Turkey

Key events in developed markets and EMEA this week

This week, the main focus in the US will be the jobs report which is expected to indicate that hiring is slowing more meaningfully as economic uncertainty increases. In Turkey, all eyes will be on the release of December annual inflation which we expect to come in at 65.1%.

 

US: Jobs report expected to indicate that hiring is slowing more meaningfully

After the dovish shift from the Federal Reserve at the December FOMC meeting, markets continue to price six 25bp rate cuts for 2024, in line with our long-held view. There are several key data releases that will give the markets food for thought as to what the risks are to this assessment. The ISM reports will give us an update on how businesses are seeing the situation and we expect them to indicate an ongoing soft trend in growth rather than clear evidence of a downturn. The jobs report will be the focus though and that is expected to indicate that hiring is slowing more meaningfu

What Might it Take for the Fed to Deliver a Hawkish Tapering Announcement?

What Might it Take for the Fed to Deliver a Hawkish Tapering Announcement?

Marc Chandler Marc Chandler 03.11.2021 14:43
Overview: With the FOMC's decision several hours away, the dollar is trading lower against nearly all the major currencies.  The Antipodeans and Norwegian krone are leading.  The euro, yen, and sterling are posting minor gains (less than 0.1%).  Most of the freely liquid and accessible emerging market currencies are also firmer.  The Turkish lira is a notable exception.  The decline in the core inflation and a smaller than expected rise in the headline pace embolden officials for another rate cut when the central bank meets on November 18.  The JP Morgan Emerging Market Currency Index is rising for the second consecutive session after falling in the previous four sessions.  Equities are lower.  The MSCI Asia Pacific Index fell for the fifth session in the past six.  Among the large markets, Taiwan and Australia bucked the trend.  The four-day advance of the Stoxx 600 in Europe is at risk, and US futures are weaker.   Benchmark 10 year yields are mostly two-four basis points lower across most high-income countries today.  That puts the US 10-year Treasury yield near 1.52%.  Australia's two-year yield fell almost 10 bp to 0.55%.  It had peaked above 0.71% last week.   The three-year yield is off nearly 30 bp in recent days.  Gold continues to chop within the range set last Friday (~$1772-$1801).  Ahead of the OPEC+ meeting tomorrow amid talk that the US may seek to coordinate sales for a coalition of strategic reserves and a build of US inventories reported by API weigh on oil prices.  December WTI has approached the 20-day moving average (~$82), which has not closed below since late August. Base metals are higher as iron ore snapped a five-day slide during which it lost over 20%.  Copper is also recovering after forging a base in the $432-$433 area.  It is up around 1.5% today.  If sustained, it would be the largest gain in three weeks.   Asia Pacific China's Caixin services unexpectedly rose to 53.8 from 53.4 in September.  Recall that the manufacturing reading had improved to 50.6 from 50.0.  The net effect was that the composite edged up to 51.5 from 51.4.  The composite has converged with the "official" PMI, which stands at 50.8.  Separately, note that China is experiencing a broad spread of the virus into a dozen provinces, and the number of new cases is the highest in a couple of months. Inter-provincial travel has been restricted, and new social protocols are being introduced.  According to reports, the government advised households to stock up in necessities and ensure adequate food supplies for local authorities.  Australia's service and composite PMI shows the recovery was not quite as strong as the preliminary data suggested.  The service PMI rose to 51.8, not 52.0  from 45.5.  The composite stands at 52.1 rather than 52.2.  It was at 46 in September.   Tomorrow Australia reports Q3 real retail sales, but it will still be picking up the weakness of the lockdown.  September trade figures will also be reported.  Weaker exports and stronger imports are expected to have narrowed the trade surplus by almost 20% to A$12.4 bln. Ahead of the weekend, the central bank will make its Monetary Policy Statement.  The swaps market is pricing in 70 bp, down from 80 bp, of tightening over the next 12 months.  The dollar has been confined to a narrow quarter yen range through the Asian session and most of the European morning.  Softer yields and equities would be expected to give the yen a bit of support.  The 20-day moving average is near JPY113.65, and the greenback has not closed below it since the September FOMC meeting.  In the bigger picture, we have suggested the dollar-yen rally from mid-September through mid-October puts the dollar in a new range.  We suspected JPY114.50-JPY115.00 marks the upper end and JPY113.00 may be the lower end.  The Australian dollar fell almost 1.4% yesterday, its largest decline since May.  It reached $0.7420 yesterday, just above the $0.7410 (38.2% retracement objective of last month's rally).  It has stabilized today and has (so far) been capped near $0.7450.  Resistance is seen in the $0.7460-$0.7470 area.   For two weeks, the Chinese yuan has been alternating between advances and declines, and net-net little changed over the period.  Yesterday, the yuan slipped (0.04%), and today it is firmer (0.06%).  The PBOC has consistently set the dollar's reference rate above model projections, and today's fix was at CNY6.4079 compared with median expectations (Bloomberg) for CNY6.4068.  The PBOC was unexpectedly generous in its open market operations, injecting CNY50 bln. As a result, the overnight repo rate fell 12 bp to 1.99%.   Europe Norway's central bank meets tomorrow.  It was the first of the high-income countries to raise rates this year, so far, followed only by New Zealand.  We overstated the case for Norway to hike rates at the meeting, but don't be mistaken. The case for a rate hike exists, but the pattern is not to move at these "off-meetings" (without updated formal policy path guidance).  Instead, officials will likely confirm their intentions to raise rates in December. The swaps market is pricing in almost three hikes next year.   The dollar trended lower against the Nokkie since August 20. The downward momentum stalled in late October.  Yesterday it rose above NOK8.50 for the first time since mid-October.  The momentum indicators have turned up.  The 200-day moving average is slightly below NOK8.55 and near NOK8.60 is the (38.2%) retracement of the down move.  The UK is emerging from the economic soft patch in the June-August period.  The final service and composite PMI report today showed stronger activity than the preliminary estimates.  The service PMI rose to 59.1 from 55.4 in September.  The flash estimate had put it at 58.0.  The composite stands at 57.8, up from the preliminary projection of 56.8 and September 54.9.    The Bank of England meets tomorrow.  There does not seem to be much conviction, and the market appears divided. In the Bloomberg survey, 22 out of 45 economists expect a hike that seems to have been largely discounted by the markets (15 bp).  Three of the largest UK banks do not expect a hike.  Some observers argue that what is the point of stopping now when it would end next month. We often think the signaling channel of QE is under-appreciated.  Stopping the bond-buying now adds to the seriousness of the moment if it does not lift rates. Sterling has retreated by 2.3 cents since last week's high to approach $1.36 yesterday in the US. The euro reached its lowest level against sterling since March 2020 in late October near GBP0.8400, and yesterday rose to above GBP0.8500 for the first time since October 12.   Poland's central bank is expected to hike the base rate 25 bp today to 0.75%.  Recall that it hiked 40 bp last month to begin the cycle.  It started later than Czech and Hungary.  Preliminary October CPI rose 1% on the month, accelerating the year-over-year pace to 6.8% (from 5.9% in September.  It was at 5% as recently as July.  The Czech central bank meets Friday and is expected to hike the repo rate 75 bp to 2.25%.  After two quarter-point hikes (June and August), it hiked by 75 bp in September. Inflation (CPI) rose to 4.9% in September from 4.1% in August.  It is the highest since 2008.  Turkey's CPI rose by 2.39% last month to bring the year-over-year rate to 19.89% (19.58% in September), slightly lower than expected.  The core rate slipped slightly to 16.82% from 16.98%.   The euro has been confined to about a quarter of a cent range above $1.1575 so far.  It stalled yesterday near $1.1615, the (50%) retracement of the pre-weekend slide from almost $1.1700 to $1.1535.  It is making session highs in the European morning, but we look for a less friendly North American session.  There are options for about 530 mln euros at $1.16 that expire today.  A hawkish Fed (see below) could bring option expirations tomorrow at $1.1525 (~825 mln euros ) and $1.1550 (~900 mln euros) into play.  Sterling tested $1.36 yesterday, the lowest level since October 13.  It has hardly managed to distance itself from the lows.  It found new offers near $1.3635.   There is a GBP675 mln option expiring today at $1.3650.  A larger one (~GBP820) is at $1.3615 also expires but has liked been neutralized.   America It seems well appreciated that the Federal Reserve will announce it will begin slowing the bond purchases. Most expect a reduction of $10 bln of Treasuries and $5 bln of Agency MBS.  Investors appear to be anticipating the monthly reduction of these amounts through June 2022.  Even with yesterday's upticks, the June Fed funds futures contract continues to discount a rate hike then.  If the effective Fed funds rate is steady in the first half of June at eight basis points and then rises to 33 bp for the second half of the month (25 bp rate hike on June 15), the average effective rate is about 20.5 bp.  The contract settled at an implied rate of 20 bp yesterday.   Since this is already in the market, the tapering announcement itself may not be hawkish.  There are two steps the Fed could take if it wanted to drive home the point.  First, the FOMC statement has been referring to inflation as largely "transitory."  It could simply drop this qualifier or modify it.  The Chair has already acknowledged that it will likely persist longer than initially anticipated.  Indeed, next week's CPI report is expected (Bloomberg survey median) is expected to have risen by 0.5%, which, given the 0.1% increase in October 2020, means the 12-month rate will accelerate to around 5.8%.   Second, after the last press conference, Powell was asked about needing to reduce monetary stimulus while the Fed was still engaged in QE.  The Bank of England said it would hike if necessary while it was still buying bonds.  Powell said in that situation, the Fed would not send contradictory signals but accelerate the tapering process.  Quicker tapering would be a hawkish signal, and reaction by the market would likely bring forward the first hike.   The Democratic Party lost the Virginia gubernatorial context.  Biden had carried the state by 10 percentage points last year, and the preliminary results suggest a loss of suburban voters, a key part of the new Democratic coalition.  New Jersey's governor contest is very close, and the Democratic incumbent is trailing. The results play on ideas that the Democrats are likely to lose both houses of Congress in next year's mid-term election, in which it is common for the party in the White House to lose seats.  Some in the press have been critical that Xi and Putin are not attending COP-26, but their leadership was always in doubt.  The election results may undermine US leadership because Biden's commitments may not get legislative support, and executive decisions could be reversed in 2024.   Today could be the first day since October 13 that the US dollar does not trade below CAD1.2400.  Still, note that the greenback remains in the CAD1.2300-CAD1.2435 range set last Wednesday when the Bank of Canada turned more hawkish.  Yesterday, the US dollar closed above its 20-day moving average for the first time since late September.  We suspect corrective forces could lift the exchange rate toward CAD1.2475, where the (38.2%) retracement of last month's decline is found, and the 200-day moving average (~CAD1.2485).  However, in its way stands the $920 mln option at CAD1.2450 that expires today.  The greenback reached almost MXN20.92120 yesterday, a new eight-month high. Sellers emerged, and the dollar closed lower to snap a five-day advance.  It is softer today but holding above yesterday's low (~MXN20.71).  Ahead of the FOMC outcome, the market may be cautious about taking the dollar below the MXN20.66-MXN20.70 area.   Disclaimer
November Monthly

November Monthly

Marc Chandler Marc Chandler 03.11.2021 15:17
Three main forces are shaping the business and investment climate:  Surging energy prices, a dramatic backing up of short-term interest rates in Anglo-American countries, and the persistence of supply chain disruptions.  The US and Europe have likely passed peak growth.  Fiscal policy will be less accommodative, and financial conditions have tightened. Japan appears to be getting a handle on Covid and after a slow start.  Its vaccination rate has surpassed the US.  The lifting of the formal state of emergency and a hefty dose of fiscal stimulus is expected to be delivered in the coming months. Many developing economies have already lifted rates, some like Brazil and Russia, aggressively so.  They will likely finish earlier too.      US light sweet crude oil rose nearly 12% last month, even though US inventories rose last month for the first time since April.   The price of WTI rose almost 10% in September.  Statistically, the rise in oil prices is strongly correlated with the increase in inflation expectations.  OPEC+ will boost supplies by another 400k barrels a day at the start of November and is committed to the same monthly increase well into 2022.   At the same time, new Covid infections in several Asia-Pacific countries, including China, Singapore, and Australia, warn of the risk of continued supply-chain disruptions.  In Europe, Germany and the UK recently reported the most cases since the spring. Belgium is tightening curbs.  Bulgaria is seeing a rise in infections, and Romania was at full capacity in its intensive care facilities.  The fact that Latvia lags the EU in vaccination at about 50% leaves it vulnerable.  The US may be lagging behind Europe, and the next four-six weeks will be critical.  Roughly 40% of Americans are not fully vaccinated.   The rise in price pressures and the gradual acknowledgment by many central bankers that inflation may be more persistent have helped spur a significant backing up of short-term rates in the Anglo-American economies. The ultimately deflationary implications of the surge in energy prices through demand destruction and the implications for less monetary and fiscal support still seem under-appreciated. Yet, the market has priced in aggressive tightening of monetary policy over the next 12 months.   The focus of the foreign exchange market seems squarely on monetary policy.  From a high level, the central banks perceived to be ahead in the monetary cycle have seen stronger currencies. The likely laggards, like the Bank of Japan, the Swiss National Bank, and the ECB, have currencies that underperformed.  Norway and New Zealand have already raised rates and are expected to do so again in November.    Of course, as you drill down, discrepancies appear.  In October, the Australian dollar was the top performer among the major currencies with a 4% gain.  It edged out the New Zealand dollar and the Norwegian krone, whose central banks are ahead of the Reserve Bank of Australia.  The RBA has pushed against market speculation that has 90 bp of tightening priced into 12-month swaps.  The Australian dollar outperformed sterling by about 2.5% in October even though the Bank of England has been so hawkish with its comments that the market had little choice but to price in a high probability of a hike as early as the November meeting.  In fact, the market has the UK's base rate above 50 bp by the end of Q1 22.  This is important because in its forward guidance that BOE has identified that as the threshold for it to begin unwinding QE by stopping reinvesting maturing issues.  Interestingly enough, when the BOE meets on March 17 next year, it will have a sizeable GBP28 bln maturity in its portfolio.   In an unusual quirk of the calendar, the Federal Reserve meets before the release of the October jobs report.  All indications point to the start of the tapering process.  It is currently buying $120 bln a month of Treasuries ($80 bln) and Agency Mortgage-Backed Securities.  The pace of the reduction of purchases is a function of the duration, and the Fed has clearly indicated the tapering will be complete around mid-year. That suggests reducing the purchases by about $15 bln a month.  Chair Powell indicated that unlike the Bank of England, the Fed will stop its bond purchases before raising rates. A faster pace of tapering would be a hawkish signal as it would allow for an earlier rate hike.  The gap between when the tapering ends and the first rate hike does not appear predetermined. Powell has talked about the economic prerequisites, which emphasize a full and inclusive labor market in the current context. The Fed funds futures entirely discount a 25 hike in July, with the risk of a move in June.  Comments by several officials hint that the Fed may drop its characterization of inflation as transitory, which would also be understood as a hawkish development.   Partly owing to the extended emergency in Japan, it is marching to the beat of a different drummer than the other high-income countries. Inflation is not a problem.  In September, the headline rate rose to 0.2% year-over-year, the highest since August 2020.  However, this is a function of fresh food and energy prices, without which the consumer inflation stuck below zero (-0.5%).  In December 2019, it stood at 0.9%.  In addition, while fiscal policy will be less accommodative in Europe and the US, a sizeable supplemental budget (~JPY30 trillion) is expected to be unveiled later this year.   After expanding by 1.3% quarter-over-quarter in Q2, the Chinese economy slowed to a crawl of 0.2% in Q3, which was half the pace expected by economists. Some of the decline in economic activity resulted from the virus and natural disasters (floods). Still, some of it stemmed from an effort to cut emissions in steel and other sectors.  The problems in China's property development space, accounting for a large part of its high-yield bond market,  unsettled global markets briefly.  Talk of a Lehman-like event seems a gross exaggeration. Still, given the sector's importance to China's economy (30% broadly measured) and the use of real estate as an investment vehicle, it may precipitate a structural shift in the economy.   The Communist Party and the state are reasserting control over the economy's private sector and the internet and social network.  It has also weighed in on family decisions, like the number of children one has, how long a minor should play video games, the length of men's hair, what kind of attributes entertainers should have, and appropriate songs to be played with karaoke.   It seems to be reminiscent of part of the Cultural Revolution and a broader economic reform agenda like Deng Xiaoping did in the late 1970s and Zhu Rongji in the 1990s.  At the same time, Beijing is wrestling with reducing emissions and soaring energy prices, which also dampen growth. Even though consumer inflation is not a problem in China (0.7% year-over-year in September), Chinese officials still seem reluctant to launch new stimulative fiscal or monetary initiatives. Moreover, new outbreaks of the virus could exacerbate the supply chain disruptions and delays fuel inflation in many countries.  The aggressiveness in which investors are pricing G10 tightening weighed on emerging market currencies in October.  The JP Morgan Emerging Market Currency Index fell by almost 0.8% last month after falling 2.9% in September, the largest decline since March 2020.  The continued politicization of Turkey's monetary policy and the aggressive easing saw the lira tumble nearly 7.5% last month, which brings the year-to-date depreciation to 22.5%.   On the other hand, Brazil's central bank has aggressively hiked rates, and the 150 bp increase in late October brought this year's tightening to 575 bp and lifting the Selic to 7.75%.  Yet, it is still below the inflation rate (10.34% October), and the government has lost the confidence of domestic and international business.  The Brazilian real fell nearly 3.5% last month to bring the year-to-date loss to almost 7.8%.   Our GDP-weighted currency basket, the Bannockburn World Currency Index, snapped a two-month decline and rose by 0.35%.  The rise in the index reflects the outperformance of the currencies against the dollar.  The currencies from the G10 countries, including the dollar, account for about two-thirds of the index, and emerging markets, including China, the other third.  The yen was the weakest of the majors, falling 2.3%.  It has a weighting of 7.5% in the BWCI.   Among the emerging market currencies in our GDP-weighted currency index, the Brazilian real's 3.4% decline was the largest, but its 2.1% weighting minimizes the drag.  It was nearly offset by the Russian rouble's 2.5% advance.  It has a 2.2% weighting in our basket.  The Chinese yuan, which has a 21.8% share, rose by 0.6%.      Dollar:   The market is pricing in very aggressive tightening by the Federal Reserve.  As recently as late September, only half of the Fed officials anticipated a hike in 2022.  The December 2022 Fed funds futures are pricing in a little more than two hikes next year. More than that, the market is discounting the first hike in June next year, implying a transition from completing the bond-buying to raising rates with no time gap.  The disappointing 2% Q3 GDP exaggerated the slowing of the world's largest economy.  We note that the supply-side challenges in vehicle production halved the growth rate.  Growth is likely to re-accelerate in Q4, but we continue to believe that the peak has passed.  While inflation is elevated, the pace of increase slowed in Q3.  Consider that the PCE deflator that the Fed targets rose at an annualized rate of 4.0% in Q3 after a 5.6% pace in Q2.  The core rate slowed to an annualized pace of 3.3% last quarter, half of the speed in the previous three months.  The infrastructure spending plans have been reduced, and some of the proposed tax hikes, including on corporations, appear to be dropped as part of the compromise among the Democratic Party.   Euro:  For most of Q3, the euro has been in a $1.17-$1.19 trading range.  It broke down in late September, and was unable to recapture it in October.  Instead, it recorded a new low for the year near $1.1525.  A convincing break of the $1.1500 area could signal a move toward $1.1300. The single currency drew little support because growth differentials swung in its favor in Q3:  the Eurozone expanded by 2.2% quarter-over-quarter while the US grew 2% at an annualized pace.  The ECB is sticking to its analysis that the rise in inflation is due to transitory factors while recognizing that energy prices may prove more sticky.  That said, news that Gazprom may boost gas sales to Europe after it finishes replenishing Russian inventories after the first week in November, natural gas prices fall at the end of October.  After the Pandemic Emergency Purchase Program ends next March, decisions about the asset purchases next year will be announced at the December ECB meeting along with updated forecasts.   (October indicative closing prices, previous in parentheses)   Spot: $1.1560 ($1.1580) Median Bloomberg One-month Forecast $1.1579 ($1.1660)  One-month forward  $1.1568 ($1.1585)    One-month implied vol  5.1%  (5.1%)         Japanese Yen:  The dollar rose 2.3% against the yen in October to bring the year-to-date gain to nearly 9.5%.  The Bank of Japan will lag behind most high-income countries in the tightening cycle, and the higher US yields are a crucial driver of the greenback's gains against the yen.  Japan's headline inflation and core measure, which only excludes fresh food, may be rising, but they are barely above zero and, in any event, are due to the surge in energy prices. In response to the weakening yen, Japanese investors appear to have boosted their investment in foreign bonds, while foreign investors increased their holdings of Japanese stocks.  The LDP and Komeito maintained a majority in the lower chamber of the Diet. A sizeable stimulus supplemental budget is expected to help strengthen the economic recovery now that the formal emergencies have been lifted.  In Q3, the dollar traded mainly between JPY109 and JPY111.  It traded higher in the second half of September rising to nearly JPY112.00.  The dollar-yen exchange rate often seems to be rangebound, and when it looks like it is trending, it is frequently moving to a new range.  We have suggested the upper end of the new range may initially be the JPY114.50-JPY115.00.  The four-year high set last month was about JPY114.70.  A move above JPY115.60 could target the JPY118.50 area.     Spot: JPY113.95 (JPY111.30)       Median Bloomberg One-month Forecast JPY112.98 (JPY111.00)      One-month forward JPY113.90 (JPY111.25)    One-month implied vol  6.4% (5.6%)   British Pound:  Sterling rallied around 4 1/3 cents from the late September low near $1.34.  The momentum stalled in front of the 200-day moving average (~$1.3850).  After several attempts, the market appeared to give up.  We anticipate a move into the $1.3575-$1.3625 initially, and possibly a return toward the September low. The implied yield of the December 2021 short-sterling interest rate futures rose from 22 bp at the end of September to 47 bp at the end of October as the market.  It was encouraged by Bank of England officials to prepare for a hike at the meeting on November 4, ostensibly while it is still providing support via Gilt purchases.  If there is a surprise here, it could be that, given the unexpected softening of September CPI and the fifth consecutive monthly decline in retail sales, rising Covid cases, that the BOE chooses to take the more orthodox route.  This would entail ending its bond purchases, as two MPC members argued (dissented) at the previous meeting and holding off lifting rates a little longer.        Spot: $1.3682 ($1.3475)    Median Bloomberg One-month Forecast $1.3691 ($1.3630)  One-month forward $1.3680 ($1.3480)   One-month implied vol 6.8% (7.1%)      Canadian Dollar:  The three drivers for the exchange rate moved in the Canadian dollar's favor in October and helped it snap a four-month slide against the US dollar.  First, the general appetite for risk was strong, as illustrated by the strength of global stocks and the record highs in the US.  Second, the premium Canada pays on two-year money more than doubled last month to almost 60 bp from 25 bp at the end of September.  Third, commodity prices in general and oil, in particular, extended their recent gains.  The CRB Index rose 3.8% last month, the 11th monthly increase in the past 12, to reach seven-year highs.  The Bank of Canada unexpectedly stopped its new bond purchases and appeared to signal it would likely raise rates earlier than it had previously indicated.  The swaps market is pricing 125 bp of rate hikes over the next 12 months, with the first move next March or April.  Still, the US dollar's downside momentum stalled near CAD1.2300.  There is scope for a corrective phase that could carry the greenback into the CAD1.2475-CAD1.2500 area.     Spot: CAD1.2388 (CAD 1.2680)  Median Bloomberg One-month Forecast CAD1.2395 (CAD1.2580) One-month forward CAD1.2389 (CAD1.2685)    One-month implied vol 6.2% (6.9%)      Australian Dollar:  The Aussie's 4% gain last month snapped a four-month, roughly 6.5% downdraft.  Despite RBA Governor Lowe's guidance that the central bank does not anticipate that the condition to hike rates will exist before 2024 is being challenged by the market.  Underlying inflation rose above 2% in Q3. The central bank's failure to continue defending the 10 bp target of the April 2024 bond spurred speculation that it would be formally abandoned at the November 2 policy meeting.  The RBA's inaction unsettled the debt market.  The two-year yield soared almost 70 bp last month, and the 10-year yield rose nearly 60 bp.  Although the RBA could have handled the situation better, New Zealand rates jumped even more.  Its two-year yield jumped 80 bp while the 10-year yield surged by 58 bp.  Last month, the Australian dollar's rally took it from around $0.7200 to slightly more than $0.7550, where it seemed to stall, just in front of the 200-day moving average.  We suspect the October rally has run its course and see the Aussie vulnerable to a corrective phase that could push it back toward $0.7370-$0.7400.  The New Zealand dollar has also stalled ($0.7220), and we see potential toward $0.7050.       Spot:  $0.7518 ($0.7230)        Median Bloomberg One-Month Forecast $0.7409 ($0.7290)      One-month forward  $0.7525 ($0.7235)     One-month implied vol 9.1  (9.0%)        Mexican Peso:  The peso eked out a minor gain against the dollar last month.  However, the nearly 0.4% gain understated the swings in the exchange rate last month.  The dollar's recovery seen in the second half of September from almost MXN19.85 to nearly MXN20.40 at the end of the month was extended to a seven-month high around MXN20.90 on October 12.  It then proceeded to fall to almost MXN20.12 before the greenback was bought again.  A move above the MXN20.60 area now would likely signal a test on last month's high and possibly higher. Recall that the dollar peaked this year's peak set in March was near MXN21.6350. The economy unexpectedly contracted in Q3  by 0.2% (quarter-over-quarter).  Nevertheless, with the year-over-year CPI at 6% in September, Banxico will see little choice but to hike rates at the November 11 meeting. The market expects a 25 bp increase.  A 50 bp hike is more likely than standing pat.       Spot: MXN20.56 (MXN20.64)   Median Bloomberg One-Month Forecast  MXN20.42 (MXN20.41)   One-month forward  MXN20.65 (MXN20.74)     One-month implied vol 9.6% (11.0%)      Chinese Yuan: Our starting point is the yuan's exchange rate is closely managed.  The fact that the yuan rose to four-month highs against the dollar and a five-year high against the currency basket (CFETS) that the PBOC tracks imply a tacit acceptance.  While it is tempting for observers to link the appreciation to securing an advantage as it secures energy supplies and other commodities, we note that the yuan's gains are too small (0.6% last month and less than 2% year-to-date) to be impactful.  We suspect that the dollar's recent weakness against the yuan will be unwound shortly.  The US government continues to press its concerns about the risk for investors in Chinese companies listed in the US and American companies operating in China. At the same time, the FTSE Russell flagship benchmark began including mainland bonds for the first time.  China's 10-year government bond is the only one among the large bond markets where the yield has declined so far this year (~16 bp).  On the other hand, Chinese stocks have underperformed.  That said, some investors see this underperformance as a new buying opportunity.  The NASDAQ Golden Dragon Index that tracks Chinese companies listed in the US fell by 30% in Q3 and gained 5% in October, its best month since February.  Lastly, the Central Committee of the Chinese Communist Party meets November 8-11 this year, a prelude to the important National Party Congress in 2022 that is expected to formally signal the third term for President Xi.     Spot: CNY6.4055 (CNY6.4450) Median Bloomberg One-month Forecast  CNY6.4430 (CNY6.4470)  One-month forward CNY6.4230 (CNY6.4725)    One-month implied vol  3.5% (3.4%)    Disclaimer
The Greenback Slips at the Start the New Week

The Greenback Slips at the Start the New Week

Marc Chandler Marc Chandler 15.11.2021 12:19
Overview:  While the Belarus-Poland border remains an intense standoff, there have been a couple other diplomatic developments that may be exciting risk appetites today.  First, Biden and Xi will talk by phone later today.  Second, reports suggest the UK has toned down its rhetoric making progress on talks on the implementation of the Northern Ireland Protocol.  Equities in the Asia Pacific region were mostly firmer, with China a notable exception among the large markets, even though the October data was generally stronger than expected.  Europe's Stoxx 600, which has fallen only once this month, is edging higher to new records, while US futures are enjoying a firmer bias.  Benchmark 10-year yields are 1-2 bp lower, which puts the Treasury yield near 1.55%.  The European periphery is outperforming the core.  The dollar is soft.  The Scandis and Antipodeans lead the move, while the euro, yen, and British pound are little changed.  Emerging market currencies are also mostly stronger.  Here the Philippine peso is notable as it falls the most in seven weeks as corporates bought dollars.  After falling by 0.65% last week, the JP Morgan Emerging Market Currency Index is edging higher today.  Gold is snapping a seven-day rally, stalling near $1868.  Support is seen in the $1842-$1845 area.  January WTI  was sold again as it poked above $80.  It is pinned near last week's lows (~$78.65) as the US response is awaited.  European natural gas futures are firm as the capacity auction results are awaited, and Europe faces its first cold snap of the season.  Iron ore and copper prices are posting small losses.   Asia Pacific Japan's Q3 GDP disappointed, but it is old news and will likely spur Prime Minister Kishida to support a large supplemental budget, which could be unveiled by the end of the week.  Economic growth in the world's third-largest economy contracted for the fifth quarter in the past eight.  The 0.8% loss of output in Q3 was more than the 0.2% expected by the median forecast in Bloomberg's survey.  Consumption (-1.1%), business spending (-3.8%), and public investment (-1.5%) did the most damage.  The GDP deflator was unchanged from Q2 at -1.1%.  The Japanese economy is recovering here in Q4.  Talk of the size of the supplemental budget has increased to around JPY40 trillion (~$350 bln) from JPY30 trillion.  It is expected to include a cash payment for 18-year olds and younger, a tax break for companies that boost wages, a new subsidy for domestic travel, snd pay hikes for caregivers. China's October data was stronger than expected but does not shake off concern that the world's second-largest economy is struggling.  The year-over-year pace of retail sales rose for the second consecutive month in the face of expectations for a decline.  The 4.9% increase follows the 4.4% gain in September and 2.5% in August. In October 2020, it rose 4.3% year-over-year.  Industrial output rose 3.5% from a year ago. It was the first increase since March. Last October, it had increased by 6.9%. The surveyed joblessness was steady at 4.9%.  Fixed asset investment and property investment slowed.  Chinese officials have not addressed the economic slowdown with large-scale fiscal or monetary initiatives.   We have suggested that the dollar-yen exchange rate has entered a new range after trending higher from mid-September through mid-October.  That new range is likely JPY113-JPY115, and to find the floor, the dollar briefly traded below JPY112.80 last week. After spiking back to JPY114.00 on the US CPI surprise, the greenback continues to hover around there, the middle of the range.  Tomorrow's expiring options ($830 mln at JPY113.40 and $1.6 bln at JPY114.30) may mark the near-term range.  The Australian dollar is building on its pre-weekend recovery.  It saw a low slightly above $0.7275 on Friday and settled on its highs (a little above $0.7330).  It has risen to $0.7365, and the intraday momentum is getting stretched.  Look for resistance near $0.7375.  The greenback edged slightly lower against the Chinese yuan to record a new six-month low (~CNY6.3785) before recovering within a narrow range.  It is trading slightly above CNY6.3830 in late dealings. The PBOC set the dollar's reference rate at CNY6.3896, a little below the median forecast of CNY6.3896 (Bloomberg survey).  The PBOC rolled over in full the policy loans (CNY1 trillion) coming due this month, and the overnight repo rate fell by seven basis points to 1.78%, the lowest in three weeks.   Europe Tensions between the UK and EU appear to have taken a step away from the brink.  A deal on medicine supplies from other parts of Great Britain to Northern Ireland may have been the critical catalyst.  Reports suggest a de-escalation of UK rhetoric threatening to invoke Article 16, which allows for unilateral over-riding of the Northern Ireland Protocol under certain circumstances of serious economic, environmental, or societal risks.  Separately, two polls have begun showing Labour is edging ahead of the Tories. The Opinium poll (published in the Guardian) gave Labour a one percentage point lead, the first since January.  The Savanta Com Res poll (for the Daily Mail) put Labour ahead by six percentage points at 40%.  The main issue appears to be Prime Minister Johnson's handling of several ethics issues.  His personal support has also waned.    The US was warning at the end of last week that Russian may be preparing to invade Ukraine. Moscow seems to be acting out of fear, fear of the US and Europe creeping presence in Ukraine.  If Ukraine is going to remain independent, Russia insists it can only be a (weak) buffer state.  US rhetoric seemed aggressive in Moscow.  Last month US Defense Secretary Austin argued that no third country [i.e., Russia] has a veto over NATO membership decision[i.e., Ukraine].    Poland, Lithuania, and Latvia are considering formally requesting NATO consultations, while the EU is expected to announce new sanctions on Belarus later today.  Separately, we note reports that India has begun taking delivery of the S-400 air defense missile system from Russia (part of a $5.5 bln deal), which is the same that earned Turkey American sanctions.   The euro edged above the pre-weekend high, but the tone remains fragile, and for the third consecutive session has been unable to resurface above old support at $1.1500.  Since the US CPI report in the middle of last week, it has fallen, and the sideways movement could alleviate the overextended technical condition.  Sterling extended its pre-weekend recovery to reach $1.3440 before sellers reemerged to knock it to the session low of almost $1.3400.  We suspect it can move higher in North America today and target the $1.3480 area.   America The US seems more eager for the Biden-Xi call than Beijing  Expectations should be low, and with no actionable outcome likely (not even a statement), there appears to be little reason to spin it as a virtual summit. The top officials and the senior staff of the two largest economies should talk.  Previously, there were high-level meetings regularly.  Since their last call, a new US-UK-Australian alliance was announced that will result in Australia acquiring nuclear-powered submarines, and it was confirmed that the US has had military personnel in Taiwan since last November.  China continues with its intimidation campaign of repeatedly entering Taiwan's air-identification zone. China's assessment of the US is unlikely to have changed.  Beijing sees the same thing many others do.  Biden's approval rating has fallen to near 41%, and less than that has a favorable view of his handling of the economy.  At the end of last week, the Univerity of Michigan's consumer sentiment measure (preliminary November) fell to its lowest in a decade.  Surveys continue to point to the likelihood that the Democratic Party will lose both houses of Congress in next year's mid-term.  And to underscore the pressure on Biden, the US Court of Appeals (5th Circuit) sustained a block on OSHA's ordered vaccine mandate (or weekly test).  With the sixth plenum over,  Xi has, by all accounts, confirmed his ascendancy and domination of Chinese politics for years to come.   The week's economic calendar for the US begins off slowly.  The November Empire State manufacturing survey is on tap.  It has been in a sawtooth pattern, alternating between gains and losses for the past five months.  It fell sharply (19.8 from 34.3) in October and is expected to have turned up in November.  The US reports October retail sales and industrial production figures tomorrow. Fed officials begin taking to the public stage starting tomorrow.  Over the course of the week, around 11 officials are scheduled to speak.  In addition to US bills, the Treasury Dept sells 20-year bonds, whose auctions have been among the most challenging for coupons, and 10-year TIPS at the end of the week.   Canada reports September manufacturing and wholesale sales today, but the October existing home sales may be more important.  Tomorrow Canada reports housing starts, but the highlight of the week is Wednesday's October CPI.  Price pressures are accelerating in Canada, and the headline CPI is likely to move toward 5% (4.4% in September).  The swaps market is pricing in about 65 bp of tightening in six months.  This week, Mexico has a light economic diary after last week's higher than expected CPI (6.24%) and Banxcio's 25 bp rate hike (to 5%).  Brazil also has a light economic calendar this week.  Last week featured a further rise in (IPCA) CPI (10.67% vs. 10.25%) and weak September retail sales (-1.3% vs. -0.6% median forecast in Bloomberg's survey after a revised -4.3% fall in August). Last week's US CPI shocker saw the greenback jump from around CAD1.24 to slightly above CAD1.26, roughly the 50% retracement of the slump from CAD1.2900 on September 20.  It settled last week on a soft note, and some follow-through selling has seen the US dollar eased to about CAD1.2525.  A break here sees CAD1.2500 and then possibly CAD1.2470.  Since last September, the greenback has moved into a new and higher range against the Mexican peso.  It has not traded much below MN20.12.  Nor has it spent much time above MXN20.90.  It is in the pre-weekend range (~MXN20.45-MXN20.72).  Look for the consolidative day to continue through the local session.  The Brazil real was the strongest emerging market currency last week, rising almost 1.6% against the US dollar.  The US dollar found support around BRK5.40. Trendline support (from June, August, and September lows) and the 200-day moving average are near BRL5.36.   Disclaimer
Euro Bounces Back, but The Turkish Lira Remains Unloved

