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EUR/USD 5M The EUR/USD pair continued to move in the style already familiar over the past two weeks and the 0.9900-1.0072 channel. Despite the fact that there was a fall of more than 100 points during the day, the pair still remained inside the horizontal channel. Therefore, no new conclusions on the technical picture can be made now. Perhaps the euro will continue to fall (especially if the US statistics are strong), and then the pair will overcome the level of 0.9900. But until this happens, we are stating a fact - a wide flat or "swing" remains. There were only minor reports in the European Union on Thursday. The unemployment rate and the second assessment of the index of business activity in the services sector are not the data that could provoke the euro's collapse. Also not involved in the pair's decline and the ISM business activity index in the US. Thus, the macroeconomic statistics was, in contrast to the previous days of the week, but it had no effect on the course of trading. In regards to Thursday's trading signals, everything was pretty good. First, a buy signal was formed when the price settled above the extreme level of 1.0019. The upward movement did not last long and ended near the Senkou Span B line. The signal cannot be considered false, since the nearest target level was worked out. Managed to earn 7 points. The sell signal also had to be worked out, and it brought good profit to traders, since the pair, after its formation, went down about 110 points, forming another sell signal near the critical line along the way. The pair did not reach the level of 0.9900 by only a dozen points, the deal had to be closed manually in the late afternoon with a profit of at least 90 points. COT report: The Commitment of Traders (COT) reports on the euro in the last few months clearly reflect what is happening in the euro/dollar pair. For most of 2022, they showed an openly bullish mood of commercial players, but at the same time, the euro fell steadily at the same time. At this time, the situation is different, but it is NOT in favor of the euro. If earlier the mood was bullish, and the euro was falling, now the mood is bearish and... the euro is also falling. Therefore, for the time being, we do not see any grounds for the euro's growth, because the vast majority of factors remain against it. The number of long positions for the non-commercial group increased by 11,600, and the number of shorts increased by 12,900 during the reporting week. Accordingly, the net position increased by about 1,300 contracts. After several weeks of weak growth, the decline in this indicator resumed, and the mood of major players remains bearish. From our point of view, this fact very eloquently indicates that at this time even commercial traders still do not believe in the euro. The number of longs is lower than the number of shorts for non-commercial traders by 44,000. Therefore, we can state that not only does the demand for the US dollar remain high, but that the demand for the euro is also quite low. The fact that major players are in no hurry to buy the euro may lead to a new, even greater fall. Over the past six months or a year, the euro has not been able to show even a tangible correction, not to mention something more. We recommend to familiarize yourself with: Overview of the EUR/USD pair. September 2. The euro has nothing to hope for and nowhere to expect help. Overview of the GBP/USD pair. September 2. The pound continues to slide downhill. Forecast and trading signals for GBP/USD on September 2. Detailed analysis of the movement of the pair and trading transactions. EUR/USD 1H The pair continues to be inside the 0.9900-1.0072 channel on the hourly timeframe. If the bears manage to gain a foothold below it, then it will be possible to count on the resumption of the global downward trend. Otherwise, the "swing" will remain. We highlight the following levels for trading on Friday - 0.9900, 1.0019, 1.0072, 1.0124, 1.0195, 1.0269, as well as Senkou Span B (1.0051) and Kijun-sen (1.0001). There is not a single level below 0.9900, so there is simply nothing to trade there. Ichimoku indicator lines can move during the day, which should be taken into account when determining trading signals. There are also secondary support and resistance levels, but no signals are formed near them. Signals can be "rebounds" and "breakthrough" extreme levels and lines. Do not forget about placing a Stop Loss order at breakeven if the price has gone in the right direction for 15 points. This will protect you against possible losses if the signal turns out to be false. There will again not be a single important event in the European Union on September 2, but we have as many as three important reports in the United States. Of course, the NonFarm Payrolls report will be of most interest. We are waiting for the market reaction to it, two other reports (wages and unemployment) are important, but more secondary. Explanations for the chart: Support and Resistance Levels are the levels that serve as targets when buying or selling the pair. You can place Take Profit near these levels. Kijun-sen and Senkou Span B lines are lines of the Ichimoku indicator transferred to the hourly timeframe from the 4-hour one. Support and resistance areas are areas from which the price has repeatedly rebounded off. Yellow lines are trend lines, trend channels and any other technical patterns. Indicator 1 on the COT charts is the size of the net position of each category of traders. Indicator 2 on the COT charts is the size of the net position for the non-commercial group. Paolo Greco   Relevance up to 02:00 2022-09-03 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/320611

