be "stormy"! The week's most important events are concentrated in its last two days. Today, of course, the Fed's minutes will be published. In the European Union and Britain, the second estimates of business activity indices for June will become known, but all these are secondary data. It is unlikely that the Fed's minutes will surprise traders who are already confident in a rate hike in July, as well as after Jerome Powell's five speeches over the past weeks, in which he laid everything out. Therefore, the main movements are planned for Thursday and Friday, when the ISM, ADP, unemployment benefit claims, the number of job openings, NonFarm Payrolls, and the unemployment rate will be released in the US.   As we can see, almost all reports are related to the labor market, which the Fed continues to monitor closely, and which has a priority for the regulator and the market. However, even if the reports are disastrous (which is currently hard to believe), the Fed will not change its plans to raise the rate.   And for the GBP/USD pair, it doesn't matter at all. The pound grows for a reason and without. If statistics from overseas turn out to be weak, it will merely get a new reason to grow against the dollar. If the statistics from the US turn out to be strong, we will see a new pullback down, a maximum of 100 points, and the Fed's position on the rate will not change. Thus, the market's local reaction could be significant.   In the medium term, these reports will not affect the situation in the market. The average volatility of the GBP/USD pair over the last 5 trading days is 94 points. For the pound/dollar pair, this value is "medium." Therefore, on Wednesday, July 5, we expect movement within the range limited by levels 1.2612 and 1.2800. The Heiken Ashi indicator's reversal down signals a possible new downward movement wave.    

The latest report on the US consumer price index reveals a slowdown in inflation, with an annual rate of 3.0% in June compared to 4.0% the previous month. This figure, slightly below the expected 3.1%, indicates a moderation in price growth. Core inflation also decelerated to 4.8% from 5.3%, falling in line with expectations. Surprisingly, this marks the ninth consecutive report where indicators have either met or fallen short of expectations, sparking a distinct market reaction. Notably, the response from the market differs this time around, as confidence grows and risk appetite increases, leading to a decline in the value of the US dollar. The latest report has fueled speculation that the Federal Reserve (Fed) may deviate from its planned two rate hikes this year or consider an expedited shift towards policy easing in the upcoming year.   US inflation slows, but Fed has the last word The US consumer price index slowed to an annual rate of 3.0% in June from 4.0% the previous month. This was slightly below the expected 3.1%. Core inflation slowed to 4.8% from 5.3%, and 5.0% expected. This is the ninth consecutive report where an indicator has been in line or weaker than expected, but we see a different market reaction.       This time the markets are confident, risk appetite is rising, and the dollar is falling as the latest report has fuelled speculation that the Fed will not need to stick to its plan of two rate hikes this year or will allow for a quicker reversal to policy easing next year. While the Fed is often wrong in its forecasts, it is still the Fed that has the final say on interest rate decisions. Despite the constant inflation surprises, FOMC members remain hawkish in their comments, regularly pointing out that the fight against inflation is not over.     After the latest inflation report, the dollar index was close to its lowest level since April 2022, losing more than 12% from its peak last September. This decline creates additional pro-inflationary pressure, unlikely to please the central bank. Traders' and investors' attention should now turn to the Federal Reserve's assessment of the latest data. In addition to the speeches by Barkin, Kashkari and Bostic, the Fed's Beige Book will be released today, which will be used as the basis for the Fed's observations at the July meeting.    

FX Daily: Dollar risk premium consolidating Chinese data disappointment was not enough to trigger a broad-based rebound in the dollar, which continues to show some disinflation risk premium (i.e. short-term undervaluation). We’ll monitor some US releases including retail sales today, on an otherwise very quiet day data-wise. In Australia, RBA minutes reiterated openness to another hike.   USD: No real benefit from China's data disappointment This week had started with the question of whether the dollar could still suffer from the residual effect of the disinflation surprise amid a quiet data calendar and with the FOMC meeting (26 July) drawing closer. Yesterday’s price action in FX saw a relatively sanguine reaction to the disappointing growth numbers out of China: the highly exposed AUD and NZD declined, but EUR/USD was unchanged despite European stocks’ underperformance. The lack of larger-scale dollar gains on the back of deteriorating Chinese sentiment indicates that markets remain reluctant to build back USD long positions for now. That must be weighed – however – with indications that the dollar is undervalued in the short-term vs some major currencies (excluding JPY): it may be a matter of time, or a simple lack of catalyst, to see some convergence of the dollar with its short-term drivers. As discussed in yesterday’s FX Daily, we may well see the dollar recover a bit of ground, although the mis-valuation gap can also be closed by a move in other market drivers. Today, the market’s focus will be on June’s retail sales figures out of the US (expected to be quite strong), as well as industrial production, some housing data and TIC flows. These releases normally do not trigger wide market reactions by themselves, although a combined positive data flow today could at least help keep the dollar losses capped for now.  

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.

EUR: Hawkish ECB, but will we hear more about QT? Here is our full European Central Bank (ECB) preview and also a look at some of the key variables that could drive a reaction in eurozone FX and rates markets. The challenge now for the ECB is to deliver a hawkish message – a 25bp hike and the promise of more still to come – while balancing the risks that its growth forecasts are too high. One common pushback from customers against our bullish EUR/USD view is that ECB hawkishness will crumble early and not allow US and eurozone rate differentials to narrow as we expect. Assuming the ECB does maintain market expectations that the deposit rate (now 3.50%) will be close to 4.00% by the end of the year, what else could we see? One intriguing idea is that the hawks, in exchange for backing off from subsequent rate hikes, will be given something on quantitative tightening. Currently, re-investments of the APP scheme ended last month. PEPP reinvestments are targeted to continue until the end of 2024. Could PEPP reinvestments be cut shorter, or could the discussion move onto outright asset sales – moves that might upset both peripheral government bond markets and European credit markets? The market reaction might be tricky, but presumably, EUR/CHF could stay under pressure should this be the case. We do not have a strong conviction call on EUR/USD today but would say 1.1150 looks good intra-day resistance and 1.1000/1020 is now the lower end of the near-term trading range.

Analyzing Tuesday's trades: GBP/USD on 30M chart   On Tuesday, GBP/USD went through low volatility and messy movements. In general, the pound's movements were the same as those of the EUR/USD pair. The market reaction to the reports was also similar, except that the European ZEW indexes were not related to the British pound. However, it had its own data in the form of reports on unemployment, wages, and unemployment benefit claims. In our opinion, the pound should have fallen not risen in response to the British reports in the first half of the day, as two of the three reports turned out to be worse than forecasts. Unemployment increased, and the number of benefit claims was higher than expected. However, the wage report, which showed a sharp growth rate, tipped the balance. As a result, the pair continued to correct after rebounding from the 1.2620 level, but before that, it was in a sideways channel for two weeks and simply returned to it. We don't expect the pound to start an uptrend. GBP/USD on 5M chart   Several trading signals were formed on the 5-minute chart. The pair spent the entire day between the levels of 1.2688 and 1.2748, regularly rebounding from them. Volatility was 78 points. There is no point in analyzing each individual signal, as they were almost identical. Beginners had to decide for themselves whether they wanted to scalp between levels, the distance between which is 30-35 points. As we can see, the price regularly bounced from these levels, which means that none of them was unnecessary. We witnessed such a movement on Tuesday. Since most of the signals turned out to be right, it was possible to earn a decent amount, but we do not see much sense in opening 10 trades with a potential profit of 10 points each.   Trading tips on Wednesday: On the 30-minute chart, the GBP/USD pair may be in a flat position. However, we insist that the pound fall, as we still believe it is overbought and unreasonably expensive. Not all of this week's reports may support the dollar, so we may see messy movements in the sideways channel. The key levels on the 5M chart are 1.2499, 1.2538, 1.2605-1.2620, 1.2653, 1.2688, 1.2715, 1.2748, 1.2787-1.2791, 1.2848-1.2860, 1.2913. Once the price moves 20 pips in the right direction after opening a trade, you can set the stop-loss at breakeven. On Wednesday, the UK is set to release an inflation report, and this is the main item for the day. If it turns out that inflation is rising or falling more slowly than expected, the pound may jump.   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 other (about 5-15 pips), then this is a support or resistance area.   How to read charts: Support and Resistance price levels can serve as targets when buying or selling. You can place Take Profit levels near them. Red lines are channels or trend lines that display the current trend and show which direction is better to trade. MACD indicator (14,22,3) is a histogram and a signal line showing when it is better to enter the market when they cross. This indicator is better to be used in combination with trend channels or trend lines. Important speeches and reports that are always reflected in the economic calendars can greatly influence the movement of a currency pair. Therefore, during such events, it is recommended to trade as carefully as possible or exit the market in order to avoid a sharp price reversal against the previous movement. Beginners should remember that every trade cannot be profitable. The development of a reliable strategy and money management are the key to success in trading over a long period of time.  