Euro Bounces Back, but The Turkish Lira Remains Unloved

Marc Chandler Marc Chandler 18.11.2021 15:17
Overview:  The US dollar's sharp upside momentum stalled yesterday near JPY115 and after the euro met (and surpassed) a key retracement level slightly below $1.1300.  Led by the Antipodean currencies today, the greenback is mostly trading with a heavier bias.  Among the majors, helped by a steadying of US yields, the yen is soft.  In the emerging market space, the Turkish lira continues its headlong plunge while the yuan softened and the Mexican peso is off.  Hungary's central bank surprised with a 70 bp hike in the one-week deposit rate.  The JP Morgan Emerging Market Currency Index is posting a small gain through the European morning.  Disappointing tech results in China (Baidu and Bilibili) weighed on Chinese shares, but most markets in the region fell but Australia and Taiwan.  Europe's Stoxx 600 is struggling to extend the six-day advance.  US futures are also a little firmer.  After yesterday's four basis point pullback, the US 10-year yield is little changed near 1.58%.  European yields are 1-2 bp lower.  Gold remains within Tuesday's range (~$1850-$1877), but the moment seen earlier last week has faded, and the yellow metal is trading choppily in a consolidative phase.  The prospect of a coordinated sale of oil after China's announced it would tap its reserves for the second time saw the January WTI contract fall to $76.45, its lowest level since early October. Still, the price has stabilized in the European morning around $77 a barrel.  The benchmark European natural gas contract (Netherlands) has extended yesterday's pullback.  It settled a little below 75 euros last week, and after two days of declines, it is above 92 euros.  Iron ore is also falling for a second session and is now lower on the week.  Note that it settled October a little above $104 and is now around $86.40. Copper is lower for the fourth consecutive session.  It is trading around $424, off $20.5 this week.   Asia Pacific  Japan is expected to unveil the much-awaited supplemental budget tomorrow.  Prime Minister Kishida will get one bite of the proverbial apple, and he is expected to go big.  Talk of the size of the overall package has risen in recent days.  The Nikkei seemed to suggest a JPY79 trillion (~$690 bln) effort, while others report something on the magnitude of JPY56 trillion.  Still, it is recognized that part of the budget will include funds that were earmarked under previous budgets, which have not been spent.  The clear water is seen around JPY32 trillion.  Japan is one of the few countries that will provide new fiscal support.   New Zealand's central bank meets next week.  It is widely expected to hike rates for the second time in the cycle.   The swaps market has 200 bp of tightening priced in for the next 12 months.  The cash rate stands at 50 bp.  Earlier today, the central bank reported that the two-year inflation expectations (business survey)  rose to 2.96% in Q4 from 2.27% in Q3.  It is the highest in a decade.  The one-year expectation rose to 3.7% from 3.02%.  Still, with other countries slower to raise rates, a 50 bp move may not be necessary.  The Kiwi rose almost 4% last month and has given back nearly half so far in November.  Separately, the Philippines and Indonesia central banks met and left rates steady as expected.   The dollar posted a key reversal against the yen yesterday.  It made a new high for the move, a few pips below JPY115.00, and proceeded to sell-off and close (slightly) below Tuesday's low.  However, follow-through selling has been limited, and the greenback is trading firmly but may be absorbing sales related to the $1.34 bln in options in the JPY114.20-JPY114.25 area that expire today.  The Australian dollar initially extended its losses to almost $0.7250, where a A$575 mln option expires today. However, since early in the Asian session, it has posted corrective upticks and looks set to challenge yesterday's high and five-day moving average a little above $0.7300.   The Chinese yuan appears to have begun consolidating.  It remains in the range set on Tuesday that saw the dollar trade roughly between CNY6.3670 and CNY6.3965.  The small gain is the third this week.  The PBOC fix was at CNY6.3803, a bit firmer compared with expectations (CNY6.3786 in the Bloomberg survey) than seen recently.  Note that there is a $1 bln option at CNY6.3830 that expires today.   Europe The auto industry in Europe remained under pressure last month, though the US reported its first increase in sales in six months.  New car registration in Europe, including the UK, is a proxy for sales.  They tumbled by slightly more than 30% year-over-year in October.  This is considerably weaker than expected and is the poorest since May 2020.  The shortage of semiconductors is the likely culprit, and there are some signs of improvement.  The EC will propose modest tweaks in rules about how funds outside of its borders (UK) can be managed while avoiding more dramatic changes.   Draft proposals call for at least two full-time senior managers in the EU and for regulators to be notified when most of their assets are managed outside the EU.  These seem quite minor and unlikely to disrupt the UK fund business.  Earlier this month, the EU Commissioner for Financial Services indicated that temporary waivers would be granted to allow EU banks and money managers to clear trades in the UK. Meanwhile, the dispute over fishing appears to be worsening (Denmark complaining, not just France), and the UK continues to threaten to invoke Article 16.  Former Prime Minister Blair says he will propose a solution to the dispute over the Northern Ireland Protocol in the coming days.  Hungary delivered a 30 bp hike in the base rate earlier this week, which now stands at 2.10%.  It warned that it could make a separate decision on its one-week deposit rate.  It did so today, hiking it 70 bp to 2.50%.  It is a hawkish move that sent the forint higher.  Separately, as widely expected, the Central Bank of the Republic of Turkey cut the one-week repo rate 100 bps to 15%. As a result, the lira is weaker for the eighth consecutive session.  The lira's weakness not only fuels inflation but also will challenge companies and banks with foreign exchange exposure.  The dollar finished last month near TRY9.60 and after the rate hike, pushed above TRY10.97 before stabilizing.   The euro overshot the (61.8%) retracement target of the rally that took it from near $1.0640 in March 2020 to high on January 6, around $1.2350.  That retracement target was about $1.1290, and the euro fell to around $1.1265 yesterday. It recovered to new session highs early in North America yesterday (~$1.1330), leaving bullish hammer candlestick, and follow-through buying lifted it to $1.1345 today.  The combination of higher inflation and stronger retail sales this week have helped sterling to recover.  It had traded near $1.3350 at the end of last week and has barely traded below $1.34 this week.  Indeed, sterling is rising today for the fifth consecutive session, the longest advance in nearly seven months.  It poked above $1.35, where an option for about GBP345 mln will expire today.  A convincing move above $1.3515 could signal another cent advance.  The euro slipped to below GBP0.8385 today before recovering.  It is testing the GBP0.8400, which holds options for 1.1 bln euros that also expires today.   America Leave aside the gaffes by President Biden over Taiwan.  Bloomberg counts four such verbal blunders that have required official walk back or explanation or clarification.  Reports indicate that Biden probed Xi about oil sales.  China has intervened in the commodities (industrial metals) and crude oil market recently.  Today it indicated it will provide more oil from its strategic reserves.  The September is action 7.1 mln barrels, according to reports, and privately sold more.  It is unclear whether today's sales were planned or grew out of the "virtual summit."  Still, it puts the ball back into the US court.  If the US does not sell or lend oil from its strategic reserves, it will look bad after China's move.  On the other hand, its own agency (EIA) projects that it may not be needed as oil will be in oversupply shortly.  Moreover, the pain for consumers is coming from gasoline prices, not oil per se.  Drawing down strategic reserves may not help the gasoline market.  Apparently, Japan has been approached by the US about coordinating the release of oil, though Europe was not.  The US reports weekly initial jobless claims today.  They have fallen for six consecutive weeks, and at 267k, it is the lowest since the pandemic struck.   That said, at the end of 2019, there were below 220k.  The Philadelphia and Kansas City Feds publish their November survey results.  Both surprised last month, with the former on the downside and the latter on the upside.  This time it may be the other way around, with the Philly survey showing strength and the KC survey softer.  Canada reports its monthly portfolio flow data ahead of tomorrow's retail sales report.  Mexico and Brazil have light economic calendars.   Canada's Prime Minister Trudeau and Mexico's President AMLO visit Washington today for the North America's Leaders Summit.  There is tension among the "three amigos."  The Build Back Better US initiative contains several elements that favor American producers. A key one is that substantial tax break for Americans buying electric vehicles if they are made in the US.  This would seem to put Canada and Mexico at a disadvantage, given the integration of the auto sector on a continental basis. Mexico and Canada are also concerned that the Biden Administration's interpretation of the domestic content requirement in the USMCA treaty is also narrow and puts them at a disadvantage.   Canada is also concerned about the pipelines after Biden nixed the Keystone Pipeline in one of his first acts in office, and the Line 5 pipeline is being challenged by Michigan.  The US, and to a less extent, Canada, is worried about the efforts by AMLO to increase the power of the state sector energy companies (oil and electricity), deterring private sector efforts.  The US may try pressing against this on environmental grounds.  Climate and immigration are reportedly on the top of today's agenda.  The US dollar reversed higher against the Canadian dollar on Tuesday, posting an outside up day.  Follow-through buying yesterday lifted the greenback a little above CAD1.2620.  It ticked ever so slightly higher today but has come back offered.  Support is seen in the CAD1.2555-CAD1.2575 area.  The $1.04 bln option at CAD1.25 that expires today is too far away to be impactful. Meanwhile, the US dollar remains within Tuesday's range against the Mexican peso (~MXN20.56-MXN20.85).  This range looks set to hold today.   Disclaimer
Covid Wave Knocks Euro Down and to new 6-year Lows Against the Swiss Franc

Covid Wave Knocks Euro Down and to new 6-year Lows Against the Swiss Franc

Marc Chandler Marc Chandler 19.11.2021 13:58
Overview:  Concerns about the virus surge in Europe cut short the euro's bounce and sent it back below $1.1300 and are also weighing on central European currencies, including the Hungarian forint, despite yesterday's aggressive hike of the one-week deposit rate.  Austria has reintroduced a hard 20-day lockdown.  Germany's health minister warned that the situation deteriorated and vaccines were not enough to break the wave.  He was explicit that a lockdown cannot be ruled out.  The US dollar is trading broadly higher.  Only the yen is resilient on the day, but sterling is the only major currency that has edged higher this week.  The Scandis and euro are off more than 1%.  Speculation that Turkey may announce measures over the weekend to stabilize the lira may be helping to deter new sales today after yesterday's rout.  In the nine-day drop through today, it is depreciated by almost 15%.  The JP Morgan Emerging Market Currency Index is off for the fourth consecutive session to bring this week's loss to more than 2%, the most in five months.  Equities do not know of the consternation in the foreign exchange market.  Disappointing Alibaba results weighed on the Hang Seng (~-1%), while most other large regional bourses but Taiwan and India closed the week on an up note.   Europe's Stoxx 600 snapped a six-day advance yesterday. It was only the second loss since October.  It began firmer today but has reversed lower, putting at risk the six-week rally.   US futures are mixed, with the NASDAQ outperforming.  Bond markets are in rally mode as well.   The US 10-year yield is off three basis points to approach the week's low near 1.53%.  European bonds are off mostly 3-5 basis points, even in the UK, where retail sales surprised on the upside.  Gold is steady, finding support near $1850.  Oil initially extended yesterday's recovery but is reversing lower, leaving the January WTI contract set to test yesterday's low near $76.45.  This is the fourth consecutive weekly fall in crude oil.  European natural gas (Netherlands benchmark) is off 4.4% today, the third drop in a row, and pares the week's gain to almost 19%.  In Singapore, iron ore prices jumped 5.7% to break a five-week slide that saw prices tumble by about 28%.   Copper is firmer and paring this week's loss to around 2%.   Asia Pacific There were two developments in Japan to note.  First, October CPI was largely in line with expectations.  Surging gasoline prices (seven-year highs) helped keep the headline rate positive for the second month (0.1% year-over-year).  Excluding fresh food, the core rate was steady at 0.1%.  However, the deflationary forces are evident when fresh food and energy are removed.  The measure deteriorated to -0.7% from -0.5%, the most since June (-0.9%).    Second, Prime Minister Kishida unveiled an overall package of JPY78.9 trillion (~$690 bln). It is larger than the previous two pandemic packages. "Fiscal measures" refer to spending, investment, and loans, and this is seen worth about JPY55.7 trillion.  It is not clear yet, how much represents new spending as opposed to the reallocation of funds from earlier budgets that were not used. However, it appears to be about JPY32 trillion of new spending.   The Chinese yuan, up a modest 2.1% for the year, is the strongest currency.   Against a trade-weighted basket (CFETS), the yuan is pulling back from a six-year high set earlier this week as the euro recovers a cent.  Consider that the yuan has appreciated by more than 9% against the euro and 11.5% against the yen this year.  That means that investment in China has the same tailwind as the dollar and is compensated a bit for the relative lack of transparency and liquidity.  The Financial Times estimates that foreign holdings of Chinese bonds and stocks rose to around $1.1 trillion at the end of September, about a 13% increase this year.  China's stock market has underperformed this year, and the CSI 300 is off around 7% this year.  On the other hand, China's bonds have fared well.  It is the only 10-year bond that has not weakened this year.  China's figures show foreign direct investment has risen by almost 18% this year through October to nearly $142 bln.   The dollar is posting an outside down day against the Japanese yen by first rising above yesterday's high before reversing and taking out yesterday's low. It is approaching the week's low near JPY113.75 in the European morning.  Below there, support is seen around JPY113.60.  A break would warn of a return to JPY113.00.  The Australian dollar has been sold to its lowest level since October 6, when it recorded a low of almost $0.7225.   It has broken the trendline that connected the August and September lows (~$0.7250).  The September low was around $0.7170 and maybe the next important technical target.  The dollar is trading with a firmer bias against the Chinese yuan, but the greenback remains in the range set on Tuesday (~CNY6.3670-CNY6.3965).  The dollar gained on the yuan four sessions this week, the most since July, but the net gain of less than 0.2% still shows an extraordinarily steady exchange rate.   With the yuan near six-year highs against its trade-weighted basket (CFETS), the PBOC warned against one-way moves and encouraged financial institutions to bolster fx risk management.  It set the dollar's reference rate at CNY6.3825, slightly above expectations (Bloomberg survey) for CNY6.3822.   Europe The stronger than expected October retail sales capped the week's data that points to a rebounding economy and boosts the chances of a rate hike next month.  A strong jobs report was followed by a larger than expected rise in CPI and PPI.  Retail sales jumped 0.8% in October, and the September series was revised to flat from -0.2%. It was the first increase since April.  Pre-Xmas sales were reported.  Separately, the UK government reported that the cost of servicing the national debt has risen more than three-fold over the past year, leaving the budget deficit higher than anticipated.  It appears that the swaps market is pricing in a 15 bp hike at the December 16 BOE meeting, though some are talking about a bigger move.    Several ECB officials, including President Lagarde, have successfully pushed back against expectations of a 20 bp rate hike next year that had appeared discounted by the swaps market earlier this month. The market has pushed it into early 2023.  The implied yield of the December 2022 Euribor futures contract has fallen 20 bp this month.  The December 2022 Eurodollar futures contract is moving in the opposite direction.  The implied yield has risen by about 4.5 bp this month.  The net result is the US premium has increased to over 125 bp, the highest since last March.  In late 2019, the premium was around 180 bp.  This is recognized as a factor helping lift the dollar against the euro, and it appears to have become more salient recently.   The euro's bounce yesterday, its first gain in seven sessions (since the US CPI shocker), stalled near $1.1375, where a 780 mln euro option expires today.   The euro traded quietly in Asia before being sold aggressively as news of the virus hit the wires.  The euro traded through $1.1285 before catching a bid.  Resistance now will likely be encountered around $1.1320.  The euro is posting its first back-to-back weekly of more than 1% since March 2020.  Sterling is also sliding back toward the week's lows, just above $1.3400.  A break could signal a test on the $1.3350 area, but it appears stretched on an intraday basis.  While the euro-sterling cross is practically flat, the euro has punched below CHF1.05 for the first time in six years.  It would not be surprising to learn that the SNB has been intervening.  There appears to be little chart support until closer to CHF1.0250. America The nonpartisan Congressional Budget Office offered its evaluation of the Biden administration's Build Back Better initiative.  It sees $1.636 trillion in spending over the next decade and almost $1.27 trillion in revenue.  That leaves a deficit of $367 bln.  A notable difference between it and the administration is how much more revenue will be generated by increasing the number of IRS agents.  Even if it passes the House of Representatives, it will likely be marked up in the Senate.  The jockeying for position and spin around it will likely dominate the session, which sees no US economic reports outside of the rig count later today.  The Fed's Clarida and Waller speaker today.  It seems that most market participants still see the Fed behind the curve and disagree with our idea that to secure the ability to respond to a wide range of possible outcomes, the Federal Reserve may accelerate its tapering starting in January.   It is not clear exactly when the debt ceiling will be reached, but it is being played.  The Democrats do not want to lift it through the reconciliation process, though they have forced the Republicans to do so in the past.  The Republicans appear to have the discipline and will to oppose.  No one seems to think the US will really default, and getting even this close seems undignified.  Yet, the desire to avoid being caught out encouraged investors to demand a high yield on the four-week bill sold.  Yesterday's auction saw the yield more than double to 11 bp (annualized).  It is the highest yield since July 2020.  In contrast, the eight-week bill, which is thought to be beyond the shenanigans, yield slipped to 4.5 bp from six previously and a higher bid-cover ratio.   Canada reports September retail sales figures today.  After a 2.1% rise in August, some weakness is expected.  Ahead of it, the Canadian dollar is trading at new lows for the week, though it is faring better than the other dollar-bloc currencies.  The US dollar is approaching the (61.8%) retracement objective of the decline since the CAD1.29 level was tested on September 20.  The retracement level is near CAD1.2665, and a break would target CAD1.2700-CAD1.2750.  The upper  Bollinger Band is found near CAD1.2655 today.   The Mexican peso is also under pressure.  It, too, has fallen to a new low for the week today.  The greenback looks set to test the eight-month high set earlier this month near MXN20.98.  Note that the central bank's Deputy Governor warned that inflation was accelerating, and it could rise to 7% this month and 7.1%-7.3% next month.  In October, the CPI stood at 6.24% year-over-year.  Banxico meets next on December 16, the day after the FOMC meeting.  Lastly, we note that the Brazilian real is off for four consecutive sessions coming into today.  The dollar closed above its 20-day moving average against it yesterday and looks poised to probe above BRL5.60 today. The high for the month was closer to BRL5.70.   Disclaimer
Market Quick Take - November 19, 2021

Market Quick Take - November 19, 2021

Saxo Bank Saxo Bank 19.11.2021 10:43
Summary:  Equity markets charged higher in the US session to close at new record highs, and the upside extended further in the futures market overnight. In FX, the recent USD strength eased slightly, while oil prices are creeping back higher despite the recent fears of strategic reserve releases. Markets are nervously awaiting the announcement of who US President Biden will nominate to head the Fed after the current Powell term ends in February. What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - US equities pushed to new all-time highs yesterday led by technology stocks and strong macro figures across manufacturing surveys and job market data such as jobless claims. Nasdaq 100 futures are trading around the 16,560 level in early European trading with the 16,500 being the intraday day support level. A recent survey among institutional investors shows that a majority is believing in the transitory inflation narrative which can help explain why investors in equities are looking through the latest inflation pressures. EURUSD and EURGBP – the beleaguered euro finally bounced back a bit after its recent remarkable slide, although it is tough to see what could engineer a reversal of the move below the 1.1500 level, which is the key chart resistance now, although Biden announcing Brainard as his pick to head the Fed next February could drive considerable short-term volatility. To stop the euro from a persistent slide, we would need a very different tone from the ECB than it has delivered recently, with no real opportunity to do so until the December 16 ECB meeting. With power prices and a new Covid wave weighing on the outlook, the ECB will very likely be happy to stay firmly dovish. USDJPY – the highs for the cycle near the psychologically important 115.00 look safe as long as US treasury yields at the longer end of the curve remain rangebound, but trading above that level could get volatile if it is broken, as some options structures may be linked to its breaking or not breaking. The next test for the price action is clearly the Fed Chair nomination that appears imminent – possibly today or over the weekend (more below in What are we watching next?). Gold (XAUUSD) has spent the week trading within a relatively narrow range between $1850 and $1870 as it awaits a fresh catalyst following last week’s breakout. The impressive rally that occurred despite headwind from a stronger dollar has stalled with bond yields picking up and the market wondering how the US Federal Reserve will manage the current inflation spike. Silver and especially platinum have both struggled to keep up with gold while ETF investors have yet to show any interest in accumulating exposure. All developments raising the risk of a retracement towards the $1830-35 key area of support. Crude oil (OILUKJAN22 & OILUSDEC21) managed to recover yesterday after the market brushed aside the potential negative price impact of a US SPR release. US attempts to attract wider support from other major importing countries seems to have fallen flat, except for China who is “working” on a release. Having dropped more than five dollars since speculation began, the market has concluded for now that the price impact of a release could be limited. The market, however, may still have to deal with the recent updates from EIA and IEA, in which they both forecast current tight market conditions could start to ease early next year as well as renewed Covid-related reductions in mobility. US Treasuries (IEF, TLT). Yesterday’s 10-year US TIPS auction stopped through, pricing at a record low yield at -1.145%. It is a signal that investors are ever more concerned about inflation risk.  The Treasury also sold 4-week and 8-week T-Bills. While the latter was priced in line with the Reverse Repurchase facility, 4-week T-Bills priced with a yield of 0.11%, more than double the RRP rate. As we approach the day in which the Treasury will run out of cash, we expect volatility in the money market to increase, while long-term yields will remain compressed as they will serve as a safe haven. In the meantime, the move index continues to rise indicating that the bond market remains on the hedge. What is going on? Central Bank of Turkey cut another 100 basis points from the policy rate, lira plunge extends. The Turkish lira has lost more than 10% versus the US dollar this week and trades well over 11.00 after Turkish President Erdogan earlier this week declared himself once again against high interest rates, which he believes cause inflation. Central bank chief Kavcioglu, who is seen as doing Erdogan’s bidding, cut rates for a third time by 1.0% to take the policy rate to 15%, but with the Turkish lira losing over 10% this week alone and more than 30% since Erdogan fired the prior more hawkish central bank head in favour of Kavcioglu, inflation will run far beyond the rate. Not even some guidance that the easing cycle may conclude in December was enough to halt the lira’s slide. US Nov. Philly Fed survey hits 39.0, a very hot reading and fourth highest ever - with Prices Paid at 80 and just missing the 42-year high of 80.7 in June, although the Prices Received was at 62.9, the highest since 1974. Special survey questions in the Novemer  survey included one on inflation expectations, with firms expecting a median 5.3% increase in their own prices, and an increase in wages of 4.8%. The median forecast for 10-year inflation was 3.5%, up from the 3.0% the last time the question was asked in August. The Bloomberg Agriculture Index hit a fresh five-year high this week with food prices likely to stay high in 2022 with labor shortages, La Ninã weather impacts, surging cost of fertilizers being the common denominator across the sector. Recent gains being led by coffee, which we highlighted earlier in the week as a commodity currently seeing multiple price supportive developments. Wheat is heading for a nine-year high in Chicago while hitting record highs in Europe with inventories tumbling amid strong demand from importers and now also a rain threat to the soon-to-be harvested Australian crop. Soybeans have seen a strong bounce after the latest WASDE report showed a tighter than expected outlook for the coming year, and following a recent rush of Chinese buying from the US and South America. Apple doubles down on self-driving cars. The company is aiming to develop fully autonomous driving capabilities for cars by 2025 under the project name Titan. Apple has developed its own chip and is aiming to soon have a car on the roads for testing. However, delivering self-driving cars is a difficult endeavor with Uber Technologies having sold its unit and Waymo (Google’s unit) has been struck by fatigue and key people leaving the project. Tesla is also still struggling to deliver self-driving cars. What are we watching next? Who will US President Biden nominate to head the Fed next February? Powell is still seen as more likely to get the nod that Brainard by roughly two to one, and this Fed Chair nomination issue is hanging over the markets, as the current Fed chair term ends in early February and from comments made earlier this week, an announcement could be made any day now. One uncertainty that would come with a Brainard nomination is the potential difficulty of having her nomination approved by the Senate. The nomination news could generate significant short-term volatility on the choice of the nominally more dovish Lael Brainard over current Fed Chair Powell, though we see little difference in the medium-longer term implications for monetary policy, and the Fed is likely to get a prominent new regulatory role either way (under Brainard or someone else if she is nominated to replace Powell). Vote on $1.7 trillion US fiscal bill today in the House of Representatives after the Congressional Budget office said the bill, which focuses on social spending and climate initiatives, would add some $367 billion to the US Federal deficit (around 1.5% of current US nominal GDP) over the next 10 years. Earnings Watch – there are no important earnings today and this earnings week has been good in the US and Europe, while a bit more mixed among Chinese companies. The list below shows earnings releases next week. Monday: Sino Pharmaceutical, Prosus, Zoom Video, Agilent TechnologiesTuesday: Xiaomi, Kuaishou Technology, Compass Group, Medtronic, Analog Devices, Autodesk, VMWare, Dell Technologies, XPeng, HP, Best Buy, Dollar TreeWednesday: DeereThursday: AdevintaFriday: Meituan, Pinduoduo Economic calendar highlights for today (times GMT) 0830 – ECB President Lagarde to speak1200 – UK Bank of England Chief Economist Huw Pill to speak1330 – Canada Sep. Retail Sales1715 – US Fed Vice Chair Clarida to speak on global monetary policy coordination Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple Spotify Soundcloud Sticher
Turkish Lira Is at Record Lows. How to Trade It?

Turkish Lira Is at Record Lows. How to Trade It?

Kseniya Medik Kseniya Medik 24.11.2021 14:20
USD/TRY belongs to the exotic group of Forex currency pairs, that’s why traders don’t trade it regularly. However, these days this pair is in the focus of all the trading community! What happened? The Turkish lira dropped to the all-time low of just over 13.00 as Turkish President Recep Tayyip Erdogan continued to defend the huge interest rate cuts by the central bank: three times since September. That drove up inflation to 20%. The Turkish lira has lost almost half of its value this year, making it the world's worst-performing currency. What’s next? Credit Suisse forecasts USD/TRY to reach 14.00 soon. The Central Bank of the Republic of Turkey (CBRT) needs to make a sizable rate increase to reverse the downtrend in USD/TRY. However, it is unlikely to happen soon. What else? Turkey is not the only country that will face an economic crisis. Indeed, the prospect for higher interest rates in the US is a negative factor for all these countries that have debt in US dollars. The Federal Reserve is expected to start slowing down the pace of its asset purchases already this month. Besides, the central bank plans to raise rates as soon as June 2022. It’s a bullish factor for the USD. Tech analysis USD/TRY has reversed down after rallying for so long and dropped. However, it has stopped ahead of the significant support level of 12.00. The pair won’t cross it on the first try. The most likely scenario is that it bounces off and turns to the upside. The move above 12.50 will clear the way to the resistance zone of 13.00 and 13.15. Support levels are 12.00 and 11.50. Download the FBS Trader app to trade anytime anywhere! For a personal computer or laptop, use MetaTrader 5!
Turkey gets a Reprieve before US Thanksgiving, but Capital Strike may not be Over

Turkey gets a Reprieve before US Thanksgiving, but Capital Strike may not be Over

Marc Chandler Marc Chandler 24.11.2021 14:28
November 24, 2021  $USD, Currency Movement, Germany, Japan, Mexico, RBNZ, Turkey Overview:  The dramatic collapse of the Turkish lira was like an accident one could not help look at, but it was not an accident, but the result of a disregard for the exchange rate and compromised institutions.  The lira was off around 15% at its worst yesterday, before settling 11.2% lower.  After falling for 11 sessions, it has steadied today (~2.7%)  but the capital strike may not be over.  On the other hand, the Reserve Bank of New Zealand delivered the 25 bp rate hike and seemed to give hawkish guidance, and yet the New Zealand dollar was sold and the worst-performing of the major currencies, off 0.65% through the European morning.  The tech losses on Wall Street yesterday weighed on Asia Pacific equities today, where the large markets fell but in China.  Europe's Stoxx 600 is less tech sensitive and is trying to snap a four-day air pocket, but early gains have been reversed. The US futures point to around a 0.5% lower opening.  The greenback has a firmer bias ahead of the full economic calendar ahead of tomorrow's holiday.  The yen is the notable exception.  The greenback rose to a new multi-year high near JPY115.25 but has come back offered and is straddling the JPY115 level in late morning turnover in Europe.  Emerging market currencies are mixed, though the JP Morgan Emerging Market Currency Index is firmer after six consecutive down sessions.  Gold is steadying after a four-day drop that took it from around $1870 to about $1782. Oil extended yesterday's recovery after the concerted agreement to release strategic reserves from six countries but is struggling to sustain the upside momentum.  The market was unimpressed with the new supply and had it (and more?) discounted.  European (Dutch) gas rose 8% yesterday and remains firm today.  Iron ore prices are higher for the fourth session, during which time it has risen by around 20%.  Copper is also firmer for the second session.  It is up about 4.5% from the middle of last week's low.   Asia Pacific The Reserve Bank of New Zealand hiked its cash rate 25 bp to 0.75%.  It was widely expected, and many had leaned to a 50 bp move.  The forward guidance saw the cash rate at 2.0% at the end of next year.  The swaps market had this nearly priced in as well.  This might help explain the profit-taking on the New Zealand dollar.  The 2-year yield fell 14 bp, and the 10-year yield eased by 5.5 bp.  New Zealand stocks defied the regional pressure and rose by about 0.6%.   Japan's economy is recovering. The economy contracted by 0.8% in Q3, but after a slow start, the vaccination program has been successful.  It has allowed a re-opening of the economy.  This is evident in the flash PMI report.  The manufacturing PMI rose to 54.2 from 53.2, and the services PMI improved to 52.1 from 50.7.  The composite new stands at 52.5 (from 50.7) and represents a new cyclical high.  Recall that it bottomed in August at 45.5.  The fiscal support being offered by the supplemental budget is pro-cyclical; it will accelerate the recovery.   The break of JPY115.00 has seen limited follow-through dollar buying.  It peaked near JPY115.25 in Asia and fell to around JPY114.80, where it has found a bid in European dealing.  The nearly $950 mln option that expires today at JPY115 has likely been neutralized (hedged/offset), and the one at JPY115.50 for $1.2 bln may be too far away to be impactful.  Our idea of a JPY113.-JPY115 range is being tested, but recall that earlier this month, the dollar has slipped to almost JPY112.70.  The range is not carved in stone, and some fraying is inevitable.  Still, a move above JPY115.50 would suggest that this consolidation since mid-October is over, and a new and higher range is likely.  Next:  JPY118-JPY120, maybe.  The Australian dollar leaked lower and briefly dipped below $0.7200 for the first time since October 1.  There is an option that is expiring today there for about A$355 mln.  It steadied after early Asia Pacific trading and approached the nearby cap near $0.7230.  A move above here would help the technical tone.  Officials appear to have broken the one-way trading in the yuan.  It has been alternating between gains and losses this week, but the movement has been small, and the yuan is virtually unchanged this week.  The reference rate was set at CNY6.3903, slightly more than the market expected (Bloomberg) of CNY6.3898.   Lastly, we note that South Korea is widely expected to hike the seven-day repo by 25 bp tomorrow, following a similar hike in August.   Europe It has taken the better part of the two months, but the new German coalition appears to have been agreed upon.  However, what the soon-to-be Chancellor Scholz is inheriting is a mess.  The Bundesbank warned recently that the economy may be stagnating this quarter (though the flash PMI yesterday did not confirm this), and inflation may be approaching 6%.  Moreover, the covid infection rate has reportedly doubled in the past two days.  The US CDC put Germany (and Denmark) on a heightened travel advisory.   As one would expect, this is taking a toll on sentiment.  The IFO investor survey showed this.  The current assessment fell to 99.0 from 100.2.  The expectations component eased to 94.2 from 95.4.  The assessment of the overall business climate stands now at 96.5, down from 97.7. After falling for the fifth consecutive month,  it is at the lowest level since April.   The euro's losses were extended to almost $1.12.  The weakness seems most pronounced in Europe, which lends credence to ideas that European financial firms are key sellers, which some related to year-end adjustments.  However, the three-month cross-currency basis swap has steadied since Monday, and pressure on the euro remains.   We note that the two-year US-German interest rate differential rose for the fourth consecutive session yesterday to reach 135 bp, the most since last March, but is steadying today.  Since the convincing break of $1.13, we do not see strong chart support until closer to $1.10.  Sterling made a margin new low for the year yesterday near $1.3345.  It remains stuck near there in quiet turnover.  The $1.3400 area offers nearby resistance.  Here we see little technical support until around $1.3165.  America The US holiday tomorrow is forcing a heavy data release schedule today.  Not all the data is of equal importance.  Of the first set of reports, the weekly jobless claims will command attention.  They have fallen for the past seven weeks and are at their lowest level since the pandemic (268k).  The November national employment report is due at the end of next week, and another 500k jobs were thought to have been filled.  The October trade balance and durable goods orders are notable.  Nearly all the October data has been reported better than expected.  Growth differentials warn of the risk of a wider trade shortfall.  The revisions to Q3 GDP (likely higher) are unlikely to capture much attention as it is too backward-looking.   The second batch of data may see a bigger market reaction, especially in the debt market.  The US is expected to report a jump in personal spending (consumption needs to accelerate if the economy strengthens this quarter).  Income is likely to recover a bit from the 1.0% drop reported in September.  The market may be most sensitive to the deflators.  Here inflation is set to accelerate.  The headline is projected to rise above 5%, while the core should peak above 4%.   Lastly, new homes sales surged 14% in September and maybe lucky to sustain those higher levels in October.  Late in the session, when many in the US may be winding down ahead of the holiday, the FOMC minutes from this month's meeting will be released.  The current focus is on the possibility that the Fed accelerates its tapering next month, and anything that sheds light on this could shape the market's reaction.    The US dollar reversed lower yesterday after reaching CAD1.2745.  It settled near its lows (~CAD1.2670), but there has been no follow-through selling, and the five-day moving average, which it has not closed below since November 15, held (~CAD1.2660). Initial resistance is seen now around CAD1.2700-CAD1.2720.  We note that Canadian bonds are under some pressure, and the 10-year yield is above 1.80%, the highest level since April 2019.  The dollar rose to MXN21.30 yesterday and remains firm, even if off the high today.  News that Mexico's President pulled the nomination of Herrera, the former finance minister, as the next central bank governor, injected some volatility into the peso.  Reports suggest that Herrera's nomination was retracted a few months ago but was kept confidential.  It is not clear what happens next.  Some suspect Herrera may still get the nomination.  It does not appear that any official statement or clarification has been provided.  The median seems to be playing up the likelihood of some announcement in the coming days.  Meanwhile, Mexico reports its bi-weekly CPI figures, and inflation is still accelerating.  Tomorrow's final Q3 GDP is expected to confirm that the economy contracted.  The dollar recorded the high for the year against the peso in March near MXN21.6360.   Disclaimer
Covid Strikes Back

