Expect the Bank to drop its tightening bias

Financial markets expect the Bank Rate to be one percentage point lower in two or three years' time than was the case in November. That will have important ramifications for the Bank’s two-year inflation forecast, which is seen as a barometer of whether markets have got it right on the level of rate cuts priced. Previously, the Bank’s model-based estimate put headline inflation at 1.9% in two years’ time, or 2.2%, once an ‘upside skew’ is applied. We wouldn’t be surprised if this ‘mean’ forecast (incorporating an upside skew) is still a little above 2% in the new set of forecasts. And if that’s the case, it can be read as the BoE subtly pushing back against the quantity of rate cuts markets are pricing in.

If that happens, we suspect markets will largely shrug it off. The bigger question is whether the Bank makes any changes to its statement – and its forward guidance currently reads like this:

    Policy needs to stay

Lowest China's Yield Level In 2 Years!? Dollar (USD) Is Disturbing Gold In It's Challenge

Lowest China's Yield Level In 2 Years!? Dollar (USD) Is Disturbing Gold In It's Challenge

Marc Chandler Marc Chandler 16.08.2022 11:44
Overview: Equities were mostly higher in the Asia Pacific region, though Chinese and Hong Kong markets eased, and South Korea and India were closed for national holidays. Despite new Chinese exercises off the coast of Taiwan following another US congressional visit, Taiwan’s Taiex gained almost 0.85%. Europe’s Stoxx 600 is advancing for the fourth consecutive session, while US futures are paring the pre-weekend rally. Following disappointing data and a surprise cut in the one-year medium-term lending facility, China’s 10-year yield fell to 2.66%, its lowest in two years. The US 10-year is soft near 2.83%, while European yields are mostly 2-4 bp lower. Italian bonds are bucking the trend and the 10-year yield is a little higher. The Antipodeans and Norwegian krone are off more than 1%, but all the major currencies are weaker against the greenback, but the Japanese yen, which is practically flat. Most emerging market currencies are lower too. The Hong Kong Dollar, which has been supported by the HKMA, strengthened before the weekend, and is consolidating those gains today. Gold tested the $1800 level again but has been sold in the wake of the stronger dollar and is at a five-day low near $1778. The poor data from China raises questions about demand, and September WTI is off 3.6% after falling 2.4% before the weekend. It is near $88.60, while last week’s five-month lows were set near $87.00. US natgas is almost 2% lower, while Europe’s benchmark is up 2.7% to easily recoup the slippage of the past two sessions. China’s disappointment is weighing on industrial metal prices. Iron ore tumbled 4% and September copper is off nearly 3%. September wheat snapped a four-day advance before the weekend and is off 2.3% today.  Asia Pacific With a set of disappointing of data, China surprised with a 10-bp reduction in the benchmark one-year lending facility rate to 2.75%  It is the first cut since January. It also cut the yield on the seven-day repo rate to 2.0% from 2.1%. The string of poor news began before the weekend with a larger-than-expect in July lending figures. However, those lending figures probably need to be put in the context of the surge seen in June as lenders scramble to meet quota. Today's July data was simply weak. Industrial output and retail sales slowed sequentially year-over-year, whereas economists had projected modest increases. New home prices eased by 0.11%, and residential property sales fell 31.4% year-over-year after 31.8% decline in June. Property investment fell 6.4% year-over-year, year-to-date measures following a 5.4% drop in June. Fix asset investment also slowed. The one exception to the string of disappointment was small slippage in the surveyed unemployment rate to 5.4% from 5.5%. Incongruous, though on the other hand, the jobless rate for 16–24-year-olds rose to a record 19.9%. Japan reported a Q2 GDP that missed estimates, but the revisions lifted Q1 GDP out of contraction  The world's second-largest economy grew by 2.2% at an annualized pace in Q2. While this was a bit disappointing, Q1 was revised from a 0.5% fall in output to a 0.1% expansion. Consumption (1.1%) rebounded (Q1 revised to 0.3% from 0.1%) as did business spending (1.4% vs. -0.3% in Q1, which was originally reported as -0.7%). Net exports were flat after taking 0.5% off Q1 GDP. Inventories, as expected, were unwound. After contributing 0.5% to Q1 GDP, they took 0.4% off Q2 growth. Deflationary forces were ironically still evident. The GDP deflator fell 0.4% year-over-year, almost the same as in Q1 (-0.5%). Separately, Japan reported industrial surged by 9.2% in June, up from the preliminary estimate of 8.9%. It follows a two-month slide (-7.5% in May and -1.5% in April) that seemed to reflect the delayed impact of the lockdowns in China. The US dollar is little changed against the Japanese yen and is trading within the pre-weekend range (~JPY132.90-JPY133.90). It finished last week slightly above JPY133.40 and a higher closer today would be the third gain in a row, the longest advance in over a month. The weakness of Chinese data seemed to take a toll on the Australian dollar, which has been sold to three-day lows in the European morning near $0.7045. It stalled last week near $0.7140 and in front of the 200-day moving average (~$0.7150). A break of $0.7035 could signal a return to $0.7000, and possibly $0.6970. The greenback gapped higher against the Chinese yuan and reached almost CNY6.7690, nearly a two-week high. The pre-weekend high was about CNY6.7465 and today's low is around CNY6.7495. The PBOC set the dollar's reference rate at CNY6.7410, a little above the Bloomberg survey median of CNY6.7399. Note that a new US congressional delegation is visiting Taiwan and China has renewed drills around the island. The Taiwan dollar softened a little and traded at a three-day low. Europe Turkey's sovereign debt rating was cut a notch by Moody's to B3 from B2  That is equivalent to B-, a step below Fitch (B) and two below S&P (B+). Moody's did change its outlook to stable from negative. The rating agency cited the deterioration of the current account, which it now sees around 6% of GDP, three times larger than projected before Russia invaded Ukraine. The Turkish lira is the worst performing currency this year, with a 27.5% decline after last year's 45% depreciation. Turkey's two-year yield fell below 20% today for the first time in nine months, helped ostensibly by Russia's recent cash transfer. The dollar is firm against the lira, bumping against TRY17.97. The water level at an important junction on the Rhine River has fallen below the key 30-centimeter threshold (~12 inches) and could remain low through most of the week, according to reports of the latest German government estimate  Separately, Germany announced that its gas storage facility is 75% full, two weeks ahead of plan. The next target is 85% by October 1 and 95% on November 1. Reports from France show its nuclear reactors were operating at 48% of capacity, down from 50% before the weekend. A couple of reactors were shut down for scheduled maintenance on Saturday.  Ahead of Norway' rate decision on Thursday, the government reported a record trade surplus last month  The NOK229 bln (~$23.8 bln). The volume of natural gas exports surged more than four-times from a year earlier. Mainland exports, led by fish and electricity, rose by more than 20%. The value of Norway's electricity exports increased three-fold from a year ago. With rising price pressures (headline CPI rose to 6.8% in July and the underlying rate stands at 4.5%) and strong demand, the central bank is expected to hike the deposit rate by 50 bp to 1.75%. The euro stalled near $1.0370 last week after the softer than expected US CPI  It was pushed through the lows set that day in the European morning to trade below $1.02 for the first time since last Tuesday. There appears to be little support ahead of $1.0160. However, the retreat has extended the intraday momentum indicators. The $1.0220 area may now offer initial resistance. Sterling peaked last week near $1.2275 and eased for the past two sessions before breaking down to $1.2050 today. The intraday momentum indicators are stretched here too. The $1.2100 area may offer a sufficient cap on a bounce. A break of $1.20 could confirm a double top that would project back to the lows. America The Congressional Budget Office estimates that the Inflation Reduction Act reduces the budget deficit but will have a negligible effect on inflation  Yet, starting with the ISM gauge of prices paid for services, followed by the CPI, PPI, and import/export prices, the last string of data points came in consistently softer than expected. In addition, anecdotal reports suggest the Big Box stores are cutting prices to reduce inventories. Energy is important for the medium-term trajectory of measured inflation, but the core rate will prove sticky unless shelter cost increases begin to slow. While the Democrats scored two legislative victories with the approval of the Chips and Science Act and the Inflation Reduction Act, the impact on the poll ahead of the November midterm election seems minor at best. Even before the search-and-seizure of documents still in former President Trump's residence, PredictIt.Org "wagers" had turned to favor the Democratic Party holding the Senate but losing the House of Representatives. In terms of the Republican nomination for 2024, it has been back-and-forth over the last few months, and recently Florida Governor DeSantis narrowly pulled ahead of Trump. The two new laws may face international pushback aside from the domestic impact  The EU warned last week that the domestic content requirement to earn subsidies for electric vehicles appears to discriminate against European producers. The Inflation Reduction Act offers $7500 for the purchases of electric cars if the battery is built in North America or if the minerals are mined or recycled there. The EU electric vehicle subsidies are available for domestic and foreign producers alike. On the other hand, the Chips and Science Act offers billions of dollars to attract chip production and design to the US. However, it requires that companies drawing the subsidies could help upgrade China's capacity for a decade. Japan and Taiwan will likely go along. It fits into their domestic political agenda. However, South Korea may be a different kettle of fish. Hong Kong and China together accounted for around 60% of South Korea's chip exports last year. Samsung has one overseas memory chip facility. It is in China and produces about 40% of the Galaxy phones' NAND flash output. Pelosi's apparent farewell trip to Asia, including Taiwan, was not well received in South Korea. President Yoon Suk Yeol did not interrupt his staycation in Seoul to meet the US Speaker. Nor was the foreign minister sent. This is not to cast aspersions on South Korea's commitment to regional security, simply that it is not without limits. Today's economic calendar features the August Empire State manufacturing survey  A small decline is expected. The June TIC data is out as the markets close today. Today is also the anniversary of the US ending Bretton Woods by severing the last links between gold and the dollar in 1971. Canada reports manufacturing sales and wholesale trade, but the most market-sensitive data point may be the existing home sales, which are expected to have declined for the fifth consecutive month. Canada reports July CPI tomorrow (Bloomberg survey median forecast sees headline CPI slowing to 7.6% from 8.1% in June).  The Canadian dollar is under pressure  The US dollar has jumped above CAD1.2900 in Europe after finishing last week near CAD1.2780. Last week's high was set near CAD1.2950, where a $655 mln option is set to expire today. A move above CAD1.2920 could target CAD1.2975-CAD1.3000 over the next day or day. A combination of weaker equities, thin markets, and a short-term market leaning the wrong way after the likely drivers today. The greenback posted its lowest close in two months against the Mexican peso before the weekend near MXN19.85. However, it is rebounding today and testing the MXN20.00 area Initial resistance may be encountered around MXN20.05, but we are looking for a move toward MXN20.20 in the coming days. Mexico's economic calendar is light this week, and the highlight is the June retail sales report at the end of the week.    Disclaimer Source: China Disappoints and Surprises with Rate Cut
Increase In Interest Of Nuclear Energy Around The World

Decision On Closing Three German Nuclear Plants Is Not Made Yet. In France Wind Generation And Hydropower Stations Results Are Below Norms