GBP/USD 5M The GBP/USD currency pair, simply and calmly, almost with an empty macroeconomic and fundamental background, updated its 2-year lows on Monday. An upward pullback followed in the afternoon, but it does not allow us to assume anything more than a pullback. The price continues to be below the descending trendline, so the downward trend continues. And it can persist for a long time, because the price is far from the trend line. A report on business activity in the service sector was just released in the UK, which did not interest the market at all due to the second assessment of this indicator. Recall that the first estimate is published first, which can impress traders, but the second rarely differs from the first. There was nothing else interesting on Monday, but even in such conditions the pound managed to approach its 37-year lows. We believe that these lows can be updated as early as this week. In regards to Monday's trading signals, everything was prosaic, since not a single one was formed. As we have already said, the pound is now so low that there are simply no levels to trade here. Of course, levels will appear over time, but so far there are none, and the Ichimoku indicator lines are located much higher than the price. In fact, now traders have only the level of 1.1411 at their disposal, to which the price is striving. COT reports: The latest Commitment of Traders (COT) report on the British pound, released yesterday, turned out to be as neutral as possible. During the week, the non-commercial group closed 300 long positions and opened 900 short positions. Thus, the net position of non-commercial traders immediately increased by 1,200. The net position indicator has been growing for several months, but the mood of the big players still remains "pronounced bearish", which is clearly seen in the second indicator in the chart above (purple bars below zero = bearish mood). Therefore, the growth of the British pound still cannot count. How can you count on it if the market sells the pound more than it buys? And now its fall has resumed altogether, so the bearish mood of major players in the near future can only intensify. The non-commercial group now has a total of 87,000 shorts and 58,000 longs open. The difference is not as terrifying as it was a few months ago, but it is still noticeable. The net position will have to show growth for a long time to at least equalize these figures. Moreover, COT reports are a reflection of the mood of major players, and their mood is influenced by the "foundation" and geopolitics. If they remain as weak as they are now, then the pound may still be in a "downward peak" for some time. Also remember that it is not only the demand for the pound that matters, but also the demand for the dollar, which seems to remain very strong. Therefore, even if the demand for the British currency grows, if the demand for the dollar grows at a higher rate, then we will not see the strengthening of the pound. We recommend to familiarize yourself with: Overview of the EUR/USD pair. September 6. The ECB meeting is the key event of the week. Overview of the GBP/USD pair. September 6. An almost empty week for the pound. What can stop it from falling against the dollar? Forecast and trading signals for EUR/USD on September 6. Detailed analysis of the movement of the pair and trading transactions. GBP/USD 1H The pound/dollar pair maintains a downward trend on the hourly timeframe thanks to the trend line. The British currency continues to fall and may continue for some time, as the market seems to have forgotten that you can not only sell, but also buy. But why buy if there is a strong downward trend? The market does not need any specific grounds for trading now, and the pound is updating its local lows almost every day. We highlight the following important levels for September 6: 1.1411, 1.1649, 1.1874. Senkou Span B (1.1698) and Kijun-sen (1.1601) lines can also be sources of signals. Signals can be "rebounds" and "breakthrough" of these levels and lines. The Stop Loss level is recommended to be set to breakeven when the price passes in the right direction by 20 points. Ichimoku indicator lines can move during the day, which should be taken into account when determining trading signals. The chart also contains support and resistance levels that can be used to take profits on trades. On Tuesday, the UK will release the index of business activity in the construction sector in the second assessment for August, which is unlikely to be of interest to market participants. The US today will publish quite an important index of business activity in the services sector ISM. If its actual value differs from the forecast value (55-55.5), then the market reaction may follow. Explanations for the chart: Support and Resistance Levels are the levels that serve as targets when buying or selling the pair. You can place Take Profit near these levels. Kijun-sen and Senkou Span B lines are lines of the Ichimoku indicator transferred to the hourly timeframe from the 4-hour one. Support and resistance areas are areas from which the price has repeatedly rebounded off. Yellow lines are trend lines, trend channels and any other technical patterns. Indicator 1 on the COT charts is the size of the net position of each category of traders. Indicator 2 on the COT charts is the size of the net position for the non-commercial group.     Relevance up to 02:00 2022-09-07 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/320867