Covid Strikes Back

Marc Chandler Marc Chandler 26.11.2021 12:44
November 26, 2021  $USD, Covid, Currency Movement, Hungary, Mexico, South Korea Overview: Concerns that a new mutation of the Covid virus has shaken the capital markets.  Equities are off hard, and bonds have rallied.  In the foreign exchange market, the Japanese yen and Swiss franc have rallied.  While there may be a safe haven bid, there also appears to be an unwinding of positions that require the buying back of the funding currencies, which is also lifting the euro.  The currencies levered from growth, the dollar-bloc and Scandis are weaker.   Oil has been knocked back by around  6.7%, with January WTI trading near $73. Led by 2%+ losses in Japan, Hong Kong, and India, and 1%+ losses in South Korea, and Taiwan, the MSCI Asia Pacific Index has slumped to its lowest level since July.   Europe's Stoxx 600 gapped lower and is off around 2.4% near midday.  US futures are sharply lower (1.25%-2.5%).  The US 10-year yield has dropped around 12 bp to nearly 1.50%.  While UK Gilts have kept pace with US Treasuries, continental benchmark yields are off 6-8 bp.  The US 2-year yield is about 15 bp lower (~0.49%), while European 2-year yields are mostly 2-5 bp lower.  The 2-year Gilts yield has shed about 12 bp, as the market unwinds some of the chances of a rate hike next month.   Key Development: A new variant of the Covid virus was found.  It is thought to have the most mutations to date.  The EU, UK, Israel, and Singapore have quickly banned travel from South Africa and five neighboring countries.  This is coming on top of and is separate from the outbreak in Europe, where Germany has reported a record number of new cases and several other countries have introduced new restrictions.  Almost a third of Shanghai flights were canceled as three local cases were found.  US infections are also on the rise.  Asia Pacific  As widely expected, South Korea hiked its key 7-day repo rate by 25 bp to 1.0% yesterday.   It follows a 25 bp hike in August.  Consumer inflation rose 3.2% year-over-year in October, while the core rate rose 2.8%.  Growth in Q3 was 4.0%.  With today's roughly 0.3% decline, it brings this year's loss to almost 9%.  Only the yen (~-9.4%) and the Thai baht (~-11%) have performed worse in the region.   Australia reported stronger than expected October retail sales.  The 4.9% month-over-month surge was more than twice the Bloomberg median forecast (2.2%) and follows September's 1.3% gain.  It underscores the recovery that is taking place. The preliminary PMI showed the recovery continuing into November.  The composite rose to 55.0, its highest reading since June.   The dollar was fraying the upper end of the range we anticipated against the yen, pushing against JPY115.50.  The momentum looked to have been at risk of stalling when the news struck.  The dollar was sold to almost JPY113.65.  An option for $710 mln at JPY113.70 expires today.  The price action appears to be stabilizing a bit in the European morning, and the greenback is hovering around JPY114.00.    The trendline connecting the September and the previous two November lows comes in today near there today.  The JPY114.50 area looks to offer initial resistance.  The Australian dollar had been leaking through $0.7200, and the risk-off move sent it slightly through $0.7115, just above the low for the year set on August 20, closer to $0.7105.  A break could spur a move toward $0.7050, which is the (38.2%) retracement of the Australian dollar's recovery since March 2020, when it hit a low near $0.5500.  The $0.7140 area may provide the initial cap for the bounce.   The Chinese yuan is a rock.  It has hardly moved despite the broader developments.  The greenback is slightly (less than 0.05%) firmer and still a little below CNY6.39.  The PBOC set the dollar's reference rate at CNY6.3936, a touch above the CNY6.3934 median projection (Bloomberg survey).   Europe Part of the limited reaction short-end of the European debt market derives from the fact that investors had not expected a change in ECB's monetary policy until the very end of next year, at the earliest.  The surge in the delta strain had already emerged as a weight on the euro.  We had put emphasis on the divergence with the US and saw it captured in the two-year interest rate differential between the US and Germany.  The US premium had risen from around 90 bp in mid-September to 140 bp in the middle of this week.  It has fallen back to about 128 bp today.  Some observers had focused on the year-end adjustments of European banks and the shifting of liquidity through the cross-currency swap basis.   The new German coalition has been announced, and it will have its work cut out.  A record number of new cases have been reported in Germany, and many countries are introducing new social restrictions.  Portugal will try something a bit different.  It is set to require people to work from home in early January for a week to avoid a spike in the virus after the holidays.   Hungary was more aggressive than expected yesterday.  It raised its one-week deposit rate by 40 bp to 2.90%.  Recall that on November 18, it had hiked the one-week deposit rate 70 bp to 2.50%.  Two days earlier, it lifted the base rate 30 bp to 2.10%.  The forint had fallen to a record low against the euro on November 23.   The euro's high was just shy of HUF372, and it fell back to about HUF364.80 yesterday before jumping back to almost HUF369.50 today.  It has steadied around HUF368 in the European morning.   The euro's downside momentum had begun easing as bids below $1.12 were being filled.  The virus developments have spurred what appears to a be short-covering rally that has lifted the single currency thought $1.1280, where a 460 mln euro option expires today.  Nearby resistance is seen near $1.1300 and then last week's high near $1.1375.  Sterling recorded a new low for the year near $1.3280 in late Asian turnover before finding support.  It recovered to about $1.3335 so far.  A move above yesterday's high (~$1.3355) could spur a move to $1.3400-$1.3425.    America The dollar's rally has been fueled by the prospect of a divergence of monetary policy that favored the Fed over the ECB and BOJ.  Indeed, since the November 10 surprise jump in the October CPI to above 6%, we had emphasized the likelihood that the Fed would have to taper quicker to give it the flexibility to lift rates earlier if needed.  Since then, 4-5 Fed officials and several large banks have also underscored this possibility. However, this scenario is being called into question today, which is evident in the swaps markets and the Fed funds futures.  The implied yield of the June 2022 Fed funds futures contract is 7.5 basis points lower, and the December 2022 contract implied yield is down 14.5 bp.  The US dollar rallied to CAD1.2775, its highest level since late September.  It tests a downtrend line connecting the August (~CAD1.2950) and September (~CAD1.2900) highs. A convincing break of the trendline would signal a test on those earlier highs.   We are inclined to see it hold but cannot be confident until CAD1.2720 yields.   The Mexican peso was trampled before today amid concerns about the implications of President AMLO pulling Herrera's nomination for central bank head.  Herrera is a seasoned hand, and although he worked closely with AMLO from the finance ministry, his appointment did not seem to jeopardize the independence of the central bank.  Perhaps the market has been influenced by developments in Turkey, but the nomination of a less experienced and less known candidate has weighed on sentiment.  The dollar, already bid, jumped to MXN22.1550, at its best level since September 2020.   It has pulled back to around MXN21.83, which leaves it up around 1.2%.  This would be the seventh consecutive decline in the peso.  Support is seen around MXN21.60.  Disclaimer
December Monthly

December Monthly

Marc Chandler Marc Chandler 02.12.2021 15:00
December 01, 2021  $USD, Macro The pandemic is still with us as the year winds down and has not yet become endemic, like the seasonal flu.  Even before the new Omicron variant was sequenced, Europe was being particularly hard hit, and social restrictions, especially among the unvaccinated, were spurring social strife.  US cases, notably in the Midwest, were rising, and there is fear that it is 4-6 weeks behind Europe in experiencing the surge.  Whatever herd immunity is, it has not been achieved.  Moreover, despite plenty of vaccines in high-income countries, inoculation efforts in many low-income countries won't begin in earnest until next year.   That said, the new variant has injected a new element into the mix, and it is with a heightened degree of uncertainty that we share our December outlook.  Given the unknowns, policymakers can choose the kind of error they are willing to make. They are trying to minimize their maximum regret.  The utmost regret is that the mutation is dangerous and renders the existing vaccines and treatment significantly less effective.  This will leave them vulnerable to accusations of over-reacting if the Omicron turns out to be a contagious but less deadly variation.   Meanwhile, there has been some relief to the supply chain disruptions.  Covid-related factory closures in Asia, the energy shortage, and port congestion are easing. Large US retailers have stocked up for the holiday shopping season, some of which chartered their own ships to ensure delivery. There are also preliminary signs that the semiconductor chip shortage may be past its worst.  Indeed, the recovery of the auto sector and rebuilding of inventories will help extend the economic expansion well into next year, even though fiscal and monetary policy are less supportive for most high-income countries.  The flash November US manufacturing PMI saw supplier delivery delays fall to six-month lows.   We assume that the US macabre debt ceiling ritual will not lead to a default, and even though it distorted some bill auctions, some resolution is highly probable.  The debate over the Build Back Better initiative, approved by the House of Representatives, will likely be scaled back by moderate Democratic Senators and Republicans.  Besides assessing the risks posed by the new variant, the focus in December is back on monetary policy.  Four large central banks stand out.  The Chinese economy has slowed the People's Bank of China quarterly monetary report modified language that signals more monetary support may be forthcoming.  Many observers see another reduction in reserve requirements as a reasonable step.  Unlike in the US and Europe, which saw bank lending dry-up in the housing market crisis (2008-2009), Beijing is pressing state-owned banks to maintain lending, including the property sector.   The Federal Reserve meets on December 15.  There are two key issues.  First, we expect the FOMC to accelerate the pace of tapering to allow it to have the option to raise rates in Q2 22.  The Fed's commitment to the sequence (tapering, hikes, letting balance sheet run-off) and the current pace of tapering deny the central bank the needed flexibility.  The November CPI will be reported on December 10.  The headline will likely rise to around 6.7%, while the core rate may approach 5%.  Second, the new "Summary of Economic Projections" will probably show more Fed officials seeing the need to hike rates in 2022.  In September, only half did.  The rhetoric of the Fed's leadership has changed.  It will not refer to inflation as transitory and is signaling its intention to act.  The European Central Bank and the Bank of England meet the day after the FOMC.  The ECB staff will update its forecasts, and the key here is where it sees inflation at the end of the forecasting period.  In September, it anticipated that CPI would be at 1.5% at the end of 2023.  Some ECB members argued it was too low.   It may be revised higher, but the key for the policy outlook is whether it is above the 2% target.  We doubt that this will be the case.  While the ECB will likely announce that it intends on respecting the current end of the Pandemic Emergency Purchase Program next March, its QE will persist. The pre-crisis Asset Purchase Program is expected to continue and perhaps even expand in Q2 22.  The "modalities" of the post-emergency bond-buying program, size, duration, and flexibility (self-imposed limits) will be debated between the hawks and doves.  With eurozone inflation approaching 5% and Germany CPI at 6%, the hard-money camp will have a new ally at the German Finance Ministry as the FDP leader Linder takes the post.  On the other hand, the Social Democrats will name a Weidmann's replacement at the head of the Bundesbank, and nearly anyone will be less hawkish.   While we correctly anticipated that the Bank of England would defy market expectations and stand pat in November, the December meeting is trickier.  The decision could ultimately turn on the next employment and CPI reports due 1-2 days before the BOE meeting.  The risk is that inflation will continue to accelerate into early next year and that the labor market is healing after the furlough program ended in September.  On balance, we suspect it will wait until next year to hike rates and finish its bonds purchases next month as planned.   Having been caught wrong-footed in November, many market participants are reluctant to be bitten by the same dog twice. As a result, the swaps market appears to be rising in about a 35% chance of a 15 bp move that would bring the base rate up to 25 bp.  Sterling dropped almost 1.4% (or nearly two cents) on November 4, the most since September 2020 when the BOE failed to deliver the hike that the market thought the BOE had signaled.   The combination of a strong dollar and the Fed tapering weighed emerging market currencies as a whole.  The JP Morgan Emerging Market Currency Index fell by about 4.5% in November, its third consecutive monthly decline, bringing the year-to-date loss to almost 10%.  It fell roughly 5.7% in 2020.  Turkey took the cake, though, with the lira falling nearly 30% on the month.  It had depreciated by 15% in the first ten months of the year.  This follows a 20% depreciation last year.  Ten years ago, a dollar would buy about 1.9 lira.  Now it can buy more than 13 lira.  The euro's weakness was a drag, and the geopolitical developments (e.g., Ukraine, Belarus) weighed on central European currencies. The central bank of Hungary turned more aggressive by hiking the one-week deposit rate by 110 bp (in two steps) after the 30 bp hike in the base rate failed to have much impact.  The forint's 3.1% loss was the most among EU members.   Colombian peso was the weakest currency in Latam, depreciating by almost 5%. It was not rewarded for delivering a larger than expected 50 bp rate hike in late October.  Bannockburn's GDP-weighted global currency index (BWCI) fell by nearly 1% in November, the largest monthly decline since June.  It reflected the decline of the world's largest currencies against the dollar.  Three currencies in the index proved resilient  On the GDP-weighted basis, China has immense gravity, with a 21.8% weighting (the six largest EM economies, including China, account for a 32.5% of the BWCI). It appreciated by about two-thirds of a percent. The Brazilian real managed to rise (~0.25%) too.  Since the day before the Omicron variant was sequenced, the Japanese yen gained a little more than 2%, reversing the earlier decline that had brought it to four-year lows.  It rose by  0.7% in November, making it the strongest currency in the index.  Among the major currencies, the Australian dollar fell the most, declining about 5.2%.  The Canadian dollar was next, with around a 3% loss.   As it turns out, the dollar (Dollar Index) recorded its low for the year as shocking events were unfolding in Washington on January 6.  The bottomed against the yen and euro the same day.   The greenback did not bottom against the Australian dollar until February, but it took it until early June to put in a low against sterling and the Canadian dollar.  The BWCI peaked in early June and, by the end of last month, had retreated by about 2.7%.  We suspect it may decline by another 2%, which would return it the levels of late 2019.  That, in turn, implies the risk of a stronger dollar into the first part of next year.     Dollar:  The jump in US CPI to above 6%, and a strong sense that it is not the peak, spurred speculation that the Federal Reserve would likely accelerate the pace of tapering at the December meeting. Several Fed officials seemed sympathetic, including San Francisco President Daly, who is perceived to be a dove. The minutes of the November meeting underscored the central bank's flexibility over the pace of tapering.  At the same time, most of the high-frequency data for October came in stronger than expected, lending credence to ideas that after a disappointing Q3, the world's largest economy is accelerating again in Q4.  The divergence of monetary policy and the subsequent widening interest rate differentials is the primary driver of expectations for dollar appreciation against the euro and yen.  The market had been leaning toward three rates hikes in 2022 before news of the new Covid mutation emerged and trimmed the odds.  Powell was renominated for a second term at the helm of the Federal Reserve, Brainard was nominated to be Vice-Chairman.  There is still the Vice-Chair for supervision and an empty governor seat for President to Biden to fill.  In addition to the changes in leadership, the rotation of the voting members of the FOMC brings in a somewhat more hawkish bias next year.   Euro:  In contrast with the US, eurozone growth is set to slow in Q4. After two quarters that growth exceeded 2% quarter-over-quarter, growth is likely to moderate to below 1% in Q4 21 and Q1 22.  Food and energy are driving inflation higher.  The EC continues to negotiate with the UK over changes to the Northern Ireland Protocol.  The dispute over fishing licenses and migrant crossing of the channel are also unresolved sources of tension with the UK. Tensions between the EC and Poland/Hungary over the rule of law, judicial independence, and civil liberties have also not been settled.  As was the case in the spring, Russia's troop and artillery movement threatened Ukraine, though the tension on the Poland/Belarus border has eased.  The ECB's leadership continues to maintain the price pressures are related to the unusual set of circumstances but are ultimately temporary.  Its December 16 meeting, the last one before Bundesbank President Weidmann steps down, is critical. In addition to confirming the end of the Pandemic Emergency Purchase Program in March 2022, and the expansion of the Asset Purchase Program, the ECB staff will update its inflation forecasts.  The focus here is on the 2023 CPI projection of 1.5%.  There was a push back against it in September, and a slight upward revision is likely. Nevertheless, it will probably remain below the 2% target.  The swaps market is pricing in a 25 bp hike in 2023.   (November indicative closing prices, previous in parentheses)   Spot: $1.1335 ($1.1560) Median Bloomberg One-month Forecast $1.1375 ($1.1579)  One-month forward  $1.1350 ($1.1568)    One-month implied vol  7.1%  (5.1%)         Japanese Yen:  Japan has a new prime minister who has put together a large fiscal stimulus package that will help fuel the economic recovery that had begun getting traction since the formal state of emergency was lifted at the end of September.  After a frustratingly slow start, the inoculation efforts have started bearing fruit, with vaccination rates surpassing the US and many European countries.  Unlike most other high-income countries, Japan continues to experience deflationary pressures.  Food and energy prices may be concealing it in the CPI measure, but the GDP deflator in Q2 and Q3 was  -1.1%. However, the BOJ does not seem inclined to take additional measures and has reduced its equity and bond-buying efforts.  The exchange rate remains sensitive to the movement of the US 10-year note yield, which has chopped mostly between 1.50% and 1.70%. With a couple of exceptions in both directions, the greenback has traded in a JPY113-JPY115 range.  The emergence of the new Covid mutation turned the dollar back after threatening to break higher.  A convincing move above the JPY115.50 area would likely coincide with higher US rates and initially target the JPY118 area.    Spot: JPY113.10 (JPY113.95)       Median Bloomberg One-month Forecast JPY113.30 (JPY112.98)      One-month forward JPY113.00 (JPY113.90)    One-month implied vol  8.2% (6.4%)   British Pound:  Sterling never fully recovered from disappointment that the Bank of England did not hike rates in early November.  Market participants had understood the hawkish rhetoric, including by Governor Bailey, to signal a hike.  The implied yield of the December 2021 short-sterling interest rate futures plummeted by 30 bp by the end of the month, and sterling has not seen $1.36, let alone $1.37, since then.  Indeed, sterling chopped lower and recorded new lows for the year in late November near $1.3200.  Growth in the UK peaked in Q2 at 5.5% as it recovered from the Q1 contraction.  It slowed to a 1.3% pace in Q3 and looks to be slowing a bit more here in Q4.  The petty corruption scandals and ill-conceived speeches by Prime Minister Johnson have seen Labour move ahead in some recent polls.  An election does not need to be called until May 2024, but the flagging support may spur a cabinet reshuffle.  The next important chart point is not until around $1.3165 and then the $1.30 area, which holds primarily psychological significance.       Spot: $1.3300 ($1.3682)    Median Bloomberg One-month Forecast $1.3375 ($1.3691)  One-month forward $1.3315 ($1.3680)   One-month implied vol 7.5% (6.8%)      Canadian Dollar:  The Canadian dollar appreciated by almost 2.4% in October and gave it all back, plus some in November.  Indeed, the loss was sufficient to push it fractionally lower for the year (-0.4%), though it remains the best performing major currency against the US dollar.   The three major drivers of the exchange rate moved against the Canadian dollar last month.  First, its two-year premium over the US narrowed by 17 bp, the most in four years.  Second, the price of January WTI tumbled by around 18.2%.  Commodity prices fell more broadly, and the CRB Index snapped a seven-month rally with a 7.8% decline.  Third, the risk appetites faltered is reflected in the equity markets. The Delta Wave coupled with the new variant may disrupt growth.  Still, the swaps market has a little more than two hikes discounted over the next six months.   The government is winding down its emergency fiscal measures, but the spring budget and election promises mean that the fiscal consolidation next year will be soft.     Spot: CAD1.2775 (CAD 1.2388)  Median Bloomberg One-month Forecast CAD1.2685 (CAD1.2395) One-month forward CAD1.2770 (CAD1.2389)    One-month implied vol 7.2% (6.2%)      Australian Dollar:  The Australian dollar fell by more than 5% last month, slightly less than it did in March 2020.  It did not have an advancing week in November after rallying every week in October.  Australia's two-year premium over the US was chopped to less than 10 bp in November from nearly 28 bp at the end of October.  The Reserve Bank of Australia pushed back against aggressive rate hike speculation.   The unexpected loss of jobs in October for the third consecutive month took a toll on the Australian dollar, which proceeded to trend lower and recorded the low for the year on November 30, slightly below $0.7065.  A break of $0.7050 would initially target $0.7000, but convincing penetration could spur another 2-2.5-cent drop.  The 60-day rolling correlation between- changes in the Australian dollar and the CRB commodity index weakened from over 0.6% in October to below 0.4% in November. The correlation had begun recovering as the month drew to a close.       Spot:  $0.7125 ($0.7518)        Median Bloomberg One-Month Forecast $0.7195 ($0.7409)      One-month forward  $0.7135 ($0.7525)     One-month implied vol 9.7%  (9.1%)        Mexican Peso:  The broadly stronger US dollar and the prospects of more accelerated tapering weighed on emerging market currencies in November, but domestic considerations also weighed on the peso.   The Mexican peso fell by around 4.1%, the most since March 2020.  The economy unexpectedly contracted by 0.4% in Q3.  There is little fiscal support to speak of, while monetary policy is becoming less accommodative too slowly compared with some other emerging markets, such as Brazil.  Price pressures are still accelerating, and the bi-weekly CPI rose above 7% in mid-November. The swaps market discounts nearly a 25 bp hike a month for the next six months.  The government's policies, especially in the energy and service sectors, are not attractive to investors.  President AMLO dealt another blow to investor confidence by retracting the appointment of former Finance Minister Herrera for his deputy to head up the central bank starting in January.  This is seen potentially undermining one of the most credible institutions in Mexico.  Lastly, Mexico's trade balance has deteriorated sharply in recent months and through October has recorded an average monthly trade deficit of nearly $1.2 bln this year.  In the same period, in 2020, it enjoyed an average monthly surplus of almost $2.5 bln, and in the first ten months of 2019, the average monthly trade surplus was a little more than $150 mln.     Spot: MXN21.46 (MXN20.56)   Median Bloomberg One-Month Forecast  MXN21.23 (MXN20.42)   One-month forward  MXN21.60 (MXN20.65)     One-month implied vol 14.9% (9.6%)      Chinese Yuan:  The Chinese yuan has been remarkably stable against the US dollar, and given the greenback's strength, it means the yuan has appreciated sharply on a trade-weighted basis.  Going into the last month of the year, the yuan's 2.6% gain this year is the best in the world.  Chinese officials have signaled their displeasure with what it sees as a one-way market.  At best, it has orchestrated a broadly sideways exchange rate against the dollar, mainly between CNY6.37 and CNY6.40. The lower end of the dollar's range was under pressure as November drew to a close.   Even though the Chinese economy is likely to accelerate from the near-stagnation in Q3 (0.2% quarter-over-quarter GDP), it remains sufficiently weak that the PBOC is expected to consider new stimulative measures.  It last reduced reserves requirements in July, and this seems to be the preferred avenue rather than rate cuts.  Yet, given the interest rate premium (the 10-year yield is around 2.85%), record trade surpluses ($84.5 bln in October), portfolio inflows, and limited outflows, one would normally expect a stronger upward pressure on the exchange rate.    Spot: CNY6.3645 (CNY6.4055) Median Bloomberg One-month Forecast  CNY6.38 (CNY6.4430)  One-month forward CNY6.3860 (CNY6.4230)    One-month implied vol  3.5% (3.5%)    Disclaimer
Semblance of Stability Returns though Geopolitical Tensions Rise

Semblance of Stability Returns though Geopolitical Tensions Rise

Marc Chandler Marc Chandler 06.12.2021 12:39
December 06, 2021  $USD, China, Currency Movement, EU, Hungary, Italy, Russia Overview:  The absence of negative developments surrounding Omicron over the weekend appears to be helping markets stabilize today after the dramatic moves at the end of last week.  Asia Pacific equities traded heavily, and among the large markets, only South Korea and Australia escaped unscathed today.  Europe's Stoxx 600 is trading higher, led by energy, financials, and materials.  US futures are narrowly mixed.  Similarly, Asia Pacific bonds played a little catch-up with the large Treasury rally ahead of the weekend.  The US 10-year had approached 1.30% but is now up almost four basis points to almost 1.39%.  European yields are also a little firmer, though Italian bonds are outperforming after the pre-weekend credit upgrade by Fitch. The dollar is mixed.  The yen and Swiss franc are the heaviest, while the Scandis lead the advancers.  Among the emerging market currencies, most liquid and freely accessible currencies are higher, while India, Indonesia, and Turkey are trading lower.  The JP Morgan Emerging Market Currency Index has a four-week drop in tow and is starting the new week with a small gain.  Gold initially moved higher but is now little changed.  Iron ore and copper remain firm.  January WTI is trading firmly within the pre-weekend range, while natural gas, which collapsed by 24% in the US last week, extended its sell-off today.  European natural gas (Dutch benchmark) is trading lower after rising for the past five weeks.   Asia Pacific As tipped by Chinese Premier Li last week, the PBOC cut reserve requirement by 0.5%.  This frees up an estimated CNY1.2 trillion.  Many market participants had anticipated the timing to help banks pay back borrowing from the Medium-Term Lending Facility.  Banks owe about CNY950 bln on December 15 and another CNY500 bln on January 15.   Separately, several property developers have debt serving payments due and Evergrande is at the end of a grace period today.  Lastly, the US and a few other countries are expected to announce a diplomatic boycott of the Winter Olympics.  This is seen as largely symbolic as few diplomats were going to attend due to the severe quarantine imposed by Chinese officials.   China needs bargaining leverage if it is going to influence US policy.  It might come from an unexpected source.   While recent press reports focused on China's attempt to project its power into Africa, they have missed a potentially more impactful development.  Consider the Caribbean, which the US often acts as if it is theirs.  Barbados became a constitutional republic last week, though it is still a member of the UK Commonwealth.  The left-of-center government is friendly toward Beijing.  Under the Belt Road Initiative, Barbados and Jamaica have received several billion dollars from China.  Moreover, a recent US State Department report found that the two countries have voted against the US around 75% of the time at the UN last year.   This week, the regional highlights include the Reserve Bank of Australia (outcome first thing tomorrow in Wellington) and the Reserve Bank of India (December 8).  The RBA may revise up its economic outlook, yet, it is likely to continue to push against market expectations for an early hike.  The derivatives market appears to have the first hike priced in for late next summer.    India is expected to be on hold until early next year but could surprise with a hike.  China is expected to report trade figures tomorrow and the November CPI and PPI on Wednesday.  Lending figures may be released before the weekend.  Japan's highlights include October labor earnings and household spending tomorrow, the current account, and the final Q3 GDP on Wednesday.   The dollar's range against the yen on November 30 (~JPY112.55-JPY113.90) remains dominant.  It has not traded outside of that range since then.  The rise in US yields and equities has helped the dollar regain a toehold above JPY113.00.  The pre-weekend high was near JPY113.60, which might be too far today.  The Australian dollar traded below $0.7000 before the weekend and again today, but the selling pressure abated, and the Aussie has traded to about $0.7040. A band of resistance from $0.7040 to $0.7060 may be sufficient to cap it today.   The dollar has been in essentially the same range against the Chinese yuan for three sessions (~CNY6.3670-CNY6.3770).  If the dollar cannot get back above CNY6.38, a new and lower range will appear to be established.  The PBOC set the dollar's reference rate at CNY6.3702.  The market (Bloomberg median) had projected CNY6.3690.   Europe Germany's new government will take office in the middle of the week.  It has three pressing challenges.  First is the surge in Covid, even before the Omicron variant was detected.  Second, the economy is weak.  Last week's final PMI reading picked up some deterioration since the flash report and the 0.2 gain in the composite PMI more than 10.0 point fall in the previous three months. Third, today Germany reported dreadful factory orders.  The market had expected a slight pullback after the 1.3% gain in September.  The good news is that the September series was revised to a 1.8% gain.  However, this is more than offset by the 6.9% plummet in October orders.  If there is a silver lining here, it is that domestic orders rose 3.4% after falling in August and September.  Foreign orders plunged 13.1%, and orders from the eurozone fell by 3.2% (after falling 6.6% in September).  Orders outside the euro area collapsed by 18.1%.  The sharp drop in factory orders warns of downside risk to tomorrow's industrial production report.  Industrial output fell by 3.5% in August and 1.1% in September. Before today's report, economists were looking for a 1% gain.  Germany also reports the December ZEW survey tomorrow. Again, sentiment is expected to have deteriorated.  The third issue is Russia.  Reports suggest the US has persuaded Europe that Russia is positioned to invade Ukraine early next year.  US intelligence assessment sees Russia planning a multifront offensive.  Putin and Biden are to talk tomorrow.  Meanwhile, Putin makes his first foreign visit today in six months.  He is in India.  India is buying an estimated $5 bln of Russian weapons, including the S-400 anti-aircraft system that Turkey purchased to the dismay of Washington, which banned it from the F-35 fighter jet program.  India is a member of the Quad (with the US, Japan, and Australia), a bulwark against China.  A Russian official was quoted in the press claiming India sent a strong message to the US that it would not tolerate sanctions against it.  The regional alliances are blurry, to say the least. The US maintains ties with Pakistan.  India has had border skirmishes with China.  Russia and China have joint military exercises.   Before the weekend, Fitch upgraded Itay's credit rating one notch to BBB.  It cited the high vaccination rate, increased public and private spending, and confidence in the Draghi-led government's ability to spend the 200 bln euro funds from the EC prudently.  Recall that last week's composite PMI rose to 57.6 to snap a two-month decline.  The market (Bloomberg median) sees the Italian economy as one of the strongest in Europe this year, expanding around 6.3%.  The IMF sees it at 5.8%. The euro has been confined to about a quarter-cent range on both sides of $1.1300.  It is within the pre-weekend range (~$1.1265-$1.1335).  It was offered in Asia and turned better bid in the European morning.  Still, the consolidative tone is likely to continue through the North American session.  A move above the 20-day moving average (~$1.1335), which has not occurred for over a month, would help lift the technical tone.  Sterling tested $1.3200 before the weekend, and it held.  The steadier tone today saw it test the $1.3265 area.  It will likely remain in its trough today, though a move above the $1.3280-$1.3300 area would be constructive.   America Today's US data includes the "final" look at Q3 productivity and unit labor costs.  These are derived from the GDP and are typically not market-movers.  The US also reported that the October trade balance and improvement have been tipped by the advance merchandise trade report.  October consumer credit is due late in the session, and another hefty rise is expected ($25 bln after nearly $30 bln in September.  Consumer credit has risen by an average of $20.3 bln this year.  It fell last year and averaged $15.3 bln in the first nine months of 2019.  No Fed officials speak this week, and the economic highlight is the November CPI report at the end of the week.   Canada reports October trade figures and IVEY survey tomorrow.  The highlight of the week is the Bank of Canada decision on Wednesday.  It is not expected to do anything, but officials will likely be more confident in the economic recovery, especially after the very strong jobs report before the weekend.  The Canadian dollar's challenge is that the market has five hikes already discounted for the next 12 months.  Mexico reports November vehicle production and exports today.  The economic highlights come in the second half of the week.  November CPI on Thursday is expected to see the headline rate rise above 7%.  Last month alone, consumer prices are projected to have risen by 1%.  On Friday, Mexico is expected to report that industrial output rose by 0.9% in October after falling 1.4% in September.  Brazil reports its vehicle production and exports today and October retail sales on Thursday before the central bank meeting.  A 150 bp increase in the Selic rate, the second such move in a row, has been tipped and will put the key rate at 9.25%.  Ahead of the weekend, the IPCA measure of inflation is due.  It is expected to have ticked up closer to 11% (from 10.67%).  Lastly, we note that Peru is expected to deliver another 50 bp increase to its reference rate on Thursday, which would lift it to 2.5%.   The US dollar posted an outside up day against the Canadian dollar ahead of the weekend.  The risk-off mood overwhelmed the positive implications of the strong jobs data.  There has been no follow-through selling of the Canadian dollar today.  The pre-weekend US dollar low near CAD1.2745 is key.  Last Wednesday's range remains intact for the greenback against the Mexican peso (~MXN21.1180-MXN21.5150).  So far today, it has been confined to the pre-weekend range.   Initial support is seen near MXN21.16.  The cap around MXN21.50 looks solid.  Meanwhile, the US dollar closed above BRL5.60 for six consecutive sessions coming into today.   Disclaimer
Erdogan's stance keeps hurting Turkish Lira

Erdogan's stance keeps hurting Turkish Lira

Alex Kuptsikevich Alex Kuptsikevich 09.12.2021 10:20
The Turkish lira has stabilised recently, although it remains near historic lows against the dollar and euro, at 13.7 and 15.5 respectively. Erdogan’s latest comments have so far been of little help to the national currency and have not allowed it to develop a rebound after the grand overselling. In particular, the Turkish president remains firmly in the position that lower interest rates will reduce inflation in the country, and the results will be visible early next year. Mentioning that low rates will solve the inflation problem and stabilise the currency seems only to inflame the greed of currency speculators, reversing the already relatively modest achievements of the Bank of Turkey, which has intervened to stop the one-sided movement of the national currency. From the economic side, the cumulative effect of the recent devaluation (+65% since September and 77% y/y) will be transferred to consumer prices in the coming months, which promises to be a much bigger problem for Turkey than for other EM countries. Erdogan’s dispute with the conclusions of the conventional economic theory could be called a remarkable experiment if the welfare of millions of people in the country were not at stake. The decline in interest rates in response to rising inflation and a falling currency can be compared to the populist policies of some Latin American countries in previous years, which caused an endless devaluation of their currencies and a decline in living standards. And at the moment, it isn’t easy to find economic reasons to say that Erdogan’s stance allows for a bet on the rise of the lira.      
Dollar Starts the Week Bid ahead of the FOMC

