pboc

Summary:  The USD is breaking higher still, with important levels falling versus the Euro and yen yesterday. But the pain in sterling is most intense as presaged by the lack of a response to surging UK rates. Can the Bank of England do anything but continue to chase inflation from behind, caught between the Scylla of inflation and the Charybdis of a vicious recession? Also, USDCNH lurks at the top of the range ahead of another PBOC rate announcement on Monday. FX Trading focus: USD wrecking ball swinging again. UK faced with classic ugly choice between taking the pain via inflation or a severe recession The US dollar strength has picked up further after yesterday saw the breakdown in EURUSD below 1.0100 and a shot through 135.50 in USDJPY as longer US yields pushed to local highs. GBPUSD has been a bigger move on sterling weakness as discussed below.  A bit of resilient US data (especially the lower jobless claims than expected and a sharp revision lower of the prior week’s data taking the momentum out of the rising trend) has helped support the USD higher as longer US yields rose a bit further, taking the 10-year US treasury yield benchmark to new local highs, although we really need to see 3.00% achieved there after a few recent teases higher with no follow through higher. Looking forward to next week, the market will have to mull whether it has been too aggressive in pricing the Fed to pivot policy next year on disinflation and an easy-landing for the economy. The steady drumbeat of Fed pushback against the market’s complacency, together with a few of the recent data points (ISM Services, nonfarm payrolls, yesterday’s claims, etc.) has seen some of the conviction easing. But the key test will come next Friday, when Fed Chair Powell is set to speak on the same day we get the July PCE inflation data. Keep USDCNH on the radar through the end of today on the risk of an upside break above the range and Monday as the PBOC is set for a rate announcement (consensus expectations or another 10 bps of easing).   Chart: GBPUSD Lots at stake for sterling as discussed below, as it is a bit scary to see a currency weaken sharply despite a massive ratcheting higher in rate expectations from the central bank. The fall of 1.2000 has set in motion a focus on the 1.1760 cycle low, with an aggravated USD rise here and tightening of global financial conditions possibly quickly bringing the spike low toward 1.1500 from the early 2020 pandemic outbreak panic into focus. It is worth noting that the lowest monthly closing level for GBPUSD since the mid-1980’s is 1.2156. Without something dramatic to push back against USD strength next week from Jackson Hole, it is hard to see how this month may set the new low water mark for monthly closes. Source: Saxo Group GBPUSD slipped below 1.1900 this morning after breaking below the psychologically important 1.2000 level yesterday. As noted in the prior update, it’s remarkable to see the marked weakness in sterling despite the marking taking UK short rates sharply higher – with 2-year UK swaps over 100 basis points higher from the lows early this month. The Bank of England has expressed a determination to get ahead of the inflation spike and the market has priced in a bit more than a 50-basis-points-per-meeting pace for the three remaining BoE meetings of 2022. But is that sufficient given the UK’s structural short-comings and external deficits? Currency weakness risks adding further to spike in inflation this year. The BoE can take a couple of approaches in response: continue with the 50 bps hikes while bemoaning the backdrop and trotting out the expectation that eventually, economic weakness and easing commodity prices will feed through to drop inflation back into the range. Or, the BoE can actually get serious and super-size hikes even beyond the acceleration the market has priced, at the risk of bringing forward and increasing the severity of the coming recession. Until this week, the BoE’s anticipated tightening trajectory had prevented an aggravated weakness in sterling in broader terms, but the currency’s weakness despite a massive mark-up of BoE expectations has ratcheted the pressure on sterling and the BoE’s response to an entirely new level. Turkey shocked with a fresh rate cut yesterday of 100 basis points to take the policy rate to 13.00%. This with year-on-year inflation in Turkey at 79.6% and PPI at 144.6%, and housing measured at 160.6%. The move took USDTRY above 18.00, though it was a modest move relative to the size of the surprise. Turkish central bank chief Kavcioglu said that the bank would also look to “further strengthen macroprudential policy” by addressing the yawning difference between the policy rate and the rate commercial banks are charging for loans (more than double the official policy rate), as the push is to continue a credit-stimulated approach, inflation-be-darned.   Table: FX Board of G10 and CNH trend evolution and strength Note: a new color scheme for the FX Board! Besides changing the green for positive readings to a more pleasant blue, I have altered the settings such that trend readings don’t receive a more intense red or blue coloring until they have reached more significant levels – starting at an absolute value of 4 or higher. So far, most of the drama in sterling is the lack of a response to shifts in the UK yield curve, the broad negative momentum has only shifted a bit here, but watching for the risk of more. Source: Bloomberg and Saxo Group Table: FX Board Trend Scoreboard for individual pairs AUDNZD is crossing back higher, AUDCAD back lower, so NZDCAD….yep. Note the CNHJPY – if CNH is to make more waves, need to see more CNH weakness in an isolated sense, not just v. a strong USD. And speaking of a strong USD, the last holdouts in reversing, USDNOK and USDCHF, are on the cusp of a reversal. Source: Bloomberg and Saxo Group Upcoming Economic Calendar Highlights (all times GMT) 1230 – Canada Jun. Retail Sales 1300 – US Fed’s Barkin (Non-voter) to speak   Source: FX Update: USD surging again, GBP spinning into abyss

Banks in China left the 1Y loan prime rate unchanged but cut 15bp on the 5Y rate. This signals banks are supporting mortgage borrowers  We think residential construction activity in China will contract in 2022 15bp cut in loan prime rate It was surprising that banks did not cut the 1Y loan prime rate at all this month. It could be that banks chose to leave rate-cut room for long term loans, and instead, cut 15bp from the 5Y loan prime rate.  Further 5Y rate cut possible Most home mortgages are linked to the 5Y loan prime rate. So this rate cut is obviously to reduce the burden on borrowers. At the same time, some local governments have started to lend to property developers to continue the construction of uncompleted homes. The two measures together should reduce the concern of existing home mortgage borrowers. We expect there will be at least one more 5Y loan prime rate cut in 2022.  When the market sees progress in the construction of uncompleted projects, we may see an improvement in home buying sentiment and home prices should stabilise. Potential home buyers might then consider buying homes for their first purchase or upgrades for existing homeowners. We may start to see signs of this improvement from 4Q2022 to 1Q2023.  Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Company does not offer investment advice and the analysis performed does not guarantee results. Asian stock markets were mixed on Monday. The Shanghai Composite and the Shenzhen Composite gained 0.57% and 0.64% respectively, while the Hang Seng Index went up by 0.12%. The Nikkei 225 decreased by 0.55%, the S&P/ASX 200 fell by 0.96%, and the KOSPI lost 1.15%. Investors are awaiting new information from Fed chairman Jerome Powell regarding the further monetary policy course of the US central bank. Powell is set to give a speech this week. Furthermore, market players took note of the Chinese central bank decreasing two of its key interest rates. The People's Bank of China cut its one-year loan prime rate to 3.65% from 3.7%. The five-year rate was cut to 4.3% from 4.45%. The move was not unexpected – earlier, the PBoC decreased its medium-term lending facility loan rate by 10 basis points to 2.75%. The Chinese central bank's rate cuts are aimed at boosting the country's economic growth, which has slowed down due to rising energy prices, weak property market, and COVID-19 lockdowns. On the Hang Seng Index, the biggest movers were Agile Group Holdings, Ltd. (+6%), CIFI Holdings (Group), Co. (+7%), Country Garden Holdings, Co., Ltd. (+3%), and China Resources Land, Ltd. (+2%) Shares of Sinopec Engineering (Group), Co. gained 4% after the company reported that its net profit increased by 0.6% in the first half of 2022. In Japan, the worst-performing stocks on the Nikkei 225 were Hino Motors, Ltd. (-3.5%), CyberAgent, Inc. (-3.1%), and Nippon Sheet Glass Co., Ltd. (-2,9%). The share price of Ai Holdings, Corp. advanced by 5%, thanks to the company's net profit jumping by 32% in the previous fiscal year. In South Korea, Samsung Electronics, Co. and Hyundai Motor, Co. lost 1.6% and 0.5% respectively. In Australia, BHP shed 0.2%, while Rio Tinto declined by 0.53%. Shares of NIB, Ltd. gained 6.6% thanks to the company's operating profit exceeding market expectations. Source: Forex Analysis & Reviews: Asian markets close mixed on Monday

The People's Bank of China (PBOC) is focusing on its efforts to curb bitcoin transactions. The reason is that the bank sees virtual currency transactions as a threat to the country's financial security and capital controls, especially since China is currently facing a slowdown in the economy and property crisis. Reportedly, China's share of global bitcoin transactions fell to 10% in March, which is a significant drop from a peak of 90% in 2017. This is the result of the government's crackdown on trading and mining activities, as well as on the ban over NFTs (non-fungible tokens) and IPOs (initial coin offerings). But despite these efforts, China still ranks among the top 10 countries that adopt cryptocurrencies. This shows that the ban was either "ineffective" or "poorly enforced." It is also particularly strong in the use of centralized services, ranking second in terms of purchasing power-adjusted transaction volume at both general and retail levels.   Relevance up to 09:00 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/323008

The People’s Bank of China (PBoC) will continue to effectively manage market expectations of the CNY exchange rates. In the view of economists at Commerzbank, authorities would like a USD/CNY return to the 7 level. PBoC will allow the CNY to depreciate against the USD in a controllable manner  “We expect the PBoC will continue to use the daily fixing as the main tool to manage the CNY. It could supplement this with other instruments to manage foreign currency liquidity in China.” “We suspect the PBoC will allow the CNY to depreciate against the USD in a controllable manner, provided currencies of China’s major trading partners are also depreciating against the USD. This will keep the CNY relatively stable on a trade-weighted basis.”  “From a medium-term perspective, it’s likely that the PBoC would prefer USD/CNY to return to the 7 mark.”

Summary: In the biggest economy in the world, the jobless rate rose from 3.5% to 3.7% last month. The real worth of UK private wealth portfolios decreased by up to one-third. Beijing is working to tighten its control over the nation's digital sector. US Unemployment rate rises In October, the U.S. economy created 261,000 new jobs, according to Bureau of Labor Statistics data. The carefully watched reading from last Friday was lower than the upwardly revised amount of 315,000 in September but still higher above economists' projections of 200,000. In the biggest economy in the world, the jobless rate rose from 3.5% to 3.7% last month. The number was expected to increase to 3.6%, according to economists. However, a jump in the unemployment rate to 3.7% signaled some easing in labor market conditions, which would allow the Federal Reserve to tilt towards smaller interest rate hikes beginning in December. In October, U.S. firms employed more workers than anticipated. 200,000 jobs were predicted by economists surveyed by Reuters, with estimates ranging from 120,000 to 300,000. After rising 5.0% in September due to the removal of previous year's significant increases from the computation, wages climbed by 4.7% annually in October. Additionally, other pay metrics have cooled off, which is positive for inflation. The Fed impact on Unemployment The Fed announced a fresh 75 basis point increase in interest rates on Wednesday and warned that future increases in borrowing costs will be necessary to combat inflation, but it also hinted that it may be nearing the end of the sharpest tightening of monetary policy in 40 years. Because businesses have been replacing workers who would have gone, job growth has remained strong despite a decline in domestic demand and an increase in borrowing prices. However, with recession threats rising, this practice may soon come to an end. According to a poll released by the Institute for Supply Management on Thursday, some businesses in the services sector "are delaying backfilling available positions" because of the unstable economic climate. ⚠️BREAKING:*U.S. UNEMPLOYMENT RATE RISES TO 3.7% AS ECONOMY ADDS 261,000 JOBS IN OCTOBER 🇺🇸 🇺🇸 pic.twitter.com/Z0fiqgAI5X — Investing.com (@Investingcom) November 4, 2022 UK Private wealth portfolios under pressure In the first nine months of this year, the real worth of UK private wealth portfolios decreased by up to one-third on average as people's purchasing power was hammered by a combination of investment losses, inflation, and a weak pound. According to research by Asset Risk Consultants (ARC), which examined the performance of strategies employed by more than 100 significant UK wealth managers, UK wealth management portfolios lost about 10% on average in the year ending in September, but price increases and the decline in the value of the pound against the US dollar increased the losses. The numbers demonstrate that for UK investors this year, inflation and currency fluctuations have destroyed much more real value than the concrete losses on investment portfolios. Investors, according to Harrison, frequently think of their wealth in terms of a fixed amount and fail to mentally adapt when the purchasing power of their assets changes. The sector responsible for managing the wealth of wealthy families is predicated on the principle of protecting money, therefore the losses will cause wealth managers and their customers to have difficult conversations. UK private wealth portfolios down by up to a third https://t.co/TnUgAX5XGA — Finance News (@ftfinancenews) November 4, 2022 PBoC trying to control digital sector The Chinese central bank is having trouble persuading more than a dozen top internet companies to meet a deadline in December for sharing user data with state-backed credit-scoring firms. Beijing is working to tighten its control over the nation's digital sector and consumer financing, which is why there is a dispute over who should govern access to the internet companies' enormous troves of user data. According to insiders briefed on the negotiations, the People's Bank of China asked Tencent, Meituan, and other significant platforms to provide user data with two state-backed businesses, Baihang and Pudao, by the beginning of next month. This data includes everything from shopping records to travel histories. PBoC struggles to impose personal data regime on China’s tech groups https://t.co/Olv9Tl3iMK — Finance News (@ftfinancenews) November 4, 2022 Sources: ft.com, investing.com, twitter.com

The People's Bank of China cut the required reserve ratio by 0.25 percentage points to support economic growth, as the economy continues to be dragged down by the rising number of Covid cases and real estate crisis Leading members of the People's Bank of China, including Governor, Yi Gang (waving)   China's central bank to cut RRR by 0.25 percentage points from 5 December China's central bank, the PBoC, is going to cut its required reserve ratio (RRR) by 0.25 percentage points from 5 December, for all banks except those already charging a 5% RRR. This should release CNY500 billion of liquidity for banks to lend out. The last time the PBoC cut the RRR was in April. How can the PBoC get the most out of this RRR cut? Our view is that if the RRR cut is the only monetary policy tool that the PBoC is going to implement, it may not lead to a significant increase in bank lending. This is especially the case when it comes to lending to SMEs. This is because credit quality of smaller companies deteriorates faster than it does for big corporates when the economic environment worsens. Companies are currently facing weaker retail sales from a higher number of Covid cases and falling home prices from unfinished home projects. What I expect is that the PBoC will exercise some form of unconventional monetary policy to increase the effectiveness of this RRR cut. This unconventional monetary policy could include raising the quota of re-lending programmes for SMEs, increasing matching loans for the construction of unfinished residential projects, and it could also be possible that there will be some guidance to commercial banks to increase loan growth. If there are accompanying policies to increase bank lending other than just cutting the RRR, job losses in December could be stable. Otherwise, we might see another increase in job losses, and retail spending will fall further. TagsRRR Real estate PBoC Covid China's weak economy Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Summary:  Dramatic scenes of widespread protests in China against Covid policies there have pulled sentiment lower, with US yields dipping to new local lows and crude oil prices pushing on cycle lows even after Friday’s drop. The USD has firmed against most currencies, but the Japanese yen is stronger still as the fall in yields and energy prices support the currency. This is a sudden powerful new distraction for markets when this week was supposed to be about incoming US data.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures failed to touch the 200-day moving average in Friday’s trading retreating slightly into the weekend. This morning the index futures are continuing lower bouncing around just above the 4,000 level. The US 10-year yield declining to 3.65% with the 3.5% level being the likely downside level the market is eyeing is naturally offering some tailwind for equities in the short-term. However, the key dynamic to get right now in the medium term is the potential earnings recession caused by margin compression as the economy slows down and wage pressures remain high. Hong Kong’s Hang Seng (HISX2) and China’s CSI300 (03188:xhkg) Mainland China and Hong Kong stock markets retreated as investors were wary about the surge in daily new Covid cases across China and the outburst of anti-strict-control protests in several mega cities, including Beijing and Shanghai. The cut in reserve requirement ratio by the central bank on Friday evening did not give the market much of a boost. Hang Seng Index and CSI 300 plunged more than 2% each. The China internet space fell 2%-5%. Macao casino stocks bucked the trend and rallied following the Macao SAR Government’s announcement to renew casino licenses with all incumbent operators. Wynn Macau (01128:xhkg) jumped nearly 16%. The three leading Chinese catering chains listed in Hong Kong gained 4% to 6%. USD and JPY firm overnight as Chinese Covid protests drag on risk sentiment The US dollar was higher overnight against most currencies even as US treasury yields hit new cycle lows as widespread protests in China against the Covid policies there are weighing heavily on risk sentiment. Hardest hit among G10 currencies has been the Aussie, with AUDUSD trading back below 0.6700 after pulling above 0.6780 at one point on Friday. USDCNH jumped above the important 7.200 level. The hit to yields and perhaps lower crude oil prices are driving a strong revival in the Japanese yen, which traded higher even against the US dollar overnight, taking USDJPY back toward the recent lows overnight. This is a sudden new distraction for FX traders, when this week was supposed to be all about the incoming US economic data, including the October PCE inflation data up on Thursday and the November jobs data on Friday. Crude oil plunges as China unrest rattles markets A weak sentiment spread across commodities as markets opened in Asia with crude oil, copper and iron ore all trading sharply lower following a weekend that saw waves of unrest in China, the world's biggest consumer of raw materials. Protest and boiled up frustration against President Xi’s increasingly unpopular anti-virus curbs erupted over the weekend, raising the threat of a government crackdown. While the short-term demand outlook may take a hit and add further downside pressure to prices, the eventual reopening is likely to be supported by massive amounts of stimulus. The market is also watching ongoing EU price cap discussions, next week’s OPEC+ meeting and rollout of an embargo on seaborne Russian crude and Chevron receiving a license to resume oil production in Venezuela. Gold (XAUUSD) Gold trades unchanged with safe haven bids in bonds and the dollar offsetting each other, while silver (XAGUSD), due to its industrial metal link, trades down more than 2% following a weekend of covid restriction protests across China. After finding support in the $1735 area last week, a break above $1765 may signal a return to key resistance at $1788, but lack of ETF buying still makes it hard to confirm a major change in direction. Aside from China, the market will be watching incoming US data for any signs of a slowdown in the pace of future rate hikes (see below) US treasuries find safe haven appeal, driving new local lows in yields. (TLT:xnas, IEF:xnas, SHY:xnas) The risk-off mood overnight is driving strong safe haven flows into US treasuries, as the 10-year benchmark traded to new local lows below 3.65%, with little room left to the pivotal 3.50% level. The 2-10 yield slope hit a new cycle extreme of –80 basis points overnight, a deepening indication of an oncoming recession. The 3-month treasury bills vs 10-year treasury notes spread went to minus-64bps, a level usually seen within 12 months preceding the onset of a recession. For a detailed discussion of our take on the outlook of bonds, please refer to this note we published last Friday. This week, interesting to see how the market balances the implications of what is unfolding in China versus incoming data in the US, especially the November jobs report on Friday. What is going on? Protests against Covid lockdowns in several Chinese cities Anger over suspected delays to rescue from a deadly fire burst into anti-lockdown protests in Xinjiang. After a fire at a locked-down apartment killed 10 people, hundreds of angry residents in Urumqi, Xinjiang took to the street to protest against the Covid lockdown imposed more than three months ago. Meanwhile, daily new cases shot up to a record high of 40,052, with Beijing, Guangzhou, Chongqing, and Shanghai significantly tightening movement restrictions. Video footage and photos on social media showed that protests against Covid restrictions sprang up in several other cities over the weekend, including Wuhan, Nanjing, Beijing, and Shanghai. China’s PBOC cut the reserve requirement ratio (RRR) by 25bps The People’s Bank of China (PBOC) announced a reduction of 25bps for all banks except for some small which had already had their RRR cut to 5% earlier. The weighted average of RRR across all banks falls to 7.8% from 8.1% after the latest move. The PBOC projects that the reduction in RRR will make available to banks an additional RMB400 billion. The 25bps cut this time, the same as the cut in April this year, was small by historical standards when 50bp or 100bp cuts seemed to be the norm. It helps improve banks’ funding costs, but it may do little to boost the economy as the demand for loans is subdued. The U.S. bans telecommunications equipment from China’s Huawei, ZTE and more The U.S. Federal Communications Commission said on Friday that the U.S. had decided to ban the import and sale of telecommunication equipment from China’s Huawei Technologies, ZTE, Hytera Communications, and surveillance equipment makers Dahua Technology and Hangzhou Hikvision Digital Technology. The U.S. regulator said these Chinese telecommunication equipment makers pose “an unacceptable risk” to U.S. communication networks and national security. RBA’s Lowe still sees a strong demand; but retail sales turned negative The Reserve Bank of Australia Governor Lowe appeared before the Australian parliament's Senate Economics Legislation Committee and said that demand is still too strong relative to supply. He said he is unsure about labor market, and wage growth is consistent with inflation returning to target. He was worried about housing supply and expects to see rental pressure over the next year. Australia’s October retail sales, however, dipped into negative territory for the first time this year, coming in at -0.2% MoM vs. expectations of +0.5%. Chevron gets US license to pump in Venezuela Chevron had been banned from pumping due to US sanctions against the government of Venezuelan President Nicolás Maduro. But WSJ reported that on Saturday, the US said it will allow Chevron to resume pumping oil from its Venezuelan oil fields. The shift may open the door to other oil companies that had operated previously in Venezuela, despite the near-term headwinds and the massive investments that may be needed. Bullard and Powell speak – pushback against easing financial conditions? While the economic data continues to slow, and markets continue to cheer on that, it will key for Fed members to bring the focus back to easing of financial conditions and consider what that means for inflation. Chicago Fed national financial conditions index eased further in the week of November 18, bringing financial conditions to their easiest levels since May. Most of the Fed members that have spoken since that soft CPI release for October have pushed back against pivot expectations, but it hasn’t been enough. Further pushback is still needed if the Fed is serious about bringing inflation under control, and only the most hawkish members of the committee Bullard and Powell may be able to deliver that. Both will be on the wires this week. Bullard speaks on Monday while Powell discusses the economic outlook and labor market on Wednesday. Other Fed members like Williams, Bowman, Cook, Logan and Evans will also be on the wires. Commodity companies exposed to China are vulnerable for further pull backs This week focus is on companies exposed to China, given forward earnings are likely to be downgraded following further China lockdowns and protests. Be cautious that investors could be looking to take profits or write options for downside protection in commodity exposed equites. Also note, on Friday fresh data showed that the major iron ore companies, BHP, Rio, Fortescue, are likely to be shipping almost 6% less than last year, in the final quarter of this year, and if lockdowns worsen, iron ore shipments could continue to fall and hurt iron ore majors' forward earnings and shares. On Monday in Asia, the iron ore (SCOA) fell 1.6% dragging down shares of ASX listed BHP, and Rio Tinto, who both lost about 1%+. What are we watching next? Weighing the sudden new intrusion of the Chinese protests story versus incoming US data The recent narrative has been that markets have room to celebrate the downward shift in Fed tightening expectations and hopes that an eventual opening up of China’s economy will help boost global growth. The widespread protests at the weekend have changed the plot, driving new uncertainty on how things will develop and possibly outweighing a considerable portion of the implications of the next important data macro data points out of the US, especially the Friday November jobs report. As well, we’ll have a look at the ISM Manufacturing survey for the month on Thursday. The situation in China aside (which it won’t be), the question for the run-up into the December 14 FOMC meeting and in the month or so beyond is how long the market can continue to celebrate the Fed easing off the accelerator, when the reason it is doing so is that economic slowing and an eventual recession threaten. Normally, a recession is associated with poor market performance as profits fall and credit risks mount. Apple production risk is on the rise. The protests in China and the unrest around Apple’s largest manufacturing hub for its iPhone could lead to a production shortfall of close to 6mn iPhone Pro which was a Morgan Stanley estimate and was published before the intensified issues at the Apple manufacturing site. Earnings to watch 98% of the S&P 500 companies have reported Q3 earnings reducing the earnings release impact from US equities. But European and Chinese companies are still reporting although the volume of earnings releases is also getting lower. Key earnings release to watch today is Pinduoduo which is expected to grow revenue by 44% y/y with EBITDA margin expanding to 21.2% as their online marketing revenue and uptake remain strong despite the slowing Chinese economy. Monday: Pinduoduo, Capitaland, H World Group Tuesday: Li Auto, DiDi Global, Bank of Nova Scotia, Intuit, Workday, Crowdstrike, HP Enterprise, NetApp, Shaw Communication Wednesday: Royal Bank of Canada, National Bank of Canada, Salesforce, Synopsys, Snowflake, Splunk, Hormel Foods, KE Holdings Thursday: Canadian Imperial Bank of Commerce, Bank of Montreal, Toronto-Dominion Bank, Marvell Technology, Veeva Systems, Ulta Beauty, Zscaler, Dollar General, Kroger Economic calendar highlights for today (times GMT) 1400 – ECB President Lagarde to speak 1530 – US Nov. Dallas Fed Manufacturing 1700 – US Fed’s Williams (voter) to speak 1700 – Us Fed’s Bullard (voter 2022) to speak 2330 – Japan Oct. Jobless Rate/Retail Sales Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: https://www.home.saxo/content/articles/macro/market-quick-take-nov-28-2022-28112022

EU There are a number of economic releases on the calendar next week but it’s almost entirely made up of tier two and three data. That includes final PMIs, revised GDP and retail sales.  The most notable events for the EU over the next week are speeches by ECB policymakers ahead of the last meeting of the year a week later – including President Lagarde on Monday and Thursday – and the final negotiations on the Russian oil price cap as part of a package of sanctions due to come into force on Monday. UK  Compared with the soap opera of the last few months, next week is looking pretty bland from a UK perspective. A couple of tier two and three releases are notable including the final services PMI, BRC retail sales monitor and consumer inflation expectations. I’m not convinced any will be particularly impactful, barring a truly shocking number. Russia The most notable economic release next week is the CPI on Friday which is seen moderating further to 12% from 12.6% in October, potentially allowing for further easing from the CBR a week later. South Africa Politics appears to be dominating the South African markets at the moment as efforts to impeach President Cyril Ramaphosa go into the weekend. The rand has seemingly been very sensitive to developments this week, with the prospect of a resignation appearing to trigger sharp sell-off’s in the currency and the country’s bonds. Under the circumstances, that could bring weekend risk for South African assets depending on how events progress over the coming days.  On the data front, next week brings GDP on Tuesday and manufacturing production on Thursday.  Turkey Ordinarily, especially these days, inflation releases are widely followed but that is less the case for a country and central bank that has such little interest in it. Official inflation is expected to ease slightly, but only to 84.65% from 85.51% in October, hardly something to celebrate. The central bank has indicated that its easing cycle will now pause at 9% so perhaps another reason to disregard the inflation data. Switzerland A quieter week after one of repeated disappointment on the economic data front. Whether that will be enough to push the SNB into a slower pace of tightening isn’t clear, although it has repeatedly stressed the threat of inflation and need to control it. The meeting on 15 December remains this months highlight while next week has only unemployment on Wednesday to offer. China The PBOC announced on 25 November its decision to cut the reserve requirement ratio for banks by 25 basis points, lowering the weighted average ratio for financial institutions to 7.8% and releasing about 500 billion yuan in long-term liquidity to prop up the faltering economy.   In response to the various property crises that have emerged in the real estate sector over the past year or so, i.e. debt defaults by real estate companies, mortgage suspensions leading to unfinished buildings, and real estate-related non-performing loan crises, the Chinese government has issued a new 16-point plan. Focus next week will be on the Caixin services PMI, trade data, CPI release and the protests. China’s strict zero-Covid measures are hammering growth and the public is clearly becoming increasingly frustrated. It will be a fine balance between managing protests and easing Covid-zero measures to support growth in a country not used to the former. India The RBI could potentially bring its tightening cycle to a close next Wednesday with a final 35 basis point hike, taking the repo rate to 6.25%. While the outlook remains cloudy given the global economic outlook, there is some reason to be optimistic. The tightening cycle may soon be at an end, the economy exited recession in the last quarter and Indian stock hit a record high this week, something of an outlier compared with its global peers. Australia & New Zealand Recent figures show that inflation (YoY) in Australia rose to 7.3% in the third quarter, compared to the target range of 2%-3%. The RBA began to weaken their hawkish stance in the past two months, raising rates by just 25 basis points each time to bring the official rate to 2.85%. The market is currently expecting a 25 basis point rate hike next week as well. Also worth noting is Australia’s third quarter GDP trade balance figures. New Zealand inflation (YoY) surged 7.2% in the third quarter, compared to the RBNZ’s inflation target range of 1%-3%. Previously, the RBNZ had been raising rates by 50 basis points but that changed last month as they ramped it up with a 75 basis point hike. The current official rate is now 4.25%. Japan The Japan Tokyo CPI rose by 3.8% year-on-year in November, up from 3.5% in October and the 3.6% expected. Ex-fresh food and energy it increased by 2.5%, up from 2.2% and above the 2.3% expected. Japan’s manufacturing PMI fell to 49.4 in November, the worst in two years, with both new export orders and overall new orders declining and falling below 50 for the fifth consecutive month, which alines with the unexpected 0.3% fall in Japanese GDP in the third quarter. Japan department store sales rose 11.4% year-on-year in October, down from 20.2% in September.    The poor PMI and retail sales data may have reinforced the BOJ’s view that domestic demand is weak and CPI inflation is largely input and cost driven and, therefore, unsustainable. The central bank will likely continue to pursue an accommodative monetary policy, especially in light of the current poor global economic outlook. Final GDP for the third quarter is in focus next week, with the quarterly figure expected to be negative meaning the economy may be in recession. Lots of other releases throughout the week but the majority, if not all, are tier two and three. Singapore Singapore’s CPI for October was 6.7% (YoY), below expectations of 7.1% and the 7.50% reading. GDP for the third quarter (YoY) was 4.1%, below expectations of 4.2% and 4.40% previously. On the quarter, it was 1.1% down from 1.50%. Next week the only release of note is retail sales on Monday. Economic Calendar Saturday, Dec. 3 Economic Events ECB President Lagarde chairs a roundtable on “The Global Dimensions of Policy Normalization” at a Bank of Thailand conference Sunday, Dec. 4 Economic Data/Events Thailand consumer confidence OPEC+ output virtual meeting ECB’s Nagel and Villeroy appear on German television Monday, Dec. 5 Economic Data/Events US factory orders, durable goods orders, ISM services index Eurozone Services PMI Singapore Services PMI Australia Services PMI, inflation gauge, job advertisements, inventories China Caixin services PMI India services PMI Eurozone retail sales Japan PMI New Zealand commodity prices Singapore retail sales Taiwan foreign reserves Turkey CPI European Union sanctions on Russian oil are expected to begin ECB President Lagarde gives a keynote speech on “Transition Towards a Greener Economy: Challenges and Solutions” ECB’s Villeroy speaks at a conference of French banking and finance supervisor ACPR in Paris ECB’s Makhlouf speaks in Dublin EU finance ministers meet in Brussels The US Business Roundtable publishes its CEO Economic Outlook survey Tuesday, Dec. 6 Economic Data/Events US Trade Thailand CPI RBA rate decision: Expected to raise Cash Rate Target by 25bps to 3.10% Australia BoP, net exports of GDP Germany factory orders, Services PMI Japan household spending Mexico international reserves South Africa GDP Georgia’s US Senate runoff The first-ever EU-Western Balkans summit is held in Albania Goldman Sachs Financial Services conference Wednesday, Dec. 7 Economic Data/Events US Trade MBA mortgage applications China reserves, Trade Australia GDP, reserves Eurozone GDP Canada central bank (BOC) rate decision: Expected to raise rates by 25bps to 4.00% India central bank (RBI) rate decision: Expected to raise rates by 25bps to 6.15% Poland central bank rate decision:  Expected to keep rates steady at 6.75% Singapore reserves Germany industrial production Japan leading index BOJ’s Toyoaki Nakamura speaks in Nagano EIA crude oil inventory report Foreign policy forum is held in Moscow with Russian Foreign Minister Lavrov speaks at a foreign policy forum in Moscow. Thursday, Dec. 8 Economic Data/Events US initial jobless claims Australia trade Indonesia consumer confidence Japan GDP, BoP Mexico CPI New Zealand heavy traffic index South Africa current account, manufacturing production ECB President Lagarde speaks at the European Systemic Risk Board’s sixth annual conference SNB’s Maechler participates in a panel discussion ECB’s Villeroy speaks at the Toulouse School of Economics European Defence Agency holds its annual conference in Brussels Friday, Dec. 9 Economic Data/Events US PPI, wholesale inventories, University of Michigan consumer sentiment China CPI Russia CPI  China PPI, aggregate financing, money supply, new yuan loans Japan M2 New Zealand card spending, manufacturing activity Spain industrial production Thailand foreign reserves, forward contracts Portuguese PM Costa, Spain PM Sanchez, and French President Macron attend a meeting in Spain Sovereign Rating Updates United Kingdom (Fitch) EFSF (Moody’s) ESM (Moody’s) Netherlands (Moody’s) Saudi Arabia (Moody’s) This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.  

Summary:  Last week, bonds, commodities, and equities markets got a lift from a Powell speech that seems to have passed the peak hawkishness for now and a new round of encouraging signs of easing pandemic control restrictions in China and braved the hotter-than-expected wage inflation data on Friday. A light economic and earnings calendar plus the Fed entering into a blackout period before the December FOMC, this week will provide investors time to reassess and rebalance their portfolios in the final month of the year. In China, the politburo meeting will be a key event to monitor. US data watch continues as Fed goes into a quiet period Last week was quite a whipsaw for the markets after a dovish reaction to Fed Chair Powell’s speech which failed to add any new information for the markets that have been trained for a hawkish surprise from him over the last few months, to an expectedly higher US NFP print and a jump in the average hourly earnings data for November as well as October revision on Friday which showed sustained tightness in the labor markets. The Fed now goes into a quiet period ahead of the December 14-15 meeting so the focus turns to incoming data (or WSJ’s Nick Timiraos articles/tweets) for further direction in the yields and the dollar. US 10-year yields traded below the support at 3.50% at Friday’s close despite turning higher after the NFP, and the reaction of the dollar was also short-lived. Key data to watch this week will be the ISM services today, to see if the market is gaining sensitivity to recession concerns or still trying to celebrate the slower pace of rate hikes, and PPI on Friday which will likely continue to show a modest deceleration. China’s Politburo meeting is a key event to watch Before the Central Economic Work Conference convenes in mid/late December, the Chinese Communist Party’s Politburo will meet in early December to discuss economic policies and establish the direction and policy framework for the work conference. Investors will pay close attention to the readout from the Politburo meeting for hints about the macroeconomic policy priorities and how they are balanced with the pandemic control strategy. China’s inflation is expected to have moderated in November The Bloomberg consensus is expecting China’s PPI to shrink further by -1.5% Y/Y in November (vs Oct: -1.3% Y/Y) and CPI to slow to +1.6% in November from +2.1% in October. Weak industrial demand in the midst of countrywide pandemic control-related restrictions during the month and weakness in energy prices would likely have contributed to the decline in the PPI. November CPI would have been dragged by base effects and weakness in food prices. China’s new aggregate financing and RMB loans are expected to have bounced in November Market economists, as surveyed by Bloomberg, are expecting China’s new aggregate financing to bounce to RMB 2,100 billion in November from RMB 907.9 billion in October and new RMB loans to rise to RMB 1,350 billion in November from RMB 615.2 billion as People’s Bank of China urged banks to extend credits to support private enterprises including property developers. Less bond issuance by local governments and corporate and weak loan demand however might have weighed on the pace of credit expansion in November. Australia’s central bank to hike rates by 0.25% for the third straight month. What else to watch down under? On Tuesday the Australian dollar will be a focus with the RBA expected to make its 3rd consecutive quarter-point hike, taking the cash rate from 2.85% to 3.1%. Australian monthly inflation data out two weeks ago showed AU inflation is slowing, while weaker than expected jobs data also supports the RBA remaining dovish. However, the closely watched inflation quarterly print is due out early next year, and will be a more accurate reflection of price rises. It will likely show inflation is more sticky with food and energy prices rising, which is contrary to what the monthly CPI alluded to. The bottom line is, the monthly CPI was a little delusionary. At Saxo, we see energy prices continuing to rise into 2023, which is also line with the RBA’s view. Especially as coal prices are back at record high territory ahead of peak demand season. Meanwhile consider the AUDUSD is up ~10% from its October low on hopes of commodity demand picking up from China, with major cities increasingly start to ease restrictions. As for what else to watch in Australia; third-quarter GDP growth data is released on Wednesday; expected to show GDP grew at 6.2% YoY. Then on, Thursday Australia’s trade data and balance is released for October; expected to show a softening, with the trade surplus expected to fall from $12.4 billion to $11.8 billion. Still the AUDUSD is up ~10% from its October low on forwarding thinking that commodity demand from China will increase as some major cities have started to ease restrictions. G7 sets in a price cap for Russian oil, to kick in from Monday The G7 nations have agreed to cap the price of Russian seaborne oil at $60/barrel, with a motive to diminish Russia’s revenues. This price cap is to go in effect on December 5, and represents a discount of ~$27 to the current price for Brent crude, but Urals has been trading at a discount of about $23 in recent days. However the risk of setting a price cap too low is that Russia could slash its output, which would roil markets. It will be important to watch for Russia’s reaction this week, after Putin has repeatedly said that they will not supply oil to countries that implement the price cap. Key earnings Earnings next week are a mish-mash of companies, and include high-end homebuilder Toll Brothers on Tuesday, as it will be interesting to hear their outlook on the new home market after the enormous surge in US mortgage rates and collapse in home sales activity. Broadcom (AVGO: xnas) is the market cap giant of the week to report, with the CEO of the company having said that the semiconductor market will not be affected by the US’ new export restrictions on technology to China.   Key economic releases & central bank meetings this week Monday, Dec 5 U.S. ISM Services (Nov)Eurozone Sentix (Dec)Eurozone Retail Sales (Oct)China Caixin PMI Services (Nov)Singapore Retail Sales (Oct) Tuesday, Dec 6 Germany Factory Orders (Oct)U.K. PMI Construction (Nov)Japan Consumer Spending (Oct)Japan Total Cash Earnings (Oct)Australia Reserve Bank of Australia Policy Meeting (Dec) Wednesday, Dec 7 Germany Industrial Production (Oct)Eurozone GDP (Q3, final)Japan Reuters Tankan (Manufacturing) (Dec)Japan Economic Coincident Index (Oct)China Exports (Nov)Australia Real GDP (Q3) Thursday, Dec 8 U.S. Initial Jobless Claims (Dec 3)Japan GDP (Q3, sec)Japan Current Account (Oct) Friday, Dec 9 U.S. PPIU.S. University of Michigan Consumer Sentiment (Dec)Japan M2 (Nov)China PPI (Nov)China CPI (Nov) From Dec 9 to 15 (not fixed) China New RMB Loans, Aggregate Financing, and Money Supply (Nov) Key earnings releases this week Tuesday: MongoDB, AutoZone, Toll Brothers, FergusonWednesday: Brown Forman, Campbell Soup, GameStopThursday: Broadcom, Costco, Lululemon, ChewyFriday: Oracle Corp, Li Auto Source: Saxo Spotlight: What’s on the radar for investors & traders for the week of 5-9 Dec? US PPI, China’s Politburo meeting, RBA policy meeting | Saxo Group (home.saxo)      

The beginning of the week seems to have started with a continuation of the rally in risky assets, which is beginning to resemble the proverbial Santa Claus Rally. The U.S. dollar cheapened at a rate not seen in 12 years, stock market indexes and precious metals climbed. One of the reasons for the improvement in market sentiment is cited as the loosening of Covid-related restrictions by Chinese authorities. Protests on the streets and weaker data from the local economy may have pressed policymakers so hard that they decided to make partial concessions. According to tradingeconomics, the Caixin China General Services PMI fell to 46.7 points in November 2022 from 48.4 in October, indicating the 3rd consecutive month of decline. It was also the steepest decline in the services sector since May, due to Covid's restrictive measures, which could affect demand and service activity. New orders fell the most in six months, with employment contracting at the fastest pace since the survey began in November 2005. Meanwhile, export orders began to rise again as overseas demand picked up after regulations on international travel were eased. In addition, business sentiment fell to levels seen eight months ago due to concerns about how long it will take to contain the virus and the impact of restrictions on business, according to the published data. Source: Conotoxia MT5, USDIndex, Weekly China eases restrictions. Risky assets may gain China's National Health Commission reported Monday that it has identified 30014 new cases of Covid-19 in the past 24 hours, with the country seeing a drop in infections in recent days after a record high when more than 40,000 cases were seen in a single day, BBN reported. What's more, local Chinese authorities have agreed to relax some measures related to Covid-19. In Beijing and Shenzhen, a negative test will no longer be required to enter some public places, such as public transportation and supermarkets. This course of events in China may help financial markets and the global economy, as China may now be the "green island" from the standpoint of GDP growth momentum. Source: Conotoxia MT5, VIX, Weekly Fear in the financial markets, as measured by the VIX index (expected monthly volatility on the S&P500 index) fell last week to its lowest level since August. If the decline were to continue, the VIX could reach its lowest level since January 2022. What are the markets waiting for? This week may be quieter due to the fact that the Fed's interest rate decision will be published as early as December 14. It is the expectation of smaller interest rate hikes in the US that could be the second factor helping the markets climb higher today. Nevertheless, the market is also assuming that in 2023. Fed will cut rates. Information on this subject could be crucial next week. Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75,21% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.      