Marc Chandler Marc Chandler 17.08.2022 15:00
Overview: The biggest development today in the capital markets is the jump in benchmark interest rates.  The US 10-year yield is up five basis points to 2.86%, which is about 10 bp above Monday’s low.  European yields are up 9-10 bp.  The 10-year German Bund yield was near 0.88% on Monday and is now near 1.07%.  Italy’s premium over German is near 2.18%, the most in nearly three weeks.  Although Asia Pacific equities rallied, led by Japan’s 1.2% gain, but did not include South Korea, European equities are lower as are US futures.  The Stoxx 600 is struggled to extend a five-day rally.  The Antipodeans are the weakest of the majors, but most of the major currencies are softer. The euro and sterling are straddling unchanged levels near midday in Europe.  Gold is soft in yesterday’s range, near its lowest level since August 5.  While $1750 offers support, ahead of it there may be bids around $1765. October WTI is pinned near its lows around $85.50-$86.00.  The drop in Chinese demand is a major weight, while the market is closely monitoring developments with the Iranian negotiations.  US natgas is edging higher after yesterday 6.9% surge to approach last month’s peak.  Europe’s benchmark is 4.5% stronger today after yesterday’s 2.7% pullback.  Iron ore fell (3.9%) for the fourth consecutive decline. The September contract that trades in Singapore is at its lowest level since July 22.  September copper is a little heavier but is still inside Monday’s range.  September wheat is extending its pullback for the fourth consecutive session.  It had risen in the first four sessions last week. It is moving sideways in the trough carved over the past month.    Asia Pacific   The Reserve Bank of New Zealand delivered the anticipated 50 bp rate hike and signaled it would continue to tighten policy    It did not help the New Zealand dollar, which is posting an outside day by trading on both sides of yesterday's range.  The close is the key and below yesterday's low (~$0.6315) would be a bearish technical development that could spur another cent decline.  It is the RBNZ's fourth consecutive half-point hike, which followed three quarter-point moves.  The cash target rate is at 3.0%.  Inflation (Q2) was stronger than expected rising 7.3% year-over-year.  The central bank does not meet again until October 5, and the swaps market has a little more than a 90% chance of another 50 bp discounted.    Japan's July trade balance deteriorated more than expected    The shortfall of JPY1.44 trillion (~$10.7 bln) form JPY1.40 trillion in June.  Exports slowed to a still impressive 19% year-over-year from 19.3% previously, while imports rose 47.2% from 46.1% in June.  The terms-of-trade shock is significant in both Japan and Europe.  Japan's ran an average monthly trade deficit of about JPY1.32 trillion in H1 22 compared with an average monthly surplus of JPY130 bln in H1 21.  The eurozone reported an average shortfall of 23.4 bln euros in H1 22 compared with a 16.8 bln average monthly surplus in H1 21.  The two US rivals, China, and Russia, have been hobbled by their own actions, while the two main US economic competitors, the eurozone and Japan are experiencing a dramatic deterioration of their external balance,     The 11 bp rise in the US two-year yield between yesterday and today has helped lift the US dollar to almost JPY135.00, a five-day high   It has met the (50%) retracement target of the downtrend since the multiyear peak in mid-July near JPY139.40.  The next target is the high from earlier this month around JPY135.60.  and then JPY136.00.  Initial support now is seen near JPY134.40.  After recovering a bit in the North American session yesterday, the Australian dollar has come under renewed selling pressure and is trading at five-day lows below the 20-day moving average (~$0.6990).  It has broken support in the $0.6970-80 area to test the trendline off the mid-July low found near $0.6965.  A break could signal a move toward $0.6900-10.  The gap created by yesterday's high US dollar opening against the Chinese yuan was closed today as yuan recovered for the first day in three sessions.  Monday's high was CNY6.775 and yesterday's low was CNY6.7825.  Today's low is about CNY6.7690.  For the second consecutive session, the PBOC set the dollar's reference rate a little lower than the market (median in Bloomberg's survey) expected (CNY6.7863 vs. CNY6.7877).  The dollar has risen to almost CNH6.82 in the past two sessions and still trading a little above CNH6.80 today but was sold to nearly CNH6.7755 where is has found new bids.      Europe   The UK's headline CPI accelerated to 10.1% last month from 9.4% in June    It was above market expectations and the Bank of England's forecast for a 9.9% increase.  Although the rise in food prices (2.3% on the month and 12.7% year-over-year) lifted the headline, the core rate, which excludes food, energy, alcohol, and tobacco rose to 6.2% from 5.8% and was also above expectations (median forecast in Bloomberg's survey was for 5.9%).  Producer input prices slowed, posting a 0.1% gain last month for a 22.6% year-over-year pace (24.1% in June).  However, output prices jumped 1.6% after a 1.4% gain in June.  This puts the year-over-year pace at 17.1%, up from 16.4% previously.  The bottom line is that although the UK economy contracted in Q2 and the BOE sees a sustained contraction beginning soon, the market recognize that the monetary policy will continue to tighten.  The market swaps market is fully pricing in a 50 bp hike at the mid-September meeting and is toying with the idea of a larger move (53 bp of tightening is discounted).    What a year of reversals for Germany    After years of pressure from the United States and some allies in Europe, Germany finally nixed the Nord Stream 2 pipeline with Russia.  Putin also got Germany to do something that several American presidents failed to achieve and that is boost is defense sending in line with NATO commitments. The energy crunch manufactured by Russia is forcing Germany to abandon is previous strategy of reducing coal and closing down its nuclear plants.  Ironically, the Greens ae in the coalition government and recognize little choice.  A formal decision on three nuclear plants that were to be shuttered before the end of the year has yet to be made, but reports confirm it is being discussed at the highest levels.     Germany's one-year forward electricity rose by 11% to 530.50 euros a megawatt-hour in the futures market years, a gain of more than 500%     France, whose nuclear plants are key to the regional power grid, is set to be the lowest in decades, according to reports.  France has become a net importer of electricity, while the extreme weather has cut hydropower output and wind generation is below seasonal norms.  The low level of the Rhine also disrupts this important conduit for barges of coal and oil. Starting in October, German households will have a new gas tax (2.4-euro cents per kilowatt hour for natural gas) until 1 April 2024. Economic Minister Habeck estimated that for the average single household the gas tax could be almost 100 euros a month, while a couple would pay around 195 euros.  Also, starting in October, utilities will be able to through to consumers the higher costs associated with the reduction of gas supply from Russia.  This poses upside risk to German inflation.     The euro held technical support near $1.0110 yesterday and is trading quietly today in a narrow (~$1.0150-$1.0185) range today    Yesterday was the first session since July 15 that the euro did not trade above $1.02.  The decline since peaking last week a little shy of $1.0370 has seen the five- and 20-day moving averages converge and could cross today or tomorrow for the first time since late July. We note that the US 2-year premium over German is testing the 2.60% area.  It has not closed below there since July 22.  Sterling held key support at $1.20 yesterday and traded to almost $1.2145 today, which met the (50%) retracement objective of the fall from last week's $1.2275 high.  The next retracement (61.8%) is closer to $1.2175.  The UK reported employment yesterday, CPI today, and retail sales ahead of the weekend.  Retail sales, excluding gasoline have fallen consistently since last July with the exception of October 2021 and June 2022.  Retail sales are expected to have slipped by around 0.3% last month.     America   The Empire State manufacturing August survey on Monday and yesterday's July housing starts pick up a thread first picked up in the July composite PMI, which fell from 52.3 to 47.7 of some abrupt slowing of economic activity  The Empire State survey imploded from 11.1 to -31.3.  Housing starts fell 9.6%, more than four-times the pace expected (median Bloomberg survey -2.1%).  It was small comfort that the June series was revised up 2.4% from initially a 2.0% decline.  The 1.45 mln unit pace is the weakest since February 2021 and is about 9% lower than July 2021.  However, offsetting this has been the strong July jobs report and yesterday' industrial production figures.  The 0.6% was twice the median forecast (Bloomberg's survey) and the June decline (-0.2%) was revised away. The auto sector continues to recover from supply chain disruptions, and this may be distorting typically seasonal patterns.  Sales are rose in June and July, the first back-to-back gain in over a year. To some extent, supply is limiting sales, which would seem to encourage production.  Outside of autos, output slowed (year-over-year) for the third consecutive month in July.     Today's highlights include July retail sales and the FOMC minutes     Retail sales are reported in nominal terms, which means that the 13% drop in the average retail price of gasoline will weigh on the broadest of measures.  However, excluding auto, gasoline, building materials, and food services, the core retail sales will likely rise by around 0.6% after a 0.8% gain in June.  The most important thing than many want to know from the FOMC minutes is where the is bar to another 75 bp rate hike.  The Fed funds futures market has it nearly 50/50.     Canada's July CPI was spot on forecasts for a 0.1% month-over-month increase and a 7.6% year-over-year pace (down from 8.1%)     However, the core rates were firm than average increased.  The market quickly concluded that this increases the likelihood that the central bank that surprised the market with a 100 bp hike last month will lift the target rate by another 75 bp when it meets on September 7.  In fact, the swaps market sees it as a an almost 65% probability, the most since July 20.  Canada reports June retail sales at the end of the week.  The median forecast in Bloomberg's survey is for a 0.4% gain, but even if it is weaker, it is unlikely to offset the firm core inflation readings.     The dollar-bloc currencies are under pressure today, but the Canadian dollar is faring best, off about 0.25% in late morning trading in Europe     The Aussie is off closer to 0.75% and the Kiwi is down around 0.5%.  US equities are softer. The greenback found support near CAD1.2830 and is near CAD1.2880.  Monday and Tuesday's highs were in the CAD1.2930-5 area and a break above there would target CAD1.2985-CAD1.3000.  However, the intraday momentum indicators are overextended, and initial support is seen in the CAD1.2840-60 area. The greenback has forged a shelf near MXN19.81 in recent days.  It has been sold from the MXN20.83 area seen earlier this month.  It has not been above MXN20.05 for the past five sessions.  A move above there, initially targets around MXN20.20.  The JP Morgan Emerging Market Currency Index is off for the third consecutive session. If sustained, it would be the longest losing streak since July 20-22.     Disclaimer   Source: Markets Look for Direction
Liquidity at Stake: Exploring the Risks and Challenges for Non-Bank Financial Intermediaries

Sterling (GBP) And Dollar (USD) Are At The Top Of The World!!! What To Consider Next?