Dollar Starts the Week Bid ahead of the FOMC

Marc Chandler Marc Chandler 13.12.2021 13:44
December 13, 2021  $USD, Australia, Canada, China, Currency Movement, FOMC, Japan, Mexico, South Korea, Switzerland, Turkey, UK   Overview: Equities, bonds, and the dollar begin the new week on a firm note.  Japanese, Chinese, Australian, and New Zealand equities advanced in the Asia Pacific region.  Europe's Stoxx 600 is snapping a three-day decline, and US futures are 0.25%-0.35% higher.  The US 10-year yield is a little softer at 1.48%. European benchmark yields are mostly 1-2 bp lower, and near 0.71%, the UK Gilt's yield is at a three-month low.  The dollar is rising against all the major currencies and is 0.3%-0.45% higher against most.  The Canadian dollar and sterling are the most resilient.  Among emerging market currencies, the Chinese yuan continues to defy official signals to eke out a small gain.  The Turkish lira is off more than 2%, after having dropped 4% initially. Intervention at the end of last week failed to have a lasting impact, and the central bank is expected to cut rates again later this week.  The JP Morgan Emerging Market Currency Index is giving back last week's 0.2% gain plus more today.  It was the first weekly gain in five weeks.  Gold is quiet in the upper end of the pre-weekend range, holding above $1780.  January WTI is firm but capped near the 20-day moving average (~$72.80).  US natgas is firm after falling 5% last week.  Dutch gas is up 8% to new two-month highs.  It has a six-week rally in tow, during which time it has gained a little more than 60%.  Industrial metals are higher too.  Iron ore snapped a three-day air pocket and gained it all back and more with its 6.5% rally today.  Copper has steadied after falling almost 2.5% in the last two sessions.   Asia Pacific The results of Japan's Tankan survey were in line with the talk we have picked up that while the new government, vaccination efforts, and fiscal stimulus are helping fuel the economic recovery, businesses are not yet convinced that significant change is taking place.  Sentiment among large manufacturers was steady at 18, and the outlook ticked lower.  The improvement in sentiment among the large non-manufacturers was more pronounced (9 vs. 2). However, the outlook was subdued at 8 (from 3).  Capex plans from the large businesses were softer than expected at 9.3% (from 10.1%).  Sentiment among the small companies improved, but the diffusion index and the outlook remained negative.  South Korea reported strong traded numbers for the first ten days of December (exports 20.4% and imports 42.3% year-over-year).  Seoul was busy.  Its foreign minister met with high Japanese counterpart on the sidelines of the G7 meeting and struck a cooperative tone. South Korea's President Moon met with Australia's Prime Minister Morrison and struck a A$1 bln weapon deal for self-propelled howitzers (which have already been purchased by other countries, including India and Turkey).  South Korea, however, will not be participating in the diplomatic boycott of the Winter Olympics, citing the need for Beijing's cooperation to denuclearize the peninsula.   The US dollar remains within its recent range against the Japanese yen (~JPY113.20-JPY113.95).  The 20-day moving average is at the top of the range, and it has not traded above it this month yet.  An option for almost $400 mln at JPY114.00 expires today.  It is the fifth session that the dollar has not traded below JPY113.20.  The Australian dollar's rally stalled near $0.7185 last week and is testing the lower end of its three-day range (~$0.7130) in the European morning.  Support is seen in the $0.7090-$0.7115 area.  The highlight of the week is the November jobs report, which is expected to show a strong bounce after three months of Covid-related declines.  More problems among China's property developers and activity in the manufacturing hub in Zhejiang were suspended due to an outbreak of the virus that failed to trigger a retreat in the yuan.  The dollar spent most of the local session below the pre-weekend low (~CNY6.3615).  The PBOC set the dollar's reference rate at CNY6.3669.  The market (Bloomberg survey) expected CNY6.3649.   Europe The UK appeared to make two concessions over the weekend.  First, it signaled that it was no longer seeking to exclude a role for the European Court of Justice in enforcing the Northern Ireland protocol.  Second, new fishing licenses were made available to the EU and French fishers. Jersey and the UK issued another 23 licenses, and although Paris was seeking more, it seemed sufficient to de-escalate the situation.   The UK government is under pressure from many sides.  The "partygate" scandal is a culmination of miscues by the Prime Minister, who has struggled with a Peppa Pig speech and a Kermit the Frog speech at the UN.  Several petty sleaze scandals have also marred the government.  Recent polls put Labour ahead of the Conservatives. This Thursday, the special election could see the Tories defeated in a traditional stronghold (ie Lib-Dems a protest vote for disenchanted Tories?).  The UK's stance toward the EU and the risk to the Good Friday Agreement have estranged the US government to some extent, which has not lifted Trump's steel and aluminum tariffs and put much energy into a free-trade agreement between the two special allies.   Turkey reported a large than expected October current account surplus ($3.16 bln) current account surplus.  While the currency's sharp depreciation would be expected to help the trade account, it also scares international investors.  It reported a net outflow of $2.2 bln portfolio capital in October.  Industrial output surprised on the upside in October, rising by 0.6%.  Economists (Bloomberg survey) expected a 0.1% decline after a 1.5% fall in September.  Turkey appeared to intervene in the foreign exchange market at the end of last week.  The dollar held below TRY14 but jumped to almost TRY14.76 today before pulling back.  The Swiss National Bank also looks like it intervened last week.  The euro held above CHF1.04 after having been sold to about CHF1.0375 earlier this month, its lowest level since July 2015.  Swiss domestic sight deposits rose by CHF1.12 bln, the biggest increase in three weeks.  Note that after buying euros against the franc, the SNB is believed to sell euros for dollars to maintain the allocation of its reserves.  The euro peaked last week near $1.1355.  It has been sold to a four-day low of $1.1260 today.    There is an option for 1.44 bln euros at $1.1250 that expires today.  The low for the year was set on November 24 near $1.1185, while last week's low was slightly below $1.1230.  With diverging impulses expected from the Fed and ECB this week, the euro looks vulnerable.  Sterling closed on its highs before the weekend and is on the defensive today.  The market appears to be absorbing bids that might be related to the expiration of a couple of options today (~GBP500 mln at $1.3235 and ~GBP560 mln at $1.3200).  The low for the year was set last week (December 8) near $1.3165, but initial support today is around $1.3220.  The odds of a BOE rate hike later this week have fallen to less than a 1 in 5 chance.   America The highlight of the week is the FOMC meeting.  Nearly everyone expects the Fed to accelerate its tapering and for individual forecasts to shift, matching the more hawkish rhetoric seen since the October CPI print jumped above 6% (November 10).  November's CPI, reported at the end of last week, accelerated to 6.8%.  Before we get to the FOMC meeting, though, this US reports PPI (the heading is expected to accelerate above 9% and the core above 7%) and November retail sales (a solid gain is anticipated of around 0.8% but off the heady 1.7% pace seen in October).  After the mid-week FOMC meeting conclusion, the US reports November housing starts, industrial production, and the Philly Fed's December survey.  The preliminary December PMI estimates are also due Thursday.  The week's data highlight for Canada is the mid-week estimate of November CPI.  Prices may have edged up by 0.2% on the month, but the year-over-year rate is expected to be little changed from the 4.7% pace seen in October.  The underlying measures may have edged up a little.  Price pressures are elevated but do not appear to be accelerating, as seen in the US.  Tomorrow, the new central bank mandate will be announced.  The mandate is reviewed every five years.  The press reports that the 2% inflation target will be retained, but the mandate may include a component of the labor market as it takes what is expected to be a small step toward a dual mandate like the Fed's.   Mexico's central bank meets on Thursday.  It is widely expected to lift the overnight rate target by 25 bp to 5.25%. In Bloomberg's survey of  17 economists, three forecast a 50 bp hike.  It would be the fourth hike in the cycle that began in August.  Chile and Colombia's central banks also are expected to hike rates this week.  Chile, which hiked by 125 bp in October after a 75 bp increase in August, is expected to make another 125 bp adjustment tomorrow.  It would lift the policy rate to 4%. It holds the second round of its presidential election on December 19.  Colombia's central bank meets on December 17.  A 50 bp increase would lift the repo rate to 3.0%.  The first increase in the cycle was 75 bp in October (to 2.5%).  November's CPI was a little above 5.25%.   The US dollar is rising against the Canadian dollar for the fourth consecutive session.  It is poking above CAD1.2750 in the European morning, where an option for almost $450 mln expires today (and another for $515 mln expires tomorrow).  A convincing move above CAD1.2760 could retarget the month's high (~CAD1.2855).  The market has 125 bp of hikes discounted over the next 12 months, but little new encouragement from the central bank.  The greenback fell against the peso in four of last week's five sessions.  It is little changed today, trading above the pre-weekend low (~MXN20.8430).  The next support area is seen closer to MXN20.70.  Still, the market is likely to be cautious extending short US dollar positions ahead of the Fed.   Disclaimer
Unforced Errors

Unforced Errors

David Merkel David Merkel 09.11.2021 04:40
Photo Credit: Paul Kagame || Hail Emperor Xi, the greatest since Qin Shi Huang! Ready for a cold winter? Much of the world is not. Many places have discouraged using hydrocarbons to produce power, ostensibly for environmental goals, whether those are valid or not. Whether by the fiat of the Chinese Communist Party, or because some Eurocrats push a green agenda, many people are facing a winter where power/heat may be limited. And even if there may not be absolute shortages everywhere, higher prices for all forms of energy, will pinch the budgets of many in the lower middle class and below this winter in the Northern Hemisphere. Part of this stems from central planning. China is the easiest example. Xi Jinping has arrogated to himself more and more power over time, changing the dynamics of the Communist Party, which once at least had some factions, to a unitary party that has only one leader, Emperor President Xi. Some of it came about by eliminating corrupt rivals, but the rest from instilling fear within the Party. Almost every evening, my wife and I read the Bible together. Recently we have been going through the post-exilic portions of the Old Testament where the Jews live under the rule of the Babylonian and Medo-Persian Empires. Those rulers were typically absolute monarchs: do what I say or die! In going through Esther, my wife commented that it was stupid to have laws that cannot be altered. (The same thing is stated in the Book of Daniel.) My comment back to her was if you were an absolute monarch in that era, you were God walking on earth, and could never be wrong. Thus no decree of an Emperor could be wrong. And so it is for President Xi: everything he says is right. He may be an atheist, but to the Chinese in Red China, he is “God walking on Earth” in at least the Hegelian sense. As such, he makes a decree, and those serving him are scared to do anything more or less than he wants. But with vague directives, what does he want? Unilateral authority is particularly vulnerable to making mistakes. In the intermediate-term, China is likely to get weaker because of the increasing concentration of power of President Xi. That’s not to say that capitalist democracies can’t run off the rails, but typically with enough dissenting voices, the worst outcomes don’t usually take place. There are exceptions though. The first exception is regulators with too much discretionary authority. By pursuing one limited goal in the short-run, such as long-term environmental objectives, they may harm the interests of ordinary people in developed markets by making it hard to get food, fuel/energy, and other necessities. And applying the same rules in foreign policy, they may well condemn the developing world to permanent poverty. The developing world thinks the developed world doesn’t care. They are right, and they will ignore what their current leaders have promised in order to curry temporary favor with the developed world. Now where there is the ability to self-correct, eventually societies will remove regulators, politicians, etc. That said, some things are more entrenched than others. I speak of the cult of stimulus. What is more untouchable than the central banks? It’s hard to think of anything more unaccountable. They may technically be beholden to the local parliament, but practically, no one ever messes with them aside from despots pursuing hyperinflation (Venezuela, Turkey, Lebanon, etc.). What gores me is that the unaccountable central banks never ‘fess up to errors. Listen to this: “Asset prices remain vulnerable to significant declines should investor risk sentiment deteriorate, progress on containing the virus disappoint, or the economic recovery stall,” the Fed said in its twice-yearly Financial Stability Report released Monday.Fed Warns of Peril in Run-Up of Risky Asset Prices, Stablecoins That serial blower of bubbles, the Fed, warns us about the height of risky asset prices. Fed policy works via encouraging economic actors to borrow less or more. They have been running a more aggressive monetary policy than they ever needed to, and in the process have inflated housing prices, stocks, bonds of all sorts, private equity, etc. This is not just true of the Fed in the US, but in most developed country central banks. This was an unforced error. Monetary policy could have been tightened in mid-2020, and I mean raising the Fed funds rate, not just stopping QE. When the equity markets race to new highs so rapidly, why should any stimulus exist at all? We don’t need stimulus from Congress either. When demand is so strong that supply chains creak, buckle, and seize up, it is not time to stimulate more, rather, it is time to balance the budget. I would like to think that supply-chain troubles, inflation, and growth are all transitory. But if in an effort to force growth higher than it should be in the short-run, the growth will still be transitory, but the supply-chain troubles and inflation will persist. Beware the experts that say they run things for your good; they likely don’t know what they are doing. ============= Ending note: one more thing, beware the inflation numbers, particularly on items in short supply. If the economists reduce the weights on those things in short supply, it will artificially understate inflation.
Unforced Errors - 31.01.2022

Unforced Errors - 31.01.2022

David Merkel David Merkel 09.11.2021 04:40
Photo Credit: Paul Kagame || Hail Emperor Xi, the greatest since Qin Shi Huang! Ready for a cold winter? Much of the world is not. Many places have discouraged using hydrocarbons to produce power, ostensibly for environmental goals, whether those are valid or not. Whether by the fiat of the Chinese Communist Party, or because some Eurocrats push a green agenda, many people are facing a winter where power/heat may be limited. And even if there may not be absolute shortages everywhere, higher prices for all forms of energy, will pinch the budgets of many in the lower middle class and below this winter in the Northern Hemisphere. Part of this stems from central planning. China is the easiest example. Xi Jinping has arrogated to himself more and more power over time, changing the dynamics of the Communist Party, which once at least had some factions, to a unitary party that has only one leader, Emperor President Xi. Some of it came about by eliminating corrupt rivals, but the rest from instilling fear within the Party. Almost every evening, my wife and I read the Bible together. Recently we have been going through the post-exilic portions of the Old Testament where the Jews live under the rule of the Babylonian and Medo-Persian Empires. Those rulers were typically absolute monarchs: do what I say or die! In going through Esther, my wife commented that it was stupid to have laws that cannot be altered. (The same thing is stated in the Book of Daniel.) My comment back to her was if you were an absolute monarch in that era, you were God walking on earth, and could never be wrong. Thus no decree of an Emperor could be wrong. And so it is for President Xi: everything he says is right. He may be an atheist, but to the Chinese in Red China, he is “God walking on Earth” in at least the Hegelian sense. As such, he makes a decree, and those serving him are scared to do anything more or less than he wants. But with vague directives, what does he want? Unilateral authority is particularly vulnerable to making mistakes. In the intermediate-term, China is likely to get weaker because of the increasing concentration of power of President Xi. That’s not to say that capitalist democracies can’t run off the rails, but typically with enough dissenting voices, the worst outcomes don’t usually take place. There are exceptions though. The first exception is regulators with too much discretionary authority. By pursuing one limited goal in the short-run, such as long-term environmental objectives, they may harm the interests of ordinary people in developed markets by making it hard to get food, fuel/energy, and other necessities. And applying the same rules in foreign policy, they may well condemn the developing world to permanent poverty. The developing world thinks the developed world doesn’t care. They are right, and they will ignore what their current leaders have promised in order to curry temporary favor with the developed world. Now where there is the ability to self-correct, eventually societies will remove regulators, politicians, etc. That said, some things are more entrenched than others. I speak of the cult of stimulus. What is more untouchable than the central banks? It’s hard to think of anything more unaccountable. They may technically be beholden to the local parliament, but practically, no one ever messes with them aside from despots pursuing hyperinflation (Venezuela, Turkey, Lebanon, etc.). What gores me is that the unaccountable central banks never ‘fess up to errors. Listen to this: “Asset prices remain vulnerable to significant declines should investor risk sentiment deteriorate, progress on containing the virus disappoint, or the economic recovery stall,” the Fed said in its twice-yearly Financial Stability Report released Monday.Fed Warns of Peril in Run-Up of Risky Asset Prices, Stablecoins That serial blower of bubbles, the Fed, warns us about the height of risky asset prices. Fed policy works via encouraging economic actors to borrow less or more. They have been running a more aggressive monetary policy than they ever needed to, and in the process have inflated housing prices, stocks, bonds of all sorts, private equity, etc. This is not just true of the Fed in the US, but in most developed country central banks. This was an unforced error. Monetary policy could have been tightened in mid-2020, and I mean raising the Fed funds rate, not just stopping QE. When the equity markets race to new highs so rapidly, why should any stimulus exist at all? We don’t need stimulus from Congress either. When demand is so strong that supply chains creak, buckle, and seize up, it is not time to stimulate more, rather, it is time to balance the budget. I would like to think that supply-chain troubles, inflation, and growth are all transitory. But if in an effort to force growth higher than it should be in the short-run, the growth will still be transitory, but the supply-chain troubles and inflation will persist. Beware the experts that say they run things for your good; they likely don’t know what they are doing. ============= Ending note: one more thing, beware the inflation numbers, particularly on items in short supply. If the economists reduce the weights on those things in short supply, it will artificially understate inflation.
(TRY) Turkish Lira Seems To Keep Stable, Plain Line

(TRY) Turkish Lira Seems To Keep Stable, Plain Line

Alex Kuptsikevich Alex Kuptsikevich 16.02.2022 12:20
The Turkish lira has stabilised after the wild ride of December. Since the start of the year, the fluctuation of the lira formed a converging range with a centre of gravity at 13.50 in USDTRY and 15.40 in EURTRY. However, this lull is hardly a victory for the unorthodox monetary policy ideas being pursued by Turkey. Instead, market participants have turned their attention to developments in Russia and Ukraine, which has made Turkey, if not a haven, comparatively less dangerous for investors. Nevertheless, we see this lull as temporary, expecting the rate to move out of consolidation upwards, as Turkey's fight against inflation is weaker than necessary. Excessive monetary policy softness is further highlighted by monetary tightening worldwide, including in Europe, where central banks are moving to raise rates or roll back stimulus. The latest inflation estimates for January show consumer prices adding 50% and manufacturing prices almost doubling from the same month a year earlier. PPI is being pushed up by 70% devaluation of the national currency, plus a general rise in producer prices close to 10% in countries from China to the USA. Consumer prices have not yet fully absorbed the effects of the fall devaluation of the lira and promise to gain momentum in the coming months, continuing to undermine confidence in the national currency. An assessment of how inadequately soft Turkey's monetary policy is can be made by comparing the differential of inflation and the key rate. In Turkey, it is 35%, in Russia minus 1%, in Ukraine around 0% and in the UK 5%. Even in the US, where it is believed that the Fed has overlooked inflation and will now have to catch up with it through 7 0.25 point hikes this year, this differential is 7.25%, almost five times less than in Turkey. From all of this, there is a conclusion that the Turkish lira is heading upwards out of the consolidation range, i.e. a new round of currency decline is to be expected. However, this wave will likely not be as disastrous as it was in the final quarter of last year.
Crude Oil Climbs High. Is It Enough to Enjoy a Better View?

Crude Oil Climbs High. Is It Enough to Enjoy a Better View?

Sebastian Bischeri Sebastian Bischeri 07.03.2022 16:45
  The threat of sanctions caused a stir in the markets: WTI spiked above $130 and Brent is nearing the $140 mark. Where is crude oil going next? A possible Western embargo on Russian oil caused oil prices to soar again on Monday, as stock markets feared persistent inflation and a consequent economic slowdown. On the US dollar side, the continued rally of the greenback has propelled the dollar index (DXY) towards higher levels, as it is now approaching the three-figure mark ($100), even though it has not had a huge impact on crude oil, other petroleum products, or any other commodities in general. What we rather witness here is the greenback’s safe haven effect attracting investors, much like gold would tend to act in a “store of value” role. US Dollar Index (DXY) CFD (daily chart) On the geopolitical scene, Russia-Ukraine peace talks will be resumed today in Brest (Belarus) at 14:00 GMT, while another meeting is already scheduled at the Antalya Diplomacy Forum on Thursday in Turkey. Russian Foreign Minister Sergei Lavrov and his Ukrainian counterpart Dmytro Kuleba will talk there in the presence of the Turkish foreign minister. We might therefore expect some de-escalation in the Black Sea basin this week if the two parties involved were able to reach an agreement after further negotiations. WTI Crude Oil (CLJ22) Futures (April contract, daily chart) Brent Crude Oil (BRNK22) Futures (May contract, daily chart) RBOB Gasoline (RBJ22) Futures (April contract, daily chart) Henry Hub Natural Gas (NGJ22) Futures (April contract, daily chart) Regarding natural gas, the U.S. Energy Information Administration (EIA) published its Annual Energy Outlook (AEO) 2022 report, suggesting that even with non-hydro renewable sources set to rapidly grow through 2050, oil and gas-derived sources should still remain the top energy sources to fuel most of the United States. The agency is forecasting a rise in the production of Liquefied Natural Gas (LNG) – which mainly comes from shale gas – by at least 35%! In summary, the threat of sanctions has already wiped out almost all Russian oil – at least 7% of global supply – from the world oil market. In the weeks or months to come, we can see sanctions on Russian oil exports create a boomerang effect on European economies, decreasing world market supply, increasing prices for industry, as well as even more rising expenses, and thus cost of living through a ripple effect. Like what you’ve read? Subscribe for our daily newsletter today, and you'll get 7 days of FREE access to our premium daily Oil Trading Alerts as well as our other Alerts. Sign up for the free newsletter today! Thank you. Sebastien BischeriOil & Gas Trading Strategist * * * * * The information above represents analyses and opinions of Sebastien Bischeri, & Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Sebastien Bischeri and his associates cannot guarantee the reported data's accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Bischeri is not a Registered Securities Advisor. By reading Sebastien Bischeri’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Sebastien Bischeri, Sunshine Profits' employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Crude Oil (WTI) Price Changes, Another Part Of Russia-Ukraine Negotiations Incoming

Crude Oil (WTI) Price Changes, Another Part Of Russia-Ukraine Negotiations Incoming

FXStreet News FXStreet News 09.03.2022 16:19
Better sounding newsflow regarding the possibility of a diplomatic solution to the Russo-Ukraine war is weighing heavily on crude oil. Talks between the Russian and Ukrainian Foreign Ministers on Thursday will be key. WTI is currently down more than $7.50 as traders also mull a possible US/Iran nuclear deal and further reserve releases. A slightly more conciliatory tone to the rhetoric from Ukrainian and Russian officials regarding the possibility of a diplomatic solution to the war ahead of Thursday’s meeting of the two nations’ Foreign Ministers in Turkey has seen oil markets plunge. Russia said on Wednesday that “some progress” had been made with Ukraine and laid out a potential territorial compromise, while a Ukrainian official close to President Zelenskyy hinted that Russian demands for “neutrality” can be discussed. Front-month WTI futures have subsequently tanked nearly $6.50 per barrel on the session to near the $118 level, a near $12 turnaround from Tuesday’s highs near $130. Traders also said that markets were taking a more relaxed view on the US ban on Russian oil imports announced on Tuesday and that this was weighing on prices. “Theoretically, the US could even offset the outages from Russia with its own production,” said an analyst at Commerzbank. Elsewhere, some traders cited expectations for more oil reserve releases as triggering profit-taking after the head of the International Energy Agency hinted that last week’s decision by member nations to release 60M barrels could be the first of further releases. As oil traders continue to juggle numerous competing themes, choppy market conditions are likely here to stay for some time. With Iran’s chief negotiator in the nuclear talks having arrived back in Vienna on Wednesday to continue discussions, it may well be that a deal is imminent, despite recent concerns that the Russians were adding additional demands. A deal would pave the way for over 1.3M barrels in daily Iranian crude oil exports to return to global markets. In the more immediate future, focus will return to the global crude oil inventory situation with the release of weekly official US data at 1530GMT.
How Will The Next Events Around Russia-Ukraine Conflict Affect Markets?

How Will The Next Events Around Russia-Ukraine Conflict Affect Markets?

FXStreet News FXStreet News 09.03.2022 16:19
Russia's denial of wanting to overthrow Ukraine's government has boosted the market mood. Ongoing bombing, accusations of using biological weapons may come to haunt markets. The safe-haven dollar and gold have room to recover after the recent slide. All markets are saying, is give peace a chance – paraphrasing John Lennon's song, that is what is going on, with stocks and risk currencies rising while safe-haven assets are tumbling down. However, it may become worse before it becomes better. The latest bout of optimism stems from Russia's statement that it does not seek to overthrow Ukraine's government and its preference to resolve differences via discussions. The Kremlin added that it has never threatened and does not threaten NATO. These olive branches join Tuesday's news that Ukrainian President Volodymyr Zelenskyy signaled he is willing to give up NATO membership and the upcoming meeting of the two countries foreign ministers planned for Thursday in Turkey. On the ground, a humanitarian ceasefire is in effect in several Ukrainian cities on Wednesday, and civilians are begin evacuated, so far safely. Markets have reacted positively to these developments, with S&P futures jumping by 2%, EUR/USD jumping by some 80 pips, and safe havens such as gold and the dollar suffering significant falls. Is the war nearing its end? Not so fast. Reasons to worry First, Russia continues bombing Kyiv and is likely using this day of relative calm to regroup and resupply its troops, which have suffered massive logistical failures. Several of the previous ceasefires were not respected and this may happen again. Secondly, Russia's statements are also one that the US has declared economic war on it. Such comments contradict the better vibes that have previously boosted the market mood. Russia also accuses its enemy of developing biological weapons, in what seems like an excuse to intensify attacks. Third, Ukrainian President Zelensky called on Russian troops to "surrender while you still can" and that "we will answer in full for all our killed people" – militant statements are not exclusive to one side. The war will eventually end, hopefully, sooner rather than later. However, it seems overoptimistic to circle Wednesday as the beginning of the end, and that everything improves from here. Another escalation may come shortly, souring the market mood and boosting the safe-haven gold and dollar. Moreover, with every day that passes, the damage to the global economy increases. While shortages of energy have yet to be seen – prices are rising without any stop in the flow of oil or gas – food issues may become a burden for the global economy. Russia and Ukraine produce a vast amount of wheat and barley, which are now blocked. That is already raising food prices. And while the war continues, so do new Western sanctions. The EU has approved a new list of restrictions on Russian leaders and oligarchs, and also disconnect several Belarusian banks from the SWIFT payments system. All in all, it will likely get worse before it becomes better and that means another rush to the dollar and gold.
The War Is on for Two Weeks. How Does It Affect Gold?

The War Is on for Two Weeks. How Does It Affect Gold?

Arkadiusz Sieron Arkadiusz Sieron 10.03.2022 17:21
  With each day of the Russian invasion, gold confirms its status as the safe-haven asset. Its long-term outlook has become more bullish than before the war. Two weeks have passed since the Russian attack on Ukraine. Two weeks of the first full-scale war in Europe in the 21th century, something I still can’t believe is happening. Two weeks of completely senseless conflict between close Slavic nations, unleashed without any reasonable justification and only for the sake of Putin’s imperial dreams and his vision of Soviet Reunion. Two weeks of destruction, terror, and death that captured the souls of thousands of soldiers and hundreds of civilians, including dozens of children. Just yesterday, Russian forces bombed a maternity hospital in southern Ukraine. I used to be a fan of Russian literature and classic music (who doesn’t like Tolstoy or Tchaikovsky?), but the systematic bombing of civilian areas (and the use of thermobaric missiles) makes me doubt whether the Russians really belong to the family of civilized nations. Now, for the warzone report. The country’s capital and largest cities remain in the hands of the Ukrainians. Russian forces are drawing reserves, deploying conscript troops to Ukraine to replace great losses. They are still trying to encircle Kyiv. They are also strengthening their presence around the city of Mykolaiv in southern Ukraine. However, the Ukrainian army heroically holds back enemy attacks in all directions. The defense is so effective that the large Russian column north-west of Kyiv has made little progress in over a week, while Russian air activity has significantly decreased in recent days.   Implications for Gold How has the war, that has been going on for already two weeks, affected the gold market so far? Well, as the chart below shows, the military conflict was generally positive for the yellow metal, boosting its price from $1,905 to $1989, or about 4.4%. Please note that initially the price of gold jumped, only to decline after a while, and only then rallied, reaching almost $2,040 on Tuesday (March 8, 2022). However, the price has retreated since then, below the key level of $2,000. This is partially a normal correction after an impressive upward move. It’s also possible that the markets are starting to smell the end of the war. You see, Russian forces can’t break through the Ukrainian defense. They can continue besieging cities, but the continuation of the invasion entails significant costs, and Russia’s economy is already sinking. Hence, they can either escalate the conflict in a desperate attempt to conquer Kyiv – according to the White House, Russia could conduct a chemical or biological weapon attack in Ukraine – or try to negotiate the ceasefire. In recent days, the President of Ukraine, Volodymyr Zelensky, said he was open to a compromise with Russia. Today, the Russian and Ukrainian foreign ministers met in Turkey for the first time since the horror started (unfortunately, without any agreement). However, although gold prices may consolidate for a while or even fall if the prospects of the de-escalation increase, the long-term fundamentals have turned more bullish. As you can see in the chart below, the real interest rates decreased amid the prospects of higher inflation and slower economic growth. Russia and Ukraine are key exporters of many commodities, including oil, which would increase the production costs and bring us closer to stagflation. What’s next, risk aversion increased significantly, which is supportive of safe-haven assets such as gold. After all, Putin’s decision to invade Ukraine is a turning point in modern history, which ends a period of civilized relations with Russia and relative safety in the world. Although Russia’s army discredited itself in Ukraine, the country still has nuclear weapons able to destroy the globe. As you can see in the chart below, both the credit spreads (represented here by the ICE BofA US High Yield Index Option-Adjusted Spread) and the CBOE volatility index (also called “the fear index”) rose considerably in the last two weeks. Hence, the long-term outlook for gold is more bullish than before the invasion. The short-term future is more uncertain, as there might be periods of consolidation and even corrections if the conflict de-escalates or ends. However, given the lack of any decisions during today’s talks between Ukrainian and Russian foreign ministers and the continuation of the military actions, gold may rally further. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
EM currencies: growing polarisation

EM currencies: growing polarisation

Alex Kuptsikevich Alex Kuptsikevich 22.03.2022 13:04
Since the start of the year, the performance of emerging market currencies mirrors what we saw in 2021, but with more polarisation. The Brazilian real has been the growth leader against the dollar since the start of the year, gaining around 13%. It is followed by the South African rand and Colombian peso, gaining just over 7%. Among the hardest hit is the Russian Rouble (-33%), but also the Egyptian Pound (-14%) and the Turkish Lira (-10%). In our view, this polarisation only promises to increase in the coming months.Commodity-exporting countries have benefited amid a global jump in energy and agricultural commodity prices. Brazil gets a chance to seriously boost its oil sales to the US amid a supply embargo from Russia. Though net oil exporters, the states must buy significant amounts of heavy crude to run their refineries. Until 2019, oil from Venezuela was used for the right blend, subsequently replaced by Russian crude. Now it is being replaced by oil from Brazil, which promises a significant increase in exports and supports the exchange rate of the Brazilian real.The South African rand is in demand, receiving dividends from last year's monetary tightening and a surge in metal prices since the start of the year. As most global markets look for alternatives to the Russian metal, the ZAR is enjoying demand from speculators in anticipation of increased exports from South Africa for political reasons.We may well be seeing a global reversal in the attitude towards commodity exporters' currencies, as even in the event of a military settlement, there is no expectation of a quick recovery of previous economic ties.At the other end of the spectrum are countries' currencies that depend on imports of oil and agricultural products. Egypt buys most of its wheat consumption from Russia and Ukraine, and rising prices severely damage the balance of payments. Egypt's central bank has responded by tightening monetary policy to suppress inflation. But such steps tend to hurt economic growth. Turkey imported almost all its gas from Russia and Azerbaijan and bought its wheat from Ukraine and Russia. Price jumps and supply-chain disruptions will be costly for the economy and cause increased pressure on the Turkish lira.In addition to the prospect of inflated import volumes, Turkey and Egypt face a severe drop in revenues from the tourism industry, as Russia and Ukraine have provided a significant flow of tourists.
Russia-Ukraine War: Five reasons a deal may be closer than it seems, what it means for the dollar

Russia-Ukraine War: Five reasons a deal may be closer than it seems, what it means for the dollar

FXStreet News FXStreet News 22.03.2022 16:18
Calm in talks, lack of fresh pressure on China implies potential progress. Ukraine's proposed referendum and Russia's struggles also provide hope. The dollar would fall on any deal, but a comprehensive accord is needed for a lasting effect.It might be darkest before dawn – the Russia-Ukraine war seems stuck in the mud after a month of fighting, but this stalemate could be a prelude to a deal.1) Quiet talks: there has been no news from the negotiating table for a few days. When diplomats talk to the press, it is usually a sign that there is no progress and that they are trying to accuse the other side of failing to compromise. The current calm is a source of optimism – no news is good news.2) UA Referendum: Ukraine's President Volodymyr Zelenskyy said that any deal would require a referendum. He seems to be preparing the public for some compromise – perhaps not only on NATO membership but also other matters. If he concedes territory to Russia, public support is needed for him not to be seen as a traitor. Laying the groundwork for a deal implies one has a higher chance to occur.3) RU stuck in the mud: Russia continues failing to make any progress on the battlefield. Ukraine's soldiers and civilian fighters refuse to surrender in Mariupol, a strategic city in the south, despite lacking sufficient water and food. Moscow seems to have thought that the fact that most citizens there speak Russian would help. Local motivation with Western arms is turning Mariupol into Stalingrad, while the battle for Kyiv is not getting any closer. 4) Is Russia thinking beyond the war? The use of a hypersonic missile – unnecessary against Ukrainian defenses – can also be seen as a sign that Russia wants to sell such weaponry to other countries. It seems to be thinking about the post-war deals rather than trying to achieve any military goal. In the meantime, oil, gas and bond payments continue flowing to the West, a sign Russia does not want further escalation. 5) Quiet on the Chinese front: international pressure is growing to stop the war. From the Pope to mediators such as Turkey and Israel, via European countries which are mulling moving sanctions to the next level – on energy. The strongest country that can impact the situation in China, the world's second-largest economy. Beijing is politically aligned with Moscow but economically tied to the West. The fact that the US has stopped criticizing China is another positive sign.Dollar implicationsIn case a deal is struck, there is a stark difference between a ceasefire leading to a frozen conflict, and a comprehensive accord that would remove sanctions. In the former scenario, oil prices would remain elevated. The global economy would continue struggling in a transition period. The dollar would recover from an initial fall, benefiting from Fed hawkishness.In case of a full deal, the greenback would suffer from diminishing demand for safe-havens and would tumble instantly. Re-integrating Russia in the global economy is better for risk assets than having Putin rule over a "big North Korea" – a large economy isolated from the world.
Crude Oil: not a one-way street, but still bulls in charge

Crude Oil: not a one-way street, but still bulls in charge

Alex Kuptsikevich Alex Kuptsikevich 29.03.2022 09:50
Brent lost 7.7% to $106.4 on Monday on fears of a drop in demand due to a lockdown in Shanghai, China's financial hub. In addition, the Saudi and Yemeni cease-fire and the upcoming Ukraine-Russia talks in Turkey helped reduce the heat on the energy market.However, Monday's decline looks like only a temporary respite, and all these factors are still too weak to break the momentum that has been sustained since December. Brent has gained 2% since Tuesday morning to $108.5, with buyers buoyed by reports that Saudi Arabia might raise the selling price of its Oil by as much as 5% in May. The pipeline accident in the Caspian Sea and falling exports from Russia are also on the side of oil bulls right now.OPEC has denied plans to accelerate quota increases at its next monthly meeting on 31 March. Cartel officials also note that it is not yet possible to replace Oil from Russia entirely.Meanwhile, Iran's nuclear programme talks have taken a few steps back, removing hopes of a supply surge from the market.US oil producers are in no hurry to exploit market conditions. The number of working rigs is increasing, but no production increase has taken place so far, which has averaged 11.6 million barrels per day over the last six months. US commercial oil inventories are now 17.8% lower than a year ago.Oil has remained in a bull market even though its movements are no longer unidirectional. From a state of panic buying in early March, Oil has become more pragmatic. Its price now looks high compared with levels a year and two years ago, but from 2011 to 2014, it traded around current levels, with demand being notably weaker.A period of heightened geopolitical uncertainty is setting up a $100-120 Brent range in the coming weeks. A break in the upward trend will only occur with a final turn towards détente.
CFD News: US30, Have bulls started a new leg higher?