Rates Spark: Not the end of the story Yields dropped after very weak PMIs. In the US, the narrative of economic resilience that has been the main driver of higher rates over recent months has been challenged. It is but one data point and Fed Chair Powell will also have a word to say at Jackson Hole.   Disappointing PMIs upends the resilience narrative The broader rise in rates had largely been driven by the narrative surrounding a surprisingly resilient US economy. So, when that narrative gets challenged, a large market reaction can be expected. For the US, PMIs would not have been the usual suspect, but when the disappointment in the data is as large as today – and also happening on a global scale – the market takes note. The UST curve bull flattened with 10Y UST yields falling more than 13bp to below 4.2%. With the data miss as large as it was, the possibility of Fed cuts was priced back in, and the December 2024 SOFR future's implied yield dropped 12bp. The very near-term policy outlook did not change that much – a pause in September is a tad more likely at close to 90% implied probability, with a hike thereafter still being attached to around a 40% probability.   Fed cuts are priced back in, but the trough is still not materially below 4%   Weak eurozone PMIs but persistent inflation pressures cause ECB headaches Yesterday’s rally, however, began in Europe with the services PMIs coming in a lot weaker than anticipated and falling into contractionary territory. Bunds rallied, pulling USTs alongside, but with the gap widening temporarily to over 170bp in 10Y.   As bleak as the macro outlook that yesterday’s PMIs painted appears, inflationary concerns are not going away. The PMI reports indicated an upturn in service sector input cost inflation, i.e. rising wage pressures. Add to this that the market's long-run inflation expectations have also not come down much – 5y5y forward inflation still stands at a historically elevated 2.6% after dropping 3bp yesterday – and it remains an overall uncomfortable situation for the European Central Bank. The ECB hawks may still be tempted to push through a final hike before it is too late.   As for the ECB pricing, markets now see a greater chance for a pause in September. Ahead of yesterday markets were looking for a slightly greater than 50% chance for a hike, now that stands at 30%. it’s now the overall probability for a hike before year-end that stands at 50%, having been close to fully priced in the days before.     More ECB tightening is seen as less likely Today's events and market view Should one data point be enough to upend the narrative that has driven the rise in US rates and turn the tide? The 20Y UST auction showed overall yield levels were high enough to attract decent demand again, but a good amount of short covering seems to have been at play in yesterday’s reversal as well. When it comes to risk assets, the bad news was good news with equities looking up. In the end, that can also help dampen the bull flattening move.     On the other side, inflation is still residing at elevated levels above the Fed’s target. Despite the more encouraging dynamics of late, it is too early to declare victory. With that in mind, we head into the Jackson Hole symposium with the spotlight on Fed Chair Powell’s speech tomorrow. The general sentiment appears to be for him to stick to the recent Fed script, if anything with a slightly hawkish risk of more pushback against the pricing of rate cuts. Today’s data slate sees the release of the US initial jobless claims and durable goods orders as the main highlights. After yesterday's data, it seems markets will be more sensitive to any signs of weakness. In primary markets, the US Treasury will sell 30Y inflation-linked bonds.      

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.

Overview of macroeconomic reports   On Thursday, no significant reports lined up for the UK, the European Union, or Germany. The US will publish reports on initial jobless claims and durable-goods orders. Unemployment claims is a relatively weak indicator simply because it is published weekly, and deviations from forecasts are rare. Since there are no deviations, there is no market reaction. Durable goods orders are more important as it reflects the change in purchase volumes of expensive category goods, such as cars, real estate, or major appliances. But the same thing applies here, it is important for the values to deviate from forecasts. If there is none, there's also no reaction. If there is, then we can expect a strong market reaction.   Overview of fundamental events There is absolutely nothing to highlight among Thursday's fundamental events. There are no speeches from officials of the Federal Reserve, European Central Bank, and the Bank of England. However, the Jackson Hole Symposium is about to begin. Nonetheless, all the most important speeches are scheduled for Friday, and today, there's not much to focus on.     Bottom line On Thursday, beginners might only focus on the two US reports. We don't know if they will trigger a market reaction, but at the same time, there are no other events. The movement patterns of the two main currency pairs are unlikely to change. For the euro, it's a downtrend, and for the pound, it's a flat trend. Main rules of the trading system: The strength of the signal is calculated by the time it took to form the signal (bounce/drop or overcoming the level). The less time it took, the stronger the signal. If two or more trades were opened near a certain level due to false signals, all subsequent signals from this level should be ignored. In a flat market, any currency pair can generate a lot of false signals or not generate them at all. But in any case, as soon as the first signs of a flat market are detected, it is better to stop trading. Trades are opened in the time interval between the beginning of the European session and the middle of the American one when all trades must be closed manually. On the 30-minute timeframe, you can trade based on MACD signals only on the condition of good volatility and provided that a trend is confirmed by the trend line or a trend channel. If two levels are located too close to each other (from 5 to 15 points), they should be considered as an area of support or resistance. Comments on charts Support and resistance levels are levels that serve as targets when opening long or short positions. Take Profit orders can be placed around them. Red lines are channels or trend lines that display the current trend and show which direction is preferable for trading now. The MACD (14,22,3) indicator, both histogram and signal line, is an auxiliary indicator that can also be used as a source of signals. Important speeches and reports (always found in the news calendar) can significantly influence the movement of a currency pair. Therefore, during their release, it is recommended to trade with utmost caution or to exit the market to avoid a sharp price reversal against the previous movement. Beginners trading in the forex market should remember that not every trade can be profitable. Developing a clear strategy and money management is the key to success in trading over a long period of time.    

Governor Thedeen say krona is fundamentally undervalued Markets fulling pricing in September Riksbank quarter-point rate hike Sweden’s government expects economy shrink by -0.8% in 2023 (previously eyed -0.4%) Sweden’s krona has been punished as the economy appears to be headed for a tough recession. Core inflation is coming down too slowly and that will keep the Riksbank hiking even as expectations grow for a lengthy recession.  The krona has not been getting any relief as many Swedes have started to embrace holding euros given the krona’s record plunge this year. Riksbank Governor Thedeen Riksbank governor Thedeen said that “the krona is too weak and it is fundamentally undervalued.” He added that “it should strengthen and we think that it will, but we know that it is almost impossible to predict currency moves over the short and medium term.” It is tough to call for a reversal after watching the krona fall to a fresh all-time low against the euro.  The current market expectations for the September meeting is to see the Riksbank raise rates by 25bps to 4.00%.  A freefalling krona is complicating the inflation fight, but that could see some relief as the outlook for the eurozone deteriorates. Expectations for the Sweden’s GDP are not seeing a strong consensus emerge.  Given the currency and inflation situation, it seems that the economy could be entering a recession that last more than a handful of quarters. The Swedish government is expecting a 0.8% decline in 2023 and a 1.0% growth for 2024.  It seems hard to believe that households will be a better position anytime soon, so a recession extending beyond 2024 seems likely.   The EUR/SEK weekly chart     EUR/SEK (weekly chart) as of Thursday (8/24/2023) shows the uptrend to record high territory is showing overbought conditions have arrived.  If the krona is able to firm up here, a mass exodus of EUR/SEK bullish bets could see price action tumble towards the 11.7118 region. If the plunge deeper into record low territory continues, EUR/SEK could make an attempt at the 12.000 which is just below the 141.% Fibonnaci expansion level of the 2020 high to 2021 low move. Last week, the krona was the most volatile G10 currency, so we should not be surprised if that volatility extends further given the chaos in the bond markets.    

National Bank of Hungary review: Monetary policy to come off autopilot soon The National Bank of Hungary continued its normalisation in August with another 100bp cut in the effective interest rate. However, monetary policy is likely come off autopilot from September. The central bank believes that market expectations of rate cuts in the fourth quarter are exaggerated.   The National Bank of Hungary decided not to change the pace of normalisation in August. It cut the overnight collateralised lending rate (upper end of the rate corridor) by 100bp to 16.5%. More importantly, the central bank announced that from 30 August the interest rate on overnight quick deposit tender will be cut to 14%. This is an effective rate cut of 100bp. There will be a similar change in the overnight FX swap tender rate. In general, these changes did not come as a surprise. The highlight of the policy event wasn't the decision itself, but the updated forward guidance and the corresponding communication. As we wrote in our preview note, the August rate-setting meeting provided a perfect opportunity for the central bank to manage market expectations for monetary policy in the fourth quarter. The Monetary Council took advantage of this opportunity. In this respect, the press conference contained the golden nuggets, with Deputy Governor Virág reiterating that monetary policy is entering a new phase of normalisation after the merger of the effective and base rates. This convergence is taking place in September and after which the second phase will involve a simplified monetary policy toolkit. In practice, this could mean, that the Monetary Council will get rid of the overnight quick deposit tender and rely on its traditional overnight deposit facility to mop up excess liquidity from the market. However, we can expect that the overnight FX swap tender and the central bank discount bill to remain part of the toolkit in the new phase. On the rate path, the Deputy Governor was quite vocal about the rate cut expectations priced in by investors. While the central bank agrees with the view that the convergence will take place in September (so we can expect a final 100bp cut to end phase one), it disagrees with what has been priced in afterwards. The central bank sees market expectations as exaggerated and emphasises that monetary policy will come off autopilot in the second phase of normalisation. Decisions will be data-driven and made on a step-by-step basis, considering market stability and inflation risks. In our view – based on market expectations ahead of the meeting – this means in practice that the NBH is either suggesting smaller steps in future cuts and/or adding the pause to the mix of decisions. Nonetheless, the pushback against “excessive expectations” is a clear hawkish message. The September rate-setting meeting will be important because of the new Inflation Report, which contains the central bank’s updated macro outlook. Regarding the GDP outlook, the NBH sees downside risks materialising. However, inflation has been identified as the main culprit behind the collapse in domestic demand and weak economic activity. Against this backdrop, the main weapon to steer the economy onto a favourable growth path is through tight monetary conditions, positive real interest rates and thus faster consolidation of inflation. Another hawkish message.   Strategy in a nutshell Today's meeting has a lot to calm the nerves of HUF bulls. All hawkish messages from the central bank point to a higher interest rate path than the market's latest expectations. This means that the relative carry opportunity is improving, supporting the forint. The central bank's commitment to continue fighting inflation and maintaining a positive real interest rate environment is also helpful not only from a tactical but also from a strategic perspective. All in all, we remain positive on the HUF. The initial market reaction was clear and if the directional move remains intact, it may be satisfactory for monetary policymakers. The 6x9 month FRA rose 6bp on the comments, although we admit that this is still relatively modest, so we see some room for further correction. However, with the NBH willing to be data dependent, the rate market may be even more data sensitive than just reacting to central bank comments. The next test will be the incoming August inflation print on 8 September. If we see a higher-than-consensus inflation print – and we see a chance for an upside risk here mainly in services and fuel – then it can really shake the market's pricing of an aggressive easing cycle.