Both exports and imports continued to contract on a yearly basis, which is the result of supply disruption in China as well as weak demand from the US and Europe. Looking forward, weak external demand could drive China's exports even lower Chinese container ship Trade slump China's exports and imports contracted by 8.7% and 10.6% year-on-year in November, respectively, after contracting by 0.3% and 0.7% in October.  Not everything is so bad. China's exports to ASEAN, which is now the number one export destination for China, still grew 2.9% YoY in November. China's exports to Europe, another big destination after ASEAN and the US, grew 1.5% YoY. China's exports to the US fell 13.2% YoY in the month. Bear in mind that the role of ASEAN for China is more of a joint supply chain than a final goods export destination. This implies that production activity for exports grew slightly in November. But final exports to the US and Europe were weak, especially exports to the US. This could mean that inventory will start to pile up as final goods sales were weak. Early indicator hints that slump in exports may continue Smartphone exports contracted 9.6% YoY in November. This could be a combined effect of supply disruption in China as well as weak demand in the US and Europe. But if we look further, it could be more an issue of weak demand.  Imports from Taiwan contracted by 10.4% YoY in November. Parts and raw material imports into China for the production of electronic parts and electronic goods contracted. As we use semiconductors as an early indicator of growth, we believe that exports in the coming months should continue to contract. Read this article on THINK TagsSemiconductors Imports Exports China Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Protests in the streets, but also the worsening economic situation, may be causing Chinese authorities to decide to make concessions on restrictions related to Covid-19. China was the last country with a firm regime against those infected. Now comes the easing of restrictions. The Hong Kong Stock Exchange's Hang Seng 50 index has risen more than 30 percent since its low, with the iShares MSCI China A ETF up 17 percent since the end of October. This may have to do with an attempt to discount a move away from lockdowns in China and an improved outlook for the local economy along with seemingly attractive company valuations. Chinese authorities have already signaled to ease restrictions in the form of allowing people without a negative test result to use public infrastructure like transportation or supermarkets. Moving with a valid negative result was previously mandatory. As Bloomberg reported, China is expected to announce a further relaxation of Covid control measures today - including allowing some infected people to quarantine their homes as a nationwide policy, according to people familiar with the matter. In addition, Chinese economic data may indicate that a change in direction is needed. Source: Conotoxia MT5, CNYA, Weekly China's trade surplus fell to $69.84 billion in November 2022 from $71.7 billion in the same month the previous year, well below market forecasts for a surplus of $78.1 billion, according to tradingeconomics. It was the smallest trade surplus since April, due to weakening global and domestic demand. Exports fell 8.7% year-on-year for the second consecutive month, due to weakening foreign demand caused by high inflation and supply disruptions. Imports, on the other hand, fell at a faster pace of 10.6%, for the second month in a row, due to weakening domestic demand as a result of widespread restrictions related to the epidemic. Hence, easing restrictions could be key to China's economic recovery, and senior Chinese officials are debating an economic growth target, Bloomberg reported. For next year, it is expected to be around 5%, according to people familiar with the discussion, as Beijing shifts gears to support economic recovery. Given recession forecasts for the eurozone, the UK or a slight recession in the US in 2023, China appears to be coming out on top in expectations of a GDP rebound next year. Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75,21% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Summary:  U.S. equities rallied after declining for five consecutive days as investors took a pause in the growth-fear-triggered selling as treasury yields bounced. Hong Kong stocks surged by 3.4%, completely reversing their loss on Wednesday after profit-taking being out of the way and investors looking at the potential improvement to the economic outlook in China. What’s happening in markets? Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) snapped a 5-day losing streak An interesting recent development in the U.S equity markets was that investors worried about falls in long-term treasury yields and cheered rises of them as their focus shifted from long-term treasury yields’ negative impact on equity valuation to their signaling function of potentially a U.S. recession, especially when the yield curve going more inverted in the process. The bounce of the 10-year treasury yield by 7bps to 3.48% on Thursday was cited as positive for equities by some investors. Optimism about the outlook of an economic recovery in China also contributed to the improvement in sentiment. S&P 500 gained 0.8% and Nasdaq 100 advanced 1.1%. Nine of the 11 S&P500 sectors climbed, with information technology, consumer discretionary, and healthcare leading the gain, while communication services and energy lost by 0.5%. The Federal Trade Commission is seeking to block Microsoft’s (MSFT:xnas) acquisition of Activision Blizzard (ATVI:xnas). Shares of Microsoft rose by 1.2% while Activision dropped by 1.5%. US treasury yields (TLT:xnas, IEF:xnas, SHY:xnas) bounced on a rise in continuous jobless claims and ahead of PPI and supply U.S. treasury yields took a little pause in their continuous falls. The 2-year yield rose 5bps to 4.31% and the 10-year yield was 7bps cheaper to 3.48%, after retesting the 3.5% level during the day. Initial jobless claims were in line with expectations but traders took note of the larger-than-expected increase in continuous jobless claims to 1,671K from the prior week’s 1,608K. Trading activities were muted ahead of the PPI on Friday and the CPI next week. The Treasury Department announced USD90 billion in the 3-year, 10-year, and 30-year auctions next week. Treasury Secretary Janet Yellen told reporters that “whether or not we can avoid a recession, I believe the answer is yes.” Hong Kong’s Hang Seng (HIZ2) and China’s CSI300 (03188:xhkg) sold the new Covid-19 containment measures news Hang Seng Index rallied strongly, up 3.4% on Thursday and recovered all the loss from “buy the rumor, sell the news” profit-taking selling the day before. The 10 additional fine-tuning measures to ease pandemic containment may be underwhelming relative to the high expectations. However, when reading together with the readout of the Politburo, an overall direction of a gradual and now seemingly determined loosening of restrictions seems to have taken hold. Omitting the language of “housing is for living in, not for speculation” and pledging to “be vigilant of large economic and financial risks and strive to prevent systemic risks” point to conditional support to the property sector when socioeconomic and financial stability are at stake. After the profit-taking selling out of the way, technology stocks led the rally. Hang Seng TECH Index surged 6.6% with Bilibili (09626:xhkg), soaring 22%, being the top gainer within the index. Alibaba (09988:xhkg), Meituan (03690:xhkg), and Tencent (00700:xhkg) advanced 5%-6%. Shares of Macao casino operators soared 12%-22%, following Macao said it will stop requiring negative PCR or RAT test result proof from Chinese visitors. Hong Kong shortened the home isolation period for people infected with Covid-10 to five days from seven days. A newspaper story suggests that the Hong Kong authorities are considering relaxing the outdoor mask rule. Cosmetic chain Sa Sa (00178:xhkg) jumped 19.7%. In A shares, trading was lackluster with CSI300 ending the session flat. Among industries, property, financials, telecom services, and healthcare outperformed. Australia’s share market rises for the first time in four days, with miners leading the charge The Australian benchmark index, the ASX200 (ASXSP200.1) opened 0.7% higher on Friday but looks like it could close off the week lower, with the market now down 1.5%, which marks the first weekly drop in three weeks. The ASX200 holds six-month high territory largely buoyed by the mining sector being bought up (bid) on forward looking hopes that China will ramp up economic activity next year and keep accommodative monetary support in place, which will likely support infrastructure and property. As such, this has supported the key steel making ingredient, iron ore (SCOA) raise 3.6% this week and elevated Fortescue Metals (FMG) shares by 8% this week, with Champion Iron (CIA) up 7%, with Rio Tino (RIO) following. Fortescue Metals shares are on watch as they appear in overbought territory, but what support likely further upside is the iron ore price hit a fresh four-month high today, $109.60, which suggests if this uptrend in iron ore continue, Fortescue Metals earnings could pick up. And it could see subsequent share price upgrades from buy and sell side brokers.  FX: The U.S. dollar index weakened modestly by 0.3% to 104.77 The US dollar weakened modestly against all G10 currencies except for being unchanged versus the Yen. The Aussie dollar gained the most against the U.S. dollar and it rose by 0.7% to 0.6770. Crude oil (CLF3 & LCOF3) declined nearly 10% so far this week At USD72, WTI crude was down nearly 10% over the week on worries of a slowing U.S. economy and larger-than-expected buildup in U.S. fuel product inventories. The first five month of the WTI futures contracts are now in contango. What to consider? Look for more hints about U.S. inflation from the PPI and the University of Michigan Consumer Survey Economists surveyed by Bloomberg are expecting the headline PPI growth in the U.S. to slow to 7.2% Y/Y in November from 8.0% in October and PPI ex-Food and Energy to come at 5.9% Y/Y in November versus 6.7% in October as supply chains continue to improve. Investors will dig in the components of PPI to scrutinize the price changes in various services to gauge their impacts on the more important core personal expenditure price (core PCE). Investors will also look for hints about the trend of the U.S. inflation from the inflation expectation numbers in the University of Michigan Consumer Survey. China’s inflation is expected to have moderated in November The Bloomberg consensus is expecting China’s PPI to shrink further by -1.5% Y/Y in November (vs Oct: -1.3% Y/Y) and CPI to slow to +1.6% in November from +2.1% in October. Weak industrial demand in the midst of countrywide pandemic control-related restrictions during the month and weakness in energy prices would likely have contributed to the decline in the PPI. November CPI would have been dragged by base effects and weakness in food prices. China’s new aggregate financing and RMB loans are expected to have bounced in November Market economists, as surveyed by Bloomberg, are expecting China’s new aggregate financing to bounce to RMB 2,100 billion in November from RMB 907.9 billion in October and new RMB loans to rise to RMB 1,400 billion in November from RMB 615.2 billion as People’s Bank of China urged banks to extend credits to support private enterprises including property developers. Less bond issuance by local governments and corporate and weak loan demand however might have weighed on the pace of credit expansion in November.   For our look ahead at markets this week – Read/listen to our Saxo Spotlight. For a global look at markets – tune into our Podcast. Source: Market Insights Today: U.S. equities snapped a 5-day losing streak and bond yields bounced ahead of PPI; Hong Kong stocked rallied – 9 December 2022 | Saxo Group (home.saxo)

Global central banks are facing unprecedented challenges. Here's our focus on the main ones In this article Federal Reserve European Central Bank Bank of England People's Bank of China Shutterstock   Developed markets: Our calls at a glance ING Central and Eastern Europe/EMEA: Our calls at a glance ING Asia (ex Japan): Our calls at a glance ING Central banks: Our forecasts Macrobond, ING Federal Reserve After 375bp of rate hikes since March, including four consecutive 75bp moves, the Federal Reserve has concluded that it is now time to move in smaller increments. Nonetheless, the market doubts the Fed’s intent and the recent falls in Treasury yields and the dollar are undermining the central bank's efforts to defeat inflation. Officials have been trying to convince the market that the ultimate/terminal interest rate will be above where they had signalled in September, but this is falling on deaf ears. The market is focused on soft inflation readings, coupled with a sense that recession is around the corner. While we agree that the second half of 2023 will be about rate cuts, we think there is the risk of a more aggressive response to inflation in the near term, with upside potential to our call for 50bp rate hikes in December and February. We could even see the Fed consider a faster run down of its balance sheet in an effort to re-steepen the Treasury yield curve at a higher level. European Central Bank Eurozone inflation is close to its peak, unless energy prices surge again next year, but the road towards the ECB’s 2% target will be long and bumpy. The pass-through of wholesale gas prices, as well as still high selling price expectations, suggest that there is still inflationary pressure in the pipeline. It could take until 2024 before inflation has returned to 2%. For the ECB, this means that its job is not done, yet. At the same time, the looming recession, the risk of a subdued recovery and increasing government debt bring the ECB closer to the point at which rate hikes become overly restrictive. As a consequence, we expect the ECB to bring the deposit rate to a maximum of 2.5% in the first quarter of 2023. The reduction of the balance sheet, a.k.a reducing the ECB’s bond portfolio, could become the ECB’s main policy instrument to fight inflation. Bank of England The Bank of England may have hiked by 75bp in November but it made it abundantly clear that this was likely to be a one-off, and that investors were overestimating future tightening. Admittedly, recent data has been slightly hawkish, and the committee is alive to the risk that services/wage inflation may only fall gradually despite the forthcoming recession. But the Chancellor’s Autumn Budget probably did just about enough to assuage the BoE's concerns about fiscal and monetary policy working at cross purposes. While much of the fiscal pain was delayed to future years, the government still scaled back energy support for households next year. We expect 50bp rate hikes in both December and February, marking a peak Bank Rate of 4%. With labour shortages unlikely to disappear next year, and wage growth therefore likely to stay more elevated than in past recessions, we suspect the BoE’s first rate cut may not come until 2024, and after the Federal Reserve.  People's Bank of China The PBoC cut the reserve requirement ratio (RRR) by 0.25 percentage points, effective in December, following a cut in April. There were also two 10bp cuts in the 7D reverse repo policy rate and 1Y Medium Lending Facility (MLF) rate back in January and August this year. The loosening of monetary policy has been mild relative to the slow rate of growth, which averaged 3.0% over the first three quarters of 2022. We believe that Covid measures are more likely to ease in 2023. But external demand could be weaker compared to 2022. Overall, growth in the domestic market should outpace the potential contraction of exports. Still, inflation should be absent in China. As such, the PBoC may choose to stay on hold next year as the central bank has hesitated to lower the 7D interest rate to near the 1% level to avoid falling into a liquidity trap. We do not expect the PBoC to cut the RRR or interest rates in 2023. That said, the re-lending programme for specific targets, e.g. SMEs and unfinished home projects, should continue at least in the first half of 2023.  TagsPBoC Federal Reseve ECB Central banks Bank of England Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Summary:  U.S. treasuries and stocks sold off after the hotter-than-expected PPI prints which suggest inflation not cooling enough and making the water murkier in the week of CPI and FOMC. The 10-year yield surged 10bps to 3.58%. Other key central bank meetings from the ECB to Bank of England also on watch this week. Hong Kong and Chinese stocks rallied on Friday on continuous optimism about reopening from Covid restrictions and supportive economic policy from the Chinese authorities. The Chinese Communist Party’s Central Economic Work Conference is expected to convene this week. What’s happening in markets? Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) retreated on hot PPI data U.S. equities edged down after the producer price Index (PPI), headline as well as core, came in stronger-than-expected and stirred up concerns about risks of pushing the Fed back towards a more hawkish leaning. Nasdaq 100 declined by 0.6% and S&P500 fell by 0.7%. 10 of the 11 S&P sectors declined, with energy, healthcare, and materials dropping the most. Lululemon (LULU:xnas) plunged 12.9% after a gross margin miss, inventory build-up, and below-expectation full sales guidance. Tesla (TSLA:xnas) bounced 3.2%. US treasury yields (TLT:xnas, IEF:xnas, SHY:xnas) bounced on higher producer inflation prints U.S. treasuries sold off on the hotter-than-expected PPI headline as well as core prints. With heavy selling in the 10-year and 30-year segments, the yield curve became less inverted. Two-year yield rose 4bps to 4.34% and 10-year yield surged 10bps to 3.58%. The 2-year-10-year yield curve closed at 76bps on Friday, after hitting as low as 85bps during the week. The money market curve is predicting a 77% probability for a 50bp rate hike on Wednesday. Hong Kong’s Hang Seng (HIZ2) and China’s CSI300 (03188:xhkg) rallied on growth optimism Hang Seng Index rallied 2.3% on Friday on continuous optimism on the prospect of a recovery in the growth of the Chinese economy in 2023 as the country reopens from Covid containment restrictions and more supportive government policies. Premier Li Keqiang said China will strive to achieve steady growth. Defaulted Chinese property developer Sunac (01918:xhkg) said it is in discussion with creditors to restructure USD9 billion of debts, including swapping USD3-4 billion of debts into ordinary shares or equity-linked instruments.  Reportedly another defaulted mainland developer Evergrande is meeting offshore creditors to discuss restructuring proposals. The Chinese authorities are considering allowing REITs to invest in long-term rental and commercial real estates. Leading mainland Chinese property developers listed in Hong Kong surged 5% to 18% with Longfor (00960:xhkg) soaring the most. A day after shortening the home isolation period for people infected with Covid-10 to five days from seven days, a Hong Kong health official said the city is considering to end its vaccine pass scheme. Hong Kong local property developers gained 2%-5%. In A shares, the CSI300 Index rallied 1%. The Chinese Communist Party is expected to convene its annual Central Economic Work Conference this week to formulate the macroeconomic policy blueprint for 2023. In Australia; this week the focus will be consumer confidence, employment data and China reopening talk vs pre lunar new year production halt There are a couple of economic readouts that could move the market needle, the ASX200 (ASXSP200.1) this week. Weakening confidence is expected; starting with Consumer Confidence for December (released on Tuesday), followed by Business Confidence for November. Employment reports are due on Thursday for November, and likely to show employment fell; 17,000 jobs are expected to be added, down from the 32,200 that were added in October. So focus will be on the AUD and a potential pull back if the data is weaker than expected. On the equity side, with iron ore (SCOA) trades at four month highs $110.80 but is lower today. We mention on Friday the price of iron ore has been rallying as China on  easing restrictions and because of whispers that Chinese property developers will get more support, which would support demand for iron ore rising. However we mentioned why iron ore could pull back, as buying volume appears slowing. So be mindful of potential pull back in iron ore pricing and mining equities. Secondly, consider seasonable halt of Chinese steel plants ahead of the Lunar New year. Restocking typically occurs 5-8 weeks before the holiday, but plants could be closed earlier, due to poor profits and weak demand. So keep an eye on iron ore majors, Fortescue Metals, Champion Iron, BHP and Rio as they could see profit taking as well after rallying ~25-55% from October.  FX: A weaker start for NZD in Asia, Japan’s November PPI above expectations The US dollar started the week on a firmer footing with a big week ahead as the US CPI and FOMC meeting is eyed. A reversal of the short-term downtrend would however require US 10-year yields to get closer to 4% again. NZDUSD has been a strong performer since the softer October US CPI print and maybe the one to watch if the Fed fails to surprise hawkish this week, given that the RBNZ remains committed to its fight against inflation. Pair dropped below 0.64 in early Asian trading hours this morning as New Zealand Institute of Economic Research (NZIER) published slower GDP growth forecasts through 2025. A higher-than-expected Japan’s November PPI of 9.3% YoY/0.6% MoM, along with an upward revision to last month’s print, may create more talks of a possible policy review (read below) and USDJPY headed higher to 136.80. Crude oil (CLF3 & LCOF3) prices to watch Russia’s response to G7 price cap this week Crude oil prices saw a steadier start to the week after plunging sharply last week on demand concerns from a weakening macro backdrop as well as thin liquidity and control of short-term traders. The uncertainty surrounding European sanctions on Russian oil and the related price also kept volatility high, but was overshadowed by recession concerns. The impact of the potential pickup in demand from China as lockdowns continue to ease also started to fade. This week Russia will announce how it intends to counter the introduced price cap with the risk of a production cut potentially adding fresh support to the market ahead of what looks like a challenging 2023 where supply worries in our opinion will keep prices elevated, despite the risk of lower demand. WTI futures rose above $72 in the Asian morning, while Brent was seen above $77/barrel.   What to consider? Stronger-than-expected US PPI suggests inflation not cooling enough Headline PPI rose 7.4% in November Y/Y, above the expected 7.2% albeit down from the upwardly revised 8.1% for October. The core (ex-food and energy) Y/Y was also above expectations at 6.2% (exp. 5.9%), but cooler than the prior upwardly revised 6.8%. on a M/M basis, headline rose 0.3% while core was stronger at 0.4%, beating expectations. While the PPI data continued to show a peak in inflation in the Y/Y terms, but the downward surprise remains limited and may not be enough to support the Fed pivot expectations. Attention now turns to the US CPI data on Tuesday to see if a similar inflation story is seen for December ahead of the FOMC rate decision on Wednesday. Preliminary University of Michigan survey for December was also strong across the board, as the headline rose to 59.1 from 56.8, and above the expected 56.9. The headline was supported by current conditions and the forward-looking expectations both lifting to 60.2 (prev. 58.8, exp. 58.0) and 58.4 (prev. 55.6, exp. 56.0), respectively. Putin threatening to curb crude exports Vladimir Putin said Russia may lower crude output in response to the G-7 price-cap and added the country won't sell to price-cap participants. The price of Russian crude in Asia appears to be holding well above the $60 cap as it finds enough shipping and insurance capacity. While the crude oil prices last week have remained in the grip of technical traders and seen little impact from the price cap decision, there could be more volatility in store this week as Russia’s response is awaited which could range from production cuts to retaliatory measures. Bank of Japan board members continue to differ on timing for ending YCC All eyes are turning to who could be the possible replacement of Bank of Japan Governor Kuroda in April 2023. One of the contenders, Takehiko Nakao, said that subtle changes in policy framework should be considered as the leadership is changed next year. This comes after board member Naoki Tamura called for a policy review last week and hinted that it may come as early as next year (before Kuroda retires. However, another board member Toyoaki Nakamura said its too early to conduct a review now. Likewise, board member Hajime Takata also said it is too soon to start a policy review. While the timing may be uncertain, the open discussions about a possible BOJ policy review at some point is keeping expectations of an eventual BOJ pivot alive. China and Saudi Arabia upgrade relationships with top-level dialogue; Xi calls for using the renminbi to settle oil and gas trades During his visit to Saudi Arabia last week, China’s President Xi Jinping met with King Salman bin Abdulaziz Al Saul and Crown Prince Mohammed bin Salman. The two sides agreed to upgrade the relationship between the two countries with heads of state meeting every two years and moving established joint committees for trade, tech, security, and other areas from vice-premier to premier level. The two countries have signed a large number of agreements and MOUs from petrochemical, hydrogen energy, information technology, and infrastructure projects to cultural exchanges. Xi reiterates his call for using the renminbi more often to settle trades in crude oil and natural gas but it is not clear how well his call has been received by Saudi Arabia and the other oil-exporting countries at the China-Arab summit last week. China’s CPI softened to 1.6% Y/Y; PPI stayed at -1.3% Y/Y China’s CPI inflation decelerated to 1.6% Y/Y in November from 2.1% Y/Y in October, in line with expectations as food inflation slowed and consumer demand was weak during the lockdown. In the PPI, price increases in the raw materials sector decelerated while the price declines the in mining and processing sectors slowed in November.     Sign up for our Outrageous Predictions 2023 webinar - APAC edition: Wed, 14 Dec, 11.30am SGT For a global look at markets – tune into our Podcast. Source: Market Insights Today: Hot US PPI brings focus to CPI/Fed meeting; HK/China stocks on watch – 12 December 2022 | Saxo Group (home.saxo)

China's activity data shows that retail sales shrank further last month due to Covid, and production grew at a slower pace amid weak external demand. This is likely to continue in December as Covid cases climb and the issue of labour shortages affects economic activity. But we believe that the Chinese New Year could bring some growth for retail sales Activity data shows slower economic growth Activity data points to worse-than-expected economic growth in November in terms of retail sales, industrial production and property investment. Home prices fell less than expected, which hints at a possible bottom for home prices. But this bottom may last for several months as Covid cases climb. Retail sales led the slump China's retail sales fell 5.9% year-on-year in November from a 0.5% YoY drop in October. It was the worst performing indicator in November; bear in mind that the government only eased Covid measures on 7 December. As such, it was quarantine that limited retail sales activity. All categories experienced yearly contraction except medicines and food. This pattern might improve slightly as residents bought train and air tickets for Chinese New Year travel within the country. But the overall situation could be worse in December as there were fewer Covid tests and therefore the reported number of Covid cases should be less than the number of infections in China. This could mean labour shortages and retail sales could therefore be adversely affected. Read next: From the fundamental point of view, these facts may become a game changer, sending the EUR/USD pair to the parity level | FXMAG.COM   Industrial production mostly affected by external environment Industrial production grew at only 2.2% year-on-year in November after a 5.0% rise in October. Looking at the details of industrial production, we observe that export-related industries, namely integrated circuits (-15.2% YoY), smartphones (19.8%) and microcomputing equipment (-27.9%) experienced a deeper contraction than other industries. Industries for domestic consumption experienced more growth than their export peers. New energy vehicles grew 60.5% YoY in November. Metals also grew between 7% YoY to 10% YoY, indicating that construction activity should have picked up for unfinished home projects. This is also confirmed by the data on residential property completion.   Fixed asset investment focus more on equipment Fixed asset investment grew 5.3% YoY year-to-date in November compared to 5.8% a month ago. Most of the items grew steadily. Equipment investment continued to outpace the rest and grew faster in November (41.4%YoY YTD in November vs 39.7% in October). This highlights that China has invested more on equipment, partly echoing the government's call for investment in technology and partly servicing its own needs for equipment as the US continues to call for stopping advanced equipment exports to China. December could continue to be bad Activity data in December may not be a lot better with Covid cases climbing. Parts of the labour force could be sick, and this could affect labour-intensive industries. However, we do not expect there to be a shut down of ports as these have contingent plans in place after the lockdowns back in March to May. Land logistics could be affected by labour shortages. As the peak export season has passed, the impact on the export-related supply chain should be mild. As it comes nearer to the Chinese New Year, manufacturing activity could be slower in December and January.  Retail sales in December may be higher in December due to travel activity over the Chinese New Year.  Read next: Given the peculiarities of the US labor market and the high labor mobility, the acceptable unemployment rate is considered to be 5.0%| FXMAG.COM In short, the economy is slowly picking up but it is difficult to be optimistic about growth in the fourth quarter of 2022 and first quarter of next year. We maintain our GDP forecasts at -0.4% YoY and 3.4% YoY, respectively. Read this article on THINK TagsRetail sales Industrial production GDP Fixed asset investments China Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

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

Summary:  At the annual Central Economic Work Conference held last week, the Chinese leadership emphasized policy priorities as being economic stability and high quality of development. Fiscal and monetary policies will be rolled out to support growth but will be measured. Industrial policies are aimed at promoting development as well as national security and focus on addressing the weak links and bottlenecks of the country’s supply chain. The most notable positive development from the meeting is a shift to a conciliatory stance towards the private sector and a pledge to support internet platform companies. The Central Economic Work Conference sends a conciliatory message to the private sector The Chinese Communist Party held its annual Central Economic Work Conference (CEWC) on Dec 15 and 16 to formulate China’s macroeconomic policy frameworks for 2023. The most important new message sent from the readout of the CEWC is a shift to a more conciliatory stance towards the private sector and in particular the internet platform companies. The CEWC removes last year’s “preventing the disorderly growth and expansion of capital” from its readout this year and instead says the authorities will “support the development of the private sector and private enterprises” and pledges “support to platform enterprises in leading development, creating employment, shining in competing globally”. It goes on to call for thorough implementation of the legal and institutional equal treatment of private enterprises and state-owned enterprises and protection of the rights of private enterprises and entrepreneurs according to the law. The CEWC instructs ranks and files of the Communist Party to provide assistance to private enterprises in resolving issues.On Sunday, two days after the conclusion of the CEWC, the Party Secretary of the Zhejiang province, who came to the office this month, paid a visit to Alibaba’s campus. He was the most senior-ranked official to visit the e-commerce giant since the Chinese authorities started cracking down on the allegedly monopolistic power of Alibaba ad some other Chinese internet giants. Prioritizing domestic consumption The CEWC prioritizes the stimulation of domestic consumption at the top position in its plan to expand aggregate demand. It pledges to roll out more fiscal policies to increase the income of the rural population and support household consumption spending on the improvement in housing conditions, new energy vehicles, and elderly care services. Speeding up technological innovation to boost development as well as national security The crux of industrial policy is to speed up technological innovation to address deficiencies and bottlenecks in key industrial supply chains. It reiterates the importance to develop energy and mineral resources and increase food production. On the new economy front, the CEWC highlights the focus on new energy, artificial intelligence, biomanufacturing, green technology, and quantum computing. Industrial policies are positioned as an instrument to address development as well as national security considerations. Supporting the property sector in the context of financial stability The CEWC places the discussion of supporting the property sector within the section of “effectively resolving significant economic and financial risks” and frames the policy discussion in that context. It puts the rhetoric of “housing is for living in, not for speculation”, which was missing in the statement from the recent Politburo meeting, back to the readout of the CEWC this time. The focus of the supportive measures to the property sector is to pre-emptively prevent systemic risks in the financial sector and local government debt crises. The CEWC insists on cleaning up and prohibiting increases in housing inventories. Macroeconomic adjustment and stability over pursuing high growth While the shift in the stance to be more private sector-friendly is pro-growth in essence, the CEWC emphasizes that growth must be of high quality and the overarching focus for 2023 was on macroeconomic adjustment and stability. Development must be in adherence to the new development paradigm that aims at the transformation to a high-value-added economy. Fiscal policies will be “proactive” and monetary policies will be “steady, forceful, and targeted”. At the same time, policies must be steady and give utmost importance to stability. In other words, while both fiscal and monetary policies will be expansionary, they will likely be measured. Growth is on a best-effort basis The CEWC pledges to “do its best to achieve the economic development goals from 2023”. It refrains from using the more committal words of “must” or “shall” and signals that the achievement of economic development goals will be on a best-effort basis. GDP growth rate is not the most important consideration for 2023. In the taxonomy of dialectic that is at the core of the communist methodology, the primary contradictions highlighted at the CEWC are pandemic control and economic development, quality and quantity in economic development, supply-side reform and aggregate demand management, and domestic circulation and international circulation. It is the aim of the Chinese leadership to navigate and strike a balance among each pair of these contradictions. While there are no massive waves of economic stimuli to come, the conciliatory stance towards the private sector is a positive development Investors may find the lack of commitment to more and larger-scale stimulus policies underwhelming and even disappointing. Nonetheless, the shift to a conciliatory stance towards the private sector and not reiterating the traffic-light approach to regulate the technology sector will contribute to economic growth as well as reduce risk premiums for investing in Chinese stocks. On balance, the outcome from the CEWC tends to be positive for investing in China.  Source: China Update: The Chinese authorities are expressing a more conciliatory stance towards the private sector | Saxo Group (home.saxo)

On Tuesday, the People’s Bank of China (PBOC) set the USD/CNY central rate at 6.9475 versus Monday's fix of 6.9646 and market expectations of 6.9477.  

China's Caixin Manufacturing PMI for December dropped to 49.0 vs. 48.8 expected and 49.4 previous, showing that the country’s covid containment continued to negatively impact the output at the end of 2022. While output fell at a softer rate compared to November, total new orders fell at a quicker pace. Wang Zhe, Senior Economist at Caixin Insight Group said, “Both manufacturing supply and demand continued to shrink last month. Fallout from the pandemic was a drag on production and sales, with the subindexes for output and total new orders staying below 50 for the fourth and fifth straight months, respectively.” “Due to the economic downturn and weak demand overseas, the reading for new export orders also remained in contraction for the fifth straight month,” Wang added. AUD/USD holds lower ground below 0.6800 The upbeat print of the Chinese Manufacturing PMI fails to lift the Aussie Dollar, as AUD/USD is testing lows near 0.6775, down 0.41% on the day, at the time of writing.  

Summary:  While Japan, the UK and the US have yet to start trading this year, markets are on the move elsewhere, as mainland European stocks put in a strong session yesterday and the Hang Seng in Hong Kong is making a bid at multi-month highs overnight. Despite Japan’s closed markets, the JPY is surging, as are the Chinese renminbi and gold, which rose overnight to a six-month high in USD terms.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures opened 0.7% higher on the first print of the year but have since retreated lower up 0.3% for the session compared to the last day of trading in 2022. The positive sentiment from yesterday’s European equity session and positive trading session in Asia, despite a slightly weaker than estimated China PMI manufacturing figures for December, are carrying over into US equity futures. We still expect equity markets to be quiet and not reveal anything meaningful in terms of information of positioning and flows until early next week. Hong Kong’s Hang Seng (HIF3) and China’s CSI300 (03188:xhkg) On its first day of trading in 2023, Hang Seng Index opened lower but rallied to post a 2% gain as of writing. China telcos, electricity generating companies, pharmaceuticals, autos, and Macao casino operators led the charge higher. It is widely expected that the border between the mainland and Hong Kong will be reopened as soon as January 8, 2023. Investors brushed the weak December NBS PMI reports released during the holiday and the Caixin PMI today and the inevitable surge and spread of Covid inflections during the initial stage of relaxation of pandemic containment in China to focus on the improved economic outlook in mainland China and Hong Kong for 2023. China’s CSI 300 Index gained 0.5%. FX: The action in FX remains firmly centred on Asia … with the Japanese yen surging to new highs overnight versus the rest of G10 currencies as the 130.00 level in USDJPY gave way without much fight and EURJPY is poking below 138.50, its lowest level since September of last year as the market has grown increasingly convinced that the Bank of Japan is set for a further policy tightening this year and despite the ECB’s overt hawkishness. The Chinese renminbi is also off to a strong start in 2023 despite dramatic disruptions to activity on the ground from Covid as a further CNH rally overnight has taken USDCNH to within striking distance of its 200-day moving average near 6.86. The USDJPY performance is particularly interesting, given the tight correlation of USDJPY with US treasury yields over the last 12 months and more, as US yields backed up sharply to end 2022 and have yet to trade this year. Crude oil (CLG3 & LCOH3 ) Crude oil futures fluctuated around unchanged as a new year got underway overnight in Asia. Another volatile year undoubtedly lies ahead with multiple uncertainties still impacting supply and demand. The two biggest that potentially will weigh against each other in the short term remain the prospect for a bumpy recovery in Chinese demand being offset by worries about a global economic slowdown. Covid fears, inflation fighting central banks, lack of investments into the discovery of future supply, labour shortages and sanctions against Russia will also play its part in the coming months. Sentiment, however, did improve ahead of yearend after hedge funds raised bullish Brent crude oil bets by the most in 17 months. Gold (XAUUSD) and silver (XAGUSD) strongly out of the starting blocks Gold trades at a fresh six-month high above $1840 and silver an eight-month high at $24.50 as the positive momentum from December gets carried over into the new year. The US treasury market opens later today but futures are signalling softer yields from where we left off on Friday while the dollar trades soft led by a strong yen. In general, we are looking for a price friendly 2023 supported by recession and stock market valuation risks, an eventual peak in central bank rates combined with the prospect of a weaker dollar and inflation not returning to the expected sub-3% level by yearend all adding support. In addition, the de-dollarization seen by several central banks last year, when a record amount of gold was bought look set to continue, thereby providing a soft floor under the market. In the week ahead we focus on Wednesday’s FOMC minutes and Friday’s US job report. Above $1842, the 50% of the 2022 correction, gold will be looking for resistance at $1850 and $1878 next. Copper jumps despite short-term headwinds HG copper trades up more than one percent at the start of a new trading year, but still within a tightening range, currently between $3.8 and $3.94 per pound. We expect to see a bumpy start to the year with China’s reopening process potentially being delayed by virus outbreaks and companies shutting down early ahead of the Lunar New Year, starting already on January 23 this year.  In addition, the risk of a global economic slowdown as highlighted by the IMF in its latest update may also weigh at the start of a year. Overall, however, the medium term offers further upside driven by reduced mining supply and increased focus on the electrification of the world, a copper intensive process that may offset weakness from the housing sector. Yields on US Treasuries (TLT:xnas, IEF:xnas, SHY:xnas) start the year near multi-week highs US Treasuries have just started trading for 2023 this morning in Europe, opening some five basis points lower for the 10-year benchmark at 3.82% after backing up sharply as 2022 drew to a close, particularly at the longer end of the yield curve, helping to steepen the 2-10 portion of the treasury yield curve from its most inverted levels in some four decades earlier in December at around –80 basis points, to closer to –50 basis points as market participants figure that a recession is on the way this year that will see the Fed chopping rates by year end. The 10-year yield level to watch to the upside is perhaps the 4.00% area ahead of the 4.34% high from October, which is a 15-year high. What is going on? ECB President Lagarde out with fresh hawkish rhetoric yesterday … warning of a further rise in borrowing costs to fight inflation - “It would be even worse if we allowed inflation to become entrenched.” Bundesbank president Joachim Nagel was also out yesterday warning of a “significant increase in long-term inflation expectations”. European yields surged in the wake of the December 15 ECB meeting on Lagarde’s hawkish blast at the press conference, with German 2-year yields, for example, rising from 2.13% before that meeting to as high as 2.77% last Friday before easing a few basis points yesterday. Tesla deliveries for Q4 fell short of estimates, despite incentives The company delivered 405.3k vehicles in the fourth quarter, which fell short of consensus expectations for over 420k. Still, the number was a record for quarterly deliveries and strongly higher from the 308.7k vehicles Tesla sold in Q4 of last year. Tesla shares lost 65% last year, though they did surge over 10% off late December lows just ahead of year-end. UK Economy may face worst recession in 2023 An FT poll of over 100 economists suggested that four out of five respondents think that UK growth will fall short of global peers, with GDP already falling and continuing to do so for this calendar year, after the inflationary shocks of the last two years will required that the Bank of England continues to raise borrowing costs and as the new Sunak-Hunt government is bent on stabilizing the country’s debt trajectory with a more austere fiscal regime than its predecessors. Recession will hit a third of the world this year The new year has kicked off with a warning from the IMF head that a third of the global economy will be hit by recession this year. In their latest update Kristalina Georgieva warned that the world faces a “tougher” year in 2023 than the previous 12 months as the US, EU and China are all slowing simultaneously. China could see its annual growth in line with global growth for the first time in 40 years and potentially acting as a drag on instead of a driver of worldwide growth. She did sound more optimistic on the prospects for the US saying it may avoid recession because unemployment is so low. What are we watching next? US data this week relative to market expectations for Fed policy The market continues to express the view that inflationary pressures will decelerate and that the labour market will loosen up sufficiently for the Fed to begin chopping rates before year-end. Last week’s US Consumer Confidence survey for December showed a strong surge in confidence, a development that is at odds with past patterns for the survey if the country is tilting into a recession. Further strong US data for December and the next month or two would be an interesting challenge of the market expectations. This week sees the release of the December ISM manufacturing survey and the December jobs report, both on Friday. US Debt Ceiling issue as the new 118th US Congress convenes today in Washington D.C. The perennial debt ceiling issue was largely skirted over the last couple of years as pandemic priorities may have prevented partisan grandstanding. But Republican lawmakers have promised a fight to extract concessions from the Biden administration. Watching for how hard the Republicans are willing to take this issue as the debt ceiling will be reached by summer of this year. Earnings to watch The earnings calendar is light in the first week of the new year, but in a couple of weeks the first Q4 earnings releases will begin to be released. The Q4 earnings season will continue its focus on margin pressures related to input costs on employees and raw materials including energy. Thursday: Walgreens Boots Alliance, Conagra Brands, Lamb Weston, Constellation Brands, RPM International Friday: Naturgy Energy Economic calendar highlights for today (times GMT) 0855 – Germany Dec. Unemployment Change 0930 – UK Dec. Final Manufacturing PMI 1300 – Germany Dec. CPI 1430 – Canada Manufacturing PMI 1445 – US Dec. Final Manufacturing PMI Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: Financial Markets Today: Quick Take – January 3, 2023 | Saxo Group (home.saxo)

A mixed start to trading on Tuesday as traders return following the festive break to some rather gloomy forecasts for the coming year. The IMF is among those warning of a tough year, more so than the one we’ve just left, as the simultaneous slowing down of the US, EU, and China takes its toll. Of course, all forecasts at this moment are subject to enormous uncertainty around the war in Ukraine, inflation, interest rates, and China’s Covid response, among others, but it seems almost everyone is going into 2023 with a healthy dose of trepidation. And following a series of nasty shocks last year, who can blame them? There is the potential for surprises this year to be of a more positive nature, of course, but as it stands, the outlook is understandably gloomy and will remain so unless something significant changes, either on the war in Ukraine or inflation. If inflationary pressures remain stubborn – and a strong, successful transition from zero-Covid to zero restrictions could enable that – then central banks will have little choice but to continue tightening monetary policy in order to bring it down. That is something the IMF strongly urged them to do, with stubbornly high inflation deemed a far greater risk over the longer term. As far as the economic calendar is concerned this week, we’re easing ourselves back in today with mostly revised PMIs and other tier-three data. Things will pick up on that front from tomorrow, with the December Fed minutes being released alongside some more significant data and that will continue into the end of the week when we get the first jobs report of the year. Read next: New Record For Electric Car Manufacturer - Tesla Deliveries Increased By 40% Year-On-Year| FXMAG.COM One interesting release this morning came from China, where the Caixin manufacturing PMI painted a less pessimistic picture than the official number over the weekend. While the surveys are different in the kind of firms they cover, it was interesting that the official number pointed to greater concern around the sector at the moment. That said, there does seem to be some promise in the Caixin future output index which suggests firms are more optimistic about the longer-term outlook since Covid-zero was abandoned despite the prospect of near-term difficulties. Range-bound Bitcoin has remained quite stable recently, hovering in the $16,000-17,000 range over the last few weeks. That may come as a relief to the crypto crowd after another rough few months. The new year no doubt has plenty in store for cryptocurrencies but in the short term, the community may just be hoping for no new scandals that will drive investors away. For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/ This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.  