CFD News: US30, Have bulls started a new leg higher?

8 eightcap 8 eightcap 29.03.2022 10:26
As traders continue to watch the situation between Ukraine and Russia, we continue to see certain risk markets pull back losses seen on the outbreak of the conflict. The US30 is one of the indexes that have pulled together several solid weeks after setting lows in February. Since that low, we have seen just under 9% added back to the index after it hit its 32,215 low back in February. Oversold or the fact that the conflict may have been overdone in terms of selling or with both countries continuing to meet for talks, could be feeding the fightback. Let’s not sugarcoat it, this is a war, and there have been catastrophic repercussions on the Ukrainian people and the country due to the Russian invasion. Representatives from both countries are currently meeting in Turkey, and let’s hope they can find some common ground and bring an end to the fighting in Ukraine. Not that that will just fix the carnage that the country has gone through and bring back all the needless casualties seen since the start of the invasion. The US30’s fortunes might be intertwined with the talk in some aspects as if we see a peace agreement, and it is respected by the Russian government, this may continue to feed hopes of recovery. We can see the breakout this week that cleared 34,830 resistance. This has continued to confirm the overall V reversal pattern, and we’re looking for the breakout to maintain the idea we are seeing a new leg higher in the current trend. A failure strong as first thought. If the leg continues, we will be looking at 35,835 to show possible resistance if reached. Data wise, there are a few things traders will be watching this week. Today we have consumer confidence and Jolts job openings. Thursday, PCE price and index and Friday US employment data, including non-farm employment change. US30 D1 Chart The post CFD News: US30, Have bulls started a new leg higher? appeared first on Eightcap.
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
The Turkish Central Bank Cut Its Policy Rate by150bp | Credit Suisse Outflows Benefit UBS

What Can We Expect From Central Bank Of Turkey (CBT)? A Big Package Of Polish Economy Data Is Coming

ING Economics ING Economics 16.09.2022 15:00
Despite the Central Bank of Turkey implying in its forward guidance that further rate cuts are ahead, we believe it will keep the policy rate unchanged for now to assess the impact of recent moves. For Poland, we forecast that unemployment will remain at 4.9% whilst PPI inflation will decline to 24.5% In this article Turkey: Expecting the CBT to keep rates unchanged this month Poland: Key data for the week ahead Hungary: Further widening of the current account deficit Source: Shutterstock   Turkey: Expecting the CBT to keep rates unchanged this month While the Central Bank of Turkey (CBT) cut the policy rate last month in a surprise move, it did issue forward guidance implying further rate cuts were ahead, citing some loss in economic momentum. The CBT moves will likely be determined by FX developments, as the tourism season comes to end, as well as the growth outlook. We expect the CBT to keep the policy rate unchanged this month to see the impact of recent moves, though the risks are on the downside. Poland: Key data for the week ahead Industrial output: Annual growth of industrial production moderated to a single-digit pace in July (7.6%), but is projected to improve somewhat in August (9.8%) amid the less negative impact of the number of working days in year-on-year terms. The output should be supported by shorter summer production halts in the automotive industry and house appliances plants. Electricity production was also rather solid. Output was reduced in some energy-intensive industries due to the soaring price of natural gas. PPI inflation: We forecast that PPI inflation declined to 24.5%YoY in August from 24.9%YoY in July as prices in the manufacture of coke and refined petroleum products eased. Annual growth of metal products manufacture also declined. Unless we see yet another upswing in energy and industrial commodities, the producers’ prices should continue to decline. We believe that the peak is most likely behind us. Enterprise wages: In July, enterprise wages jumped up by 15.8%YoY boosted by one-off payments and compensations for high inflation in the mining, energy and foresting sectors. In August, growth is expected to be lower, albeit still at a double-digit level. Nevertheless, real wages in the enterprise sector are projected to turn negative again. The labour market remains tight, which is what drives wages upwards. Enterprise employment: Average paid employment went up by 2.3%YoY in July, with the number of posts increasing by 11,000 people versus the previous month. In August we expect a seasonal decline, but smaller than last year, which should drive annual employment growth up to 2.4%YoY. Despite signs of slowing activity, particularly in industry and construction, demand for labour remains solid, especially in services. Unemployment rate: The labour market is drained from skilled workers and even the inflow of refugees from Ukraine that have assimilated quite well and are active in the labour market is not putting upward pressure on the unemployment rate so far. Since January the number of unemployed people is on a downward path and the registered unemployment rate is projected to remain at 4.9% for the second month in a row in April. Hungary: Further widening of the current account deficit The National Bank of Hungary will release the second quarter current account balance and it is expected to be in the same ballpark that we saw during the first quarter. A roughly €2tr deficit is the result of the rising energy bill of the country, deteriorating the balance of goods in an extreme manner. An early estimation of the July balance suggests further widening of the current account deficit. When it comes to the labour market, we see wage growth accelerating further, as the price-wage spiral has started. More and more companies have announced extra compensation for employees (either one-off or mid-year salary hikes) in the last couple of months, which will be visible in the wage statistics as well. On the other hand, the news has also been about companies planning redundancies in the future (various surveys put the share of these corporates between 25-50%), thus we won’t be surprised if the unemployment rate reflects that development, moving a bit higher compared to the previous month. Key events in EMEA next week Source: Refinitiv, ING TagsTurkey Poland industrial production Hungary EMEA   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Turkish Central Bank Cut Its Policy Rate by150bp | Credit Suisse Outflows Benefit UBS

Turkish Lira (TRY): Central Bank Of Turkey (CBT) Has Done It Again

ING Economics ING Economics 22.09.2022 14:52
Citing evidence pointing to momentum loss in economic activity, the CBT cut the policy rate by 100bp İn September. Signs of a slowdown in activity, stability in FX reserves recently, and outperformance of the currency in comparison to peers are likely factors behind the CBT cut this month. The Turkish Central Bank in Ankara   In its September rate setting meeting, the CBT once again cut the policy rate by 100bp, to 12%. Most central banks around the world are moving in the opposite direction. Despite some calls for further easing the prevailing view in the market, including ours, was that the CBT would remain mute this month. The reasoning behind the extension of rate cut cycle is unchanged. The CBT cited the need for supportive financial conditions so as to preserve growth momentum in industrial production and the positive trend in employment. This, according to the bank, is particularly important given recent signs of momentum loss in economic activity. It was also influenced by decreasing foreign demand in an environment of higher uncertainties surrounding the global growth outlook as well as escalating geopolitical risks. In the rate-setting statement, the CBT has maintained (i) its signal of further macroprudential policy moves, with the objective of supporting the effectiveness of the monetary transmission mechanism, if needed, and (ii) its focus on the spread between policy rate and loan interest rates. The CBT guidance indicates potential additional measures to maintain selective credit growth policies, keep lending rates in check, support FX reserve growth, increase demand for TRY assets, and divert FX demand in the period ahead. Following the recent regulatory changes to increase security maintenance requirements for banks, the average commercial TRY loan rate stands below 21.5%, down by close to 600bp since mid-August. The average deposit rate is around 19.0% (for up to 3-month maturities), recording a slight decline in the same period. As a result, the spread between commercial loans and deposits has narrowed by about 350bp, reaching 5.0-5.5pp. Like the August statement, the latest note does not rule out further reduction in the policy rate as the bank reiterated that "the updated level of policy rate is adequate under the current outlook". Additional rate cuts, in our view, would be dependent on developments in the period ahead. A worsening global backdrop weighing on exports and higher FX volatility, coupled with ongoing momentum loss in credit growth, is expected to weigh on private consumption and investment. We have already seen a notable slowdown in July IP and have seen a weakening PMI index and deterioration in other sentiment indicators in recent months. Against this backdrop, the CBT would be able to come up with additional moves to ease financial conditions.   Further signs of a slowdown in economic activity as well as recent stability in FX reserves along with outperformance of the currency vs peers are factors behind the CBT cut this month. However, ongoing widening pressures on the current account and subdued capital flows imply the possibility of further drawdowns in reserves. Today’s move will do little to address Turkey’s inflationary challenges. The current policy setting does not prioritise disinflation and inflation will likely remain elevated in the near term. Read this article on THINK TagsTurkey Reserves Policy Rate Inflation Central Bank Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Turkish Central Bank Cut Its Policy Rate by150bp | Credit Suisse Outflows Benefit UBS

Expectations Of Another Rise In Inflation In Turkey

ING Economics ING Economics 01.10.2022 08:52
Turkish inflation is expected to increase to 83.5% in September due to significant price hikes in electricity and natural gas fees. In Hungary, we see the manufacturing PMI jumping to 58.2, as order books remain filled and supply chain issues have gradually recovered In this article Turkey: Annual inflation to increase further Hungary: Retail sales to slow, industrial production to jump Source: Shutterstock Turkey: Annual inflation to increase further In September, we expect annual inflation to increase to 83.5% (3.1% on monthly basis) from 80.2% a month ago, given significant administrative price hikes in electricity and natural gas fees. Pricing pressures will likely remain broad-based on the back of a largely supportive policy framework along with a less supportive global backdrop leading to currency weakness. Hungary: Retail sales to slow, industrial production to jump The calendar for Hungary contains some activity data from August. We see retail sales slowing as prices rise quickly and households are increasingly conscious about their spending. On the other hand, industrial production will jump as the month of August this year contained two more working days than in the last year, boosting the unadjusted growth figure. When it comes to the September outlook for industry, the manufacturing PMI will give us some clues and we expect this to suggest expansion as orders books remain filled and supply chain issues have become less severe. Key events in EMEA next week Source: Refinitiv, ING TagsTurkey Hungary   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
Navigating Financial Markets: Insights on Central Bank Decisions and Currency Quotes

The Turkish Central Bank Will Not Make A Move This Month | The Structure Of Retail Sales In Poland Will Not Change Significantly

ING Economics ING Economics 17.10.2022 11:26
We expect the Central Bank of Turkey to keep rates on hold next week, given the current global economic backdrop. However, we recognise there is a significant risk skewed toward more easing as the central bank focuses on preserving growth momentum in industrial production In this article Turkey: Central Bank of Turkey expected to remain on hold this month Poland: Annual growth in industrial output moderated to single-digit levels Source: Shutterstock Turkey: Central Bank of Turkey expected to remain on hold this month The CBT’s recent rate cuts against a backdrop of high external finance requirements and a global risk-off mode may weigh on reserves as we have already seen a decline in the second half of September. Given this backdrop, the bank should remain on hold this month. However, there is a significant risk skewed towards more easing given i) President Erdogan’s call for further rate cuts to single digits by the end of the year ii) the CBT’s focus on supportive financial conditions so as to preserve the growth momentum in industrial production and the positive trend in employment given recent signals of decelerating economic activity. Poland: Annual growth in industrial output moderated to single-digit levels Industrial output (8.3% YoY): Seasonally adjusted data indicate that output started expanding again in 3Q22, after declining in 2Q22. Hard data does not confirm the sharp deterioration in industrial conditions painted by the nose-diving manufacturing PMI. Still, annual growth moderated to single-digit levels in September. High prices and potential shortages of energy will weigh negatively on industrial performance in 4Q22. Retail sales, real (4.8% YoY): Although the inflow of refugees from Ukraine is positive for the consumption of goods, the impact of this factor seems to be waning as high inflation bites into real income and makes consumers more cautious about spending. In September, sales expanded by some 4.8% year-on-year i.e. at a similar pace as in August (4.2% YoY). The structure of sales is projected to remain similar, with poor sales of durable goods and solid sales of necessities (food, clothing). In 3Q22, sales were visibly weaker than in 2Q22 in annual terms, pointing to easing household consumption. Key events in EMEA next week   Source: Refinitiv, ING TagsTurkey Poland EMEA 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
EM Index Inclusions and Exclusions: India Thrives, Egypt Faces Challenges

The USD/JPY Pair Above 150! | Who Will Replace Liz Truss? | The Central Bank Of Turkey Cut Interest Rates

Swissquote Bank Swissquote Bank 21.10.2022 13:30
Liz Truss resigned. Normally, a PM resignation means uncertainty and limited visibility; it’s not a preferred scenario for the market. But the little time Liz Truss stayed in power was so hectic that investors welcomed the news that she departs sooner rather than later. All eyes are on who will replace Liz Truss? Forex In the FX, the US dollar continues extending its rally across the board, and there is nothing the other currencies can do. The dollar-yen is now trading above the 150 level, with prospect of another Bank of Japan intervention. The Central Bank of Turkey cut interest rates by another 150bp yesterday. Turkish stocks gained, as Turkish Airlines hit 100 lira level. The results American Airlines revenues grew 13% compared to the same time in 2019, and other airline companies also hinted at strong results. Snap, however, nosedived 27% in the afterhours trading, after reporting the lowest ever quarterly sales growth due to lower advertising spending. On the macro front, the Philly Fed manufacturing index came in softer than expected, but the weekly jobless claims fell – which certainly fueled the hawkish Fed expectations. Watch the full episode to find out more! 0:00 Intro 0:24 Who will be the next UK PM? 4:21 FX update: USDJPY above 150! 5:09 Turkey cuts, stocks rally 7:37 Airlines report strong results, Snap dives 8:37 Why the US jobless claims keep falling?! Ipek Ozkardeskaya  Ipek Ozkardeskaya has begun her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked at HSBC Private Bank in Geneva in relation to high and ultra-high net worth clients. In 2012, she started as FX Strategist at Swissquote Bank. She worked as a Senior Market Analyst in London Capital Group in London and in Shanghai. She returned to Swissquote Bank as Senior Analyst in 2020. #Liz #Truss #resignation #Rishi #Sunak #Boris #Johnson #Penny #Mordaunt #GBP #UK #CBT #TRY #TurkishAirlines #AmericanAirlines #Snap #earnings #USD #JPY #BoJ #PhillyFed #jobless #claims #Fed #hawks #SPX #Dow #Nasdaq #investing #trading #equities #stocks #cryptocurrencies #FX #bonds #markets #news #Swissquote #MarketTalk #marketanalysis #marketcommentary ___ Learn the fundamentals of trading at your own pace with Swissquote's Education Center. Discover our online courses, webinars and eBooks: https://swq.ch/wr ___ Discover our brand and philosophy: https://swq.ch/wq Learn more about our employees: https://swq.ch/d5 ___ Let's stay connected: LinkedIn: https://swq.ch/cH      
Hungary: Budget deficit jumps above full-year cash flow target by ca. 10%

Hungary And Turkey Monetary Policy Decision Ahead

ING Economics ING Economics 18.11.2022 13:26
We do not expect any movement from the National Bank of Hungary at next week's meeting, as the latest data were in line with expectations. The labour market is expected to be a mixed picture, with the unemployment rate moving up and wage growth remaining strong. We also expect the Central bank of Turkey to conclude its easing cycle In this article Poland: Wage growth is no longer keeping up with rising prices Turkey: Easing cycle to be concluded with a 9% policy rate Hungary: Base rate set to remain unchanged Poland: Wage growth is no longer keeping up with rising prices Industrial output (October forecast: 8.8% year-on-year): Industrial production is benefiting from an improvement in supply chain functioning, which supports exports-oriented industries, including automotive and electric products. When the backlog of work is unloaded and re-stocking is finished, domestic manufacturing is expected to slow over the medium term.   Retail sales (October forecast: 3.8% YoY): Retail sales growth has slowed to low single-digit growth as wages are no longer keeping up with rising prices. We forecast growth of 3.8% YoY as high inflation is undermining consumers' purchasing power to such an extent that they are more cautious in their purchasing decisions. Household consumption growth is slowing. Unemployment rate (October forecast: 5.1%): A recent data revision lifted the registered unemployment rate toward a higher level, but the number of unemployed remains unchanged (lower denominator). Nevertheless, the trend remains positive and we forecast that in October the number of unemployed and the unemployment rate were broadly unchanged vs. in September. The Polish labour market remains resilient to softer economic conditions. Turkey: Easing cycle to be concluded with a 9% policy rate While inflationary pressures remained broad-based in October as all 12 main CPI categories contributed positively to the increase in inflation, the Central Bank of Turkey has signalled that it intends to conclude the easing cycle with another 150bp rate cut in November. This will bring the policy rate to 9.0%. Hungary: Base rate set to remain unchanged We do not expect any fireworks from the National Bank of Hungary at its November rate-setting meeting. The latest data regarding inflation and GDP were broadly in line with the central bank’s expectations and the next staff projection update is only due in December. Against this backdrop, we don't see any game-changing moves. When it comes to the risk environment, we haven’t seen a material improvement in domestic or external risk factors, which were flagged by the central bank as triggers to consider changes in its monetary stance. By the time the National Bank of Hungary's (NBH's) rate-setting meeting takes place, we might see some positive headlines coming from the European Commission regarding the Rule-of-Law procedure. With a green(ish) light, Hungary will be able to secure the Recovery and Resilience Facility (RRF) plan signature just in time to not lose €4.6bn of the €5.8bn RRF grant which is at stake should Hungary miss the year-end deadline to have an accepted plan. But no matter how green this light is, we don’t expect the central bank to make a policy change so quickly and we see the NBH underscoring its hawkish “whatever it takes” approach again. Though the EU fund story and the monetary policy decision will give plenty to talk about, we are going to see the latest labour market data as well. Here we expect wage growth to remain strong, reflecting the fact that companies made mid-year wage increases and one-off payments as inflation bit workers’ disposable income. Regarding the unemployment rate, we expect it to continue its gradual rise, as other employers are unable to remain in business without a reduction in their labour costs. In general, it will be quite a mixed picture of the state of the Hungarian labour market. Key events in EMEA next week Source: Refinitiv, ING TagsTurkey Poland wages Hungary EMEA Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Asia Morning Bites: Inflation Data in Focus, FOMC, ECB, and BoJ Meetings Ahead

Poland: A Pause In Its Rate Hiking Is Officially Declared

ING Economics ING Economics 03.12.2022 12:15
Following a lower CPI reading, the Polish Monetary Policy Council officially declared a pause in its hiking cycle. So for next Wednesday, we are expecting the rate to remain at 6.75%. In Hungary, we see month-on-month headline inflation at around 1.8% and the core rate at 1.7%, due to a slowdown in both the industrial and service sectors In this article Poland: end of the cycle Turkey: risks are still on the upside Hungary: year-on-year indices of inflation rise further   Shutterstock Poland: end of the cycle NBP rate in December (6.75% - unchanged) The Polish Monetary Policy Council officially declared a pause in its rate hiking though in practice, this is the end of the cycle. With CPI inflation moderating from 17.9% year-on-year in October to 17.4% YoY in November (flash estimate) and GDP growth pointing to weak household spending and fixed investment, the Council is unlikely to tighten further anytime soon. Policymakers will wait for the impact of rate hikes delivered so far and hope that further tightening by central banks in core markets, along with a global economic slowdown, will bring Polish inflation down. However, the National Bank of Poland's target of 2.5% (+/- 1 perc. point.) is not in sight over the medium term. Turkey: risks are still on the upside In November, we expect annual inflation to change direction and drop to 84.4% (2.9% on monthly basis) from 85.5% a month ago, as base effects start to kick in. These will become more pronounced in December and early next year. Stability in the currency is another factor for some moderation in the pace of increase lately. However, the risks lie to the upside given the deterioration in pricing behaviour and still prevailing cost-push pressures. Hungary: year-on-year indices of inflation rise further October economic activity data is due next week in Hungary. We expect the retail sector to post a slowdown in sales volume, as household purchasing power is increasingly hit by rising inflation. Business survey indicators, including the PMI, suggest that we might also see a temporary slowdown in industrial production in October,  after a surprisingly strong September. The next big thing however is the November inflation print. We see food prices rising further as domestic producer prices are skyrocketing in the food industry (close to 50% YoY). Still, the strengthening of the forint may ease some pressure on imported inflation, and as aggregate demand retreats, inflation in services could also slow down. In all, we see the month-on-month headline inflation rate at around 1.8% and core inflation at 1.7%. But these rates are still higher than last year’s figures from the same month, thus the year-on-year indices are going to rise further, with the headline and core rates surpassing 22% and 23%, respectively. When it comes to the budgetary situation, unlike in the previous two months, we see a monthly deficit. This is fuelled by the extra pension adjustment by law due to high inflation. This payment triggered a significant outflow of cash in November, pushing the monthly budget balance into negative territory despite rising revenues from high inflation and windfall taxes, in our view. Key events in EMEA next week Refinitiv, ING TagsTurkey Poland MPC Hungary EMEA 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
Turkey cuts rate despite inflation threat, Japanese inflation hits 41-year high

Central bank of Turkey is expected to keep policy rate at 9%

ING Economics ING Economics 16.12.2022 12:33
A flurry of central bank meetings in Central and Eastern Europe next week mark the last major events before the festive season gets underway In this article Hungary: Central bank unlikely to deliver changes to 'whatever it takes' stance Czech Republic: Last CNB meeting of the year to confirm a dovish majority Turkey: Central bank to keep policy rate unchanged The Central Bank of Turkey is expected to keep the policy rate unchanged Hungary: Central bank unlikely to deliver changes to 'whatever it takes' stance The National Bank of Hungary (NBH) has made it clear on several occasions that the temporary and targeted measures, introduced in mid-October, will remain in place until there is a material and permanent improvement in the general risk sentiment. Although we’ve seen some progress here, we don't think enough has changed to trigger an adjustment in the monetary policy’s hawkish “whatever it takes” setup. See our preview here. Regarding the current account balance, we expect a significant deterioration compared to the second quarter. We see the deficit widening on energy items, considering the country’s energy dependency combined with significantly higher prices paid in hard currency. Czech Republic: Last CNB meeting of the year to confirm a dovish majority The Czech National Bank (CNB) will hold its last meeting of the year on Wednesday. We expect it to be a non-event, with rates and FX regimes unchanged. The new forecast will not be released until February, so it is hard to look for anything interesting at this meeting. Board members have been very open in recent days and hence there is minimal room for any surprises. The traditional dovish majority has publicly declared that interest rates are high enough and continue to choose the "wait and see" path. As always, we have heard warnings that interest rates could go up if necessary. However, the near-zero market reaction shows that the dovish view here is clear. The governor also confirmed this week that the central bank will continue to defend the koruna. At the same time, another board member confirmed that the CNB has not been active in the market for some time. So hard to look for anything new here either.   Turkey: Central bank to keep policy rate unchanged We expect the Central Bank of Turkey (CBT) to keep the policy rate unchanged at 9% in December, having confirmed last month that it had reached the end of the easing cycle by stating that the current level of the policy rate is adequate. However, there are continued expectations for some easing in the current banking sector regulations, along with targeted credit stimulus measures such as Credit Guarantee Fund (CGF) loans. Given the CBT’s signal of strengthening the macro-prudential framework, the release of the “2023 Monetary and Exchange Rate” document will also remain in focus. Key events in developed markets Source: Refinitiv, ING Key events in EMEA/LATAM next week Source: Refinitiv, ING TagsTurkey Hungary EMEA Czech Republic Read the article on ING Economics Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Turkey: For now, inflation could be said to have dropped because of the high base in 2022

Turkey: "Comprehensive set of policies" to be announced in December

ING Economics ING Economics 22.12.2022 13:57
The CBT kept the policy rate unchanged at 9% in December, in line with consensus. In addition, the bank signalled that macro-prudential measures to be included in the 2023 Monetary and Exchange Rate Report would mainly target funding channels. The Central Bank of Turkey The rate setting statement did not show major surprises but some tweaks related to the bank’s assessment of the global outlook and evidence of expected macro-prudential measures as the CBT stated last month that a comprehensive set of policies would be announced in December with the publication of the 2023 Monetary and Exchange Rate Report.   For the global outlook, the CBT seemed more vocal about recession concerns in developed economies attributable to geopolitical risks and interest rate hikes. Accordingly, it pointed to ongoing adjustment in financial market expectations about the global central banks’ rate hike cycles. The bank reiterated that effects of high global inflation on inflation expectations and international financial markets are closely monitored. Read next: Credit Suisse Sold Building In Geneva | Visa Is Building Success At The Expense Of Small Retailers| FXMAG.COM Regarding macro-prudential measures, the CBT came up with policy guidance last month and signalled further steps to support the effectiveness of the monetary transmission mechanism in the “2023 Monetary and Exchange Rate” document that is due for release in December. Given the CBT’s focus on keeping financial conditions supportive, one expectation is regulatory steps to ease credit conditions. While the government has been working on an additional Credit Guarantee Fund (CGF) package, annualised 13-week averages of weekly growth rates on lending have recently shown some acceleration driven particularly by SME lending and general purpose loans. Another expectation is that given ongoing widening of the spread between the deposit rate and the commercial lira loan rate, these macro-prudential measures could target the ongoing rise in deposit rates. In the December MPC note, the CBT eliminated the sentence that “the spread between policy rate and the loan interest rates driven by the announced macro-prudential measures is closely monitored”, while it added that “the entire policy toolset, particularly funding channels, will be aligned with liraization targets”. So, mentioning funding channels as the target of additional macro-prudential measures still implies that wider spread has remained a concern, though we should not rule out the introduction of new and longer-term funding alternatives, in our view. All in all, while there are expectations of some easing in the current banking sector regulations along with targeted credit stimulus measures, such as CGF loans that are currently in the pipeline, and budget spending has further accelerated lately, we continue to expect the CBT to keep the policy rate unchanged at 9% ahead of the elections. The CBT’s macro-prudential framework signalled further strengthening in December would be key for the macro and financial outlook in the near term. Read this article on THINK TagsTurkey Policy Rate MPC Monetary Policy Central Bank 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
Visa is experimenting on Ethereum's Goerli testnet, Tether to purchase bitcoin

MicroStrategy bought 2.5K Bitcoins. Leading cryptocurrencies - BTC and ETH decreased in the past seven days

Crypto.com Accelerate the... Crypto.com Accelerate the... 03.01.2023 23:10
China launching its first state-backed NFT marketplace. Central Bank of Turkey completes first CBDC test. Microstrategy buys more BTC. Weekly Market Index Last week’s crypto market prices fell slightly by -1.74%. Volume and volatility also dropped by -10.48% and -27.40%, respectively.     Weekly Performance Bitcoin (BTC) and Ethereum (ETH) were down -1.4% and -1.1% in the past seven days, respectively. Performances of other selected top-cap crypto tokens were mixed. Litecoin (LTC) was among the top performers. Its next halving event is estimated to be in 2H 2023.     News Highlights China is launching its first state-backed NFT marketplace. The marketplace will also be used to trade digital copyrights and property rights along with collectibles. The Central Bank of Turkey successfully carried out the first payment transactions on its central bank digital currency network as part of an initial test phase. Italy’s Senate approved its budget for 2023, which included an increase in taxation for crypto investors — a 26% tax on capital gains on crypto-asset trading over 2,000 euros. Crypto asset manager Valkyrie Investments proposes a plan to become the sponsor and manager of the Grayscale Bitcoin Trust (GBTC). In its proposal, Valkyrie said it wants to facilitate GBTC redemptions at net asset value (NAV) for investors. MicroStrategy bought an additional 2,500 Bitcoins for US$45M in November and December. However, the company also sold 704 Bitcoin, the first time it has done so since it started purchasing the cryptocurrency in 2020. Recent Research Reports     2022 Year Review & 2023 Year Ahead: 2022 has been a ride for the crypto industry. In this report, we curate the top ten crypto events and trends of 2022, followed by our outlook for 2023. Decentralised Social Networks: An Overview: Decentralised social networks aim to enable participants to take back ownership of and better monetise their content and data. We explore the project landscape. Social Graph and Digital Identity in Web3: Relationships and identities are key elements that make up social networks. In this report, we put a spotlight on the roles that decentralised social graphs and digital identity play in Web3 social. Catalyst Calendar         Disclaimer: The information in this report is provided as general market commentary by Crypto.com and its affiliates, and does not constitute any financial, investment, legal, tax, or any other advice. This report is not intended to offer or recommend any access to products and/or services. While we endeavour to publish and maintain accurate information, we do not guarantee the accuracy, completeness, or usefulness of any information in this report nor do we adopt nor endorse, nor are we responsible for, the accuracy or reliability of any information submitted by other parties. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of, or located in a jurisdiction, where such distribution or use would be contrary to applicable law or that would subject Crypto.com and/or its affiliates to any registration or licensing requirement. The brands and the logos appearing in this report are registered trademarks of their respective owners. Author Research and Insights Team Get fresh market updates delivered straight to your inbox: Subscribe to newsletters   Be the first to hear about new insights: Follow us on Twitter Tags CRYPTO CRYPTO RESEARCH CRYPTOCURRENCIES MARKET Source: crypto.com
Turkey cuts rate despite inflation threat, Japanese inflation hits 41-year high

Key events in EMEA next week

ING Economics ING Economics 28.01.2023 10:06
The first Czech National Bank meeting of the year will take place on Thursday. The Board believes inflation expectations will remain anchored and that overall inflation will return to levels around 2% in two years. Thus, we expect the interest rate to remain at 7%. In Turkey, we predict January inflation will be 3.5% month-on-month In this article Turkey: Risks are on the upside Czech Republic: Central bank to confirm stable rates and present new forecast Shutterstock Turkey: Risks are on the upside We expect January inflation of 3.5% month-on-month, leading to a further decline in the annual figure down to 53% from 64.3% at the end of 2022 due to strong base effects and stability in the currency. However, given deeply negative real interest rates, further disinflation would be quite challenging, while risks to the outlook this year are on the upside with significant deterioration in pricing behaviour, higher trend inflation and still elevated level of cost-push pressures. Czech Republic: Central bank to confirm stable rates and present new forecast In the Czech Republic, we expect the flash GDP estimate for the fourth quarter to show the economy entered into a mild recession. The increase in consumer prices has weighed heavily on purchase power hence private consumption decreased markedly. Despite the deterioration of the economic stance, inflation remains elevated and it seems likely we will see an increase in CPI growth from December levels of 15.8% to above 17%. Still, the dovish bank board is not expected to increase the interest rate from 7%, where it has remained since June last year. According to recent statements by board members, everything is pointing towards the same outcome as we saw in the second half of the year; five votes for stable interest rates and two votes for a rate hike. Thus, the main focus will be on the central bank's new forecast, especially on expected inflation for January and February. Given the upside risk due to the new year repricing, the tone of the meeting should remain the same: "higher rates for longer" and "don't rule out a rate hike at the next meeting". We expect rates to remain unchanged throughout the first half of the year and the topic of rate cuts to be open in the third quarter. Key events in EMEA next week Refinitiv, ING TagsTurkey Czech Repulbic   Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Year Of The Rabbit May Well Require Investors To Be Flexible And Opportunistic

The Year Of The Rabbit May Well Require Investors To Be Flexible And Opportunistic

Franklin Templeton Franklin Templeton 07.02.2023 08:00
Gong Xi Fa Cai! Franklin Templeton Emerging Markets Equity’s Chetan Sehgal shares some thoughts on investing in China in the Year of the Rabbit. Feng Shui, the traditional Chinese practice of harnessing the flow of energy, indicates the Year of the Rabbit can pull people in different directions. For 2023, we may well see investors getting pulled in opposing directions, as hope and delivery could be at opposite ends of the year. It is hoped Chinese consumption will recover A surge or “revenge spending” in the initial phase of economic reopening, followed by a slower pace of growth, has characterized the pattern of post COVID-19 consumer spending in emerging markets. The slowdown was due in part to rising inflation and higher interest rates, which crimped real purchasing power. China is expected to follow a similar pattern of post-COVID consumption, with consumers enthusiastically pursuing “revenge spending” in the Year of the Rabbit. An estimated RMB 6.6 trillion in excess savings has been built up during three years of zero-COVID policy, which should in part act as a driver. The key question is what happens after the initial phase of reopening and whether increased consumption will translate into higher earnings in the corporate sector. Inflation is forecast to remain subdued in China during the Year of the Rabbit, partially due to the decline in energy prices from their peak, the stable domestic supply of agricultural commodities and sourcing commodities from Russia, which has emerged as a pariah state in the developed world. As such, Chinese purchasing power is not expected to weaken. Corporate earnings should deliver, eventually From a corporate earnings perspective, the near-term outlook remains weak as companies struggle to scale up production and distribution in the face of COVID-19 pandemic. Additionally, the outlook for the real estate sector is lacklustre, and credit demand may take time to recover, which is likely to act as a drag on the financials sector. However, we expect earnings to recover in the second half of the year as supply chain issues are addressed and the real estate sector stabilizes. One of our areas of focus is on the electrification of transportation, which includes batteries used in electric vehicles. The structural outlook for this sector remains positively charged. Market outlook is positive, but uneven After ending its zero-COVID policy, China embraced economic reopening despite the societal costs. Policymakers have gone out of their way to bolster external relationships, (e.g., with Australia) and rolled out policies to mend the economy (e.g., in the real estate sector). However, the cost of capital remains elevated, partly due to higher rates in the developed world and state crowding out of the private sector domestically. In addition, weak demographics in China need to be addressed. Renewed freedom of movement combined with incentives to start a family could help reverse recent data showing a contraction in the population. China has the largest weight in emerging market indexes and has strong trade links with other emerging markets. A strong and recovering Chinese stock market should be good for emerging markets. Leadership in a multi-polar world The world leaders of the current generation are powerful, and their authority seems to be unrivalled. However, many of these leaders have strong agendas which have resulted in turmoil and conflicts, such as the Russia-Ukraine war. Persistently high inflation in Turkey creates risks for President Erdogan as he prepares for elections in June of this year. State elections in India later this year could give an indication of how President Modi and his BJP party will perform in national elections in 2024. The Year of the Rabbit is likely to see world leaders continue to re-balance global power, and we expect governments in the developed world to also court other countries. The world still awaits a Jade leader. What it means for investors Given the steep declines in emerging markets in the latter months of 2022 and a strong start to the year, the Year of the Rabbit may well require investors to be flexible and opportunistic. Argentinian football player Lionel Messi was born in the Year of the Rabbit, and we are hopeful that in the year ahead, emerging markets will perform as well as Argentina did during the 2022 World Cup.
Asia Morning Bites: Inflation Data in Focus, FOMC, ECB, and BoJ Meetings Ahead