ECB cheat sheet: Is a hike hawkish enough? Markets are torn. Will the ECB hike this week or not? We think it will, but we look at how different scenarios can impact rates and FX. Even in our base case, we suspect that convincing markets that this is not the peak will be very hard, and dovish dissenters may get in the way. The upside for EUR rates and the euro may not be that big and above all, quite short-lived.       As discussed in our economics team’s European Central Bank meeting preview, we narrowly favour a rate hike this week. The consensus of economists is slightly tilted towards a hold, and markets also see a greater chance of no change (60%). In the chart above, we analyse four different scenarios, including our base case, and the projected impact on EUR/USD and 10-year bunds. We expect to see a more fragmented than usual Governing Council at this meeting. Whichever direction the ECB decides to take, the debate will likely be fiercer than in previous meetings, as lingering core inflationary pressure is being counterbalanced by evidence of rapidly worsening economic conditions in the euro area. Accordingly, expect the overall messaging by the ECB to be influenced not only by the written communication but also by: a) how much President Christine Lagarde manages to conceal growing division and disharmony within the Governing Council during the press conference and; b) any post-meeting “leaks” to the media, which could be used by dissenters to influence the market impact.        

Post-BOJ Initial reaction – yen jumped, dollar fell, gold rallied, and equities rose. Some of these moves have started to reverse Japan’s Overnight Swap Indexes have an implied rate of 0.042% by the January 23rd BOJ policy meeting US 3-year Treasury attracts highest yield since 2007 (4.660% vs 4.650% pre-sale) The Japanese yen surged in Asia following BOJ Governor Ueda’s verbal intervention. Ueda noted that the BOJ might know enough about wage pressures by year-end, in other words if they could be ready to abandon negative rates.  The BOJ blackout period typically starts two days before the first policy meeting, which means we could have a full week of verbal intervention before the September 21st policy meeting starts. Japan officials will likely hesitate to actually intervene until some of the major US risk events are behind us. ​ No sense in selling dollars before seeing the latest US inflation report, which could easily upend any action. ​ A new week is here, and it looks like financial markets were ready for a major reset. Dollar-yen bearishness could also gain momentum if risk appetite deteriorates here. The yen got a boost after some weekend reading reaffirmed Wall Street’s belief that the Fed will pause rate increases in September, then review the latest economic data and assess if more rate hikes are needed in November/December.  The WSJ’s Nick Timiraos, who’s also known as the Fed whisperer has markets convinced that officials view the risks as more balanced, so a September surprise is very unlikely. It seems many risk events are on this week’s calendar, so we could see other drivers besides more chatter from Japanese officials and US CPI/retail sales data/inflation expectations.  The $AAPL This will be a big week for tech given the recent slide with some of the mega-cap tech stocks.  Apple was in the headlines after they decided to stick with Qualcomm’s 5G modems for their smartphones. Apple was trying to produce similar chips as soon as 2024, but it seems they aren’t there just yet.  The Qualcomm deal for Snapdragon 5G Modem-RF Systems will cover smartphone launches in 2024, 2025 and 2026.  This is great news for Qualcomm shares, while Apple shares will mostly await what happens with Tuesday’s important launch event.  Expectations are for Apple to unveil the new iPhone 15 and show how AI will be used.   $TSLA Tesla is also getting a boost after Morgan Stanley upgraded the EV giant and raised their price target from $250 to a street-high $400 a share.  The upgrade was driven by hopes that their Dojo supercomputer could help accelerate the adoption of robotaxis and network services.   Equities and risk appetite will have a handful of events to determine if a rebound is justified: Tuesday is all about the Apple event. Wednesday focuses on the US inflation report, which should show rising gasoline prices sent headline inflation higher, but the core readings are likely to remain subdued.  Thursday will be busy with the UAW strike deadline, a potential pause by the ECB, slight labor weakness from jobless claims data, and a soft retail sales report.  For Wall Street, Thursday’s focus should fall on the UAW strike deadline, which falls a minute before midnight.  A potential UAW strike of 10 days could trigger a recession for the Michigan economy and cost $5.6 billion in US GDP.  Friday contains the release of the University of Michigan inflation expectations, which are important for the higher for longer trade. Any yen strength could be short-lived until we get beyond some of the big market events of the week.   USD/JPY Daily Chart      Bearish price on USD/JPY , a daily chart of which is shown, is tentatively respecting key trendline support that started from the July 28th low.  The knee-jerk selloff spurred from BOJ Governor Ueda’s verbal intervention might not be the beginning of a new trend just yet.  Given the state of the US economy and its resilience, it appears that Japan’s central bank remains very concerned with the yen’s levels.  If USD dollar strength reemerges, the 147.80 level remains critical resistance.  On the other hand, if risk aversion runs wild, the 145.00 level provides initial support, followed by the 143.75 level.  

Rates Spark: A last one for the road A hike from the ECB today may have limited impact as a total of 25bp of tightening is already fully priced before year-end. Signalling will be at least equally important, with macro headwinds weighing on longer rates.   ECB may hike, but the upside to rates looks limited The European Central Bank meeting takes centre stage today. Going into the pre-meeting blackout period, surveys pointed to an almost even split between analyst calls for a pause and those for a hike. We think the ECB’s hawks will have their way today, pushing through one final hike, but it is a close call. From the market’s perspective, the probability of a hike has increased from 40% at the start of the week to now more than 60%, with 16bp priced in the OIS forward. A Reuters source story had tipped the balance, reporting that the ECB’s new inflation forecast for 2024 would come in above the 3% that had been pencilled in at the last update in June. The upside to rates from a hike today could be limited though. For one, we have seen the yield curve already bear flattening quite a bit as an increasing probability for a final hike was baked into the front end – looking beyond today towards year-end, 25bp is now fully priced. Raising rates today would probably be largely interpreted as pulling forward that final hike, but the appetite to price in more tightening on top of that may be limited. After all the subdued macro story is not going away, and with a likely downgrade of the ECB’s own growth projection the weaker backdrop should gain more weight in the governing council’s own deliberations as well. Markets could sense that this is the end of the interest rate hike cycle. Still, the ECB will likely want to counter the notion that this is the end of its overall inflation-fighting endeavours. We think the degree to which this is successful will determine how much of a curve bear flattening we get in the case of a hike. A renewed focus on quantitative tightening could help prop up longer rates on a relative basis.   Now or later? 25bp from the ECB is already fully priced by year-end   US CPI release leaves the bigger picture unchanged The US CPI data yesterday included a modest surprise in the month-on-month core print, which edged up to 0.3% from 0.2%. If anything, one would suspect that this underscores lingering inflation concerns. AAs our economists write, it should mean that the Federal Reserve will keep a final hike in their forecasts even while holding rates next week. The market reaction suggests that investors were braced for a larger hawkish surprise out of the data. In the end, the data being broadly in line with the consensus call can explain the relief rally that followed. It saw the 2Y UST slipping below 5% again with the curve bull steepening somewhat in the process, although price action here was quite choppy over the session. While some hawkish tail risks may thus have been priced out, it does not change the story that the economy is so far proving relatively resilient in the face of the overall substantial Fed tightening. Until we see activity actually stalling we think this still means more persistent disinversion pressure on the US curve from the back end, with a structural US supply story adding to the theme.   Today's events and market view The main focus will be the ECB decision and then the press conference in the afternoon, but we have a feeling that the usual post-meeting background reporting will also get more attention this time, given the closeness of the decision and the growing divides in the governing council. While we do see a chance for more curve flattening out of the ECB event, there is also a busy slate of US data to digest. Foremost will be US retail sales data for August, where the market is already positioned for a weaker figure after a higher July reading. At the same time we will also get PPI as well as initial jobless claims data

