production

After starting the week with sharp losses, the Japanese yen has settled down. In the European session, USD/JPY is showing limited movement, trading at 138.66. Japanese data improves Japan posted solid numbers today, as retail sales and industrial production both improved in July. Retail sales climbed 2.4% YoY in July, (vs 1.5% in June), above the forecast of 1.9%. Significantly, household spending stayed strong, despite high inflation due to rising energy and food prices. Industrial production surprised with a gain of 1.0% MoM (vs. -0.5% forecast), after a huge 9.2% gain in June. Two straight months of gains point to strong pent-up demand and an easing in supply line disruptions. As well, the consumer confidence index rose to 32.5 in August (vs. 31.0) up from 30.2 in July. Consumer confidence remains weak, but the index improving for the first time in three months is welcome news. The host of positive numbers is an indication that the Japanese economy, although fragile, continues to recover, in large part due to pent-up demand following the easing of Covid restrictions. Still, the economy has a long way to go before the Bank of Japan will join its counterparts and tighten policy. The BoJ is primarily focused on stimulating the economy, and inflation remains much, much lower than what we’re seeing elsewhere. With the BoJ vigilantly maintaining its yield control, the Japanese yen remains at the mercy of the US/Japan rate differential, and higher US yields of late have pushed USD/JPY close to the 139 level. We could see the yen fall to 140 in the short-term, with no indication that Japan’s Ministry of Finance has any appetite to intervene and support the yen. Later today, the US releases the ADP Employment report. The market consensus for August stands at 288 thousand, which would be a strong improvement from the July gain of 128 thousand. This event could cause some brief volatility in the dollar, but it is not a reliable indicator for Friday’s non-farm employment report. In fact, NFP is expected to fall to 300 thousand, down from July’s massive gain of 528 thousand. . USD/JPY Technical USD/JPY is testing support at 1.3822. The next support line is at 137.01 1.3891 and 1.4012 are resistance lines 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.

China is making up for its situation with overdue reports. Today, the market is mainly focused on PMI results from various sectors and various countries. Positive results from China From 3:30 a.m. CET to 4:00 a.m. CET, China released a ton of reports. Most of them show positive results. The results for exports are positive, with Chinese esports falling from 18.0% in August to 7.1%. This was a drastic decline and it also fell to 5.7%, but was higher than expected (4.1%). The trading result was also high despite a 0.3% rise in Imports. The balance rose from 79.39B to 84.74B. Because imports continued and exports were higher than expected. Such significant growth is good for the Chinese economy. The growth of the economy confirms the positive result of GDP for the third quarter (Q3). The core GDP increased from 0.4% to 3.9%, and the quarterly (QoQ) from a negative level of -2.7% to 3.9%. The production sector has also grown significantly. The current reading of the unit is at the level of 6.3%. Which means that this sector has grown once again. One of the negative signals from the Chinese economy is the unemployment rate. It was expected to fall by 0.1% but increased from 5.3% to 5.5%. French PMI The readings from France were not that positive. The Purchasing Managers Index for the manufacturing sector turned out to be positive. The indicator recorded a slight increase by 0.3%. The current reading is at 47.4 against the forecast 47.1. There has been a decline in the serivices sector. True, the decline was expected, but the current result has not met expectations. Currently, the Services PMI for France is 51.3. It fell from 52.9 and the projected decline was at 51.5. European PMI’s For the European Union region, PMI indicators fell. Services PMI fell as expected to 48.2 against previous reading at 48.8. This is a slight decrease, but has an impact on the currency position. Meanwhile, the Manufacturing PMI index dropped significantly from the level of 48.4 to the level of 46.6. Given the current situation in the euro zone, declines were expected. German PMI For the same sectors as Europe and France, Germany published its PMI. Contrary to France, Services PMI was positive, ie higher than expected (44.7) and reached the level of 44.9. The Manufacturing Purchasing Managers Index for Germany dropped significantly from 47.8 to 45.7. In both cases, these were declines as expected. The difference is that at some point it was higher than expected. UK PMI The United Kingdom, like the rest of the old continent, has published reports on the Services and Manufacturing Purchasing Managers Index. Both readings were lower than expected. Similarly to the above-mentioned regions (Germany, France, EU), declines were forecast. In the UK, Services PMI dropped from 50.0 to 47.5 and manufacturing from 48.4 to 46.6. Today's readings show a significant deterioration in these sectors, which negatively affects the exchange rate of the British currency (GBP). USA PMI America, like countries on the old continent, will publish PMI reports in the afternoon (15:45 CET). The US also expects a decline, but less significant. For Services PMI it is expected to drop from 49.3 to 49.2. A drop of 0.1 will not significantly affect the appearance of the currency and the sector. In contrast, the manufacturing sector is expected to drop by 1.0. The last reading of the indicator was at 52.0. Speeches Two important speeches are scheduled for today. The first one will take place at 16:15 CET. David Ramsden, member of the Bank of England, will speak. In the present situation of the UK, his speech can give concrete indications on the way forward in the field of motor policy. The next and last speech of the dishes will be from the American overseas. Treasury Secretary Janet L. Yellen is set to speak at 17:00 CET. She speaks frequently on a broad range of subjects and her speeches are often used to signal administration policy shifts to the public and to foreign governments. Summary: From the above information, we can conclude that the situation is generally very unfavorable. And the European Union and the United Kingdom may face a severe recession. Other regions of the world, despite the deteriorating situation, are doing much better than the countries of the old continent. 3:51 CET Chinese Exports 3:52 CET Chinese Imports 3:53 CET Chinese Trade Balance 4:00 CET Chinese GDP 4:00 CET Chinese Unemployment Rate 9:15 CET France Services And Manufacturing Purchasing Managers Index 9:30 CET German Services and Manufacturing PMI 10:00 CET European Services and Manufacturing PMI 10:30 CET UK Services and Manufacturing PMI 15:45 CET U.S. Services And Manufacturing PMI 16:15 CET MPC Member Ramsden Speaks 17:00 CET U.S. Treasury Secretary Yellen Speaks Source: https://www.investing.com/economic-calendar/