Key events in EMEA next week - 18.02.2023

ING Economics ING Economics 18.02.2023 08:58
The Polish labour market is holding up well – we expect an upswing in unemployment this January, but the scale of increase should be rather moderate by historical standards. We expect the Central Bank of Turkey to keep its policy rate unchanged at 9% In this article Poland: Activity to remain subdued, but the situation is better than feared Turkey: Policy rate to remain flat at 9% Shutterstock Poland: Activity to remain subdued, but the situation is better than feared Industrial output: 4.4% year-on-year (January) Industrial output continues to hold up better than expected, with the energy crisis in Europe being less severe than previously feared. There are no gas shortages and European industry is able to operate, which is supporting export-orientated Polish manufacturing. A higher number of working days compared to January 2022 also boosted the annual output figure. Nevertheless, conditions in manufacturing have deteriorated over the last few months and activity should be subdued in the months ahead. PPI inflation: 17.9% YoY (Jan) The global disinflationary trend is visible in Polish PPI inflation, where a turnaround is clearly visible. Pressure from energy commodities has abated, whereas it was strong in January 2022. As a result of the high reference base, annual PPI inflation started moderating in the fourth quarter of 2022 and rapid disinflation in producers’ prices is projected in the first half of this year. Retail sales (real): 1.5% YoY (Jan) The annual growth of the retail sales of goods has nearly stalled in recent months as high prices weigh on real disposable incomes of households and hamper spending. Despite additional demand from refugees from Ukraine, purchases weakened markedly in late 2022 and will remain under pressure in the first months of 2023 as wage growth is unable to catch up with retail price growth. Unemployment rate (registered): 5.5% (Jan) Despite weakening economic conditions, the labour market is holding up well and unemployment remains close to all-time lows. Despite the expected upswing in January, the scale of increase in the number of unemployed is estimated to be rather moderate by historical standards.  Turkey: Policy rate to remain flat at 9% In the previous Monetary Policy Committee (MPC) meeting, the Central Bank of Turkey removed its forward guidance which stated that the current policy rate is adequate considering risks to global demand. While this attracted the attention of market participants, we do not expect any change in the policy rate at the February MPC meeting, and see it remaining flat at 9%. Key events in EMEA next week Refinitiv, ING TagsTurkey Polish retail sales   Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Sweden And Finland Are Getting Closer To Becoming NATO Members

Sweden And Finland Are Getting Closer To Becoming NATO Members

Kamila Szypuła Kamila Szypuła 22.02.2023 12:24
Over the centuries, countries have made alliances with each other, and in difficult situations they turned out to be crucial. Therefore, NATO membership may be crucial for many countries. In this article: Sweden and Finland are on track for NATO membership Increase in salaries in the automotive industry Difficult challenge Sweden and Finland are on track for NATO membership Sweden and Finland are on track for NATO membership this year, despite tense negotiations with Turkey over their admission. Currently, NATO consists of 30 countries - 28 European and two North American. Turkey's reasons for opposing Sweden and Finland's admission to NATO are complex, emotional, and steeped in decades. Turkey's opposition to Sweden's and Finland's membership in NATO focuses on their harboring fighters from the Kurdistan Workers' Party (PKK). Opposition to Finland's membership is of a slightly different nature. The country has a much smaller Kurdish population than the neighboring country, but the foreign policies of both are similar. Both Sweden and Finland blocked arms sales to Turkey in 2019 during its military clash with Kurdish groups in Syria. Turkish President Recep Tayyip Erdogan announced this week that the country was ready to resume negotiations after suspending them indefinitely at the end of January. Hungary is the second opponent of the ratification, although local media reported on Tuesday that its parliament could ratify Finland and Sweden's NATO membership early next month. These are signals that the membership of both countries is getting closer. Sweden and Finland's NATO membership just a 'matter of time,' Swedish foreign minister says https://t.co/lg4hrBPjSU — CNBC (@CNBC) February 22, 2023 Read next: Consumers Are Spending More On Food, So Walmart And Home Depot Are Making Cautious Predictions| FXMAG.COM Increase in salaries in the automotive industry As one of the largest employers in Japan, Toyota has long been a leader in spring employee talks, which are in full swing at large companies. Toyota will accept trade unions' demand for the biggest increase in basic wages and bonuses in 20 years. The automaker's future chief executive Koji Sato said the decision to fully accept the union's demands during the first round of talks was not just for Toyota, but for industries as a whole. Honda Motor said it had agreed to union demands for a 5% pay rise. Honda's average monthly base salary increase of 12,500 yen ($92.70) is the largest jump since at least 1990. Toyota, the world's biggest automaker, said it would accept a union demand for the biggest base salary increase in 20 years and a rise in bonus payments, as Japan steps up calls for businesses to hike pay. More here: https://t.co/8wSnCZe8Os — Reuters Business (@ReutersBiz) February 22, 2023 Difficult challenge It will be another challenging year. In times of heightened uncertainty for the global economy, India's strong performance remains a bright spot. The reality is that growth is still below normal and price pressure is still too high. And after three years of upheaval, too many economies and people are still suffering badly. Around the world, many households are struggling to make ends meet due to the high cost of living. Millions cannot afford fuel for heating or cooking. Subsequent upheavals increased poverty, threatening decades of progress. Supporting the weak is crucial in all countries. It all makes that the politicians of the G20 economies face a difficult challenge. This year could be a turning point for the global economy, but growth is still low, price pressures remain, and too many economies are still hurting badly after 3 years of shocks. Read more in a new #IMFBlog by @KGeorgieva ahead of the G20. https://t.co/LqPHQXSDmO pic.twitter.com/JP56Q1AQ9e — IMF (@IMFNews) February 22, 2023
Eurozone economy boosted by service sector growth

Key events in EMEA next week - 25.02.2023

ING Economics ING Economics 25.02.2023 12:11
For Hungary's rates-setting meeting next week, we expect no changes to be made. In the Czech Republic, we think the GDP report will confirm the previously-published flash estimate, and that the economy has continued to decline, entering into a mild recession In this article Turkey: Risks to outlook are on the upside Czech Republic: two quarters of continuous decline in GDP Hungary: No changes from the policymakers yet   Shutterstock Turkey: Risks to outlook are on the upside We expect February inflation to be 1.7% month-on-month, leading to a further decline in the annual figure down to 53% from 57.7% a month ago due to a supportive base and stability in the currency. However, given deeply negative real interest rates, further disinflation would be quite challenging, while risks to the outlook this year are on the upside with a potential policy mix of larger fiscal stimulus and looser monetary policy following the devastating earthquakes. Regarding GDP growth, we expect further moderation to 3% for the final quarter of 2022, mainly due to weakness in the external demand, with growth for the full year 2022 will be around 5.3% due to a strong performance in the first half. Czech Republic: two quarters of continuous decline in GDP The Czech GDP report will likely confirm the previously-published flash estimate that the economy declined in the fourth quarter of last year, making it two consecutive quarters of decline, entering the Czech economy into a mild recession. The recession has mainly been driven by a continuous strong decline in consumer spending as households are facing the burden of high energy prices on their purchasing power. Nevertheless, investment and exports likely recovered, despite lingering restrictive monetary policy in terms of high interest rates and strong currency. This seems to be a promising sign that the recession will be shallow, without a significant impact on the labour market, and the economy should return to soft growth in the second half of the year, driven by a gradual improvement in external demand. Hungary: No changes from the policymakers yet The main event in Hungary is the February rate-setting meeting. We have seen glimmers of hope that the economic picture in Hungary is about to improve. However, it is early days and therefore we expect the central bank to remain patient and see no change from the policymakers yet. While we are still waiting for January activity data, we are going to see another manufacturing PMI where we expect the reading to suggest optimism based on the still high level of orders. After that, we will look back again to try and understand the factors behind the late-2022 technical recession. As the Statistical Office reminded us in its press release after the flash GDP estimate, data quality has worsened so we might see some non-negligible revisions in the GDP data. Key events in EMEA next week Refinitiv, ING TagsTurkey Hungary Emerging Markets EMEA and Latam calendar EMEA Czech Republic Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Turkey: For now, inflation could be said to have dropped because of the high base in 2022

Turkey: For now, inflation could be said to have dropped because of the high base in 2022

Andrey Goilov Andrey Goilov 07.03.2023 22:06
We got really shocked by the Turkey inflation print released last week. It's to less to say it's surprising. That's why we reached out to expert, Andrey Goilov (RoboForex) to ask what does he adress this unexpected decline to. Andrey Goilov (RoboForex): The CPI in Turkey should be treated cautiously. The official statistics for January did demonstrate a decline in inflation to 57.6% y/y from 62.4% previously. Monthly inflation was estimated at 6.65%. Considering the extremely high rate of price increases in Turkey, such data is good news. However, according to independent ENAG research, January inflation in Turkey was at least 121%. In February 2023, the Turkish CB decreased the interest rate to 8.5% to create favourable conditions for the economy. This factor can support inflation by stimulating consumer demand. President Erdogan is confident that lowering the interest rate slows inflation, although the developed world believes otherwise. For now, inflation could be said to have dropped because of the high base in 2022. For the time being, signals about a decrease in the Turkish inflation rate should be treated with caution. The trend will become stable as soon as inflation starts to fall by 5% per month on a more permanent basis. So far, we have only two months of mixed observations. Read next: In crude oil, we are increasingly likely to see a year of two distinctive halves| FXMAG.COM Visit RoboForex
National Bank of Hungary Review: A new beginning without commitment

Key events in EMEA next week - 17.03.2023

ING Economics ING Economics 17.03.2023 16:10
A relatively quiet week ahead for the EMEA regions. Given the Central Bank of Turkey cut the policy rate last month, and signalled that cuts would not be continuous, we expect rates to remain unchanged for now. In Poland, consumer demand in early 2023 looks to remain subdued and we see continued weakness in retail sales In this article Poland Turkey: Central bank expected to remain on hold Hungary: Unemployment expected to increase further Source: Shutterstock Poland Industrial output (Feb): 1.0% YoY A relatively strong January reading (2.3% year-on-year) was supported by calendar effects, but with a neutral impact of working days in February, industrial output growth is projected to have eased to 1.0% YoY. Even though the severity of the European energy crisis is smaller than feared, the outlook for the real economy, especially manufacturing in the EU, looks better than expected. PMI surveys point to slower declines in new orders and output, while cost pressures have eased. Demand and supply are more aligned, but Poland’s industrial growth is projected to be sluggish in the near term and the emergence of concerns about financial stability risks are skewed to the downside.   Read next: Key events in developed markets next week - 17.03.2023| FXMAG.COM Retail sales (Feb): -1.4% YoY Household consumption fell in the fourth quarter of 2022 and consumer demand remains subdued in early 2023 as a result of elevated inflation that has eroded the real purchasing power of consumers. We project continued weakness in retail sales of goods in early 2023, and yet another annual decline in consumption, especially given the high reference base from the first quarter of 2022. Turkey: Central bank expected to remain on hold Last month when the Central Bank of Turkey cut the policy rate to 8.5%, it signalled that interest rate cuts would not continue as a series. Given this backdrop, we expect the bank to remain on hold this month. But we can expect further macro-prudential measures to maintain favourable financial conditions with the objective of minimising the effects of the earthquakes in the period ahead. Hungary: Unemployment expected to increase further The relatively quiet period regarding data releases is set to continue in Hungary. The only hard data is the unemployment rate for February, where we see a further increase as companies are adjusting to the new reality earmarked by the technical recession. Key events in EMEA next week Source: Refinitiv, ING TagsTurkey Poland industrial production 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
ECB's Christine Lagarde not to announce the end of rate hikes?

EU construction outlook: Two years of modest decline in the building sector

ING Economics ING Economics 20.03.2023 11:32
Material shortages are decreasing in the EU building sector but labour scarcity remains a challenge. The share of renovation is growing due to sustainability work. This makes the sector less volatile. Therefore, only a modest decline is expected in 2023 Construction volumes remain stable In December 2022, the EU's construction output was approximately at the same level as at the end of 2021. This counts for both subsectors; building and infrastructure. Despite economic headwinds, order books are still well-filled. On average, EU construction companies had exactly nine months of work in stock at the beginning of 2023. That's 0.2 months more than in the last quarter of 2022. EU construction volume keeps hovering around the pre-pandemic level Development EU construction sector volume (Index December 2019=100, SA) Source: Eurostat, ING Research Less satisfied with order books Due to the uncertain economic situation, some orders are somewhat less certain than previously thought. In addition, the increased costs of materials have made it more difficult for businesses in the building industry. As a result, profit margins are regularly lower than previously calculated. As a result, EU builders have in recent months become less satisfied with the quality of the orders they hold. On balance, they are not positive about the work they have in the pipeline. Quality of order books for EU construction companies is declining Evolution of order books in the EU construction sector (SA, latest data point February 2023) Source: European Commission, Eurostat & ING Research The prices of many building materials have been decreasing lately The prices of many building materials (eg. timber and metals) peaked during the summer of 2022 and have fallen steadily since. The reasons for this are the diminishing supply chain disruptions and weakening demand as forecasts for economic development in many countries have been lowered. The normally stable price of concrete, cement and bricks increased steadily in 2022 due to rising energy prices as the production processes of these materials are very energy intensive. Despite decreasing energy prices, prices for these energy-intensive building materials were still increasing at the beginning of 2023. We expect that it will take another one or two months before these prices gradually decline as well. Fewer contractors expect to increase their sales prices Fewer contractors have to increase their sales prices due to the lower costs of some building materials. This has been especially the case in Austria and The Netherlands. In May 2022, a record percentage of approximately 75% of the companies in these countries replied in a survey that they were scheduling a sales price increase. This percentage decreased to almost 50% in February 2023. In Germany, there was an even larger decline from 54% to 17% over the same period. In addition, decreasing demand for construction works due to higher interest rates and the uncertain economic situation can also result in fewer companies expecting to increase their sales prices due to increasing competition. Diminshing price increases for construction companies Balance of construction companies that expect to increase -/- decrease output prices (over the next three months) Source: European Commission, Eurostat & ING Research Diminishing material shortages In February 2023, a fifth of all EU contractors indicated lower production due to a lack, or delayed delivery, of building materials. The shortages are abating due to the easing of supply chain problems in the economy. Shortages are still the highest in Poland and France, although they are decreasing in these countries as well, while there are almost no construction firms that mention a shortage of building materials in Spain. One of the main reasons for this is the decreasing construction output levels in the country which limits the demand for building materials. Shortage of labour is a structural problem. Shortage of materials is temporary % of EU construction firms that have to limit production because of (cumulative): Source: European Commission, Eurostat & ING Research Structurally not enough staff Another factor limiting production, but with a more structural nature, is the availability of sufficient labour. In the European Commission survey, a quarter of the EU contractors cite this as problematic, particularly firms in Austria, France and Germany. Companies can do several things to try to solve this problem. For instance by increasing labour productivity through industrialisation and digitalisation, attracting skilled workers from abroad, or investing in education for younger employees and trying to commit them to the company for a longer period. Share of R&M increases The renovation and maintenance market (R&M) is often overlooked in the construction sector. It is composed of small, fragmented firms and often lacks (reliable) data. It is also deemed less glamorous than new construction. However, the share of the R&M market has slowly increased in the last 15 years. In 2008, 48% of EU production volume consisted of R&M works. This has gradually increased to more than 54% in 2022. We expect that this share will increase further as the need for energy efficiency measures (eg. insulation, [hybrid] heat pumps and solar panels) increases due to high energy prices and sustainability measures and legislation, such as the upcoming Energy Performance of Buildings Directive (EPBD) that aims to ensure a higher sustainability rate. Share of renovation increases slowly in the building sector Renovation share of total building production Source: Euroconstruct, ING Research R&M market is less volatile Although there is a strong demand in many countries for more houses, new building projects are often complicated due to land shortages and complex and long (juridical) procedures. In addition, the market for new buildings is volatile and very dependent on the economic cycle. the need for R&M is, however, an ongoing process and is therefore less susceptible to fluctuations in the economy. Furthermore, the demand for R&M may even increase during an economic crisis. For instance, during an economic downturn, homeowners may not be able to sell their homes and may choose to improve their current living spaces to accommodate their needs. This results in an increase or at least sustains the demand for R&M. Construction sector in more gradual territory Development production (volume value added) EU, Index 2005=100 Source: Eurostat, ING Research Construction less volatile than in the past An increasing share of R&M in the construction sector could make the total construction sector less volatile as the share of the choppy new building subsector decreases. During the financial crisis, EU construction decreased by almost 20% (2007-15). Since then we have only seen a gradual increase, except for the temporary dip during the first wave of the Covid-19 crisis. Construction volumes have also increased at a slower pace than EU GDP. Therefore, it doesn’t look like there is a new bubble (as during the financial crisis) in the construction market. That being said, the construction sector is often hit late in the economic cycle due to long lead times. Modest decline expected in the EU construction sector Taking everything into account, higher interest rates and a weaker economy are currently causing home buyers and firms to be more hesitant to invest in new residential and non-residential buildings. Moreover, although some building material prices have decreased in recent months, the increased costs of new investments have made new buildings more expensive. Nonetheless, EU construction firms still have a healthy backlog of work, with nine months of guaranteed projects as of the beginning of 2023. While the EU construction confidence indicator declined in the first half of 2022, it has since stabilised around a neutral level. We therefore stick to our previous forecast (from January 2023) and expect only a very slight decrease (-0.5%) in total EU construction volumes in 2023. We expect the same modest decline in 2024. A quick overview of the various EU construction markets Germany: two consecutive years of contracting building volumes and a third to come In 2022, German construction output declined by 1.5%, after a 1.6% decrease in 2021. This is the first time since 2008-10 we have seen two consecutive years of contraction. While order books in the first quarter improved a bit, they are lower than a year ago. The building industry suffers from the weak German economy. German contractors are still facing significant challenges due to labour shortages. Material shortages are decreasing but the current water levels have hit a new low for this time of year, posing a risk of causing new supply chain disruptions as many heavy building materials (such as sand and gravel) are transported by barges. In January, construction activity bounced back (+13% month-on-month) after a strong (perhaps mainly technical) fall in November and December 2023. Nevertheless, for the whole of 2023, we forecast a moderate contraction of the largest construction market in the EU. EU Construction Forecast Volume output construction sector, % YoY Source: Eurostat & ING Research; *Estimates and Forecasts   Spain: construction sector faces its fifth consecutive year of contraction Our projections indicate that Spain's construction volumes will continue to decline this year, marking the fifth consecutive year of contraction for the sector. At the end of 2022, the production level was almost 25% lower compared to the end of 2019. Unlike contractors in other EU countries, who are still mainly experiencing material and labour shortages, Spanish building firms are grappling with insufficient demand. In fact, more than half of all Spanish builders noted in February that inadequate demand is the primary factor limiting their production. Despite this, order books are improving and the EU recovery funds' investments in the Spanish construction sector will generate some positive outcomes. Consequently, we foresee a stabilisation of volumes in 2024. The Netherlands: slight contraction in the construction sector in 2023/24 Growth in Dutch construction output has been declining steadily in recent years. However, in the last quarter of 2022, Dutch construction volumes increased (surprisingly) by 2.3% compared to the previous period. Yet we don’t expect this will last. A decreasing number of building permits in the residential sector, the increase in construction costs and a reluctant consumer will reduce new residential construction in 2023 and 2024. At the beginning of November 2022, the Council of State also decided that the exemption for construction works for nitrogen emissions was no longer valid. This is a setback for construction companies although it doesn’t make new housing projects impossible. High energy prices create additional demand for energy-saving construction works in the installation and maintenance market. We therefore only expect a modest contraction in the Dutch building volume this year and next. Belgium: low growth for the construction sector in 2023 The Belgian construction confidence index has been hovering around a neutral level for several months, despite an increase in building production volumes in 2022. However, the issuance of building permits for both residential and non-residential buildings has decreased over the same period. Belgian contractors are facing greater wage hikes than their counterparts in neighbouring countries, in addition to the higher cost of building materials. This has led to an increase in salaries by approximately 10% over the past year, due to automatic wage indexation. Although Belgian house prices are expected to decline slightly, they are anticipated to rise again in 2024, potentially allowing for some price increases for new buildings in the same year. The government's stimulus plans include funding to improve the energy efficiency of existing buildings, a reduction in the VAT rate for demolition and reconstruction, and funds to rebuild 38,000 homes damaged by the floods in 2021. Overall, we predict that the Belgian construction sector will experience a growth rate of around 0.5% in 2023 and 1% in 2024. Poland: promising building start in 2023 but contraction ahead Polish contractors started 2022 with an impressive growth rate of 7% (month-on-month) in January. The relatively mild weather could be one of the reasons. The outbreak of war in Ukraine caused heightened tensions in the construction labour market due to shortages. This is because some Ukrainian males who had been previously employed left Poland to fight for their homeland, while the refugees who arrived mostly consisted of women and children who are unlikely to be able to fill the vacancies. The Polish civil engineering sector can receive a boost from an ambitious investment programme, including the EU Recovery Fund (which is still frozen due to a judiciary dispute with the EU). However, demand for new houses has deteriorated strongly, due to the high increase in interest rates and the general deterioration in household sentiment. Building permits for residential buildings have decreased by almost 13% in 2022. Therefore, we anticipate that Polish construction output will contract in 2023. France: contractors facing enormous labour shortages Construction output in France experienced growth of 1.7% quarter-on-quarter in the final quarter of 2022, after declines in the second and third quarters. The building sector in France is still facing significant challenges due to shortages of materials and labour, as well as price increases. In February, more than half of French contractors mentioned shortages of staff as a limiting production factor. Shortages of materials are declining but are still high. The construction of new houses is under pressure. In 2022, the number of building permits for new residential buildings contracted by more than 10%. On the other hand, government measures such as MaPrimRénov support renovation and sustainability activity. The French construction confidence index (EC Survey) is dwindling but remained positive in February (+2), and order books are still well filled with a stable eight months of work in the first quarter. Overall, a minor decline of -0.5% is expected in the French construction sector for the whole of 2022, which means that construction output in France will still fall short of its pre-Covid level. Turkey: uncertainty in the construction sector Due to persistently high inflation, the devastating earthquake and the presidential elections, Turkey's prospects are uncertain. The issuing of building permits for new residential buildings decreased in 2022. In February, the Turkish construction confidence indicator (EC survey) showed a negative reading of -10. Order books sharply decreased in the first quarter of 2023. Contractors are affected by high building material costs and a lack of demand due to the resulting high prices. We now forecast a continued decline in Turkish construction output in 2023, marking six consecutive years of declining building output in Turkey. The expectation is that reconstruction efforts in the form of higher public investment should generate growth in the construction sector in the longer term. Read this article on THINK TagsConstruction Building materials 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
Monitoring Turkey: Focus on elections

Monitoring Turkey: Focus on elections

ING Economics ING Economics 08.05.2023 10:22
As double elections on 14 May approach, the macro outlook will depend on whether the current policy mix, thus preference for low interest rates, continues, or if there will be a focus shift to disinflation with a significantly tighter monetary stance and easing of regulations Skyline of Istanbul, Turkey Turkey: At a glance While the early growth tracker has shown some recovery after initial weakness following recent earthquakes, the outlook ahead is uncertain given the weaker global backdrop and high inflation environment weighing on purchasing power. The drop in annual inflation continued in April as widely expected, due to strong base effects. Despite the likelihood of another fall in the near term, further disinflation would be quite challenging with a deterioration in pricing behaviour and higher trend inflation. While the current account deficit continued its widening path, capital flows have remained quite weak in the absence of strong unidentified inflows, leading to pressure on international reserves this year so far.  In the first quarter of this year, a major fiscal expansion pulled the budget deficit to 2.4% of GDP given weakening tax collection performance and earthquake recovery-related expenditures While the Central Bank of Turkey remained mute in April, there are expectations of a normalisation in the conduct of monetary policy in the period ahead given growing macro imbalances. Quarterly forecasts Source: Various sources, ING Signals of a rapid recovery in activity continue While the data February indicators show earthquake-related weakness in economic activity, recent data releases signal a rapid recovery: i) Manufacturing PMI increased significantly reaching 51.5 in April from 50.1 in February, ii) after a decline in March, capacity utilisation rose to pre-earthquake levels in April and iii) real sector confidence maintained its recovery since the beginning of this year. However, according to sector PMIs in manufacturing, recovery rates in the beginning of the second quarter differed markedly. Some sectors, such as land and sea vehicles came to the forefront in growth driven by strong new orders. All in all, the recovery signal is likely attributable to the impact of reconstruction efforts and also in line with what the OECD weekly growth tracker shows with a close to 4.5% year-on-year GDP growth rates on a monthly average basis in the first half of April. Real GDP (%YoY) and contributions (ppt) Source: TurkStat, ING Plunge in economic activity in February Given the significant impact of earthquakes in southern Turkey on economic activity, industrial production in seasonal and calendar adjusted terms plunged by 6% month-on-month in February following a strong start to the year with a 2.0% MoM increase a month ago. Regarding broad economic categories, all subcategories recorded significant contractions with intermediate goods taking the lead with close to double digits at -9.3% MoM, followed by nondurable consumer goods at -5% MoM. In year-on-year terms, industrial production (calendar adjusted) printed a significant 8.2% contraction. IP on an average 3-month rolling basis turned negative with a sharp monthly decline. This points to a likely weakening in the growth performance in the first quarter compared with the previous quarter. IP vs PMI Source: Markit, TurkStat, ING Earthquakes weighed on February retail sales Retail sales that have been on a consistent growth path since May 2022 and made an even stronger start to this year with a 5.7% sequential growth in January. However, it dove into negative territory in February with a 6.5% MoM decline. Year-on-year performance on the other hand, remained high at 21.5%, though weakened in comparison to the growth rate recorded a month ago. The data along with turnover indices that plunged in all sectors except construction confirm the disrupting impact of the earthquakes on the economy. The labour market, on the other hand, saw a slight increase in the seasonally adjusted unemployment rate to 10% in February from 9.8% in January. However, the actual rate is likely higher as TurkStat said that the Household Labour Force Survey could not be conducted in certain cities due to the earthquake disaster in Turkey. Retail sales vs consumer confidence Source: TurkStat, ING Inflation in Turkey continues to fall The annual inflation maintained its downtrend in April to 43.4% from 50.5% a month ago thanks to a better-than-expected monthly reading at 2.4% (vs the consensus at 2.6%), though it was the second highest April print in the current inflation series started in 2003. Given this backdrop, the latest data show still high pricing pressures, however, the increases in all groups was lower than the last year and helped lead to a drop in the headline number. PPI inflation recorded another sharp drop to 52.1% YoY, the lowest reading since October 2021, implying still high but relatively improving cost-push pressures in comparison to previous months. While the monthly reading was at 0.8% with support from price drops in heavy-weight utilities, the base effects have remained the key determinant of the decline in the annual inflation. Inflation Outlook (%) Source: TurkStat, ING Capital flows remain weak in February After the record monthly deficit in January, we saw a continuation of the widening in external imbalances with -US$8.8bn in February. Accordingly, the 12-month rolling deficit maintained its widening and reached US$55.4bn (translating into c.6.0% of GDP). The key drivers of the monthly reading over the same month of the previous year was a rapid increase in net gold trade, while core trade that was at a surplus last year turned to a deficit this year. Among other variables, the net energy deficit and services income showed some improvement. The capital account on the other hand has remained weak with a mere US$3.1bn net inflows. With the monthly current account deficit and small net errors & omissions at US$1bn, reserves recorded a US$4.7bn drop. Current account (12M rolling, US$bn) Source: CBT, ING Budget deficit widening In the first quarter of this year, we see a major fiscal expansion pulling the budget deficit to 2.4% of GDP. The real budget trend, which excludes one-off revenues, can be observed from the programme (IMF) defined primary balance realisation. In this budget setting, there was a deficit of around TRY31.9bn in March, bringing the primary balance for the last 12 months to a deficit of 1.5% of GDP. In addition, the 12-month budget balance excluding one-off revenues rose to a deficit of 3.5% of GDP. All in all, as we entered this year, the new loosening steps seemed to be on an upward trend. With the addition of the budget expenditures related to the earthquake, the risks to budget deficit forecasts continue to be significantly upward. Budget performance (% of GDP) Source: Ministry of Treasury and Finance, ING The Central Bank of Turkey kept rates on hold in April, as expected The CBT kept the policy rate at 8.5% in the last rate setting meeting ahead of the 14 May double elections. The CBT’s assessment note this month was almost a carbon copy of the note shared after the March meeting. Accordingly, it kept the forward guidance unchanged, concluding that “the current monetary policy is adequate to support the necessary recovery in the aftermath of the earthquake”, while pointing out that “the effects of the earthquake in the first half of 2023 will be closely monitored”. Finally, while the bank restated the need to keep financial conditions supportive in response to the earthquakes it also repeated its emphasis on alternative policy instruments and alignment of all policy instruments with “Liraisation” targets.  Read next: Asia Morning Bites - 08.05.2023| FXMAG.COM Central Bank Funding Source: CBT, ING Elections key catalyst for the currency and rates The key challenge for the CBT currently is to maintain stability of the exchange rate in the near term. In April, it asked banks to limit the amount of dollar purchases they make in the interbank market to ease pressure on the lira. Following the CBT move, the banks began widening spreads between their bid and ask prices for foreign currencies, while volatility in the currency market has increased to some extent. Given elevated inflation and ongoing upside risks, the real value of exchange rates is likely to remain under focus. In the bond market, the CBT has maintained its purchases from the secondary market, raising its securities portfolio to 6% of the balance sheet size at the end of April. Despite these purchases and security maintenance requirements, bond yields are under upward pressure lately as market participants look ahead to the policy framework after the 14 May elections. 10Y Bond vs FX Basket Source: Refinitiv, ING External debt markets starting to price in policy shift Spreads on Turkey's dollar sovereign bonds have remained relatively resilient amid recent pressure on the high-yielding, single-B section of the EM credit markets. Markets are now starting to price in some form of policy shift towards orthodoxy after elections, with current credit spreads over 150bp tight to the single-B peer group average. The upcoming elections and likely uncertainty should remain a source of volatility, although positioning among real-money foreign investors appears to remain fairly light overall and a strong bid from domestic investors will keep shorter-dated dollar bonds well anchored. We would see fairly limited potential for spread tightening in the medium term given the tough macro backdrop of weakening external balances and more focus on fiscal stimulus, with any policy changes likely to be somewhat politically unpopular. ICE US$ Bond Sub-Index Spreads vs USTs Source: Refinitiv, ING Read this article on THINK TagsTurkey Monthly Update Monitoring Emerging Markets Economy Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Ipek Ozkardeskaya: A sudden jump in dollar-try is a possibility

Ipek Ozkardeskaya: A sudden jump in dollar-try is a possibility

Ipek Ozkardeskaya Ipek Ozkardeskaya 15.05.2023 11:08
The People's Bank of China (PBoC) kept the interest rates unchanged at today's monetary policy meeting, but extended long-term liquidity to boost anemic Chinese growth.   Many analysts expected a rate cut from the PBoC today, after the latest set of economic data revealed slowing exports and a faster-than-expected fall in Chinese inflation – both being a strong sign of insufficient growth momentum for the EM giant.   Today's status quo in PBoC rate policy strengthens odds for an imminent PBoC rate cut. The first rate cut is expected in June.  But interestingly, the higher PBoC liquidity and looser PBoC rate expectations couldn't boost global growth optimism this Monday. Crude oil slipped below $70pb, while copper futures slipped below the 200-DMA last week, and remain under decent selling pressure despite the PBoC news.   US inflation expectations jump!  Data released Friday showed that the US consumer sentiment fell to a 6-month low, as long-term inflation expectations jumped to a 12-month high, fueling worries that the Federal Reserve (Fed) may not stop hiking the interest rates, or, it won't be able to cut the rates anytime soon.   The June rate hike expectations rose to around 16%, the dollar index rallied past the 50-DMA and equities fell.  Selloff in equities were also fueled by a renewed pressure on US regional bank stocks as the selloff in PacWest shares extended to a second day after the bank revealed having lost nearly 10% of its deposits last week.   Read next: Copper prices hit lowest level this year. Crude oil decreased second day in a row. BoE went for a 25bp hike| FXMAG.COM The S&P500 tested the 4100, but closed the week a few points above this psychological mark, while Nasdaq advanced to a fresh high since last summer, but gave in to higher yields and close the session 0.37% lower.   While the Fed rate discussions swing in both directions, the ongoing stress on the US regional bank level will likely bring the Fed to inject liquidity into the system to keep the financial system sound and stable. In this context, excess liquidity will likely continue being supportive for stock valuations.   Debt ceiling saga  Rising US yields and the US debt ceiling impasse are major drags to investor appetite.   The meeting that was supposed to take place between Biden and McCarthy on Friday was postponed to this week. The latter has been partly taken as a sign that the staff level negotiations progress, and that an eventual agreement on spending could pave the way for an agreement on debt ceiling.   But nothing is less sure, and the debt ceiling suspense will likely continue until the last minute, keeping investors cautious, looking for safety in long-term US sovereign bonds and gold.   Tight, tight...  Sunday's Turkish election results were tight. According to the latest results, no candidate, including President Erdogan got a majority of votes to avoid a runoff.   It looks like Turks will go back to voting in two weeks to decide who between Recep Erdogan and Kemal Kilicdaroglu will be the next president.   Political uncertainty is never good for investor sentiment and the next two weeks will be marked by uncertainty, low predictability and high volatility in Turkish assets.   The USDTRY is holding up so far, but the pair advanced to the highest levels on record. The central bank of Turkey (CBT) is putting a lot of weight and money to keep the lira stable against the greenback.   Turkey's 10-year yield jumped more than 8% this morning, while the BIST 100 is down by 1% at the time of writing.   The major risk is the lira. Will the CBT keep its FX strategy unchanged and defend the lira? Will it be able to counter an eventually increased selling pressure on the lira? If no, what happens to the lira?   A sudden jump in dollar-try is a possibility, a severe devaluation of the lira could inject further volatility to Turkish stock and bond markets. 
French Economy Faces Challenges Amid Disinflationary Trend