John Hardy John Hardy 17.08.2022 17:04
Summary:  The stronger US dollar is beginning to dominate across FX, and we haven’t even seen risk sentiment roll over badly yet, although this time it could be the US dollar itself that defines and drives financial conditions across markets. Elsewhere, we have seen an interesting fundamental test of sterling over the last couple of sessions, as sterling has begun rolling over today, even as a ripping increase in rate tightening bets in the wake of another hot CPI print out of the UK this morning. FX Trading focus: USD dominating again, GBP rate spike impact fading fast and indicating danger ahead for sterling. RBNZ hawkishness fails to impress the kiwi. The US dollar rally is broadening and intensifying, and US long yields are threatening back higher, which is finally pushing back against the recent melt-up in financial conditions/risk sentiment. The US July Retail Sales report looks solid, given the +0.7% advance in “ex Autos and Gas” sales after the June spike in average nationwide gasoline price to the unprecedented 5 dollar/gallon level. Yes, July gasoline prices were lower than June’s, but there wasn’t a huge delta on the average price for the month, and the impact of lower gas prices will likely be more in the August full month of vastly lower prices – presumably averaging closer to 4/gallon, together with the psychological relief that the spike seems in the rear view mirror, even if we can’t know whether a fresh spike awaits in the fall, after the draw on strategic reserves is halted. A strong US dollar, higher US yields and a fresh unease in risk sentiment are a potential triple whammy in which the US dollar itself is the lead character, as USDJPY has reversed back above 135.00 even before the US data, suggesting a threat back toward the cycle highs. AUDUSD has entirely reversed its upside sprint above 0.7000, refreshing its bearish trend after a squeeze nearly to the 200-day moving average there. Elsewhere, EURUSD and GBPUSD are a bit stuck in the mud, watching 1.0100 and 1.2000 respectively. The most important additional aggravator of this USD volatility in coming sessions would be a significant break higher in USDCNH if China decides it is tiring again of allowing the CNH to track USD direction at these levels. The pressure has to be building there after the PBOC’s rate cut at the start of the week. The UK July CPI release this morning raised eyebrows with another beat of expectations across the board, the day after strong earnings data. The 10.1% headline figure represents a new cycle and the month-on-month figure failed to moderate much, showing +0.6% vs. +0.4% expected. Core inflation also rose more than expected, posting a gain of 6.2% YoY and thus matching the cycle high from  April. The Retail Price Index rose 12.3% vs. 12.1% expected. The market reaction was easily the most interesting, as we have seek UK yields flying higher but failing to impress sterling much after a bit of a surge yesterday and into this morning. Now, sterling is rolling over despite a 40 basis point advance(!) in the 2-year swap rate from yesterday’ open, much of that unfolding in the wake of the CPI release today. Chart: GBPUSD Not that much drama at the moment in the GBPUSD chart, but that is remarkable in and of itself, as the soaring UK yields of yesterday and particularly today in the wake of a higher than expected CPI release are not doing much to support sterling. When rate moves don’t support a currency, it is starting to behave somewhat like an emerging market currency, a dangerous signal for the sterling, where we watch for a break of 1.2000 to usher in a test of the cycle lows below 1.1800, but possibly even the pandemic panic lows closer to 1.1500. The Bank of England hikes will only a accelerate the erosion of demand and slowdown in the UK economy that will lead to a harsh recession that the Bank of England itself knows is coming, but may have to prove slow to react to due to still elevated inflation levels, in part on a weak currency. Source: Saxo Group The RBNZ hiked fifty basis points as expected overnight and raised forward guidance for the Official Cash Rate path to indicate the expectation that the OCR will peak near 4%, a raising and bringing forward of the expected rate peak for the cycle. In the press conference, RBNZ Governor Orr spelled out the specific guidance that he would like to get the rate to 4% and take a significant pause to see if that is enough. “Our view is that sitting around that 4% official cash rate level buys the monetary policy committee right now significant comfort that we would have done enough to see inflation back to our remit.” NZ short rates were volatile, but hardly changed by the end of the day, meaning that NZD direction defaulted to risk sentiment, with a fresh dip in AUDNZD erased despite a weak AUD, and NZDUSD confirming a bearish reversal. Table: FX Board of G10 and CNH trend evolution and strength. Note the big shift in USD momentum, the most notable on the chart, although the absolute value of the SEK negative shift has been even larger over the last few days as EU woes and the growth outlook weigh even more heavily on SEK, which is often leveraged to the EU outlook, also as EURSEK has now failed to progress lower after a notable break below the 200-day moving average. Note the AUD negative shift as well, with sluggish wage growth data overnight for Q2 offering no helping hand. Source: Bloomberg and Saxo Group Table: FX Board Trend Scoreboard for individual pairs. USDJPY looks to flip back to a positive trend on a higher close today or tomorrow, the recent flip negative in GBPUSD looks confirmed on a hold below 1.2000, and AUDUSD looks a matter of time before flipping negative as well, while USDCAD has beaten it to the punch – although a more forceful upside trend signal there would be a close above 1.3000 again. Source: Bloomberg and Saxo Group Upcoming Economic Calendar Highlights (all times GMT) 1800 – US FOMC Minutes 1820 – US Fed’s Bowman (Voter) to speak 2110 – New Zealand RBNZ Governor Orr before parliamentary committee 0130 – Australia Jul. Employment Change (Unemployment Rate)   Source: FX Update: GBP in danger as rate spike fails to support. USD dominating.
Ukraine Saves The Day For The World As The Corridor Shipping Crops Is Opened. Other Countries Harvest Is Quite Low Therefore To Weather Issues

Ukraine Saves The Day For The World As The Corridor Shipping Crops Is Opened. Other Countries Harvest Is Quite Low Therefore To Weather Issues

Saxo Strategy Team Saxo Strategy Team 19.08.2022 11:33
Summary:  Equity markets managed a quiet session yesterday, a day when the focus is elsewhere, especially on the surging US dollar as EURUSD is on its way to threatening parity once again, GBPUSD plunged well below 1.2000 and the Chinese renminbi is perched at its weakest levels against the US dollar for the cycle. Also in play are the range highs in longer US treasury yields, with any significant pull to the upside in yields likely to spell the end to the recent extended bout of market complacency.   What is our trading focus?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures bounced back a bit yesterday potentially impacted by the July US retail sales showing that the consumer is holding up in nominal terms. The key market to watch for equity investors is the US Treasury market as the US 10-year yield seems to be on a trajectory to hit 3%. In this case we would expect a drop in S&P 500 futures to test the 4,200 level and if we get pushed higher in VIX above the 20 level then US equities could accelerate to the downside. Fed’s Bullard comments that he is leaning towards a 75 basis point rate hike at the September meeting should also negatively equities here relative to the expectations. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hang Seng Index edged up by 0.4% and CSI300 was little changed. As WTI Crude bounced back above $90/brl, energy stocks outperformed, rising 2-4%. Technology names in Hong Kong gained with Hang Seng Tech Index (HSTECH.I) up 0.6%. Investors are expecting Chinese banks to cut loan prime rates on Monday, following the central bank’s rate cut earlier this week. The China Banking and Insurance Regulatory Commission (CBIRC) is looking at the quality of real estate loan portfolios and reviewing lending practices at some Chinese banks. The shares of NetEase (09999:xhkg/NTES:xnas) dropped more than 3% despite reporting above-consensus Q2 revenue up 13% y/y, and net profit from continuing operations up 28%.  PC online game revenue was above expectations, driven by Naraka Bladepoint content updates and the launch of Xbox version. Mobile game segment performance was in line. USD pairs as the USD rally intensifies The US dollar rally is finding its legs after follow up action yesterday that took EURUSD below the key range low of 1.0100, setting up a run at the psychologically pivotal parity, while GBPUSD slipped well south of the key 1.2000 and USDJPY ripped up through 135.50 resistance. An accelerator of that move may be applied if US long treasury yields pull come further unmoored from the recent range and pull toward 3.00%+. A complete sweep of USD strength would arrive with a significant USDCNH move as discussed below, and the US dollar “wrecking ball” will likely become a key focus and driver of risk sentiment as it is the premiere measure of global liquidity. The next key event risk for the US dollar arrives with next Friday’s Jackson Hole symposium speech from Fed Chair Powell. USDCNH The exchange rate is trading at the highs of the cycle this morning, and all traders should keep an eye out here for whether China allows a significant move in the exchange rate toward 7.00, and particularly whether CNH weakness more than mirrors USD strength (in other words, if CNH is trading lower versus a basket of currencies), which would point to a more determined devaluation move that could spook risk sentiment globally, something we have seen in the past when China shows signs of shifting its exchange rate regime from passive management versus the USD. Crude oil Crude oil (CLU2 & LCOV2) remains on track for a weekly loss with talks of an Iran nuclear deal and global demand concerns being partly offset by signs of robust demand for fuel products. Not least diesel which is seeing increasing demand from energy consumers switching from punitively expensive gas. Earlier in the week Dutch TTF benchmark gas at one point traded above $400 per barrel crude oil equivalent. So far this month the EU diesel crack spread, the margin refineries achieve when turning crude into diesel, has jumped by more than 40% while stateside, the equivalent spread is up around 25%, both pointing to a crude-supportive strength in demand. US natural gas US natural gas (NGU2) ended a touch lower on Thursday after trading within a 7% range. It almost reached a fresh multi-year high at $9.66/MMBtu after spiking on a lower-than-expected stock build before attention turned to production which is currently up 4.8% y/y and cooler temperatures across the country lowering what until recently had driven very strong demand from utilities. LNG shipments out of Freeport, the stricken export plant may suffer further delays, thereby keeping more gas at home. Stockpiles trail the 5-yr avg. by 13%. US Treasuries (TLT, IEF) The focus on US Treasury yields may be set to intensify if the 10-year treasury benchmark yield, trading near 2.90% this morning, comes unmoored from its recent range and trades toward 3.00%, possibly on the Fed’s increase in the pace of its quantitative tightening and/or on US economic data in the coming week(s). Yesterday’s US jobless claims data was better than expected and the August Philadelphia Fed’s business survey was far more positive than expected, suggesting expansion after the volatile Empire Fed survey a few days earlier posted a negative reading.   What is going on?   Global wheat prices continue to tumble ... with a record Russian crop, continued flows of Ukrainian grain and the stronger dollar pushing down prices. The recently opened corridor from Ukraine has so far this month seen more than 500,000 tons of crops being shipped, and while it's still far below the normal pace it has nevertheless provided some relief at a time where troubled weather has created a mixed picture elsewhere. The Chicago wheat (ZWZ2) futures contract touch a January on Thursday after breaking $7.75/bu support while the Paris Milling (EBMZ2) wheat traded near the lowest since March. Existing home sales flags another red for the US housing market while other US economic data continues to be upbeat US existing home sales fell in July for a sixth straight month to 4.81 mn from 5.11 mn, now at the slowest pace since May 2020, and beneath the expected 4.89 mn. Inventory levels again continued to be a big concern, with supply rising to 3.3 months equivalent from 2.9 in June. This continues to suggest that the weakening demand momentum and high inventory levels may weigh on construction activity. The Philly Fed survey meanwhile outperformed expectations, with the headline index rising to +6.2 (exp. -5.0, prev. -12.3), while prices paid fell to 43.6 (prev. 52.2) and prices received dropped to 23.3 (prev. 30.3). New orders were still negative at -5.1, but considerably better than last month’s -24.8 and employment came in at 24.1 from 19.4 previously Fed speakers push for more rate hikes St. Louis Federal Reserve President James Bullard 2.6% with more front-loading in 2022. Fed’s George, much like Fed’s Daly, said that last month’s inflation is not a victory and hardly comforting. Bullard and George vote in 2022. Fed’s Kashkari said that he is not sure if the Fed can avoid a recession and that there is more work to be done to bring inflation down, but noted economic fundamentals are strong. Overall, all messages remain old and eyes remain on Fed Chair Powell speaking at the Jackson Hole conference on August 26, next Friday.  Japan’s inflation came in as expected Japan’s nationwide CPI for July accelerated to 2.6% y/y, as expected, from 2.4% y/y in June. The core measure was up 2.4% y/y from 2.2% previously, staying above the Bank of Japan’s 2% target and coming in at the strongest levels since 2008. Upside pressures remain as Japan continues to face a deeper energy crisis threat into the winter with LNG supplies possibly getting diverted to Europe for better prices. Still, Bank of Japan may continue to hold its dovish yield curve control policy unless wage inflation surprises consistently to the upside.   What are we watching next?   Strong US dollar to unsettle markets – and Jackson Hole Fed conference next week? The US dollar continues to pull higher here, threatening the cycle highs versus sterling, the euro and on the comeback trail against the Japanese yen as well. The US dollar is a barometer of global liquidity, and a continued rise would eventually snuff out the improvement in financial conditions we have seen since the June lows in equity markets, particularly if longer US treasury yields are also unmoored from their recent range and rise back to 3.00% or higher.  The focus on the strong US dollar will intensify should the USDCNH exchange rate, which has pulled to the highs of the cycle above 6.80, lurch toward 7.00 in coming sessions as it would indicate that China is unwilling to allow its currency to track USD direction. As well, the Fed seems bent on pushing back against market expectations for Fed rate cuts next year and may have to spell this out a bit more forcefully at next week’s Jackson Hole conference starting on Thursday (Fed Chair Powell to speak Friday). Earnings to watch The two earnings releases to watch today are from Xiaomi and Deere. The Chinese consumer is challenged over falling real estate prices and input cost pressures on food and energy, and as a result consumer stocks have been doing bad this year. Xiaomi is one the biggest sellers of smartphones in China and is expected to report a 20% drop in revenue compared to last year. Deere sits in the booming agricultural sector, being one of the biggest manufacturers of farming equipment, and analysts expect a 12% gain in revenue in FY22 Q3 (ending 31 July).   Today: China Merchants Bank, CNOOC, Shenzhen Mindray, Xiaomi, Deere Economic calendar highlights for today (times GMT) 1230 – Canada Jun. Retail Sales 1300 – US Fed’s Barkin (Non-voter) to speak Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Financial Markets Today: Quick Take – August 19, 2022
Rates on the Move: Dollar Rates Set to Rise, Sterling Rates Poised to Fall - US Labour Market Data Holds the Key!