Economists at Standard Chartered provide a grim outlook of China’s economy amid weak business activity in December. Key quotes “Official manufacturing and non-manufacturing PMIs fell to their lowest levels since February 2020.” “Supply-chain disruptions and worker absenteeism likely dragged production, trade activity significantly.” “Decline in real estate investment may have stabilised; medical-related demand likely jumped.” “We lower our Q4-2022 and 2022 growth forecasts to 2.0% y/y (2.9% prev.) and 2.7% (3%), respectively.”

The warm weather in Europe is helping the region to get through the energy crisis, though many central bankers across the globe are still not done with rate hikes Back from holidays Happy New Year. We are gradually returning from holiday and sharpening our minds and pens again for another year of economic excitement. The Christmas break is traditionally a period with very little economic news and data, which allows us to keep the first economic update of the year brief. Our main views for 2023 are still intact and nicely presented in our Global Macro Outlook 2023. Still, there have been some important developments since the release of our outlook in early December. China has made a full U-turn on its zero-Covid strategy and is now experiencing a surge in Covid cases. For Western economies, an end to zero-Covid in China has always been a double-edged sword. On the one hand, it means that after a wave of surging Covid cases, the Chinese economy could open earlier and faster than initially thought, lowering the risk of new supply chain frictions. On the other hand, this reopening will very likely push up demand and prices for energy. In Europe, warm temperatures and strong winds since mid-December have not only led to lower wholesale prices for gas but also lowered gas consumption and filled up national gas reserves again. Unless the continent gets caught out by a severe winter in the coming months, the risk of an energy supply crisis has become extremely low. As a result of lower energy prices and government intervention, headline inflation came down more significantly than initially expected in December. If energy prices stay at their current levels throughout the year, headline inflation could come down quickly. Just taking the energy base effects into consideration, eurozone headline inflation could temporarily even touch 2% towards the end of the year. However, let’s not forget that there are still many “pass-throughs” at play and that it is almost normal for headline inflation to drop significantly after energy price shocks, while core inflation could still increase further and stay stubbornly high. Before getting overly enthusiastic remember that energy prices are highly volatile and recent developments cannot be extrapolated to the entire year. We have revised down our energy price assumptions but still expect an increase in the second half of the year when China starts to accelerate and Europe prepares for next winter. The central bank meetings in December hinted at a possible central bank divergence in 2023. While the Bank of England turned more dovish and even the Federal Reserve lost some of its uber-hawkishness, the two most dovish central banks of the last decade – the European Central Bank and the Bank of Japan – became more hawkish. The ECB, in particular, seems determined to continue hiking rates whether or not the economy falls into recession, and headline inflation could retreat faster than expected. As much as many central banks got carried away with ultra-loose monetary policy when inflation was low, there is now the risk that they will get carried away with overly restrictive monetary policy. Maybe it is just human for central bankers to want to secure their place in history as the slayers of inflation. In any event, don’t expect recent positive inflation developments to change central bankers’ minds anytime soon. Many people start the new year expecting the best but preparing for the worst. We take a different stance. We still expect a difficult macroeconomic year but are clearly preparing for the best. At a glance: our house view Energy: mild weather eases natural gas concerns The European natural gas market has come under significant pressure recently with TTF falling by around 50% since early December. Milder weather has reduced heating demand and as a result, Europe is seeing an unusual build in gas storage in the middle of winter. Gas storage is around 84% full compared to a five-year average of around 70%. It appears as though Europe will enter the injection season with comfortable storage, although there are still plenty of risks around the remaining Russian supply and also the potential for increased competition for LNG from China, as the country drops its zero-Covid policy. A more comfortable European market has meant that prices are unlikely to be as strong as initially expected. However, prices will still need to remain elevated to ensure demand destruction keeps the market in balance through the 2023/24 winter. We expect TTF to average EUR125/MWh in 2023, but uncertainty and lingering supply risks mean the market will remain extremely volatile. The outlook for the oil market remains bullish. China’s Covid policy change should prove supportive for demand in the medium to long run, although admittedly rising Covid infections could weigh on demand in the immediate term. Russian oil supply is still expected to fall due to the EU ban on Russian seaborne crude and refined products. As a result, the oil market is expected to tighten from the second quarter onwards, which supports our view for Brent to average a little over US$100/bbl over 2023. Warren Patterson Eurozone: ECB moves into uber hawkish zone The fall in sentiment indicators was partially reversed in December on the back of lower energy prices, courtesy of the extremely mild winter weather. That said, the strong fall in industrial production in October still suggests negative GDP growth in the fourth quarter and falling orders, high inventories and weakening hiring activity point to a further contraction in the first quarter. We expect only a weak recovery thereafter, leading to, at best, stagnating GDP for the whole of 2023. The more subdued energy prices and resolving supply chain frictions will push inflation down further, though core inflation is likely to prove more stubborn. We therefore don’t expect headline inflation to fall below 3% before 2024. After a hawkish monetary policy meeting in December, members of the ECB’s Governing Council have continued to emphasise a very hawkish message, pencilling in 50bp rate hikes for “a period of time”. On the back of this, we expect a 50bp rate hike both in February and March, followed by another 25bp rate hike in May. Bond yields have less upward potential and might fall again in the first half of the year. Peter Vanden Houte US: Fed nears end of hiking cycle as recession draws closer Recession worries are mounting in the US as the Federal Reserve continues hiking interest rates despite the economy already bracing itself for a deep housing market downturn and American CEOs being as pessimistic as they were in the depth of the Global Financial Crisis. With more companies adopting a defensive posture we expect to see hiring and investment plans cut back aggressively. The combination of job worries, lingering inflation and falling asset prices are likely to lead to sizeable falls in consumer spending while residential construction will also drag output lower. We look for a further 50bp of rate hikes in the first quarter given that inflation remains the Federal Reserve’s focus. Nonetheless, we believe that the composition of the CPI basket (heavy weighting towards housing and vehicles) is helpful in bringing about sharp falls in inflation from the second quarter onwards. Remember, too, that the Fed has a dual mandate that places a strong emphasis on the job market as well as targeting 2% inflation. With more flexibility to respond to the recession than most other central banks, we see significant scope for interest rate cuts and falling Treasury yields later in the year. James Knightley UK: Bank of England turns more dovish but rate cuts still a while off The UK economy has most likely been contracting since the third quarter of last year, and we expect this trend to continue until the summer. Admittedly, a recession is likely to be mild by historical standards, not least because the job market remains uber-tight, plagued by increasingly persistent labour shortages. We expect a peak-to-trough fall in GDP of a little over 1.5%. Against that backdrop, it’s not surprising that the Bank of England is turning more dovish. December’s decision registered a noticeable shift in voting patterns among committee members, which much like the Fed, resulted in a ‘smaller’ 50bp rate hike. We expect 50bp worth of additional tightening, though the jury’s out on whether this will come in one burst or split into 25bp increments. Either way, the BoE is likely to be slower to turn to rate cuts than in the US. Stickier inflation, owing to Europe’s energy crisis, and the tight UK job market, suggests the first rate cut is unlikely before 2024. James Smith China: no smooth road to recovery China’s lifting of Covid measures domestically and for international travellers will, in time, help the economy to normalise. But we can expect the short term to be dominated by the very high level of Covid cases, which have come at a time when the economy is already very weak. Looking at other economies in the region which have suffered similar severe waves of Covid (India’s Delta wave springs to mind) we would expect this wave to last no more than three months at which time the economy could start to revert to a more normal footing. However, this could also coincide with the US and Europe entering recession, which will weigh on any manufacturing recovery and export growth even as China’s domestic issues abate. The People’s Bank of China has set the policy tone for 2023 as stable, strong, and precise, which suggests that policymakers do not envisage much adjustment to interest rates or reserve requirements. Instead, a re-lending programme could be the main tool to inject liquidity into specific industries or for a specific purpose. Fiscal stimulus will focus on supporting long-term economic growth and will likely be delivered in March. Iris Pang Asia: region slows as global recessionary fears build Asian growth is slowing as its major external trading partners slide towards recession while its major regional economic hub (China) battles a new Covid wave. Not helping, a global downturn in semiconductor demand is hitting hard at the major manufacturing sector of the region, and domestic demand is being undermined by higher policy rates and the erosion of purchasing power due to inflation. But it isn’t all bad. Inflation, which was never as bad as most of Europe or the US, and has required a more nuanced policy tightening response, already shows clear signs of peaking in many economies. Easier policy and a troughing of the downturn are likely over the middle of the year. Japan may be an outlier here as it is making tentative overtures towards a normalisation of central bank policy, though we think any steps the Bank of Japan makes this year will be extremely tentative. China, too, will emerge from the current Covid wave within a quarter or two and should begin to grow more strongly, lifting regional exports once more. Overall, although 2023 will not be a stellar one for most Asian economies, they will still mostly grow faster than anywhere else. Rob Carnell CEE: New Year's repricing is a reminder that the inflation story is not over Leading indicators suggest a rebound from the bottom in economic activity, but hard data will continue to underwhelm for a while yet. Still, more attention will be paid to inflation, which we think peaked in Hungary and Romania at the turn of the year. In the Czech Republic, the January repricing should bring inflation back within reach of the September peak. In Poland, on the other hand, we may not see inflation peak until February, and we also expect inflation here to be the most persistent in the CEE region. However, we do not expect much more action from central banks. In Romania, after the last surprisingly strong inflation number, it looks as though the National Bank of Romania (NBR) may deliver one more 25bp hike to 7.00%. But otherwise, we consider the hiking cycle in the region to be over. So the main question is when inflation in the region will fall enough that central banks will be willing to start normalising monetary conditions. We see the Czech National Bank and the National Bank of Hungary as the first in this race. Conversely, we forecast the NBR will cut rates only at the end of this year with the National Bank of Poland following next year at the earliest. Frantisek Taborsky FX markets: dollar to find support as central banks spark abrupt decline FX markets have shown a little more stability over the last month and the dollar has found some support after dropping around 8% through October and November. The hawkish December FOMC meeting has certainly helped here and provided a counterweight to a surprisingly hawkish ECB. The major outperformer has been the Japanese yen, which received a further boost in December after the Bank of Japan shifted its 10-year JGB yield target. Rarely can there be said to be a more successful case of FX intervention than Tokyo’s efforts to sell USD/JPY in the 145/150 area. Looking ahead, the seasonal trends are more dollar supportive in the January-February window and this may be the more likely period for EUR/USD to make a move lower. Markets price the turn in the Fed cycle and a weaker dollar from the third quarter onwards, though we suspect sustained gains in EUR/USD may be harder to come by as central bankers continue to hike into recessions. Chris Turner Rates: set to reverse higher before collapsing lower 2022 saw the biggest bear market for bonds in modern times. A peak in US inflation opened the door for a decent rump of investors to square up on bear market positions in the fourth quarter, requiring the buying of both duration and risk. However, this just stored up pressure for resumed higher market rates ahead. Despite the easing in inflation pressures, the first quarter will have a strong rate hiking theme. The Fed is still hiking and needs tighter financial conditions. That should force market rates back up. With the ECB on a hiking mission too, upward pressure on eurozone market rates will also feature. While we see resumed upward pressure on rates dominating the first quarter, the biggest narrative for 2023 as a whole will be one of significant falls in market rates. The Fed and the ECB will peak in the first quarter, and once there, market rates will have a carte blanche to anticipate future cuts. Larger falls for US market rates are projected later in 2023, reflecting likely subsequent Fed cuts. But with cuts less likely from the ECB, expect a relative steepening of the US curve versus the eurozone one. This is a classic box strategy where the US curve steepens out (dis-inversion), and the eurozone one re-steepens by less. By the end of 2023, the US 10yr Treasury yield should be back down at 3% and the eurozone 10yr swap rate at 2.5%. But we should not go below these levels for long. Padhraic Garvey Read this article on THINK TagsRates Monthly Update FX Energy Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Next week’s data calendar features China's growth numbers, inflation readings from Australia and India, plus a key central bank meeting In this article Inflation finally on the downtrend? China activity and loan data due in the coming days BoK could surprise with a pause Philippines exports likely to reverse recent surprise gain   Shutterstock    Inflation finally on the downtrend? The new monthly Australian inflation series should show a further small decline in the inflation rate to 6.8% year-on-year, down from October’s 6.9% rate – still too high for the Reserve Bank of Australia to stop tightening, but moving in the right direction. And in India, further falls in food prices and stable gasoline should bring the price level down by 0.1/0.2% month-on-month, although similar falls last year mean that the inflation rate could hold up at around 5.9%YoY for a second month – still, within the Reserve Bank of India’s target range and indicating that we may be closing in on peak rates.   China activity and loan data due in the coming days China will announce loan data between 9 and 15 January and activity data and GDP data between 10 and 27 January. Loan growth should have slowed in the last month of 2022 even after the People's Bank of China cut the required reserve ratio (RRR) to absorb liquidity. The impact of the RRR cut in December should be reflected in loan growth data for January and support economic activity post-reopening. China also reports activity data and we expect retail sales to face a deeper contraction on a yearly basis. Meanwhile, industrial production could turn from positive growth to mild contraction in December. This suggests that growth was supported mainly by fixed-asset investments for the period. As a result, GDP growth for the fourth quarter of 2022 should fall into a slight year-on-year contraction. BoK could surprise with a pause Bank of Korea (BoK) will meet next Friday. The market expects a 25bp hike, but we maintain our minority view that the BoK will likely stand pat this time. Since the last meeting, both inflation and inflation expectations decelerated quite meaningfully while the Korean won stabilised under the 1300 level despite a widening yield gap between the US and Korea. The BoK is expected to use the rate hike card more carefully as there is little room left to raise interest rates in this cycle given sluggish exports and economic activity. However, given the recent rise in gasoline and power prices, upside risks remain high and thus the BoK should retain a hawkish tilt despite the pause. Philippines exports likely to reverse recent surprise gain Exports are expected to revert to contraction following a surprise jump in the previous month. Electronics form the bulk of outbound shipments from the Philippines and given slowing global demand we could see the overall exports sector fall back into the red. Imports on the other hand should continue to expand, resulting in the trade deficit widening to roughly $4.4bn.  Key events in Asia next week Refinitiv, ING TagsAsia week ahead Asia Pacific Asia Markets Asia Economics Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

China loans grew faster than expected in December. Government bond issuance continued to increase in the last month 2022. Both reflect the urgency of government policy to support economic growth. As such, 2023 will be a year of re-leveraging Loans grew faster in December New yuan loans increased by CNY1400 billion in December, more than the consensus expectation of CNY1200 bn. This increase is interesting as banks usually defer loan growth in the last month of the year to the first month of the next year. The increase was mainly in the medium to long-term corporate loans, at CNY1209 bn, higher than CNY737 bn in the previous month. This echoes the government policy to increase financing channels for real estate developers. Mortgages did not record an obvious increase in the month.  Quiet corporate bond issuance in contrast with busy government bond issuance Most of the other loan and credit data are not eye-catching. The exception is that government bonds, including local government bonds, continued to increase while corporate bonds recorded a fall in net issuance. Government bond net issuance increased by CNY278 bn while corporate bond net issuance decreased by CNY270 bn. This contrast highlights that the government kept getting funding for fiscal spending in the last month of the year.  2023 will be a year of releveraging In 2022, government bond net issuance increased by CNY7.12 trillion while corporate bond net issuance increased by only CNY2 tr. This difference shows the bad economic environment and deleveraging reform of 2022. We expect this is going to change in 2023. Corporate bond issuance should climb when the economic environment improves. This does not squeeze out government bond issuance as local governments would need funding for continual construction of uncompleted home projects and infrastrastructure investments.  Loan growth could be strong in 2023 if the government relaxes "the three red lines" financial leverage indicators for real estate developers.  In short, 2023 will be a year of re-leveraging. Read this article on THINK TagsMonetary Policy Loan growth China Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Next week’s data calendar features China’s GDP numbers, jobs data from Australia, and a rate hike by Bank Indonesia Source: Shutterstock RBA looking to jobs report next week for direction After the disappointingly high November inflation numbers, the Reserve Bank of Australia (RBA) will want to see some evidence of slowing in the labour market if it is not going to have to raise rates more than the additional 50bp we are currently forecasting. The consensus is for around 64,000 new jobs, which would indeed be a strong figure, and unless there was an offsetting rise in the unemployment rate, would probably prompt us to review our peak rates forecast in favour of an increase. We expect total employment of roughly 45,000 fresh jobs of which only 20,000 would be full-time jobs. Lending rate and activity data out from China The People's Bank of China (PBoC) will decide whether to cut the 1Y Medium Lending Facility rate (MLF) on 16 January. We expect the PBoC to pause at 2.75% as the economy is recovering. Furthermore, the government has emphasised that the central bank's actions should be more focused, and a general rate cut would not be considered a focused monetary policy move. After the PBoC’s announcement of 1Y MLF, Chinese banks will announce 1Y and 5Y Loan Prime Rates (LPR) on 20 January. We expect no change in these interest rates as banks usually follow the move of MLF and banks’ interest margins have been thinner. But the government has urged banks to lend out more loans, which may imply banks could be under pressure to cut. Meanwhile, China will announce activity data and GDP data between 10 and 27 January. We expect retail sales to contract deeper on a yearly basis while industrial production could turn from positive growth to mild contraction in December. This leaves the economy mainly supported by fixed-asset investments. As a result, GDP growth for the fourth quarter should be in slight year-on-year contraction. BoJ to reiterate dovish stance while BI set to hike The Bank of Japan (BoJ) is expected to stand pat after delivering its unexpected decision in December to expand the yield curve band. Governor Haruhiko Kuroda’s future guidance will remain dovish, but apart from that, the market appears to be pricing in additional normalisation steps from the next BoJ governor. Considering that Tokyo CPI inflation hit 4% year-on-year earlier this week, national CPI inflation for December is likely to climb up to 4%. But, pipeline prices, such as import price and producer price, are expected to be lower than in the past month.  Meanwhile, Bank Indonesia (BI) meets to discuss policy next week and we expect Governor Perry Warjiyo to start the year with a rate hike to support the Indonesian rupiah (IDR). Softer inflation reported in the past few months and fading growth momentum suggest that BI will likely opt for a 25bp rate increase which would widen interest rate differentials to support the currency. Indonesia's trade report to show slowing export growth Indonesia also reports trade numbers next week. With commodity prices moderating, exports will likely manage to grow a modest 6.2% while imports could contract for a second straight month. The trade balance will likely remain in surplus but could slide to $3bn, lower than the previous month and less than half of the record $7.6bn recorded in April last year. With the trade surplus fading, we could see the IDR missing a key support in 2023, which could suggest some depreciation pressure on the currency this year. Key events in Asia next week Source: Refinitiv, ING Read this article on THINK TagsAsia week ahead Asia Pacific Asia Markets Asia Economics Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Latest thoughts on global central bank policy (continued) Persistent wage pressures make pivot unlikely in 2023 The RBA’s policy moves so far have been in line with our expectations, and we anticipate three more hikes in early 2023 to take the cash rate to 3.85% by the second quarter of 2023. The RBA’s challenge will present itself in the form of persistent inflation (October CPI was at 6.9%) amid a strong labor market and subsequent wage growth of 4%–5%. Growth has been resilient in the face of hikes and slowing property prices, but household consumption data are starting to feel the pinch. Yet, a recession is not our baseline scenario. Inflation will continue to be the prime focus for policymakers, even in 2023. While a slowdown  in price pressures will be evident in 2023 due to base effects and easing supply chains, the outlook  will hinge on wage growth and commodity prices. Elevated wage pressures could see the cash rate move beyond 4% as well, which will add to heightened growth risks. For now, we expect an extended pause from the RBA once the peak rate is reached. A shallow recession as more hikes to come Inflation has consistently exceeded expectations due to rapid wage growth throughout 2022. While goods inflation will likely moderate as supply chain pressures and commodity prices ease, services inflation due to wage growth is turning out to be a lot stickier. While the last available wage data were for the third quarter of 2022, higher frequency wage settlements show wages are still going at full strength. This makes the case for further rate hikes in the first half of 2023, likely taking the terminal rate to 5.50% from the current 4.25%. The magnitude of hikes has also jumped from 50 bps through much of the year to 75 bps at the November 2022 meeting. While the sharp hikes so far will dampen growth including construction activity, business sentiment and consumption patterns, a shallow recession is our base case for 2023. We believe the probability for a deeper slowdown will be dependent on how quickly unemployment rates worsen but given that labor demand remains strong especially in re-opening related sectors like tourism, we think a sharp rise in unemployment levels is unlikely in 2023. Early pivot in sight What started with the chip downturn cycle has turned into a more broad-based slowdown in South Korea. The manufacturing Purchasing Managers’ Index (PMI) has remained in contractionary territory since July 2022, the housing market has slumped, and financial conditions have deteriorated due to the rapid interest-rate hikes since late 2021. Default risks are looming for the country’s non-bank financial companies because they have a higher degree of exposure to the property market and rely on volatile short-term funds. The good news is that inflation is moderating gradually, although it remains at an elevated 5%. This prompts us to believe that the central bank will soon need to prioritize growth over inflation with one final rate hike in the first quarter of 2023 (to 3.50%). We expect inflation to sustainably cool throughout 2022, which will make a strong case for the BoK to pivot, especially as recessionary risks will gather steam. While we do not expect a recession just yet, monetary policy action will be key to determine the balance of this tradeoff. We, therefore, do not rule out an early pivot. Zero-Covid exit to eventually unclog monetary policy transmission channel The PBoC has kept monetary policy accommodative throughout 2022—with a combination of liquidity injections and rate cuts. However, monetary policy transmission channels have remained impaired as  tight COVID-19 control measures and the property sector have weighed on the economy. However, statements from the recently held Central Economic Work Conference (CEWC) show that zero-Covid will  play a substantially less important role in 2023’s economic agenda. Infections have already been on the rise as more than half of China’s zero-Covid measures have been eliminated over the past month. The  real litmus test will be the government’s tolerance for a possible surge around the Lunar New Year  holidays in late January. While we expect economic activity to worsen before it becomes better as China transitions to “living with COVID-19,” the PBoC’s accommodative stance should finally start to yield  more positive results as mobility and the labor market benefit from the economic reopening. As for rates, with major lenders cutting deposit rates across the board earlier in the year, we expect to see a further reduction in Loan Prime Rates (LPR), especially the five-year LPR, to boost demand for mortgage loans. Source: cbw-0123-u.pdf (widen.net)

China has drastically eased its Covid-19 measures. Both domestic mobility and international traffic should increase in 2023. But the question is in which quarter? The current Covid wave could last at least a few months. By then, the US and EU will likely be in recession, hurting China's exports. We also worry about the fiscal deficit getting bigger In this article China: At a glance 3 calls for 2023 It is really about timing when it comes to the question of economic recovery External demand to be weaker in 2023 Fiscal deficit could become an issue, and unconventional monetary policy could become a norm   China is set to lift its quarantine requirement for inbound travellers China: At a glance The Chinese economy has slowed since the second quarter of 2022, mainly due to strict Covid measures that disrupted port and land logistics, retail sales and catering, and caused temporary shutdowns of factories in some key manufacturing locations. Even when restrictions were eased, a mixture of a weak domestic economy and high external inflation hit manufacturing in the fourth quarter of 2022. In addition, real estate developers have struggled to get enough cash to complete residential projects. This triggered a slew of easing measures for real estate developers to get financing via banks, stock and debt markets in the fourth quarter. The fragile economy means there has been no inflation pressure at all, and luckily no deflation. The People's Bank of China (PBoC) has used re-lending programmes to inject liquidity into specific areas, such as small and medium-sized enterprises and real estate. Conventional interest rates and required reserve ratios were not used frequently as those tools were not effective when there were Covid restrictions. The strong dollar combined with the weak Chinese economy resulted in a weak Chinese yuan (CNY) in 2022. GDP and inflation outlooks CEIC, ING estimates 3 calls for 2023 1 It is really about timing when it comes to the question of economic recovery Most Covid-19 measures were removed in December 2022. The removal of mandatory quarantine when entering Mainland China suggests that business travel will resume soon, even with the current spike in Covid cases as people in most locations outside China have become used to living with the virus. Residents could start to visit Hong Kong to get medicines and healthcare services, and then later in the year they could begin to travel to foreign countries for leisure activities. We believe that leisure travel into Mainland China could resume from the Easter holidays. Retail sales should recover, and the current Covid wave should ease after a few months (although it's difficult to gauge the timing), which should minimise the risk of supply chain disruptions. 2 External demand to be weaker in 2023 The US and Europe have been China's second and third top export destinations respectively. According to our house forecasts, the timing of recession in the US and Europe should be around the first half of 2023, and therefore should not overlap with the peak export season of the fourth quarter. But whether export demand can recover after the recession is still in question. China's trade with ASEAN – the number one export destination for China – and the rest of Asia also depend on the consumer market in the US and Europe. Both exports and imports could enter yearly contraction in the first half of 2023. Trade could recover towards the second half when domestic and external economies recover. 3 Fiscal deficit could become an issue, and unconventional monetary policy could become a norm The fiscal deficit has not previously been an issue for China. But Covid and the real estate crisis have changed this. The fiscal deficit-to-GDP will be around 8% by the end of 2022, which is higher than the historical high (data goes back to December 1995) of 6.2% in the fourth quarter of 2020. The fiscal deficit-to-GDP should remain at 8% in 2023 even if there is much less spending on Covid tests and quarantines. Fiscal spending on high-tech development will increase. As for monetary policy, the PBoC may choose to stay on hold next year as the central bank has hesitated to lower the 7D interest rate any further to avoid falling into a liquidity trap. We do not expect the PBoC to cut the required reserve ratio or interest rates in 2023. That said, the re-lending programme for specific targets should continue at least into the first half of 2023. Further liquidity injections via the re-lending programme in the second half will depend on the speed of recovery of real estate developers and external markets. We expect the CNY to strengthen against the dollar as the economy picks up and the US enters a recession.  China forecast summary table CEIC, ING estimates TagsUSDCNY PBoC Fiscal Covid China Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

China MLF decision and Indonesian trade are Asia's highlights on a quiet day for the G-7 as the US is on holiday. The JPY and JGBs remain in the spotlight ahead of Wednesday's Bank of Japan meeting Source: shutterstock Macro outlook Global Markets: US stocks made further gains on Friday, though on a relatively modest scale as the boost from low inflation data earlier in the week began to fade. Some of the zing also went out of the bond market too. 2Y US Treasuries, which had looked overbought at levels below the lower bound of the Fed funds rate (4.25%), saw yields rising 8.7bp, reversing most of Thursday’s decline. Yields on the 10Y US Treasury rose 6.4bp to just over 3.50%. It’s a public holiday in the US today so markets may be a little uninspired today. But there is still some room to close the gap between the implied peak Fed funds rate (currently 4.92%) and 5.0% (ING f) or 5.0%+ (consensus Fed view), and this gap will probably be closed, even if you think the Fed will pivot later this year. Given some fairly extreme speculative positioning (commitment of traders’ report) this raises the possibility of some tactical positioning, even if strategically, you consider the broader move in yields from here to be lower. EURUSD drifted a bit lower on Friday but remains above 1.08. Most of the rest of the G-10 pack is pretty steady, the exception being the JPY, which has been getting a lot of support from investors betting on a change in policy at Wednesday’s meeting. Practically none of the consensus of forecasters thinks the BoJ will actually move, but no one will want to miss out by being on the wrong side of any surprise on either yield curve control or policy rates. 10Y JGB yields remain above 0.50%. The rest of the Asian FX pack made solid gains on Friday, catching up with the G-10’s moves the day before. The IDR led the charge, rising 1.24%, followed by the THB (1.16%) and PHP (0.84%). G-7 Macro: There is nothing of much interest on the G-7 macro calendar today. China: The PBoC will announce its 1Y Medium Lending Facility (MLF) policy rate decision today. The consensus is for a pause at 2.75%. There could, however, be an extra liquidity injection on 1Y MLF volumes. One reason is that the Chinese New Year holiday is coming and liquidity is usually tight before this. But this is not certain, as the PBoC has already been injecting liquidity to cover the holiday period through open market operations. Another reason is that the PBoC could inject extra liquidity via the MLF at the beginning of the year rather than cutting the required reserve ratio to support what is usually strong loan growth in the first quarter. The market should perceive more liquidity injections as supportive measures for economic growth. Indonesia: Trade data will be released on Monday.  The market consensus points to a second straight month of contraction for imports as energy imports slide after global energy prices moderate.  Exports are likely to remain in expansion but settle at 7.4%YoY, resulting in a trade surplus of roughly $4bn, much lower than the high of $7.5bn recorded in 2022.  Smaller trade surpluses suggest that the IDR may lose some support in 2023. What to look out for: China activity data Japan PPI inflation (16 January) China medium term lending facility (16 January) Indonesia trade balance (16 January) Philippines remittances (16 January) Australia consumer confidence (17 January) China GDP, retail sales and industrial production (17 January) Singapore NODX (17 January) Japan core machine orders and industrial production (18 January) BoJ policy meeting (18 January) Taiwan GDP (18 January) US retail sales, PPI, industrial production and MBA mortgage applications (18 January) Japan trade balance (19 January) Australia employment change (19 January) Malaysia BNM policy meeting (19 January) Bank Indonesia policy meeting (19 January) US initial jobless claims and housing starts(19 January) South Korea PPI inflation (20 January) Japan CPI inflation (20 January) US existing home sales (20 January) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Asia Economics Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The People's Bank of China has kept the 1Y Medium Lending Facility rate at 2.75% but increased the volume of the facility by CNY79 billion in January. The market should perceive this as a supportive measure. But the yuan could be weaker in March when retail sales data is released Leading members of the People's Bank of China, including Governor, Yi Gang (waving) The PBoC paused rate policy, but increased liquidity The PBoC decided to leave the 1Y Medium Lending Facility (MLF) policy rate at 2.75% today. But there was an extra liquidity injection on the 1Y MLF volume of CNY 79 billion to CNY779 billion for January. One reason for this increase is that the Chinese New Year holiday is coming, and liquidity is usually tight ahead of this, though the PBoC has already been injecting liquidity to cover the holiday period through open market operations. We believe there is another more important reason for the increase in volume. And that is that the PBoC would like to support strong loan growth by injecting extra liquidity via the MLF at the beginning of the year rather than cutting the required reserve ratio, which is a more aggressive monetary policy tool. Chance of RRR cut in 1Q23 Lower after increase in 1Y MLF volume Yuan should remain robust before the Chinese New Year holiday but this could be temporary The market should perceive more liquidity injections as supportive for economic growth, and this should help support the yuan. Our forecast of USD/CNY at 6.9 at the end of 1Q23 looks off the mark. But we expect to see weaker-expected economic activity when retail sales data for January to February come out in March. That could change the course of the yuan. We expect that retail sales from January to February will increase only slightly from last year as consumers focus more on healthcare services and medicines instead of general shopping activity for the Chinese New Year. Retail sales should pick up in the second quarter. Our USD/CNY forecast for the end of 2023 is 6.72 Read this article on THINK TagsUSDCNY Monetary policy China Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Summary:  The Asian session saw a significant swoon in risk sentiment for the first time in weeks as Chinese mainland markets sold off steeply after a gap opening higher in their first session after the long holiday closure. This contrasts with US equity markets, which squeezed sharply higher once again Friday as financial conditions continue to ease aggressively ahead of this Wednesday’s FOMC meeting. Will the Fed want to spring a hawkish surprise to make this market take it seriously?   What is our trading focus? Equities: It is all about technology earnings this week Friday’s price action in S&P 500 futures ended on a high note with the index futures closing at their highest level since mid-September. US financial conditions remain in a negative trend and long-term bond yields are still well in the range and well-behaved leaving little macro headwinds for US equities, except for the warning signals flashing out of the leading indicators. The Q4 earnings season has so far been mixed with big names such as Intel and Microsoft reporting a deteriorating outlook. This week it is all about earnings with the most important to watch being those from Apple, Alphabet, and Amazon reporting late Thursday after the market close. This morning the S&P 500 futures are rolling over from Friday’s highs trading around the 4,063 level which is just above the intraday low from Friday’s session. Hong Kong’s Hang Seng (HIG3) retreated; China’s CSI300 (03188:xhkg) pared gains After advancing 2.9% in a holiday-shortened trading week, the Hang Seng Index gave back most of the gain from last week on profit-taking as well as disappointing property sales during the Lunar New Year. As of writing, Hang Seng Index lost 2.2%, with Chinese developers and mega-cap internet names leading the decline. Leader developer Country Garden (02007:xhkg) plunging 7.4% was the top loser within the Hang Seng Index, followed by Alibaba (09988:xhkg) which tumbled 7.1. CSI300 gapped higher by over 2% at the open when the Chinese market returned from a week-long holiday but pared most of it and was up only 0.5% as of writing. Auto, defence, electric equipment, and electronics were among the outperformers. FX: Dollar eyes a bounce this week The USD has been range-bound over the last two weeks, but a huge week ahead looms with a slew of key data (ISMs on Wednesday and Friday, the jobs report Friday) and central bank meetings (Fed, BoE and ECB) key catalysts. Any of three scenarios might support a USD comeback this week, at least consolidating some of its weakness over the past couple of months. The primary risk might be a Fed that is in the mood to challenge the market’s complacency and easing financial conditions as the market has priced a deceleration in rate tightening and eventual rate cuts later this year. Secondarily, stronger than expected US data would be a surprise and could boosts the US dollar by driving US yields higher. Finally, significantly weak US data could reverse the wild squeeze higher in equity markets, offering safe-haven support for the greenback. Elsewhere, the ECB may find it impossible to surprise hawkish, while the BoE may be happy to err on the side of dovishness as sterling has bounced back comfortably and energy prices have eased. Crude oil (CLH3 & LCOH3) lower despite Iran strikes Crude oil prices trade softer following Friday’s big drop which left the sector down on the week. An Israeli drone strike against a target in Iran only had a temporary positive price impact with the market instead focusing on signs of increased Chinese demand as the country reopens after the LNY break. Friday’s correction was primarily driven by profit taking from recently established longs after another failed attempt to break key resistance in the $89-$90 area in Brent. Pivotal week ahead with a slew of data and central bank meetings, which will continue the argument between recession and soft landing, driving energy markets. Also focus on the impact of fresh sanctions on Russian esports from February 4 and this week's OPEC+ meeting although no material changes are expected. Gold (XAUUSD) focus turns to FOMC Gold ended last week unchanged and has so far traded close to flat during the APAC session. Overall, it remains in a steep bullish trend with local support at $1920 being followed by trendline and 21-day moving average support around $1900. The Israeli strike on targets in Iran had limited positive impact with the market instead focusing on Wednesday’s FOMC meeting for confirmation of a less hawkish 25 bp rate hike as well as Friday’s US job report. Eight consecutive weeks of buying has lifted the hedge fund long in Comex gold futures to a nine-month high of 107k lots (10.7m oz) while total ETF holdings remain flat, the latter a worry as it raises the risk of a correction from non-sticky speculative and technical driven longs. Yields on US Treasuries (TLT:Xmas, IEF:xnas, SHY:xnas) rose on stronger-than-expected economic data U.S. yields are rangebound ahead of important event risks this week, including the first week of the month economic data noted above in the USD section, but also over the FOMC meeting this Wednesday. The 10-year yield benchmark continues to coil in the 3.50% area as the yield curve remains steeply inverted and the market predicts a soft landing for the economy and Fed easing beginning later this year. What is going on? Explosions in Iran could raise geopolitical tensions There are reports of multiple drone strike targeting factories in Iran. Reports state that the drones came from an Israeli airbase in Azerbaijan. Many of the reports are centred around Isfahan, which is a central city that's reportedly home to some military plants, perhaps the ones supplying drones to Russia for the war in Ukraine. Australia’s biggest pure-play Copper company reports production record, but flags risk of higher electricity costs Oz Minerals’ (OZL) quarterly copper output hit a record high in Q4, while it sees higher production over the year again, with slightly less gold production compared to 2022. The miner noted inflation risks in forward guidance, forecasting higher costs in 2023 amid rising power prices, and a higher Australian dollar. This sets the tone for what we can potentially expect from some of Australia’s and the world’s largest miners when they report 2022 results next month. That said, raw material price strength in copper and gold could underpin Oz Minerals’ revenue and earnings, with consensus expecting 19% revenue growth in 2023, and 45% earnings growth. The company recommended shareholders approve its $9.6 billion takeover by BHP. Philips reports cut of 6,000 employees The wave of layoffs is continuing among technology companies and this morning Philips in the Netherlands is reporting layoffs corresponding to 8% of the workforce in a drive to cut costs to offset weakness across the business and costly recalls in its consumer medical device business. Copper’s supply disrupted rally Copper’s 20% rally since early November has primarily been driven by speculation that the reopening of China will support an overall increase in demand despite recession risks weighing elsewhere. But while that pickup has yet to materialise, thereby exposing copper and other recent highflying industrial metals to a correction, the risk to supply has increasingly become a stickier source of support for copper. Morgan Stanley estimates that close to 7% of global copper production is currently disrupted or at risk, while Chile’s output continues to disappoint. Lunar New Year consumption in China rose 12.2% from last year According to the VAT data released by the State Taxation Administration, sales in consumption-related industries grew by 12.2% during the Lunar New Year holiday from the same lunar calendar period last year. Sales of goods grew 10% and services consumption climbed 13.5% Y/Y. Dining-in spending surged 53% Y/Y. Tourist agency sales soared 130% Y/Y, and tourist hotel lodging was up 16.4% Y/Y. Budget hotel sales increased by 30.6%. Movies’ box office exceeded RMB6.7 billion. China reiterated its push for domestic consumption; extended stimulus measures from its monetary toolbox China’s State Council, in a meeting chaired by the outgoing Premier Li Keqiang, pledged to boost domestic consumption as a key driver to support economic growth in 2023. Separately, the People’s Bank of China extended some lending facilities to support investments that reduce carbon emissions, develop clean use of coal, and the transport and logistics industries. Read next: Inflation Is Falling, But Does It Mean That The Fed's February Decision Will Be Dovish?| FXMAG.COM What are we watching next? Market conditions thickening the plot for this week’s FOMC meeting The FOMC meeting this week was meant to confirm the Fed’s further downshift in the pace of its rate hikes with a 25-basis point rate hike and offer few surprises. But the market has lurched into an aggressive back-up in risk sentiment, with easing financial conditions as the market prices the Fed to likely have reached its peak interest rate for the cycle after only another 25 basis points of further hiking after this week’s presumed hike, which would take the Fed Funds policy rate to 4.75-5.00%. The Fed continues to object to the market’s expectation of an eventual rate cutting campaign set to begin by later this year, and it may attempt to surprise somehow on the hawkish side after especially the latter part of the “higher for longer” message from the Fed has been ignored. What does that look like? Difficult to say: a 50 basis point move would be bold but would come as a profound shock to markets. Perhaps the most hawkish message the Fed can deliver on rates would be a refusal to guide for an end of the rate-hike cycle just yet, somehow noting that financial conditions are too easy for it to consider that its policy is sufficiently tight. BP seeing an accelerated energy transition Russia's war in Ukraine will accelerate the shift away from oil and gas, with a much sharper decline in demand for fossil fuels seen in 2035, according to BP's annual energy outlook out today. Nations are prioritizing domestic renewable energy sources as a way to boost supply security while also cutting carbon emissions. Still in BP’s most conservative scenario in terms of climate goals, global oil demand would still be around 73 million barrels a day by 2050, only down 25% from 2019. OPEC will continue to gain market shares over the coming years because it has lower costs. The war will also cause global GDP to be at least 2% lower by 2025, compared with the expectation a year ago (from Bloomberg). Earnings to watch The Q4 earnings season kicks into gear this week around 218 companies among those we track during the earnings reporting. The three most important earnings are Apple, Alphabet, and Amazon due to their size in the equity indices and the economy. The first earnings to move markets will be Snap and Caterpillar tomorrow with both reflecting cyclical components in the economy. Today: Ryanair, UniCredit, Sumitomo Mitsui Financial Group, Canon, Philips, NXP Semiconductors, GE HealthCare Technologies Tuesday: Canadian Pacific Railway, Daiichi Sankyo, Fujitsu, UBS Group, Exxon Mobil, Pfizer, McDonald’s, UPS, Caterpillar, Amgen, AMD, Mondelez, Marathon Petroleum, Electronic Arts, Spotify, Snap Wednesday: Novo Nordisk, Orsted, Keyence, Hitachi, GSK, BBVA, Novartis, Meta, Thermo Fisher Scientific, Southern Copper Thursday: DSV, Dassault Systemes, Siemens Healthineers, Infineon Technologies, Deutsche Bank, Sony, Takeda Pharmaceutical, Shell, ING Groep, Banco Santander, Siemens Gamesa Renewable Energy, Nordea, Roche, ABB, Apple, Alphabet, Amazon, Eli Lilly, ConocoPhillips, Qualcomm, Honeywell, Starbucks, Gilead Sciences, JD.com, Ford Motor, Ferrari Friday: Coloplast, Sanofi, Intesa Sanpaolo, Denso, CaixaBank, Naturgy Energy, Assa Abloy, Regeneron Pharmaceuticals Economic calendar highlights for today (times GMT) 0800 – Spain Flash January CPI 1000 – Eurozone Jan. Confidence Surveys 1530 – US Jan. Dallas Fed Manufacturing Activity 2330 – Japan Dec. Jobless Rate 0030 – Australia Dec. Retail Sales 0130 – China Jan. Manufacturing and Non-manufacturing Survey Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: Financial Markets Today: Quick Take – January 30, 2023 | Saxo Group (home.saxo)