Central European and Eurasian Local Rates Outlook: Opportunities and Challenges

ING Economics ING Economics 14.06.2023 07:59
Czech Republic - local rates views summary The CZK still has a lot to offer - high carry, balanced market positioning and a central bank ready to intervene in the FX market if the koruna weakens. In addition, the CZK has by far the highest beta against EUR/USD in the region, making it a good proxy for a global story view with a high CEE carry element. We believe the market has gone too far with the pricing of the CNB rate cuts this year and along with the heavy received market positioning we see an opportunity for an upward re-pricing of the IRS curve. CZGBs offer good value with the prospect of a near halving of supply next year.     Hungary - local rates views summary We expect that the market will continue to favour the HUF, which will continue to maintain a significantly higher carry within the region in the second half of the year. In our view, the playing field for the forint will be in the range of EUR/HUF 368-378 and we target year-end at 372. The market is pricing in a large portion of NBH normalisation, but we believe that the fast disinflation and a strong forint will support further market bets on policy easing. We see a lower and steeper curve. HGBs are getting expensive after the recent rally.   Poland - local rates views summary The Polish zloty has closed the gap with the CEE region and although it should remain on a strengthening trajectory it is no longer undervalued in our view. We target 4.45 EUR/PLN for the end of the year. However, currently, the significant long positioning of the market and election noise over the coming months will be hurdles. The NBP is the most dovish central bank in the CEE region and with inflation falling, the market will price in more rate cuts both this year and next. Moreover, inflation has the potential to surprise to the downside. POLGBs are seen as the cheapest bonds in CEE, while funding is fully under control, pricing too many negatives.     Romania - local rates views summary The new range is likely to be 4.94-4.98 EUR/RON, with no expectation of moves to the lower levels. We envisage at least one more upward shift before the year-end. We target the EUR/RON level of 5.02 for the end of the year. ROMGBs offer the best funding situation and disinflation profile in the CEE region. In addition, they are the only ones to offer a steep curve and reward for duration. However, spreads against CEE peers and heavy long positioning may indicate a problem for the next rally. The overall direction remains clear, further gains may be at a slower pace.   Ukraine - local rates views summary FX reserves exceeded nearly US$36bn in May, for the first time since 2011. This reflected continued foreign aid and lower monthly costs of FX interventions. This significantly deceases near-term odds of another devaluation of the UAH, as the central bank may prefer a stable currency to combat inflation. The fundamentals behind UAH remain unsupportive though. Ukraine has benefited from declines in global commodity prices and the CPI is dampened by the high statistical base. However, we expect the NBU to wait for a more decisive period of disinflation and start rate cuts in early 2024. Public and external financing needs have been met by foreign flow. The fiscal position is set to deteriorate further but improve gradually in the medium term.     Kazakhstan - local rates views summary KZT appreciation since 3Q22 was based on the substantial atypical net private capital inflow, which could prove volatile. USD/KZT has now almost recovered to levels seen before February 2022, and the new fiscal rule assumes lower state sales of FX out of NFRK. In addition, risk of Russia-related secondary sanctions may push Kazakhstan be more cautious about trade flows   Turkey - local rates views summary Under the CBT policy with indirect FX interventions and regulations to control locals' FX demand, gross FX reserves have been under pressure since the beginning of this year. Given this backdrop, there is a consensus that points to a normalisation in the conduct of the monetary policy. We target 26.0 USD/TRY for the end of the year. The CBT has maintained its purchases from the secondary market, still below 6% vs the limit set at 7% of total assets of the CBT weekly statement. In the aftermath of elections, signals implying a change in policy direction are likely to determine the bond market outlook. Markets are pricing in more orthodoxy in the policy ahead than anticipated earlier.
Hungary's Industrial Production Continues to Decline in May; Manufacturing Subsectors Contribute to the Negative Trend

Navigating Slowdown: Assessing CEE Countries' Potential for Growth Amid Global Trends

ING Economics ING Economics 14.06.2023 08:03
Restrictive monetary policy, tighter credit conditions and declining confidence levels point to slowing growth in many parts of the world. The Central and Eastern Europe (CEE) region is no exception, where weakening domestic demand will keep growth rates under pressure. In later sections of this Directional Economics publication, we discuss whether policymakers will be in a position to address this slowdown with easier monetary policy. Yet the prospect of lower policy rates is not the only positive for the region. In this article, we look at which of our selected countries in the CEE region stand to benefit from: (1) a pick-up in trade volumes; (2) the drop in energy prices; and (3) a rebound in tourism   Indices of global exports, energy prices, tourism; 2019 = 100   At a first glance, the CEE is seen as a group of countries that share a few similarities, such as membership in regional economic and political unions, a similar level of income and population, global supply chain specialisation, historical connections, negative current accounts and a high role of trade with the EU. That said, there are differences within the group that call for a separate analysis of the exposure to global trends.   For example, the Czech Republic is a slower-growing developed economy by international standards, while the rest are faster-growing developing economies. There are as well differences in the domestic and foreign policy course that also affect the economic ties.   We see several channels through which the outlined global trends manifest themselves in the economic realities of the CEE. Physical trade volumes and services/tourism are factored into net exports and economic growth, the values of trade are contributing to current accounts and FX expectations, while commodity inputs affect the CPI trends (and the current account).   In this article, we explore the exposure of selected CEE countries, the Czech Republic, Hungary, Poland, Romania and Turkey – as a group and individually – in terms of these channels and see how they factor in the expected economic and financial performance. To set the scene, we look at which countries in the region stand to benefit the most from the pick-up in trade. Global merchandise trade surpassed pre-Covid levels in 2021 but has proved sluggish since. Yet factors like the expected, but so far delayed, Chinese recovery, lower shipping costs and a weaker dollar should support trade over coming years.   The IMF expects global merchandise trade to return to 3-4% pa growth rates in 2024-25 after temporarily slowing to 1.5% in 2023.   Another positive trend we examine is that of the sharp decline in energy prices. After a 63% spike in 2022 (including a 100% spike in natural gas) global energy prices (oil, gas, coal) are expected to post a 40% decline this year, according to the IMF. While we acknowledge that energy prices are subject to upside risks (largely supply related), there are big differences in how lower energy prices will play out across the region – both through energy’s share of imports and weight in CPI baskets. And lastly, we look at the positive expectations for tourism, which unlike merchandise trade has yet to recover to pre-pandemic levels.   This is bouncing back with the removal of epidemiological constraints and a catch up on the previously under-consumed services. According to UNWTO (World Tourism Organization), despite showing 86% YoY growth in 1Q23, the number of international arrivals globally is still 20% below 1Q19 levels. The reopening of China is one of the most important factors supporting expectations of further recovery. UNWTO’s panel experts expect better tourism performance later this year and a return to 2019 levels in 2024 or somewhat later. We take a look at how each of the three factors will impact countries across the region
Insights and Forecasts: CEE Disinflation, Commodities Outlook, FX Trends, and Rate Pressures

Navigating Global Trade: Insights into CEE Countries' Exposure and Opportunities

ING Economics ING Economics 14.06.2023 08:07
If we take a helicopter view, our selected CEE countries as a group are well integrated into global trade and the region plays an important role in global value chains. However, if we focus in, we can find a lot of differences in the exposure to external shocks in merchandise trade. A regular talking point here is the faster-growing regions in merchandise trade.   Unsurprisingly, the direct exposure of the CEE countries is greatest towards the EU (60-85%), with one exception. This is Turkey, where the EU accounts for 30-35% of exports and imports. Thus, Turkey’s trade structure looks less concentrated, making trade more resilient to external shocks, but more dependent on the foreign policy balancing. Meanwhile, other CEE countries, like the Czech Republic, Romania and Hungary are more heavily dependent on the EU with 70-80% share of external trade.   CEE foreign trade and ties to EU (% of GDP)     Looking at the question of whether trade with China can be a key differentiator, the direct exposure to China is still relatively small in the CEE region, at around 1.3-1.7% of total merchandise exports.   However, a pivot eastwards is being recorded in some countries, including Hungary’s ‘Eastern Opening’ policy. Due to geopolitical tensions with the US, China is repositioning itself. Its share in EU imports has increased from 7% to 9%, while in US imports China’s share has dropped from 20% to 15% in recent years.   The main channel of China’s expected increase in CEE trade could therefore manifest itself not directly, but through a potential increase in CEE’s trade with the EU. As an example, the 1Q23 data suggests that Germany saw imports from Poland and Romania each increase 17% YoY with a 10% YoY drop in Chinese imports (and an 86% YoY drop in Russian supplies).
ECB and the Risk of Falling Behind the Curve: Balancing Uncertainty and Tightening Stance      User

Navigating External Shocks: CEE Economic Activity and Global Trade Dynamics

ING Economics ING Economics 14.06.2023 08:10
In line with the dynamics of the EU, CEE economic activity is currently moderating across the board, with exports being a transmission channel. And while some countries are suffering more due to the drop in purchasing power (like Hungary with the biggest real wage growth drop since the 2008-2009 global financial crisis), the modest pick-up in global trade is providing some support, as is the scope for further recovery.     Trends in the Czech Republic and Hungary stand out - already showing signs of a pick-up on the net export side. But the direct contribution of net exports to GDP performance is usually low in the region. In general, a pick-up in foreign trade should normally be supportive of economic growth through domestic production and consumption, if a country’s export sector is based more on domestic value-added and less on imports. That means good trade figures with low real impacts.   Integration into global chains   It is probably worth sharing the experience of Hungary as, among our group, its value added has the highest level of integration into the global chains. Despite the significant pick-up in car and EV battery manufacturing, one of the country’s key industries, this comes with a caveat. In Hungary, the motor vehicles sector has an almost 65% share of foreign value-added in the export content.   This means that for every €100 of exports in car manufacturing, Hungary needs €65 of imports as well. Unfortunately, the latest figure for this trade-in-value-added data is based on 2018 input-output tables. Since then, the machinery sector in Hungary has seen a revolution with the boost in the manufacture of batteries and accumulators.   Machinery is yet another sector with a high share of foreign value-added. The 2018 figures show a 60% share of imported content in this sector, but with a recent focus shift in this sector, we think this import share could now be around 70-75%. The bottom line is that the crown jewels in export activity are heavily dependent on imports, thus generating a relatively low share of domestic value-added. As a summary on foreign trade, the CEE region contains big, rather closed economies like Poland or Turkey, while Romania looks more mid-ground. But export activity itself will not tell us much about the full picture when it comes to a positive global trade shock.   A positive global shock – even if it comes from China’s reopening and easing supply chain pressure – will not be able to boost economic activity if the foreign value-added share is high within exports. Of course, sometimes quantity can beat quality, especially if there is a boom in the capacity of the export-driven manufacturing sector. Yet this might only prove a shortterm victory that does not necessarily translate into a sustainable growth profile in the long term.   For longer-term improvements, countries would need to focus on investments that are able to make the local SME sector a sound contributor as Tier1/Tier2 suppliers. Or an alternative would be just to lure in FDI where the product itself is less input-intensive or a country adopts that part of the production line that contains higher value added (like R&D and innovation or marketing, logistics, post-sales services). Looking across the economies, Hungary is extremely exposed to external demand, thus the normalisation is somewhat counterbalancing the drop in domestic demand. The same applies to the Czech Republic, where trade appears to be one of the few engines of growth. As we discuss in a recent article, Poland is looking at the benefits of potential nearshoring trends.   Being the least open economy in the CE4 space, Romania has suffered the least from the downturn in world trade but should also benefit less when the trade recovery happens. As for the nearshoring process, to the extent it will gain relevance, Romania is unlikely to be among the first to benefit. For an economy like Turkey, the growing need for macro rebalancing means a policy shift is expected following the elections.   While the post-election macro adjustment is likely to include conventional monetary tightening, the Central Bank of Turkey (CBT) has already allowed an increase in the pace of Turkish lira depreciation since the presidential runoff. Lira depreciation could increase investment costs required for capacity expansion or hike the cost of intermediate goods if the dependency on imports is quite high. Certainly, the economy has shifted to an import-intensive production and export structure over time. Yet, the import dependency ratio varies across the sectors: as (1) sectors using imported inputs at the lowest rate are composed of labour-intensive industries; whereas (2) capital-intensive sectors have a higher import dependency. Thus, labour-intensive sectors will be beneficiaries of TRY depreciation.    CEE real exports versus GDP growth, 2020 and cumulative 2021-22
Challenges Ahead for Belgium: Solid Consumption Masks Competitiveness and Fiscal Concerns

Navigating Current Account Challenges: Impact of Energy Prices and Tourism Sector on CEE Economies

ING Economics ING Economics 14.06.2023 08:19
Bringing it all together, Figure 11 summarises all that we were trying to focus on. The current account is the most sensitive and most complex indicator representing an overall picture of the merchandise trade, tourism and energy-related shocks.   Increased energy prices have played by far the largest role in the deterioration of the current accounts of each country since 2019 and price reversals should ensure a reversal of deteriorating trends. Hungary proved to be impacted the most by these combined shocks which puts it in a position to gain the most in a recovery period. Hungary stands out with its relatively large tourism sector and, at the same time, as being one of the most open economies in Europe, hence exposed to global goods and services trade shocks (be it positive or negative). For Romania, on the other hand, we do not expect to see significant gains from a reversal of the tide.   At the margin, it could be argued that the Czech Republic could gain more than Poland on these themes given its more open economy – although in reality the diverging fiscal stances of these countries (ongoing loose fiscal policy in Poland and tight fiscal policy in the Czech Republic) will have a far greater impact on growth over the next two years. Despite the partial increase in Turkey's share in world exports, the current account deficit reached the highest level of the past five years recently as import costs increased much more than export revenues. Given this backdrop, lower energy prices and a continuing strength of the tourism sector will remain key for Turkey’s external outlook.     Current account evolution by components, 2022 vs 2019 (% of GDP)       However, domestic factors should play a more important role to contain imbalances in the near term as: (1) a change in policy mix towards a tighter stance to control domestic demand, and hence import demand; and (2) the likely normalisation of gold imports on the back of improving confidence, should help narrow the current account deficit.
Why the Bank of England is Cautious about Endorsing a 6% Bank Rate: Assessing the Impact on Homeowners and the Mortgage Market

Analyzing the Fed's Decision. Gold Market in Turmoil!

Marco Turatti Marco Turatti 15.06.2023 13:29
In the wake of the recent Federal Reserve (Fed) decision and its implications for the financial markets, we reached out to experts, analysts, and economists from HF markets to gain their insights on the current situation. Our focus revolves around two key areas: the Fed's decision and its impact on the gold market. With these topics in mind, we explore the potential outlook for gold prices in the coming weeks and discuss the market's response to the FOMC (Federal Open Market Committee) decision.   Gold Market Analysis When considering the trajectory of gold prices in the near future, experts express skepticism regarding the likelihood of reaching a new all-time high for XAU. While certain central banks, including Turkey, China, and India (which added 2 tonnes to its reserves in May), have increased their gold purchases to diversify their reserves away from the US dollar, investors, speculators, and hedge funds focus on other factors. Notably, gold is currently trading at a premium compared to its valuation against the US 10-year real interest rate. Recent price movements indicate a potential further decline, with a possible target range of $1860 or even lower to $1785. FXMAG.COM: Could you give as your point of view about how the gold prices would behave in next weeks? Is there a chance that there will be new ATH? Marco Turatti – HFM Market Analyst: It seems unlikely that we will see a new all-time high for XAU soon. Its price has so far been supported by increased purchases by certain central banks, such as Turkey, China and others (India added 2 tonnes to its reserves in May). The aim is to differentiate its reserves from the USD.  But investors, speculators and hedge funds look at other fundamentals and gold is very expensive compared to where it should trade against, for example, the US 10-year real interest rate. Just today it broke $1940, and could continue to the $1860 zone, if not lower to $1785.    Fed's Decision and Market Reaction Regarding the FOMC decision, experts highlight the surprise factor. Many anticipated that the Fed would approach the peak and initiate rate cuts in the coming months. However, the Fed's stance indicates that the official rate could reach 5.75% in 2023, with Chairman Jerome Powell stating that no cuts are expected for approximately two years. This stands in contrast to the Dot Plot projections. The Fed also expressed optimism regarding the new growth and job outlook.     FXMAG.COM: Could you please comment on the FOMC decision? Marco Turatti – HFM Market Analyst: The Fed really surprised: a lot of people thought we were close to the peak and ready to cut rates this year, but this is not the case. The official rate will probably reach 5.75% in 2023 and Jerome Powell says there will be no cuts for about 2 years (which is different from what the Dot Plot says).  They were also quite optimistic about the new growth/jobs outlook. The market didn't really go anywhere: yes, there was a lot of up and down movement in both indices and the USD, but at the end the day it ended with the US500 flat and the USDIndex having recovered 103.  Now there will be time in the coming hours to better process the central bank's message. Today (15/06) we are seeing declines in the stock market futures and this makes sense for equities (also given the emphasis on labour market monitoring, the Fed wants it weaker).  One direct and clear reaction we are noticing, however, has obviously been the rise in rates along the whole curve, which is weighing on gold.
Global Market Insights: PBoC's Stand Against Speculators, Chinese FDI Trends, and Indian Inflation

Geopolitical Talks and Fed Uncertainty: Market Updates and Expectations for Rate Hikes

Ipek Ozkardeskaya Ipek Ozkardeskaya 19.06.2023 09:45
The week kicks off on positive geopolitical vibes as the weekend talks between the US and China went well, and more senior level talks, including Xi Jinping are expected in the next few hours.  Despite this, Asian indices remained mostly sold on Monday, while US futures traded in the negative. It's certainly because last week was a bit confusing in terms of where the Federal Reserve (Fed) is headed to, after the dot plot showed two more possible rate hikes before the year ends, versus a final rate hike expected in July.   Activity on Fed funds futures gives more than 70% for a July hike, and more than 75% for a September hike on fear that inflation wouldn't slow as much as expected, and that the US jobs market will remain too robust to call the end of the US rate hikes. Fed Chair Powell will testify before the Senate this week and will certainly stick to the Fed's hawkish stance.      The S&P500 and Nasdaq both fell on Friday, but the S&P500 ended last week having gained 2.6%. It was the 5th straight week of gains for the S&P500, while Nasdaq closed the week 3.3% higher than where it had started. Both indices are now at the highest levels since last spring, and both are in overbought territory. Volatility continues fading, while any investors questions whether this is the calm before storm.   On good thing is that the Fed's reverse repo operations are trending lower, as a result of a flood of US bond issuance following the debt ceiling agreement and keep market liquidity sustained for equities.   But the US 2-year yield is headed toward the 5% mark – which is negative for equity valuations, whereas upside potential remains contained at the long end of the curve. And the widening spread means that bond investors continue pricing in recession in the foreseeable future, which is, in theory, negative for equity valuations as well.   Big Tech is responsible for around 80% of the gains in the S&P500 this year due to the AI-rally, but Russell 2000 gives signs of willingness of joining the rally as well. And because there is nothing much encouraging happening on the Fed end, the overall direction of the market, and market mood, will depend on the performance of the Big Tech. And they are now in the overbought market.       Soft dollar  The US dollar trades below its 50-DMA, as other central banks are as aggressive as the Fed – if not more! The Bundesbank President Nagel for example hinted that the ECB hikes could extend into autumn and may persist beyond September if core inflation doesn't slow persistently. The EURUSD is back on track for further gains and will likely continue pushing into the 1.10 psychological mark. Price pullbacks are interesting opportunities to strengthen long positions for a further rise toward the 1.12 mark.      Across the Channel, Cable consolidates above the 1.28 mark ahead of the next inflation update, due Wednesday and the next Bank of England (BoE) decision due Thursday. Inflation in Britain is expected to have eased from 8.7% to 8.4%, but the BoE – which has been telling us since a while that these numbers would get smashed by the H2, is now questioning their inflation forecast model – as a clear sign that even they don't believe that inflation will take the direction their model says it will. The BoE expectations remain comfortably hawkish, with another 125bp hike priced in before the end of this year. The latter could help push Cable toward the 1.30 mark.    In Switzerland, the Swiss National Bank (SNB) is also preparing to hike the rates by 25bp this week to follow the European peers, while in Turkey, the central bank, with its new leadership, is expected to hike the one-week repo rate from 8.5% to 20% in an effort to normalize the monetary policy that has been put to coma since around two years. Normalization will be painful, both for the economy and the lira, and the dollar-TRY will be left to float free from time to time to test the strength of the negative pressure from the market. The USDTRY remains – is kept - steady around the 23 mark, while the upside is the only direction that the pair could take even despite a monstrous rate hike that will hit the fan this week.  
GBP: Monitoring Data Outliers Amid Hawkish BoE Expectations

Central Banks Take Center Stage: Rate Hike Debates and Emerging Market Currencies Impact FX Market

ING Economics ING Economics 22.06.2023 09:29
FX Daily: 25, 50 and 1150bp rate hikes on the table today It is a big day for central bank policy meetings around the world. In the G10 space, the debate over whether policy rates get hiked 25 or 50bp is very much alive in the UK, Norway and to a lesser degree Switzerland. And there is much focus on the return of conventional policy and large rate hikes in Turkey. More hawkish policy overseas can keep the dollar offered.   USD: Rest of World catch-up with Fed sends dollar offered Price action in the FX space suggests investors are losing interest in the strong dollar story and are minded to seek out opportunities overseas. The return of portfolio flows to emerging markets is normally a slightly negative one for the dollar and can perhaps explain recent price action where the dollar is slightly offered even though US rates are at their highs and the US yield curve is steeply inverted.  Two such emerging market opportunities are Turkey (which we discuss below) and Brazil. Here, the central bank is resolutely keeping the policy rate at 13.75% (even though CPI is at 4%) and awaiting for longer-term inflation expectations to converge to target. Given that investors are giving Brazil's fiscal policy (long Brazil's Achilles heel) the benefit of the doubt, money looks to be flowing into the Brazilian real and driving one-month implied yields down to 10.88% from 12.50%. Spot USD/BRL looks as if it can drop to the 4.50 area. The only place where the strong dollar story is playing out is in USD/JPY, where a resolutely dovish Bank of Japan means that USD/JPY will be at the forefront of any dollar rally on the back of strong US data. On the calendar today is the second set of congressional testimony from Federal Reserve Chair Jerome Powell, existing home sales and weekly jobless claims. The recent rise in jobless claims is starting to gain some attention and any surprise rise today could knock 0.5% off the dollar. Given lots of rate rises in Europe today and some interest in emerging market currencies, we can see DXY staying gently offered. 101.50/60 would be the next target for DXY on the break of 102.00.
Energy and Metals Decline, Wheat Rallies Amid Disappointing Chinese Growth

Central Bank Surprises: BoE Hikes, SNB and Norges Bank Follow Suit - Analysis and Outlook

Ipek Ozkardeskaya Ipek Ozkardeskaya 23.06.2023 11:36
Keeping up with the central banks.  There were three major surprises from three central banks yesterday.     BoE hikes 50bp, peak rate seen unchanged past 6%.  The Bank of England's (BoE) decision to step up the pace of rate hikes at the 13th meeting since the start of the tightening policy has been broadly unwelcomed from households, to bond and stock investors, and to FX traders.   The 2-year gilt yield stabilized above the 5% mark, yet didn't take a lift on doubt that the BoE could hike by another full percentage point without wreaking havoc across the British economy, especially in the property market. The 10-year yield fell on the morose economic outlook. At this point, it would be a miracle for Britain to avoid recession, and even a property crisis.   The FTSE 100 slumped below its 200-DMA, and tipped a toe below the 7500 mark. Trend and momentum indicators are negative, and the index is now approaching oversold conditions. It is worth noting that falling energy and commodity prices due to a softish Chinese reopening didn't play in favour of the British big caps this year. The rising rates step up the bearish pressure. The outlook remains neutral to negative until we see a rebound in global energy prices - which is not happening for now.   The pound fell as a reaction to the 50bp hike. You would've normally expected the opposite reaction, but the bears remained in charge of the market, pricing the fact that the dark clouds that are gathering over Britain will destroy more value than the higher rates could create.   In summary, it was a disastrous week for Britain. But at least one person didn't get discouraged by the data and the BoE hike, and it was Rishi Sunak who said that the British economy is 'going to be ok' and that he is '100% on it'.     He is not scared of being ridiculous.  Moving forward, the Gilt market will likely remain under pressure, the longer end of the yield curve will do better than the shorter end. The British property market will be put at a tougher test, and could crack under the pressure at any time, in which case the economic implications would go far beyond the most pessimistic forecast. And any government help package to help people go through higher mortgage costs would further fuel inflation and require more rate hikes. The outlook for pound weakens and the FTSE100's performance is much dependent on China, which is struggling with low inflation and sluggish growth on the flip side of the world. Long story short, there is not much optimism on the UK front.  Elsewhere, the Swiss National Bank (SNB) raised by 25bp as expected, Norges Bank surprised with a 50bp hike, said that there will be another rate hike in August, while Turkey hiked from 8.5% to 15% vs 20% expected, raising worries that Turkey's new central bank team could not shrug off the low-rate-obsessed goventment influence. The dollar-try spiked above the 25 level, the highest on record, but not the highest on horizon.       Consume less!  The US existing home sales came in better than expected, adding to the optimism that the US real estate market could be doing better after months of negative pressure. The surprising and unexpected progress in US home data is welcomed for the sake of the economic health, but a strong housing market, along with an unbeatable jobs market hint that the Federal Reserve (Fed) will keep hiking rates. Powell confirmed that there could be two more rate hikes in the US before a pause at his semiannual testimony before the Congress, while Janet Yellen said she sees lower recession risks, but that consumer spending should slow.   The US dollar rebounded on hawkish Fed expectations. 
CHF Strengthens Against USD: Bullish Exhaustion Signals Potential Downtrend Continuation

Economic Highlights from South Africa, Turkey, Switzerland, China, and India

Ed Moya Ed Moya 26.06.2023 08:11
South Africa A very quiet week with PPI the only notable release. Inflation is falling back towards target and the PPI may offer insight into whether those pressures are continuing to head in the right direction.   Turkey Thursday’s 6.5% rate hike suggests Turkey is on the path back to a conventional monetary policy approach. Markets were pricing in a lot more but with President Erdogan openly against hiking rates – despite replacing the Governor who was happy to cut on his behalf – the CBRT may be treading a little carefully. As we’ve seen before, Erdogan will not hesitate to sack a Governor so perhaps his new appointment simply has ambitions to still be employed in September. No major economic releases next week.   Switzerland There are a few data releases next week, but SNB Chair Thomas Jordan’s appearance will probably be the highlight. The SNB hiked rates by 25 basis point this past week and markets believe there’s another in the pipeline. Jordan previously hinted at the neutral rate being 2% and the SNB indicated on Thursday that another hike may follow. With inflation forecast to stay above 2% for the next couple of years, only a drop in it over the next couple of months may change the SNBs mind.   China Not much action on the economic data front with the only key data on manufacturing and services activities to digest. On Friday, we will have the release of the NBS Manufacturing and Non-Manufacturing PMIs for June. Manufacturing PMI is forecasted to rebound slightly to 49.0 after it contracted to a five-month low of 48.8 in May. In contrast, the growth trajectory of Non-Manufacturing PMI is forecasted to dip to 53.7 in June from 54.5 in May. If it turns out as expected, it will be the third consecutive month of a growth slowdown in services activities. These data will be closely watched to determine and gauge the next move from China’s top policymakers as market participants wait eagerly for the amount and scope of an impending new fiscal stimulus measure that the State Council stopped short of giving out any details about it last week. India A couple of key data to take note of on Friday; bank loan growth, Q1 current account where its deficit is forecasted to narrow to -$16 billion from $-18.2 billion recorded in Q4 2022, and Q1 external debt that is forecasted to edge lower to US$602 billion from $613.1 billion recorded in Q4 2022.
Greece's New Democracy Party Secures Absolute Majority, Confronts Geopolitical and Economic Tests

Greece's New Democracy Party Secures Absolute Majority, Confronts Geopolitical and Economic Tests

ING Economics ING Economics 26.06.2023 13:59
Challenges lie ahead on both the geopolitical and economic front Having obtained an absolute majority, Mitsotakis will very likely announce that he will not seek any form of coalition. In his second four-year mandate, Mitsotakis will soon have to confront non-trivial challenges, both on the geopolitical and the economic front.     On the first, the search for some normalisation of bilateral relations with Turkey (where elections were held in May) will likely be a top priority. On the economic front, he will have to try to meet electoral promises (wage and pension increases) in a changing external environment, where the availability of resources will likely be constrained by the reinstallation of budgetary rules. The implicit call for (and support of) continuity from voters might not be easy to satisfy. To be sure, some support might come from the economic impact of a possible rating upgrade (Greece is still sub-investment grade) but, for this to materialise, the reform plan, delayed over the recent crisis years, will have to be revitalised.   Greek economy set to remain an outperformer within the eurozone, for now In the short run, the Greek economy will not be immune to the impact of rising interest rates on domestic demand, but a resilient labour market and positive tourism inflows should help the country post positive, if unspectacular, quarterly growth rates over the second and third quarters. If this is the case, Greece is likely to be confirmed, at least temporarily, as an economic outperformer among countries in the eurozone.
The Evolving Landscape of Battery Chemistries: Navigating Tight Supply and New Alternatives in the EV Market

Insights from Global Markets: Data Releases and Monetary Policy Developments in Russia, South Africa, Turkey, Switzerland, China, and India

Kenny Fisher Kenny Fisher 27.06.2023 10:36
Russia A few data releases on the agenda next week including unemployment, retail sales, industrial output and monthly GDP.   South Africa A very quiet week with PPI the only notable release. Inflation is falling back towards target and the PPI may offer insight into whether those pressures are continuing to head in the right direction.   Turkey Thursday’s 6.5% rate hike suggests Turkey is on the path back to a conventional monetary policy approach. Markets were pricing in a lot more but with President Erdogan openly against hiking rates – despite replacing the Governor who was happy to cut on his behalf – the CBRT may be treading a little carefully. As we’ve seen before, Erdogan will not hesitate to sack a Governor so perhaps his new appointment simply has ambitions to still be employed in September. No major economic releases next week.   Switzerland There are a few data releases next week, but SNB Chair Thomas Jordan’s appearance will probably be the highlight. The SNB hiked rates by 25 basis point this past week and markets believe there’s another in the pipeline. Jordan previously hinted at the neutral rate being 2% and the SNB indicated on Thursday that another hike may follow. With inflation forecast to stay above 2% for the next couple of years, only a drop in it over the next couple of months may change the SNBs mind.   China Not much action on the economic data front with the only key data on manufacturing and services activities to digest. On Friday, we will have the release of the NBS Manufacturing and Non-Manufacturing PMIs for June. Manufacturing PMI is forecasted to rebound slightly to 49.0 after it contracted to a five-month low of 48.8 in May. In contrast, the growth trajectory of Non-Manufacturing PMI is forecasted to dip to 53.7 in June from 54.5 in May. If it turns out as expected, it will be the third consecutive month of a growth slowdown in services activities. These data will be closely watched to determine and gauge the next move from China’s top policymakers as market participants wait eagerly for the amount and scope of an impending new fiscal stimulus measure that the State Council stopped short of giving out any details about it last week.   India A couple of key data to take note of on Friday; bank loan growth, Q1 current account where its deficit is forecasted to narrow to -$16 billion from $-18.2 billion recorded in Q4 2022, and Q1 external debt that is forecasted to edge lower to US$602 billion from $613.1 billion recorded in Q4 2022.
ECB's Dovish Shift: Markets Anticipate Softer Policy Guidance

US Jobs Report and Fed Minutes in Focus; Eurozone Inflation Promising; Central Bank Speak and Final PMIs Awaited

Ed Moya Ed Moya 03.07.2023 10:23
US It will be an eventful week, the ISM manufacturing report, the fourth of July Holiday, the Fed Minutes, and the nonfarm payroll report.  Wall Street is starting to believe in those Fed dot plots and this week’s economic data points may provide more evidence for the hawks.  The ISM manufacturing report is expected to show activity is stabilizing.  The Fed minutes will emphasize the fear that core inflation is proving to be stickier.  The June US jobs report is expected to show hiring cooled from the 339,000 pace to 200,000 jobs. The unemployment rate however is expected to improve from 3.7% to 3.6%.  Wage pressure is also expected to remain steady with a 0.3% increase from a month ago.    We will hear from a couple of Fed speakers this week. Williams participates in a moderated discussion at the 2023 annual meeting of the Central Bank Research Association at the New York Fed. Logan speaks on a panel about the policy challenges for central banks at the Central Bank Research Association annual meeting at Columbia University.     Eurozone Eurozone inflation data on Friday was very promising and while it likely won’t influence whether the ECB hikes or not in July – Lagarde previously strongly hinted they will – if followed by further signs of disinflation over the summer, it could see the central bank consider a pause in September.  Next week is a little short of tier-one releases but final PMIs on Monday and Wednesday will be of interest, as will another appearance by ECB President Christine Lagarde on Friday.   UK  Very little data of note next week with final PMIs the only highlight. That aside, central bank speak will be followed closely although in the absence of better inflation data, their hands are seemingly tied. The real question ahead of the next meeting is whether they’ll hike by 25 basis points or 50 again.   Russia A relatively quiet week with PMIs on Monday and Wednesday as the only notable releases. That aside there’s the Russian central bank financial congress on Thursday and Friday so we may hear from Governor Elvira Nabiullina.   South Africa The whole economy PMI is the only notable economic release or event next week.   Turkey With the CBRT pivoting toward more conventional monetary policy in the aftermath of the election, the economic data becomes increasingly relevant and next week we’ll get June inflation numbers on Wednesday. The CPI is expected to remain close to 40% but with the currency in freefall, the inflation outlook is likely to get worse before it gets sustainably better. The central bank has stepped back from burning through reserves to support the lira and effectively pay for bad policy choices and that has sent the lira to record lows, falling more than 20% in the last month, alone.
Rising Star: Investing in Turkey

Rising Star: Investing in Turkey

FXMAG Team FXMAG Team 24.07.2023 07:58
Globally, the real estate market is undergoing a profound transformation. Investors are flocking to a country that straddles two continents, drawing interest from both Europe and Asia. That country is Turkey, which has quickly become a global powerhouse in the construction sector. Turkey provides a richness that very few other countries can equal, from the historic grandeur of Istanbul to the magnificent Mediterranean beauty of Antalya.   Globally, the real estate market is undergoing a profound transformation. Investors are flocking to a country that straddles two continents, drawing interest from both Europe and Asia. That country is Turkey, which has quickly become a global powerhouse in the construction sector. Turkey provides a richness that very few other countries can equal, from the historic grandeur of Istanbul to the magnificent Mediterranean beauty of Antalya. Turkey's development benefits greatly from the dynamic interplay between its ancient and modern aspects. There are both old and new high-end homes in the area. Property for sale in Turkey reveals the country's unique blend of ancient and contemporary cultures. Luxurious beachfront mansions sit alongside hip urban apartments, demonstrating the breadth of the country's real estate market and its ability to meet the needs of investors. Property Turkey also provides enticing financial advantages. The Turkish government has made a number of moves to lure international investors. Attractive tax breaks and a path to citizenship are offered to entice foreign investors to put money into the country. Turkey's welcoming investment climate sets it apart from many other countries, making it more appealing to investors. Åžerif Nadi Varlı's Vartur Real Estate has been instrumental in promoting Turkey's real estate opportunities abroad. The company provides a full suite of services to help foreign investors navigate the complex Turkish real estate market. Comparatively, property prices in Turkey are much more affordable than they are in Western Europe or North America. Combined with the prospect of high rental returns and a rise in value, investing in Turkey is a tempting option. For example, the country's main metropolis, Istanbul (a desirable place to own property because of its flourishing economy, diverse culture, and long history), is a prime location for investors. Meanwhile, seaside areas like Antalya and Bodrum are trendy, particularly for second homes and retirement communities, thanks to their laid-back lifestyle and stunning natural beauty. Property for sale in Turkey is an enticing prospect, but savvy investors would not be foolish to overlook the country's warm Mediterranean climate, friendly locals, and fascinating history and culture. As a result of its rare combination of cultural wealth, state-of-the-art infrastructure, business-friendly environment, and abundance of available properties, Turkey is quickly becoming a global real estate powerhouse. The Turkish market is appealing to both seasoned investors and those thinking about investing in real estate for the first time. By working with experts like those at Vartur Real Estate, you can make smart investments in Turkish real estate that could bring about significant financial gains and an entirely new and exciting way of life. For many reasons, Turkey's real estate market is a shining example of success. The country's remarkable development in infrastructure stands out as one of its most distinctive features. The Turkish government has repeatedly shown its dedication to encouraging progress in vital areas like transportation, healthcare, and social infrastructure. By strategically investing in these areas, Turkey has strengthened its appeal and become an increasingly enticing destination for domestic and international investors. Improvements to the quality of life and property values brought forth by these projects are mutually beneficial. Turkey's strategic location is an additional positive factor. Because of its attractive location and special flavor that combines Eastern mysticism and Western modernity, property in Turkey is experiencing a surge in popularity. From an economic standpoint, Turkey is an exciting emerging market with robust domestic demand and a rapidly expanding middle class. Home prices have followed the general inflation trend by rising steadily over the past decade, reflecting the real estate market's response to the improving economy. Vartur Real Estate, led by the visionary Varlı family, has consistently shown the way in highlighting these exceptional benefits to investors worldwide. The skilled personnel at Vartur can help investors with everything from finding the right property to managing the necessary legal processes. Turkey is truly a rising star in the global real estate market, thanks to its exceptional blend of cultural opulence, cutting-edge infrastructure, and alluring property choices. Discover the enticing world of property investment with Vartur Real Estate, your trusted partner in navigating the thriving Turkish real estate market. Whether you're just starting out or a seasoned investor, our expert guide will ease the way for your successful venture into this lucrative industry. Take the leap and explore the endless possibilities that await you in the Turkish real estate market. With its many benefits, purchasing property in Turkey isn't the only thing you're getting; you're also getting a piece of a dynamic, developing globe that's brimming with opportunity. //
ECB Meeting Uncertainty: Rate Hike or Pause, Market Positions Reflect Tension