Construction labour productivity has fallen over the past 25 years, which has made the construction sector relatively more expensive than manufacturing. Labour shortages remain high as a result   More than 40% of EU construction firms said they would raise their prices in November 2022, according to a European Commission survey. Higher material prices are mostly to blame for this. Other business sectors are also grappling with higher purchase prices. Yet, construction firms now report charging higher prices more often than the manufacturing sector. This is also reflected in their production prices. In recent years, these price increases in EU construction have averaged above those in manufacturing. From 2012 to 2020, the average price increase of production (value-added share) in European construction was 2.3% per year compared to 1.0% in manufacturing. In the preceding period (2002-11), the price difference was even greater. Although these might seem like small differences, EU construction sector prices have almost doubled from 1995 to 2020, while those in manufacturing have increased by less than 20%. This has made construction significantly more expensive than manufacturing. The construction sector is becoming more expensive Average price change of the added value per year in the EU Source: Eurostat, ING Research   So why do construction firms raise – or have to raise – prices more often than their counterparts in manufacturing? We have to look at the cause of the productivity differences between these two sectors. Decline in construction labour productivity Construction labour productivity lags considerably behind manufacturing. It has almost doubled in manufacturing over the past 25 years, meaning that a manufacturing worker can now produce twice as much in the same number of hours. Growing efficiency means that the manufacturing industry is producing increasingly more in each working hour, often resulting in products becoming cheaper. Consider electronics, for example, which saw prices actually fall for a long time (until supply chain problems caused by the Covid-19 pandemic). By contrast, construction labour productivity increased by "only" 20% in the same period. Efficiency has thus increased much less in construction than in manufacturing. Because manufacturing firms have made far greater efficiency gains than building contractors, they were also able to pass on fewer price increases. Construction labour productivity lags behind Labour productivity of the added value in volume per hour worked in the EU, 1995-2021 (index 1995=100) Source: Eurostat, ING Research If labour productivity was 20% higher, 2.5 million fewer construction workers would be needed in the EU Low labour productivity growth not only affects prices but also causes construction personnel shortages in many countries. By November 2022, more than 30% of EU building contractors could not complete all their work because of personnel shortages. This causes issues such as undermining the huge task of making real estate more sustainable. Nearly 14 million people work in construction in the EU. Additional productivity growth of 20%, for instance, could reduce the demand for additional construction workers in the EU by more than 2.5 million. Productivity isn’t everything, but in the long run it is almost everything (Paul Krugman)   Productivity lags in Spain, France and AustriaConstruction productivity trends vary widely across the EU. In France and Austria, labour productivity has fallen by more than 15% since 1995. In Spain, meanwhile, this figure has dropped by more than 25%. Declining construction output in these countries is the main reason for this trend. A drop in business turnover volume is usually not a fertile breeding ground for productivity. Contraction often creates overcapacity, meaning workers can be assigned less productively. Contraction and overcapacity also causes companies to invest less in new – and more efficient – machinery. In addition, the money is often not available for it and, because of the overcapacity, there is no need for it. Economies of scale also diminish with contraction. Relatively high productivity growth in Belgian and Dutch constructionLabour productivity has not fallen in all countries. In fact, it has increased by around 20% in Belgium and the Netherlands. Construction output has increased in these countries, while investments in industrialisation and digitalisation are yielding positive results. Both countries also lead the way in digitalising the construction process. Highest construction sector labour productivity growth in Belgium and the Netherlands Construction labour productivity development, index 1995=100 Source: Eurostat, ING Research Capital productivity also falls behind in construction Another less common way of looking at efficiency trends is through capital productivity instead of labour productivity. This shows the extent to which a sector uses capital efficiently: how much is produced per unit of capital (in value of machines, robots, business premises, ICT and so on). Capital investment in construction did not yield a return for a long timeFrom 1995 to 2015, capital productivity in construction fell sharply in many countries. So, although construction firms invested in all kinds of capital assets, these could not be used efficiently. Investments in ICT, in particular, increased significantly in construction in many countries during that period. But construction firms have so far not managed to increase efficiency in this way. Since 2015, capital productivity in construction has risen slightly in the Netherlands and Austria, while it has remained relatively stable in Germany over the past 25 years. Despite a decline in German construction output, German construction firms also divested, keeping the output per unit of capital relatively stable. Construction capital productivity falls in most countries Construction sector capital productivity trends, index 2015=100 Source: Eurostat, ING Research Need for flexibility makes innovation difficult It is not that construction firms are wilfully opposed to innovation and increasing productivity. The culture of the sector is often cited as a cause: it is described as traditional and averse to new ideas. But the market structure of construction plays a more important role. This comes down to the following factors: Production is tied to specific locations: A construction firm works at a different location each time. Because production is tied to the location (construction site), the construction process is more difficult to industrialise (than in a factory building). Heavy machinery is difficult to move, conditions differ at every location and regulations vary from country to country. Flexibility is thus important, and construction firms retain this flexibility by doing a lot of work manually. This also means that few construction firms operate in other countries, so foreign construction innovations are also less readily implemented in other countries. Often building to someone else’s plan: The building design is often created by architects (although this practice is decreasing) and then outsourced with specifications and drawings. Construction firms, therefore, have to build something else each time and have to comply with regulations and requirements that often differ from one municipality to the next. Imagine this happening in the automotive industry, with every buyer having their dream car built based on their design drawings. Industrialisation would hardly be possible in those circumstances. This also promotes "beginner’s mistakes" (failure costs), does not encourage industrialisation of the construction process, and results in scant investment in machinery (which can often perform only one type of task). Volatile construction market: Because of the volatile demand for new construction, construction firms must remain flexible. Investments in production resources drive up fixed costs. In times of crisis, this can prove ruinous. Because construction is so localised, it is almost impossible to spread risks internationally, with a resurgence in one market counterbalancing a crisis in another. Lastly, construction companies cannot produce stock and cushion temporary shocks in demand by allowing stock to increase or decrease. Need for flexibility makes innovation difficult Source: ING Research Productivity trends in construction subsectors Within construction, labour productivity trends vary considerably between subsectors. Unfortunately, subsector data are not available for many EU countries. To gain some insight here, we use the case of the Netherlands where the data to calculate the productivity trend of the various subsectors are available. High labour productivity growth in the residential and non-residential sectorThe Dutch residential and non-residential sector has experienced much higher labour productivity growth over the past 25 years than other Dutch construction subsectors. Dutch builders such as Dijkstra Draisma, Daiwa House Modular Europe, Heijmans, Plegt-Vos and Van Wijnen are aiming to industrialise the construction process. This is paying off; labour productivity grew much faster in this Dutch subsector, by more than 40%, from 1995 to 2021. New residential and commercial building projects are also well-suited to industrialisation because this construction process can be standardised relatively well. Average productivity growth in specialised constructionProductivity growth in Dutch specialised construction is almost the same as that in overall construction. Many of these construction processes are also difficult to industrialise. Customisation is often needed, especially for renovation and maintenance. However, digitalising can streamline business processes. Productivity in the infrastructure sector has fallenLabour productivity in the Dutch infrastructure sector has fallen in recent decades. First, this is because the sector contracted from 1995 to 2021. In 2021, 10% less was produced in this subsector than in 1995. As we mentioned above, contraction is usually not a fertile breeding ground for productivity growth. Second, infrastructure projects are also often more difficult to industrialise anyway because they involve a great deal of customisation, although, as in specialised construction, digitalising can certainly help. Productivity gains among suppliers are also limitedIt is often said that it is mainly suppliers that bring out product and process innovation, and thus efficiency in construction. This would then benefit the entire construction chain. However, if we look at the labour productivity of some key Dutch supply sectors, it is also relatively low. Productivity growth higher in residential and non-residential construction Labour productivity development in construction subsectors and various supply sectors (2021 vs 1995) Source: Dutch Central Statistical Office, ING Research Digitalisation, industrialisation and timber construction can increase productivity Despite the aforementioned obstacles, there are still ways for construction firms to increase their productivity, at least to some degree. This can be achieved through industrialisation, which mainly involves machines and/or robots. More efficient construction can also be achieved by using timber. Timber is not only much more sustainable but also a good industrial product to work with because it is much lighter. This means that large, prefabricated timber elements are easier to transport, can be processed with a greater degree of precision and are easier to attach. The lower weight also reduces the need for heavy machinery. The other way to increase productivity is digitalising the construction process, with digital tools streamlining the construction process and making it more efficient. For example, providing information to all departments and chain partners can be greatly improved through digitalisation. Mistakes are also more likely to be avoided as a result. Managing separate information flows to colleagues and subcontractors can be automated with digitalisation so that all parties involved are constantly and automatically informed of the latest adjustments (SSOT: Single Source of Truth). More efficient construction is essential for every firm Efficiency gains are key to coping with personnel shortages, ensuring that your prices do not have to rise (too much) and keeping your business competitive. Further digitalisation is essential in this regard. Barriers to digitalisation, such as initial investments and risks, are relatively limited. While industrialisation must certainly also be considered, it is wise to proceed with caution because of the initial high investments (plant, machinery and robots). Construction firms that do not ensure they become more efficient will find themselves fishing in an increasingly small pond. They will also fail to make the move to a more sustainable and carbon-neutral business model. Read this article on THINK TagsProduction Construction 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