China markets reopen after the lunar new year holidays. Tech earnings could drive trading direction ahead of major central bank meetings later this week  Source: shutterstock Macro outlook Global Markets: Helpful US PCE inflation data on Friday helped offset mixed earnings news to enable the S&P500 to make some small gains on Friday (+ 0.25%). The NASDAQ gained 0.95%. Chinese markets re-open today after the Lunar New Year Holidays, and the government’s aims to boost consumer spending this year could further help stocks in associated sectors. The Hang Seng Index finished 0.54% higher on Friday. India’s stock markets bucked the positive trend across the region in response to a now well-publicized short-seller report and subsequent rebuttal by one of India’s biggest stocks. Bond markets were fairly quiet on Friday ahead of this week’s big central bank meetings and debt ceiling talks. The 2Y US Treasury saw yields rise 1.6bp while the 10Y bond yield rose less than a basis point to 3.503%. EURUSD has also been fairly steady, currently at 1.0870. Other G-10 currencies are fairly steady too, though there was quite a lot of volatility in the GBP on Friday ahead of this Thursday’s Bank of England rate decision. Asian FX was mixed on Friday, but outside the THB and IDR, which lost some ground to the USD, moves were mostly very slight. G-7 Macro: As mentioned, the PCE deflator data on Friday helped to quell inflation fears. The December core PCE inflation figure dropped to 4.4% from 4.7%, taking the 4Q average to 4.7%, below the Fed’s forecasts from the December FOMC meeting. See more here from James Knightley on this and the slowdown in consumer spending.  Germany releases preliminary 4Q22 GDP data today. The median forecast for this is for zero growth quarter on quarter. China: The Netherlands and Japan will join the US on export controls of advanced chip manufacturing equipment to China. In the short term, China does not have the capacity to expand or upgrade semiconductor chip manufacturing. But at the same time, it means that China knows that it must put R&D of semiconductors and equipment at the core of its national strategy. Also on policy, the government wants growth, and primarily, it wants it from consumption. Local governments are being encouraged to implement measures to increase employment and therefore consumption. We also do not rule out preferential consumption policy, e.g. consumption of household appliances. The PBoC has also extended its re-lending programme for clean coal for this year. This is to ensure sufficient power supply during the economic recovery. What to look out for: FOMC meeting New Zealand trade balance (30 January) South Korea industrial production (31 January) Japan retail sales and industrial production (31 January) Australia retail sales (31 January) China manufacturing and non-manufacturing PMI (31 January) Taiwan export orders (31 January) US Conference board consumer confidence (31 January) New Zealand unemployment (1 February) South Korea trade balance (1 February) Japan Jibun PMI (1 February) Regional PMI manufacturing (1 February) China Caixin PMI manufacturing (1 February) Taiwan industrial production (1 February) Hong Kong GDP (1 February) Indonesia CPI inflation (1 February) US ADP employment change (1 February) ISM manufacturing (1 February) FOMC meeting (2 February) South Korea CPI inflation (2 February) ECB policy meeting (2 February) US initial jobless claims, durable goods orders and factory orders (2 February) Japan Jibun PMI services (3 February) China Caixin PMI services (3 February) Singapore retail sales (3 February) US non-farm payrolls and ISM services (3 February)   Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

  USDCNY fell to around 6.75 after the PMI data release came in better than expected Activity data released overnight supports the view that China's zero-Covid reversal will spark resurgent Chinese demand Surprise from the non-manufacturing PMI The headline manufacturing PMI was 50.1 in January, the same as the consensus, but much better than the 47.0 reading for December. January in 2023 is a month of long holidays, so manufacturing activity was not strong. The bigger surprise (and good news) came from the non-manufacturing PMI, which came in at 54.4 in January, a lot better than the consensus of 52.0, and sharply up from the 41.6 reading in December. This suggests that the consumption recovery during the Chinese New Year holidays will be a lot stronger than expected. This rebound stems from the economic reopening and the timing is also good as it coincides with the holidays. CNY bounces back to around 6.75 Source: CEIC, ING Rebound may not continue The next question is whether this rebound can continue over the coming months. We are cautious. January in 2023 coincides with the Chinese New Year holidays. Consumption activity should be quieter in February, before picking up gradually again in March. That said, we do expect the service industry to outperform the manufacturing industry in 2023.   Jump in non-manufacturing PMI in January could be magnified by seasonal factors Source: CEIC, ING Read this article on THINK TagsPMI Consumption China Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

At the end of last year, we could learn that China's budget deficit reached record highs from January to November 2022. The property crisis and the zero-tolerance policy for COVID-19 may have contributed to this, with fiscal spending outstripping revenue by US$1.1 trillion and being twice as large as the year before. However, it seems that we may  see a light at the end of the tunnel in the form of a loosening of the pandemic policy. Is it worth investing in shares of Chinese companies? Macroeconomic data from China Official figures from China say that the increase in the deficit was due to a fall in land sales, a fall in tax revenues and an increase in health and welfare spending, which was linked to the coronavirus outbreak. The authorities in the Middle Kingdom now appear to be under pressure to cut spending, as the deficit target has remained unchanged. Public finances are forecast to probably improve in 2023, when China exits the zero COVID policy completely. This could be seen from the latest readings of the PMI sentiment index for the industrial sector, which exceeded expectations and rose to 50.1 points (49.8 expected), up from 47 points in the previous month. The future outlook appears to be improving, as evidenced by increases in the share prices of Chinese companies. The ChinaH Index (CHINAH) has risen 50% from its October lows. This seems to have broken a 2-year slump. Nevertheless, a correction could be expected in the near term, so caution should be exercised when investing in this market. Source: Conotoxia MT5, CHINAH, Daily Pandemic situation According to WHO data, the weekly record of confirmed infections of more than 40 million cases was in the second half of December 2022. Since then, the number of weekly infections has fallen to the 175,000 cases recorded last week, a reduction of 99.5 per cent. However, it should be noted that the Chinese authorities have ended their mass testing programme, so the latest data may not be very reliable. Up to 89.5 per cent of the Chinese population is fully vaccinated. According to official data from November 2022, Chinese health services have already vaccinated 40 per cent of people over 80 with two doses of vaccine and a booster dose. China has now set a target of vaccinating 90% of the elderly by the end of January. The difference in the percentage of the population fully vaccinated was a result of the focus on vaccinating working-age people first. It seems that by reducing the number of tests performed and the number of new vaccinations, China may be optimistic about the future of the pandemic situation. Read next: AUD/USD Pair Remains Under Strong Selling Pressure, The EUR/USD Pair Has Been Falling But Remains Above 1.08$| FXMAG.COM Source: WHO, China confirmed Cases What lies ahead? Looking, among other things, at the purchases of the largest mutual funds, which in a recent Bank of America research report declared that emerging market equities, including China's, are most prevalent in their portfolios. We can assume that, in the long term, these shares appear to be an attractive investment.     Grzegorz Dróżdż, Market Analyst of Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Next week’s calendar features inflation readings from Australia, India, the Philippines and China, plus Indonesia’s growth performance and trade data from Taiwan Source: Shutterstock Has inflation peaked in Australia? On 7 February, the Reserve Bank of Australia (RBA) is expected to hike rates by 25bp. Some months ago, when the RBA adopted the smaller 25bp hike approach, it became obvious that the central bank was not operating on a data-dependent policy. As it got closer to the peak in rates, it would simply proceed at a slower pace to avoid, or at least limit, the risk of overtightening. Considering the much higher-than-expected inflation readings over the past two months, we have increased our peak RBA cash rate forecast to 4.1% from 3.6%, assuming that there are two further months of 25bp hikes ahead. We see a slight softening of the labour and housing markets, but this is not likely to be decisive for future rate decisions There will be a subsequent statement on monetary policy on 10 February and this will likely provide more clarity on direction. India expected to pause hikes We can expect to see further central bank action from the Reserve Bank of India (RBI) on 8 February, and the outcome is much less certain than the RBA. The current repo rate is at 6.25%, which is 55bp higher than the prevailing rate of inflation, which has since fallen back into the top end of RBI’s 2-6% tolerance range. Our contention has been that the RBI is at or close to the peak, and we believe that the RBI will put a pause on the hikes to give growth a chance. Philippine inflation to stay elevated as supply shortages persist Philippine inflation is expected to dip to 7.8% year-on-year in January, down slightly from 8.1% in the previous month. However, we expect inflation to remain at elevated levels as supply shortages persist. Low domestic production resulted in surging prices for basic food commodities, Meanwhile, still-elevate global energy prices have resulted in high utility costs and rising gasoline prices. The Bangko Sentral ng Pilipinas (BSP) is expected to retain its hawkish stance for the time being although Governor Felipe Medalla has hinted at a possible reversal later in the year. Read next: Resumption Of Cooperation Between Airbus And Qatar Airways| FXMAG.COM Price pressures expected to slow in China China’s January CPI inflation should rise faster given the post-Covid lockdown reopening and extended holiday. Our estimate is 2.4%YoY.  Despite the acceleration, it’s too early to say whether this is a trend and is still below the warning level of 3%. Inflation should be slower in February after the holiday. PPI on the other hand should stay at a slight year-on-year contraction level due to the combination of lower commodity prices and a high base effect. Construction activities have yet to pick up, leading to lower metal prices. We expect construction activities to start to recover after winter which should give some support to PPI inflation. Headwinds in Taiwan's semiconductor industry Taiwan’s trade data should show a dire picture as the western market has placed fewer orders on semiconductor chips while the Mainland China market has yet to fully recover. We expect a contraction for both exports and imports of around 20%YoY.   This might lead to more uncertainty about the projected central bank’s hike in the first quarter of the year. Taiwan’s central bank should consider opting not to follow the Fed or hike at a slower pace due to the headwinds in the semiconductor industry. Other data reports: PBoC's decision on RRR, reserves and Indonesia's GDP report We do not expect the People's Bank of China (PBoC) to change the interest rate or RRR this year. The main monetary policy should be through a re-lending programme, which is more focused and helpful for economic recovery. Meanwhile, China is going to release credit data (from 9-15 February) and we expect a jump in January despite being the month of the Chinese New Year. New yuan loans will be the key engine of credit growth in the first month of the year. More credit growth from the debt market should follow during the first quarter. FX reserves should rise as indicated by the strengthening of the yuan which implies capital inflows into China. Further capital inflows are possible, especially portfolio inflows. But due to uncertain geographic tension, multinational companies might defer direct investments into China. Lastly, Indonesia reports fourth-quarter GDP and we expect growth to hit 4.9%YoY, taking 2022 full-year growth to 5.2%. Softer commodity prices weighed on both export performance and industrial output, however solid domestic demand was able to offset the downturn.     Key events in Asia next week Source: Refinitiv, ING Read this article on THINK TagsEmerging Markets Asia week ahead Asia Pacific Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

With central bank decisions out of the way, it's all about the US jobs report out tonight.   Source: shutterstock Macro outlook Global Markets: Thursday marked another very solid day for US equities. The NASDAQ, which had risen by 2% on Wednesday, piled on another 3.25% on Thursday as further thoughts of a Fed pause/pivot gained ground. The S&P500 rose 1.47%. Chinese stocks didn’t fare so well, with the Hang Seng Index and CSI 300 both dropping. Most of the action in bond markets yesterday was outside the US Treasury market, which didn’t move much. But European bond markets saw steep falls in yields as both the ECB and Bank of England hiked policy rates by 50bp. 10Y Bund yields  dropped 21.3bp, while Gilt yields fell a staggering 30bp. There were similar-sized falls in Italian and Greek bond yields. Markets seem to be taking the view that policy rate hikes are nearing an endpoint across the whole of the G-10.  All of this has undone some of the EUR’s recent sparkle, and it has dropped back below 1.10 to 1.0923 as of writing, taking the G-10 currencies, AUD and GBP with it. The JPY seems to have weathered this latest retreat better than the other  G-10 currencies and is at 128.71. There were gains for most of the Asian currencies yesterday, led by the PHP, KRW and TWD. The INR and THB missed out on the appreciation, losing a little ground to the USD. Today, we will probably see Asian FX dropping back after the G-10 moves overnight.   G-7 Macro: Here are some links to our economists’ thoughts on the European Central bank meeting and the Bank of England Meeting. The short story on both seems to be that the ECB is trying to get us to believe that they will hike a further 50bp in March with possible hikes beyond that, but in reality, seem to be wondering if the data will compel them to do that. A bewildering mixture of pre-commitment and data dependency which leaves many analysts scratching their heads. The Bank of England is a lot clearer, with hints that they may now be done. Today, we have the January non-farm payrolls release in the US, and after the weak ADP survey earlier this week, there must be some speculation that we see a surprise undershoot of the consensus 190,000 job gain view. Anything is possible with payrolls, and over a longer time frame, we would not discount the explanatory power of the ADP survey. But as a month-on-month predictor, we’d rather flip a coin, to be honest. Hourly earnings (currently 4.6%YoY) and the unemployment rate (3.5% right now) will be as interesting as the payrolls figure itself, given the Fed’s recent preoccupation with the labour market. But then markets do not seem to be paying much attention to what the Fed is interested in right now, and probably rightly so.  The service sector ISM that is also released later today will be of mainly academic interest following the payrolls number. China: According to the Financial Times, US Secretary of State, Antony Blinken, will meet China's Xi Jinping on 5 and 6 Feb. Before that, China is trying to convince Japan and the Netherlands to relax their ban on exports of semiconductor equipment. We do not expect these talks to succeed, so U.S.-China relations may continue to deteriorate. This is a new risk in the supply chain for some industries, as China could respond by halting exports of solar panel technology. There could be more tit-for-tat retaliation between the US and China for the remainder of 2023. This is not good news for global macro. While the impact may not be apparent at this early stage, repeated retaliation could weigh on long-term global growth. The Caixin Services PMI should rise above 50 in January, but this is no longer “news” and therefore should not substantially impact the market. Singapore: December retail sales will be reported today.  Market consensus points to a 5.2%YoY increase, a moderation from the 6.2%YoY gain in the previous month.  We’ve noted a gradual slowdown in retail sales which was reflected in a similar downturn in general economic activity.  Higher prices appear to be taking their toll on spending although department store sales have held up well, possibly supported by tourist arrivals.  Expect more of the same in early 2023 as high prices and the implementation of the goods and services tax increase kicked in this January.  Read next: Santander Bank Polska Shareholders Can Expect A Solid Dividend, The ETH Liquid Staking Narrative Is Already Going Strong| FXMAG.COM What to look out for: US jobs report Japan Jibun PMI services (3 February) China Caixin PMI services (3 February) Singapore retail sales (3 February) US non-farm payrolls and ISM services (3 February) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Crypto Industry News: The idea of lifting the ban on cryptocurrencies began circulating in China after a former central bank official urged the country to reconsider its strict restrictions on cryptocurrencies. Huang Yiping, a former member of the Monetary Policy Committee of the People's Bank of China (PBoC), believes that the Chinese government should reconsider whether the ban on cryptocurrency trading is sustainable in the long run. Huang voiced his concerns about the future of fintech in China in a speech in December, according to a transcript published by local Sina Finance on January 29. The former official argued that a permanent ban on cryptocurrencies could result in many missed opportunities for the formal financial system, including related to Blockchain and tokenization. He stated that cryptocurrency technologies are "very valuable" to regulated financial systems, adding: "Banning cryptocurrencies may be practical in the short term, but whether it is sustainable in the long term deserves in-depth analysis," Huang stated. He also stressed the importance of developing an appropriate regulatory framework for cryptocurrencies, although he acknowledged that it will not be an easy task. Technical Market Outlook: The potential corrective cycle in for of an ABC Zig-Zag pattern has been invalidated as the market made a new local high at the level of $24,248. A breakout above the level of $25,000 on BTC/USD is still needed in order to extend the rally towards the key mid-term technical resistance seen at $25,442, so there is still a room to the upside for bulls. Nevertheless, so far the bullish rally was capped at the local high and the market reversed towards the middle of the old trading range. The intraday technical support is seen at $23,298 and the key short-term technical support is located at $22,523 and $22,308. Weekly Pivot Points: WR3 - $24,554 WR2 - $23,983 WR1 - $23,640 Weekly Pivot - $23,412 WS1 - $23,069 WS2 - $22,842 WS3 - $22,271 Trading Outlook: Despite the recent rally, the down trend on the H4, Daily and Weekly time frames continues without any indication of a possible trend termination or reversal. So far every bounce and attempt to rally is being used to sell Bitcoin for a better price by the market participants, so the bearish pressure is still high. The gamechanging level for bulls is located at $25,442 and it must be clearly violated for a valid breakout in the longer term.   Relevance up to 09:00 2023-02-04 UTC+1 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/311310

Next week’s calendar features inflation readings from Australia, India, the Philippines and China, plus Indonesia’s growth performance and trade data from Taiwan In this article Has inflation peaked in Australia? India expected to pause hikes Philippine inflation to stay elevated as supply shortages persist Price pressures expected to slow in China Headwinds in Taiwan’s semiconductor industry Other data reports: PBoC’s decision on RRR, reserves and Indonesia’s GDP report   Shutterstock   Has inflation peaked in Australia? On 7 February, the Reserve Bank of Australia (RBA) is expected to hike rates by 25bp. Some months ago, when the RBA adopted the smaller 25bp hike approach, it became obvious that the central bank was not operating on a data-dependent policy. As it got closer to the peak in rates, it would simply proceed at a slower pace to avoid, or at least limit, the risk of overtightening. Considering the much higher-than-expected inflation readings over the past two months, we have increased our peak RBA cash rate forecast to 4.1% from 3.6%, assuming that there are two further months of 25bp hikes ahead. We see a slight softening of the labour and housing markets, but this is not likely to be decisive for future rate decisions. There will be a subsequent statement on monetary policy on 10 February and this will likely provide more clarity on direction. India expected to pause hikes We can expect to see further central bank action from the Reserve Bank of India (RBI) on 8 February, and the outcome is much less certain than the RBA. The current repo rate is at 6.25%, which is 55bp higher than the prevailing rate of inflation, which has since fallen back into the top end of RBI’s 2-6% tolerance range. Our contention has been that the RBI is at or close to the peak, and we believe that the RBI will put a pause on the hikes to give growth a chance. Philippine inflation to stay elevated as supply shortages persist Philippine inflation is expected to dip to 7.8% year-on-year in January, down slightly from 8.1% in the previous month. However, we expect inflation to remain at elevated levels as supply shortages persist. Low domestic production resulted in surging prices for basic food commodities, Meanwhile, still-elevate global energy prices have resulted in high utility costs and rising gasoline prices. The Bangko Sentral ng Pilipinas (BSP) is expected to retain its hawkish stance for the time being although Governor Felipe Medalla has hinted at a possible reversal later in the year. Price pressures expected to slow in China China’s January CPI inflation should rise faster given the post-Covid lockdown reopening and extended holiday. Our estimate is 2.4%YoY.  Despite the acceleration, it’s too early to say whether this is a trend and is still below the warning level of 3%. Inflation should be slower in February after the holiday. PPI on the other hand should stay at a slight year-on-year contraction level due to the combination of lower commodity prices and a high base effect. Construction activities have yet to pick up, leading to lower metal prices. We expect construction activities to start to recover after winter which should give some support to PPI inflation. Headwinds in Taiwan’s semiconductor industry Taiwan’s trade data should show a dire picture as the western market has placed fewer orders on semiconductor chips while the Mainland China market has yet to fully recover. We expect a contraction for both exports and imports of around 20%YoY.   This might lead to more uncertainty about the projected central bank’s hike in the first quarter of the year. Taiwan’s central bank should consider opting not to follow the Fed or hike at a slower pace due to the headwinds in the semiconductor industry. Other data reports: PBoC’s decision on RRR, reserves and Indonesia’s GDP report We do not expect the People's Bank of China (PBoC) to change the interest rate or RRR this year. The main monetary policy should be through a re-lending programme, which is more focused and helpful for economic recovery. Meanwhile, China is going to release credit data (from 9-15 February) and we expect a jump in January despite being the month of the Chinese New Year. New yuan loans will be the key engine of credit growth in the first month of the year. More credit growth from the debt market should follow during the first quarter. FX reserves should rise as indicated by the strengthening of the yuan which implies capital inflows into China. Further capital inflows are possible, especially portfolio inflows. But due to uncertain geographic tension, multinational companies might defer direct investments into China. Lastly, Indonesia reports fourth-quarter GDP and we expect growth to hit 4.9%YoY, taking 2022 full-year growth to 5.2%. Softer commodity prices weighed on both export performance and industrial output, however solid domestic demand was able to offset the downturn.     Key events in Asia next week Refinitiv, ING TagsEmerging Markets Asia week ahead Asia Pacific   Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

China's economic recovery following its reopening could be unbalanced initially, but a full recovery later in the year is likely In this article Recovery starts with consumption Manufacturing may not be as good Real estate is no longer a systemic risk   Wealthy Chinese households are resuming their pre-pandemic spending patterns Recovery starts with consumption According to data from the National Tax Administration, retail sales revenue this Chinese New Year holiday increased by 12.4% compared to the 2019 holiday. Most of the growth came from travel-related activities, such as sales by travel agencies. In addition, box office results were 14% more than the pre-pandemic levels of 2019. Hotel sales revenue increased by around 20% compared to 2022. This data reflects the fact that Chinese consumers are generally engaging in travel close to home rather than taking long-distance trips within the country. The current recovery in consumption looks uneven. While luxury shops have seen queues of shoppers, the general consumer base (which still spent more money over the holiday period than in 2022) remains cautious due to uncertainty over wage growth. This uncertainty is even more pronounced in the manufacturing sector, due to weak external demand.  At the richer end of the household spectrum, wages and job security are less relevant. This group can resume their pre-pandemic spending patterns. Not only does this group tend to spend within China, but they are also the first to restart luxury shopping overseas. Read next: Difficult Decision Ahead Of The RBA, The Market Expects A 25bp Rate Hike| FXMAG.COM For both groups, the strong spending growth in January was due to the lifting of Covid restrictions that coincided with the Chinese New Year holiday. This may not be repeated in February, and we should expect more modest spending growth in that month, before it picks up again in March. That said, we expect consumption to fully recover to pre-pandemic levels in the second half of the year. Chinese New Year passenger traffic via railway and highway CEIC, ING Manufacturing may not be as good Industrial production may not grow as fast as consumption because 1) the peak in export orders in China is usually for shipments between September and November. This means that most existing orders should already have been filled; 2) export markets in the US and Europe are entering a weak phase and there may be fewer orders for Easter than last year; and 3) orders for the summer holidays may not be booked until shortly before the holidays, as sellers in the US and Europe may need more time to gauge market demand. In short, the risk to industrial production this year lies in external demand. We expect transport and logistics to run smoothly this year, and there should be no supply disruptions on this front. There is another growing risk. The technology war between China and the US and its allies has been intensified by the possible ban on semiconductor equipment entering China and the ban on solar panel technology from China. This technology war could spread to a wider range of items and could pose a risk to some companies' access to essential components and products. While it is too early to call this a supply chain disruption, the risks are rising. Real estate is no longer a systemic risk With the People's Bank of China (PBoC) providing liquidity to property developers, the likelihood of a crisis for indebted property developers has been significantly reduced and this is no longer a systemic risk. We expect the PBoC to widen access to financing for developers and the market should be able to price in the credit risk of different developers appropriately. Real estate construction activity should gradually resume this year. Infrastructure construction activity should also make a comeback as local governments prioritise growth on their to-do lists. These infrastructure projects include soft infrastructure, which includes technology development, as well as hard infrastructure, which is more likely to be inter-provincial transport projects rather than local projects. These projects could be financed by local government financial instruments or by the People's Bank of China's refinancing programme. In our view, the PBoC does not need to reduce interest rates or the reserve requirement ratio (RRR) further as the economy is already recovering well. Therefore, for most of the year, the central bank can focus on re-lending schemes to provide additional liquidity to specific sectors, including technology, ESG and agriculture. TagsRecovery PBoC Infrastructure Consumption China   Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more   

Payrolls shock and balloon pop to dominate today's trading Source: shutterstock Macro outlook Global Markets: Once again, US non-farm payrolls caught markets off guard, with a surprisingly strong headline figure which drove up US bond yields and caused the USD to strengthen. 2Y US Treasury yields rose 18.4bp to 4.289%, while 10Y yields rose 13.2bp to 3.525%. EURUSD dropped back below 1.08, and the USD also rallied against other G-10 currencies. The AUD is back below 70 cents at 0.6925. Cable has fallen all the way back to 1.0250 and the JPY shot back above 132, though has since settled back to 131.67 this morning. Part of that JPY move may have been on speculation about BoJ Governor Kuroda's successor, as BoJ incumbent and continuity candidate, Masayoshi Amamiya was rumoured to have been approached for the job. Finance Minister, Shunichi Suzuki later said he hadn't heard anything about the nomination. Most Asian currencies have weakened against the USD. Many of them will fall sharply in early Asian trading as they take onboard the G-10 movements. USDCNH is back up to 6.8219 with the balloon incident not helping China's currency (see more below).  US stocks didn’t like the implications of a stronger labour market either, as it hurts the Fed pause/pivot story. The S&P500 dropped 1.04% on Friday, while the NASDAQ was down 1.59%. The Hang Seng and CSI 300 were also both down on Friday. G-7 Macro:  For the full gory details of the US labour report, please refer to James Knightley’s note. The headline numbers are a 517,000 rise in employment, a fall in the unemployment rate to 3.4% from 3.5%, but a moderation in hourly wage inflation to 4.4%YoY from 4.8%. James has gone on to dig deeper into the detail of the report, which reveals that almost all of the employment gains were part-time, and much may be attributable to warmer than usual weather in January, lifting outside work which would normally be very limited at that time of year. The weather has since turned very cold, which suggests that we may see some reversal of the apparent strength in the labour market next month. Though who really knows with this data? There is no data out of the US today. In the rest of the G-7, German factory orders data for December are the main release. A continuation of double-digit year-on-year declines is expected. China: The Chinese balloon shot down by the US has hardened President Xi's stance on relations with the US, which was inevitable as he needs to demonstrate strong foreign policy to China’s citizens. The implication is an intensified tech war. Both sides will likely impose more export bans on technology in different industries. This is a new threat to supply chain disruption, although the risk of logistical disruption from Covid restrictions has now disappeared. This new risk is more of a long-term risk than an imminent one. Nonetheless, the balloon event is bad for the yuan today. Indonesia:  4Q22 GDP is set for release today.  The market consensus points to a 4.9%YoY gain, good enough to take 2022 full-year growth to 5.3%.  Indonesia’s export and manufacturing sector managed to post solid growth in 2022 in large part due to the global commodity price surge.  This area of support faded towards the end of lat year and the economy will need to rely on other sectors like domestic consumption to carry growth momentum on into this year.        What to look out for: Fed speakers and China inflation Indonesia GDP (6 February) Thailand CPI inflation (6February) Australia RBA meeting and trade balance (7 February) Philippines CPI inflation (7 February) Taiwan trade balance (7February) US trade balance (7 February) South Korea BoPcurrent account (8 February) India RBI policy meeting (8 February) US mortgage MBA applications (8 February) Fed’s Powell, Williams, Cook and Barr speak (8 February) Taiwan CPI inflation (9 February) Japan machine tool orders (9 February) US initial jobless claims (9 February) Fed’s Kashkari and Waller speak (9 February) Japan PPI inflation (10 February) China CPI inflation (10 February) Malaysia GDP (10 February) US University of Michigan sentiment (10 February) Fed’s Waller and Harker speak (10 February)   Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Taiwan's inflation this afternoon and US initial jobless claims to chew on tonight. More Fed speakers are scheduled, but markets are currently not paying them much attention Source: shutterstock Macro outlook Global Markets:  US stocks don’t seem to know which way to turn currently, and after Monday’s fall and Tuesday’s rise, Wednesday saw them falling again. There was nothing of note on the macro calendar, but a slew of Fed speakers kept up a hawkish background hum, which was probably the main cause of the falls. The S&P 500 fell 1.11%, and the NASDAQ fell 1.68%. Chinese stocks were down slightly, the HSI just barely lower by 0.07% and the CSI 300 down 0.44%. FX was quite whippy on Wednesday. EURUSD rose to 1.076 at one point but gave that all back to settle slightly lower at 1.0715. The AUD performed a similar set of acrobatics but finished close to where it started and is currently 0.6926. Cable actually performed a little better, the pound climbed up above 1.21 vs the USD, and though it too drifted lower, maintained a level of 1.2070. The JPY is at 131.34, slightly weaker than this time yesterday. Other Asian FX delivered a mixed bag, with the SE Asian currencies mainly stronger against the USD, but the more continuously traded currencies slightly softer. We will probably see some convergence with the SE Asian currencies coming more into line with their Northern peers this morning. US Treasury markets have gone back into “ignore the Fed” mode. 2Y US Treasury yields fell 4.4bp while yields on 10Y bonds fell 6.4bp to 3.61%. G-7 Macro: Preliminary German CPI for January is released today, and the consensus expects it will rise back up to 8.9% from 8.6% YoY in December. There is nothing else on the Macro calendar except for a couple more Fed speakers – Kashkari and Waller. So the hawkish tone should continue through today too. Markets may continue to ignore it ahead of next week’s CPI release. China:  Loan data released between 9 Feb and 15 Feb should show a jump in new yuan loans to over CNY 4 trillion. This is a seasonal phenomenon. Chinese banks usually book loans at the beginning of the year. Any amount over CNY 4.37 trillion will suggest strong loan demand from corporates that expect a strong recovery in the economy. Taiwan:  CPI inflation should be stable at around 2.7%YoY with WPI expected at around 5.3%YoY from 7.14%. In theory, this set of data should give Taiwan’s central bank an option to pause from March 2023. The downside of this would be a widening interest rate differential, which could induce portfolio capital outflows. In that case, the central bank could choose to just follow the Fed's hikes with small steps of 12.5bp from the current level of 1.75%. This would put extra pressure on the economy as we expect the semiconductor industry in Taiwan to experience a downward cycle in 1H23. This should result in a mild recession in Taiwan's economy in the same period. As such, the March meeting will be a difficult decision for Taiwan’s central bank. What to look out for: US initial jobless claims and Taiwan inflation data Taiwan CPI inflation (9 February) Japan machine tool orders (9 February) US initial jobless claims (9 February) Japan PPI inflation (10 February) China CPI inflation (10 February) Malaysia GDP (10 February) US University of Michigan sentiment (10 February) Fed’s Waller and Harker speak (10 February) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

China's January inflation report, the latest RBA Statement on Monetary Policy and the US Michigan consumer sentiment are released today Source: shutterstock Macro and market outlook Global Markets: For the first time this week, we have seen some consistency from markets, as US stocks closed down for a second consecutive day after their roller-coaster ride earlier this week. There were some further Fed comments yesterday from Barkin along the lines of the Fed needing to “stay the course” on rates. But by now, such comments have to be viewed as part of the financial wallpaper and not contributing much to daily volatility. Bond yields reversed yesterday’s decline in yields. The 2Y US Treasury yield rose 6.1bp and the yield on the 10Y bond rose about the same to take it to 3.658%. EURUSD is fractionally higher than this time yesterday at 1.0737, though it briefly pushed through 1.0780 before retreating. The AUD followed a very similar path as did the GBP, though sterling did manage to hang on to more of its earlier gains. The JPY is also roughly unchanged from a day ago, after dropping to 130.345 at one stage, it is now 131.48. There is not too much to take away from the other Asian FX movements yesterday either. The PHP stands out as having done much better than the rest of the pack, rising 0.65%. The MYR stands at the other end of the spectrum, down 0.42%, but most of the rest are little changed on balance over the last 24 hours. G-7 Macro: 4Q22 Preliminary GDP in the UK is forecast to come in flat from the previous quarter. Canada releases labour market data, and from the US, we get the University of Michigan consumer sentiment and inflation expectations figures. Otherwise, it’s a quiet day. China: CPI inflation for January should continue to remain very moderate at around 2%YoY despite a rebound in service sector activity in January. PPI should still register a contraction on a yearly basis even though there was some pick up in steel prices recently as prices last year were even higher. The economy needs more industrial activity and infrastructure construction to push PPI high enough that the PBoC will need to increase interest rates, and that is very unlikely in 1H23, and also quite unlikely until 4Q23 or later. Australia: Adding some detail to the comments following their recent rate decision, the Reserve Bank of Australia (RBA) releases its “Statement on Monetary Policy” this morning. The main points to watch out for are justifications for the anticipated exceptionally slow decline in inflation back to the RBA’s target.   Read next: Credit Suisse Reported Its Biggest Annual Loss Since The 2008, Ukrainian President Is Asking For Help And More Weapons In Brussels| FXMAG.COM What to look out for: US University of Michigan sentiment Japan PPI inflation (10 February) China CPI inflation (10 February) Malaysia GDP (10 February) US University of Michigan sentiment (10 February) Fed’s Waller and Harker speak (10 February) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

China's loan growth is usually strong in the first quarter of the year. But this time, we saw a historic jump, pointing to strong loan demand during the nascent economic recovery Leading members of the People's Bank of China, including Governor, Yi Gang (waving) Historic jump in loan growth New yuan loans grew by CNY 4.9 trillion in January 2023, mostly from corporate loans. Loan growth is usually strong in the first quarter of the year. But this time, the jump was significant, at 23% year-on-year. This could suggest that the economic recovery in 2023 has the potential to exceed the pre-pandemic level.  Not every sub-sector of credit creation was as strong in January on a yearly basis. Aggregate finance, which measures overall credit in China including the new yuan loans we mentioned, shadow banking, new bond issuance and IPOs, increased by CNY 5.98 trillion in January, less than the CNY 6.175 seen in the same month last year. The year-on-year fall came from smaller corporate bond and government bond issuance, trust loans and IPOs. This shows that bank loans were the main channel and perhaps provided a cheaper way of raising funds than in the credit market compared to last year.  Having said that, the chart shows us that on a monthly basis, there was slightly more credit growth in bond issuance and the stock market. Monthly change in aggregate finance Source: CEIC, ING Loan data shows that residential mortgages need more time to recover Medium- and long-term household loans are a proxy of residential mortgages in China. The chart shows us that the increase in loans was still small compared to the period before the slump in the residential market in early 2022. As the job market is still uncertain at the beginning of an economic recovery, potential buyers, even with the necessary down payments, may choose to wait until they feel their jobs are more secure.  Read next: Tesla Will Increase Output For 2023, Deliveroo Are Planning To Cut Jobs| FXMAG.COM Sluggish mortgages signal that the residential property market is taking time to recover Source: CEIC, ING We should continue to see strong loan growth in 1Q23 As the People's Bank of China continues to inject liquidity into the money market to stabilise interest rates, we believe loan demand remained strong in February. And in March, around the time of the "Two Sessions" government meetings, we should see more local government special bond issuance for infrastructure spending. As such, credit growth should be very strong in the first quarter. Read this article on THINK TagsLoan growth China Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Mark, what’s your take on the flavor of potential recession? Mark: This has been an unusual three years to say the least. And I always use the word “experiment” from the sense that the economy was down and out, almost in a depression. We saw extraordinary policy responses, monetary as well as fiscal. And because of that, we’ve seen a lot of dislocations. As we come back online and try to compare what’s going on now to before COVID-19, perhaps 2018, 2019, it’s difficult to apply probabilities. However, that’s what we do. One of the reasons we believe in a diversified portfolio in 2023, even though that did not work at all in 2022, is because of some of the uncertainties that Gene and Sonal have highlighted. We would agree more so with Sonal than Gene when looking at the odds of recession. Working with our economists, our base case is for the United States to avoid a recession—let’s call it either side of unchanged. While we have observed inverted yield curves, we have also seen fed funds move up from near zero to 4.5% in a year of volatility. Financial conditions have been tightening, and when you put that all together and you look at the various components of the economy, we see unchanged or around zero in terms of economic growth. There are some stress points to the economy that are more interest-rate sensitive—like housing—but a decline in interest rates should provide some relief. The consumer is behaving very well, and very importantly, incomes, job growth and savings have offered support— at least so far. All in all, our base case is that the United States doesn’t have a deep recession. Our next highest probability is that unbeknownst to the Fed as well as other central banks globally, they are in the process of overdoing it. Real interest rates are as high as they’ve been for a long time. Policy is a big debate that we all have, and it seems that US fiscal policy is not extremely tight by any means, but is less than what we were used to in 2020 and 2021. A lower probability for us would be a deeper US recession. The question we would ask is where is the stress in the economy? Where is the leverage? It’s not always obvious as we go through the cycles, but nonetheless, we think a deep recession is a lower probability. Finally, in terms of our “ ...the question becomes will the Fed react fast enough? Given their history and their anxiety about maintaining their inflation credibility, my personal belief is that they prob ably are not going to react fast enough. There will be another “oh my God” moment, just like there was last year, but in a different direction.” Francis Scotland probabilities, a potential tail risk is that the economy is doing just fine, the consumer is doing very well, China is coming back online, and inflation proves to be far stickier than the market is pricing in. We put a fairly low probability on that outcome as we go through 2023, which would have a whole different set of policy implications, particularly for the Fed. Read next: EUR/USD Pair Is Belowe $1.07, USD/JPY Pair Is Back To 131 And GBP/USD Pair Is Slightly Above $1.21| FXMAG.COM And, finally Francis, your thoughts on recession? Francis: Fed Chair Jerome Powell has gone to great lengths to prepare the market, business and people for the prospect of a recession. He’s drawn on references to the Fed Chair Paul Volcker era (1979–1987) when it took a severe recession to break the inflation psychology that existed in the early 1980s. In my opinion, a comparison of that era with today isn’t appropriate. We’ve seen an 18-month pickup in inflation that has largely reversed and is well on its way back to 2%. There’s just no comparison with what we’ve gone through to what took place in the 1970s and the 1980s. But if the Fed persists in sustaining monetary conditions where they are, we will get a recession. And, you can see the underbelly of the labor market beginning to shift here. Temporary employment is already contracting. Average weekly hours have now fallen back to below pre-pandemic levels. Average weekly earnings grew only 3% over the last year, which is a dramatic retreat from post-pandemic levels. All of that suggests the wage disinflation the Fed is looking for is already in the pipeline. In addition, Harvard University’s high-frequency economic tracking service tracks job postings data—the data show there’s been a dramatic change in the job market in the last two months. Job postings, according to this metric, went from 20% higher than January 2020, as recently as early November, to 22% below January 2020 levels, as of the end of last year.2 So that seems to rhyme with the weakness in average hourly earnings, which was posted in the last jobs report, as well as a lot of the job layoff announcements that we’re seeing in the newspapers from large marquee-type corporations. What’s missing so far has been a pickup in unemployment insurance (UI) claims. But what history shows is that when UI claims start to pick up, it coincides with a rise in the unemployment rate. And all of that happens very, very quickly, and it’s not reversible—by the time that arrives, it’s too late. So, the question becomes will the Fed react fast enough? Given their history and their anxiety about maintaining their inflation credibility, my personal belief is that they probably are not going to react fast enough. There will be another “oh my God” moment, just like there was last year, but in a different direction. So, do I think that the Fed’s going to react fast enough? No.