US housing feels the squeeze from high mortgage rates A tripling of US mortgage rates constrained both the demand and supply of housing, leaving existing home sales at post-GFC lows. Mortgage rates will rise further in the wake of the market's reaction to yesterday's Fed forecasts, further constraining activity.   Market acknowledges the risk of a final hike, but it will depend on the data The Fed's messaging of higher for longer interest rates has been taken on board by financial markets, with the dollar strengthening and the yield curve shifting higher in the wake of yesterday's decision. Nonetheless, the market remains somewhat sceptical on the prospect of the final 25bp interest rate rise that the Fed's forecasts signalled for this year, with the pricing for November's FOMC meeting only being 8bp with 13bp priced by the time of the December meeting. The jobs market remains tight, as highlighted by low jobless claims numbers today, but we continue to believe that core inflation pressures will slow meaningfully, the economic outlook will soften, and the Fed won't end up carrying through. The jobs market is always the last thing to turn lower in a downturn and there are areas of more obvious weakness.  For example, US existing home sales fell 0.7% MoM in August to a level of 4.04mn rather than rising the 0.7% MoM as the market expected. This is due not only to weakness in demand but also a complete collapse in properties available for purchase. The affordability issue is front and centre here, with prices having risen nearly 50% nationally during the pandemic, but demand has obviously been crushed by the fact that mortgage rates have tripled since the Federal Reserve started hiking interest rates. But this surge in borrowing costs is constraining the supply of homes for sale as well - people who are locked in at 2.5-3.5% mortgage rates cannot afford to give them up. They can't take the mortgage with them when they move home, so even if you downsize to a smaller, cheaper property, you are, in all likelihood, going to end up paying a higher monthly dollar mortgage payment.   We're in a crazy-sounding position Consequently, we are in a crazy-sounding position whereby the number of housing transactions is on a par with the lows seen during the global financial crisis, yet home prices are rising. This should be a boon for home builders, but note the big drop in sentiment and housing starts seen earlier in the week. The drop-off in prospective buyer traffic is making builders cautious. Mortgage rates at 7%+ will obviously do that over time, but it may be another sign of the household sector starting to pull back at the margin now that the Fed believes pandemic-era savings are close to being exhausted.   Existing homes sales transactions and home prices   Leading index still indicates recession can't be ruled out Meanwhile, the US leading economic indicator, which combines a range of other numbers, including jobless claims, orders, average work week, the yield curve and credit conditions, posted its 17th straight monthly decline. As the chart below shows, the index at these sorts of levels has been a clear recession indicator in the past, but for now, GDP growth is strong.   Leading index versus GDP (YoY%)   Our view remains that this strength in activity has been caused primarily by households running down pandemic-era accrued savings aggressively and borrowing more on credit cards. But with savings obviously being finite - note the Fed's Beige Book citing evidence of the "exhaustion" of these savings - and consumer credit harder to come by and certainly less affordable than it was, the cashflow required to finance ongoing increases in spending will have to increasingly come from rising real income growth. Rising gasoline prices will erode spending power while student loan repayments, strikes and the prospect of a government shutdown will add to the financial stresses on millions of households, so we will need to see substantial wage increases for everyone - not just auto workers - to keep this growth engine firing.  Given this situation, we not only think the Fed will leave rates at their current levels, we also see the potential for more rate cuts next year than the 50bp currently being signalled by the Federal Reserve.

Rates Spark: Turning into a rout This bond bear steepening market is being driven by Treasuries, and more specifically by higher longer tenor real rates. This is painful for corporate borrowers, as higher real rates cannot be diversified away through higher prices (as could be the case if driven by inflation expectations). This puts pressure on credit markets as a result.   Too far, too fast? It's messy out there. It's not often you get a 10bp uplift in the 10-year yield in one day. We had one yesterday. And we've had over a 50bp upmove in the past three weeks. It's now at 4.8%, and looking like it's gone too far too fast. But if we don't look down, that 5% level could be with us quite quickly. It's clear also that Treasuries are a dominant driver out there. It's pulling other yields higher, is hurting equities, and is pretty immune to influence from risk off. Typically, a severe enough risk-off event would put some counterflows back into Treasuries. And there have been some. Right through the rise in yields in the past couple of months there have, in fact, been net inflows into Treasuries. But this has not been enough to dominate price action. In fact, prices have moved first, not so much in reaction to flows, but in anticipation of them. And of course in reaction to data that continues to show the US economy continuing to defy recession worries. The JOLTS data are a case in point. This measure of "job openings" had been coming off the pandemic sugar high which saw them peak out in the 12 million area. A huge level. It compares with a long-run average in the 2.5 million area. It had been falling since mid-2022, and got to below nine million last month. But the latest month shows a pop back up towards 10 million (9.6m). That's a remarkable move in light of the inflation/rates/sentiment headwinds that arguably should be impacting the economy more. And the curve continues to pull steeper (dis-inversion). As we ended the summer, the 2/10yr was in the -75bp area. It's now half that, and just 35bp away from breaking back above zero into positive territory. It's been pulled there by higher longer tenor real rates. The 10-year real yield is now knocking on the door of 2.5%, having been below 2% only a few weeks back. And importantly, inflation expectations are broadly steady. This angst mode has been driven entirely by higher real rates, and signs of underlying macro strength. Note, however, that higher real yields are also more painful than ones driven by higher inflation. The latter can be passed on through higher prices at the corporate level. But higher real rates are more difficult to "pass on". They are essentially a tax on the borrower that must be paid to get any type of re-funding done. That is arguably where the next vulnerability lies. Risk assets are reacting to this, but there is the potential for more pain here ahead, especially in the guise of wider credit spreads.   Real rates are pushing higher

EUR/USD Friday's US labor data for September surpassed expectations. Nonfarm payrolls increased by 336,000 for the month, better than the consensus estimate for 170,000, and the change for August was revised up by 40,000. The unemployment remained unchanged at 3.8%, and a broader measure of unemployment dropped to 7.0% from 7.1% in August. The initial market reaction was quite natural, with the dollar rising and the euro losing 80 pips. However, the dollar was sold off across a wide range of markets, including stock markets and commodities. As a result, the dollar index closed the day down by 0.26%, the S&P 500 rose 1.18%, and oil increased by 0.61% (WTI).   The market's counteraction to strong data is certainly a compelling argument in favor of further (although not quite prolonged) euro growth. From a technical standpoint, we saw a rebound from the point of intersection of the price channel line and support level of 1.0483, afterwards the quote exceeded the Fibonacci retracement level at 1.0578. The Marlin oscillator has moved into bullish territory. Now, after breaking through the nearest resistance level at 1.0613, we are waiting for the price to reach the target level of 1.0687 and maybe even 1.0777.   On the 4-hour chart, the price has settled above 1.0578. The morning gap that occurred due to the Hamas attack on Israel will soon be closed. The price is growing above the indicator lines. The Marlin oscillator has firmly strengthened in the bullish territory. We expect the euro to rise further.  

Rates Spark: We’re now in a holding pattern The ECB keeping rates on hold reflects what will likely be a common theme at next week's Fed and BoE meetings, and its dovish tone will find affirmation in upcoming inflation and growth data. But longer-end rates remain under the spell of US Treasuries, where supply is also a key driver.   The ECB delivers a dovish hold The European Central Bank kept interest rates on hold as widely anticipated but struck a slightly more dovish tone than expected. Importantly, the ECB refrained from shifting the focus to the balance sheet now rates are deemed sufficiently high. According to President Christine Lagarde, both the PEPP and the minimum reserve requirement were not even discussed.   Lagarde highlighted again that data dependency also means rate hikes could not be excluded, but she said any discussion about cuts was “totally premature”. That said, the undertone regarding the economy has become more cautious. Also, with regard to a potential spike in energy prices, she highlighted the uncertainty of their medium-term impact on inflation. Overall, market reaction in outright rates is more difficult to disentangle given the release of US data just ahead of the press conference. Very front-end rates, which should be less influenced by US spillovers, reflected the somewhat more dovish take and a firming notion that the ECB has reached peak rates already. The already minimal hike speculation reflected in ECB-dated OIS forwards for December was further trimmed, and the strip is downward sloping from then onwards to fully discount a rate cut by June next year.    Sovereign spreads initially reacted with relief, with the key spread of 10Y Italian government bonds versus Bunds briefly narrowing back below 200bp. Obviously, it is unlikely to be the end of the story, and the ECB could pick up the discussion at some point. Indeed, Reuters later reported that policymakers agreed to postpone the debate until the winter. and a discussion on minimum reserves was reported to come as part of the operational framework review.  