Rates on the Move: Dollar Rates Set to Rise, Sterling Rates Poised to Fall - US Labour Market Data Holds the Key!

ING Economics ING Economics 31.05.2023 08:33
Rates Spark: Sterling rates most likely to fall, dollar rates more likely to rise US labour market data could trigger another leg higher in dollar rates but we doubt their euro peers will follow, barring a much stronger inflation print today. Hawkish BoE pricing is vulnerable to a pushback.   US labour market indicators take centre stage The start of the week is proving a constructive one for bonds. It seems the feel-good factor felt by markets, after the White House and House leader McCarthy reached a deal to raise the debt ceiling over the weekend, was short-lived. The deal is due to be voted on today by the lower chamber and later this week by the Senate. We think expectations are for the bill to pass, which also means the market-moving potential of a successful vote is limited. The same cannot be said of any delay on procedural grounds, although more would be needed to shake the market’s optimism.   Instead, the focus should now focus on more fundamental matters for interest rates valuations, namely this week’s two labour market releases. Today sees the publication of the ‘JOLTS’ job openings report, followed on Friday by the non-farm payroll report (which also includes wages). Rate cut expectations last month received a shot in the arm when job openings unexpectedly dropped but payroll data continues to go from strength to strength and we expect investors will be wary of chasing bond yields lower into the report as a result.   We expect investors will be wary of chasing bond yields lower into Friday's job report  
Assessing China's Economic Challenges: A Closer Look Beyond the Japanification Hypothesis"

Market Outlook: Indian Inflation Declines and Global Macro Developments Ahead of Fed Pause Decision

ING Economics ING Economics 12.06.2023 08:20
Asia Morning Bites 12 June 2023 Indian inflation later will show further declines. Markets are reasonably upbeat ahead of the likely Fed pause decision later this week.   Global macro and markets Global markets: US Stocks continued to push higher on Friday, seemingly finding comfort in the prospect of a pause from the Fed later this week, though markets are split over whether this will be the last hike this cycle, or whether there will be one more. The S&P 500 is now at levels it has not seen since last September. The NASDAQ is up 26.68% YTD – not bad for an economy that seems poised to slip into recession later this year….   Chinese stocks also made gains on Friday. Both the Hang Seng index and CSI 300 rose between 0.4-0.5%. US Treasury yields also pushed higher. Yields on the 2Y Treasury rose 8.1bp to 4.596%, while those on 10Y Treasury bonds rose just 2.1bp to 3.739%. EURUSD is pretty steady at 1.0749, though the AUD has pushed back up to 0.6745. Sterling is also stronger, rising to 1.2579 though the JPY is a little softer at 139.35. Asian FX is a bit mixed, with gains from the THB, and IDR, but further weakness from the CNY, which is now 7.13 following a month and a half of losses. G-7 macro: It is a quiet start to the week, though this won’t last. US CPI for May is out tomorrow, and we should see decent falls in the headline rate and some smaller declines in core inflation ahead of the FOMC decision, which comes out at 02:00 SGT on 15 June. China: Aggregate Finance data are released at some point this week, along with the usual monthly data dump on economic activity and MLF rates, which are out on 15 June – and there is some growing market speculation of a small rate cut. Regarding the activity data, we will be watching the retail sales figure, in particular, to see how the main engine of the recovery is doing. We expect it to slow from April as the post-re-opening spending bounce is not sustainable at current levels.   India: CPI data for May will show inflation falling further into the Reserve Bank of India’s (RBI’s) target range. We expect inflation to drop from 4.7% to 4.3%YoY (consensus 4.37%). Keep an eye out for the core inflation figures, which will be key for determining when the RBI may feel it can start thinking about winding back some of its tightening. For the moment, on-hold seems the more likely response. But the RBI won’t ignore a chance to give growth a chance if offered and may signal a more neutral stance at the next meeting on 10 August.     What to look out for: Japan PPI inflation and machine tool orders (12 June) India CPI inflation (12 June) Australia Westpac consumer confidence and NAB business confidence (13 June) US CPI inflation and NFIB small business optimism (13 June) South Korea unemployment (14 June) India Wholesale prices (14 June) Philippines OF remittances (14 June) US PPI inflation and MBA mortgage applications (14 June) FOMC policy meeting (15 June) New Zealand GDP (15 June) Japan core machine orders (15 June) Australia unemployment (15 June) China industrial production and retail sales (15 June) Indonesia trade (15 June) India trade (15 June) Taiwan policy meeting (15 June) ECB policy meeting (15 June) US retail sales and initial jobless claims (15June) Singapore NODX (16 June) BoJ policy meeting (16 June) US University of Michigan sentiment (16 June)
Weak Economic Outlook for China: Challenges in Debt Restructuring and Growth Prospects

Central Bank Jury: Inflation Concerns Delay Dollar's Decline

ING Economics ING Economics 13.06.2023 13:03
The central bank jury is most certainly still out on whether policymakers have done enough to tame inflation. The implications for FX markets are that the Fed may need to stay hawkish a little longer and our forecast cyclical dollar decline may get delayed. For now, however, we maintain the view that the dollar will be much lower by year-end   Executive Summary: Burden of proof Despite all the talk of economic slowdown and the turn in the inflation cycle, it seems that policymakers still lack sufficient evidence that inflation is under control. Swiss National Bank President Thomas Jordan recently warned of 'second and third round effects' in this inflation cycle. Central bankers as far apart as Australia and Canada have recently had to restart tightening cycles after brief pauses. Investors are now increasingly questioning their own convictions that rates have peaked.   Nowhere is this challenge greater than in the US where tight labour markets and core inflation stubbornly above 4% are keeping the Fed vigilant. And there is a chance that the Fed has to hike one last time this summer. Yet our house view remains that US disinflation becomes much more obvious in the third quarter and that hard will follow soft activity data lower. We still look for substantial Fed cuts in the fourth quarter.   This means we are still looking for the start of a cyclical multi-year dollar bear trend – probably starting in the third quarter. This should carry EUR/USD above 1.15 and USD/JPY well below 130. The tide of a softening dollar should lift most currencies around the world – especially higher-yielding currencies enjoying the benefits of the carry trade.   Within Europe, we forecast most currencies to hold recent gains against the euro – although sterling looks most at risk to Bank of England re-pricing. Modest CEE FX appreciation can continue – despite looming easing cycles. Latin FX looks constructive on the back of high yields and pockets of Asia can appreciate – especially the Korean won.
Weak Economic Outlook for China: Challenges in Debt Restructuring and Growth Prospects

Central Bank Jury: Inflation Concerns Delay Dollar's Decline - 13.06.2023

ING Economics ING Economics 13.06.2023 13:03
The central bank jury is most certainly still out on whether policymakers have done enough to tame inflation. The implications for FX markets are that the Fed may need to stay hawkish a little longer and our forecast cyclical dollar decline may get delayed. For now, however, we maintain the view that the dollar will be much lower by year-end   Executive Summary: Burden of proof Despite all the talk of economic slowdown and the turn in the inflation cycle, it seems that policymakers still lack sufficient evidence that inflation is under control. Swiss National Bank President Thomas Jordan recently warned of 'second and third round effects' in this inflation cycle. Central bankers as far apart as Australia and Canada have recently had to restart tightening cycles after brief pauses. Investors are now increasingly questioning their own convictions that rates have peaked.   Nowhere is this challenge greater than in the US where tight labour markets and core inflation stubbornly above 4% are keeping the Fed vigilant. And there is a chance that the Fed has to hike one last time this summer. Yet our house view remains that US disinflation becomes much more obvious in the third quarter and that hard will follow soft activity data lower. We still look for substantial Fed cuts in the fourth quarter.   This means we are still looking for the start of a cyclical multi-year dollar bear trend – probably starting in the third quarter. This should carry EUR/USD above 1.15 and USD/JPY well below 130. The tide of a softening dollar should lift most currencies around the world – especially higher-yielding currencies enjoying the benefits of the carry trade.   Within Europe, we forecast most currencies to hold recent gains against the euro – although sterling looks most at risk to Bank of England re-pricing. Modest CEE FX appreciation can continue – despite looming easing cycles. Latin FX looks constructive on the back of high yields and pockets of Asia can appreciate – especially the Korean won.
Market Focus: Economic Data and Central Banks' Policies

Dollar Caught Between Inverted Curves and Equities: FX Daily

ING Economics ING Economics 20.06.2023 09:29
FX Daily: Dollar trapped between inverted curves and rallying equities There has been little follow-through from the dollar selling we saw late last week. Currently, global markets present a curious picture of steeply inverting yield curves – which occasionally forewarn recession – but bid equity markets. Which market has it right? We tend to think the dollar will come lower in the second half, but again timing is everything.   USD: Dollar trapped in the middle of inverted curves and risk rally FX markets are relatively quiet following yesterday's public holiday in the US. Risk assets are marginally softer after Chinese authorities only cut the 5-year Loan Prime Rate by 10bps – disappointing those looking for more aggressive support from lower mortgage rates to China's property sector. USD/CNH pushing back up to 7.18 has kept USD/Asia bid and provides a mildly bullish undercurrent to the dollar as the European session gets underway. Softening the lens a little we see the dollar trapped between two stories and reflected in its 2% gains against the yen and 2% losses against sterling and commodity currencies over the last month. Those two stories are: i) steeply inverting yield curves as central banks try to squeeze inflation out of economies and ii) rallying equities on the view that recessions will be mild (perhaps because of low unemployment). Our big picture call here is that US disinflation comes through in the third quarter, bearish US yield curve inversion switches to bullish steepening, and the dollar falls more broadly. But we are not there yet. Back to the short term, there is only second-tier US data today in the form of housing starts and we have the Fed's James Bullard speaking at 1230CET today. He is one of the most hawkish Fed governors, but not an FOMC voter this year. Presumably, he may shed some light on why the Fed could hike by another 50bp this year (consistent with the latest Dot Plots), but that may not move the dollar needle much. DXY is to trade well within a 102.00-103.00 range and expect USD/JPY to continue nudging higher. It increasingly looks as though Japanese authorities will be called into FX intervention again near the 145 level.
Navigating Australia's Disinflationary Path: RBA Rates, Labor Market, and Inflation Outlook