Indonesia’s trade surplus is still healthy despite a slight disappointment in export and import growth Source: Stenly Lam $5bn September trade balance   Higher than expected Trade balance at $5bn Indonesia’s exports and imports slipped below market expectations but still managed to post strong growth, up by 20.3% year-on-year and 22%, respectively.  Exports slipped below median expectations for a 28.6% increase which may have prompted the suspension of export tax for palm oil exports until the end of the month. Import growth was also below the market consensus which could reflect softer domestic demand given elevated prices. The overall trade balance however was still healthy, settling at $5bn compared to expectations for $4.8bn.  Trade surplus remains but may be less able to support the IDR Source: Badan Pusat Statistik Surplus helps but pressure on the IDR persists Indonesia’s string of trade surpluses has provided some support to the rupiah for the most part of 2022. Surging commodity prices have helped deliver outsized gains for exports, translating to a record-high trade surplus of $7.6bn in April. Indonesia will likely continue to post trade surpluses for the rest of the year but the support provided to the currency appears to be slipping.  The $5bn trade surplus should help limit some pressure on the IDR but sustained foreign selling in the bond market may still translate to depreciation pressure on the currency in the coming months.  Read this article on THINK TagsIndonesia IDR Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

We can often come across terms about a country's trade surplus in, for example, foreign trade. We understand that a given product is exported and another is imported, but what exactly is export and import and what importance they have for the economy. Balance of trade (BOT) Balance of trade (BOT) is the difference between the value of a country's imports and exports for a given period and is the largest component of a country's balance of payments. A country that imports more goods and services than it exports in terms of value has a trade deficit while a country that exports more goods and services than it imports has a trade surplus. The formula for calculating the BOT can be simplified as the total value of exports minus the total value of its imports. Balance of trade (BOT)=Exports−Imports Economists use the BOT to measure the relative strength of a country's economy. A positive balance of trade indicates that a country's producers have an active foreign market. A negative balance of trade means that currency flows outwards to pay for exports, indicating that the country may be overly reliant on foreign goods. A country with a large trade deficit borrows money to pay for its goods and services, while a country with a large trade surplus lends money to deficit countries. In some cases, the trade balance may correlate with a country's political and economic stability. A trade surplus or deficit is not always a real indicator of the health of an economy and must be viewed in the context of the business cycle and other economic indicators. Export Exports are incredibly important to modern economies because they offer people and firms many more markets for their goods. Exports are one of the oldest forms of economic transfer and occur on a large scale between nations. Exporting can increase sales and profits if they reach new markets, and they may even present an opportunity to capture significant global market share. Exports lead to increased investment, technological advances, and the expansion of imports, all of which contribute to economic growth. For companies, it is of particular importance because it allows you to gain access to new markets through export, you can increase sales and profits, and even gain a large share of the global market. But there is also another side to this. Companies that export a lot tend to be more likely to fail financially. Import Import is a product or service that is manufactured abroad and purchased in your home country. Free trade agreements and tariffs often determine which goods and materials are cheaper to import. Countries most likely import goods or services that their domestic industries cannot produce as efficiently and cheaply as the exporting country. Countries can also import raw materials or goods that are not available within their borders. For example, many countries import oil because they cannot produce it domestically. Some critics argue that continued dependence on imports means a reduction in demand for domestically manufactured products and thus may inhibit entrepreneurship and the development of business ventures. Proponents argue that imports improve quality of life by giving consumers more choice and cheaper goods. The Commitment of Traders (COT) The Commitment of Traders (COT) report is a weekly publication that shows the aggregate holdings of different participants in the U.S. futures market. These are compiled and published by the CFTC in the U.S. COT reports detail how many long, short, and spread positions make up the open interest. Traders can use the report to help them determine whether they should take short or long positions in their trades.