The European Central Bank kept all three key interest rates unchanged. The market's reaction was altogether surprising, strange, expected, and logical. The euro initially rose by 25 pips but then it also lost the same amount in three hours. So the market's response to this significant event can be characterized by a 25-pip move. However, while the event itself was important, its results were not. As mentioned, the rates remained the same, and ECB President Christine Lagarde was quite neutral during the press conference. Here's what she talked about.   First, Lagarde said that she believed the current rates are at levels that will make a substantial contribution to returning inflation to the Bank's 2% target. Rates will need to be kept at their current levels for a sufficiently long duration, but eventually, the ECB will achieve its goal. Decisions on rates will be made based on incoming economic and financial data, and the dynamics of underlying inflation. The APP and PEPP programs (monetary stimulus programs) continue to reduce the ECB's balance sheet at a moderate pace, following the general plan. Lagarde also said that rate decisions will be made from meeting to meeting. This suggests that Lagarde keeps the door open for further rate hikes but the chances of seeing new tightening in the near future are extremely slim. I believe that the results of the meeting turned out to be neutral. I previously mentioned that there were no other options besides keeping rates at their current levels. However, I allowed for the possibility that Lagarde might hint at future rate hikes "if necessary" or, conversely, announce when policy easing would begin. Neither of these scenarios was mentioned. Based on this, I conclude that the market's 25-pip reaction was quite in line with the meeting's outcomes. However, the trading instrument could and should have shown much greater movement, given that two important reports were published in the United States, which turned out to be significantly stronger than market expectations. However, it seems that even these reports were ignored. Thus, the market's reaction to the ECB meeting was logical but if we look at the bigger picture, it actually wasn't. We expected the lack of market activity with such results, but it was quite strange to see such an outcome in conjunction with the GDP and durable goods orders reports in the United States. Based on the analysis, I conclude that a bearish wave pattern is still being formed. The pair has reached the targets around the 1.0463 level, and the fact that the pair has yet to break through this level indicates that the market is ready to build a corrective wave. A successful attempt to break through the 1.0637 level, which corresponds to the 100.0% Fibonacci level, would indicate the market's readiness to complete the formation of Wave 2 or Wave b. That's why I recommended selling. But we have to be cautious, as Wave 2 or Wave b may take on a more complex form.  

RBA hikes rates - market reaction is curious Although the RBA hike was expected by the majority of the forecast community, markets were not completely sold on the idea, which is why it is curious that the AUD weakened on the decision and that bond yields fell.   RBA hikes but AUD softens It was no surprise that the RBA hiked the cash rate by 25bp today. Only three of the Bloomberg consensus expected the RBA to hold rates steady today. We were not among them. However, the market pricing was more circumspect, with only about a 59% probability of a hike priced in to today's meeting.  All of which makes the subsequent market reaction quite strange.  The AUD made a very brief run stronger on the announcement, but almost immediately fell back, dropping to about 0.643 from about 0.652 prior to the announcement.  Australian government bond yields also declined. 10Y government bond yields fell from about 4.76% to 4.70% and yields on 2Y government bonds fell from 4.37% to 4.31%. There was a slight decline in US Treasury yields at the same time, which may have influenced things, but it isn't a particularly satisfactory explanation.      RBA statement was reasonably hawkish This market reaction cannot either be put down to the accompanying statement by the RBA, which in our view leant in a hawkish direction.  The justification the RBA gave for today's hike was the slow progress being made towards their target inflation range, the arrival at which was put back to late 2025. The RBA also judged that the weight of information received since the previous meeting raised the chances that inflation would remain higher for longer.  The RBA's statement also kept the door open to the possibility of further hikes, saying that "Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks". Thanks to base effects, next month's inflation data will probably show another increase (see chart above). However, we don't think the RBA will respond again so soon if inflation does indeed rise. After that, when the November and December figures are released, absent the floods and energy shortages of last year, we should see inflation resume its downward trend, which may be enough to cement the view that this was the last hike this cycle after all.  The risk to this view comes from the current run rate for inflation. For the last 2 months, the CPI index has risen by 0.6% MoM. This isn't consistent with an inflation rate between 2-3% but rather one closer to 7%. So this also needs to slow down considerably over the coming months. If it doesn't, then instead of the rate cuts that we expect could be on the radar by mid-2024, we might still be looking at some further tightening before we can call this rate cycle truly over. As the RBA notes in their statement, "There are still significant uncertainties around the outlook".  

Rates Spark: Not called resilient for nothing After a huge fall in yields last week, there has been an attempt to engineer some semblance of a reversal so far this week. We expect to see more of that in the days ahead, with data unlikely to get in the way and supply pressure pushing in the direction of a concessional build in the coming days.   Market rates edging higher from Friday's lows, led by the US Market rates have staged a bit of a fightback having hit post-payroll lows on Friday. The US 10yr Treasury yield managed to bounce off the 4.5% area, which we now regard as a key support. Stay above that level and we are good to gradually re-test higher in yield over the course of this week. It’s a week of supply right along the curve in the guise of 3yr, 10yr and 30yr auctions. It’s also a week that is unlikely to get too rocked by data releases, with Thursday’s jobless claims set to be the highlight of the week. In addition, we note that there remains an underlying supply risk for bonds generally. Even though the US Treasury has taken some pressure off long-dated issuance into year-end, it does not take away the underlying pressure coming from the elevated fiscal deficit. Fiscal pressure results not just in ongoing supply pressure, but also likely ongoing upward pressure on real yields. That in turn implies steepening pressure from the back end. Importantly, we don’t have a green light yet for a complete cycle capitulation towards a structural rate-cutting agenda. That will come, but we need more first.   Yields are slowly starting to revert higher   QT lumped into the ECB's review of the operation framework European rates markets also pared some of the past week’s rally with 10Y Bund yields ending the first session 9bp higher above Friday’s close and thus well above 2.7% again. But it looked more like a general countermove, inspired also by a busy corporate supply slate, rather than being motivated by any single event. There were hawkish comments from the European Central Bank’s Robert Holzmann, who said the central bank should be ready to hike again if needed. But coming from him, such remarks should not surprise and are not new. Rather, his other remarks on quantitative tightening and that there won't be anything forthcoming on that front this year were rather dovish, if anything. The debate about the ECB’s bond portfolios could not be separated from the review of the operational framework, Holzmann said. The forthcoming framework will also determine the level of excess reserves that the ECB will operate with to maintain control over front-end rates – and perhaps even foresee a structural bond portfolio to also provide it with some flexibility to intervene in bond markets. Recall that the ECB’s hawks had also postponed their push for higher minimum reserves until spring next year for a similar reason, according to earlier Reuters reports. The review will give an opportunity to address the wider issue of excess reserves in the system – and also the cost efficiency of implementing monetary policy which could also include, for instance, the remuneration of government deposits. Given the complexity and multitude of possible tweaks, we would expect the review to conclude not with a one-off adjustment but rather a gradual path towards a new framework.     Today's events and market view There are few data points of note over today's session. For the eurozone, PPI is expected to slow to 0.5% month-on-month resulting in a -12.5% year-on-year figure and the US will be reporting its trade balance. The main highlight will be the busy schedule for Federal Reserve speakers, including Neel Kashkari, who last night was not convinced that rate hikes were over. Other Fed speakers are Austan Goolsbee, Christopher Waller and John Williams. Supply also returns to the spotlight. In Europe, Austria will auction 5Y and 10Y lines, but the main focus will be on the UST auctions this week, beginning with the sale of US $48 billion in new 3Y notes tonight

Analysis of macroeconomic reports:   There are several macroeconomic events on Friday, with the most important ones in the United Kingdom. In the UK, reports on quarterly GDP and industrial production for September will be published. The industrial production report is not crucial, but in the case of a significant deviation of the actual value from the forecast, market reaction is possible. The same goes for the GDP report. If its value matches the forecast, no reaction is expected, despite the importance of this report. In the United States, the University of Michigan's consumer sentiment index will be published, which is also a secondary report. Analysis of fundamental events: From Friday's fundamental events, we can highlight the speeches by representatives of the Federal Reserve's monetary committee, Logan and Bostic. However, Fed Chair Jerome Powell has already spoken twice this week. If his first speech did not touch on monetary policy, in the second one, he noted that the key rate may rise again if the situation requires it. Therefore, we probably won't hear anything more important than these statements.     General conclusion: On Friday, there will be interesting events, but in general, they may not lead to significant price changes. On Thursday, Powell's speech supported the dollar, but the US currency should continue to rise in the coming weeks even without the help of the Fed chairman. On Friday, only the British reports have a real chance of influencing the movement of the GBP/USD pair. And the pound may pull the euro along with it. But this is only during the European session.   Basic rules of a trading system: 1) Signal strength is determined by the time taken for its formation (either a bounce or level breach). A shorter formation time indicates a stronger signal. 2) If two or more trades around a certain level are initiated based on false signals, subsequent signals from that level should be disregarded. 3) In a flat market, any currency pair can produce multiple false signals or none at all. In any case, the flat trend is not the best condition for trading. 4) Trading activities are confined between the onset of the European session and mid-way through the U.S. session, post which all open trades should be manually closed. 5) On the 30-minute timeframe, trades based on MACD signals are only advisable amidst substantial volatility and an established trend, confirmed either by a trend line or trend channel. 6) If two levels lie closely together (ranging from 5 to 15 pips apart), they should be considered as a support or resistance zone.   How to read charts: Support and Resistance price levels can serve as targets when buying or selling. You can place Take Profit levels near them. Red lines represent channels or trend lines, depicting the current market trend and indicating the preferable trading direction. The MACD(14,22,3) indicator, encompassing both the histogram and signal line, acts as an auxiliary tool and can also be used as a signal source. Significant speeches and reports (always noted in the news calendar) can profoundly influence the price dynamics. Hence, trading during their release calls for heightened caution. It may be reasonable to exit the market to prevent abrupt price reversals against the prevailing trend. Beginning traders should always remember that not every trade will yield profit. Establishing a clear strategy coupled with sound money management is the cornerstone of sustained trading success.