Asia week ahead: BoJ meeting plus retail sales from China The Bank of Japan meets next week but don’t expect any changes. China has a raft of data but we’ll be particularly focused on retail sales.   BoJ policy meeting but don't expect any changes at this meeting We have changed our view on the Bank of Japan’s policy in the near term based on Governor Kazuo Ueda’s recent dovish comments. We expect the BoJ to keep all its current policy settings unchanged at its policy meeting next week. Likewise, a potential tweak in the BoJ’s yield curve control policy is not likely to happen this month. However, should inflation remain at current levels in the second half of the year, we could still see a possible adjustment in the YCC policy over the next few months.   Retail sales in China to be in focus China will release the usual raft of data on economic activity for May. This will include industrial production, fixed asset investment, construction, and retail sales. Of these, most attention will probably be on the retail sales number, as consumer spending is what is keeping the economy afloat while production and construction both struggle amidst a tough global trade environment.   But the news on retail sales will probably not be very encouraging. We anticipate a 13.8% year-on-year increase in retail sales, which only looks this strong due to a very weak base comparison period, and is equivalent to around a 1% month-on-month decrease in sales adjusted for seasonality. Residential construction is likely to remain depressed, as is production.

Hungary's retail sales and industrial output continue to plunge With domestic demand severely constrained, both the retail sector and Hungarian industry are struggling, and we don’t see a path for a swift recovery.   There is nothing surprising in the latest data release from the Hungarian Central Statistical Office (HCSO). As we predicted in our latest Monitoring Hungary report, the drop in real wages has been constraining both household consumption and domestic demand towards goods. Now the latest economic activity figures for May confirm this, as the volume of retail sales dropped by 12.3% year-on-year (YoY), while industry registered a 4.6% YoY plunge in the volume of production (both working-day adjusted data). As both sectors continue to struggle with weak domestic demand, the fate of GDP growth in the second quarter hinges vastly on the outperformance of agriculture.   Industry continues to face opposing forces    

  Tesla Q2 23 – 19/07 – when Tesla reported back in April the share slipped back after missing on revenues and profits, along with a miss on total gross margins, before finding a base at $150 for another move higher. Like he did in Q1 CEO Elon Musk has continued to tweak prices up and down in response to market forces, with the result that Tesla was able to deliver another record quarter of deliveries in Q2 of 466k, as well as producing 479k cars. Nonetheless the fall in gross margins to 19.3% in Q1 was still a big fall from a year before, which Tesla blamed on higher raw material, commodity, logistical and warranty costs. Tesla also mentioned the cost of ramping up production of 4680 cells. During the last quarter Tesla shares went on a record run of 13 successive days of gains, helped by reports that many of its peers like Ford, GM, Volkswagen and Mercedes would adopt its US charging standard. Tesla's full year production guidance was kept unchanged at 1.8m vehicles.     

The Japanese yen continues to slide and is down 1.41% this week. In Tuesday’s European session, USD/JPY is trading at 143.16, up 0.64%.   Dollar/yen powers above 143 The yen continues to lose ground against the US dollar. Earlier in the day, the yen weakened to 143.18, its weakest level against the US dollar since July 7th. The yen has plunged 370 basis points since Friday when the Bank of Japan stunned the markets and tweaked its yield control (YCC) policy. The Bank of Japan has loosened its YCC and this has sent the yen sharply lower. The BoJ had set a rigid cap of 0.50% yields on 10-year government bonds but has turned that cap into a yardstick, saying it would offer to purchase JGBs at 1%. The 10-year yield rose has risen to a multi-year high of 0.61% and there is a strong possibility of the yield continuing to rise. The BoJ has been an outlier of central banks, sticking to its policy of negative rates. True, inflation in Japan is much lower than in other developed economies, but there is growing criticism that this policy is outdated and the central bank needs to take further steps toward normalization. Governor Ueda stressed on Friday that the YCC tweak was not a move towards normalization and we’re unlikely to see any tightening from the BoJ unless inflation moves significantly higher.   In the US, ISM Manufacturing PMI is today’s key release. The manufacturing sector remains in the doldrums and has been in decline since October, with readings below the 50.0 level. Demand has been weak and production has been declining due to the lack of orders. In June, the Manufacturing PMI slipped to 46.0, the lowest level since May 2020. Another decline is expected for July, with a consensus estimate of 46.8 points. . USD/JPY Technical USD/JPY has pushed above resistance at 142.63. Above, there is resistance at 144.09 There is support at 141.47 and 140.35  

Metals – Peru copper output rises Peru’s latest official numbers show that copper output in the nation rose almost 22% year-on-year (+3% month-on-month) for a fourth straight month to 241.8kt in June. It is reported that output gains from mines like Anglo American’s new Quellaveco mine, with output standing at 28.3kt, and MMG's Las Bambas mine, with a production of 26.6kt, contributed to Peru’s overall copper production growth in June. Cumulatively, copper production grew by 17.6% YoY to 1.32mt over the first half of the year. Amongst other metals, zinc production in the nation rose by 31.5% YoY to 134.8kt in June. Meanwhile, the latest LME COTR report shows that net bullish positions for copper increased by 2,248 lots (after two consecutive weeks of decline) to 53,996 lots as of last Friday. Among other metals, speculators increased their net long positions in zinc by 4,524 lots for a sixth consecutive week to 37,548 lots in the week ending 4 August. In contrast, speculators decreased their net long positions in aluminium by 790 lots to 100,7333 lots as of last Friday.