Weak Chinese manufacturing data put pressure on the single currency as Europe, particularly Germany, is highly correlated with China.   However, the Eurozone's data is not so bad today. The number of unemployed in Germany rose by 9K, down from 23K and 19K in the previous two months. Unemployment is rising much more slowly than in the recessions of 2009 and 2020, and the unemployment rate (5.6%) is low by historical standards.   Second estimates confirmed a 0.2% q/q and 0.9% y/y rise in French GDP in the first quarter, although private consumption fell by a further 1% in April after a 0.8% decline in the previous two months.   For Italy, the final data pointed to economic growth of 0.6% q/q and 1.9% y/y, 0.1 percentage points higher than previously estimated.   Despite the upbeat economic data, the EURUSD fell to 1.0660 in early European trading, its lowest level since 17 March.

German exports disappoint again A minor drop in May exports is another illustration that sluggish exports are not an exception but rather the new normal. German exports remain sluggish. After the severe March plunge and a minor rebound in April, exports dropped in May by 0.1% month-on-month (from 1.0% MoM in April). On the year, exports were up down by 0.7%. Don’t forget that this is in nominal terms and not corrected for high inflation. With imports increasing by 1.7% MoM, from -0.1% MoM in April, the trade balance narrowed to €14.4bn.   Sluggish exports - the new normal Since last summer, German exports have been extremely volatile. However, the general trend is pointing downwards, not upwards. Trade is no longer the strong resilient growth driver of the German economy that it used to be but rather a drag. Supply chain frictions, a more fragmented global economy and China increasingly being able to produce goods it previously bought from Germany, are all factors weighing on German exports. In the first half of the year, the share of German exports to China dropped to 6% of total exports, from almost 8% before the pandemic. At the same time, however, Germany’s import dependence on China remains high as the energy transition is currently impossible without Chinese raw materials or solar panels. In the very near term, the ongoing weakening of export order books, the expected slowdown of the US economy (which accounts for roughly 10% of total German exports), high inflation and high uncertainty will clearly have an impact on German exports. One of the few silver linings for German exports remains the CEE countries, which currently account for more than 11% of total German exports. All in all, today’s export numbers bring no relief. In fact, today's numbers are rather another illustration that sluggish exports are not an exception but rather the new normal.

EUR: Could trade above 1.10, but a correction looks more likely EUR/USD will have the chance to break above 1.10 this week, although we struggle to see the pair trade sustainably above that benchmark level just yet. The gap between market pricing on Fed tightening and the FOMC dot plot continues to leave room for hawkish repricing, while the EUR curve fully prices in two more hikes in the eurozone. Indeed, the OIS curve shows the September meeting has 38bp priced in and more upside surprises and/or hawkish ECB commentary could help markets fully price in a hike in September – but there is currently a smaller gap between markets and central bank communication in the eurozone compared to the US. Our short-term financial fair value model shows that EUR/USD should be trading around 1.0800 based on current market conditions. As mentioned in the dollar section above, the dollar still needs to catch up with the rise in USD rates and that can prove to be a hurdle when attempting a decisive break above 1.10. On the euro side, markets will watch the ZEW index this week after a long series of disappointing forward-looking indicators in the eurozone. On Thursday, the European Central Bank (ECB) minutes from the June meeting will be published. We expect mostly USD-driven moves in EUR/USD this week, and see a greater risk of some pull-back towards 1.0800 rather than trading sustainably above 1.1000 – which could however be possible should US CPI surprise on the soft side.

Executive summary 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.

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.

While we find this a useful framework to assess the extent of de-dollarisation, we prefer to examine the challenge to the dollar’s dominance through the three key areas: of i) trade and commerce, ii) the asset side (store of wealth) and iii) the liability side (currency of issuance). Looking at the evidence so far (Figure 2), it appears that despite some loss of popularity since 2015 (we use this year as a frame of reference due to its similarities with current exchange rates), de-dollarisation has not been very active in the last couple of years. Over the same time, the dollar’s role in the debt securities market has even increased.     Overall, the USD presence in various segments has become more even, and its relative dominance versus other currencies has remained, which is especially noticeable in the unchanged share of the USD leg of currency pairs traded on the global OTC market. At this point, it doesn’t seem that the dollar is any immediate danger of losing its status as the primary global currency.   At the same time, however, there are challenges. In this report we will take a closer look at the changing role of US dollar in trade, assets, liabilities, and the FX market turnover, paying close attention to the role of China and Russia.