Next week’s data calendar features inflation readings from India, labour data from Australia, Japan’s latest GDP report and rate decisions from China, Indonesia, and the Philippines In this article India’s inflation number to set the tone for RBI rate decision Unemployment rate key for future RBA policy GDP data from Japan Weak jobs data expected from Korea China to gauge economic reopening before adjusting policy stance Indonesia to see rise in trade surplus Regional central banks look to tighten policy further   Shutterstock India’s inflation number to set the tone for RBI rate decision India's January inflation will probably move higher (6.2%) after the 5.7% year-on-year reading in December. But what will be watched more closely after the latest hawkish central bank statement from the governor, will be the core CPI inflation measure. Any indication that this has moved below 6% could be significant for the Reserve Bank of India's policy, though we think despite a small decline, the ex-food and beverages inflation rate will remain just above 6% YoY. Unemployment rate key for future RBA policy January employment data for Australia will add to the balance of knowledge surrounding future Reserve Bank policy. However, it will have to show a further marked deterioration, following last month’s part-time driven decline in employment and rise in unemployment rate, to offset the RBA’s new-found hawkishness.   After last month’s decline in part-time work, we will probably see that part of the survey moderate, combined with perhaps a smaller increase in full time jobs of about 10K to deliver a total employment change of 15-20,000. If that is broadly right, we may see the unemployment rate edge up to 3.6% - still very low by historical standards. GDP data from Japan Japan’s fourth quarter GDP data will be the highlight of next week. We expect the economy to recover from the previous quarter’s contraction, led mostly by private consumption and investment. The reopening and government travel subsidy programmes should lead to a great improvement in hospitality-related activities. However, due to high inflation, the rebound will likely be limited to 0.6% (quarter-on-quarter, seasonally adjusted).   Meanwhile, core machinery orders are likely to shrink again in December amidst weak global demand conditions. Japan’s export growth is also expected to drop in January as the early trade data has suggested. We believe that Japan’s decision to join the US’s tech export ban to China will probably have a negative impact on Japan’s exports. Weak jobs data expected from Korea Korea’s unemployment rate is expected to continue to rise to 3.6% in January (3.3% previously) on the back of a slowing economy. There have been several news reports on job losses, mostly from the IT and finance sectors. This could also be due to severe weather in January, where agricultural and construction-related employment has been negatively impacted. China to gauge economic reopening before adjusting policy stance The People's Bank of China will announce the 1Y Medium Term Lending Facility (MLF) interest rate next Wednesday. We expect no change to policy as the economy has started to recover. The central bank should take time to observe the pace of recovery and determine if there is a genuine need for further cuts to the policy rate and Required Reserve Ratio. Meanwhile, new home sales should show a stable month-on-month change as we have seen a slight price pick up in the tier one cities like Beijing, Shanghai, Guangzhou, and Shenzhen while home prices of lower tier cities were still sluggish. Indonesia to see rise in trade surplus Recent trends within Indonesia’s trade sector should extend into another month. Exports will likely remain in expansion while imports are expected to contract. This will result in the trade balance remaining in surplus of roughly $4.2Bn. The projected trade surplus however will be lower than the highs recorded in 2022 with the current account possibly slipping back into deficit territory.  Regional central banks look to tighten policy further Bank Indonesia (BI) is scheduled to hold its second policy meeting for the year. BI Governor Perry Warjiyo has hinted that this current rate hike cycle could come to an end if inflation were to slow and the Federal Reserve were to turn more dovish. BI could still opt to hike by 25bp next week given renewed hawkish signals from the Fed while also ensuring core inflation heads much lower before pausing.  The Bangko Sentral ng Pilipinas (BSP) will also meet next week to discuss policy. After the blowout January inflation report, we believe that the central bank has no choice but to hike policy rates to combat above-target inflation. Governor Felipe Medalla has previously hinted at a potential shift in tone, but surging price pressures will likely mean that he doubles down on the hawkish rhetoric by hiking rates 50bp. Key events in Asia next week Refinitiv, ING TagsEmerging Markets Asia week ahead Asia Pacific Asia Markets Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

After all the hype - the US inflation miss doesn't cause too much upset in markets. Korean Jan unemployment rate down and PBoC later. Retail sales out from the US too   Source: shutterstock Macro and markets Global Markets: The disappointingly high January CPI numbers did less damage to markets than you might have expected. Yes, 2Y US Treasury yields did push up to 4.615%, rising 9.8bp on the day. But the yield on 10Y US Treasuries only rose 4.2bp to 3.743%, which was muted (all things considered). James Knightley dissects the numbers  in this note.  Equity markets were also fairly relaxed about the inflation figures, maybe taking the view that this really is just a blip on the road to lower inflation and eventually lower rates – despite the usual “higher for longer” rumblings from various Fed speakers yesterday. The S&P500 ended virtually unchanged on the day, and the NASDAQ actually rose 0.57%.  There was quite a lot of volatility in currency markets. EURUSD traded up to 1.0803 at one stage, and as low as 1.0713, but ended just slightly higher at 1.0737. Other G-10 currencies, (AUD and GBP) were also both whippy, but on balance, slightly stronger vs the USD over the last 24 hours.  The JPY continues to steer its own path and has drifted higher to reach almost 133 currently.  Other Asian FX has been mixed, with the KRW registering a small (0.63%) gain at one end of the pack, and the PHP, dropping 0.15% at the other. Cautious optimism in markets, if it persists, may suggest a slightly positive day for Asian fx today. G-7 Macro: The details of the US CPI release were, in some senses, not that surprising. The MoM 0.5% gain in the headline and 0.4% gain in the core were all consensus views, though the year-on-year inflation rates were higher for both measures, something we touched on in our note yesterday in terms of the inconsistency with the consensus numbers. So it may have been that we were not alone in giving little weight to the YoY consensus view, which may be why markets seemed so ambivalent about it.  One figure that may not get as much attention as it perhaps deserves, is the real hourly earnings numbers, which are a synthesis of these CPI figures and the hourly earnings data released with the labour report. This now shows real earnings growth falling at a 1.8% YoY pace, a bit lower than the 1.6% rate of decline for December. Related to earnings strength, retail sales due out today in the US are slated to bounce after the horrible December figures. Auto sales are likely to help lift the figure. A small bounce in January industrial production is also on the cards. China: The PBoC will announce its 1Y MLF rate decision today. We expect them to keep the rate at 2.75% as the economy is recovering and the central bank will want to wait and see how the strong loan growth in January will transmit to business and investment activity. From recent open market operations, it seems that the central bank is stabilising interest rates via active liquidity management. This is another sign that the central bank will stay put this month. South Korea: The jobless rate in January fell unexpectedly to 2.9% (vs revised 3.1% in December, 3.3% consensus). This could have occurred for two reasons - severe weather possibly prevented workers from accessing the job market and also, the Lunar New Year holidays overlapped during the survey period. Consequently, due to these idiosyncratic factors, we don’t actually think labour conditions improved in January after all. The details of the data also were pretty weak. Manufacturing employment fell sharply (-67K) for the fifth straight month, with a total of -149K hiring cuts since September 2022. Another major industry, construction (-5K), has shed jobs for three months in a row. The service sector modestly added jobs (36k) so it seems that this sector continues to hold up relatively well.  Korean import prices fell for the third straight month in January (-2.3% MoM, nsa). Global commodity prices rose but currency effects dominated the decline in import prices. The recent cooling of import prices is expected to help ease consumer price inflation in the coming months. On the other hand, consumer prices are expected to slow down only gradually in the first quarter, as the fallout from last year’s high import prices will come early this year after a time lag. Singapore: Finance Minister Wong announced that he expects a “slight deficit” of 0.1% of GDP for the 2023 budget (from 0.3% in 2022).  Wong also indicated that the fiscal authorities would be extending a support package for lower-income households to cope with the high cost of living as inflation should remain high.  Wong also noted that growth could be challenged as trade slows amidst a global downturn and as tensions between global superpowers rise.  Elevated inflation coupled with slowing growth mean that the Monetary Authority of Singapore (MAS) will have to strike a balance between remaining hawkish but at the same time mindful of Singapore’s export competitiveness.  Indonesia: Indonesia is planning to ask exporters to keep a portion of export proceeds onshore for a period of 3 months to a year in order to bolster the domestic supply of dollars.  Details on this regulation have yet to be released.  The move is being deployed to provide support for the IDR but the implementation of such a measure may still lead to increased volatility as this could be viewed as a form of capital control.  What to look out for: US retail sales South Korea unemployment (15 February) India trade balance (15 February) Indonesia trade balance (15 February) US industrial production and retail sales (15 February) Japan trade balance (16 February) Australia unemployment (16 February) Bank Indonesia policy (16 February) Bangko Sentral ng Pilipinas policy (16 February) US initial jobless claims and housing starts (16 February) Fed’s Mester speaks (16 February) Fed’s Bullard and Cook speak (17 February) Singapore NODX (17 February) Thailand GDP (17 February) US import prices (17 February) Fed’s Mester, Barkin and Bowman speak (17 February) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Some of the highlights in Asia next week include Australia’s wage data, the BoK meeting, Taiwan's export orders and Singapore’s CPI  In this article Australia’s wage price index will provide direction for policymakers BoK to pause on Thursday? China's loan prime rates to remain unchanged Weak semiconductor demand could hurt Taiwan’s economy Singapore CPI Inflation report   Shutterstock Australia’s wage price index will provide direction for policymakers Australia is set to release fourth-quarter wage price index data on 22 February. This was a keenly watched data point in 2021 when the Reserve Bank of Australia (RBA) tied its cash rate target to wage growth rising to a level consistent with target inflation of 3.5-4%. In the last quarter, the wage price index grew by 3.1%, which means that there is still room to inch higher, while inflation is currently running at 8.4% YoY. If the wage price index grew by 1.0% in the fourth quarter from the third – as it did in the third quarter from the second, the index would finally reach 3.5%. Although this very lagging data point is mainly of academic interest, a rising number would still encourage hawkish rhetoric from the RBA. BoK to pause on Thursday? The Bank of Korea will meet on Thursday. We believe that the BoK’s rate hike cycle ended with the 25bp hike in January. But given that January's consumer price index picked up again, we are expecting the BoK to maintain its hawkish stance. China's loan prime rates to remain unchanged Chinese banks will announce possible changes to loan prime rates (LPR) next week. Given that the economy is recovering and that the People's Bank of China left the 1Y Medium Lending Facility rate (MLF) unchanged, we predict that the chance for a change in the LPR is small. Moreover, banks have been told by the government to offer lower interest rates on mortgages to provide support to the economy. This would result in banks not having enough room to squeeze net interest margins. Weak semiconductor demand could hurt Taiwan’s economy Export orders and industrial production will likely give clues about how bad semiconductor demand was in January. We expect declines of around 10-20% year-on-year for both. Final GDP data should show a slight yearly contraction; the advance estimate was -0.86% YoY. We expect Taiwan to enter a mild recession in the first half of this year given weak demand for semiconductors, the main pillar of the economy. Singapore CPI Inflation report We could see headline inflation tick lower, but core inflation will likely remain elevated at 5.2% YoY as the latest increase in the goods and services tax kicks in. Finance Minister Lawrence Wong announced a fresh round of subsidies to help households deal with the rising cost of living. Wong believes inflation will remain elevated for at least the first half of the year.  Persistent price pressures should keep the Monetary Authority of Singapore (MAS) in hawkish mode although it needs to strike a delicate balance as slowing global trade threatens to negatively impact the export sector.  Key events in Asia next week Refinitiv, ING TagsAsia week ahead Asia Pacific Asia Markets   Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

AUD/USD has touched a high of 0.6900 as the USD Index has surrendered its morning gains. Persistent inflation in the United States has bolstered the odds of more interest rate hikes by the Federal Reserve ahead. The minutes from the Reserve Bank of Australia might remain hawkish for further guidance as inflation has still not peaked yet. AUD/USD has negated the downside break of the H&S pattern and has shifted into a bullish trajectory. AUD/USD touched the round-level resistance of 0.6900 in the early European session. The Aussie asset has been strengthened as investors have shrugged-off uncertainty associated with US-China tensions and the launch of three projectiles from North Korea near Japan’s Exclusive Economic Zone (EEZ). The US Dollar Index (DXY) has surrendered its entire gains added in the Asian session and is looking to continue its downside journey ahead. Meanwhile, the risk appetite theme has regained traction, which is supporting the risk-perceived assets. S&P500 futures have turned volatile ahead of the market holiday on account of Presidents’ Day. People’s Bank of China maintains the status quo on interest rates The Australian Dollar remained in action after the People’s Bank of China (PBoC) kept its monetary policy unchanged. An interest rate decision of unchanged policy was widely anticipated as the Chinese economy is focusing on accelerating the economic recovery after remaining bound by pandemic controls. The People’s Bank of China has kept one-year and five-year Loan Prime Rates (LPR) unchanged at 3.65% and 4.30% respectively. It is worth noting that Australia is a leading trading partner of China and the continuation of expansionary monetary policy by the People’s Bank of China will strengthen the Australian Dollar ahead. Fresh concerns for higher US Inflation call for more rates by the Fed Last week, a majority of economic indicators cleared that it would be early for the Federal Reserve to announce a win in the battle against stubborn inflation as it is set to surprise the market ahead. The United States Consumer Price Index (CPI) landed higher at 6.4% than the projections of 6.2%, Producer Price Index (PPI) released at 6.0% higher than the consensus of 5.4%. And, the release of the monthly Retail Sales data at 3.0% against the consensus of 1.8% was the last nail in the coffin, which cleared that consumer spending is gaining traction. A note from Goldman Sachs states the investment banking firm expects the U.S. Federal Reserve to raise interest rates three more times this year, lifting their estimates after data pointed to persistent inflation and a resilient labor market, as reported by Reuters. Spotlight shifts to Reserve Bank of Australia and Federal Reserve’s minutes This week, the release of the minutes from the Reserve Bank of Australia and Federal Reserve’s and Federal Reserve will lead from the front for the power-pack action in the Aussie asset. Federal Reserve policymakers are aware of the persistent nature of the US inflation, which is why hawkish guidance is expected on interest rates. The minutes from the Reserve Bank of Australia policy announced in the first week of February resulted in a ninth consecutive interest rate hike to 3.35%. Inflationary pressures in the Australian economy have not softened yet amid solid consumer spending, which is bolstering the case of hawkish guidance on the monetary policy. Later this week, Australia’s Labor Cost Index (Q4) data will remain in focus. The economic data is seen at 3.4% vs. the prior release of 3.1% on an annual basis. And, the quarterly data is seen lower at 0.7% against the prior release of 1.0%. AUD/USD technical outlook AUD/USD has negated the downside break of the Head and Shoulder chart pattern formed on a four-hour scale. The responsive buying active from the market participants has pushed the Aussie asset above the neckline of the aforementioned chart pattern plotted from January 10 low at 0.6860. The asset has scaled above the 20-period Exponential Moving Average (EMA) at 0.6888, which indicates that the short-term trend is bullish now. The Relative Strength Index (RSI) (14) has rebounded into the 40.00-60.00 range, which indicates that the asset is no more bearish now

China's demand for liquefied natural gas (LNG) is expected to increase by 9-14% in 2023 compared to 2022. - according to forecasts provided by analysts Rystad Energy, Wood Mackenzie and ICIS. However, imports to China are expected to remain below 2021 record levels due to the ongoing impact of the pandemic. According to a report by Goldman Sachs Research, the opening of China after the COVID-19 coronavirus restrictions will not only accelerate the country's economic recovery, but also boost global growth. Due to the faster-than-expected pace of this opening, Goldman Sachs analysts forecast that Chinese GDP will grow by 6.5% year-on-year in 2023. Which markets could be affected? Goldman Sachs predicts a 24% increase in the value of Chinese stocks. Goldman Sachs Group (GS) predicts that the sell-off in the Chinese stock market since the end of January will reverse as China's economic recovery brings strong corporate earnings. The US investment bank predicts that the MSCI China Index (MCHI) could rise by around 24% by the end of 2023 from last week's close. Goldman Sachs' optimistic forecast comes at a time when investors are wondering whether the ongoing rally in Chinese equities driven by economic recovery since November last year is over. Escalating geopolitical tensions and an uncertain outlook for economic recovery caused losses in February after a three-month surge, but China supporters say a key policy meeting scheduled for next month, as well as upcoming financial results, could bring fresh momentum. Source: Conotoxia MT5, MCHI, Daily As we have seen from the Goldman Sachs report, China's re-opening and a rise in domestic demand could lift global GDP by 1% by the end of 2023. This growth could come from three channels: growth in domestic demand,  an increase in international travel,  increased demand for raw materials, including oil. China number one as an importer of liquefied gas China is now making efforts to sign new long-term contracts for the supply of liquefied natural gas (LNG), giving it even greater control over the global market at a time when competition for such supplies is increasing. Chinese companies now sign the most LNG purchase contracts of any country and are increasingly becoming key intermediaries in LNG imports. Chinese buyers are reselling many cargoes at inflated prices in Europe and Asia, resulting in their control over a significant portion of the supply of this crude. Source: BloombergNEF An analysis of BloombergNEF data shows that companies based in China account for about 15% of all LNG supply contracts until 2027. This trend could increase as Chinese companies seek to sign more long-term contracts. China could become one of the world's largest LNG importers almost overnight, thanks to Beijing's efforts to ensure energy security. However, as analysts point out, the Middle Kingdom's position in the market may have two sides of the coin: China could provide stability during periods of global shortages, but it could also lock in supplies and raise prices if it needs to meet domestic needs. "If not for the lower Chinese LNG demand in 2022, the global gas market — and Europe’s energy security — would be in a far more perilous state" - conveyed Shell in its annual forecast report on the fuel. Saul Kavonic, energy analyst at Credit Suisse Group AG, added: "If not for the lower Chinese LNG demand in 2022, the global gas market — and Europe’s energy security — would be in a far more perilous state." It seems that we are now seeing an awakening of the Chinese economy, which may be hungry for gas demand. Therefore, we may now see demand and supply aligning in the price of this commodity, which, if demand from China increases further, could provide an opportunity to reverse its downward trend. Source: Conotoxia MT5, XNGUSD, Daily Grzegorz Dróżdż, Market Analyst of Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Crypto Industry News: Hong Kong, a special administrative region of China, is aiming to become the world's cryptocurrency hub. Despite the negative and even hostile attitude of the authorities of the People's Bank of China towards digital assets, the city-state constantly focuses on the adoption of blockchain and cryptocurrencies. Moreover, the regulatory framework that the region's authorities are working on could be crucial for the sector. Can Hong Kong's actions fuel another cryptocurrency boom? Why can the adoption of digital assets by Hong Kong, and not some other jurisdiction, be the catalyst for the next bull market in the cryptocurrency market? Yesterday, the HongKong Securities and Futures Commission announced that under the new legislation, cryptocurrency exchanges will have to apply for Virtual Asset Service Providers (VASP) licenses in order to legally operate in the Chinese Special Economic Zone. Moreover, according to the commission statement, both institutional and retail investors will be able to trade digital assets such as bitcoin (BTC) and ether (ETH). "As long as the basic principle of not threatening China's financial stability is violated, Hong Kong can pursue its own goal of 'one country, two systems'," said Nick Chan, a member of the National People's Congress and a cryptocurrency lawyer. What does the above news mean? To a large extent, the re-opening of Hong Kong to the digital asset sector creates huge potential for the influx of new funds. It is worth noting that Hong Kong is the fourth largest financial center in the world. Only New York, London and Singapore are ahead of it. It is also very important that capital from China may start to flow into this economic zone. According to estimates, mainland Chinese capital is about USD 500 billion. The regulations prepared by Hong Kong do not mention anything about opening up fully to the decentralized finance (DeFi) sector or self-storage of digital assets. Nevertheless, the aforementioned injection of foreign capital to this region may have a significant impact on the cryptocurrency market. It is worth remembering that the times when China was responsible for the majority of the volume of trading in digital coins are not that far away. Technical Market Outlook: The Ethereum market had made a local high at the level of $1,721 and then reversed lower towards 38% Fibonacci retracement level seen at $1,636. The intraday technical support is seen at $1,630 (100 MA). The weak and negative momentum on the H4 time frame chart supports the short-term bearish outlook for ETH. Sustained breakout below the level of $1,487 would change the mid-term outlook to bearish, so please keep an eye on the $1,487 technical support. Any violation of this level would likely extend the drop towards $1,345, but in order to do this, the volatility must increase significantly. Weekly Pivot Points: WR3 - $1,774 WR2 - $1,726 WR1 - $1,709 Weekly Pivot - $1,678 WS1 - $1,661 WS2 - $1,630 WS3 - $1,581 Trading Outlook: The Ethereum market has been seen making lower highs and lower low since the swing high was made in the middle of the August 2022 at the level of $2,029. The key technical support for bulls at $1,281 was broken already and the new swing low was established at $1,074. There is a clear test of the 50 WMA located at the level of $1,080, so any breakout below the moving average and a weekly candle close below moving average will be considered as another indication of the down trend continuation. If the down move will be extended, then the next target for bears is located at the level of $1,000   Relevance up to 08:00 2023-02-23 UTC+1 This information is provided to retail and professional clients as part of marketing communication. It does not contain and should not be construed as containing investment advice or investment recommendation or an offer or solicitation to engage in any transaction or strategy in financial instruments. Past performance is not a guarantee or prediction of future performance. Instant Trading EU Ltd. makes no representation and assumes no liability as to the accuracy or completeness of the information provided, or any loss arising from any investment based on analysis, forecast or other information provided by an employee of the Company or otherwise. Full disclaimer is available here. Read more: https://www.instaforex.eu/forex_analysis/313601

A recovery in China's economy this year looks certain, but the nature and speed of that recovery remain in doubt. After a slow start, we believe the economy could pick up in the summer, but there is a risk that the economy will start to overheat by year-end Beijing, China There are risks to the reopening story A great many research notes on China's reopening story tell a very positive and optimistic story. But we believe that some of these ignore the many challenges that still face the economy. This includes, for example, the likely consumption leakage due to outbound tourism, the probable slow recovery in the real estate market, and the difficult export environment. We are also concerned about the intensifying technology war and the impact this will have on foreign direct investment in China. Another risk that we don't think is talked about enough is the potential high-leverage risk of some local governments. This could morph into problems several years in the future, creating a situation similar to the real estate crisis in 2022. We will start with our forecasts on the macro environment and dig deeper into the opportunities and risks of the economy. Growth will mainly come from consumption and investment but less from manufacturing We forecast GDP growth of 5% in 2023. An upward revision of this forecast is more likely than a downward revision after the release of the first quarter data. But these figures will not be released until mid-April. For now, the rationale behind the forecast direction is more meaningful than the figures themselves. With almost all Covid-19 restrictions lifted, workers are back at work, the vast majority of factories are no longer running closed-loop operations, and land and port traffic are back to normal. A return to normalcy means more jobs for workers, and most idle workers should be able to find new work in the first quarter of this year. We also expect wages to rise in the second half of 2023 as a result. Consumption growth   Consumption to lead growth Job growth will create consumption growth, and this looks likely to be the main driver of China's economy this year. During the Chinese New Year, cash-rich individuals were able to spend lavishly as shops were open for business and people were no longer locked down. But for the middle-income group, spending power has declined because some have lost their jobs. We project that most of those who have lost their jobs should be able to find new work by the end of the first quarter. Those working in factories, especially the younger generation, may choose to move from manufacturing to the service sector, where jobs are growing faster as the economy reboots. Consumption should rebound significantly during the May holidays. So, after contracting by 0.2% in 2022, China's retail sales could jump by about 8-10% to CNY48 trillion in 2023. We expect retail sales to grow strongly Source: CEIC, ING Outbound shopping versus inbound duty free shops – leakage of consumption In recent years, more duty-free shops have been established in China with a wider range of goods, satisfying the luxury shopping needs of some Chinese residents. However, when outbound tourism regains momentum, it is likely that China will face some consumer leakage as some of that shopping will take place abroad. We expect shopping trips to Europe during the Golden Week holiday in May to return to pre-pandemic levels. In the decade before Covid, Chinese consumers accounted for a third of global luxury sales. This means that luxury sales growth should be very fast on a year-on-year basis in 2023. Infrastructure   Infrastructure is a supportive driver Infrastructure investment will be the second-largest driver of China's economic growth this year. The total amount of new local government special bonds to be issued this year will be CNY4 trillion, roughly the same as the CNY4.04 trillion in 2022, and higher than the CNY3.65 trillion originally planned for early 2022 due to spending on Covid. For 2023, while not all of the funds from these bond issues will be used for infrastructure, we expect around 70% of the funds to be used for such purposes. One reason for this is the government's desire to ensure a smooth recovery of the economy after reopening, and another is the limited infrastructure spending over the past few years, apart from that associated with Covid. In 2023, we expect local governments to catch up on planning for infrastructure facilities. We expect more inter-provincial infrastructure and soft infrastructure, including science and technology development, to take place in 2023. If a large portion of the CNY4 trillion of special local government bonds is issued around the Two Sessions in early March, then we should see a rebound in infrastructure investment in the second and third quarters. The charts show that infrastructure investment usually lags the issuance of special local government bonds by about three months. Construction activity for infrastructure will then be concentrated in the third quarter. Infrastructure replacing real estate as the engine of investment growth Source: CEIC, ING Exports are not promising   External demand is a challenge for the economy The pain points for the economy this year will come mainly from weak growth in the US and European export markets. This will be reflected in smaller export orders for the Easter holidays. Depending on the length of the economic weakness in the US and Europe, export orders for this year's winter holidays may also be affected. Although net exports contribute only 0.5 percentage points to GDP growth in 2022, it also creates activity in manufacturing, logistics and trade finance, which all contribute additionally to GDP. A slowdown in export markets in 2023 will therefore be a challenge for China's economic growth. We expect overall industrial production to grow by around 4% in 2023, but export-related manufacturing activity could contract by around 5%, particularly semiconductors. China's exports to fall further as US and EU demand weakens Source: CEIC, ING Real estate still weak but bottoming   Real estate is recovering quietly Home sales are recovering, but very slowly and most noticeably in the core areas of the four major cities. Overall, average house prices are still in a state of year-on-year contraction, but as you can see from the chart below, their year-on-year decline looks to have bottomed out. As a result, the housing stock should have peaked. However, a solid recovery will require a return of confidence by potential homebuyers in the ability of property developers to complete projects. More recently, property developers have had additional access to funding, including from banks through the People's Bank of China's (PBoC's) accommodating policy for property developers, as well as access to overseas funding. This should help some property developers complete their projects, which will still go some way to rebuilding the confidence of potential home buyers. After several years of economic downturn in China, are there enough potential home buyers in the market to support house prices? During the crisis faced by property developers in 2022, mortgages (which fall under the category of medium to long-term household loans) fell sharply and household savings increased. This suggests that some of these savings resulted from deferred down payments on residential property purchases. So at least, for some potential homebuyers, savings for down payments are ready. But some potential home buyers may remain hesitant. For one thing, confidence in the housing market remains low. In addition, job security remains challenged by recent events. When the economy starts to grow in the second quarter of this year, there should be an improvement in the labour market and sentiment for home buying activity should increase, resulting in more housing transactions and higher home prices. China house prices are bottoming Source: CEIC, ING Potential home buyers have saved enough for down payments Source: CEIC, ING CPI inflation   No inflation threat Although economic growth is likely to rebound to pre-pandemic rates by the fourth quarter, we forecast CPI growth of only 2.2% year-on-year. There is currently no inflationary pressure on the Chinese economy. The main CPI increases come from food, where pork prices have been volatile. Nevertheless, PPI should start to rise once the construction sector picks up. As mentioned above, construction activity in 2023 includes residential property construction and infrastructure construction. Unless energy prices jump in 2023, which is not our base case, PPI is not usually easily transmitted to CPI in China. We can see from the chart that PPI in the downstream consumption category is fairly stable, while PPI in the upstream production category is much more volatile. This is because commodity prices have a greater impact on PPI in upstream production. So, when infrastructure and residential construction activity is strong, upstream PPI will rise more quickly. However, this should not have much impact on CPI inflation. Industries that have a big proportion of their costs related to building materials could suffer a squeeze on profit margins as a result. Read next: Tesla Opens Its Global Engineering Headquarters In Palo Alto, California| FXMAG.COM CPI breakdown Source: CEIC, ING PPI not easily transmitted into CPI Source: CEIC, ING Foreign direct investment (FDI) interests in China In 2022, China's actual use of foreign investment reached CNY1.2 trillion, up 6.3% from 2021, but much less than the 14.9% growth in 2021. The main reason for the slowdown in FDI growth is that some companies are planning to or have already relocated their factories out of China following supply chain disruptions during Covid. An important question is whether China's economic recovery will reverse the decision of companies to relocate their factories. After China lifted its Covid restrictions, land and port logistics were no longer an issue. If that had been a key driver behind relocation decisions, it no longer is. However, there is another supply chain risk on the rise. As the technology war between China and the US intensifies and companies become more concerned about geopolitical issues, companies may continue to plan to move production out of China or add additional production elsewhere to complement production in China. The ASEAN region is growing as an alternative location for multinationals as well as some Chinese companies. When discussing relocation from China, consideration is usually given to the cost of production in China, which is no longer cheap in terms of land costs and wages. Wages in China are higher than in most ASEAN economies. As a result, the industries that are most likely to move production out of China are low-value-added products such as textiles and garments, plastics and paper industries. But the focus is not only on production costs, it is on the technology war. Multinational companies involved in technology, such as semiconductor manufacturing, could have more concern about continuing production in China. Semiconductor manufacturing companies with production sites in China could be the first industries to move out of China as a result of the technology war. Monetary policies Lending growth was strong in January and the PBoC left the 1-year medium-term lending facility rate (MLF) unchanged at 2.75%. This suggests that the central bank wants to adopt a wait-and-see approach at the start of the economic recovery. In addition, we have seen the PBoC increase liquidity injection through the 1-year MLF instrument, which implies that it sees bank loans growing further after January. For similar reasons, we do not expect the central bank to lower the reserve requirement ratio. However, this does not mean that the central bank will do nothing. We believe that the PBoC will continue to offer re-lending programmes to complement central government policies in specific areas. These include property developers to avoid new defaults, rural development to narrow the wealth gap, and technology to enable self-advancement. PBoC to stay put Source: CEIC, ING The threat from excessive local government debt is growing The International Monetary Fund estimated China's total general government debt to be RMB 94.73 trillion in 2022, or about 78% of GDP. That sounds fairly unthreatening. But concern about China's fiscal health is not coming from the central government but from some local governments. This is not an issue for all local governments, and the risks are greatest for those that have historically relied on land sales as a large source of revenue. As the property market was quiet in 2022 and will only partially recover in 2023, these local governments face a debt service risk this year, which suggests that they will have to raise more debt to pay off payments as they fall due.  The central government understands this problem and so has accelerated land sales. But the demand for land by property developers will take time to recover due to ongoing cash shortages, and uncertainty over future land revenue has become the focus of our concern about local governments. Local governments still rely on land revenue to repay debts Source: National Bureau of Statistics, ING Overheating concern It may be too early to talk about overheating as it is so early in the economic recovery. But China has a record of helping the economy to recover too fast with supportive policies. This year, we expect that the central bank will channel liquidity into specific industries, and as a result, we are concerned that some areas of the economy could receive too much cheap funding within a short period, resulting in some overheating in some areas.  We expect technology research and development (R&D) could be one of those areas, as China is eager to become self-reliant in advanced technology. But technology R&D in China is not purely private sector activity. As such, the overheating could be shared between local governments and private companies. We will possibly know more about the potential for overheating concerns after the "Two Sessions" annual government meetings in early March. Strong yuan   Yuan to go stronger Though the US Federal Reserve may delay its much-anticipated pivot to lower rates, and the PBoC is on hold, it is clear that the relative economic strength of China and the US in 2023 will be different from 2022. The story for 2022 was that of Chinese weakness and US strength. But for 2023, it is more likely to be the reverse of that. The change in the relative economic strength of China and the US (read here for our US economist James Knightley's recent note on US CPI) has already resulted in net portfolio inflows in the Chinese onshore equity market since December 2022. There should be more capital inflows if the US and European economies weaken further. Global asset managers could reallocate their asset portfolios again around mid-2023. Expected net portfolio inflows to push the yuan stronger US and China stock markets Source: CEIC, ING Conclusion There are many opportunities in China for the domestic market in 2023, from consumption to infrastructure, though far fewer for export-oriented industries. Our 5% GDP growth forecast is likely to be revised upward rather than downward. The technology war is going to affect foreign direct investment in China, and China needs to rely more on itself to advance technology. This will put fiscal pressure on some local governments while land revenue will remain less than during pre-pandemic times. As the domestic economy will be stronger than it was last year, while the US economy could be weaker than in 2022, we expect the yuan to appreciate in 2023, to USDCNY 6.5.  Forecasts Source: CEIC, ING Read this article on THINK TagsMonetary policy GDP FX China Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Both manufacturing and non-manufacturing PMIs for February were very strong. Some sub-indices are the highest in several years. This supports our view that the Two Sessions government meeting will set a high GDP growth target Beijing, China 52.6, 56.3 Manuf. and non-manuf. PMIs   Higher than expected Both manufacturing and non-manufacturing PMIs were very strong The official manufacturing and non-manufacturing PMI indices came in at 52.6 and 56.3, respectively, in February compared to 50.1 and 54.4 in January. The CAIXIN manufacturing PMI was 51.6 in February up from 49.2 in January. This set of numbers is stronger than market expectations. Not only were headline PMI numbers very strong but some sub-indices were the highest in several years. For manufacturing, new orders reached 54.1, the highest since September 2017, while new export orders reached 52.4, the highest since March 2011. These two reflect strong demand expected by retailers. Moreover, suppliers’ delivery times reached 52, rising over 50 for the first time since July, and beating the previous highs from December 2007. The job market is also making a comeback as manufacturing employment rose to 50.2, which was the first expansion in two years. Meanwhile, the non-manufacturing employment sub-index increased by the most since August 2018. In short, this set of PMI data implies that the recovery is still on track. Spending power should rise with the strong employment data Employment PMI subindices of manufacturing and non-manufacturing employment surpassed previous highs in February The Two Sessions may set a high GDP growth target We believe that the government will set a GDP growth target of 5.5% to 6% at the Two Sessions on 5 March. This set of PMI data gives the government a very good reason to set a high growth target. Even though the recovery is on track, this year will not be easy with the central government requiring local governments to grow their economies with high-quality growth prospects in mind. The two KPIs for local governments mean that there could be more business opportunities for ESG. Read this article on THINK TagsPMI China Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Summary:  The official NBS Manufacturing PMI and Non-manufacturing PMI, and the Caixin Manufacturing PMI data released today confirm that the ongoing economic upturn in the Chinese economy is picking up momentum. Chinese consumer and technology stocks are likely to resume the uptrend after spending January consolidating. China’s little giant companies in the A-share market may present opportunities to long-term investors who are looking for participating in growth stocks in niche technology markets. The surge in China’s PMI surveys signals economic recovery picking up momentum The headline official National Bureau of Statistics Manufacturing Purchasing Managers Index (NBS Manufacturing PMI) surged to 52.6 in February, the highest level since 2012, from 50.1 in January. The strength was across the board with the Production sub-index and New Orders sub-index improving markedly to 56.7 and 54.1 respectively. When a diffusion index goes above 50, it signals expansion. The export sector, which has until now been sluggish, showed signs of a strong recovery. The New Export Orders sub-index in the NBS survey unexpectedly surged to 54.1 in February from 46.1 in January and was the first time returning to the expansion territory in 23 months. Caixin Manufacturing PMI, which covers smaller and more private enterprises in the export-oriented coastal region relative to those covered in the NBS survey, also recovered strongly to 51.6 in February from 49.2 in January and the new order sub-index in the Caixin survey bounced to 52.2 from 49.3. The NBS non-manufacturing PMI continued to accelerate well into expansion, rising to 56.3 from 54.4. Both major sub-indices rose further, with the Services sub-index advancing to 55.6 and the Construction sub-index soaring to 60.2. The surge in the PMI data is the latest confirmation of the economic recovery in the making from the confluence of the reopening from Covid-19 containment and upturns in the credit cycle and the regulatory cycle (normalization and stability instead of tightening), and the emergent tendency of a more conciliatory external policy as noted in our Q1 outlook. China consumer and technology stocks are likely to benefit from the cyclical upturn As economic activities, household income and people mobility pick up from the pandemic containment, consumption is set to recover in the coming months. The in-person service industries will probably experience the biggest jump in activities. Technology stocks that operate B2C e-Commerce platforms will benefit from the increase in consumption. In addition, the more relaxed and institutionalized approach of regulation over the tech industries will also remove some of the uncertainty overhangs troubling investor sentiment towards mega-cap China internet stocks. Chinese consumer and technology stocks may benefit from the PMIs today and more incoming economic data that confirm a cyclical upturn is in place in the Chinese economy. Below is Saxo’s China Consumer and Technology equity theme basket for the inspiration of ideas. They are not stock recommendations and readers are encouraged to do further research into companies listed in the theme basket.  Saxo China Consumer and Technology equity theme basket China Little Giant stocks present long-term growth opportunities While the more established mega-cap technology stocks are likely to benefit most in the near term as the market rallies and investors rush to raise their Chinese equity weighting, in the longer-term, medium-sized innovative companies that have a track record of success in a niche market may present better growth opportunities. China’s Ministry of Industry and Information Technology has accredited over 9,000 companies with the title of “little giants” according to the following criteria: Specialising in a niche sector Commanding a high market share in the niche sector Demonstrating strong innovative capacity Dedicating at least 3% of revenues to research and development Minimum 5% p.a. revenue growth of its main business Being profitable in the preceding two years Over 760 of these little giant companies are listed companies, mainly in the A-share market. We have created a China Little Giants equity theme basket which investors can make reference to and potentially, after making their own further research and giving due consideration to the risks associated with smaller private companies operating in China, through the Stock Connect from the Stock Exchange of Hong Kong.  Saxo China Little Giants equity theme basket Source: China update - Economic recovery picks up steam | Saxo Group (home.saxo)