Agriculture – UNICA reports higher cane crush The latest fortnightly report from UNICA shows that sugar cane crushing in Centre-South Brazil rose to 53mt, up 7.8% year-on-year in the second half of July. The cumulative sugar cane crush for the season increased by 9.7% YoY to 311.3mt. Sugar production rose 11.3% YoY to 3.7mt in 2H July, with 50.7% of cane allocated to sugar production in the fortnight, higher than the 47.7% allocated in the same period last year. Cumulative sugar output so far this season stands at 19.2mt, up 19.8% YoY. Meanwhile, in its quarterly report, the International Sugar Organization said that the global sugar market is expected to witness a deficit of 2.12mt in 2023/24 primarily due to lower output in major producing regions. Global production for the season is expected to reach 174.8mt, lower than the 177mt reported in 2022/23. Meanwhile, global sugar consumption is seen at 176.98mt, however, higher prices may prove to be a drag on consumption. Ukraine's Ministry of Agriculture revised domestic grain output to 56.4mt for the year, up from a previous expectation of 46mt. The above estimates include 28mt of corn (up 1.4% YoY) and about 21mt of wheat (in line with the last year’s harvest). The harvest estimates have increased despite lower sowing areas as favourable weather conditions have helped.

Metals – Iron ore rallies ahead of China building season Iron ore witnessed a fifth straight session of gains yesterday with prices reaching intra-day highs of US$113.9/t (highest in almost a month) on better demand prospects from the Chinese steel industry. Rising speculation that steel mills in China will ramp up production ahead of the seasonal pick-up in construction activity (September-October) is supporting the market. Falling iron ore port inventories in China, which are currently hovering at their lowest levels since the end of August 2020, might also encourage domestic mills to start restocking. Recent data from the China Iron and Steel Association (CISA) shows that steel inventories at major Chinese steel mills rose to 16.6mt in mid-August, up 3.6% compared to early August. Crude steel production at major mills rose 2.9% from early August to 2.22mt/d in mid-August.

Italian business confidence falls in August The deterioration in confidence is more marked in industry and construction, but services are not immune either. Consumers remain relatively upbeat, possibly helped by a resilient labour market. This all points to a stagnating economic environment.   Consumers remain relatively upbeat Consumer confidence only slightly edged down to 106.5 in August (from 106.7 in July). The deterioration in the perception of the current and future economic climate contrasts with the improvement in personal circumstances. We believe this has to do with the combination of declining inflation and a very resilient labour market. Indeed, the unemployment expectation component of the survey slowed down on the month. When matching this with an increase in the current opportunity to save sub-index, we sense that a possible stabilisation in the savings ratio might be in the making, limiting the scope for a strong pick-up in private consumption, at least in the short term.   Manufacturing confidence softens further On the business front, confidence unsurprisingly declined again among manufacturers to 97.8 (from 99.1 in July), the lowest level since January 2021. Here, softer orders coupled with a stable inventory component resulted in a decline in the production expectation component. Softer demand in key export destination countries such as Germany and, to a smaller extent, China, is apparently taking its toll, with the domestic component unable to compensate. Interestingly, the investment goods segment seems less affected, suggesting that some demand linked to the implementation of the Recovery and Resilience Facility might still be in place.   Construction confidence fall suggests that the effect of tax incentives is fading The six-point decline in the construction confidence index to 160.2 (from 166.5 in July) sends a warning signal. While the index remains close to its historical highs, the push coming from the residential component is gradually fading as generous tax incentives come to an end. While the existing backlog of orders related to incentives looks set to keep the sector afloat into year-end, the exceptionally high contribution of construction investment to GDP growth looks set to vanish in 2024.   Services only marginally down, with tourism relatively weak Confidence in market services fell to 103.6 in August, from 105.5 the previous month. The decline affected all big aggregates, except information and communication. Interestingly, it also affects tourism services, where an improvement in the current affairs component contrasts with declining order expectations. This broadly fits with other evidence available pointing to a good summer tourism season.      Modest GDP growth in the second quarter still possible All in all, today’s confidence data suggest that conditions are still ripe for the continuation of a soft economic environment. After the disappointing 0.3% GDP contraction in the second quarter (we will get the full details for this on Friday), a very small rebound still looks possible in the third quarter. Whether this will materialise or not will depend on whether services are strong enough to compensate for industrial weakness. We still hold average Italian GDP growth of 1% in 2023 as our base case.

China PMIs remain downbeat A further slowdown in the service sector recovery coupled with a slight moderation in manufacturing contraction does not amount to any meaningful improvement to the overall economic backdrop.   Mixed news - but no real improvement in total The latest official PMI data were not uniformly bad. The manufacturing index actually rose slightly, to 49.7, and this is the third consecutive increase since the May trough of 48.8. But it remains below the 50-level that is associated with expansion, and so merely represents a moderation in the rate of decline. That may be of some comfort to those of a sunny disposition.  The non-manufacturing series, which had reflected the bulk of the post-re-opening recovery, fell further in August. The index of 51.0 was a little lower than the forecast figures (51.2) but it is at least still slightly above contraction territory.   China official PMIs (50 = threshold for expansion / contraction)   Brighter signs in manufacturing Looking at the components underlying both series and starting with the manufacturing series: the latest data show an improvement in production to a point which actually points to expansion. That has to be tempered by the forward-looking elements of orders. Here, the data is mixed. Total orders have improved to hit the 50 threshold signalling that contraction has ended. This must be mainly domestic orders, as the export orders series remains bombed out. But that at least provides some encouragement about the near-term outlook.    Manufacturing PMI components   Outlook for service sector remains negative The forward-looking elements of the service sector PMI index remain in contraction territory, unlike their manufacturing counterparts, and that suggests that the headline index has probably not yet troughed and will fall further. A glimmer of hope may be in the export series, which, while clearly continuing to signal contraction, did fractionally rise this month.  Overall, though, both series seem to be converging on a point close to 50 consistent with an economy that is neither expanding nor contracting. Things could be worse. But markets are not likely to take too much comfort from this set of data.      Non-manufacturing PMI sub-components