Asia Morning Bites: Central Banks, Global Markets, and Key Economic Data

ING Economics ING Economics 26.06.2023 07:58
Asia Morning Bites Markets are still digesting the more hawkish central bank backdrop and events in Russia over the weekend. More central bank flavour will come this week from the Sintra ECB event, where Powell, Lagarde, Bailey and Ueda will be speaking. US PCE data rounds off the week.   Global Macro and Markets Global markets: Equities finished in the red on Friday. There was not much upside. Bourses opened down and then stayed down for most of the session. The S&P 500 fell 0.77%, and the NASDAQ fell 1.01%. Digesting the Fed’s recent comments about further rate hikes, and also the similar noises coming from the ECB and the Bank of England's surprise 50bp hike, together with anxiety about the unfurling events in Russia would all have weighed on sentiment. US equity futures are looking a bit brighter this morning. China was still on holiday at the end of last week. US Treasury yields dropped last Friday. The 2Y US Treasury yield fell 5bp to 4.741%. 10Y UST yields fell 6bp to 3.735%. EURUSD moved lower on Friday, falling to 1.0845 intraday before recovering to just above 1.09. The AUD was also weaker against the USD, falling to 0.668. Sterling was steadier, but Cable also lost ground to 1.2728, and the JPY was also weaker, rising to 143.521. Friday was a poor day for Asian FX, with declines across the board except where markets were closed for public holidays. The KRW, SGD, THB and MYR all lost 0.5% or more.   G-7 macro: US PMI data showed some signs of weakness on Friday. The Manufacturing PMI slid further into contraction territory, dropping to 46.3 from 48.4, while the service sector PMI softened to 54.1 from 54.9, though remains in expansion mode. Germany’s Ifo survey is about all we have to get excited about today. The ECB’s Central Bank forum in Sintra kicks off today.  The end of the week will be more interesting, with another dose of PCE data from the US.   Singapore:  Industrial production data will be released later this afternoon.  The market consensus points to another month of contraction (-7.1%YoY) as production tracks the struggles on the trade front.  We can expect this trend to continue in the near term given the outlook for global trade.    Philippines: President Marcos appointed former Monetary Board Member Remolona to take over as Bangko Sentral ng Pilipinas (BSP) Governor next week.  We are not expecting any major shifts in policy thinking from incumbent BSP Governor Medalla and we expect the BSP to match any moves by the Fed in the coming months.      What to look out for: Singapore industrial production and Powell's comments later in the week Singapore industrial production (26 June) Taiwan industrial production (26 June) 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)
Housing Cracks and Central Bank Considerations: Analyzing Vulnerabilities and Implications

Housing Cracks and Central Bank Considerations: Analyzing Vulnerabilities and Implications

Ipek Ozkardeskaya Ipek Ozkardeskaya 05.07.2023 08:22
Housing cracks...  Note that that's not the case elsewhere. The UK, Hong Kong and Commonwealth countries including Canada, Australia and New Zealand are the most vulnerable to the cracks in the housing market because the share of houses bought on mortgages on shorter-term fixed rates or variable rates are higher. In New Zealand, for example, house prices fell the most in 8 months in June and are down by more than 10% since a year earlier.     Interestingly, the US dollar index remains broadly unresponsive to the Fed's hawkishness, but against the greenback could perform better against the Aussie, Kiwi, sterling, and the Loonie in the second half, because the central banks of all the cited countries will have to sit down and think of broader economic implications of a full-blast housing crisis. History shows that, going back to the 1990s' Japan, where the Bank of Japan (BoJ) raised rates to halt the housing bubble, and which then triggered a real estate crisis, the implications were a long and dark tunnel of asset devaluation, reduced consumer spending, bankruptcies, a weakened banking sector, deflation, and long-term economic stagnation. That's certainly why Japan prefers letting inflation run hot, rather than hiking the rates and send the country to another, and a very sticky deflationary phase.    USDJPY capped near 145  And speaking of Japan, the rally in dollar-yen remains capped at 145 level. The only direction that the BoJ could take from here is the hawkish path, therefore turning long yen will, at some point, become a star trade. Yet getting the timing right is crucial and it all depends on a greenlight from the BoJ. 
FX Talking: The Dollar's Break Point Signals Lower US Inflation and Favorable Environment for Pro-Cyclical Currencies

FX Talking: The Dollar's Break Point Signals Lower US Inflation and Favorable Environment for Pro-Cyclical Currencies

ING Economics ING Economics 14.07.2023 15:18
FX Talking: The dollar’s break point The first real signs of US disinflation this year have sent the dollar lower. We should now begin seeing a series of lower US inflation prints, which will support the soft-landing narrative and deliver the kind of cyclical dollar decline we have been expecting. This should be a better environment for pro-cyclical currencies, helping EUR/USD towards 1.15It has been a long time coming, but this month’s release of US June inflation data might actually be the point at which the dollar breaks lower. Like many, we had been looking for a cyclical drop in the dollar in the second half of 2023. Now some strong evidence of US disinflation might just be the catalyst for this important market adjustment. Within the G10 space, the biggest beneficiaries of the softer US price data have been the unloved Scandinavian currencies which had been the biggest victims of hard landing fears. What could now be the start of some sizable bullish steepening in the US yield curve will help the pro-cyclical currencies on the view that peak rates are close at hand. Our team looks for one last rate hike from the Federal Reserve and two further hikes from the European Central Bank. This should allow EUR/USD to better connect with its fundamentals, although we doubt that the rally will be as quick as the one seen last November-December. However, EUR/USD now has a clear bias towards 1.15 over the coming months and quarters. Elsewhere in G10, the Bank of Japan probably needs to normalise policy further to get USD/JPY trading well under 135 – but that certainly looks to be the direction of travel. Sterling may temporarily hold gains until UK price data softens – potentially in the fourth quarter. And the Swiss National Bank will continue to manage the trade-weighted Swiss franc stronger. Within EM, CE4 FX might struggle to rally substantially further against the euro and weak Chinese growth is proving a headwind. Yet, the EM asset class may now enjoy the strongest portfolio inflows since late 2020 and Latin currencies can continue to perform well given relatively large weightings in key benchmarks.  
The Carbon Footprint of Different Steel Production Technologies

FX Update: US Dollar Consolidates as ECB Dovish Comments Impact EURUSD, UK Inflation Eases, Sterling Faces Challenge

Ipek Ozkardeskaya Ipek Ozkardeskaya 19.07.2023 09:54
In the FX   The US dollar index consolidates at the lowest levels since April 2022, as the oversold market conditions certainly encourage short-term traders to pause and take a breather. Also helping are some dovish comments from European Central Bank's (ECB) Knot yesterday, who said that monetary tightening beyond next week's meeting is not guaranteed, while at least two 25bp hikes were seen as almost a done deal by markets until yesterday. Ignazio Visco also hinted that inflation could ease more quickly than the ECB's latest projections. So the comments sent the German 2-year yield to a 3-week low. The EURUSD bounced lower after hitting 1.1275, and rising dovish voiced from the ECB could keep the EURUSD within the 1.10/1.12 range into the next policy decision.   Across the Channel, inflation numbers freshly came in this morning, revealing that inflation in Britain eased to 7.9% in June versus 8.2% expected by analysts and 8.7% printed a month earlier. Core inflation on the other hand fell below the 7% mark last month. Cable slipped below 1.30 as a kneejerk reaction as softer inflation tempered Bank of England (BoE) hawks. But even with a softer-than-expected figure, inflation in Britain remains high and stickier than in other Western economies, and that keeps odds for further BoE action sensibly more hawkish than for other major central banks. The BoE raised its policy rate to 5% at its latest meeting, and is expected to continue toward 6.5 to 7% range in the next few months. If inflation slows, the peak rate will be pulled to 6-6.5% range, but not lower. And rising rates, that weigh on mortgages in Britain where Brits must renew mortgages every 2-5 years, pressure housing market and fuels the worst living crisis in decades, combined with political shakes into next year's elections are all factors that could stall the rally in sterling against major peers. Cable benefited from a broad-based weakness in the US dollar since last September dip, but gaining field above the 1.30 mark could prove difficult.    
BRICS Summit's Expansion Discussion: Impact on De-dollarisation Speed

BRICS Summit's Expansion Discussion: Impact on De-dollarisation Speed

ING Economics ING Economics 17.08.2023 09:20
Would a larger bloc mean faster de-dollarisation? The BRICS grouping of major emerging economies, Brazil, India, China, South Africa and Russia, is holding its fifteenth summit later this month. Up for discussion: an expansion of the bloc, greater use of local currencies and the possibility of a BRICS currency which may have the potential to challenge the dominance of the US dollar. Any expansion of the BRICS grouping could determine the speed with which the bloc adopts commercial and financial systems outside of the dollar sphere. Speculation is rife as to how many countries, if any, will join the club – for the first expansion in a decade.   In order to evaluate how the political ambitions correlate with underlying economic trends, we take a closer look at the overall evolution of the US dollar’s role in the various areas of the global economy and markets. Here are the observations so far: There has been a drop in the dollar’s share of central banks’ FX reserves, but dollar usage has held up very well in commerce, private assets, debt issuance, and generally on the global FX market. Among the potential dollar challengers, the euro may seem like a runner-up, but its dominance is seen only in Europe. Looking at the BRICS, China’s amplification of renminbi swap lines seems to have helped promote the use of its currency in trade and international reserves, and Russia’s geopolitical aversion to the dollar gave CNY an additional boost, but China’s capital controls and low issuance of panda bonds remain an obstacle. The rising usage of alternative currencies does not seem to be threatening the dollar but rather increasing the competition among the regional currencies amid fragmentation of the trade and capital flows. No currency has made any inroad to the dollar’s pre-eminent status as the issuance currency of choice. Having been a major factor in removing sterling’s crown last century, challenging the dollar’s status in the international debt market has to be a central strategy for the young pretenders.     Overall, we do not see any conclusive evidence that the dollar is on the path of structural decline at this point. However, it is still facing challenges, stemming from both economics and geopolitics.
Morning Market Update: Korean Inflation Surprises, RBA Governor's Final Meeting Expected to Be Uneventful

Morning Market Update: Korean Inflation Surprises, RBA Governor's Final Meeting Expected to Be Uneventful