Finally, we look at the FX market structure as an important reflection in developments in the trade and capital flows discussed in the previous sections. Based on the recent BIS data, the share of the USD leg on the OTC FX market’s turnover has been stable in the last couple of years despite its somewhat declining role in assets, liabilities, and trade (Figure 31). This may mean that despite the possible decline in the usage of USD on the organised exchanges, the dollar has retained its role as the primary settlement currency in the peerto-peer trade.   At the same time, the relatively flat share of the USD leg in global OTC FX transactions doesn’t mean that the overall structure is rigid. Looking at the evolution of the FX market turnover over the last nine years (Figure 32), Asian currencies, including RMB, HKD, SGD, KRW, INR, TWD are noticeably gaining ground, but interestingly they don’t seem to be pushing out USD. They are rather competing for the market shares of other DM and EM currencies, including EUR, AUD, JPY, RUB, TRY, and MXN.     In a sense, the evolution of FX market transactions is painting a picture similar to the situation seen in global invoicing and capital flows: the US dollar has generally retained its global role, while the rise of CNY and some other currencies is tightening the competition among the regional currencies. We take this as a sign of shifting preferences at the regional level and potential demand for an alternative to USD, but it doesn’t seem at this point that such an obvious alternative has emerged.

Russian dedollarisation – the second wave means yuanisation Russia has been one of the leading forces of global de-dollarisation since 2014, when the first round of geopolitical tensions led to higher political risks of USD usage. In 2013-21, the period for which most of the official data is available (Figure 33), Russia managed to significantly reduce its USD usage in exports, imports, foreign liabilities and official international assets. However, the role of USD in private international assets, domestic deposits, and on the FX market did not decline. Also, the de-dollarisation in Russia reflected mostly the replacement of USD with EUR and other DM currencies rather than higher usage of the ruble or other EM currencies.   This was because the sanctions that Russia faced following the annexation of Crimea and the downing of flight MH17 over Ukraine were limited to foreign debt of some state-owned entities, the usage of SDN (ban on transactions) was very limited, which didn’t lead to the loss of attractiveness of USD and EUR as savings currency for the private sector. Contrary to global de-dollarisation which is focused mainly on international reserves, Russian dedollarisation was driven primarily by trade.      

GBP: Volatile pricing ahead of PMIs Bank of England rate expectations have been quite volatile since the upside surprise in wages and CPI last week. The miss in retail sales on Friday saw peak Bank rate expectations as measured in the Sonia rate drop more than 10bp. Markets are currently looking at 5.95-6.0%, but today’s PMI release in the UK may well move pricing again. Consensus is expecting some slowdown in both manufacturing (already in contraction territory) and services (to 51.0). The Bank of England will also look at the details of the survey searching for evidence that price pressures are abating. EUR/GBP can make another attempt at breaking 0.8500 today, although the sustainability of sub-0.8500 levels is questionable unless markets price in more rate hikes in the UK or price out tightening in the eurozone.

Xi meets Ramaphosa and discuss how to bolster trade in their own currencies Yuan still weakens despite PBOC’s most forceful fixing on record BRICS might lead to more investment in Africa, potentially bolstering rand   The annual BRICS Summit begins in Johannesburg with China’s President Xi meeting South African President Ramaphosa.  China and India have enjoyed 25 years of diplomatic ties and are looking to bolster trade and investment with more countries.  The three-day summit will be attended by leaders of China, India, Brazil and South Africa, as well as 30 African leaders. Russian President Putin will be participating via video conference as he has an international arrest over alleged war crimes in Ukraine.  Russian Foreign Minister Lavrov will represent Russia at the summit. BRIC nations make up a quarter of the global economy, so their voice will clearly be listened to, especially if they expand.  So far, 22 other countries have formally applied to join the bloc, but it seems difficult for the institution given they do not have a BRICS currency that can challenge the dollar.  The current members have lots of challenges to go all-in with de-dollarization and embrace a BRICS currency.  India does not want a China-led initiative. Given all the sanctions Russia is facing, they have billions of rupees that are stranded. There is no easy solution that can address all the problems facing the key members, which means they will take small steps, which include expanding use of a development bank to help with lending.   5-year USD/CNH, USD/INR, and USD/BRL The 5-five year chart above shows how robust the dollar has been against the yuan and rupee in 2023, with Brazil and their attractive interest differential being the one standout.  Alternatives to the dollar in trade will grow, but for now the big risk is the great refinancing that will occur over the next year could lead to extreme turmoil for emerging markets and that might keep the dollar supported against most of the BRIC currencies. The weekly USD/CNH and USD/INR chart below exemplifies how overbought this dollar trade has become.  There is a lot of macro risk on the table this week and FX markets could see either a strong extension of dollar strength or a major pullback.    