US The month started with a bang with the US jobs report but the following week is looking a little more subdued, starting with the bank holiday on Monday. Economic data is largely made up of revisions and tier-three releases. The exceptions being the ISM services PMI on Wednesday and jobless claims on Thursday. That said, revised productivity and unit labor costs on Thursday will also attract attention given the Fed’s obsession with input cost, wages in particular. We’ll also hear from a variety of Fed policymakers including Susan Collins on Wednesday (Beige Book also released), Patrick Harker, John Williams, and Raphael Bostic on Thursday, and Bostic again on Friday.  Eurozone Next week is littered with tier-three events despite the large number of releases in that time. Final inflation, GDP and PMIs, regional retail sales figures and surveys, and trade figures make up the bulk of next week’s reports. Not inconsequential, per se, but not typically big market events unless the PMI and CPI reports bring massive revisions. We will hear from some ECB policymakers earlier in the week which will probably be the highlight, including Christine Lagarde, Fabio Panetta, Philip Lane, and Isabel Schnabel. UK  Next week offers very little on the data front but the Monetary Policy Report Hearing in front of the Treasury Select Committee on Wednesday is usually one to watch. While the committee’s views are typically quite polished by that point, the questioning is intense and can provide a more in-depth understanding of where the MPC stands on interest rates.  Russia Inflation in Russia is on the rise again and is expected to hit 5.1% on an annual basis in August, up from 4.3% in July. That is why the CBR has started raising rates aggressively again – raised to 12% from 8.5% on 15 August. Even so, the ruble is not performing well and isn’t too far from the August highs just before the superhike. We’ll hear from Deputy Governor Zabotkin on Tuesday, a few days before the CPI release. South Africa Further signs of disinflation in the PPI figures on Thursday will have been welcomed by the SARB but they won’t yet be declaring the job done despite the substantial progress to date. The focus next week will be on GDP figures on Tuesday, with 0.2% quarterly growth expected, and 1.3% annual. The whole economy PMI will be released earlier the same day. Turkey CPI inflation figures will be eyed next week, with annual price growth seen hitting 55.9%, up from 47.8% in July. The CBRT is all too aware of the risks, hence the surprisingly large rate hike – from 17.5% to 25% – last month. The currency rebounded strongly after the decision but it has been drifting lower since, falling back near the pre-meeting levels. There’s more work to be done. Switzerland Another relatively quiet week for the Swiss, with GDP on Monday – seen posting a modest 0.1% quarterly growth – and unemployment on Thursday, which is expected to remain unchanged. Neither is likely to sway the SNB when it comes to its next meeting on 21 September, with markets now favoring no change and a 30% chance of a 25 basis point hike. China Two key data to focus on for the coming week; the non-government compiled Caixin Services PMI for August out on Tuesday which is expected at 54, almost unchanged from July’s reading of 54.1. If it turns out as expected, it will mark the eighth consecutive month of expansion in China’s services sector which indicates resilience despite the recent spate of deflationary pressures and contagion risk from the fallout of major indebted property developers that failed to make timely coupon payments on their respective bonds obligations. Next up will be the balance of trade data for August on Thursday with export growth anticipated to decline at a slower pace of 10% y/y from -14.5% y/y recorded in July. Imports are expected to contract further by 11% y/y from -12.4% y/y in July.   Interestingly, several key leading economic data announced last week have indicated the recent doldrums in China will start to stabilize and potentially turn a corner. The NBS manufacturing PMI for August came in better than expected at 49.7 (consensus 49.4), and above July’s reading of 49.3 which makes it three consecutive months of improvement, albeit still in contraction.   In addition, two sub-components of August’s NBS manufacturing PMI; new orders and production are now in expansionary mode with both rising to hit their highest level since March 2023 at 50.2 and 51.9 respectively. Also, the Caixin manufacturing PMI for August has painted a more vibrant picture with a move back into expansion at 51 from 49.2 in July, and above the consensus of 49.3; its strongest pace of growth since February 2023. Hence, it seems that the current piecemeal fiscal stimulus measures have started to trickle down positively into China’s economy. India The services PMI for August will be released on Tuesday where the consensus is expecting a slight dip in expansion to 61 from 62.3 in July, its highest growth in over 13 years. Capping off the week will be August’s bank loan growth out on Friday. Australia The all-important RBA monetary policy decision will be released on Tuesday. A third consecutive month of no change in the policy cash rate is expected, at 4.1%, as the recently released monthly CPI indicator has slowed to 4.9% y/y from 5.4% y/y, its slowest pace of increase since February 2022 and below consensus of 5.2% y/y. Interestingly, the ASX 30-day interbank cash rate futures on the September 2023 contract have indicated a 14% chance of a 25-basis point cut on the cash rate to 3.85% for this coming Tuesday’s RBA meeting based on data as of 31 August 2023. That’s a slight increase in odds from a 12% chance of a 25-bps rate cut inferred a week ago. On Wednesday, Q2 GDP growth will be out where consensus is expecting it to come in at 1.7% y/y, a growth slowdown from 2.3% y/y recorded in Q1. To wrap up the week, the balance of trade for July will be out on Thursday where the consensus is expecting the trade surplus to narrow to A$10.5 billion from a three-month high of A$11.32 billion recorded in June.  New Zealand Two data to watch, Q2 terms of trade on Monday and the global dairy trade price index on Tuesday. Japan A quiet week ahead with the preliminary leading economic index out on Thursday and the finalized Q2 GDP to be released on Friday. The preliminary figure indicated growth of 6% on an annualized basis that surpassed Q1’s GDP of 3.7% and consensus expectations of 3.1%; its steepest pace of increase since Q4 2020 and a third consecutive quarter of annualized economic expansion. Singapore Retail sales for July will be out on Tuesday with another month of lackluster growth expected at 0.9% y/y from 1.1% y/y in June; its softest growth since July 2021 as the Singapore economy grappled with a weak external environment. On a monthly basis, a slower pace of contraction is expected for July at -0.1% m/m versus -0.8% m/m in June.  

Metals – Philippines nickel ore output rises The latest data from the Philippines Mines Bureau shows that domestic nickel ore output climbed 40% YoY to 16.9 million dmt in 1H23 with most mines reporting output. The bureau said that 25 of the 33 operating mines reported production for the above-mentioned period. Domestic output is expected to pick up further as four mining projects are all set to start operations from this year through to 2025. In mine supply, recent official data shows that copper output at Zambia’s Mopani mines fell to 14.9kt in 1H23 on rising costs and falling output, compared to 20kt in the same period last year. Zambia's state-owned ZCCM took control of Mopani from Glencore in 2021, although it is now searching for new investors to take over the mine assets.

Appealing value chain generation Given Newag's business model, it is worth noting that the company generates value added not only by integrating rolling stock’s components delivered by external suppliers, but also making its own sizable contribution to the design, production, service and maintenance of the rolling stock. The company's expertise in the area of control software development needs to be highlighted as well. We believe such a production value chain gives the company a market leverage and drives up the quality of end products. Dividend policy Newag has a history of sharing profits with shareholders long enough to expect such a policy to be maintained in the future. Given that the baseline scenario assumes that the financials are already bottoming out, we estimate that in the years 2023-25E Newag may pay out a total of approx. PLN47mn in dividends.  