USD/CNH has scaled above 6.9750 as the Chinese economy has registered a deflation by 0.5%. Producers have lowered prices of goods and services at factory gates due to sluggish demand. Upbeat US ADP Employment data has confirmed that January’s strong data was not a one-time blip. The USD/CNH pair has jumped above 6.9750 as China’s National Bureau of Statistics (NBS) has reported a sense of deflation in the Consumer Price Index (CPI) (Feb) data. Monthly CPI figures have contracted by 0.5% while the street was anticipating a decline to 0.2% from the former release of 0.8%. The prices of goods and services in China have accelerated by 1% annually, lower than the consensus of 1.9% and the prior release of 2.1%. Apart from that, the annual Producer Price Index (PPI) has contracted by 1.4% vs. the consensus of 1.3% contraction and 0.8% contraction in the prior release. This indicates that producers lowered the prices of goods and services at factory gates. The reason behind lowering prices could be sluggish demand. It seems that China’s reopening has failed to propel domestic demand. A sense of deflation might force the People’s Bank of China (PBoC) and the Chinese administration to inject helicopter money into the economy to support the overall demand. The US Dollar Index (DXY) is gathering strength as United States President Joe Biden has proposed an increase in corporation taxes from 21% to 28%. US Biden wants a 25% billionaire tax and large levies on rich investors. He has also proposed a tax on income over $400,000 at 39.6% in the budget. More taxes on US individuals will be considered as contracting Fiscal policy, which might support the Federal Reserve (Fed) in bringing down the stubborn inflation. Fed chair Jerome Powell has confirmed a higher terminal rate than previously anticipated as the battle against sticky inflation is getting complicated. Also, upbeat US Automatic Data Processing (ADP) Employment data has confirmed that January’s strong data on the labor market and consumer spending was not a one-time blip.  

China cut its RRR today by 25 basis points. We think this is partly to help the economy and provide a cushion against global market turmoil  The People's Bank of China is the central bank of China PBoC cuts RRR China's central bank, the People's Bank of China, cut its required reserve ratio by 25bp to 10.75%. This releases yuan liquidity of 500 billion. Why does the PBoC need to inject liquidity in the money market during an on-track recovery? The economic data is not as good as expected. Retail sales grew 3.5% year-on-year, year-to-date, which was slower than market expectations. But this was mainly driven by the discontinued subsidies for electric cars. We believe that the RRR cut will hardly help to boost EV sales.  However, the cut could help to lower market interest rates, which could help to lower bond issuance interest costs. This may benefit real estate property developers and local government financial vehicles for their funding needs.  Read next: Maybe inflation isn't stealing the show as before, but for ECB it's still the key thing| FXMAG.COM Another reason for the cut, which should be a supplementary one, could be to provide a cushion against any potential negative impact from global market turmoil. If foreign investors need cash and there are sudden capital outflows from China, there is at least some immediate cushion. Surely in such an event, the PBoC would inject more liquidity into the market.  RRR cut should have negligible impact on USD/CNY The CNY exchange rate usually follows the dollar index closely. This is especially true right now when market players are watching the market very closely.  As such, this RRR cut should not affect the USD/CNY exchange rates to a large extent. There might be some softening of the yuan briefly. We keep our forecast of USD/CNY at 6.90 by the end of this quarter   We do not expect the PBoC to cut interest rates or the RRR any further in the first half of this year unless global market conditions become extreme, as the economic recovery is on track.  Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Hang Seng Index has dropped by -2.4% since last Friday’s high ex-post interest rate cuts by PBoC. Short-term uptrend from 31 May 2023 low remains intact as it still trades above the 200-day moving average. Key support to watch will be at 19,090.   This is a following-up analysis of our earlier publication, “Hang Seng Index Technical: Potential breakout from channel resistance” dated on 9 June 2023 (click here for a recap). The Hong Kong 33 Index (a proxy for the Hang Seng Index futures) has staged the expected bullish breakout and almost met the first resistance of 20,300 as it rallied by +5% from 9 June to an intraday high of 20,205 last Friday, 16 June in light of a shift in the China central bank, PBoC conservative targeted monetary policy stance to a more accommodating approach as it cut 3 key interest rates within two weeks; 7-day reverse repos, 1-year medium-term lending facility, and the 1-year & 5-year loan prime rates today, 20 June that are being used to price corporates/consumer loans and mortgages respectively. Since Monday, 19 June, the Index has tumbled by -2.4% which seems to have fallen victim to the “buy the rumours, sell on the actual news release” mantra as today’s cut on the loan prime rates have been almost fully priced in.      

Asia Morning Bites CNY pushes up to 7.24. Next stop 7.30?   Global Macro and Markets Global markets:  Eclipsing other market moves on Monday, the sharp upwards shift of the CNY after China returned from public holidays last week is the obvious starting point for today’s reflection. The CNY had last traded at 7.18 on 21 June, but it gapped higher immediately on opening yesterday and kept climbing to finish at 7.24. The October 2022 peak of 7.30 is now firmly in focus, the main question for many will now be how quickly it gets there, and whether the PBoC tries to slow the ascent or add some two-way risk. So far, the PBoC seem to be pretty relaxed about the moves, which are sizeable, but orderly. The rest of Asia has been able to shrug off much of the CNY move. The TWD weakened 0.32% yesterday, moving slightly less than the CNH on the day. Other Asian FX saw small losses for the most part, but nothing major. Indeed, as we observed in a recent note, the correlations between CNY moves and other Asian FX seem to have fallen substantially recently. In G-10 currency space, there was little going on. EURUSD was almost unchanged at 1.0908. Other G-10 currencies were fairly muted yesterday. Equities didn’t deliver the increase that had been promised by futures this time yesterday, and US stocks suffered another decline. The S&P 500 fell 0.45% while the NASDAQ dropped 1.16%. Both are still up strongly year-to-date (12.74% and 27.41% respectively) so can absorb some further losses. Chinese stocks were also down. The CSI 300 fell 1.41% and the Hang Seng was down 0.51%. US Treasury yields were little changed across the curve. The 10Y yield is now 3.721%.   G-7 macro:  It was a very quiet day for macro on Monday. Germany’s Ifo survey delivered another set of weak numbers. Carsten Brzeski suggested that Germany’s recovery was over before it really began in a note yesterday. Today we get US durable goods orders data for May, together with US house price data for April from CoreLogic. The Durable goods numbers are exceptionally choppy and most of the relevant detail will lie buried in the core orders and shipments numbers. The house price data have been firming lately, which doesn’t make Fed forecasting any easier. Still, some good news is that Bloomberg reports rents falling according to a national survey by Realtor.com.  Actually, other industry data had already been giving that message, but it is helpful to have further corroboration.  Conference Board consumer confidence as well as some regional US activity surveys complete the data calendar for the day.      What to look out for: US durable goods and consumer confidence Japan leading index (27 June) Hong Kong trade balance (27 June) US durable goods orders, new home sales and Conference Board consumer confidence (27 June) Australia CPI inflation (28 June) Philippines bank lending (28 June) US MBA mortgage applications and wholesale inventories (28 June) Fed’s Powell speaks (28 June) Japan retail sales (29 June) Australia retail sales (29 June) US initial jobless claims and pending home sales (29 June) Fed’s Powell and Bostic speak (29 June) South Korea industrial production (30 June) Japan labour market data (30 June) China PMI manufacturing (30 June) US personal spending and Univ of Michigan sentiment (30 June)

Today's daily CNY fixing will be watched closely to see how much pushback the authorities will deliver after the recent CNY weakness. Industrial profit data for China are also on the calendar, as well as lower Australian May inflation numbers.     Global Macro and Markets Global markets: China’s daily CNY fixing was lower (stronger) yesterday, suggesting that the authorities felt that the pace of CNY depreciation had been a little too fast, or had gone on too long without any correction. The CNY traded in a much flatter range yesterday and is 7.2242 currently, well off the 7.24 peak on Monday. Today’s fix may hint whether the PBoC is more concerned about the level, or the rate of change in the currency. The USD lost some ground yesterday, and EURUSD traded up to 1.0977 before settling back to 1.0957. The AUD tried to go higher yesterday but hit a barrier at 0.6720 and has returned to 0.6682, little changed from a day ago. Cable made some modest gains, rising to 1.2747. But the JPY lost some further ground, drifting up to 143.90 amidst a lot of talk about intervention. For the most part, Asian FX gained against the USD yesterday, and the PHP led these gains, moving down to 55.32. The KRW also got back to 1300, and the SGD followed, dropping to 1.3496. A brighter session in US equities overnight may help Asian FX make further gains today. The S&P 500 rose 1.15% and the NASDAQ gained 1.65% making it one of the strongest sessions in the last few weeks. Semiconductor stocks did well, but so too did household items producers, auto manufacturers, steel producers and homebuilders after strong durable goods orders data and consumer confidence figures.  Chinese stocks also did well. The CSI 300 rose 0.94% and the Hang Seng index rose 1.88%. The stronger data and improved risk sentiment lifted US Treasury yields. 2Y yields rose 7.5bp to 4.755%, while the yield on 10Y Treasury bonds rose 4.3bp to 3.764%.   G-7 macro: Contrasting with the expectation for a decline, May durable goods orders actually rose 1.7%MoM, with core capital goods orders rising 0.7% and upwards revisions to April data showing that US industry is not as battered as might have been imagined after all the monetary tightening. Consumer confidence figures from the Conference Board were also considerably better than expected, and some of the regional manufacturing surveys also came in stronger than the previous month. US house price data also firmed. There is less on the calendar today, with only mortgage applications, inventory figures and advance trade balance numbers to peruse.   China: Industrial Profits are expected to weaken further in May after their 18.2%YoY decline in April (-20.6%YTD YoY%). Ongoing slowdowns in manufacturing together with falling factory gate prices will weigh on the May numbers.     Australia: May CPI inflation will fall from the 6.8%YoY April rate to only 6.2% (INGf, consensus 6.1%YoY). The decline mostly owes to strong month-on-month gains last year not being replicated this year. We anticipate the month-on-month increase came in at around 0.2%, which if it could be sustained, would take inflation back to the RBA’s target range. The lower May inflation rate will, we think, be enough to keep the RBA on hold in July after they hiked in June. But August may see a further, and hopefully, final rate hike as electricity tariff increases will keep inflation from falling much further, and could provide an excuse to hike due to slow progress.   What to look out for: Australia CPI inflation (28 June) Philippines bank lending (28 June) US MBA mortgage applications and wholesale inventories (28 June) Fed’s Powell speaks (28 June) Japan retail sales (29 June) Australia retail sales (29 June) US initial jobless claims and pending home sales (29 June) Fed’s Powell and Bostic speak (29 June) South Korea industrial production (30 June) Japan labour market data (30 June) China PMI manufacturing (30 June) US personal spending and Univ of Michigan sentiment (30 June)        

Wednesday’s inflation report expected to show CPI m/m: 0.3%e  v 0.1% prior; y/y: 3.1%e v 4.0% prior; Core CPI m/m: 0.3%e v 0.4% prior; Core CPI y/y: :5.0%e v 5.3% prior Fed’s Barr on banks: These changes would increase capital requirements overall Fed Mester noted that the funds rate will need to move up somewhat further from its current level and then hold there for a while   US stocks are wavering ahead of both a key inflation report that should core CPI remain sticky and what should be a rough earnings season. Friday’s employment report showed a hiring slowdown but also strong wage gains.  What will make this inflation report exciting is that we could see annual headline inflation fall to 2.8%, while core inflation remains hot, bolstered by housing inflation.  The steep decline in annual CPI won’t remain a recurring theme and pricing pressures might remain throughout the summer.  The big banks will kickoff earnings season and expectations are for the largest loan losses since the pandemic. Considering how high stocks have rushed higher, it will be difficult for this earnings season to deliver strong enough results for fresh highs.  China’s growth story remains a drag on the global economy.  Perhaps more important for markets was last night’s Chinese prices data.  China saw CPI post the lowest reading in 2 years, with a 0% year-over-year reading, while producer prices plunged 5.4% from a year earlier, the worst decline since December 2015.  It is getting uglier in China and that is why officials are scrambling to deliver more support to real estate developers.  The real estate crisis has been lingering for a couple of years and it is messing up their COVID reopening.  The PBOC is going to do more, but this piecemeal policy support strategy is not working.  Treasury Secretary Yellen’s trip to Beijing was positive but nothing meaningful was expected to be achieved. Yellen assuaged concerns that harsh restrictions might not get imposed by both countries.  The US needs China’s rare minerals and China needs foreign chips.    

FX volatility might be returning given Wall Street is seeing some exhaustion with several key currency trades.  The end of tightening for the advance economies keeps getting delayed and sooner than later it will deliver a major blow to growth.  FX volatility should pick up as diverging policies from the Fed, BOE, and PBOC could trigger some significant moves in H2.   USD/JPY A lot of macro traders were expecting dollar strength to intensify against the Japanese yen as interest rate differentials appear likely to widen further over the next few months.  The carry trade isn’t making a comeback given the rising prospects of a recession coming to the US.  Everyone also remains on intervention watch from Japan’s Ministry of Finance, but expectations are for action if dollar-yen tests the 150 region.  The consensus on Wall Street is that Japan will probably act, but it might not happen until after the summer.  A tweak to yield curve control could trigger yen strength but that won’t happen until the BOJ’s price goal is achieved.  BOJ Governor Ueda has been clear that no tweaks will occur until the prospects heighten for inflation to sustainably reach its 2% target. USD/JPY weakness towards 140 has triggered some buyers and that might gain momentum if risk appetite can remain throughout tomorrow’s US inflation report (Wednesday 830am est).  Further upside could eye a return to the 145 zone if risk aversion does not run wild post both Wednesday’s CPI reading and Friday’s bank earnings.        

China The housing price index (new home prices) for June will be released this Saturday, and it will be closely watched to monitor the financial health of Chinese property developers that are still suffering from a bout of debt overhang due to overleveraging in the past 5 years. In the prior month of May, average new home prices have managed to inch up 0.1% year-on-year after consecutive months of contractions since April 2022. On Monday, we will have the release of Q2 GDP, industrial production, retail sales, and unemployment data. Retail sales and the youth unemployment figures will be pivotal for gauging the current state of internal demand which has been lackluster since March. Growth in retail sales for June is expected to plummet to 3.2% year-on-year from 12.7% recorded in May. On the labor market front, the youth unemployment rate surged to a record high of 20.8% in May, that’s about four times above the nationwide unemployment rate. On Monday, China’s central bank, the PBoC will decide on its one-year Medium-Term Lending Facility Rate (currently at 2.65%) followed by Thursday’s decision on the one-year and five-year Loan Prime Rates (currently at 3.55% and 4.20%, respectively).  Given the latest policy pledge by PBoC to stabilize growth via utilizing its arsenal of monetary policy tools, there is a possibility that another round of interest rate cuts may be implemented in the coming week.   India No major key data releases.   Australia The RBA minutes of the last monetary policy meeting held on 4th July will be released on Tuesday. Market participants will be scrutinizing the details of the minutes for hints on whether the current official cash rate of 4.1% is the terminal rate for the current tightening cycle after the RBA chose to stand pat on 4th July.  Based on the RBA Rate Indicator as of 14th July, the ASX 30-day interbank cash rate futures for the August 2023 contract has priced in a 29% probability of a 25-bps hike to bring the cash rate to 4.35% at the next monetary policy decision on 1st August; that’s a decrease in odds from 52% seen in a week ago. Labor market conditions for June will be out on Tuesday; employment change is expected to be lower at 17,000 versus 75,900 in May while the unemployment rate is expected to hold steady at 3.6%.   New Zealand Q2 inflation data is due out on Wednesday. Expectations are for a cooler print of 5.9% year-on-year from 6.7% printed in Q1. On a quarter-on-quarter basis, it is expected to slide to 0.9% from 1.2% in Q1. If this cooler consensus turns out as expected, it will be the second (y/y) and third (q/q) consecutive quarters of an inflationary growth slowdown.   Japan Balance of trade data for June is due out on Thursday; growth in exports is expected to improve to 2.2% year-on-year from 0.6% in May while imports are expected to deteriorate further to -11.3% year-on-year from -9.9% in June.   Inflation data will then be released on Friday. The core inflation rate for June is expected to tick slightly higher to 3.3% year-on-year from 3.2% in May while June’s core-core inflation rate (excluding fresh food & energy) is expected to remain at an elevated sticky level of 4.3% year-on-year in May. If these inflationary prints come in as expected, it is likely to put more pressure on the Bank of Japan to bring forward monetary policy normalization, a tilt away from the current ultra-dovish stance.   Singapore The key data to note will be the balance of trade for June to be released on Monday; non-oil exports growth declined to -14.7% year-on-year in May, its 8th consecutive month of contraction. Another weak reading is expected for June due to a weak external environment, especially from China, one of its major trading partners.  

Further internal demand deterioration in China but PBoC refrains from cutting key interest rate Retail sales in China decelerated to 3.1% y/y in June from May’s 12.7% y/y, weakest growth rate since December 2022. Q2 GDP growth in China came in below expectations at 6.3% y/y vs. consensus estimates of 7.3% y/y. China’s central bank, PBoC left its one-year medium-term lending facility rate unchanged at 2.65% likely due to the risk of a “liquidity trap” scenario. China’s proxies stock benchmarks Hang Seng Index, Hang Seng TECH Index & Hang Seng China Enterprises Index outperformed intraday against the mainland “A” shares benchmark CSI 300.   China’s Q2 GDP growth came in below expectations at 6.3% year-on-year versus consensus estimates of 7.3% but above Q1 of 4.5%; 0.8% growth for Q2 on a quarter-on-quarter basis, below Q1’s 2.2% (q/q). Retail sales for June tumbled to single-digit growth of 3.1% year-on-year from 12.7% recorded in May, its steepest growth deceleration since December 2022, almost on par with expectations of 3.2%. On the other hand, industrial production rose to 4.4% year-on-year in June, above expectations of 2.7%, and May’s reading of 3.5%, its highest growth rate since October 2022. The labour market for youth has remained worrisome, the youth unemployment rate for 16 to 24 years old accelerated to 21.3% in June, a new high from 20.8% in May, that’s around four times the nationwide unemployment rate that remained steady at 5.2% in June. The growth deceleration in retail sales and continued uptick in youth unemployment have further reinforced the ongoing weak internal demand environment in China since March this year that dented consumer confidence and increased the risk of a deflationary spiral.     A liquidity trap scenario is likely to see less marginal benefits from interest rate cuts To negate weak internal demand and eroding consumer confidence, expansionary fiscal stimulus measures are likely to be more effective than more interest rate cuts, and accommodating monetary policy in a deflationary environment reduces the “marginal benefit” from an extra added effort of monetary policy stimulus; a “liquidity trap scenario”. Hence, it is not surprising for China’s central bank, PBoC to refrain from cutting its key one-year medium-term lending facility today and left it unchanged at 2.65% after a 10-basis point reduction in June, which in turn implies a likely similar no-cut scenario for its decision on the one-year (3.55%) and five-year loan prime rates (4.2%) out later this Thursday.   China “A” shares benchmark CSI 300 dragged down by financial stocks   Fig 1: CSI 300 sectors rolling 1-month performance as of 17 Jul 2023 (Source: TradingView, click to enlarge chart) Interestingly, the China proxies benchmark stock indices listed in Hong Kong do not suffer a steep sell-off; In contrast, the China mainland “A” shares benchmark stock index, CSI 300 shed -1.1% dragged down by the banks that underperformed intraday likely due to the fear of a “liquidity trap” scenario that led to slower loan growth, the CSI  300 Financials Index shed -1.44% intraday.    

NZD/USD in negative territory after jumping 2.58% last week US dollar was broadly lower last week on expectations that Fed rate-tightening almost over The New Zealand dollar has started the week with considerable losses. In the European session, NZD/USD is trading at 0.6338, down 0.51%. This follows a superb week for the New Zealand dollar, which soared 2.58%.   US dollar in trouble over Fed expectations It was a week to forget for the US dollar, which hit a 15-month low. The US dollar index fell by 2.52% last week, its worse weekly performance since November 2022. The New Zealand dollar made the most of the greenback’s woes and pummelled the US dollar even though the Reserve Bank of New Zealand took a pause last week for the first time in almost two years. The US dollar’s nosedive last week against the major currencies was exacerbated by the US inflation report, which was softer than expected. The headline and core rates both eased in June, raising market speculation that the Fed may finally wrap up its rate-tightening cycle after the July 26th meeting. The markets have priced in a July hike at 96% and a pause in September at 83%, according to the CME tool. The Fed has relied on interest rate hikes as its main tool to curb inflation, and an end to the cycle will result in investors looking elsewhere to park their funds. The US dollar is under pressure, but traders and investors should be careful before writing off the US currency. Earlier this year, the markets were too hasty in betting that the Fed would cut rates and the US dollar would fall. Instead, the Fed continued to raise rates as the US economy remained robust and the US dollar rebounded. Fed Chair Powell has signalled one more rate after the July meeting and Fed members have sounded hawkish, noting that inflation remains much higher than the 2% target. The markets may once again be getting ahead of themselves in assuming that inflation is won and the Fed is done. . NZD/USD Technical There is support at 0.6316 and 0.6221 0.6466 and 0.6561 are the next resistance lines    

Dollar wavers post Chinese data 10-year Treasury yield down 2.3 points to 3.809% JPMorgan extends gains post Friday’s earnings US stocks are slightly higher after some disappointing Chinese GDP data raised concerns about the global economy but supported the argument that disinflation pressures are firmly in place.  The disinflation story won’t be going away after Ford announced some big cuts with their electric F-150 truck prices.  The disinflation process should remain intact and that should support calls that the Fed will be done after one more rate hike at the end of this month.  Wall Street is bracing for some big bank earnings that might not mirror what JPMorgan said last week. The key to the stock market remains the mega-cap tech trade and many traders won’t do any major positioning until we hear from Netflix and Tesla.     China’s slowdown dragged European stocks.  Another record high for China’s youth unemployment won’t do any favors for demand for European goods in the coming months.  China still expects growth around 5% to be reached but that will be hard unless the PBOC delivers more stimulus.    US Data The first Fed regional survey showed that NY state factory activity managed to stay in expansion territory, while prices paid fell to the lowest levels since August 2020.  The headline general business conditions index dropped 6 points to 1.1. The manufacturing sector is expected to rebound here despite a slight rise with new orders and as shipments expanded.  The report noted that optimism remained subdued and that capital spending will remain soft.      The rest of the Fed regional surveys will likely show overall weakness in the manufacturing sector, along with optimism that pricing pressures are easing.    

Rate cut not coming yet from PBOC FTSE 100 nearing some key levels   It’s been a disappointing start to the week in Europe but I’m not sure investors will be too downbeat as a result given the strong gains recorded over the last five sessions. The Chinese data didn’t help kick things off in a more positive manner, with GDP figures for the second quarter falling well short of expectations as retail sales also decelerated sharply, recording their lowest increase since late last year. Of course, the data remains noisy due to varying base effects but the overall theme is clear, domestic demand is underwhelming and external demand isn’t inspiring either. Stimulus is likely going to be needed in the second half of the year backed up by some monetary support but we may have to wait a little longer for that to be announced. The MLF was left unchanged today at 2.65% which means the same will probably be true of the one and five-year LPRs later in the week. A cut could have helped offset some of the data disappointment although, in the absence of targeted fiscal measures, it may have ultimately been akin to pushing on a piece of string so waiting probably makes more sense.   Is a significant breakout coming? The small declines in the FTSE at the start of the week come on the back of Friday’s reversal which produced a shooting star candlestick around the two lows from last month. Whether that is a bearish signal, a confirmation of sorts, or simply a sign of some profit-taking isn’t yet clear. But it clearly hasn’t built on that negative momentum today.     If it does turn higher again then the area around 7,550 could be interesting from the perspective of it being roughly the high from earlier this month and the area of the 200/233-day simple moving average band. It’s worth noting that these MA bands haven’t been great as areas of support and resistance over the last year or so, which is normal when the price is ultimately trending sideways, but if we do eventually see it trend higher or lower, it may react to them more. Below, the rising trend line – from March 2020 lows – could be interesting as the price appeared to respond to it last week. A break below here may be significant, especially if followed by a move below 7,200. Ultimately, a lot of this could depend on the economic data, the most notable of which this week comes Wednesday in the form of the UK CPI data.  

FX Daily: Dollar bears being asked for patience Quiet summer markets are seeing dollar pairs consolidate in new, slightly lower ranges. It will be another quiet session today ahead of a big week for G3 central bank meetings. Dollar bears may find some reassurance from emerging markets, where the PBoC is trying to limit USD/CNY gains and the South African rand is holding up despite the lack of a rate hike.   USD: Dollar reconnects with short-term rate differentials As my colleague Francesco Pesole has been writing this week, the dollar has made a modest comeback as both US yields adjust higher and short-term rate spreads stay in the dollar's favour. In fact, one could argue that the dollar should even be a little higher given that two-year US yields have retraced about 50% of their drop in the first half of July and the DXY has only retraced one-third of its losses. Price action over the past week probably shows that a switch to the disinflation trade will not be easy and will require a constant drip feed of supporting evidence – be it softer price or weaker activity data. Yesterday's drop in US initial claims clearly did not help here. Casting around the world in quiet FX markets we see the People's Bank of China (PBoC) continuing to fight a weaker renminbi by printing lower USD/CNY fixings than model-based estimates suggest. Despite credible calls for a lower renminbi to support growth and battle deflation, it seems Chinese policymakers prefer to keep renminbi losses contained and prevent a 'sell China' mentality building. The PBoC's battle against a stronger USD/CNY is a slight dollar negative in quiet summer markets – especially should it extend to outright dollar sales. Today's session should be a quiet one as the market prepares for US Federal Reserve, European Central Bank and Bank of Japan (BoJ) meetings next week. Regarding the BoJ, expectations of any Yield Curve Control policy tweak seem very low (perhaps too low) given that the 30-year Japanese government bond (JGB) yield is drifting lower and the forward market prices 10-year JGB yields at 50bp in three months and at only 55bp in six months. These 10-year yields should be priced a lot higher were the market expecting a policy change. USD/JPY may well drift to the 141.15/142.00 area before next Friday's BoJ meeting.

FX Daily: Dollar bears being asked for patience Quiet summer markets are seeing dollar pairs consolidate in new, slightly lower ranges. It will be another quiet session today ahead of a big week for G3 central bank meetings. Dollar bears may find some reassurance from emerging markets, where the PBoC is trying to limit USD/CNY gains and the South African rand is holding up despite the lack of a rate hike.   USD: Dollar reconnects with short-term rate differentials As my colleague Francesco Pesole has been writing this week, the dollar has made a modest comeback as both US yields adjust higher and short-term rate spreads stay in the dollar's favour. In fact, one could argue that the dollar should even be a little higher given that two-year US yields have retraced about 50% of their drop in the first half of July and the DXY has only retraced one-third of its losses. Price action over the past week probably shows that a switch to the disinflation trade will not be easy and will require a constant drip feed of supporting evidence – be it softer price or weaker activity data. Yesterday's drop in US initial claims clearly did not help here. Casting around the world in quiet FX markets we see the People's Bank of China (PBoC) continuing to fight a weaker renminbi by printing lower USD/CNY fixings than model-based estimates suggest. Despite credible calls for a lower renminbi to support growth and battle deflation, it seems Chinese policymakers prefer to keep renminbi losses contained and prevent a 'sell China' mentality building. The PBoC's battle against a stronger USD/CNY is a slight dollar negative in quiet summer markets – especially should it extend to outright dollar sales. Today's session should be a quiet one as the market prepares for US Federal Reserve, European Central Bank and Bank of Japan (BoJ) meetings next week. Regarding the BoJ, expectations of any Yield Curve Control policy tweak seem very low (perhaps too low) given that the 30-year Japanese government bond (JGB) yield is drifting lower and the forward market prices 10-year JGB yields at 50bp in three months and at only 55bp in six months. These 10-year yields should be priced a lot higher were the market expecting a policy change. USD/JPY may well drift to the 141.15/142.00 area before next Friday's BoJ meeting.

Recent bullish breakout from “Descending Wedge” has led to a 10% rally to reach a medium-term resistance zone of US$83.80/84.90. Technical elements are now advocating a potential corrective pull-back with supports coming in at US$79.80 and US$77.20. Today’s surprise three interest rate cuts by China’s central bank, PBoC has triggered a risk-off behaviour in cross-assets (FX, stock indices, commodities) via a negative reflexivity feedback loop.   This is a follow-up analysis of our prior report, “WTI Oil Technical: Potential bullish reversal Descending Wedge in play” published on 21 July 2023. Click here for a recap. The price actions of West Texas Oil (a proxy of WTI crude oil futures) have indeed shaped the bullish breakout from its “Descending Wedge” configuration on 24 July and rallied by +10% to print an intraday high of US$84.92 per barrel on last Thursday, 10 August which coincided with a medium-term resistance zone of US$83.80/84.90 (see daily chart). Today, West Texas Oil has shed almost -1% intraday at this time of the writing to print an intraday low of $81.60 that recorded an accumulated loss of -3.7% in the past two sessions since Thursday, 10 August high of US$84.92. The current weakness of oil has been in line with a broad-based risk-off behaviour seen in cross-assets today (FX, major stock indices & industrial metals commodities) attributed to the contagion fear in China’s financial system after a major trust fund failed to make timely payments to holders of its wealth management products that are backed by unsold properties of indebted property developers. Today’s unexpected interest rate cut by China’s central bank, PBoC on its 1-year medium-term lending facility (MLF) interest rate by 15 basis points (bps), more than the previous 10 bps cut implemented in June to bring it down to 2.50%, its lowest level since late 2009. The 1-year MLF rate is a benchmark interest rate in China where PBoC provides a credit line to major commercial banks which in turn acts as a guide for another two benchmark interest rates that commercial banks charged to customers: the 1-year and 5-year loan prime rates. Interestingly, PBoC enacted two more interest rate cuts today on the overnight standing lending facility (SLF) which was cut by 10 bps to 2.65% while the 7-day and 1-month SLF rates were cut by 10 bps each to 2.80% and 3.15% respectively. Three interest rate cuts in a single day are considered a “rare” event in China given that the current guidance from China’s top policymakers is in favour of targeted stimulus policies to address the current economic growth slowdown rather than enacting “opening the liquidity floodgate” measures. Hence, today’s surprise move on China’s more accommodative monetary policy stance is perceived as a heightened red alert on its financial system where trust firms’ default risks have risen that may trigger a systemic contagion which in turn created the negative reflexivity feedback loop seen today.     Daily RSI oscillator conditions suggest an imminent short-term pull-back   Fig 1:  West Texas Oil medium-term trend as of 15 Aug 2023 (Source: TradingView, click to enlarge chart) The daily RSI oscillator flashed a bearish divergence condition at its overbought region on 9 August 2023 which suggests that the medium-term upside momentum of West Texas Oil is overstretched, and its price actions face the risk of a corrective pull-back to retrace certain portions of the current 26% rally of its medium-term uptrend phase from 28 June 2023 low of US$66.95. A bearish breakdown below minor ascending channel support   Fig 2:  West Texas Oil minor short-term trend as of 15 Aug 2023 (Source: TradingView, click to enlarge chart) Today’s price actions of West Texas Oil have staged a bearish breakdown below its minor ascending channel support from the 28 June 2023 low. Watch the US$83.80 key short-term pivotal resistance to maintain the short-term bearish tone to see the next support coming in at US$79.80 and a break below it exposes US$77.20 next (also the key 200-day moving average). On the flip side, a clearance above US$83.80 invalidates the corrective pull-back scenario for a retest of the 10 August 2023 swing high area of US$84.90 and a clearance above it sees the next resistance coming in at US$87.00 (psychology level & Fibonacci extension).  

China: PBoC cuts rates amidst data weakness The market was expecting the PBoC to wait until September before easing again, and today's cuts suggest that the authorities' concern about the state of the macroeconomy is mounting. But that doesn't mean that they are about to undertake unorthodox policy measures.   Chinese policy rates   Rate cuts show that concern is mounting The 15bp cut to the medium-term lending facility (MLF) was unexpected. Almost all forecasters expected China's central bank, the PBoC, to wait until September to cut again. MLF lending volumes of CNY401bn were in line with expectations. The PBoC also cut the seven-day reverse repo rate by 10bp, which now stands at 1.8%.  The market responded abruptly. The CNY rose to close to 7.29 immediately after the decision, though eased lower soon after. And 10Y Chinese bond yields dropped about 6bp to 2.56%.  From a macro perspective, today's policy decisions are somewhat helpful. They will help improve the debt-service ability of cash-strapped local governments and property companies. But this isn't a game-changing outcome, and so we doubt that market sentiment will dramatically improve just on this.    Activity data remains extremely poor The activity data release contained no bright spots, and quite a few downside surprises. Perhaps the worst of these was the 2.5% YoY growth in retail sales. This has declined sharply from an admittedly base-effect inflated 18.4%YoY growth rate in April as the re-opening briefly led to a retail sales surge. Now the idea of a consumer-spending-led recovery is looking very vulnerable.  In year-on-year terms, industrial production slowed to 3.7% YoY, from 4.4% in June. Year-to-date, production growth remained at 3.8% for the second month. Property investment slowed at a faster pace in July, falling at an 8.5%YoY pace, weaker than the 7.9% YoY decline achieved the previous month. Property sales growth also slowed to almost a standstill in July, rising at only 0.7% YoY YTD, down from 3.7% in June. And fixed asset investment slowed to 3.4% from 3.8% YoY YTD. Topping all of this off, the surveyed unemployment rate rose to 5.3%.   China activity summary   What does this mean for policy? The question of the day based on the number of times it has been posed to this author is "Does this mean the PBoC will undertake Quantitative Easing (QE), and if so, when?"  At the current juncture, QE does not seem to be the right response to what we are seeing. Nor does a large dollop of fiscal stimulus.  China is undergoing a painful transition to a less debt-fuelled, less property-centric and more consumer-driven economy. An "emergency" policy like QE that primarily inflates real and financial asset prices does not appear to have a strong role to play here. QE would also put the CNY under further weakening pressure, which it is very clear the PBoC does not want and would make it much harder for them to manage the CNY. It would also raise the risks of capital outflows, which they will also be keen to avoid.   More policy measures will be needed and more will certainly be delivered. The PBoC has not ended the rate-cutting cycle yet, and there will be further iterations of policy rate cuts along the lines of what we have seen today. As for government stimulus policies, these, we think, will tend to be along the lines of the many supply-side enhancing measures that we have already seen. The way through a debt overhang is not to print more debt, though it may be to swap it out for lower-rate central government debt, or longer maturity debt to ease debt service. Enhancing the efficiency of the private sector will also play a key role, though this and all the supply-side measures will take a considerable time to play out. The tiresome chorus clamouring for more stimulus is unlikely to stop in the meantime. And we will continue to see weak macro data for the foreseeable future. It is a necessary part of the adjustment and is far preferable to resurrecting the debt-fuelled property model that propelled growth previously. But we do need to lower our expectations for China's growth. 