BRICS expansion: The Saudi surprise adds momentum to the de-dollarisation debate The big surprise from the BRICS summit in South Africa is that Saudi Arabia has been invited to join the group of major emerging countries. And that’s adding fresh impetus to the de-dollarisation debate, which is a potential challenge to the dominance of the US dollar in global trade.   Accelerated expansion We knew that the expansion of the BRICS grouping was top of the agenda at this 15th BRICS summit in South Africa. We had thought that the United Arab Emirates (UAE), Egypt and Bangladesh would be invited to join given they were already part of the BRICS’s New Development Bank. In the end, it was not only the UAE and Egypt invited to join, but also Saudi Arabia, Iran, Argentina and Ethiopia. The biggest surprise is Saudi Arabia. It had been rumoured that the country wanted to enter the group, but the geo-political situation – given tense relations with the West – raised doubts about whether Saudi Arabia would formalise political and economic ties with the BRICS.     Together with fellow oil and gas exporters Iran and the UAE, the admission of Saudi Arabia to the BRICS grouping will inevitably focus debate on the use of non-dollar currencies in trade. As an aside, at this conference, Brazil proposed to Argentina that Brazil would guarantee Argentine payments for Brazilian exports in renminbi. This is perhaps a reflection of Argentina’s ability to tap renminbi swap lines and expose the scarcity of dollars. Additionally, Argentina remains in dire financial straits as it struggles to source hard currency to service largely dollar-denominated debt.     Oil production split - BRICS vs Rest of World, and Saudi crude exports by destination (%, 2022)   Saudi switch to non-dollar invoicing? The recently-announced news that a handful of countries, including Saudi Arabia, the UAE and Iran have been invited to join BRICS increases the energy dominance of the group, specifically when it comes to crude oil. As it stands, BRICS members make up around 20% of global oil output. The addition of Saudi, the UAE and Iran would see the BRICS group make up almost 42% of global crude oil output. As for Saudi Arabia, it is the largest crude oil exporter. In 2022, the Kingdom exported around 7.3m b/d of crude oil, which makes up a little more than 17% of global crude oil exports. The bulk of these exports (76%) go to Asia, of which 35% go to BRICS members China and India. Therefore, given the ambitions of the BRICS to de-dollarise, there certainly will be increased speculation that this latest move could see Saudi Arabia increasingly switching to non-dollar-denominated currencies for oil trade. To some, it might make sense that Saudi Arabia starts accepting the Chinese yuan and Indian rupee from China and India for its crude oil. And there has been plenty of noise and reportedly discussions between Saudi Arabia and China on the matter. However, up until now, it does not appear as though the Saudis have been willing. The fact that the Saudi riyal is pegged to the US dollar might mean that the Saudis are reluctant to start making the shift.  However, where we have seen a shift is obviously in relation to Iran. Given sanctions, any buyers of its crude will be paying in non-dollar currencies. China is the largest buyer of Iranian oil at the moment and is reportedly paying in yuan.      Will BRICS expansion accelerate de-dollarisation? In our recently published report, we speculated on which countries could join BRICS and also examined all the evidence of de-dollarisation to date. We concluded that de-dollarisation had been very slow and that where market share had been lost by the dollar, it had largely been taken by the Chinese renminbi in the Asia space. News of this faster expansion – especially among the oil exporters – clearly adds some momentum to the de-dollarisation debate. We would reiterate, however, that energy only comprises 15% of global trade and that Saudi pricing oil exports to China and India in non-dollar currencies does not spell the end of the dollar as the international currency of choice.   As we argued, the liability role of an international currency is crucially important. Until international issuers and investors are happy to issue and hold international debt in non-dollar currencies – and the take-up of CNY Panda bonds has been very slow indeed – we suspect this will be a decade-long progression to a multi-polar world, a world in which perhaps the dollar, the euro and the renminbi become the dominant currencies in the Americas, Europe and Asia respectively.     The Saudi peg question Away from the implications of how quickly the dollar’s role as the only international currency is challenged, we are also interested in what this all means for the Saudi riyal, which has been pegged to the dollar at SAR3.75/USD since the 1980s. Any occasional bouts of speculation against the riyal – largely through the FX forwards market – have been quickly fought off by Saudi authorities. Should the Saudis start to de-dollarise their economy through increasing receipts on non-dollar currencies, investors may start to question whether changes will be coming to the peg – e.g. should the riyal be managed against a basket of currencies rather than against the dollar alone?     Presumably, Saudi authorities will not welcome this speculation, but expect investors to now keep a close eye on the 12-month USD/SAR forward, currently trading at 3.7570 and very close to the peg. This 12m forward can trade over 3.85 at times of speculation over a weaker riyal.   BRICS expansion in the context of global trade Putting the proposed expansion of BRICS into the global context, it appears that the new invitees can have a moderate impact on the structure of global trade. Currently, the core BRICS countries control around 23% of global exports and 19% of global imports, and the new members would add 3.7% and 3.0% to that, respectively, with Saudi Arabia being the biggest individual new member in terms of exports and the UAE the biggest new importer. Overall, the new additions would expand the weight of BRICS in global trade by around 16%.   New BRICS invitees account for 3.7% of global exports...   ..and 3.0% of global imports   New members have been increasingly focused on trade with BRICS lately Looking at the structure of international trade by the new members, their inclusion seems to reflect the growing trade ties with the original BRICS countries. Over the last few years, the share of core BRICS in the new invitees' imports increased from 23% to 30%, replacing the euro area, USA, and other developed economies. The share of core BRICS in the new additions' exports also increased but more modestly, from 25% to 28%. The growing trade interconnectedness seems to be providing some fundamental ground for political announcements.   Core BRICS countries have been gaining a role in the new member's imports...   ...and exports    