Inflation fever breaks By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The Federal Reserve (Fed) doves got a big energy boost yesterday by a slightly lower-than-expected inflation report. The headline inflation fell to 3.2% in October from 3.7% printed a month earlier, and core inflation eased to 4% from 4.1% printed a month earlier. Services excluding housing and energy costs – the so-called super core figure closely watched by the Fed - rose only 0.2% and shelter costs rose only 0.3%, down from a 0.6% advance printed a month earlier. The soft set of inflation print cemented the expectation that the Fed is done hiking the interest rates. The US 2-year yield – which best captures the rate bets – tanked 24bp to 4.81%. The 10-year slipped below 4.50% and activity on Fed funds futures gives around 95% chance for a no rate hike in December. That probability stood at around 85% before yesterday's US CPI data.   In equities, the S&P500 jumped past its 100-DMA, spiked above the 4500 mark, and closed the session a few points below this level. Nasdaq 100 extended its gain to 15850. In the FX, the US dollar took a severe hit. The index fell 1.50% on Tuesday, pulled out a major Fibonacci support and sank into the medium-term bearish consolidation zone. The EURUSD jumped to almost the 1.09 level. Yes, there is no mistake – to nearly 1.09 level, and Cable flirted with the 1.25 resistance. What a day!   A small parenthesis on UK inflation   Good news came from Britain this morning, as well. Inflation in the UK fell 6.7% to 4.6% in October, lower than the 4.7% penciled in by analysts. Core inflation also eased more than expected to 5.7%. There is growing evidence that the major central banks' efforts are bearing fruit. Cable is sold after the CPI data, but the pullback will likely remain short-lived if the USD appetite continues to wane globally.   

CEE: Good news for PLN, not that much for CZK Yesterday's US inflation numbers moved the central and eastern European currencies as well as the entire emerging market space. Obviously, a higher EUR/USD is good news for the region, but it seems the move was too much, and we may see some corrections today. Poland's zloty benefited the most from the move yesterday, briefly touching 4.40 EUR/PLN, the lowest since July. Core rates moved PLN rates down too but we would expect some rebound here given the tone of the National Bank of Poland. Therefore, we expect the smallest correction in the region and EUR/PLN should hold in the 4.40-4.42 range. On the other hand, in the Czech Republic, the market does not seem so mispriced as far as monetary policy is concerned and unlike Poland, yesterday's trading already showed a weaker interest rate differential, negative for the koruna. Thus, we think we will see EUR/CZK above 24.500.

Having seen the cap come down in April, headline inflation slowed to 8.7% from 10.1% in March, and knowing that further reductions were coming in June and October it wasn't unrealistic to assume similar sharp slowdowns in these months as well, which is precisely what has happened with October CPI slowing to 4.6% and core CPI slowing to 5.7%.   Of course, we've heard a lot today from the UK Treasury, as well as the government that they have succeeded in their goal to get CPI below 5% by the end of the year, which is hilarious given that what we've seen today has happened despite them, and not because of them. Let's not forget this is the government which raised tax rates and made people worse off.   The reality is this was a goal that was always easier to achieve than not, given what we have been seeing in headline PPI numbers these past few months, and the fact we knew the energy price cap was keeping inflation higher than it should have been.   The actual reality is were it not for the design of the energy price cap, headline inflation would have fallen much quicker than it has, merely confirming the idea that there is no political intervention that can't make a big problem even worse, and which in turn helped to create the very stickiness we are seeing in wages growth which is making services inflation stickier than it might have been.   This has meant that UK services inflation has taken longer to come down than it should have, although we have seen a modest slowdown to 6.6% from 6.9% in September. The effect of the energy price cap is evident in where we've seen the biggest slowdown in October inflation, with household and services inflation declining -1.9% month on month, compared to an 8.7% increase in October 2022. Gas costs fell 31% in the year to October 2023, while electricity costs fell 15.6%, which is the lowest annual rate since January 1989.   That said gas and electricity prices are still well above the levels they were 2 years ago, with gas prices still higher by 60%, but nonetheless what the last 24 hours have told us is that its increasingly likely that central banks are done when it comes to further rate hikes, and that pricing is now shifting to who is likely to cut rates first.   On that count the jury remains out, however given the recent gains in the US dollar over the last few months, the repricing of rate risks suggests that the US dollar might still have the biggest downside risk even if the Fed is the last to start cutting.   On that score it looks to be between the ECB and the Bank of England when it comes to which will cut rates first with markets pricing 78bps from the Bank of England by June next year. At this point this seems a little excessive in the same way markets were pricing a 6.25% base rate back in June.   That said the thinking has shifted, and rather than higher for longer further weakness in the economic data will only reinforce the idea that rates have peaked and that cuts are coming, with the debate now on extent and timing. This is no better reflected than in the UK 2-year gilt yield which is now 100bps below its June peaks having fallen as low as 4.54% earlier today.    On the score of who is likely to be first out of the traps in rate cuts it's more than likely to be the ECB, perhaps as soon as the end of Q1 next year, with the Bank of England soon after, which will be good news for households, as well as governments when it comes to debt costs.   Despite today's undershoot on UK inflation the pound has managed to hold onto most of its gains against the US dollar of the last 24 hours having hit 2-month highs earlier today, above 1.2500 and closing above its 200-day SMA for the first time since 13th September yesterday.   The euro has also rallied strongly, similarly closing above its 200-day SMA, in a move that could signal further gains, while equity markets also rallied strongly. The strongest moves came in the Nasdaq 100 and S&P500 which posted their biggest one-day gains since April, with the Nasdaq 100 coming to within touching distance of its July peaks at 15,900. We need to see a concerted push through here to signal a return to the 2021 peaks.   The S&P500 similarly broke out of its downtrend from its July peaks, retesting its September peaks, with a break of 4,520 potentially opening the prospect of a return to those July highs at 4,590.   While US markets have rallied strongly, the reaction in Europe has been much more tepid which suggests an element of caution when it comes to valuations for European stocks. The DAX has managed to recover above its 200-day SMA and above its October highs, while the FTSE100 reaction has been slightly more measured compared to the FTSE250 which has seen strong gains this past two days, pushing up to 2-month highs in early trade today.    In summary today's inflation numbers are good news for consumers across the board, especially given that headline CPI has fallen below the base rate for the first time since 2016, however the Bank of England will still be concerned about services inflation, as well as wage inflation, which is still above 7%.   While markets are cheering the end of inflation it is clear that central bankers will be reluctant to do so less it return in 2024.

When fantastic falls short...  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The minutes from the Federal Reserve's (Fed) latest monetary policy meeting showed that the Fed members agreed to 'proceed carefully' with their future rate decisions. Carefully doesn't mean that the Fed is done tightening, it means that it will 'proceed carefully' in the light of the economic data and the market conditions to decide whether it should hike, pause, or cut the interest rates. Note that 'most' members 'continued to see upside risks to inflation'.   Alas, the cautious tone in Fed minutes went completely unheard as the latest CPI data acted as a shield against the Fed hawks. As such, the market reaction to the Fed minutes was muted. The US 2-year yield remained little changed near the 4.90% level, the 10-year yield rebounded past 4.40%, and is still around 60bp lower than the October levels. The S&P500, which is now trading in the overbought market, retreated 0.20% and Nasdaq 100 fell 0.60% from an almost 2-year high, as investors didn't want to do much before seeing the Nvidia's results.   When fantastic falls short...  Nvidia's Q3 results were strong. The company exceeded the $16bn revenue forecast by $2bn. They earned more than $18bn, made more than $4 profit per share and said that they will be earning around $20bn this quarter. But the latter forecast couldn't meet the top forecast ($21bn) and the share price fell in the afterhours trading, though by less than 2%; investors couldn't decide whether they should buy the fact that the company exceeded the sky-high expectations, or they should sell the reality that the chip sales to China will slow this quarter and that would weigh on revenue – although Nvidia stated that the 'decline will be more than offset by strong growth in other regions' and that they are working to comply with regulations to sell to China, anyway.   Taking a step back: Nvidia is growing, it is growing fast, it has potential to grow further, but the valuation of the company is also sky-high, its price got multiplied by almost five since October 2022. Its PE ratio stands around 120 versus a PE ratio of around 25 in average for S&P500 companies. And its market capitalization is more than $1 trillion more than Intel's, which used to be the world's biggest chipmaker. In summary, the company is growing but that strong growth is already priced in and out. Therefore, we will probably not see a big profit taking post-earnings, we will likely see correction and consolidation instead below the $500 psychological hurdle.   And with that – the Nvidia earnings – out of the way, the S&P500 and Nasdaq futures are slightly in the negative at the time of writing. The market will likely digest the Fed minutes and the Nvidia results in a calm mood before the Thanksgiving holiday.   