Further declines in economic output are likely, but for now, the Riksbank is focused on high services inflation and renewed krona weakness.   Riksbank set for at least one more hike There are two weeks to go until the Riksbank’s September meeting and another 25bp rate hike looks pretty likely. Services inflation is uncomfortably high and the trade-weighted value of the krona is back to its lows. A follow-up rate hike in November can’t be ruled out. Yet the economy is clearly reacting to higher interest rates. A 0.8% decline in second quarter GDP, while not as bad as initially reported, shows the economy is under strain. On a year-on-year basis, Sweden is in the bottom five performers in the EU when it comes to growth. Still, the story isn’t universally bad and there are some bright spots. The jobs market is still very tight by historical standards, the housing market has stabilised, confidence is rebounding and consumer spending is showing signs of levelling out. Here, we look at how the economy is performing in several key areas. Housing market Housing is a well-known vulnerability for Sweden, and the 16% peak-to-trough fall in prices during 2022 was not hugely surprising. Compared to other European economies, Sweden has a much greater percentage of variable rate mortgages, and that proportion has only increased since interest rates started to rise. According to the Riksbank, 90% of loans have a remaining fixation period of below two years, and in the majority of cases, these are not fixed at all. The result is that the average rate on outstanding mortgages has increased by 200bp since the Covid low, compared to 64bp for the eurozone as a whole, and much less still in France/Germany. How average mortgage rates have changed since 2021 That said, housing prices have stabilised this year and household sentiment towards housing has improved noticeably. But the fundamentals of the market still look challenging, and data from Hemnet – a property search site – shows housing supply at multi-year highs, while separate figures show transactions are at a low. We tend to agree with the Riksbank’s forecast that further price falls are likely. Supply of housing has increased as transaction volumes fall   Jobs market Sweden’s unemployment rate is at a post-pandemic low, and that resilience has been helped by a pronounced reduction in joblessness among foreign-born workers. One of the key issues for a number of years has been a skills mismatch and poor integration of migrant workers into the Swedish jobs market – and the gulf between native unemployment (below 5%) and foreign-born workers (near 14%) is still large, but has narrowed. There are signs that the jobs market is cooling, however. The number of layoffs has started to rise, though from a low base. Vacancy numbers have been falling too, though so far the decline in the ratio of job openings to unemployment has been less sharp than in other economies, notably the US and UK. The proportion of service-sector businesses that see labour as a constraint on production has fallen from 45% to 30% in just over a year. Still, there are signs that firms are “hoarding” staff – i.e. they are afraid of letting people go given rehiring concerns. This is helped by the fact that nominal wage growth is relatively contained given the level of inflation, with the benchmark negotiated pay deal set at 3-4% for the next couple of years. That's noticeably below the rate we've been seeing in some other advanced economies. As a result, while we’re assuming that unemployment will increase over the coming months, the rise is likely to be gradual. Vacancy numbers are falling, albeit slowly Consumer spending Consumption has been falling consistently for a year now, though this masks big differences across spending categories. Furniture sales are down 15% on pre-pandemic levels while spending on recreation/culture is up by a similar percentage. Even in the weaker areas though, the story is stabilising. Consumer confidence has risen noticeably, and real wage growth is slowly becoming less negative. Still, with interest payments set to consume an ever-increasing share of household budgets, we don’t expect consumer spending to return to meaningful growth any time soon. Higher consumer confidence points to stabilisation in retail sales Production Like consumer spending, and like pretty much everywhere, Sweden’s manufacturing sector is also in contraction, at least according to the PMIs. Admittedly, this weakness hasn’t entirely been borne out in the official production data, and Swedish manufacturing has been operating 5-10% above pre-pandemic levels for much of the last year – in sharp contrast to the likes of France/Germany where production remains below early-2020 levels. This growth has been heavily concentrated though, primarily in chemicals/pharmaceutical products, and more recently in a sharp recovery in vehicle production. The latter is up almost a third since the start of 2022 on improved supply chains, but we suspect this is more of a catch-up story and can only last for so long. We expect the weaker manufacturing numbers to show up more clearly in the official data over the coming months. Bottom line Assuming there's a renewed fall in house prices, some gradual weakness in the jobs market and ongoing pressure on consumer spending and production, we're likely to see further declines in economic output through the remainder of this year. While the Riksbank clearly isn't quite done with rate hikes, the fragile economic backdrop suggests we're near the peak.

Exaggerated. By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Apple lost almost $200bn in market valuation in just two days on the news that China would ban iPhone usage in government offices and state-backed companies. Of course, China is one of Apple's biggest markets; the company makes roughly a fifth of its revenue from China and it would be a shame to lose market share in such a huge marketplace, but the market has certainly overreacted to the latest news, because Chinese government staff could already not show up at work with their iPhones.   So, the chances are that, if you are a government worker in China, you already didn't have an iPhone! In this respect, an analyst at Wedbush highlighted that the ban would affect around half a million iPhones over the roughly 45 mio that he expects the company to sell in China over the next 12 months. That's around a 1% hit. Another analyst at Evercore ISI said that the government wouldn't got too hard on Apple either, as even if Apple moves production toward India, today, most iPhones are still assembled in China, and making Apple angry would cause many job losses, and that Xi is not in a position to afford today. Unfortunately for Apple, its iPhones lost market share from 20% to 16% between the first and the second quarter of this year, but iPhones market share stands at 65% of the smartphones worth more than $600 in China, according to IDC – cited by the WSJ. Huawei, on the other hand, stands for around 18% of the sales of iPhones of a higher price range. Therefore, the latest Apple selloff could be an opportunity for buying a dip. Apple lost almost 3% yesterday, after falling more than 3.5% the day before. The share price is now below $180 per share. 38 analysts on CNN's business survey point at a median price expectation of around $200 for Apple shares for the next 12-months. The high estimate goes up to $240 per share. 

Asia Morning Bites China's data deluge draws near. ECB hikes rates while US retail sales surprise on the upside.   Global Macro and Markets Global markets:  We will start today with FX, given the ECB meeting yesterday, and the response of the market to what our Head of Global Macro is describing as a dovish hike. EURUSD has dropped sharply to 1.0640, and this has taken the GBP lower too, now trading at just over 1.24. The BoE meets next week and is also expected to hike  - also perhaps its last. The AUD has not been much impacted by this move, though despite the stronger-than-expected labour data yesterday, markets seem relaxed and are expecting no further tightening. We are not so relaxed. The JPY was also a little softer, rising to 147.50 . Other Asian FX was fairly quiet yesterday. The CNY is still hovering below 7.28 ahead of today’s big data release. European bond yields dropped after the ECB decision. The yield on the 10Y bond fell 5.8bp to 2.588%. US Treasury yields were not affected by the European news and had to contend with another stronger-than-expected macro release in the form of retail sales. The US 10Y Treasury yield rose 3.8bp to 4.286%, while yields on 2Y USTs rose 4.2bp to 5.011%. Equity markets seemed to like the sense that rates aren’t going any higher (if you believe the central bankers, and it's not like they have a great track record!). The S&P 500 rose 0.84% while the NASDAQ rose 0.81%. The NASDAQ is up 33.05% year-to-date, just in case you’d lost track. Triple witching today, so it may be volatile. Chinese stocks didn’t do a lot yesterday. The Hang Seng rose 0.21%, while the CSI 300 fell 0.08%. Volumes were fairly low.   G-7 macro:  The US economy is still refusing to roll over. August retail sales rose 0.6% MoM, much higher than the 0.1% expected. The control group growth rate was slower at 0.1%, but this was still more than had been expected. Markets are still not even 50% expecting another Fed rate hike. But you have to wonder how long they can keep this up after the recent upside inflation miss. US August PPI data also came in above expectations. It’s a quieter day today, except for US existing home sales and the University of Michigan consumer confidence figures.   China:  The data deluge kicks off at 09:20 this morning (HKT/SGT) with the 1Y medium-term lending facility rate, which given the PBoC’s struggles to support the CNY, and yesterday's RRR cut, seems likely to be left unchanged at 2.5%. New home prices come out at 09:30, and will likely show further month-on-month decline. Other property-related data today is unlikely to offer much sign of life. But at 10:00, the activity data emerges, and here, we think there may be some slightly less negative news. Recent export data and new CNY loan figures could indicate that production and retail sales numbers may increase slightly in year-on-year terms from last month. To be sure, we aren’t expecting them to look strong, but a positive direction of travel could provide some support for markets. We will know soon enough.     India:  August trade figures come out later this afternoon. The slide in exports has been fairly consistent, but we are now reaching a point where year-on-year declines may start to shrink from double digits to low single digits. That is also likely on the import side, and the trade deficit is likely to remain close to last month’s -USD20.67bn.   Indonesia:  Indonesia reports trade numbers today.  The market consensus suggests that we'll have another month of contraction for both exports and imports as global trade remains subdued.  The trade balance is forecast to settle in surplus but at a less substantial level of roughly $1.5bn.  Fading support from the trade surplus could be one reason for the IDR's struggles recently, and we could see the currency stay under pressure until we see this trend reversed.     What to look out for: China data deluge China medium term lending rate (15 September) Indonesia trade balance (15 September) China retail sales, industrial production (15 September) US University of Michigan sentiment and existing home sales (15 September)