Softening US jobs market suggests the Fed’s work is done The US August jobs report shows modest jobs growth, benign wage pressures and a large jump in the unemployment rate as the labour market slackens. With inflation set to continue slowing, the Fed is surely not hiking interest rates in September and is unlikely to do so in November either.   Employment growth is softening US non-farm payrolls increased 187k in August versus the 170k consensus, but there are a net 110k of downward revisions to the past couple of months, indicating that the slowing trend in employment growth remains in place. The private sector created 179k of those jobs, led yet again by private education and health with 102k jobs. Leisure and hospitality also remains a healthy provider of employment with a 40k increase. Information (-15k), trade and transport (-20k – presumably Yellow bankruptcy related) and temporary help (-19k) were the key areas of weakness.     Those numbers are all from the establishment survey of employers. The household survey, which is used to calculate the unemployment rate, reported a slightly stronger jobs gain of 222k, but the number of people classifying themselves as unemployed rose 514k with it seeming that more and more people are returning to the labour market. This increase in the participation rate is what the Fed wants to see and at 62.8%, it has risen nicely since a year ago when it stood at 62.1% and should help to keep wage pressures in check.   Wages cooling and unemployment is rising In that regard, wage growth (average hourly earnings) is soft at 0.2% MoM, the smallest increase since February 2022, while the unemployment rate jumps to 3.8% from 3.5% (consensus 3.5%). It’s pretty safe to say the Fed isn't hiking in September with this backdrop, and we don't think they will in November either, with core CPI set to slow pretty rapidly in the next couple of months.   Tightening lending conditions point to a higher unemployment rate   The Fed's work is done The chart above shows the relationship between bank lending conditions and the unemployment rate. With higher borrowing costs, less credit availability and student loan repayments all set to increasingly weigh on economic activity we fear that the unemployment rate will climb further. Unfortunately, it is unlikely to be just through rising participation rates but will likely involve some job losses too. As such, we continue to believe that US interest rates have peaked and the next move will be a cut. We are currently forecasting that to happen in March 2024.