Speaking of morose growth projections Forecasts for German growth in 2024 have been significantly lowered following the recent budget chaos after the German Constitutional Court declared government's spending plans unconstitutional. Germany – Europe's growth engine – is now seen growing just 0.4% next year. The UK, on the other hand, cut its own growth forecast significantly in yesterday's Autumn Statement. Jeremy Hunt said that the economy would grow only by around 0.7% - still better than Germany, but that projection is down from the 1.7% announced earlier. The good news for British people and businesses is that Hunt announced tax cuts for both individual and companies and lowered the national insurance payroll levy. The Brits will now make a permanent 100% - yes 100% tax relief – on companies' capital spending. But don't be fooled by these beautiful numbers. In reality, the British tax burden will still mount to 38% of its GDP by the end of this decade and will reach its highest since post-WW2 and that 100% tax relief – the so-called 'full expensing' - is good for businesses that invest in big machinery but in a service-focused economy like the UK's, the benefits will likely remain limited. This is certainly why the market reaction was muted yesterday. The 10-year gilt yield was slightly up, the FTSE 100 closed the session slightly in the negative, while Cable fell below the 1.25 mark, on the back of a broad-based rebound in the US dollar that hit most major peers.  

Asia Morning Bites Australian 3Q23 GDP comes in soft; Moody's negative China outlook will likely dominate risk sentiment today. Taiwan CPI out later.   Global macro and markets Global markets:  US Treasury markets continued to rally on Tuesday, helped by declines in Eurozone bond yields as one of the ECB’s more hawkish board members (Isabel Schnabel) noted that further hikes were “unlikely”. US yields were then given an additional downward push by some soft JOLTS job opening figures. 2Y Treasury yields fell 5.9bp to 4.577%, while 10Y yields fell 8.8bp to 4.165%. The slightly bigger falls in Eurozone bond yields helped EURUSD to decline to 1.0793 and that has also led AUD to decline to 0.6553, Cable to drop to 1.2593, while the JPY stayed fairly steady at 147.18. As the EURUSD move has more to do with EUR weakness than USD strength, these G-10 moves look unnecessary, and a case could probably be made for these other currencies to appreciate against both the EUR and USD, especially those where rate cuts are not on the agenda (JPY) or will be later and probably less than in the US (AUD). The KRW also weakened on Tuesday, rising back to 1311.20. The IDR was also softer at 15505, as were most of the other Asian FX pairs. There may be a bit of further weakness today, though for the same arguments as for the G-10, the rationale for this is quite weak, and we wouldn’t be totally surprised to see this go the other way. Equities didn’t know which way to turn yesterday, given the weak labour demand figures but the lower bond yields, and the S&P 500 ended the day virtually unchanged. The NASDAQ made a small gain of 0.31%. Chinese stocks were battered by the outlook shift to negative from Moody’s, which pointed to the rising debt levels and higher deficits China is adopting to try to underpin the property sector. Though the decision on Evergrande’s winding up was postponed until January, which could have provided some relief. The Hang Seng fell 1.91% and the CSI 300 fell 1.90%.   G-7 macro:  As mentioned, the JOLTS job openings data showed a large decrease in vacancies, to 8733K in October (for which we already have non-farm payroll data) from 9553K in September. The service sector ISM index was actually a little stronger than in October, rising to 52.7 from 51.8, and the employment subindex rose to 50.7 from 50.2, though this has little correlation with month-on-month directional payrolls trends. After a rare “hit” with its weak reading last month, attention may revert back to the ADP employment data later today.  A 130K  increase is the latest consensus estimate. The consensus for Friday’s non-farm payrolls is higher at 187K, with an unchanged unemployment rate of 3.9%. Outside the US, German factory orders and Eurozone retail sales are the main releases, along with a Bank of Canada rate decision (no change expected to the 5% policy rate).   Australia: 2Q23 GDP slowed from a 0.4%QoQ pace in 2Q23 to only 0.2% in 3Q23, weaker than the 0.5% consensus estimate (ING f 0.3%). A more negative contribution to GDP from net exports in data revealed yesterday was the main clue that the figure was going to undershoot. Yesterday’s RBA no change statement showed no additional sign that the RBA is done hiking rates and merely repeated the previous language. Today’s GDP data slightly increases the probability that rates have peaked – however.   Taiwan:  November CPI inflation should show a further moderation, dropping to 2.80% from 3.05% in October. We don’t see this having any impact on the central bank’s policy rates for the time being though.   What to look out for: Australia GDP and US jobs numbers 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)

The day has come By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Yesterday was finally the day that most FX traders have been waiting for since at least a year: the day where the Bank of Japan (BoJ) gave a hint that it will finally exit its negative interest rate policy. Precisely, the BoJ Governor said, after his meeting with the Japanese PM - that handling of monetary policy would get tougher from the end of the year. Indeed, the BoJ is buying a spectacular quantity of JGBs to keep the YCC intact at absurdly low levels compared with where the rest of the developed markets yields are following an almost 2-year long of aggressive monetary policy tightening campaign. At its highest this year – after the BoJ relaxed the rules on its YCC policy – the 10-year JGB flirted with the 1% mark, whereas the 10-year yield German bund yield hit 3%, the 10-year British gilt yield advanced to 4.70% and the US 10-year yield hit 5%. Certainly, inflation in Japan lagged significantly behind inflation in Western peers, yet inflation in the US is now exactly where inflation in Japan is: near 3%.   The BoJ's negative rate is the last souvenir of the zero/negative rate era and any small hint that things will get moving over there could move oceans. And this is what happened yesterday. The speculation that the BoJ will hike rates as soon as this month spiked to 45% soon after Mr. Ueda's words reached investors ears. The 10-year JGB yield spiked to 0.80% from around 0.62% reached earlier this week in parallel with the falling DM yields. The USDJPY fell from 147 to 141 in a single move, and the pair is consolidating gains a touch below 144 this morning, as traders argue whether a December normalization is too soon or not. Fundamentally it is not: in all cases, the BoJ will start normalizing policy two years after the Bank of England (BoE) hiked its rate for the first time after a long period. And the BoJ will be normalizing its rates when all major central banks plateau their tightening policy and when investors are out guessing when the normalization – toward the other direction – will begin. So no, fundamentally, it is not too early for the BoJ to start hiking its policy rate. But it would be a sudden move – that's for sure!   The Day of Anticipation: BoJ's Hint at Exiting Negative Rates Sparks Market Reaction"In any case, it is more likely than not that the fortunes of the Japanese yen turned for good this week. In the short run, consolidation is the immediate answer to yesterday's kneejerk rally – which took the USDJPY immediately into the oversold market conditions as the move was also amplified with many traders covering their short positions. But from here, yen traders will be looking to sell the tops rather than to buy to dips. A sustainable move below 142.60 – the major 38.2% Fibonacci retracement on this year's bullish trend – will confirm a return to the bearish consolidation zone, then the pair will likely take out the next major technical supports: the 200-DMA near 142.30, the next psychological support at 140 and should gently head back to – at least around 127 – where it started the year. But these forecasts will hold only, and if only, the BoJ doesn't make a sudden U-turn on its normalization plans. Remember, the BoJ didn't say it would normalize. It just said that it will be hard to handle the actual policy for longer. If one were to imagine, Governor Ueda maybe spent last night looking at the ceiling and wondering 'what have I said!'. Funny thing is, the BoJ's rate normalization speculation comes a few hours before the country revealed a 2% fall in its GDP; obviously, the global policy tightening has been hard on the world economy, and Japan can't avoid the global slowdown winds. If it turns out, Japan might normalize its monetary policy when its economy begins to slow down.    