ING Economics ING Economics 05.09.2023 11:18
Asia Morning Bites Korean inflation surprises on the upside as bad weather causes food prices to spike. Lowe's last meeting as RBA Governor is likely to be uneventful.   Global Macro and Markets Global markets:  With the US out for Labour Day on Monday, there isn’t much market action to report. Equity futures aren’t providing much insight into today’s open either. Chinese stocks had a good start to the week, buoyed by further reductions in down payments for mortgages across a number of Chinese cities and the Country Garden debt repayment deal. The CSI 300 rose 1.52% and the Hang Seng rose 2.51%. European bond yields rose slightly, The yield on German 2Y and 10Y government bonds rose by about 3bp. EURUSD had a quiet day and remains below 1.08. The AUD was also steady ahead of today’s likely no-change RBA meeting. Sterling made some small gains taking it back above 1.26 and the JPY drifted fractionally higher to 146.49. There was very little action in Asian FX markets, besides the THB, which weakened to 35.235   G-7 macro:  With the US out on vacation, there was nothing of note on the G-7 calendar yesterday.  Final service sector and composite PMIs are out today in Europe. No changes are expected.  Final US durable goods orders and factory orders are due for July. Factory orders will likely reverse the 2.3% gain in June with a 2.5% decline. The ECB’s Lagarde gave nothing away about next week’s rate meeting in a speech yesterday in London. But the Bundesbank President, Joachim Nagel, suggested raising reserve requirements to “tackle the excess liquidity story”. Australia: The Reserve Bank of Australia (RBA) meeting today is Governor Philip Lowe’s last, and it should be an uneventful one. The surprise drop in inflation in July from 5.4% to 4.9% should be enough to keep rates on hold at this meeting. And indeed, we may have seen the peak in rates from the RBA as Michele Bullock takes over. However, the next three months’ base effects are far less helpful than they have been in the prior 6 months, and we may see inflation’s progress stall or even backslide. So, while the chances of another and almost certainly final rate hike have diminished, we aren’t totally ruling out one more before the year-end.   Singapore: Retail sales for July are set for release this afternoon. We expect another month of modest gains with retail sales up roughly 2%YoY.  The steady increase of visitor arrivals is likely supporting department store sales and services related to rest and recreation.  Retail sales have been one of the few bright spots for the economy this year with both trade and manufacturing struggling.      South Korea: Consumer price inflation reaccelerated in August after six months of cooling, recording a 3.4% YoY gain (vs 2.3% in July and the market consensus of 2.9%). The main upside surprises came from fresh food and pump prices, which rose more than expected due to bad weather and the recent pick-up in global oil prices. However, core inflation (excluding food and energy) stayed at 3.3% for a second month. Although the pace of inflation sped up again, it does not deviate much from the BoK’s own inflation projection and it is likely to be considered a temporary pick-up only. Also, with weaker-than-expected monthly activity data, domestic growth conditions are expected to deteriorate further in 2H23, so it is unlikely that the Bank of Korea (BoK) will respond with an additional rate hike. Looking ahead, we believe headline inflation will calm down after Chooseok holiday, but core inflation will likely accelerate again over the next couple of months which will support the BoK’s hawkish tone throughout the year. Based on today’s results, we have revised up our annual CPI forecast from 3.3% YoY to 3.5% for 2023 and 1.8% to 2.0% for 2024. Also, given inflation will likely remain above the BoK’s target until the end of this year, we have pushed back our forecast for the BoK’s first cut from 4Q23 to 2Q24.    Philippines: August inflation is set for release today. The market consensus is for inflation to be flat at 4.7%YoY.  We expect, however, the impact of accelerating prices for rice and energy-related commodities to push headline inflation to 5.0%YoY.  Crop damage and low production due to the onset of El Nino have pushed up retail prices for rice, which counts for 9% in the CPI basket. What to look out for: RBA decision South Korea GDP and CPI inflation (5 September) Japan Jibun PMI services (5 September) Regional PMI (5 September) China Caixin PMI services (5 September) Philippines CPI inflation (5 September) Thailand CPI inflation (5 September) Australia RBA decision (5 September) Singapore retail sales (5 September) US factory orders and durable goods orders (5 September) Australia GDP (6 September) Taiwan CPI inflation (6 September) US trade balance and ISM services (6 September) 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) Meanwhile, resurgent global energy costs have filtered through to higher domestic fuel prices. With inflation flaring up again, we could see Bangko Sentral ng Pilipinas forced to put off their rate cuts, possibly into mid-2024. 
iPhones Banned in Chinese Offices: Tech Tensions Escalate

Asia Morning Bites: Asian FX Under Pressure as US Rates Climb, Australia and China Trade Reports in Focus

ING Economics ING Economics 08.09.2023 10:13
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)
ECB Meeting Uncertainty: Rate Hike or Pause, Market Positions Reflect Tension

Global Market Insights: ECB Meeting, US Retail Sales, and Australia's Labor Report on the Radar

ING Economics ING Economics 14.09.2023 08:05
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)
California Leads the Way: New Climate Disclosure Laws Set the Standard for Sustainability Reporting

How Will Central Banks Respond to Current Challenges?

Ipek Ozkardeskaya Ipek Ozkardeskaya 19.09.2023 13:28
Hawkish pause?  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Strikes at GM, Ford and Stellantis factories dampened overall market sentiment on Monday. The walkout led by United Auta Workers (UAW) began last Friday and saw little progress as the union refused a 21% pay rise offered to workers. Shawn Fain, who is at the helm of the movement, demands a 40% pay rise and 32-hour workweek – unprecedented for the US. Good luck to both parties in these negotiations.   GM, Ford and Stellantis fell yesterday. The barrel of US crude traded past the $92 level, as Brent crude advanced past $95pb. I believe that we are approaching a peak in the actual oil rally and we should see a downside correction of at least 5-6% from the actual levels, yet the damage from rising oil prices is already showing in inflation numbers. That's partly why the European Central Bank (ECB) announced a 'dovish hike' last week.  A hawkish pause?  This week, the US policymakers will certainly opt for a 'hawkish pause'. The Fed will likely revise its growth expectations significantly higher on the back of resilient consumer spending and solid growth. The looming talk of another government shutdown, the student loan repayments and the UAW strikes will sure have a negative impact on US growth numbers, but US Treasury Secretary Janet Yellen defends the scenario of 'soft landing' as labour market is still healthy, industrial output is rising and inflation is coming down, she says.   Despite the latest softness in the jobs data, the US inflation figures last week surprised to the upside. A major part of disinflation since last summer was due to waning post-Covid supply issues that led to higher supply, hence slower price growth. But the improvement in supply could be coming to an end, and oil prices are rising. Therefore, the Fed will certainly sound cautious and reasonably hawkish this week. The so called dot plot will certainly point at another rate hike before the year end, and a higher median rate throughout next year.   The US dollar index tested the important 38.2% Fibonacci resistance last week, especially after the euro sold off following the ECB rate hike. The Fed announcement could push the US dollar index into the medium-term bullish consolidation zone.   A dovish hike?  If the Fed is not expected – not even a little bit – to hike rates this week, the Bank of England (BoE) could hike the bank rate by a final 25bp on Thursday. It's possible that a hawkish pause from the Fed propels the dollar higher, while a dovish hike from the BoE has the opposite impact on sterling. Cable slid below its 200-DMA last week and is now back in a long-term bearish trend.   And nothing...?  In Japan, not much is expected to change this week. Warnings from Japanese officials that a further yen selloff would spark a direct FX intervention slowed down but not reversed the JPY selloff. The USDJPY is trading just below the 148 level, with, sure, limited upside potential, and of course a good downside potential, but that downside potential must be unlocked by a reasonably hawkish BoJ, and I don't see that coming this week.    
A Bright Spot Amidst Economic Challenges

A Bright Spot Amidst Economic Challenges

Ipek Ozkardeskaya Ipek Ozkardeskaya 25.09.2023 11:05
A bright spot If there is one bright spot in Britain with all this, it is the FTSE100. First, the rising energy prices are good for the energy-rich FTSE100. Second, softer sterling makes these companies more affordable for international investors, who should of course think of hedging their sterling exposure, and third, more than 80% of the FTSE100 companies' revenues come from oversees, which means that when they convert their shiny dollar revenues back to a morose sterling, well, they can't really complain with a stronger dollar. Consequently, if a more dovish BoE is bad for sterling, the combination of a hawkish Fed and a dovish BoE and a pitiless OPEC is certainly good for the FTSE100. The index has been left behind the S&P500 this year, as the tech rally is what propelled the American index to the skies, but that technology wind is now turning direction. The FTSE 100 broke its February to September downtrending trend to the upside and is fundamentally and technically poised to gain further positive traction, whereas, the S&P500 is heaving a rough month, with technology stocks set for their worse performance this year, under the pressure of rising US yields, which make their valuations look even more expensive.   Interestingly, the US 2-year yield peaked at 5.20% after the Fed's hawkish pause this week and is back headed toward the 5% mark, but the gap between the US 2-year yield and the top range of the Fed funds rate is around 40bp, which is a big gap, and even if the Fed decided not to hike rates, this gap should narrow, in theory. If it does not, it means that bond traders are betting against the Fed's hawkishness and think that the melting savings, the loosening jobs market, tightening bank lending conditions and strikes, and restart of student loan repayments and a potential government shutdown could prevent that last rate hike to happen before this year ends. And indeed, activity on Fed funds futures gives more than 70% chance for a third pause at the FOMC's November meeting, and Goldman Sachs now sees the US expansion slow to 1.3% from 3.1% printed in the Q3. KPMG also warned that a prolonged auto stoppage may precipitate contraction. And if no deal is inked by noon today, the strikes will get worse.   One's bad fortune is another's good fortune  The Japanese auto exports surged big this year, they were 50% higher in yen terms. The yen is certrainly not doing well, but yes, you can't have it all. That cheap yen is one of the reasons why the Japanese export so well outside their country. And in case you missed, the BoJ did nothing today to exit their hyper-ultra-loose monetary policy. They didn't even give a hint of normalization, meaning that the yen will hardly strengthen from the actual levels. In the meantime, Toyota, Mitsubishi and Honda shares are having a stellar year, and the US strikes will only help them do better. 
The December CPI Upside Surprise: Why Markets Remain Skeptical About a Fed Rate Cut in March"   User napisz liste keywords, oddzile je porzecinakmie ChatGPT