By Michael Hewson (Chief Market Analyst at CMC Markets UK)   China Trade and CPI (Aug) – 07/09 and 09/09 – over the past few weeks China has taken several measures to help boost the economic prospects for its economy and has continued to do so on a piecemeal basis. From easing overseas travel restrictions to modest cuts to lending rates, concern has increased about the prospects for the Chinese economy. In July, the economy slipped into deflation after headline CPI fell from 0.2% in June to -0.3%. PPI, which has been in deflation since the end of last year improved slightly but still declined by -4.4%. This didn't come across as a surprise given how poor the July trade numbers were. Markets had been expecting some poor numbers so expectations were low, however we still managed to see a surprise in that they were even worse than expected. The last 2 months of Q2 saw sharp declines in exports, with a -12.4% fall in June. There was little let-up in the July numbers with a bigger than expected decline of -14.5%, the worst performance since February 2020, with global demand remaining weak. Imports have been little better, with negative numbers every month this year, and July was no different with a decline of -12.4%, an even worse performance from June's -6.8%, with all sectors of the economy showing weakness. As we look toward the August numbers, expectations are already low given the relatively low levels of support put forward by Chinese policymakers this past month and the concerns over the real estate sector. Expectations are for exports to decline by -7.8% and imports to decline by -8.8%.        

In this market pulse, we delve into the complex terrain of China's property debt overhang, examining the challenges faced by giants like Evergrande. We also assess the current economic momentum, highlighted by positive indicators and upcoming Purchasing Managers' Index (PMI) data releases. Moreover, we emphasize the pivotal role of impending crucial meetings, including the Third Plenary Session and the 6th National Financial Work Conference, in shaping China's economic policies.   Key Points: Examining the enormity of China's property debt crisis, including Evergrande's challenges. Highlighting recent signs of recovery and the significance of the upcoming PMI data. Previewing the upcoming Third Plenary Session and 6th National Financial Work Conference. Introduction China Evergrande's ongoing financial troubles and defaults have once again taken center stage, casting a dark cloud over the equity market. Meanwhile, China's economic recovery is showing signs of life, with attention turning to key economic indicators like the Purchasing Managers' Index (PMI). In addition to these economic developments, several crucial meetings on China's economic and financial policies are on the horizon. This article will delve into these topics, providing an analysis of the current situation and what lies ahead. China Property Developer Debt Overhang China Evergrande, one of the nation's largest property developers, has recently made headlines due to its inability to meet regulatory qualifications for issuing new debt. This situation escalated when its mainland unit, Hengda Real Estate Group, failed to make a scheduled payment of RMB4 billion in principal and interest. The broader issue here is the massive debt overhang in the Chinese property sector, totaling RMB60 trillion. A significant portion of this debt, RMB40 trillion, consists of mortgage debts that are relatively less risky for banks as long as the pre-sold units are completed and delivered to buyers. The focus for Chinese authorities is to resolve these pre-sold units to ensure contractors get paid and homebuyers receive their properties. The completion of unfinished housing projects requires substantially additional funds, estimated to be over RMB2 trillion, which may be shared by state-owned enterprises that take over the projects, local governments, and the central government. However, the more problematic area is the RMB20 trillion in property developer debts. It's highly unlikely that China will bail out insolvent property developers. Instead, these developers and their banks will likely sell encumbered projects, along with their loans, to stronger entities, often state-owned enterprises with government backing. The recent regulatory easing on housing demand may stabilize the housing market to some extent. Still, the overhang of housing inventories in lower-tier cities facing population decline will persist for several years. This will lead to more headlines about defaults, restructuring, and liquidation of insolvent developers, causing losses for shareholders, bondholders, banks, and investors in trust and wealth management products tied to property projects. Some trust companies and private equity funds in the shadow banking sector may be subject to losses detrimental to their financial viability. While the banking sector, which holds around 75% of the RMB20 trillion developer debts, has sufficient capital buffers to absorb losses, the extent of the impact will depend on the successful liquidation of housing inventories by insolvent developers to stronger entities, likely brokered by local governments. This process is expected to negatively affect the profitability of banks in China. Economic Momentum and PMI Data Recent economic indicators have shown signs of improvement in the Chinese economy. The Citi China Economic Surprise Index (Figure 1) has rebounded, indicating fewer instances of economic data falling below expectations. As discussed in last week's Market Pulse note, retail sales, industrial production, trade, and inflation data improved in August.    The release today of a bounce in August industrial profit growth to 17.2% YoY (Figure 2), the first monthly year-on-year growth since June of last year, provides additional support for the pick-up in growth found in the industrial production released last week.