BoJ makes no changes to policy or guidance Yen declines over 1% The Japanese yen is sharply lower on Tuesday. In the European session, USD/JPY is trading at 144.42, up 1.15%. The yen surged 1.95% last week but has faltered and pared most of those gains this week. BoJ maintains policy Tuesday’s Bank of Japan meeting was a live meeting, as there was speculation that the central bank might make a move after some broad hints of tighter policy from senior Bank officials. In the end, the meeting was a non-event as even a tweak in language was not to be found, and disappointed market participants gave the yen a thumbs down. The BoJ maintained its policy settings, but speculation is high that the central bank will tighten policy next year, at a time when the other major banks are loosening policy as inflation moves lower. Governor Ueda acknowledged that prices and wages are moving higher but said more time was needed to determine if a “positive wage-inflation cycle will fall in place”. Core inflation has remained above the 2% target for some 19 months, but the BoJ has argued that inflation has been driven by cost-push factors and is not sustainable. At a post-meeting press conference, Ueda rejected exiting from the Bank’s ultra-loose policy, saying that uncertainty over the outlook is “extremely high”. The markets have been exuberant since the Fed meeting last week when Fed Chair Powell penciled in three rate cuts next year. Traders are far more bullish and are betting on six rate hikes in 2024, starting in March. We’re seeing some pushback from the Fed to reign in market expectations. On Friday, New York Fed President John Williams said a rate cut in March was “premature” and even warned that rates could move higher if inflation were to stall or reverse. Cleveland Fed President Mester said on Monday that the markets are a “bit ahead” of the Fed on rate cuts, as the Fed was focused on how long it would need to maintain rates in restrictive territory, while the markets were focused on rate cuts.   USD/JPY Technical USD/JPY has pushed past resistance at 143.30 and 143.81 and is testing resistance at 144.45.  Above, there is resistance at 145.51 There is support at 142.66 and 142.15    

Rates Spark: Near-term balance of risks still tilted towards higher rates Markets are geared for dovish outcomes this week, not just in rates where still notable probabilities are discounted for first cuts as early as March, but also across wider risk markets. This sets up markets for disppointments if they don't get exactly what they want. Data is a wild card, but the ECB will have this in mind if it is earnest about pushback.   Near-term balance of risks still tilted towards higher rates The thought of a soft landing actually materialising against all odds are supporting risk assets in all corners of the market. The S&P 500 closed at new record levels on Friday and also on Monday the equities rally pushed on through. In rates the pricing in of a soft landing has pushed down rates along the curve at the start of the week, supported by the idea that inflation is coming down as markets are eyeing this week’s PCE data. But markets are starting to fine-tune their expectations more in line with our thinking, even if we see more scope for correction in this direction: pricing for a March Fed cut is now down to 10bp, even though overall pricing for cuts this year has even deepened somewhat again to 134bp. Even though we also see inflation coming down steadily, we warrant caution about markets still getting ahead of themselves – especially in EUR rates. The European Central Bank will meet on Thursday and we expect a reiteration of their data-dependent path towards policy normalisation. Last week yields came down the day that Lagarde hinted at rate cuts in the summer. The best that markets can hope for is a reiteration of that comment, but given the guarded fashion of Lagarde’s statements we can see a scenario where she does not repeat this dovish message in the context of the policy meeting this week. We therefore see a chance that EUR 2Y rates will recalibrate higher again in response to the press conference when markets don’t get exactly what they are looking for. In the US there is also no guarantee that the nudge lower in rates we saw at the start of this week will extend. Markets have their eyes on a 2.0% core PCE inflation, in line with the Fed’s mandate that will be published on Thursday, which, if met, would keep the market pricing of a March rate cut as a realistic scenario. If, on the other hand, the actual number were to exceed 2.0%, even by a bit, we could imagine the market reacting more sensitively to such a disappointment. Similarly, we would expect an asymmetric reaction to the GDP growth figures, which our economist expects to come in firm on Thursday. On balance, if data come in as expected the further downside is moderate, but at least near term the potential could still be larger.   Tuesday's events and market views Japan will kick-off this week's central bank meetings but no change of the policy rate is expected. In terms of economic data releases Tuesday will be another light day. The EU Commission will publish the consumer confidence index and the ECB will release results of its bank lending survey. In the US we a few business indicators from regional Feds. It is the rest of the week will be of more interest, with eurozone PMIs on Wednesday, the ECB meeting and US GDP data on Thursday followed by the PCE on Friday. In primary markets Germany will sell 4Y and 30Y green bonds while the Netherlands taps a 15Y bond. The US Treasury sells new 2Y notes. In SSAs the EU has mandated syndicated taps of existing 7Y and 30Y bonds, which should also be Tuesday’s business.

This report is prepared for the Warsaw Stock Exchange SA within the framework of the Analytical Coverage Support Program 4.0     Event: Selected preliminary financial results for 2Q23. On September 12, during the WSE trading hours, Brandt24 released its selected consolidated 1H23 financial results featuring (i) revenues at c. PLN13.1 million vs PLN 10.3 million in 1H22, (ii) EBITDA at c. PLN 4.0 million of vs PLN 2.6 million in 1H22, (ii) EBIT at c. PLN 2.7 million vs PLN 1.4 million in 1.4 million in 1H22. After deducting 1Q23 results we are able to estimate some preliminary 2Q23 figures (see the table below).     2Q23 sales implied at PLN 6.7 million (up 25% yoy and 5% qoq) are a tad (by c. 3% or c. PLN 200,000 in absolute categories) higher than we expected (PLN 6.5 million), while EBITDA at PLN 2.1 million1 (up 52% yoy and 7% qoq) implies an increase of the EBITDA margin by c. 5 pp yoy (and qoq comparable increase) which indicates that in 2Q23 a yoy/ qoq growth of all the Company’s operating costs (excluding amortization) at 16%/5% was lower/ comparable to a yoy/ qoq growth of the Company’s revenues at 25%/ 5%. Brand24 will publish final consolidated 2Q23 and 1H23 results on October 2. We believe the implied preliminary figures are good and constitute some positive surprise, hence our slightly positive perception. On the other hand, the market’s reaction seems to have been overwhelmingly positive (a strong growth of the Company’s share price followed the release during Tuesday’s session), albeit by now this information should have been already discounted.

WSE, Warsaw Stock Exchange SA, Analytical Coverage Support Program 4.0, financial results, preliminary results, 2Q23, Brandt24, revenues, EBITDA, EBIT, sales, operating costs, amortization, market reaction, share price.     Event: Removal of the Company's shares from the monthly portfolio. We remove Brand24’s shares from the long list of our monthly portfolio. Brand24 is the company we prepare reports about commissioned by the Warsaw Stock Exchange SA within the framework of the Analytical Coverage Support Program 4.0.   The rationale behind the removal: (i) following the release of selected 2Q23 financial figures we do not see any ST positive catalysts for the Company’s share price, (ii) while oscillating around the current market level the PLN/US$ rate will exert (ceteris paribus) significantly negative impact on the Company’s 2H23E yoy results dynamic.  

Rates Spark: Treasuries need better than the consensus CPI outcome Markets are awaiting Tuesday’s US CPI release which should give confirmation that the disinflation trend continues. But that's not enough, as a consensus month-on-month outcome would still be a tad too hot for comfort. Looking further ahead, foreign buyers aren't absorbing large UST supply, putting upward pressure on term premium.   US CPI inflation will fall, but Treasury yields are still at risk of rising We're a bit troubled about Tuesday’s CPI report. On the one hand, year-on-year rates will fall, with practical certainty. That's because of a base effect. For January 2023 there was a 0.5% increase on the month, so anything less than this will bring the year-on-year inflation rate down, for both headline and core. So why are we troubled? It's the size of the month-on-month increases. Headline is expected at 0.2% and core at 0.3% MoM. The 0.2% reading is just about okay, especially if it is rounded up to 0.2%. But the 0.3% on core is not okay. That annualises to 4%, which is clearly too high. And it's been at 0.3% MoM for the past two months, and if repeated it would be three of the last four months. Again, that annualises to 4%. If we get the anticipated 0.3%, we doubt there can be a positive reaction. At the other extreme, a 0.4% outcome would be a huge negative surprise, one that would likely cause the probability for a May cut to move comfortably south of 50%. That would throw the easing inflation story up in the air, bringing US Treasury yield with them. But this is unlikely, as the tendency has been for inflation to dip as opposed to spike. We assume a consensus outcome for inflation, and given that, we'd expect to see the 10yr Treasury yield creeping towards 4.25%. For the market to conjure up a positive reaction to the inevitable fall in year-on-year rates, there needs to be a 0.2% MoM outcome for core   Foreign UST appetite not enough to absorb issuance The ECB's Lane spoke about financial flows and shared data that showed renewed interest by foreign investors in eurozone debt securities. Lane notes that foreign investors were a significant seller of eurozone government debt securities in 2021-2022, which matches the period of significant ECB balance sheet expansion. The trend reversed in 2023 when the ECB started unwinding its balance sheet and foreigners became net buyers again. With high debt issuance and a shrinking ECB balance sheet, the growing interest of foreign buyers is welcomed to keep long-end euro yields from rising too much.   In the US the amount of government debt to absorb in the coming years is even larger and foreign investors do not seem to come to the rescue. Looking at US foreign holding statistics in the figure below, we see that foreign holdings are diminishing as a share of total USTs. The significant issuance during the pandemic was not matched by an uptake from foreigners. Instead, as Lane also argued, in the eurozone the central bank was the big buyer. Looking at the downward trend of relative foreign holdings, it seems unlikely that foreign buyers have enough appetite to absorb the increase of USTs from the Fed and the Treasury in the coming years. Low demand from foreign buyers for USTs will have an upward effect on term premia, leading to structurally steeper curves.   Foreign UST holdings as share of public debt in decline   Tuesday's key data and events The main driver of markets will be the US CPI numbers of January. In the shadow of this we have Germany's ZEW survey in the eurozone. The UK's data-heavy week will kick off with employment figures on Tuesday, followed later this week by CPI and GDP data.  We have Italian 3y, 6y and 20y auctions totalling EUR 8.5bn, a GBP 1.5bn 9y Gilt Linker, and a EUR 5bn German Bobl auction.