BoE Faces Dilemma Amid Hawkish Fed and Economic Challenges: Analyst Insights

ING Economics ING Economics 02.11.2023 12:56
BoE between a rock and a hard place.  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   As widely expected, the Federal Reserve (Fed) maintained its interest rates unchanged at this week's meeting and President Jerome Powell cited that the recent surge – especially in the long end of the US yield curve – helped tightening the financial conditions in the US. Powell repeated that the Fed is proceeding carefully but that they are 'not confident that inflation is on path toward 2%' target'. US policymakers redefined the US economic outlook as being 'strong', from being just 'solid'.  In summary, the latest Fed decision was not dovish, unsurprisingly hawkish, and did not impact appetite in US bonds which got a boost from the Treasury's announcement of a slightly lower-than-expected quarterly refunding auction size for the 3, 10 and 30-year maturity bonds next week. Cherry on top, the US Treasury said that they now expect one more step up in quarterly issuances for the long-term debt, whereas the expectation was multiple more step ups.   The US 10-year yield sank to 4.70% after the Fed decision and Treasury's much-awaited issuance calendar reveal, the 30-year yield fell to 4.90%. The fact that the US will borrow slightly less than previously thought and slightly less on the long-end of the curve doesn't mean that the fiscal outlook improved. Though lower-than-expected, the $776bn that the US Treasury is planning to borrow this quarter is a record for the last 3 months of a year. And the net interest payments on the US federal debt are rising at an eye-watering speed. In numbers, the federal debt rose more than a third since the end of 2019, and the interest expenses on that debt rose by almost 40%. That's a detail for Janet Yellen who thinks that the surge in US yields is explained by the positive economic outlook, but the market won't allow the Treasury to borrow like its pockets have no bottom if the Fed is not part of it.   Bad news, good news the sharp decline in October ISM manufacturing PMI and the softer-than-expected ADP read helped boosting sentiment in US Treasuries, as they somehow softened the otherwise strong US economic outlook. The JOLTS data unexpectedly rose but no one was out looking for reasons to sell Treasuries yesterday, so that basically went unheard. The official US jobs data is due Friday and any strength in NFP, or wages could reverse the optimism that the US economic growth will... slow. And as bad news is sometimes good news for the market, the S&P500 rebounded more than 1% and closed the session at a spitting distance from the all important 200-DMA, while the rate-sensitive Nasdaq jumped almost 1.80%.   AMD, Qualcomm gain, Apple to report On the individual level, AMD jumped almost 10% yesterday. Even though the company gave a soft guidance for Q4, they said that they expect to sell more than $2bn worth of AI chips next year. That's a lot, that's more than a third of the actual revenue they make. Qualcomm jumped nearly 4% in afterhours trading, as the world's largest seller of smartphone chips gave a better-than-expected prediction for this quarter, saying that the inventory glut in mobile-phone industry may be receding.   Today, Apple will post its Q3 earnings, after the bell. We have reservations regarding the results as the iPhone15 sales are not as brilliant as investors hoped they would be, and Huawei is apparently eating Apple's market share in China. Apple's overall revenue is seen down by around 3%. Ouch. The good news is that the morose expectations could be easier to beat. Otherwise, we could see Apple tank below the $170 per share, into the bearish consolidation zone, and become vulnerable to deeper losses.  BoE not to raise rates, but its inflation tolerance The Bank of England (BoE) is the next major central bank to announce its rate decision today, and the Brits are not expected to raise the interest rates at today's MPC meeting, but they are expected to increase their tolerance faced with above 2% inflation, instead. That's not good for central bank credibility, even less so when the BoE's credibility is not at its best since the start of this tightening cycle. If investors sense that the BoE will let inflation run hot, by lack of choice, sterling could take a significant hit.   Gold and oil  Appetite in gold eases as Israelian attacks are perceived as being less aggressive than what they could be. De-pricing of Mid-East risks could send the price of an ounce to, or below the 200-DMA, near the $1933 level. Upside risks prevail, but fresh news should gradually lose their shocker impact and the $2000 per ounce level will likely attract top sellers more than anything else.   US crude rebounded near the $80pb yesterday, as the decline toward the psychological $80pb level brought in dip buyers. We could reasonably expect the US crude to correct toward $85pb as geopolitical tensions loom, and supply remains at jeopardy.    
Red Sea Shipping Crisis Continues Unabated: Extended Disruptions Forecasted Into 2024

Turbulent Markets: Apple's Disappointment and the Jobs Day Impact

Ipek Ozkardeskaya Ipek Ozkardeskaya 03.11.2023 14:11
Jobs day!  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The S&P500 jumped almost 2% to above its 200-DMA, and Nasdaq 100 gained 1.74% and tested its 50-DMA to the upside as the rally in the US sovereign bonds extended to another day.   Apple disappoints Apple will likely slow the rally in major US indices. Apple shares dived up to 4% in the afterhours trading after announcing that the sluggish Chinese demand for iPhones dented revenue. The Mac computers sales also fell short of a billion USD. Apple sales fell for the fourth straight quarter, the longest such decline in 22 years. As a result, Apple stock could sink to $170 a share, the critical 38.2% Fibonacci retracement level, if taken out, would let Apple sink into the medium-term bearish consolidation zone. The only thing that could save Apple from falling into dark waters is... a further rally in US bonds, and a further fall in yields.  Falling yields are no good for Fed The US bond rally popped this week because the US Treasury said that it would borrow slightly less than previously thought and slightly less 3-, 10- and 30-year papers. The Federal Reserve (Fed) hinted that the rate hikes could be coming to an end because the recent surge in US long term yields helped them tighten the financial conditions without the need for another rate hike.   But if the yields fall at this speed, the Fed expectations will become hawkish very quickly, and depending on how far the market will go, the Fed could be obliged to hike rates again in December, or in January to keep financial conditions tight enough.   Jobs day!  US growth is strong, and the jobs market remains healthy. The Fed thinks that solid labour-force participation and immigration explain the resilience of the jobs market. According to the consensus of analyst estimates on Bloomberg, the US economy is expected to have added 180K new nonfarm jobs, the unemployment rate is seen steady at around 3.8% and the wages growth may have slowed from 4.2% to 4% on an annual basis. Any strength in job additions or wages growth data could bring bond trades back to earth and remind them that if the US jobs market - and the economy - remains this strong, the Fed could turn hawkish again. But strong jobs data in a context of higher supply is not necessarily inflationary.  Gloomy UK outlook  The Bank of England (BoE) kept its interest rate unchanged for the second straight month yesterday. Some MPC members still voted for a 25bp hike to make sure that the pause is not premature, but they all said the same thing: it's too early to talk about rate cuts.   Good news is that inflation may fall below 5% in October and somewhere near 4.5% by the year end. But at 4.5-5%, inflation is still more than twice the BoE's policy target. Therefore, the BOE can't promise that it's done hiking. It could only hope that the cumulative impact of higher rates on the economy would do the rest of the heavy lifting.   In the best-case scenario, the UK's gloomy economic outlook - which seems to become gloomier as months go by - weighs on demand and brings inflation lower. In the worst-case scenario, inflation remains sticky while the economy sinks into a recession. In both cases, the BoE wouldn't hike. The expectation of another hike is down to 1 in 3 and markets now fully price in 3 quarter-point cuts by the end of 2024. The softer economic outlook and softening BoE expectations are threatening for sterling bulls both against the US dollar and the euro.  
FX Daily: Resilient Dollar Faces Light Trading Post-Thanksgiving, Eyes on PMIs and Global Developments

FX Daily: Resilient Dollar Faces Light Trading Post-Thanksgiving, Eyes on PMIs and Global Developments

ING Economics ING Economics 27.11.2023 14:22
FX Daily: Is less growth pessimism enough? PMIs came in stronger than expected in the eurozone and the UK yesterday and will be released in the US today. Despite the notion that eurozone growth pessimism may have peaked, rate differentials still point to a weaker EUR/USD. We see EUR/GBP staying pressured. Riksbank FX sales will be in focus after yesterday's hold, and we don't expect any more hikes.   USD: Half-day trading US markets reopen today after the Thanksgiving holiday, but only for a half-day session. Expect volumes to be very thin again. On the data side, we’ll see the release of US S&P PMIs, a piece of data that has triggered a growing market impact, but may fail to decisively steer the dollar in a low-volume day. As we had expected, the dollar is stabilising amid reduced Thanksgiving flows, and an attempt to rally from the euro and sterling following somewhat encouraging PMIs didn't last much longer.  The quieter US calendar has seen market focus being re-directed, namely on oil market developments, a ceasefire in the Israel-Hamas conflict and Chinese real estate news. On the former, the decision by OPEC+ to delay its meeting scheduled for this weekend due to disagreement on output cuts took a brief hit on crude earlier this week. Our commodities team notes that the ongoing disagreement between members will likely increase volatility within the market over the course of the next week, although it is unclear how this will affect broader policy. In China, we saw an unprecedented policy discussion by the central government to support the real estate sector, as it reportedly planning to allow banks to issue unsecured short-term loans to qualified developers. We would be cautious to think that this will spur a round of optimistic buying on Chinese assets. While it is a positive development on paper, it does signal a very concerned mood in Beijing about the developers' crisis. It should be a relatively quiet day in FX today. We expect the dollar to keep stabilising around current levels. The next two weeks will set the tone for FX markets into Christmas, with key data (like payrolls) published in the US.
Bank of Japan Keeps Rates Steady, Paves the Way for April Hike Amidst Market Disappointment

Asia Morning Bites: Focus on China's October Industrial Profits Amid Global Market Dynamics

ING Economics ING Economics 27.11.2023 15:08
Asia Morning Bites China profits data for October to dominate Asian macro releases on an otherwise quiet day.   Global macro and markets Global markets: US Treasuries ended the week with yields rising again. The yield on the 2Y Treasury rose 4.9bp, while the 10Y yield went up 6.2bp to 4.466%, taking it close to the 4.50% line again. The USD was softer again on Friday. EURUSD rose to 1.0943. The AUD has tested the 0.6590 level before settling down to around 0.6584. Sterling has broached 1.26 for the first time since September. But the JPY is still hovering below 1.50 and hasn’t gained as much as its other G-10 peers. Other Asian FX was mostly softer on Friday and will likely catch up with the G-10 moves this morning. The weaker currencies, KRW, THB, and TWD will probably outperform the others. The CNY is little changed at 7.1490. US equities did very little on a low trading volume day as many market participants dragged the Thanksgiving holiday over to the weekend. US equity futures are looking a bit negative today. Chinese markets were down on Friday, possibly reflecting unease after a criminal probe was launched into the financial conglomerate, Zhongzhi, though most of the weakness in the CSI 300 came from the info-tech part of the index, along with consumer discretionary stocks and industrials. Financials were down 0.44% on the day. G-7 macro: Friday’s very meagre offerings on the macro front don’t offer much new insight. The S&P PMI indices for the US rose fractionally for manufacturing but remained just in contraction territory at 49.9. The service sector PMI was stronger at 50.3, but down from the October 50.8 reading, and takes the composite PMI down to just 50.4. There isn’t enough history for this series to draw any meaningful conclusions from this. Today, we just get US new home sales for October. The US housing market has been doing surprisingly well, but the market is looking for a small 4.7% MoM decline this month – mainly a statistical pullback from the very robust September figure. China: Industrial profits data for October come out today. This is expected to show the contraction in earnings abating slightly, in line with some of the slightly stronger PMI and activity figures. The September figure was a -9.0%YoY ytd decline. Figures around the -6.7% mark have been cited as the consensus forecast. What to look out for: China Industrial Profits and US new home sales China industrial profits (27 November) Thailand trade (27 November) US new home sales (27 November) Australia retail sales (28 November) Taiwan GDP (28 November) US Conference board consumer confidence (28 November) South Korea business survey (29 November) US GDP, personal consumption, wholesale inventories (29 November) US Fed Beige book (30 November) South Korea industrial production and BoK meeting (30 November) Japan retail sales and industrial production (30 November) China PMI manufacturing and non-manufacturing (30 November) US initial jobless claims and personal spending (30 November) US pending home sales (30 November) Japan jobless rate and job-applicant ratio (1 December) South Korea trade balance (1 December) Regional PMI (1 December) China Caixin PMI (1 December) Indonesia CPI inflation (1 December) US ISM manufacturing (1 December)
AI Fitness App Zing Coach Raises $10 Million in Series A Funding to Combat Inactivity and Build Healthy Habits

Taming Rate Cut Expectations: Bank of England's Stance and Market Dynamics in 2024