05:50BST Tuesday 15th August 2023 UK wage growth set to give Bank of England an extra headache  By Michael Hewson (Chief Market Analyst at CMC Markets UK)     European markets underwent a modestly positive start to the week despite concerns over the Chinese real estate sector which weighed on the FTSE100, as equities tried to bounce back after two weeks of declines. US markets initially struggled during the first half of the session before rallying strongly into the close, led by the Nasdaq 100. Asia markets, which started the week badly have been more mixed today after Japanese GDP beat forecasts, due to a boom in auto exports and tourism, and poor Chinese economic numbers, which once again disappointed.   Despite a strong start to the year Chinese retail sales have struggled to match the performance seen in April when retail sales rose 18.4%. Since that solid gain spending patterns have struggled despite the weak comparatives of an economy that was, for the most part, subject to lockdowns and restrictions.     The May numbers saw a gain of 12.7% when the same rules applied, while June saw another slowdown to 3.1%, as the Chinese economy showed lacklustre growth of 0.8% in Q2, a sharp slowdown from the 2.2% seen in Q1. With the start of Q3 the picture hasn't got any better with July retail sales falling short of expectations, rising 2.5%, instead of the 4% rise expected. Industrial production also came up short, rising 3.7% instead of the 4.3% expected. The statistics bureau also didn't include the figures for youth unemployment, which has risen sharply in recent months, with the 16-24 cohort reaching 21.3% in the June numbers. In a sign that the numbers were going to be poor, or simply because of concerns over the property sector just before the numbers were released, Chinese authorities reduced one-year loan rates by 15bps and reduced the seven-day reverse repo rate by 10bps.       It's set to be an important week for the UK economy, and more importantly for the Bank of England in the context of how many more rate hikes they feel will be necessary in the face of sticky core inflation and record wages growth. Today's wages and unemployment numbers for the 3-months to June are set give the central bank an additional headache as it looks to try and play catch-up after being slow to react to the initial inflation surge. We've already seen the UK unemployment rate rise from 3.7% to 4% in the 3-months to May, since the start of the year as more people return to the workforce as the cost-of-living squeeze pushes people out of retirement. While the unemployment rate has risen from the lows of 3.5% back in August, wage growth has also risen quite sharply over the same period, hitting a record high of 7.3% at the most recent set of numbers, and looks set to rise to a new record of 7.4% today.     Various Bank of England policymakers have expressed concern that higher wages are making it more difficult to rein in core inflation, and that workers should refrain from asking for large pay rises. This tone-deaf response somewhat ignores the Bank of England's role in fuelling this trend in that the reason people are asking for these pay rises is because of the central bank's failure to nip inflation in the bud, when it became apparent to almost everyone except them, that the rise in prices was anything but transitory.     There is a sense now, however, that inflation has peaked, and although still elevated, that upward pressure on wages should start to slow, although it's not likely to happen quickly, with inflation still over 3 times the central bank's target, although it should slow quite sharply when the July figures are released tomorrow.     It's also a big week for the US consumer with the release of US retail sales for July later today, and then the latest earnings numbers from Target and Walmart later this week. After a steady Q2, the US consumer has shown little sign of slowing down when it comes to spending and today's July numbers aren't expected to be any different with a rise of 0.4% expected.     EUR/USD – slid below the 50-day SMA yesterday falling to the 1.0875 area. The main support remains at the 1.0830 area and July lows. Still feels range bound with resistance at the 1.1030 area.     GBP/USD – slipped back to the 1.2615 area yesterday but continues to find support above the 1.2600 area. A break below 1.2600 targets 1.2400. Until then the bias is for a move back above the 1.2800 area through 1.2830 to target 1.3000.        EUR/GBP – came under further pressure yesterday with the 100-day SMA acting as resistance at the 0.8670/80 area. Support comes in at the 0.8580 area with a break below targeting the 0.8530 area. Above the 100-day SMA targets the 0.8720 area.     USD/JPY – has broken above the previous peaks this year at 145.10, opening up the prospect of further gains towards 147.50. Support remains back at the 143.80 area; however, we could also find support at the 144.80 area.     FTSE100 is expected to open 14 points higher at 7,521     DAX is expected to open 44 points higher at 15,948     CAC40 is expected to open 23 points higher at 7,371  

China's surprise cut won't be enough.  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   China surprised by cutting its one-year medium-term lending facility (MLF) rates by 15bp to 2.50% today to give a jolt to its economy that has not only completely missed the expectation of a great post-Covid recovery, but that deals with deepening property crisis, morose consumer, and investor sentiment – which is worsened by Country Garden crisis and missed payments from the finance giant Zhongzhi Enterprises. Data-wise, things looked as worrying as we expected them to look when China released its latest set of economic data today. Growth in industrial production unexpectedly dipped to 3.7%, retail sales unexpectedly fell to 2.5%, unemployment worsened, while growth in fixed investments dropped further. Foreign investment in China fell to the lowest levels since 1998, and the 13F filings showed that Big Short's Michael Burry already exited Alibaba and JD.com, just months after increasing his exposure to these Chinese tech giants. People's Bank of China's (PBoC) surprise rate cut will hardly reverse appetite for Chinese investments as meaningful fiscal stimulus becomes necessary to stop halting.       The Hang Seng remains under pressure, the Chinese yuan fell to the lowest levels against the US dollar since last November, before the post-Covid reopening, and crude oil stagnates around the $82.50pb, close to where it was yesterday morning at around the same time. Tight supply and warnings of increased risk to shipping near the Strait of Hormuz, which is a strategic waterway for oil transit for exporters like Saudi Arabia and Iraq, certainly helped tempering the China-related selloff. But the demand side is weakening and that could stall the oil rally at the actual levels, forcing a return of the barrel of US crude toward the $80pb level, as worries regarding the Chinese recovery are real, and China will have to deploy further stimulus measures to fix things and bring investors back on their side of the table. If that's the case however, oil prices could take a lift.      Elsewhere, Argentina devaluated its currency by 18% to 350 per dollar and hiked its interest rates by 21 percentage points to 118% after populist Javier Milei won the presidential primary, while the dollar ruble traded past the 100 mark for the first time since Russia invaded Ukraine and the Indian rupee traded near record, as well. So all that helped the US dollar index shortly trade above its 200-DMA yesterday, a day before the release of the FOMC minutes which could hint that most Federal Reserve officials were certainly happy with the progress on inflation, but not yet convinced that the war against inflation is won just yet. And given the rebound in global energy and food prices, the Fed officials' careful approach to inflation looks like it makes sense. That's certainly why the US 2-year yield continued its advance toward the 5% mark yesterday, even though the latest survey from New York Fed showed that inflation expectations recorded a sharp drop to 3.6% for the next twelve months and fell to 2.9% for the next three years. The same survey showed that the mean unemployment expectation fell by 1 percentage point, giving support to goldilocks or to the soft landing scenario. Goldman now expects the Fed to cut rates in the Q2 of next year. It also said it expects core PCE to have fallen below 3% by that time.       Today, investors will focus on the US Empire manufacturing index and the retail sales data, and earnings from Home Depot will also hit the wire. While expectation for Empire manufacturing points at a negative number, consensus for July retail sales is a slight acceleration on a monthly basis. Any improvement on the US data is poised to further back the pricing of soft landing and give a further boost to both the US dollar and the US stocks.  The S&P500 recovered yesterday, as Nasdaq 100 advanced more than 1% with technology stocks leading the rebound. Nvidia was one of the best performers with a 7% jump after a Morgan Stanley analyst reiterated his $500 per share price target yesterday. But Tesla didn't benefit from the tech rally of yesterday and closed the session below $240 per share after cutting its car prices in China, yet again.    

FX Daily: Quiet G10 markets despite Chinese turmoil Beijing continues to fight the recent turmoil on multiple fronts: real estate, financial, and the FX market. Overnight, the PBoC set the CNY fixing with the largest gap to estimates in order to curb bearish speculation. Despite all the turmoil in China, G10 volatility has remained capped, and this is probably why Japanese authorities are not intervening.   USD: Chinese authorities go all in to defend the yuan Developments in the distressed Chinese financial and property sector are emerging as the most prominent driver for market sentiment, especially after the Fed minutes proved to have limited implications for central bank expectations and developed market calendars are quite light. Overnight, Chinese authorities turned their focus on the FX market, deploying what is now regarded as the biggest defence of the yuan via fixing guidance on record. The People's Bank of China (PBoC) fixed USD/CNY at 7.2006, significantly below the average estimate of 7.305, which marks the largest gap compared to the estimate since the poll started in 2018. Today’s PBoC move follows yesterday’s reports that state-owned banks were asked by Chinese authorities to step up yuan interventions to reduce FX volatility. We could also see a cut in FX reserve requirements, often considered as a tool to avert sharp CNY depreciation. So far, the spillover into G10 currencies has been limited. The highly exposed AUD is down 1.4% this week, a relatively contained slump considering the amount of bad news that has piled up in the past few days. This is probably a signal of how AUD was already embedding a good deal of negatives related to China and how markets are expecting government intervention to avert black swan scenarios. This morning, the emergency yuan fixing has left FX markets quite untouched, with the exception of USD/JPY trading on the soft side, likely due to Japan’s service inflation hitting 2% for the first time in 30 years overnight. Incidentally, the pair is well into FX intervention territory but is probably missing enough volatility to worry Japanese officials. Still, the oversold conditions of JPY and the threat of interventions are likely going to exacerbate any USD/JPY downside corrections. The US calendar is empty today and the focus will likely be on bond market dynamics after back-end yields touched fresh multi-year highs yesterday. The combined effect of high yields and growing risks in China suggests the balance of risks is moderately tilted to the upside for the dollar. A return to 104.00 in DXY remains a tangible possibility in the coming days.

Walmart CEO is more optimistic about spending patterns  than he did 3 months ago Dollar’s five-day rally halted as yen and yuan rebound Fed could remain in hiking mode if economic resilience prevents inflation from coming down   Now that we heard from Walmart, it is clear that the US consumer is still willing to spend. Expectations for robust consumer spending in Q3 have been confirmed and that should keep growth estimates trending higher.  With COVID savings still expected to be used over the next couple of months and a lag with how student debt repayments go, confidence in continued business momentum should remain.  The Atlanta Fed’s estimate of 5.8% looks like it might actually happen, which should keep the Fed standing by its hawkish stance that they might need to do more tightening to combat inflation. The US dollar is seeing some profit-taking as the yen and yuan, each respectively stage a rebound.  It might be hard for risk appetite to remain in place if  the bond market selloff continues.  With global bond yields to a 15-year high, that surely will feel like restrictive territory for the world.  China remains in focus and the decision from authorities to tell state-owned banks to step up intervention efforts is providing some support to markets. It is clear that China is working on their response here and that more support is on its way. Walmart Walmart’s top and bottom earnings beats were accompanied with raised guidance, which made them have one of the top results from the retailers.  It seems that Walmart is taking away business from Target too, with grocery and ecommerce sales leading the way.  When the economy starts to cool in Q4, Walmart looks well positioned to be one of the top retailers. ​   FX Snapshot       Oil ​The Australian dollar declined after the unemployment rate rose more than expected. Labor market weakness should make the next RBA meeting easy as the economy is feeling the impacts of the RBA rate hiking cycle.  The RBA will hold rates steady for a third straight time at the September policy meeting. The Chinese yuan rallied against the dollar after the PBOC asked state banks to intervene. The yuan was depreciating too quickly and authorities needed to boost sentiment. ​ ​ ​ Some traders are not expecting BOJ intervention until we see excessive weakness that takes dollar-yen possibly beyond the 150 level. ​ ​ We also need to hear Japan officials state they are watching exchange rates with great interest. Japan will likely need to step into markets, but until we see further yen downside, traders might eye further dollar short-term strength. ​ ​   After falling nearly six dollars, it was only a matter of time before crude prices found support.  WTI crude is rebounding on expectations that Chinese officials will deliver meaningful stimulus and that the oil market will remain tight. Earnings are also providing optimism that the US consumer is still strong and willing to spend and travel at the end of the year. The dollar rally has stalled but if the bond market selloff falls to a new level, that could prevent commodities from rebounding further.  Oil looks like it will find a home around the $80 level as too many risks to the outlook still remain on the table; fears that the Fed will overtighten are back and uncertainty persists on how will the US consumer behave once all their COVID savings disappear and as student loan debt bills come due.   Gold Gold prices are trying to recover after some hawkish Fed Minutes kickstarted a global bond market selloff.  Bond yields are too high as more people become convinced inflation is not going away anytime soon.  After making a 5-month low, spot gold has fallen below the $1900 level.  For the spot market the $1870 level remains major support, as the $1900 level with the gold’s future contract appears to have solid support.   Bitcoin It looks like some leveraged funds are ramping up bearish bets that Bitcoin will drift lower.  The US Commodity and Futures Trading Commission’s (CFTC) report on commitment of traders (COT) showed that as of August 8th, two-thirds are bearish, most likely a result of disappointment with the delays in seeing a Bitcoin US ETF approved.  When you throw in what is happening in the bond market, it becomes easy for Bitcoin prices to soften.  If risk aversion becomes the dominant theme on Wall Street, Bitcoin’s bearish momentum could target the $27,200 level.      

Asia Morning Bites The tug of War between markets and the PBoC will remain a focus in Asia today. Macro data is dominated by PMI reports from major economies.   Global Macro and Markets Global markets:  Tuesday was a nothing-day for US stocks as we creep closer to the US Jackson Hole event. US stocks opened up but then slid for most of the session. Chinese stocks, in contrast, managed a rare day of gains. The Hang Seng index rose 0.95% while the CSI 300 rose 0.77%.  US Treasury yields were mixed. The 2Y yield rose to 5.046%, a gain of 4.5bp, though the 10Y yield edged slightly lower by 1.4bp to 4.324%. EURUSD dropped to 1.0847, which looks like a lagged move to respond to Monday’s US yield increases. The AUD pushed slightly higher though, rising to 0.6452, while Cable looked stronger for most of Tuesday before sliding in late trading to return to the 1.2730 area. The JPY looked a bit more solid and strengthened slightly to 145.79. The tug-of-war between markets and the PBoC continued on Tuesday. There was another very strong fix below 7.20 combined with higher funding costs for offshore yuan, though these have now normalized, raising the question of what today's PBoC strategy will be. But the CNY remains just below 7.30 at 7.294, a slight rise from this time yesterday. The THB was the region’s best-performing currency yesterday as the political soup cleared a little with the appointment of a Prime Minister. The KRW also made decent gains. At the other end of the pack, the VND lost about 0.5%  and the PHP was off 0.37%.   G-7 macro:  Yesterday’s macro calendar was devoid of any interest. But today, we have a plethora of PMI releases across the globe, as well as some new home sales data for the US.   Australia:  August PMI data shows the Australian economy slowing further. The service sector PMI, which fell below the breakeven 50-level in July, slid further in August, dropping to 46.7. There was also a slight decline in the manufacturing PMI too, which fell to 49.4 from 49.6, making it the sixth consecutive reading below 50. After the recent softness in labour data, we will have to consider whether to trim out the additional rate hike we still have pencilled in for later this year. We'll leave it for now, but it is looking less obvious.   Singapore:  Singapore reports July inflation today.  The consensus points to a sustained deceleration in inflation with the headline number expected to dip to 4.2%YoY from 4.5%.  Meanwhile, the core number is expected to slip to 3.8%YoY (from 4.0%).  Despite the moderation, inflation remains elevated and we expect the Monetary Authority of Singapore to take this into consideration ahead of its policy meeting in 4Q23.        What to look out for: Jackson hole conference South Korea business survey (23 August) Singapore CPI inflation (23 August) Japan machine tool orders (23 August) Taiwan industrial production (23 August) US new home sales MBA mortgage applications (23 August) South Korea PPI inflation and BoK policy meeting (24 August) Indonesia BI policy meeting (24 August) Hong Kong trade balance (24 August) US initial jobless claims and durable goods orders (24 August) Japan Tokyo CPI inflation (25 August) Malaysia CPI inflation (25 August) Singapore industrial production (25 August) US Univ of Michigan Sentiment (25 August) Jackson hole conference (25 August)

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

Jobs day!  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   August ended on a downbeat note for the S&P500 and on an upbeat note for the US dollar as, even though the Federal Reserve's (Fed) favourite gauge of inflation, PCE, came in line with expectations in July for both the core and headline figures – and even though the core PCE posted the smallest back-to-back rise since late 2020, the supercore services inflation – very closely watched by Mr. Powell and team, and that excludes not only energy but also housing, rose by the most on a monthly basis since the year began. Plus, personal spending remained strong – in line with the GDP data released earlier this week.   Digging deeper, the personal income fell slightly, meaning that Americans continue to tap into the reserves to continue spending. But the good news for the Fed is that the consumer spending at this speed could continue as long as the savings are available. And according to the latest data, personal savings in the US fell from 4.3% in June to 3.5% in May. Before the pandemic, the savings level was close to 9%. In conclusion, savings are melting, housing affordability is falling, mortgage rates are up, low-income Americans reportedly fall behind their important payments like rent, and the main street gives away signs of suffering. But the GDP remains above 2%, above the long-term trend which is thought by the Fed to be around 1.8%, and the scenario of soft landing is what the market is pricing convincedly.  Jobs day!  The US jobs data shows signs of loosening but the numbers are still at historically strong levels. Due to be released later today, the US unemployment rate is expected to remain at a multi-decade low of 3.5%, and the US economy is expected to have added around 170K new nonfarm jobs in August. In the last twelve months, the US economy added almost 280K jobs on average. If today's data comes in line with expectations, the last 12-month average will still remain close to 270K monthly job additions on average. Historically, we expect NFP to fall to around 50K per month a few months into recession. So, to tell you that: we are not there just yet.   Today, a softer than expected NFP figure, a slight deterioration in the unemployment rate, or softer-than-expected wages data could further cement the idea that the Fed will skip a pause at the September meeting, and maybe at the November as well. So far, the US Treasuries have had their best week since mid-July. The US 2-year yield retreated to 4.85%, while the 10-year yield flirted with the 4% mark for the first time in three weeks. But who says a rapid jump, also says a rising possibility of a correction. One thing is sure, we don't expect any major central banker to call victory on inflation just yet...  European inflation sticks around 5.3% due to rising energy  Latest CPI estimate showed that Eurozone inflation stagnated at 5.3% in August due to the sticky energy costs, versus a fall to 5.1% expected by analysts. Inflation in France for example accelerated at a much faster pace than expected in August, while the latest PMI numbers showed weakness in activity. German retail sales also fell faster than expected in July, whereas inflation in Germany also ticked higher last month. The combination of weak economic data and sticky inflation is a nightmare scenario for the European Central Bank (ECB). The ECB should raise the rates to continue fighting inflation, even though the underlying economies are under pressure. Today, the final PMI figures will likely confirm the ongoing slowdown. The EURUSD gave back most of its weekly advance after yesterday's inflation data, hinting that the market is worried that further ECB hikes will further damage economic activity. The bears are tempted to retest the 200-DMA support. If they are successful, the next natural bearish target stands at a distant 1.0615, the major 38.2% Fibonacci retracement on past year's rally, which should distinguish between the continuation of the actual positive trend and a bearish medium term reversal.   More stimulus from China  This week's PMI data showed that the Chinese manufacturing contracted at a slower pace, and today's Caixin PMI showed that it stepped into the expansion zone in August, whereas the Chinese services PMI fell short of expectations and the wave of further bad news, like Country Garden announcing an almost $7bn loss in H1, talk of the company's yuan denominated bond default, Moody's downgrading of the firm to Ca and Evergrande's wealth unit saying that it couldn't make payments on its investment products due to a cash crunch, combined to the existing and worsening property crisis get the People's Bank of China (PBoC) to announce lower payment requirements for first and second-time house buyers, and to encourage lower rates on existing mortgages. But it won't improve the situation overnight. The CSI 300 is closing a week PACKED with fresh stimuli on a meagre note.   Crude rallies  The barrel of American crude jumped more than 2% yesterday and is consolidating above the $84pb level. The next bullish targets stand at $85pb, the August peak, and $89pb, in the continuation of an ABCD pattern. But the rally can't extend above $90 without reviving global inflation expectations and recession worries, which would then start playing against the bulls. 

Asia Morning Bites Higher for longer US rates trade takes its toll on Asian FX. Australia and China trade reports out.   Global Macro and Markets Global markets:  Market sentiment turned sour again yesterday, with stocks across the board dropping. The S&P 500 opened down and went lower over yesterday’s session, falling 0.7% from the previous day. The NASDAQ fell 1.06% and equity futures today are showing no respite. Chinese stocks also fell, though only slightly. The Hang Seng fell 0.04% and the CSI 300 fell just 0.22%. US bond yields pushed higher yesterday as the market continued to take out easing previously priced in for 2024/25. 2Y US Treasury yields rose 5.6bp while 10Y yields rose  2bp to 4.28%. EURUSD stayed at the low end of 1.07 on Wednesday. The AUD was also flat at about 0.6380 despite better-than-expected GDP data, as was the JPY at 147.71 despite comments from officials saying they would take action amid speculative market moves. Sterling dropped below 1.25 on suggestions from Governor Bailey that the rate tightening cycle in the UK was done, or if not, nearly done.  Asian FX sold off against the USD yesterday. The SGD unusually propped up the bottom of the list, weakening 0.27% to 1.3639. The CNY rose above 7.30 to reach 7.3180, and we would anticipate a forceful response from the PBoC at this morning’s fixing. G-7 macro:  The US services ISM index unexpectedly rose yesterday, rising to 54.5 from 52.7 (52.5 expected). There were also gains in the prices paid index, employment, and new orders. This is what drove the market to price out further easing next year, helping to lift the USD. The Fed’s latest Beige Book was somewhat downbeat given the ISM numbers. Today, there isn’t too much to look out for. US non-farm productivity and unit labour costs are both residuals from earlier GDP data and don’t really add to the sum of knowledge on the US economy. Weekly jobless claims are the only other US data of note. The Eurozone releases final GDP figures for 2Q23. No revisions are expected. China:  August trade figures will likely show a slight moderation in the pace of contraction, though it would be generous to describe this as a bounce. A trough might be a more accurate description. Still, that’s better than what has gone before, so it could buoy sentiment. The trade balance may shrink slightly despite this, from the $80.6bn figure from July. Australia:  A slight contraction in Australia’s AUD11.3bn trade surplus for July is also expected for the August figures published later this morning. This is unlikely to have any meaningful impact on the AUD, whose current weakness is more a function of broad USD strength.    What to look out for: China and Australia trade balance Australia trade balance (7 September) China trade balance (7 September) Malaysia BNM policy (7 September) US initial jobless claims (7 September) Japan GDP (8 September) Philippines trade balance (8 September) Taiwan trade balance (8 September) US wholesale inventories (8 September)

Asia Morning Bites Comments from the Bank of Japan's Ueda may be the main story for Monday. Later this week, US inflation and the China data dump could provide more direction.   Global Macro and Markets Global markets:  US stocks didn’t manage to make any headway on Friday, despite opening up, and drifted slowly lower over the session, ending only fractionally higher than the previous day’s close. Equity futures suggest another positive open today. Chinese stocks continued to struggle, with nerves showing ahead of what will be a big data week for China. The Hang Seng Index fell 1.34% and the CSI 300 was down 0.49%. US Treasury yields rose again. The yield on the 2Y UST rose 4.4bp, while that on the 10Y bond rose just 2bp to 4.264%. EURUSD skirted just under the 1.07 level at times on Friday, and its attempt to move higher didn’t succeed. It is currently 1.0709. The AUD is slightly stronger though still trading below 64 cents. Cable is fairly flat at 1.2478 and the JPY lost ground but has rallied in early trading today and is back to 147.24 after Bank of Japan (BoJ) Governor Ueda signalled to a newspaper that wages data may provide enough information by the end of the year to determine whether to end its super-easy policy. It was a mixed day for Asian FX currencies. At one end, the PBoC seemed to relinquish more ground with a fix above 7.20 which allowed CNY to trade above 7.35. At the other end, there were gains for the INR and THB.  The INR is trading back now within the previous range and just below 83. G-7 macro:  The G-20 in India managed to achieve more than cynics might have expected, given President Xi’s absence. A joint communique was reached, and actions were agreed on climate change and debt relief, as well as opening the group to the African Union. Ukraine has criticized the communique for watering down the language on Russia’s invasion. There was very little data out on Friday, but one data point that may have flown under the radar, was the US consumer credit figures for July, which dropped sharply from the previous month. Are households maxing out? If so, this could threaten Janet Yellen’s soft landing hypothesis, which she seemed to be embracing at the G-20 summit. There is not much on the G-7 calendar today. The ECB will meet to decide on rates later this week. The consensus is still split on the decision, as is the market. We narrowly favour a hike. China:  Over the weekend, China released August inflation data which rose back above the zero line, though only just, rising to 0.1%YoY. Later this week, we have the monthly data dump, which may also show some modest improvements from last month – the emphasis is on the word modest though… At least we won’t have to endure inaccurate references to deflation for a month. What to look out for: US CPI inflation and China data Japan M3 and machine tool orders (11 September) China M3 money supply (11 September) Australia Westpac consumer confidence (12 September) US NFIB survey (12 September) India CPI (12 September) South Korea unemployment (13 September) Japan PPI inflation (13 September) India trade balance (13 September) US CPI inflation (13 September) Japan core machine orders and industrial production (14 September) Australia unemployment (14 September) ECB policy meeting (14 September) US initial jobless claims, PPI and retail sales (14 September) China medium term lending rate (15 September) Indonesia trade balance (15 September) China retail sales, industrial production (15 September) US University of Michigan sentiment (15 September)  

FX Daily: Hawkish vibes from Asia Governor of the BoJ Kazuo Ueda suggested the Bank may have enough evidence on wages for a policy shift by year-end. To us, it sounds like a successful attempt to support the yen. Meanwhile, the PBoC is pushing back against CNY weakness. All of this is softening the dollar momentum, but US data will be back in focus soon and USD upside risks are non-negligible.   USD: BoJ and PBOC drive dollar lower The seemingly unstoppable dollar run is being dented this morning by two currencies that had all but contributed to consolidating USD strength until now: the yen and the yuan. The Bank of Japan’s Governor Kazuo Ueda released an interview where he said policymakers may have enough information by year-end – if wage inflation continues – to make a decision on unwinding some monetary stimulus. The market reaction to this has been significant. The overbought USD/JPY is falling and testing 146.00, and the benchmark JGB yields are at 0.70% despite the BoJ deploying the loans-for-bonds programme to curb yields. The timing of Ueda’s interview may suggest an intent to support JPY without deploying intervention – which wouldn’t be warranted by an excessively concerning rate of JPY depreciation anyway. In China, authorities are back with strong defence measures for the renminbi. This follows a growing consensus later last week that the People's Bank of China was starting to tolerate further CNY depreciation as USD/CNY had rallied past 7.30. Alongside a significantly stronger CNY fixing, the PBoC issued a statement saying market participants should “voluntarily maintain a stable market” and avoid speculative trades. The general softening in USD momentum this morning has helped take USD/CNY back below 7.30. This morning’s change of direction in dollar dynamics has clearly been fuelled by moves from the BoJ and PBoC, but whether USD/JPY and USD/CNY can stay under pressure relies on the dollar’s reaction to its own domestic drivers. This will be a busy week in US data, and the latest releases have tended to be quite supportive for the greenback. The main highlight of the week in the US calendar is the CPI report on Wednesday, which is widely expected to show an August inflation rebound, and our economics team flags upside risks to consensus expectations. The core CPI print is expected at 0.3% month-on-month, an acceleration from the 0.2% MoM seen in recent months. There are no data releases to watch today, but we'll see the NFIB survey, retail sales and industrial production figures in the US later this week. The FOMC has already entered the pre-meeting blackout period, but the latest indications clearly pointed to a pause in September. Can inflation change policymakers’ minds? It would probably need to be a materially stronger than expected print, but from an FX perspective, expect the bullish pass-through to the dollar to be felt anyway. Markets can still add to the 11bp of tightening by year-end and push rate cut expectations further down the road. The two-year USD swap rate (OIS) may retest the 4.94% August highs and offset the efforts by the PBoC (likely to be a continuous one) and the BoJ (more likely a one-off move by Ueda) to lift their domestic currencies.

EUR: Some support before the ECB It’s ECB week in the eurozone, and there is a growing sentiment that this will be a very tight decision. The governing council is clearly facing growing division as some signs of lingering inflation are met by evidence of an economic slowdown, which recently strengthened the dovish front. Our economics team thinks that while it’s a close call, the European Central Bank should deliver one last 25bp hike (here's our full preview). Market pricing is 10bp ahead of the meeting and 18bp of total tightening by January. Still, we think the chances of the ECB skipping this meeting and hiking later on are relatively slim given the rapidly worsening outlook. EUR/USD has been given some life by the PBoC and BoJ, with USD softening and EUR/USD finding support into the 1.0700/1.0750 area. The pair can remain supported for today given the lack of major data releases, but we have seen evidence of the unwinding of speculative EUR positions into the ECB meeting. Given the upside risks for the dollar ahead of the US CPI release, we suspect another drop below 1.0700 before the ECB announcement on Thursday is all but possible.

PBoC pushes back at speculators. Chinese FDI numbers and Indian inflation are Asia's main highlights today.   Global Macro and Markets Global markets:  US stocks returned to growth mode yesterday, with the S&P 500 and NASDAQ rising 0.67% and 1.14% respectively. Equity futures suggest that this might be short-lived, however. Chinese stocks had a mixed day, with the Hang Seng falling 0.58%, but the CSI 300 rising 0.74%.  US Treasury yields haven’t changed much. In fact, 2Y yields are unchanged from a day ago, while the yield on the 10Y US Treasury is only up about 2bp to 4.288%. EURUSD has recovered to 1.0750, after dabbling with levels below 1.07 at times the previous day. The AUD has also benefited from this, rising back to 0.6430 and Cable has pulled itself back up to 1.2512. The JPY has also made further gains following Ueda’s weekend comments about potentially ending super-easy monetary policy later this year and is now 146.55. In the Asian FX space, the PBoC took advantage of the USD’s weakness and some stronger-than-expected lending data and issued a stiff warning against speculative trading to weaken the CNY, resulting in a strong rally, which took the CNY down to 7.27 at one stage, and it is now 7.2894. This move helped lift other currencies such as the SGD. G-7 macro:  Yesterday was a pretty quiet day regarding Macro data, and today isn’t much more interesting. Germany publishes its monthly ZEW business survey, which is expected to show a further decline from already very low levels. The US publishes its NFIB small business survey, which is always a good and detailed snapshot of what is happening outside big business. China:  FDI data started to show a year-on-year decline in inflows of 4%YoY YTD in July, and we anticipate a further decline in the August numbers as overseas firms weigh the geopolitical tensions between China and the West and the disappointing re-opening, against the lure of one of the biggest markets in the world. India:  Inflation surged in July to 7.44%, mainly because of spikes in seasonal foods, especially tomatoes, following erratic weather. Daily price data shows that these spikes have eased a bit since last month, though there are also some sharp increases in the prices of onions. The net result should be a moderation of inflation to about 6.7% for August.   What to look out for: US CPI inflation and China data Australia Westpac consumer confidence (12 September) India CPI inflation (12 September) US NFIB survey (12 September) South Korea unemployment (13 September) Japan PPI inflation (13 September) India trade balance (13 September) US CPI inflation (13 September) Japan core machine orders and industrial production (14 September) Australia unemployment (14 September) ECB policy meeting (14 September) US initial jobless claims, PPI and retail sales (14 September) China medium term lending rate (15 September) Indonesia trade balance (15 September) China retail sales, industrial production (15 September) US University of Michigan sentiment (15 September)

Tesla surged 10.2% post a major investment bank's upgrade, while Meta gained 3.3% on its powerful AI system news. Oracle, however, tumbled 9% in after-hours trading due to sluggish cloud sales growth. Strong loan and financing data spurred an intraday Hang Seng Index recovery after a morning dip, alongside gains in iron ore and copper. The weaker US dollar boosted G10 currencies, particularly AUD and JPY. The Yuan strengthened against the dollar, influenced by positive credit data and government support. Additionally, the EU Commission lowered the euro zone growth forecast.       US Equities: Tesla surged 10.2% after a major US investment bank upgrading the stock, assigning an additional USD500 billon to the valuation for a supercomputer that Tesla is developing. Meta gained 3.3% on news that the company is developing a powerful AI system (WSJ). The Nasdaq 100 added 1.2% to 15,461 while the S&P 500 climbed 0.7% to 4,487. Fixed income: The 3-year auction tailed by 1bp (i.e. awarded yield 1bp higher than the level at the auction deadline) and kept traders cautious ahead upcoming hefty supply in 10 and 30-year auctions and corporate issuance and CPI data on Wednesday. The 2-year ended unchanged while the 10-year closed at 4.29%, 2bps cheaper from Friday. China/HK Equities: The Hang Seng Index pared much of the sharp loss in the morning and recovered to end the day 0.6% lower at 18,096. The initial nearly 2% decline was driven by an earnings miss by Sun Hung Kai Properties and departure of the head of the cloud division and former CEO Daniel Zhang from Alibaba. The stronger-than-expected bounce in China’s loans and aggregate social financing data, released during the lunch break, triggered a sharp recovery. Southbound flows however registered a large net sale of HKD10.3 billion by mainland investors. In A-shares, the CSI300 added 0.7%. FX: The retreat of the US dollar brought strong gains across the G10 board, led by AUD and JPY. AUDUSD broke above 0.64 to highs of 0.6449 before settling around 0.6430, while Japanese yen saw strong gains on the back of weekend Ueda comments that brought forward expectations of policy normalization. USDJPY dropped to lows of 145.91, coinciding with fresh recent peaks in JGB yields, before a rebound back to 146.50+ levels as US CPI is awaited. Yuan also strengthened with USDCNH taking a look below 7.30 from highs of 7.36 amid verbal warnings from authorities, better-than-expected credit data as well as the continued appreciation bias in PBoC’s daily fixings.   Commodities: Crude oil held onto its gains near the recent highs with Brent still close to $90/barrel despite a small sell-off in Monday’s session. However, Monday’s price action came despite a weaker USD. With focus still on supply tightness concerns, today’s OPEC and EIA monthly reports will be on watch. Strong performance in metals led by iron ore up 3.5% and copper up close to 2.5% with China credit data boosting sentiment and a strong move in the yuan as well. Gold finding is hard to clear $1930 hurdle and the move in yields remains key with hefty corporate supply and US CPI ahead. Macro: China’s new Yuan loans in August surged more than expected to RMB 1,360 billion. This increase is attributed to greater regulatory encouragement for banks to lend and favorable seasonal factors. This, together with the front-loading of local government bond issuance, brought aggregate social financing to RMB 3,120 billion in August, up from July's RMB 528.5 billion. US NY Fed inflation expectations rose higher for one-year to 3.6% from 3.5%, while the long-term five-year also rose 0.1ppt to 3.0% from 2.9%. However, the three-year expectations dipped to 3.8% from 3.9%. Macro events: US NFIB small business survey (Aug), US 10-year T-note auction ($35 billion), UK payrolls (Aug), Germany ZEW survey (Sep) Company Events: Apple's iPhone 15 launch In the news: China’s PBoC asks banks to get approval for dollar purchases over USD50 million (Reuters) EU Commission cuts euro zone growth forecast as Germany in recession (Reuters) Representatives from eight core member institutions of the China National Forex Market Self-regulatory Mechanism met on Monday to discuss about maintaining the stability of the renminbi (Xinhua). Strong demand pushes Arm to close IPO order book early (FT) Qualcomm strikes new Apple deal on 5G chips (FT) US and Vietnam unveil billions in semiconductor and AI deals (FT)    

Asia Morning Bites US inflation report out tonight could see Asian markets mark time today.   Global Macro and Markets Global markets:  US stocks are up one day, down the next at the moment. Yesterday, it was time for some losses led by tech stocks following an Apple event to launch the iPhone 15. The S&P 500 dropped 0.57% while the NASDAQ lost 1.04%. This was actually in line with the steer from equity futures yesterday. But today, they are giving little away. Chinese stocks fell also. The Hang Seng was down 0.39% and the CSI 300 was down 0.18%. 2Y US Treasury yields nosed up 2.9bp to 5.02%, while the 10Y Treasury yield was marginally lower by 0.8bp taking it to 4.28%. EURUSD is slightly higher at 1.0758, but spent a lot of time yesterday exploring the downside before recovering. This hasn’t helped the AUD, which has been steady to slightly weaker over the last 24 hours, sitting at 0.6427 currently. Cable also slid yesterday and made a less robust recovery than the euro, leaving it at 1.2492 currently. And the JPY is also softer, rising to 147.126.  The PBoC’s recent browbeating of the market still seems to be keeping a lid on the CNY, which remains at 7.2923. We’d expect it to test the 7.30 level again in the coming days, though tomorrow’s data dump will need to be taken into account – we think it might be slightly less negative than in recent months…The KRW had a positive day, rising 0.28% to 1327.64, and the THB weakened 0.38% to 35.640, but there were few other notable movements in the rest of the Asia FX pack.   G-7 macro:  Today, we get August inflation data from the US. And the news will be mixed. Headline inflation will likely rise from 3.2% to 3.6%YoY - all the helpful base effects that helped lower inflation in the first half of the year are used up now, and the month-on-month rate at 0.6% (expected), is still far too high to result in anything other than an inflation increase. But it is exactly the opposite story for core inflation, which has been much stickier, but could now benefit from more helpful base effects, and the fact that most of the price increases are in the non-core food and energy sectors. We should see core inflation falling to 4.4% (consensus 4.3%) from 4.7% YoY. Exactly how the market takes this mix of data is difficult to judge in advance, and could come down to small deviations from the consensus numbers on both figures. Other than this, the UK releases a raft of production, trade, construction and monthly GDP data for July.   India: Trade balance data for August will likely show the deficit in the -USD20bn to -USD21bn range. Export growth has been on a slow but steady decline for a long time, and was -15.86%YoY in July. Looked at in USD levels terms, exports are still trending slightly lower, but the rate of annual decline should moderate to low single digits this month. Inflation data released yesterday evening came in at 6.83%, only slightly higher than our 6.7% forecast, and slightly lower than the consensus 7.1% estimate.   South Korea: The jobless rate unexpectedly declined to 2.4% in August (vs 2.8% July, 2.9% market consensus). The construction sector added jobs for the first time in six months but manufacturing shed jobs for a second month. With summer holidays underway, hotels and restaurant jobs gained. Rising pipeline inflation raised concerns that consumer prices could rise more than expected in the coming months. Import prices surged 4.4% MoM nsa (0.2% in July), the largest increase in 17 months, but due to base effects the YoY growth still fell -9.0%YoY (vs -13.6% in July). Weak currency and strong commodity prices are the two main reasons for the price increases. The KRW is hovering above the 1,300 level and oil prices continue to rise. We are concerned that consumer price inflation may rise more than expected. The tighter job market and rising prices will support the BoK’s hawkish stance. But we still don’t think this will push them to deliver additional hikes by the end of this year given sluggish exports and weak investment.   What to look out for: US CPI inflation and China data South Korea unemployment (13 September) Japan PPI inflation (13 September) India trade balance (13 September) US CPI inflation (13 September) Japan core machine orders and industrial production (14 September) Australia unemployment (14 September) ECB policy meeting (14 September) US initial jobless claims, PPI and retail sales (14 September) China medium term lending rate (15 September) Indonesia trade balance (15 September) China retail sales, industrial production (15 September) US University of Michigan sentiment (15 September)

CNH: The battle for funding The offshore renminbi, the CNH, is starting to find some support and this largely looks down to developments in money markets. While the Chinese currency has been seen as a popular funding currency this year, it looks like Chinese authorities might be trying to intervene in money markets to make funding more expensive. For example, one-month CNH implied yields are now 5.20% – the highest level since late 2018. The strategy here seems to be activity in short-dated CNH swap markets on the view that CNH rates can be more easily influenced than onshore rates since the stock of CNH cash is so much smaller than the stock of onshore cash.  Equally, the People's Bank of China (PBoC) open market operations seem to be draining CNH liquidity. For example, the rollover of 6-month offshore PBoC bills on 19 September will result in a CNH10 billion drain in liquidity. PBoC activity to drain CNH liquidity and support the currency is clearly incongruous with broader monetary easing to support the economy. This means that USD/CNH will probably not sell off that much further. But the strategy looks one of buying time until the major dollar trend turns, which may occur in the fourth quarter of this year.