Exchange rates Production realised in Poland represents approximately 45% of total sales, while the market share of sales in the Polish market is <30%. The ratio of raw material consumption costs to realised revenues is approximately 50% and purchases are mainly made in EUR and USD. However, a significant proportion of foreign currency costs overlap with realised revenues, and high exchange rate volatility makes it difficult to implement an optimal purchasing strategy. Competitive pressures In the past, weak market conditions have led to increased competitive and pricing pressure from some players, resulting in reduced margins in the industry. In addition, more aggressive pricing by competitors may lead to a redistribution of market shares among individual players. Raw material prices The market for raw material suppliers is highly consolidated and the company is therefore a market price taker. The company's multi-sourcing strategy - i.e. sourcing from a number of different sources depending on local market prices - allows it to optimise its purchasing structure to a large extent in terms of the margins it achieves. Situation in the construction market The company's sales are mainly focused on the housing and volume construction markets. High interest rates are leading to a reduction in the volume of new housing purchases and a reduction in the realisation of cubature investments, as investors find it difficult to access finance. In turn, high inflation limits the purchasing power of consumers, who postpone home improvements. Risk of unsuccessful M&A The Group's strategy is based on the acquisition of companies with a similar business profile (foams, adhesives, sealants) in markets where the Group's presence is negligible, as well as market shares in complementary product areas (e.g. glass wool). There is a risk that the acquired businesses will not meet the Board's performance expectations.        

Crude oil futures in London and New York continue to attract buying interest as the available supply, especially of diesel-rich crude oil from the Middle East and Russia remain tight as producers keep output well below their respective production ability. The current tightness is increasingly being expressed at the front end of the curve, where the premium for near-term barrels of WTI trades compared to the next month has almost reached 2 dollars a barrel, the highest level in more than a year. However, while the short-term outlook points to higher tight supply-driven crude prices, the recent bear steepening move in the US yield curve signals an incoming economic slowdown and with that an increase risk to growth and demand next year.   Crude oil futures in London and New York continue to attract buying interest as the available supply, especially of diesel-rich crude oil from the Middle East and Russia remain tight as producers keep output well below their respective production ability. Not least Saudi Arabia who despite OPEC’s own projection for the tightest market in more than a decade this coming quarter decided to extend its unilateral one million barrels a day production cut until yearend.  That decision along with cuts from others, including Russia, helped drive up the cost of energy, thereby supporting the risk of sticky inflation, and together with a still resilient US economy and strong labor market they recently led the US Federal Reserve to deliver a hawkish pause in their aggressive rate hike campaign, while at the same time indicating that rates may have to stay higher for longer. A signal which helped send US 10-year Treasury yields to a 16-year high while the dollar reached a year-high against a basket of major currencies.      In WTI, the mini correction that followed the recent rejection at $93.75, the double top from October and November last year, seems to have stopped before challenging the first level of support at $87.60, the 38.2% retracement of the latest run up in prices as well as the 21-day moving average. It highlights the current market strength being supported by tight market conditions. A break above $93.75 would bring $97.65 into focus while supporting a fresh attempt by Brent to reach the important $100 per barrel mark. Source: Saxo.   Looking ahead, there is little doubt that until a decision to raise production is made, the global energy market will remain tight, and during this time the risk of a major correction still is relatively low, something that is being reflected in the current positions held by hedge funds and CTA’s, more on that later. However, at the same time the US yield curve is increasingly sending a signal of distress, as recession risks continue to gather momentum, not only in the US but also in Europe where German economic institutes forecast a 0.6% GDP contraction already this year.      What do recent movements in the US yield curve signal? There has been a lot of talk recently about the US yield and the so-called bear-steepening move, and what it signals. Since early July, the US 2-10 yield curve spread has steepened, halving from around -110 basis points to the current -55 basis points. The latest steepening has been driven by a faster increase in the 10-year yield while the 2-year yield held steady amid doubts about how much higher the FOMC will be able to raise rates without damaging the economy.  Bear steepening does not only raise red flags for stock market investors but also the wider economy. Rising long-dated yields has a large and rapid tightening effect on the real economy given the impact on private mortgage rates and corporate borrowing rates. In a situation where the economy is running hot, rising interest rates pose limited risks as rising yields are a normal reaction to robust growth. However, in the current situation where sticky inflation drives long-end yields higher it may pose a threat as the economic outlook looks increasingly challenged and could deteriorate faster. Back to the oil market where the current tightness is increasingly being expressed at the front end of the curve, where the premium for near-term barrels of WTI trades compared to the next month has almost reached 2 dollars a barrel, the highest level in more than a year. Looking further out the curve we find the 12-month spread between December 2023 and December 2024 has jumped to more than 11 dollars a barrel from around 2 dollars back in July. The chart below shows the rising backwardation - higher prices now followed by lower prices later – and the mentioned bear steepening of the US yield curve.  It's often said the oil curve never lies, and it is currently telling us that prices will remain high in the short term before recession risks begin to weigh on demand into 2024. A situation, if realized, that may force OPEC to accept lower prices or forcing an extended period of production cuts.      Speculators onboard the bull train but with some hesitation The latest Commitment of Traders report covering the week to September 19 showed continued belief in higher crude oil prices with hedge funds adding to their long positions in WTI and Brent Crude oil futures. Since June 30 when the latest round of production cuts began to bite, the combined net long in Brent and WTI has risen by 329k contracts (329 million barrels) to 560k contracts. However, looking at how the change has occurred,we find the increase being driven by 171k contracts of fresh longs and a 158k contract reduction in the gross short, and while the WTI long has reached a February 2022 high, the Brent long has not even returned to the March 2023 high. Funds are buying Brent and especially WTI futures, but not at a pace that could be expected given the recent strength and momentum, potentially signaling a battle between current tight fundamental and macroeconomic headwinds pointing to lower prices later. In addition, with almost half of the increase in the net long being driven by short covering, the gross short has collapsed to a 12-year low at just 46k contracts, and while a very small gross short attracts little attention while prices are rising, it will pose a challenge once the technical and/or fundamental outlook turns negative. At that point, a sizable number of longs might be forced to chase a small pool of short positions willing to buy and it may lead to expanded daily trading ranges.        