ING Economics ING Economics 12.12.2023 13:41
Bank of England to push back against rising tide of rate cut expectations Markets are pricing three rate cuts in 2024 and we doubt the Bank will be too happy about that. Expect policymakers to reiterate that rates need to stay restrictive for some time. But with services inflation coming down and wage growth set to follow suit, we think investors are right to be thinking about a summer rate cut. We expect 100bp of cuts next year.   Markets are ramping up rate cut bets, and Governor Bailey isn't happy about it Financial markets are rapidly throwing in the towel on the “higher for longer” narrative that central banks have been pushing hard upon for months. Even more remarkably, a small but growing number of policymakers from the Federal Reserve to the European Central Bank seem to be getting second thoughts too. So far, that market repricing has been less aggressive for the Bank of England. Investors are expecting three rate cuts next year compared to more than five over at the ECB. The first move is seen in June, as opposed to March over in Frankfurt. Despite that more modest adjustment, the Bank of England is starting to sound the alarm. Governor Andrew Bailey said in recent days that he is pushing back “against assumptions that we're talking about cutting interest rates". Those comments followed a firming up of the Bank’s forward guidance back in early November, where it said it expected rates to stay restrictive for “an extended period”. Its November forecasts, premised on rate cut expectations at the time, indicated that inflation may still be a touch above 2% in two years’ time. That was a hint, if only a mild one, that markets were prematurely pricing easing - and rate cut bets have only been ramped up since.   Rate cut expectations are building, though less rapidly than in the US/eurozone   Expect rate cut pushback on Thursday, but investors are right to be thinking about easing That gives us a flavour of what we should expect next week. While the chances of a surprise rate hike have long since faded away, there’s a good chance that the three hawks on the committee once again vote for another 25bp rate increase, leaving us with a repeat 6-3 vote in favour of no change. We only get a statement and minutes on Thursday, and no press conference or forecasts, so the opportunity to shift the messaging is fairly limited. But we expect the same hawkish forward guidance as last time, including the line on keeping rates restrictive for a prolonged period of time. Could the Bank be tempted to go further still and formally say that markets have got it wrong? The BoE has shown itself less willing than some other central banks to either comment directly on market pricing in its post-meeting statements, or make predictions about how it'll vote at future meetings. The last time it did this was in November 2022, where disfunction in UK markets meant rate hike pricing had reached an extreme level. We doubt they’ll do something similar this month. Policymakers may be uneasy about the recent repricing of UK rate expectations, but central banks globally have learned the hard way over the last couple of years that trying to predict and commit to future policy, with relative certainty, is a fool's game. The Bank will also be gratified that the data is at least starting to go in the right direction. Services inflation came in below the Bank’s most recent forecast, and while one month doesn’t make a trend, we think there are good reasons to expect further declines over 2024. Admittedly, we think services CPI will stay sticky in the 6% area through the early stages of next year, but by the summer, we expect to have slipped to 4% or below. Likewise, the jobs market is clearly cooling and that suggests the days of private-sector wage growth at 8% are behind us. We expect this to get back to the 4-4.5% area by next summer too. Markets may be right to assume that the BoE will be a little later to fire the starting gun on rate cuts than its European neighbours. But when the rate cuts start, we think the BoE’s easing cycle will ultimately prove more aggressive. We expect 100bp of rate cuts from August next year, and another 100bp in 2025.   Sterling benefits from the BoE position Sterling has enjoyed November. The Bank of England's trade-weighted exchange rate is about 2% higher. The rally probably has less to do with the UK government's stimulus and more to do with the fact that investors have been falling over themselves to price lower interest both in the US and particularly in the eurozone.  In terms of the risk to sterling market interest rates and the currency from the December BoE meeting, we tend to think it is too early for the Bank of England to condone easing expectations - even though those expectations are substantially more modest than those on the eurozone. This could mean that EUR/GBP continues to trade on the weak side into year-end - probably in the 0.8500-0.8600 range. Into 2024, however, we expect market pricing to correct - less to be priced for the ECB, more for the UK and EUR/GBP should head back up to the 0.88 area. But that's a story for next year.    Sterling trade-weighted index edges higher
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Tale of Two PMIs: UK Services Accelerate, Manufacturing Declines

Kenny Fisher Kenny Fisher 18.12.2023 14:06
UK Services PMI accelerates, Manufacturing PMI declines Bailey’s dampens rate cut expectations The British pound is steady on Friday, after posting gains of 1.1% a day earlier. In the European session, GBP/USD is trading at 1.2767, up 0.03%. UK PMIs a mix British PMIs were a mixed bag in December. The Manufacturing PMI eased to 46.4, down from 47.2 and shy of market expectations of 47.5. Manufacturers are pessimistic as the UK economy is struggling and demand for UK exports has weakened. The services sector is in better shape, as the PMI rose to 50.9, up from 53.7 in November, which marked the strongest level of growth since May. Services providers continued to show optimism about business conditions, despite the squeeze from the cost of living and elevated borrowing costs. Bailey pushback sends sterling soaring It’s been a dramatic week, with central bank rate decisions in the spotlight. On Wednesday, Fed Chair Powell shifted his hawkish stance and projected that the Fed would trim rates three times in 2024. This sent the US dollar lower against the majors. The Bank of England took the opposite approach on Thursday in its decision to hold rates at 5.25%. Governor Bailey stuck to his script of “higher for longer”. Bailey acknowledged that inflation was moving in the right direction but said in his rate statement that “there is still some way to go” and kept the door open to further rate hikes to bring inflation back down to 2%. Bailey was crystal clear in comments to reporters after the meeting, reiterating that “it’s really too early to start speculating about cutting interest rates”.   There was no mistaking Bailey’s hawkish message and the pound responded with massive gains. Still, Bailey’s view was far from being unanimous, as the MPC vote was 6-3, with three members in support of raising rates. The markets are marching to their own tune and expect a flurry of rate cuts in 2024, despite Bailey’s pushback. The markets trimmed rate-cut bets following the BoE decision but have still priced in around 100 basis points in easing in 2024. Clearly, there is a deep disconnect between the markets and Bailey & Co. with regard to rate policy.     GBP/USD Technical There is resistance at 1.2835 and 1.2906 1.2727 and 1.2653 are providing support    
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Navigating Dollar Trends in 2024: Short-Term Challenges and Long-Term Prospects

ING Economics ING Economics 16.01.2024 12:44
The consensus view in 2024 is that the dollar will decline. We agree but suspect that a back up in short-term rates and seasonal patterns could frustrate dollar bears through the first quarter. The second quarter should see a re-acceleration of the dollar bear trend as the Fed prepares to pull the trigger on its first rate cut.   As outlined in our 2024 FX Outlook, we expect a broader dollar trend to become more apparent through the second quarter as lower US rates unleash portfolio flows more broadly to the Rest of the World. Of course, geopolitical risks remain. It is not in our baseline view, but a major escalation in the Middle East and another energy supply shock would see the dollar outperform at the expense of Europe and Asia. To the forecasts. We retain a 1.15 end year forecast for EUR/USD but see range trading in the near term. While a re-assessment of the aggressively priced European Central Bank easing cycle could in theory be positive for the euro, a deteriorating investment environment could well curtail any sizable near-term gains in EUR/USD and other risk-sensitive currencies. The Japanese yen could well be an outperformer if, as our team thinks, the Bank of Japan does significantly shift policy in April. And sterling could prove something of a dark horse. We are currently mildly bearish sterling on the view that the Bank of England cuts rates 100bp. However, looser UK fiscal policy could keep sterling better supported. Across the EM space, easing cycles continue in parts of EMEA and Latam. Patience is again advised for the rally in CEE currencies. And China will continue to hold Asia FX back.
Bank of England's February Meeting: Expectations and Market Impact Analysis

Bank of England's February Meeting: Expectations and Market Impact Analysis

ING Economics ING Economics 26.01.2024 14:50
Expect the Bank to drop its tightening bias Financial markets expect the Bank Rate to be one percentage point lower in two or three years' time than was the case in November. That will have important ramifications for the Bank’s two-year inflation forecast, which is seen as a barometer of whether markets have got it right on the level of rate cuts priced. Previously, the Bank’s model-based estimate put headline inflation at 1.9% in two years’ time, or 2.2%, once an ‘upside skew’ is applied. We wouldn’t be surprised if this ‘mean’ forecast (incorporating an upside skew) is still a little above 2% in the new set of forecasts. And if that’s the case, it can be read as the BoE subtly pushing back against the quantity of rate cuts markets are pricing in. If that happens, we suspect markets will largely shrug it off. The bigger question is whether the Bank makes any changes to its statement – and its forward guidance currently reads like this: Policy needs to stay “sufficiently restrictive for sufficiently long.” It’s likely to stay restrictive for “an extended period of time.” “Further tightening” is required if evidence of “more persistent inflationary pressures.” We think the baseline assumption going into this meeting is that the last of those sentences gets dropped and that the three hawks who'd been voting for a rate hike in December finally throw in the towel, given the recent run of inflation data. A hawkish surprise is, therefore, a statement that looks much the same as December’s, with at least one or two committee members voting for a further rate hike. A dovish surprise would see the Bank remove or water down the sentence on how long policy needs to stay restrictive. There’s also a tail-risk that Swati Dhingra, known to be the most dovish committee member, votes for a rate cut, though our base case is a unanimous decision to keep rates unchanged (6-3 previously).     Markets seem more sensitive to dovish nuances of late The market discount for BoE rate cuts has moderated. At the end of last year, a first cut by May was still fully discounted, and overall more than six cuts were fully priced in for 2024. This has come back towards slightly more than 50% implied probability of a May cut and four cuts overall being priced in. These are not unplausible scenarios but are obviously dependent on data and, for instance, the government's tax plans. But looking at markets more globally, they appear more sensitive to softer data and any dovish nuances provided in communications. As such, we do see a possibility for front-end rates to tick slightly lower if the MPC, for instance, removes its hike bias - in its commentary as well as the voting split. Further out the curve 10Y gilt yields have risen back towards 4% from around 3.5% at year-end. But yields appear capped at 4%, facing resistance to move higher. If we take a simple modelling approach, augmenting a short-term money-market-based estimate of the 10Y gilt with yields of its US and German bond peers, we conclude that gilts see slightly too high yields already. Keep in mind that the BoE meeting is flanked by the Fed meeting, jobs data in the US, and the CPI release in the eurozone, which should be crucial in driving wider sentiment. When it comes to FX markets, sterling has been the best-performing G10 currency against the dollar this year. Its implied yield of 5.2% means that it is the only G10 currency up against the dollar on a total return basis this year. As above and given that the market is minded to look for the more dovish interpretation of central bank communication in what should be a year of disinflation, the idea of the BoE playing dovish catch-up with the Fed and the ECB could be a mild sterling negative.  That probably means that EUR/GBP will struggle to maintain any break below strong support at 0.8500 in the near term, and the BoE event risk means EUR/GBP could start to trade back over 0.8600.  However, our end-quarter target of 0.8800 looks too aggressive now. Scope for tax cuts in early March, sticky services inflation and composite PMI readings comfortably above 50 in the UK could well mean that EUR/GBP traces out a 0.85-0.87 range through the first half of this year. For GBP/USD, the FX options market currently prices a very modest 42 USD pips of day event risk around the Wednesday FOMC/Thursday BoE meeting. Our baseline scenario assumes GBP/USD could trade back down to/under 1.2700 on Thursday, especially should the FOMC meeting have disappointed those looking for a March rate cut from the Fed.

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