Asia Morning Bites Australia's labour market report is due out soon. Later today, the ECB meeting and US retail sales numbers should give investors more to ponder after yesterday's upside inflation misses.   Global Macro and Markets Global markets: We will start with Treasury yields today since they were most at risk from an upside miss to the inflation numbers, which we got on both the core and headline measures yesterday. But, contrary to everything you thought you knew about how markets worked, yields fell. The 2Y yield dropped by 5.1bp to 4.969%, and the 10Y yield fell by 3.2bp to 4.248%. Those declines in yield have had no impact on major FX rates. EURUSD remains roughly unchanged at about 1.0733 ahead of the ECB decision today, which still hangs in the balance. The AUD is also more or less unchanged at 0.6423, though it did have a look at sub-64 cent levels at one stage yesterday before recovering. Sterling is also about the same at 1.2491, though the JPY continued to nose higher and is now 147.28. In Asian FX, the main standout is the CNY, which is now down to 7.2717, in contrast to expectations for it to push above 7.35 which looked more likely only a few days ago. The PBoC is now using higher CNY funding costs in its battle to prop up the yuan, and right now, it seems to be working. Our end-of-month and quarter 7.25 forecast no longer looks quite so silly. This could change very rapidly though, and we have the China data dump tomorrow, though we are half-expecting this to be a little less negative than some of the recent data releases. The TWD was dragged stronger by the CNY, as was the SGD. SE Asian FX tended to lose ground yesterday, and the THB propped up the bottom of the table declining 0.34%. G-7 macro: The US CPI inflation release for August saw upside misses on both the headline inflation rate (3.7%YoY, up from 3.2%, and 3.6% expected) and the month-on-month figure for the core rate ex-food and energy, which rose 0.3% against expectations for a 0.2% rise. That still left core inflation falling to 4.3% which was in line with expectations, but progress in reducing core inflation will only be assisted by base effects for so long before it too will need to see the monthly rate need to drop to 0.1-0.2 to deliver a 2% target rate. James Knightley adds more detail in this note. It is also the ECB meeting today, and while we are looking for one, final rate hike, the market is totally split, and this decision could almost as easily result in no change. Our FX and rates strategists have put this cheat sheet together to highlight the potential market scenarios depending on what the ECB does, and more importantly, how it delivers its decision. We also get the August retail sales numbers for the US out today. The consensus expectation for the headline figure is 0.1%MoM, down from 0.7%MoM in July. We are beginning to see delinquencies on credit cards rising (as well as student loans and mortgages), and the latest consumer credit figures were also softer, so a bit more evidence of a consumer slowdown would vindicate the markets’ move to ignore the inflation figures overnight. The control group of spending is expected to decline 0.1% MoM after its 1.0% rise in July. US PPI data for August and weekly jobless claims round out the day. Australia:  August’s labour report remains an important piece of data while there remains some lingering doubt about whether or not the Reserve Bank of Australia has already delivered peak cash rates, or, as we suspect, maybe has one last hike left in the chamber to deliver before we can declare “job done”. And as ever, the outcome of this report is virtually impossible to call. We tentatively expect some unwinding of recent moves, with some modest job creation in the full-time segment, though this may be offset by some part-time employment declines, to deliver a +15K overall employment gain. This is a bit lower than the consensus +25K call. We are, however, in agreement that this will result in a drop back of the unemployment rate to 3.6% after the jump to 3.7% last month. What to look out for: ECB meeting and US retail sales Japan core machine orders and industrial production (14 September) Australia unemployment (14 September) ECB policy meeting (14 September) US initial jobless claims, PPI and retail sales (14 September) China medium term lending rate (15 September) Indonesia trade balance (15 September) China retail sales, industrial production (15 September) US University of Michigan sentiment (15 September)

US inflation remained firm both on headline and core, suggesting Fed will continue to push for higher-for-longer at next week’s meeting. Markets however shrugged off the report and USD also was largely unchanged. The yuan extended gains, and focus today will be on whether ECB can surprise hawkish, as well as the US retail sales. Oil prices saw another run higher before settling lower on inventory builds.     US Equities: The S&P500 ticked up 0.1% while the Nasdaq 100 added 0.4%. The CPI prints released were generally considered as not having an impact on a probable pause at the FOMC next week. Nvidia and Microsoft gained around 1.3% as the chipmaker’s chief scientist and the software giant’s President testified in Senate hearings about AI.     Fixed income: Treasuries sold off briefly following a higher-than-expected core CPI print but quickly reversed as buy-the-dip trades emerged. The 2-year yield ended the choppy session 5bps lower at 4.97% while the 10-year yield finished 3bps richer at 4.25%, near the day-low in yields in spite of a relatively weak 30-year auction.     China/HK Equities: Weaknesses in healthcare and technology stocks weighed on the benchmark indices, offsetting gains in China properties and financials. China properties were supported by news that Zhengzhou, a major city in eastern-central China, lifted restrictions on home purchases and lowered minimum down payment requirements. EV stocks sold off on EU anti-subsidy investigation news. The Hang Seng Index slid by 0.1% while the CSI300 dropped by 0.7%. Northbound net selling reached RMB6.6 billion.     FX: The US dollar wobbled on the CPI release but could not close the day higher with Treasury yields slipping. EUR in the spotlight today as ECB decision is due, and EURUSD has found support at 1.07 for now with a rate hike priced in with over 65% probability. USDJPY spiked to 147.73 but that remained short-lived and pair was back below 147.40 into Asian open. Yuan strengthened further with authorities increasing bill sales in Hong Kong to soak up yuan liquidity making it more expensive to short the currency. This could likely continue into the month-end National Day holiday, and USDCNH is seen testing 7.27 handle.     Commodities: Crude oil prices rose further with IEA estimates also looking at a supply deficit in Q4, although less so than the OPEC estimates. But gains were short-lived and prices fell after inventory data showing a crude build following weeks of drawdowns. US commercial inventories of crude oil rose 4 million barrels last week, according to EIA data. Gasoline inventories also rose by 5.6mn barrels. Meanwhile, Gold is back to threatening the $1900 handle with firmer US CPI.   Macro: US CPI surprised to the upside, but markets were not spooked as it did little to change the thinking around the Fed. Core CPI rose 0.3% MoM, or +0.278% unrounded, above the prior/expected +0.2%, with core YoY printing 4.3%, down from July's 4.7%, and in line with expectations. Headline print was in line with expectations at 0.6% MoM, up from +0.2% on account of energy price increases, with YoY lifting to 3.7% from 3.2%, above the expected 3.6%. The PBoC announced plans to issue RMB15 billion Central Bank Bills in Hong Kong on September 19, which is going to tighten CNH (offshore renminbi) liquidity. This issuance includes RMB5 rollover and RMB10 billion net issuance. According to PBOC's Financial Times, the PBoC will continue to issue bills in the offshore market to maintain ongoing control over offshore renminbi liquidity. The CNH HIBOR in Hong Kong reached 5.6% on Wednesday, marking its highest level since April 2022.   Macro events: US retail sales (Aug) exp 0.1% MoM (prev 0.7%), US PPI (Aug) exp 0.4% MoM and 1.3% YoY (prev 0.3% MoM, 0.8% YoY), US jobless claims exp 225k (prev 21k), ECB policy meeting exp 4.25% (prev 4.25%), Australia employment change exp 25k (prev -14.6k)   Adobe is scheduled to report Q3 results on Thursday after market close. Analysts' median forecast anticipates a 9.8% revenue increase and a 17% growth in adjusted EPS, reaching USD3.979. While Adobe has experienced steady revenue growth due to its shift to a cloud-based subscription model, recent trends indicate a plateau. Analysts remain skeptical about whether generative AI features in Adobe's content creation software will significantly contribute to growth.     In the news: EU launched an anti-subsidy investigation Wednesday against import of Chinese electric cars into the EU (Politico). Arm prices IPO at $51 per share, valuing company at over $54 billion (CNBC) Citigroup CEO shook up the management team (WSJ). For    

CNH: The battle for funding The offshore renminbi, the CNH, is starting to find some support and this largely looks down to developments in money markets. While the Chinese currency has been seen as a popular funding currency this year, it looks like Chinese authorities might be trying to intervene in money markets to make funding more expensive. For example, one-month CNH implied yields are now 5.20% – the highest level since late 2018. The strategy here seems to be activity in short-dated CNH swap markets on the view that CNH rates can be more easily influenced than onshore rates since the stock of CNH cash is so much smaller than the stock of onshore cash.  Equally, the People's Bank of China (PBoC) open market operations seem to be draining CNH liquidity. For example, the rollover of 6-month offshore PBoC bills on 19 September will result in a CNH10 billion drain in liquidity. PBoC activity to drain CNH liquidity and support the currency is clearly incongruous with broader monetary easing to support the economy. This means that USD/CNH will probably not sell off that much further. But the strategy looks one of buying time until the major dollar trend turns, which may occur in the fourth quarter of this year. Chris Turner    

AUD: labouring away The AUD has benefited so far this week from policymakers’ efforts in both Japan and China to resist further currency weakness. The AUD, acting as a proxy for the CNH for investors, has especially benefited from the PBoC’s strong stance against further CNY weakness. The real test for the AUD will come from today’s US CPI data, however. The currency would receive a double whammy from an upside surprise in US inflation: (1) a weakening due to higher UST yields; and (2) the concomitant decline in risk sentiment with higher UST yields. A further strong stance by the PBoC against more CNY weakness on the back of an upside surprise in US CPI data would further push investors into using the AUD as a proxy for CNY weakness. Australia releases its August labour market data on Thursday. This data is likely to be more of a background driver of the AUD. The RBA made clear last week it maintains a modest tightening bias and with the market pricing in about a one-in-three chance of another 25bp rate hike by the RBA this tightening cycle, the risks around the data are skewed to the upside for the AUD. Leading indicators for the labour market have softened, suggesting that Australia’s unemployment rate will continue to drift higher as employment growth slows.  

US and European equity futures markets trade higher with Asian markets also climbing on cautious optimism the Federal Reserve may decide to pause rate hikes after US core inflation advanced the least in two years. The dollar and Treasury yield both trade softer ahead of US retail sales with the euro ticking higher as traders' price in a two-third chance of a rate hike from the European Central Bank later today. Crude trades near a ten-month high on concerns about a supply shortfall, copper higher on yuan strength while gold prices have steadied following a two-day decline.   Equities: S&P 500 futures are holding up well against recent weakness trading around the 4,530 level despite yesterday’s higher-than-expected US inflation opening the door for the Fed to hike interest rates one more time in December. Arm IPO was priced at the top end of the range at $51 per share with trading set to being today. Adobe earnings after the US market close could be a key event for the AI-related cluster of stocks. FX: The US dollar wobbled on the CPI release but could not close the day higher with Treasury yields slipping. EUR in the spotlight today as ECB decision is due, and EURUSD has found support at 1.07 for now with a rate hike priced in with over 65% probability. USDJPY trades softer after government minister talked about the need for strong economic measures. Yuan strengthened further with authorities increasing bill sales in Hong Kong to soak up yuan liquidity making it more expensive to short the currency. Commodities: Brent holds above $92 and WTI near $90 after the IEA joined OPEC’s warnings of a supply shortfall in the coming months, thereby supporting a rally that started back in June when Saudi Arabia curbed supply to boost prices. Softening the rally was a weekly US stock report showing rising stocks and production near the 2020 record. Near-term the market looks overbought and in need of a pullback. Gold looking for support ahead of $1900 with a hawkish FOMC pause back on the agenda while copper trades firmer with a stronger yuan offsetting a rise in LME stocks to a two-year high Fixed income: The US yield curve bull-steepened yesterday despite higher-than-expected CPI numbers, indicating that the Federal Reserve might be approaching the end of the hiking cycle. Yet, long-term yields remained flat as the 30-year auction showed a drop in indirect demand and tailed by 1bps despite pricing at the highest yield since 2011. Overall, we remain cautious, favouring the front part of the yield curve over a long duration. Bonds will gain as the economy starts to show signs of deceleration. Still, larger coupon auction sizes and a hawkish BOJ will support long-term yields unless a tail event materializes. We still see 10-year yields rising further to test strong resistance at 4.5%. Today, the focus will be on the ECB, which markets expect to hike. Due to a recession in Germany and in Netherlands, we believe that the ECB will deliver a hawkish pause today, which might result in a short-lived bond rally.   Macro: US CPI surprised to the upside, but it did not alter the markets thinking around the Fed. Core CPI rose 0.3% MoM, or +0.278% unrounded, above the prior/expected +0.2%, with core YoY printing 4.3%, down from July's 4.7%, and in line with expectations. Headline print was in line with expectations at 0.6% MoM, up from +0.2% on account of energy price increases, with YoY lifting to 3.7% from 3.2%, above the expected 3.6%. The PBoC announced plans to issue RMB15 billion Central Bank Bills in Hong Kong on September 19, which is going to tighten CNH (offshore renminbi) liquidity further In the news: Asset managers BlackRock and Amundi are warning that US recession risks are rising – full story in the FT. Germany is facing big structural problems in its manufacturing sector with gloom taking over among workers – full story in the FT. The EU is weighing tariffs against China over flooding the market with cheap electric vehicles – full story on Reuters. Technical analysis: S&P 500. Key at resistance at 4,540. Key Support at 4,340. Nasdaq 100 15,561 is key resistance. EURUSD downtrend, support at 1.0685, Expect short-term bounce to 1.08. AUDJPY testing resistance at 95.00. Crude oil uptrend stretched, expect a correction lower Macro events: ECB Main Refinancing Rate exp. unchanged at 4.25% (1215 GMT), US Retail Sales (Aug) exp. 0.1% vs 0.7% prior (1230 GMT), US Initial Jobless Claims exp. 225k vs 216k prior (1230 GMT), US PPI (Aug) exp. 0.4% vs 0.3% prior (1230 GMT), Commodities events:  EIA’s Weekly Natural Gas Storage Change (1430 GMT) Earnings events: Adobe reports FY23 Q3 earnings (ending 31 August) after the US market close with analyst expecting revenue growth of 10% y/y and EPS of $3.98 up 63% y/y. Read our earnings preview here.    

US and European equity futures markets trade higher with Asian markets also climbing on cautious optimism the Federal Reserve may decide to pause rate hikes after US core inflation advanced the least in two years. The dollar and Treasury yield both trade softer ahead of US retail sales with the euro ticking higher as traders' price in a two-third chance of a rate hike from the European Central Bank later today. Crude trades near a ten-month high on concerns about a supply shortfall, copper higher on yuan strength while gold prices have steadied following a two-day decline.   Equities: S&P 500 futures are holding up well against recent weakness trading around the 4,530 level despite yesterday’s higher-than-expected US inflation opening the door for the Fed to hike interest rates one more time in December. Arm IPO was priced at the top end of the range at $51 per share with trading set to being today. Adobe earnings after the US market close could be a key event for the AI-related cluster of stocks. FX: The US dollar wobbled on the CPI release but could not close the day higher with Treasury yields slipping. EUR in the spotlight today as ECB decision is due, and EURUSD has found support at 1.07 for now with a rate hike priced in with over 65% probability. USDJPY trades softer after government minister talked about the need for strong economic measures. Yuan strengthened further with authorities increasing bill sales in Hong Kong to soak up yuan liquidity making it more expensive to short the currency. Commodities: Brent holds above $92 and WTI near $90 after the IEA joined OPEC’s warnings of a supply shortfall in the coming months, thereby supporting a rally that started back in June when Saudi Arabia curbed supply to boost prices. Softening the rally was a weekly US stock report showing rising stocks and production near the 2020 record. Near-term the market looks overbought and in need of a pullback. Gold looking for support ahead of $1900 with a hawkish FOMC pause back on the agenda while copper trades firmer with a stronger yuan offsetting a rise in LME stocks to a two-year high Fixed income: The US yield curve bull-steepened yesterday despite higher-than-expected CPI numbers, indicating that the Federal Reserve might be approaching the end of the hiking cycle. Yet, long-term yields remained flat as the 30-year auction showed a drop in indirect demand and tailed by 1bps despite pricing at the highest yield since 2011. Overall, we remain cautious, favouring the front part of the yield curve over a long duration. Bonds will gain as the economy starts to show signs of deceleration. Still, larger coupon auction sizes and a hawkish BOJ will support long-term yields unless a tail event materializes. We still see 10-year yields rising further to test strong resistance at 4.5%. Today, the focus will be on the ECB, which markets expect to hike. Due to a recession in Germany and in Netherlands, we believe that the ECB will deliver a hawkish pause today, which might result in a short-lived bond rally. Macro: US CPI surprised to the upside, but it did not alter the markets thinking around the Fed. Core CPI rose 0.3% MoM, or +0.278% unrounded, above the prior/expected +0.2%, with core YoY printing 4.3%, down from July's 4.7%, and in line with expectations. Headline print was in line with expectations at 0.6% MoM, up from +0.2% on account of energy price increases, with YoY lifting to 3.7% from 3.2%, above the expected 3.6%. The PBoC announced plans to issue RMB15 billion Central Bank Bills in Hong Kong on September 19, which is going to tighten CNH (offshore renminbi) liquidity further In the news: Asset managers BlackRock and Amundi are warning that US recession risks are rising – full story in the FT. Germany is facing big structural problems in its manufacturing sector with gloom taking over among workers – full story in the FT. The EU is weighing tariffs against China over flooding the market with cheap electric vehicles – full story on Reuters. Technical analysis: S&P 500. Key at resistance at 4,540. Key Support at 4,340. Nasdaq 100 15,561 is key resistance. EURUSD downtrend, support at 1.0685, Expect short-term bounce to 1.08. AUDJPY testing resistance at 95.00. Crude oil uptrend stretched, expect a correction lower Macro events: ECB Main Refinancing Rate exp. unchanged at 4.25% (1215 GMT), US Retail Sales (Aug) exp. 0.1% vs 0.7% prior (1230 GMT), US Initial Jobless Claims exp. 225k vs 216k prior (1230 GMT), US PPI (Aug) exp. 0.4% vs 0.3% prior (1230 GMT), Commodities events:  EIA’s Weekly Natural Gas Storage Change (1430 GMT) Earnings events: Adobe reports FY23 Q3 earnings (ending 31 August) after the US market close with analyst expecting revenue growth of 10% y/y and EPS of $3.98 up 63% y/y. Read our earnings preview here.  

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

China: Some spots of improvement in activity While the overall economic background remains a very challenged one, there were some more positive signs in the latest data deluge, though all things related to the property market continue to struggle.   No signs of panic from the PBoC The day of China's data deluge started quietly enough. The PBoC left the one-year medium-term lending facility (1Y MLF) unchanged. Given the problems they have been having propping up the CNY in recent weeks, and the fact that the day before, they had already reduced the reserve requirement, any cut to the MLF today would have seemed excessive and would have put the CNY under undue weakening pressure. That did not happen.  Shortly after that, new home price data were released. These fell again from the previous month and at a slightly faster pace. As we noted in the summary - amongst some brighter data on activity, anything real-estate related remains troubled.    Activity data either better, or better-than-expected When the bulk of data was released 30 minutes later, it was immediately apparent that this was on balance a more positive set of data than we have seen recently. Growth rates across a broad range of activity indices were slightly higher, and where they weren't, they tended to beat expectations. So for the most part, the data was either better, or better-then expected.    Summary of August's activity data   Retail sales actually rose Breaking the data down by component, the standout result was the 4.6%YoY rise in retail sales. This was up from only 2.5% in July, though the year-on-year, year-to-date (ytd) growth still slowed slightly. With the historical comparisons so messed up by lockdowns and re-openings, we prefer to look at our own seasonally adjusted real retail sales series. And this shows that sales actually picked up in real terms in August from July, and are now close to their long-run trend. That's both good and bad. Good as retail sales seems to have turned the corner. Bad, because this probably means growth will be more pedestrian from now on.   Real seasonally adjusted retail sales ING Calculations   Production also improved While it is also subject to the same caveats about year-on-year comparisons, the industrial production growth figures also edged slightly higher. We also got a slight decline in the surveyed jobless rate to 5.2%. This is not a terribly helpful or informative set of data, but the direction of travel is at least encouraging. As mentioned, anything real-estate related remained problematic. Property investment decreased at an 8.8%YoY pace, worse than the 8.5% decline in July, but not as bad as the market was expecting. And perhaps given the relationship between infrastructure spending and the property sector, it was not too surprising to see infrastructure spending growth slow slightly to 3.2% from 3.4%, though it is at least still growing.    CNY took advantage of the data After having been under weakening pressure for several weeks, the CNY rallied into this data, helped by another low PBoC reference rate which fixed at 7.1786, lower than the 7.1874 the previous day. Remarkably, our end-of-month, end-of-quarter forecast for CNY is no longer looking too bad at 7.25 with the CNY currently trading at 7.2597. Whether this will hold until the end of the month is another matter.      PBoC supporting the CNY

Equities closed higher with VIX at the 12 handle after ECB’s dovish rate hike and US economic data still being resilient. ARM IPO had a positive start although Adobe slid in post-market after reporting earnings. EURUSD broke below key support at 1.0635 but closed just above, while CAD and AUD outperformed. China’s RRR cut boosted oil further and could set a positive tone for today, but activity data and MLF announcement on watch ahead of Quad Witching option expiries in the US session.     US Equities In a broad-based rally, both the S&P500 and the Nasdaq 100 added 0.8% while small-cap stocks outperformed with a 1.4% gain in the Russell 2000 Index. Chip designer ARM soared 13.4% to USD63.59 on the first day of trading after the IPO. Moderna gained 3.9% after releasing a statement guiding higher revenue through 2028 on new drugs. Cruise liners and energy stocks were some of the top performers for the session. Adobe slid nearly 2% in extended-hour trading on a softer-than-anticipated AI boost to revenue outlook.   Fixed income Treasuries had a volatile session. The market was initially supported by the decline in yields across the pond in Europe following a 25bp ECB hike but signaling a pause in the statement. The hotter-than-expected US retail sales and PPI brought sellers back to the market. The Treasury announced USD13 billion 20-year bond and USD15 billion 10-year TIP auctions for next week. The 2-year yield climbed back above 5% to settle at 5.01%, up 4bps. The 10-year yield rose 4bps to 4.29%.   China/HK Equities The Hang Seng Index managed to close 0.2% higher, thanks to gains in coal miners and oil producers, while the CSI300 was flat in a choppy but subdued session. A surprise reduction in the Reserve Requirement Ratio (RRR) by the People's Bank of China (PBoC) after the market closed in the evening led to higher futures trading overnight and may set a more positive tone for today's trading.   FX The US dollar rose to fresh 6-month highs with EURUSD breaking below 1.07 and the May lows of 1.0635 after ECB’s dovish rate hike. A close below 1.0635 will  expose the 1.05 handle. GBPUSD also slumped to test the 1.24 handle. USDCNH rose slightly to 7.29 as PBoC cut RRR but AUDUSD attempted to break above 0.6450 after a hot labor report. CAD was the G10 outperformer as oil prices continued to surge, and EURCAD – as hinted in the FX Watch – slumped below 1.44.   Commodities Fresh highs in crude oil with WTI jumping over $90/barrel and Brent approaching $94. ECB signaling a pause, hot US economic data as well as China RRR cut supported the demand outlook while supply constraints linger. China’s activity data will be a key focus in the day ahead, and whether the RRR cut is followed by another MLF cut. Iron ore continued to climb higher breaking above $120, the highest in five months on the back of strong production from China steel mills with a seasonal pickup in construction. Meanwhile, uranium futures are surging higher driven by supply tensions as nuclear reactor capacity growth increases.   Macro: The ECB raised interest rates 25bp, taking the deposit rate to 4.0%, however the hike was dovish as it came with hints of the end of tightening cycle even though President Lagarde stayed short of saying that ECB is at peak rates. 2023 inflation was upgraded to 5.6% from 5.4%, 2024 (in-fitting with source reporting by Reuters) raised to 3.2% from 3.0% and 2025 lowered to 2.1% from 2.2%, but still ultimately seen just above target. Growth projections for 2023-25 were lowered across the board. The PBoC cut the reserve requirement ratio (RRR) by 25bps effective Friday, September 15, 2023, bringing the weighted average RRR across banks to 7.4% and increasing loanable funds by over RMB500 billion. There is RMB400 billion in medium-term lending facility loans maturing today. US retail sales for August came in firmer than expected although July’s print was revised lower. Headline up 0.6% MoM (exp 0.2%, prev 0.5%) as gasoline station sales surged to 5.2% from 0.1% in July. The control metric also posted a surprise gain of 0.1% despite expectations for a 0.1% decline, although the prior was revised down to 0.7% from 1.0%. US PPI meanwhile rose 0.7% MoM in August, above the expected and prior 0.4%, marking the largest increase since June 2022 and heavily driven by a 10.5% increase in the energy component. Weekly jobless claims rose to 220k from 217k, suggesting a still tight labor market.   Macro events Among the Chinese activity data scheduled for release today, the consensus forecasts a 3.9% increase in industrial production in August, up from 3.7% in July, reflecting stronger manufacturing PMI data. Retail sales are expected to grow by 3.0% Y/Y, boosted by auto sales and catering, surpassing July's 2.5%. While the front-loading of local government bond issuance in August would have supported infrastructure construction, a combination of a high base from the previous year and continued weakness in property construction may limit fixed asset investment growth for August. This likely contributed to the Bloomberg consensus projection of a year-to-date fixed asset investment slowdown to 3.3% Y/Y from 3.4%. Other key events scheduled include US industrial production (Aug) exp 0.1% MoM vs. 1.0% prev, UoM sentiment (Sep P) exp 69.0 vs. 69.5 prev.   Company events Adobe reported Q3 of USD4.89 billion, in line with street consensus and adjusted EPS of USD4.09 beating estimates slightly. Q4 profit guidance of USD4.10 to 4.15 per share surpassed consensus USD4.06 while sale guidance of USD4.98 billion to 5.03 billion was in line. The initial reaction was mild disappointment on the tepid sales outlook.  

China: People’s Bank of China (PBoC) injects more cash to support the weak economy Despite leaving the one-year medium-term lending facility (1Y MLF) at 2.5%, the PBoC injected a net CNY600bn (over and above amounts falling due) to help support stimulus spending, raising thoughts that perhaps they may also tap other policy tools such as required reserves in due course.   More funding will help activity to recover Ahead of the monthly deluge of activity data, the PBOC already provided markets with a positive surprise. Despite leaving the 1-year medium-term lending facility (1Y MLF) rate at 2.5%, the PBoC provided CNY1.45tr in funding, a net CNY600bn more than that which was falling due for rollover. The MLF is the conduit through which the PBoC lends funds to big commercial banks, who in turn, finance the rest of the economy. Short-term market interest rates have risen since September, as the CNY has weakened in the face of a stronger USD, and the PBOC has kept short-term funding costs high to deter CNY selling. However, this has also resulted in a bit of a liquidity squeeze, and it now looks as if the PBoC is looking to sidestep the unhelpful rate environment and alleviate liquidity issues by turning to volume lending instead.  In so doing, it raises thoughts that similar liquidity-enhancing policies, such as the rate of required reserves (RRR), might also be tapped in the coming weeks and months, as the government looks to support economic activity, without resorting to large direct fiscal stimulus measures, or to rate cuts, which could send the CNY weaker. The last cut in the RRR was back in September when the rate for banks was cut by 0.25%.    Activity data - mostly stronger except for anything property related The run of activity data again suggested further modest progress in China's recovery, though once again, there was a divergence between general activity, which moved forward, and anything property-related, which continued to flounder.  The year-on-year growth rate for retail sales moved from 5.5% to 7.6% YoY, and well above the 7.0% rate expected. But year-to-date year-on-year measures, which may be less whipped around by last-year's pandemic-related distortions, showed a smaller improvement from 6.8% to 6.9%.  Industrial production also showed gains, rising to 4.6%YoY (from 4.5%) and 4.1% YoY ytd (from 4.0%).  There was less good news for fixed asset investments, which slowed to 2.9% YoY ytd, from 3.1%. And property investment declined at a faster pace of 9.3% (from -9.1%) while residential property sales also fell slightly faster (-3.7% down from -3.2%).  The surveyed unemployment rate remained 5.0%, though we don't know what is happening to youth unemployment since the figures stopped being published. It most likely remains extremely high.    The economy is still struggling Taking all of the data together, the general sense is that things are moving slowly in a more positive direction, but that the economy still needs the liquidity support that the PBoC seems to be starting to provide, and the slightly more helpful fiscal stance that the central government is taking. We don't expect the external environment to improve meaningfully.  The US may be weathering high interest rates for now, but we suspect that won't last. And Europe is skirting recession, with little prospect of an upturn.  Moreover, while the property sector continues to struggle, which we expect will be the case for some considerable time, the spillover effects to the rest of the economy are likely to keep overall growth rates tepid. The government's 5.0% GDP growth target is not under threat any more. But it was always a very unambitious target.   

We remain in the midst of a rather quiet period of macroeconomic news out of New Zealand, with no tier-1 reports out yet in 2024. The New Zealand dollar instead continues to trade on global risk sentiment and news out of China. The PBoC’s surprise decision to hold its 1-year MLF rate unchanged today has triggered a bout of selling in both AUD and NZD this morning, with the New Zealand dollar slipping to its lowest level since mid-December amid fears over the health of Asia’s largest economy. Domestic activity should begin to pick up pace in the next few weeks, with a handful of economic data releases likely to ramp up volatility in the New Zealand currency. Q4 business confidence (Monday) and the December PMIs (Thursday) will be closely watched by investors. Market participants will also likely have one eye on next Tuesday’s Q4 inflation report, which will be key in determining the direction and timing of RBNZ interest rate changes in the coming few months.

The Chinese yuan remained under pressure last week and ended it slightly lower against the broadly stronger US dollar. Data confirmed that China experienced the longest deflationary period since 2009, registering three months of declining consumer prices in a row. In December, the CPI index fell by 0.3%. The fact that this was a smaller decline than the month previous (-0.5%), and slightly more limited than expected (-0.4%), has not allayed concerns about domestic demand. Most other releases, including PPI inflation and financial data, also failed to provide optimism, although trade activity did, at least, pick up at the end of the year. Amid concerns about the economy's weak performance, the PBoC injected CNY 216 billion in fresh medium-term funds into the banking system today, but contrary to expectations it did not lower the 1-year MLF rate. Looking ahead, attention will be on the year-end data package to be released on Wednesday. GDP growth is particularly worth watching, as it could set the tone for sentiment toward China in 2024.  

Asia Morning Bites The PBoC announced a larger-then-expected required reserve rate (RRR) reduction late Wednesday. South Korea reported stronger-than-expected GDP numbers today.   Global Macro and Markets Global markets:  The upcoming cut in China’s reserve requirement ratio (RRR) gave Chinese markets some much-needed support. USDCNY has dropped back to 7.1580 and the Hang Seng index rose 3.56% while the CSI 300 gained 1.4%. US stocks were more muted, and the S&P 500 was virtually unchanged despite opening higher - flagging in the latter part of the session. The NASDAQ eked out a 0.36% gain. US Treasury yields rose yesterday, despite the lack of much macro news as the 5Y auction tailed badly. 2Y yields rose 5bp to 4.38% and the 10Y rose a similar amount to 4.176% as the March rate cut hypothesis got priced out further. There is still a bit more room for this to run, according to our rates strategists, though the March cut is now only 36.4% priced in. A US refunding announcement on Monday could also push yields up a bit more. EURUSD rose back up to 1.0883 despite the moves in bond yields. The AUD rose strongly yesterday, pushing above 0.6620 but couldn’t hold on to its gains and dropped back to 0.6577. Cable did better and is up to 1.2719 now, and the JPY has also held on to most of yesterday’s gains and is down to 147.55. In the rest of Asia, the SGD and KRW were both boosted by the CNY moves, though the IDR lost almost half a per cent, rising to 15710. Moves elsewhere were modest. G-7 macro:  The G-7 calendar is a lot more exciting today after a very quiet day yesterday. The ECB is meeting, and while they will not cut rates today, the press conference will as ever be scrutinised for hints as to the timing of the first cut. Later on, the US releases its advance estimate for 4Q23 GDP, which, on an annualized basis is expected to slow from 4.9% in 3Q23 to 2.0%. Weekly jobless claims round off the day’s macro releases. China: The PBOC announced that it will cut the Required Reserve rate (RRR) by 50bp from Feb 5, after which the RRR for large institutions will drop from 10.5% to 10%, and the weighted average RRR will drop from 7.4% to around 7%. The 50bp RRR cut was larger than the 25bp cuts that the PBOC elected for in 2022-2023, and was the largest RRR cut since Dec 2021. The RRR cut will in theory provide around RMB 1tn of liquidity to markets. Furthermore, the PBOC also broadened access for property developers to commercial loans by allowing for bank loans pledged against developers’ commercial properties to be used to repay other loans and bonds until the end of the year. It also cut the refinancing and rediscount rates for rural and micro-loans by 0.25 ppt to 1.75%. We expect a relatively limited positive impact on the economy from the RRR cut and supplementary measures. There remains a question of whether there is sufficient high-quality loan demand to fully benefit from this theoretical liquidity injection; we saw that new RMB loans were down -10.6%YoY in 4Q23 despite the previous RRR cut in September 2023. With that said the size and timing of the RRR cut will contribute toward market stabilisation efforts. Overall, the announced RRR cut was mostly in line with our expectations, although the size of the cut surprised on the upside, and the timing of the announcement was a little unexpected given the PBOC left interest rates unchanged in January. Moving forward, we see room for an interest rate cut to come in the next few months as well. The base case is for a conservative 10bp rate cut, but the larger-than-expected RRR cut does flag a possibility for a slightly larger rate cut as well.  South Korea: Korea’s GDP expanded 0.6% QoQ sa in 4Q23 (vs 0.6% in 3Q23, market consensus). 4Q23 GDP was somewhat higher than the monthly activity data had suggested. The difference mainly came from a gain in private consumption (0.2%). According to the BoK, residents overseas spending increased, more than offsetting the decline in domestic goods consumption. Other expenditure items mostly met expectations. Exports (2.6%) grew solidly thanks to strong global demand for semiconductors, while construction – both residential and civil engineering- plunged (-4.2%), dragging down overall growth.  We expect the trend of improving exports vs softening domestic demand to continue at least for the first half of the year. In a separate report, BoK’s business survey outcomes support our view. Manufacturing outlook improved for a third month (71 in January vs 69 in December) while non-manufacturing stayed flat at 68.   The GDP path will vary depending on how well global semiconductor demand will be maintained and how well Korea’s construction soft-landing will go. We expect exports to improve further at least for the first half of the year. Yet, GDP in the first and second quarters is expected to decelerate (0.4% and 0.3% QoQ sa respectively) from last quarter as sluggish domestic demand weighs more on overall growth.  Today’s outcomes will give the Bank of Korea some breathing room to maintain its current hawkish stance. We pencilled in one rate cut in May, under the assumption of a slowdown of GDP and inflation in 1Q24, but if the construction sector restructuring carries out more smoothly, then the BoK’s first rate cut may come in early 3Q24.   What to look out for: South Korea GDP South Korea GDP (25 January) Japan department store sales (25 January) ECB policy meeting (25 January) US GDP, durable goods orders, initial jobless claims, new home sales (25 January) Japan Tokyo CPI inflation (26 January) Philippines trade (26 January) Singapore industrial production (26 January) US PCE deflator, pending home sales and personal spending (26 January)

WTI crude oil has started to evolve into a short-term uptrend phase reinforced by the recent liquidity infusion by China’s central bank, PBoC upcoming 50 bps cut on the RRR. The current 5-day rally of WTI crude oil has reached a key medium-term resistance zone of US$79.00/79.40 with a short-term overbought condition. At the risk of a minor mean reversion decline with intermediate supports at US$75.30 and US$74.80. This is a follow-up analysis of our prior report, “WTI Oil Technical: Sideways within a potential minor bottoming configuration” published on 16 January 2024. Click here for a recap. Benchmark oil prices have bottomed and traded higher since the start of this week as the West Texas Oil (a proxy of WTI crude oil futures) had rallied by +4.9% week-to-date at this time of the writing, its best weekly gain since the 9 October 2023. On top of the rising geopolitical risk premium that is supporting firmer oil prices from the ongoing tensions in the Middle East region and Red Sea shipping route, the additional liquidity infusion from China’s central bank (PBoC) with an upcoming 50 bps cut on commercial banks’ reserve requirement ratio has also triggered an indirect “demand-pull” catalyst on oil prices. CTA funds may have contributed to the current bullish momentum frenzy All in all, these factors have created short-term reflexive positive feedback into the oil market reinforced by possible speculative CTA funds that run on momentum-driven models that piled into oil futures with a bullish bias. The price actions of the benchmark Brent and WTI crude oil have pierced above their respective 50-day moving averages on Monday, 22 January and have capped their prices previously since late October 2023; positive momentum begets positive momentum. At the risk of a minor mean reversion decline below US$78.40 Fig 1:  West Texas Oil medium-term trend as of 26 Jan 2024 (Source: TradingView, click to enlarge chart)   Fig 2:  West Texas Oil minor short-term trend as of 26 Jan 2024 (Source: TradingView, click to enlarge chart) In the lens of technical analysis, the recent push-up of West Texas Oil since the start of this week has led its hourly RSI momentum indicator to hover close to an extremely overbought level of around 74 in place since 12 January 2024. This current overbought condition has also taken form as its price action is now coming close to a key medium-term resistance zone of US$78.00/78.40 (upper boundary of the minor ascending channel from 17 January 2024 low & close to the key 200-day moving average). Therefore, the odds have increased for a potential minor mean reversion decline to retrace a portion of the ongoing short-term uptrend phase with the next intermediate supports coming in at US$75.75/75.30 and US$74.80. On the flip side, clearance above the US$78.40 pivotal resistance invalidates the mean reversion decline scenario for a continuation of the bullish trend towards the next intermediate resistance at US$79.75 in the first step.