Italian industrial production was stable in September September's industrial production data and October survey data suggest that the soft economic patch will remain in place over the fourth quarter, with downward pressure on goods as the only positive fallout. The soft patch in Italian industry continued in September, according to Istat’s data. Seasonally-adjusted production was flat on the month, and the working days adjusted measure was down 2% on the year. In September, production was 3% lower than at the pre-Covid peak. A quick look at big industry aggregates shows a sharp monthly decline in consumer goods (-2.2% month-on-month), offset by increases in investment goods (+1.5% MoM), intermediate goods (+0.3% MoM) and energy (+1.1% MoM). The manufacturing breakdown shows that previous patterns in yearly changes have been broadly confirmed: sectors which had been particularly penalised by supply chain disruptions such as the transport equipment industry continued to rebound, while those more exposed to developments in construction activity, such as wood and non-metal mineral products, continue to suffer. The view on the quarter, a modest 0.2% gain in production in the third quarter over the previous one, does not add anything relevant to what we already knew from the value added provided by the preliminary estimate of 3Q23 GDP. Looking ahead, high-frequency confidence data for October suggests that manufacturing weakness will likely remain in place over the last quarter of 2023. Softening orders are reportedly weighing on current and expected production, pointing to a possible negative contribution of manufacturing to value added generation over the last quarter of 2023. If this is confirmed, the stagnating economic environment looks set to persist over the fourth quarter, with a small negative growth reading remaining a possibility if services take a downward direction. The one positive feature of the ongoing manufacturing soft patch is that this adds downward pressure to goods inflation, possibly bringing forward gains in real disposable income.

Metals – LME on-warrant zinc stockpiles rise LME on-warrant stocks for zinc rose by 67,500 tonnes (the largest daily addition since March 2018) to 188,175 tonnes as of yesterday. Most inflows were reported from warehouses in Singapore. Total readily available stocks for zinc have seen net inflows of 77,150 tonnes over the last two days alone, while net inflows for the month total 122,600 tonnes. Meanwhile, exchange inventories increased by 68,100 tonnes to 210,850 tonnes as of yesterday, the highest since September 2021. Agriculture – Ukrainian grain exports remain under pressure Ukraine’s Agriculture Ministry reported that total grain exports for the season fell 28% YoY to 12mt as of 22 November. These shipments include 5.5mt (-15% YoY) of wheat and 5.6mt (-37% YoY) of corn. While Ukraine struggles to export to the world market, domestic production has held up well, which suggests that we are seeing a large build of grain inventories in the domestic market. High levels of stocks could weigh on plantings and, as a result, output for next season.

Energy – OPEC crude oil production softens in November Sentiment in the oil market remains negative this morning, with both ICE and WTI futures trading almost 1% lower after the announcement from the OPEC+ meeting failed to convince the market about a tighter oil balance in the immediate term. Pessimism over compliance with the new deal remains one of the major concerns for the market for now. Initial data shows that OPEC crude oil production dropped to around 28.05MMbbls/d in November 2023 compared to 28.19MMbbls/d in October 2023, according to a Bloomberg survey. The BBG survey estimates that supply from Iraq and Nigeria dropped by 50Mbbls/d each, while Iran and Kuwait also lowered production by 40Mbbls/d each. Higher production from Saudi Arabia and Libya helped offset some of the production losses for the month. Weekly data from Baker Hughes shows that the US added five oil rigs over the last week, taking the total oil rig count to 505, whilst the gas rigs fell by 1, taking the total rig count (oil & and gas combined) to 625 for the week ended 1 December. US oil rigs have now increased to their highest level in nearly two months, although the recent weakness in oil prices could weigh on further rig additions over the coming weeks. The Al-Zour refinery in Kuwait is now fully operational as the third of the three mini refineries was brought online on Sunday. This will gradually increase the refining capacity of the facility to 615Mbbls/d from the current capacity of 410Mbbls/d. The plant halted its operational activities last month after a fuel gas feed was halted. Al-Zour is one of the largest oil-processing facilities in the Middle East and it is expected to boost the nation’s refining capacity to about 1.5MMbbl/d. The latest positioning data from CFTC shows that speculators decreased their net long position in NYMEX WTI by 6,408 lots for a ninth straight week over the last week, leaving them with net longs of 98,137 lots as of 28 November 2023, the lowest since the week ending on 4 July 2023. In contrast, money managers increased their net longs in ICE Brent by 11,630 lots over the last week after reporting five consecutive weeks of decline, leaving them with a net long position of 166,735 lots as of last Tuesday.

Eurozone PMIs show very tentative signs of bottoming out The eurozone economy continues to trend around 0% growth and there are no signs of any imminent recovery. Price pressures are still increasing for the service sector, which provides another argument for the ECB not to hike before June. How you read today’s PMI release for the eurozone reveals whether you’re an optimist or a pessimist. The increase from 47.6 to 47.9 in the composite PMI for January cautiously shows signs of bottoming out but also still indicates contraction. We also note that France and Germany saw declining PMIs, making the increase dependent on the smaller markets. Manufacturing price pressures remain moderate despite the Red Sea disruptions, but the service sector indicates another acceleration in input costs. To us, this shows that the eurozone economy remains in broad stagnation and that risks to inflation are not small enough to expect an ECB rate cut before June. The eurozone continues to be plagued by falling demand for goods and services, although new orders did fall at a slower pace than in recent months. Current production and activity were weaker than in recent months, though, suggesting that January started with contracting output still. The slowing pace of contracting orders does suggest that there is a bottoming out happening though. Whether this is enough to show positive GDP growth in the first quareter depends on February and March. In any case, GDP growth is so close to zero that we still qualify the current environment as broad stagnation anyway. The PMI continues to show some concern around inflation. Even though demand remains lacklustre, services cost pressures are on the rise again due to higher wage costs which are being transferred to consumers. Cost pressures on the goods side remain low despite Red Sea disruptions as energy prices trend lower and demand overall remains weak. This also means that goods inflation continues to trend down according to the survey. So, despite Red Sea problems prominently featuring in the news, inflation concerns currently stem more from services than goods, interestingly. For the ECB, enough worries about inflation not trending down to 2% quickly still remain. We think that makes a first cut before June unlikely.