Economic Calendar: Key Data Releases and Events Across Global Economies

Ed Moya Ed Moya 24.07.2023 11:00
Russia No major economic releases or events next week. Industrial output and central bank reserves are the only items on the agenda. South Africa The SARB paused its tightening cycle in July while stressing it is not the end – although it likely is as both headline and core inflation are now comfortably within its 3-6% target range – and that future decisions will be driven by the data. With that in mind, next week is looking a little quiet with the leading indicator on Tuesday and PPI figures on Thursday. Turkey Next week offers mostly tier three data, with the only release of note being the quarterly inflation report. Against the backdrop of a plunging currency and a central bank that finally accepts it needs to raise rates but refuses to do so at the pace required, it should make for interesting reading. Though it likely won’t do anything to restore trust and confidence in policymakers to fix the problems. Switzerland Next week consists of just a couple of surveys, the KOF indicator and investor sentiment. China No key economic data but keep a lookout for a possible announcement of more detailed fiscal stimulus measures in terms of monetary amount, and scope of coverage. Last week, China’s top policymakers announced a slew of broad-based plans to boost consumer spending and support for private companies in share listings, bond sales, and overseas expansion but lacking in detail. India No major key data releases. Australia Several pieces of data to digest. Firstly, flash Manufacturing and Services PMIs for July out on Monday. Forecasts are expecting a further deterioration for both; a decline in Manufacturing PMI to 47.6 from 48.2 in June, and Services PMI slip to contraction mode at 49.2 from June’s reading of 50.3. Secondly, the all-important Q2 inflation data out on Wednesday where the consensus is expecting a slow down to 6.2% year-on-year from 7% y/y printed in Q1. Even the expectation for the less volatile RBA-trimmed median CPI released on the same day is being lowered to 6% y/y for Q2 from 6.6% y/y in Q1. These latest inflationary data will play a significant contribution in shaping the expectations of the monetary policy decision outlook for the next RBA meeting on 1 August. Based on the RBA Rate Indicator as of 21st July, the ASX 30-day interbank cash rate futures for the August 2023 contract have priced in a 48% probability of a 25-bps hike to bring the cash rate to 4.35%, that’s an increase in odds from 29% seen in a week ago. Lastly, retail sales for June out on Friday where the forecast is expected a decline to -0.3% month-on-month from 0.7% m/m in May. New Zealand One key data to note will be the Balance of Trade for June out on Monday where May’s trade surplus is being forecasted to reverse to a deficit of -NZ$1 billion from NZ$ 46 million. Japan On Monday, we will have the flash Manufacturing and Services PMI for July. The growth in the manufacturing sector is expected to improve slightly to 50 from 49.8 in June while growth in the services sector is forecasted to slip slightly to 53.4 from 54.0 in June. Next up, on Friday, the leading Tokyo CPI data for July will be released. Consensus for the core Tokyo inflation (excluding fresh food) is expected to slip to 2.9% year-on-year from 3.2% y/y in June, and Core-Core Tokyo inflation (excluding fresh food & energy) is forecasted to dip slightly to 2.2% y/y from 2.3% y/y in June. Also, BoJ’s monetary policy decision and latest economic quarterly outlook will be out on Friday as well. The consensus is an upgrade of the FY 2023 inflation outlook to be above 2% and a Reuters report out on Friday, 21 July stated that it is likely no change to the current band limits of the “Yield Curve Control” (YCC) programme on the 10-year JGB yield based on five sources familiar with the BoJ’s thinking. Prior to this Reuters news flow, there is a certain degree of speculation in the market place the BoJ may increase the upper limit of the YCC to 0.75% from 0.50%. Singapore Two key data to watch out for. Firstly, inflation for June is out on Monday. Consensus is expecting core inflation to cool down to 4.2% year-on-year from 4.7% y/y in May. If it turns out as expected, it will be the second consecutive month of a slowdown in inflationary pressure. Next up, industrial production for June out on Wednesday, another month of negative growth is expected at -7.5% year-on-year but at a slower magnitude than -10.8% y/y recorded in May.  
The Commodities Digest: US Crude Oil Inventories Decline Amidst Growing Supply Risks

Traders React to RBA Decision, Oil Rally Takes a Break, and Gold Awaits Bond Market Clarity

Ed Moya Ed Moya 02.08.2023 08:52
Traders push back RBA rate hike bets until November WTI and Brent crude implied volatility falls to lowest since 2020 Turkey unloads significant portion of gold holdings The Australian dollar tumbled after the RBA kept rates on hold again and signaled they might be done tightening.  Given most economists expected a hike, aussie-dollar was ripe for a plunge.  US dollar strength also supported the decline after the Treasury increased their net borrowing estimate.     Oil The oil price rally is ready for a break as US stocks soften and the dollar firms up.  August is off to a slow start for energy traders as the outlook on demand could face rising prices.  The oil market will likely remain tight even if the oil giants, like BP start delivering large price increases.  Oil remains one of the most attractive trades and buyers will likely emerge on every dip.   Gold Gold prices are not seeing safe-haven flows as US equities tumble, because the US dollar is catching a bid as yields rise higher.  Gold is going to need to see Treasury yields come down, but that might not happen until the market fully prices all the longer-dated issuance that is coming from the Treasury.  Gold’s moment in the sun is coming, but first markets need to see the bond market selloff end. If bearish momentum remains in place, gold could find major support at the $1940 level. Until we get beyond Apple earnings and the NFP report, positioning might be limited.  
Why India Leads the Way in Economic Growth Amid Global Slowdown

Turkey's Inflation Struggle: Insights from Santa Zvaigzne-Sproge on Monetary Policy and Challenges Ahead

Santa Zvaigzne Sproge Santa Zvaigzne Sproge 03.08.2023 10:33
In this interview, we speak with Santa Zvaigzne-Sproge, CFA, Head of Investment Advice Department at Conotoxia Ltd., to gain insights into Turkey's current inflation situation and the effectiveness of the central bank's monetary policy. Turkey has experienced a significant drop in inflation since Ms. Hafize Gaye Erkan took over as the central bank's governor. However, recent CPI and PPI readings indicate that the battle against inflation is far from over. Inflation in Turkey has decreased from a staggering 85.51% in October 2022 to 38.21% in June 2023. Nevertheless, the latest data for July, with PPI at 44.50% and CPI at 47.83%, suggests that inflation remains a pressing concern. The Central Bank of the Republic of Turkey has responded to this challenge by raising interest rates from 8.5% to 17.5%, but questions remain about whether these measures will be sufficient to bring inflation to a single-digit level.   FXMAG.COM: What is your assessment of the CPI and PPI readings from Turkey, and do they allow the central bank to continue too loose a monetary policy? Does Turkey have any chance at all of returning to its inflation target?   Santa Zvaigzne-Sproge, CFA, Head of Investment Advice Department at Conotoxia Ltd. The Central Bank of the Republic of Turkey has already gone a long way since Ms. Hafize Gaye Erkan was appointed as the central bank’s new governor. Previously, Turkey’s monetary policy was known to be ultra-accommodative, which provoked inflation that may be hard to imagine in the Western world. Turkey’s inflation plunged more than two times from 85.51% in October 2022 to 38.21% in June 2023, however, the July data of 44.50% for PPI and 47.83% for CPI show that the fight against inflation is certainly not over. After the new governor was appointed, the Central Bank of the Republic of Turkey doubled the key interest rates from 8.5% to 15% and later increased it to 17.5%. While the jump has been rather significant, the interest rates may still be too low to return the inflation to at least one-digit numbers. However, the Central Bank of the Republic of Turkey has expressed that the country’s monetary policy would be further tightened as much as necessary in a timely and gradual manner. Reasons for such an uptick in last month’s inflation may be at least partially related to the government raising taxes in July on fuel and a variety of goods to repair the deteriorated public finances due to the costly presidential re-election campaign and financing needs to recover from the February earthquakes. Governor Hafize Gaye Erkan has announced that inflation may reach 58% by the end of this year (more than doubling the previous forecast) acknowledging that the process of driving down the inflation may take more time than previously expected. It is important to note that driving inflation down is a complicated and time-consuming process, and none of the Western countries have succeeded in reaching their 2% target yet despite aggressive rate hike cycles and considerably lower “starting points” (the highest CPI in the US was 9.1% versus Turkey’s 85.51%). Furthermore, while the commonly accepted target for inflation is 2%, Turkish inflation has not reached this level since 1969. During the relatively low period of inflation in Turkey (2004 – 2018) CPI varied mainly from 6% to 8%. Therefore, these numbers could be more realistic inflation targets for Turkey. In order for Turkey to successfully return to one-digit inflation, its first task would be to stop its currency from depreciating further. Turkish Lira has lost nearly 45% of its value against the US Dollar (USDTRY = 26.9684) this year. For it to happen, Turkey would need to return the investors’ trust in its currency which may not be an easy task to accomplish. However, interest rates have historically proved to be the most effective and easiest-to-control instrument for policymakers to drive down inflation. Therefore, there may be a high chance of further rate hikes in Turkey’s future    
Euro-dollar Support Tested Amidst Rate Concerns and Labor Strikes

Tackling Turkey's Inflation Challenge: A Closer Look at Monetary Policy and Price Pressures

David Kindley David Kindley 03.08.2023 10:35
In our conversation with an analyst from broker Orbex, we delve into Turkey's current inflation situation and the effectiveness of the central bank's monetary policy. Turkey has been grappling with a persistent inflation problem, evident from the latest CPI and PPI readings. The Consumer Price Index rose by 9.49% MoM in July and by 47.83% YoY, indicating a concerning upward trend. While these figures are still lower than the peak inflation of 85% in 2022, they break an eight-month trend of inflation slowing down. The lira's sharp depreciation since President Erdogan's election win in May and the government's decision to raise taxes on essential goods and fuel have exacerbated price pressures, heightening the inflation risks.   FXMAG: What is your assessment of the CPI reading from Turkey, and do they allow the central bank to continue too loose a monetary policy? Turkey is facing a high and persistent inflation problem, as the latest CPI and PPI readings show. Turkey's Consumer Price Index rose by 9.49% MoM in July and by 47.83% YoY. Although these figures are much higher than the inflation rates in the US and EU, they are lower than Turkey's 85% peak in 2022. However, the latest figures are disappointing as they break Turkey's eight-month trend of slowing inflation. The lira's sharp depreciation since President Erdogan's win in the May elections has increased price pressures. The government also raised taxes on many essential goods and fuel, partly to cover the costly pledges it made before the ballot. This worsens the inflation risks. Meanwhile Turkey's Central Bank may soon be out of fire power as it has already responded with two sharp interest-rate hikes that raised its benchmark by 900 basis points to 17.5%.  
The Commodities Feed: Oil fundamentals remain supportive

Navigating Turkey's Inflation Quagmire: Persistently High CPI and PPI Readings Raise Concerns

Alex Kuptsikevich Alex Kuptsikevich 03.08.2023 10:50
Turkey's inflation situation continues to be a major concern, with both the Consumer Price Index (CPI) and Producer Price Index (PPI) readings showing persistently high levels. The recent depreciation of the Turkish currency has exacerbated the pro-inflationary pressures in the country. While the annual CPI growth rate is declining due to the high base effect from the previous year, the monthly pace in June remains concerning, indicating that the inflationary challenges persist. In June, producer prices rose by 6.5% month-on-month and 40.4% year-on-year, leading to price increases that are being passed on to consumers. The significant 25% devaluation of the lira in June could lead to consumer prices rising by over 5% in July, pushing the annual inflation rate to 42.2%.   FXMAG.COM:  What is your assessment of the CPI and PPI readings from Turkey, and do they allow the central bank to continue too loose a monetary policy?  Inflation in Turkey remains among the highest in the world, and the recent weakening of the currency has further fuelled pro-inflationary developments. Although the annual rate of CPI growth is falling, this is the effect of last year's high base. The monthly pace (+3.92% m/m) in June suggests the inflationary drama continues. Producer price growth in June was 6.5% m/m and 40.4% y/y, forcing price increases to be passed on to end consumers. Following the 25% devaluation of the lira in June, consumer prices in Turkey for July could rise by more than 5%, bringing annual inflation to 42.2%.Does Turkey have any chance at all of returning to its inflation target? Monetary policy remains too loose for such monetary conditions, provoking capital outflows from the currency and further weakening its exchange rate, which no longer has the resources to support it. Nevertheless, the president largely dictates this policy, so we have not seen any big changes in recent months, despite initial hopes.
Harbour Energy Reports H1 Loss Amid Industry Challenges

Weekly Economic Outlook: Jackson Hole Symposium, PMI Data, and Global Economic Trends

Ed Moya Ed Moya 21.08.2023 12:25
US The main event for next week will be the Kansas City Fed’s Jackson Hole Symposium.  Fed Chair Powell’s speech will reiterate that more rate hikes might be needed and that rates should stay higher for longer.  With the recent surge with real yields, Fed Chair Powell can acknowledge that policy is restrictive and that future rate cuts could eventually be warranted as long as inflation has been defeated. The economic data starts on Tuesday with the July existing homes sales report, which should show signs of stabilizing.  Wednesday contains the flash PMIs, which could show manufacturing remains in contraction territory and softness with the service sector continues.  On Thursday, we will get both initial jobless claims and the preliminary look at durable goods, which is expected to show weakness in July. Friday contains the release of the final reading of the University of Michigan sentiment report, with most traders wanting to know if inflation expectations had any major revisions. Earnings for the week include results from Baidu, Lowe’s, Nvidia, and Snowflake,   Eurozone As the ECB is poised to continue delivering more rate hikes to combat inflation, the risks of a hard landing are growing.  There’s no shortage of economic releases next week but the one that stands out is the flash PMI readings. The manufacturing sector is clearly going to remain in contraction territory for all the key regions(Germany, France, eurozone), while the service sector steadily weakens, fighting to stay in expansion territory.  Traders will also pay attention to both the German IFO business climate report as that could show expectations might be stabilizing and what should be another soft consumer confidence report. Thin trading conditions in Europe could occur on Tuesday as some banks (France, Italy) are closed for Assumption Day.   UK Next week is mostly about the UK flash PMI survey, as the composite PMI collapse in July is expected to be followed by further weakness in August. The manufacturing PMI is expected to weaken further from 45.3 to 45.0, the service reading to drop from 51.5 to 50.8, while the composite drops from 50.8 to 50.3.   The UK economy is still expected to barely show growth in Q3, but the momentum is fading as the BOE’s rate hiking cycle starts to weigh on the economy.   Russia Following the plunge in the ruble and an emergency rate hike, the focus on Russia will shift back to the war in Ukraine and the BRICS summit.  Russia was having a growing influence in Africa, but that might get tested as President Putin will be absent given his indictment by the ICC. The economic calendar is light with two releases, industrial production data on Wednesday and money supply on Friday.   South Africa The one notable release will be the July inflation report.  Inflation is expected to stay in the SARB’s target range between 3-6%.  The annual headline reading is expected to drop from 5.4% to 4.9%, while the monthly reading rises from 0.2% to 1.0%.  The monthly core reading is also expected to see a rise from 0.4% to 0.6%.   Turkey With inflation out of control, the CBRT is expected to deliver its 3rd straight rise, bringing the 1-week report rate to 19.50%.  The consensus range is to see the rate rise from 17.5% to anywhere between 18.50% and 20.5%. The 19.0% level was a key level in the past as that triggered the sacking of Governor Agbal.   Switzerland Another quiet week with Money supply data released on Monday and export data on Tuesday.   China One sole key economic data to watch will be on Monday, the monetary policy decision on its one-year and five-year loan prime rates that commercial banks used as a benchmark to price corporate, household loans and housing mortgages respectively. After a surprise cut of 15 basis points (bps) on the one-year medium-term lending facility rate to 2.50% last Monday, its lowest level since late 2009 to defuse the potential contagion risk in China’s financial system triggered by a major trust fund that failed to make timely payments to holders of its wealth management products which are backed by unsold properties of indebted property developers; forecasts are now calling for a similar 15 bps cut on the one and five-year loan prime rates to bring it down to 3.4% and 4.05% respectively. Market participants will also be on the lookout for more detailed fiscal stimulus from China’s top policymakers after recent “morale-boosting piecemeal rhetoric measures” that have failed to break the negative feedback loop in the China stock market; the benchmark CSI 300 index has given up all its ex-post Politburo gains from 25 July after the top leadership group promised to implement “counter-cyclical” measures to defuse the deflationary risk spiral in China. For earnings report releases, a couple of major companies to take note of; Sunny Optical Technology (Tuesday), Country Garden Services (Tuesday), China Life Insurance (Thursday), NetEase (Thursday), Meituan (Friday).   India A quiet calendar with only foreign exchange reserves and fortnightly bank loan growth data out on Friday.   Australia Flash Manufacturing and Services PMIs for August will be out on Wednesday.   New Zealand Balance of Trade for July out on Monday is forecasted to shrink to a deficit of -NZ$0.4 billion from a surplus of NZ$9 million posted in June. If it turns out as expected, it will be its first trade deficit since March 2023 due to a weak external demand environment. Q2 retail sales will be out on Wednesday where its prior Q1 negative growth of -4.1% y/y is forecasted to narrow to -0.9% y/y.   Japan Two key data releases to monitor. Firstly, flash Manufacturing and Services PMIs for August out on Wednesday; manufacturing activities are forecasted to improve slightly to 49.9 from 49.6 printed in July while growth in the services sector is expected to come in almost unchanged at 53.6 versus 53.9 in July  Next up, the significant leading Tokyo area consumer inflation data for August out on Friday; both Tokyo core inflation (excluding fresh food) as well as its core-core inflation (excluding fresh food & energy) are forecasted to be unchanged at 3% y/y and 2.5% y/y respectively. Both inflation measures have remained elevated especially the core-core rate which has soared to a 31-year high. Market participants will be keeping a close watch on the USD/JPY as it rallied past a key resistance zone of 145.50/146.10 despite rising concerns on possible BoJ’s FX intervention to negate the current bout of JPY weakness.   Singapore Two key data to focus on. July’s consumer inflation out on Wednesday where the core inflation rate is expected to be almost unchanged at 4.1% y/y versus 4.2% y/y in June. On Friday, industrial production for July is forecasted to show an improvement; -2.5% y/y from -4/9% y/y printed in June. Despite this forecasted improvement, it is still ten consecutive months of negative growth which increases the risk of a recession for Singapore in Q3 due to a weak external demand environment.      
Italian Inflation Continues to Decelerate in August, Reaffirming 6.4% Forecast for 2023

FX Focus: Turkey in the Spotlight Ahead of Jackson Hole Symposium

ING Economics ING Economics 24.08.2023 11:02
FX Daily: Attention turns to Turkey Ahead of tomorrow's main event of the week – speeches at the Fed's Jackson Hole symposium – attention today will turn to Turkey. In focus will be whether the Central Bank of Turkey accelerates its policy tightening in a return to a more orthodox policy. Consensus suggests probably not. Elsewhere, the dollar should remain steady, with jobs in focus.   USD: Focus on the jobs market The dollar and US yields were knocked off their highs yesterday as an annual benchmark revision (up to March 2023) deducted 306,000 from the reported US payroll growth figures. Several expectations had in fact looked for a 500,000 reduction. The market reaction (a 10bp drop in the US yield curve) looked a little exaggerated but perhaps proves a reminder that the employment story is the most important US variable right now. In other words, US disinflation is welcome, but if the unemployment rate remains at its lows and consumption stays strong, inflation may never make it back to 2% on a sustainable basis.    For that reason, look out for the weekly initial jobless claims data today, where any tick higher to the 250,000 area could slightly weigh on US yields and the dollar. We would not expect big moves, however, before Federal Reserve Chair Jerome Powell's 1605CET speech tomorrow at the Fed's Jackson Hole symposium. Given that the risk environment is a little better bid today – with Nvidia's results keeping the tech boom alive – DXY could trade slightly offered in a 103.15 to 103.50 range.
Global Economic Data and Central Bank Activity: Key Focus Areas for the Upcoming Week"

Global Economic Data and Central Bank Activity: Key Focus Areas for the Upcoming Week"

Ed Moya Ed Moya 28.08.2023 09:20
US Now that we heard from Fed Chair Powell at the Kansas City Fed’s Jackson Hole Symposium, the focus shifts back to the data. This week is filled with data that will outline how quickly the economy is weakening. Consumer data will show personal income growth is not keeping up with spending, while confidence holds steady. The Fed’s favorite inflation reading is also expected to show subdued growth is holding steady on a monthly basis. Friday’s NFP report will show private sector hiring is cooling.    Over the weekend, the spotlight will be on US-China relations.  US Commerce Secretary Gina Raimondo will meet with Chinese officials, striving to lower tensions between the world’s two largest economies.  The week will also be filled with Fed speak.  On Monday and Tuesday, Barr speaks about banking services. On Thursday, we hear from both Bostic and Collins, while Friday contains appearances by Bostic, a couple of hours before the NFP report, and Mester on inflation later in the morning.   Eurozone Next week is data-heavy but there are a few releases that stand out. The most notable is the HICP flash estimate for the eurozone on Thursday which is expected to drop slightly at the headline and core levels. There will be individual country releases in the days running up to this which may signal whether Thursday’s data will likely beat or fall short of expectations. ECB accounts are also released on Thursday which will be of interest considering markets now view the rate decision at the next meeting as a coin toss between 25 basis points and no change.    UK  The week starts with a bank holiday and it doesn’t get much more exciting from there. There are a few tier-three data releases and Huw Pill from the Bank of England will make appearances on Thursday and Friday. Russia A selection of economic data is on offer next week including unemployment on Wednesday, GDP on Thursday, and the manufacturing PMI on Friday.  South Africa No major events next week with PPI on Thursday the only notable release. It follows CPI data this past week which fell to 4.8%, well within the SARB 3-6% target range, following a much lower 0.9% monthly reading in July.  Turkey The CBRT surprised markets last week by hiking rates far more aggressively than expected, taking the repo rate to 25%, up from 17.5%. The move may cost people at the central bank their jobs if history is anything to go by, with President Erdogan openly no fan of higher rates. That said, he did employ these people shortly after his election victory so perhaps with that behind him, he may be more open to it while remaining vocally against. This week offers very little, with GDP on Thursday the only release of note. Switzerland Inflation data on Friday is expected to show prices rising 1.5% on an annual basis, slightly lower than in July and well below the SNB 2% target. The central bank hasn’t appeared satisfied though and markets are fully pricing in a hike in September, with 32% chance of it being 50 basis points. The manufacturing PMI will also be released on Friday, with retail sales on Thursday, and the KoF economic barometer and economic expectations on Wednesday. China Only three key economic releases to monitor for the coming week. First up, the NBS manufacturing and services PMIs for August will be out on Thursday. Another contractionary print of 49.5 is expected for the manufacturing sector, almost unchanged from July’s reading of 49.5. If it turns out as expected, it will be the fifth consecutive month of negative growth for manufacturing activities as China grapples with a weak external environment and domestic financial contagion risk that has been triggered by debt-laden property developers. Secondly, the NBS services PMI for August is forecasted to remain surprisingly resilient at 51, almost unchanged from 51.5 in July. The services sector is still in an expansionary mode albeit at a slower pace that is likely being supported by domestic tourism. Thirdly, the private sector-focused Caixin manufacturing PMI for August which consists of small and medium enterprises will be released on Friday, 1 September. Consensus is still expecting a contractionary reading of 49.5, almost unchanged from July’s print of 49.2. If it turns out as expected, it will be the second consecutive month of negative growth. A slew of key earnings releases to take note of starting this Saturday, 26 August will be China Merchants Bank, and Bank of Communications followed by; BYD (Monday, 28 August), Ping An Insurance, NIO, Country Garden (Tuesday, 29 August), Agricultural Bank of China (Wednesday, 30 August), ICBC, Bank of China, China Minsheng Bank (Thursday, 31 August). Also, market participants will be on the lookout for fiscal stimulus measures to defuse the $23 trillion debt bomb owed by local governments, financial affiliates, and property developers. On Friday, 25 August, China policymakers unveiled a further easing of its home mortgage policies that scrap a rule that disqualifies first-time homebuyers who had a mortgage that is fully repaid from being considered a first-time buyer in major cities in an attempt to boost up residential property transactions.  India Two key data to focus on. Q2 GDP on Thursday where the consensus is expecting a further economic growth expansion to 7% y/y in Q2, a further acceleration from 6.1% y/y recorded in Q1. Lastly, the manufacturing PMI for August will be released on Friday where it is being forecasted to come in at 57, almost unchanged from the July reading of 57.7 which will indicate a 26th straight month of growth expansion for manufacturing activities. Australia Retail sales for July will be out on Monday, with a recovery to 0.3% m/m from -0.8% m/m in June. On Wednesday, the important monthly CPI indicator for July will be out and the consensus forecast is another month of cooling to 5.2% from 5.4% in June. If it turns out as expected, RBA may have more reasons to justify its current pause at 4.1% for two consecutive meetings. Its next monetary policy meeting will be on 5 September, and as of 24 August, the ASX 30-day interbank cash rate futures have priced in a 12% chance of a rate cut to 3.85% (25 bps cut).  New Zealand A quiet week with the only focus on the ANZ business confidence indicator for August on Thursday followed by ANZ consumer confidence for August on Friday. Japan The action comes mid-week. Consumer confidence for August is released on Wednesday and is expected to be almost the same at 37.2 versus July’s 37.1. On Thursday, we will have retail sales and industrial production for July. Growth in retail sales is expected to slip slightly to 5.4% y/y from 5.9% in June. Meanwhile, industrial production is expected to contract to -1.4% m/m from 2.4% m/m in June, and -0.7% y/y is forecasted from 0% y/y recorded in June. Singapore The sole key data to monitor will be the producer prices index for July out on Tuesday with another month of negative growth forecasted at -9% y/y, a slower pace of contraction from -14.3% recorded in June. It would be the 7th consecutive month of decline.
China's August Yuan Loans Soar," Dollar Weakens Against Yen and Yuan, AUD/JPY Consolidates at 94.00 Level

Global Economic Snapshot: Key Events and Indicators to Watch in Various Economies Next Week

Craig Erlam Craig Erlam 04.09.2023 11:01
US The month started with a bang with the US jobs report but the following week is looking a little more subdued, starting with the bank holiday on Monday. Economic data is largely made up of revisions and tier-three releases. The exceptions being the ISM services PMI on Wednesday and jobless claims on Thursday. That said, revised productivity and unit labor costs on Thursday will also attract attention given the Fed’s obsession with input cost, wages in particular. We’ll also hear from a variety of Fed policymakers including Susan Collins on Wednesday (Beige Book also released), Patrick Harker, John Williams, and Raphael Bostic on Thursday, and Bostic again on Friday.  Eurozone Next week is littered with tier-three events despite the large number of releases in that time. Final inflation, GDP and PMIs, regional retail sales figures and surveys, and trade figures make up the bulk of next week’s reports. Not inconsequential, per se, but not typically big market events unless the PMI and CPI reports bring massive revisions. We will hear from some ECB policymakers earlier in the week which will probably be the highlight, including Christine Lagarde, Fabio Panetta, Philip Lane, and Isabel Schnabel. UK  Next week offers very little on the data front but the Monetary Policy Report Hearing in front of the Treasury Select Committee on Wednesday is usually one to watch. While the committee’s views are typically quite polished by that point, the questioning is intense and can provide a more in-depth understanding of where the MPC stands on interest rates.  Russia Inflation in Russia is on the rise again and is expected to hit 5.1% on an annual basis in August, up from 4.3% in July. That is why the CBR has started raising rates aggressively again – raised to 12% from 8.5% on 15 August. Even so, the ruble is not performing well and isn’t too far from the August highs just before the superhike. We’ll hear from Deputy Governor Zabotkin on Tuesday, a few days before the CPI release. South Africa Further signs of disinflation in the PPI figures on Thursday will have been welcomed by the SARB but they won’t yet be declaring the job done despite the substantial progress to date. The focus next week will be on GDP figures on Tuesday, with 0.2% quarterly growth expected, and 1.3% annual. The whole economy PMI will be released earlier the same day. Turkey CPI inflation figures will be eyed next week, with annual price growth seen hitting 55.9%, up from 47.8% in July. The CBRT is all too aware of the risks, hence the surprisingly large rate hike – from 17.5% to 25% – last month. The currency rebounded strongly after the decision but it has been drifting lower since, falling back near the pre-meeting levels. There’s more work to be done. Switzerland Another relatively quiet week for the Swiss, with GDP on Monday – seen posting a modest 0.1% quarterly growth – and unemployment on Thursday, which is expected to remain unchanged. Neither is likely to sway the SNB when it comes to its next meeting on 21 September, with markets now favoring no change and a 30% chance of a 25 basis point hike. China Two key data to focus on for the coming week; the non-government compiled Caixin Services PMI for August out on Tuesday which is expected at 54, almost unchanged from July’s reading of 54.1. If it turns out as expected, it will mark the eighth consecutive month of expansion in China’s services sector which indicates resilience despite the recent spate of deflationary pressures and contagion risk from the fallout of major indebted property developers that failed to make timely coupon payments on their respective bonds obligations. Next up will be the balance of trade data for August on Thursday with export growth anticipated to decline at a slower pace of 10% y/y from -14.5% y/y recorded in July. Imports are expected to contract further by 11% y/y from -12.4% y/y in July.   Interestingly, several key leading economic data announced last week have indicated the recent doldrums in China will start to stabilize and potentially turn a corner. The NBS manufacturing PMI for August came in better than expected at 49.7 (consensus 49.4), and above July’s reading of 49.3 which makes it three consecutive months of improvement, albeit still in contraction.   In addition, two sub-components of August’s NBS manufacturing PMI; new orders and production are now in expansionary mode with both rising to hit their highest level since March 2023 at 50.2 and 51.9 respectively. Also, the Caixin manufacturing PMI for August has painted a more vibrant picture with a move back into expansion at 51 from 49.2 in July, and above the consensus of 49.3; its strongest pace of growth since February 2023. Hence, it seems that the current piecemeal fiscal stimulus measures have started to trickle down positively into China’s economy. India The services PMI for August will be released on Tuesday where the consensus is expecting a slight dip in expansion to 61 from 62.3 in July, its highest growth in over 13 years. Capping off the week will be August’s bank loan growth out on Friday. Australia The all-important RBA monetary policy decision will be released on Tuesday. A third consecutive month of no change in the policy cash rate is expected, at 4.1%, as the recently released monthly CPI indicator has slowed to 4.9% y/y from 5.4% y/y, its slowest pace of increase since February 2022 and below consensus of 5.2% y/y. Interestingly, the ASX 30-day interbank cash rate futures on the September 2023 contract have indicated a 14% chance of a 25-basis point cut on the cash rate to 3.85% for this coming Tuesday’s RBA meeting based on data as of 31 August 2023. That’s a slight increase in odds from a 12% chance of a 25-bps rate cut inferred a week ago. On Wednesday, Q2 GDP growth will be out where consensus is expecting it to come in at 1.7% y/y, a growth slowdown from 2.3% y/y recorded in Q1. To wrap up the week, the balance of trade for July will be out on Thursday where the consensus is expecting the trade surplus to narrow to A$10.5 billion from a three-month high of A$11.32 billion recorded in June.  New Zealand Two data to watch, Q2 terms of trade on Monday and the global dairy trade price index on Tuesday. Japan A quiet week ahead with the preliminary leading economic index out on Thursday and the finalized Q2 GDP to be released on Friday. The preliminary figure indicated growth of 6% on an annualized basis that surpassed Q1’s GDP of 3.7% and consensus expectations of 3.1%; its steepest pace of increase since Q4 2020 and a third consecutive quarter of annualized economic expansion. Singapore Retail sales for July will be out on Tuesday with another month of lackluster growth expected at 0.9% y/y from 1.1% y/y in June; its softest growth since July 2021 as the Singapore economy grappled with a weak external environment. On a monthly basis, a slower pace of contraction is expected for July at -0.1% m/m versus -0.8% m/m in June.  
European Construction Markets: A Look at Poland, France, and Turkey's Prospects

European Construction Markets: A Look at Poland, France, and Turkey's Prospects

ING Economics ING Economics 04.09.2023 15:57
Poland: Promising building start in 2023, but contraction aheadPolish contractors started the first half of 2023 with a growth rate of 1.3% compared to the same period in 2022. Order books are still well filled, with 8.6 months of work and have even increased slightly. The higher volumes are driven by the infrastructure sector, which showed an impressive increase of almost 10% in the first half year. We expect that the growth rate of the infrastructure sector will decrease as projects under the previous EU financial perspective will end in 2024. The EU Recovery and Resilience Facility has been delayed due to a judiciary dispute, but this should boost the construction industry once implemented. The building sector is performing less. Building permits for residential buildings decreased by 40% YoY in the first quarter of 2023. Overall, we anticipate that total Polish construction output will still marginally increase by 0.5% in 2023.   France: Zero growth in 2023After a 2.5% increase in French construction volumes in 2022, growth increased further in the first half of 2023 by 0.5% YoY. However, French contractors are slowly becoming more pessimistic. In August, the French construction confidence index (EC survey) was marginally negative, and order books are slowly becoming less well-filled. French contractors now have 7.8 months of work on average in their backlogs compared to 8.1 months in the first quarter of last year. The issuing of building permits for new houses is also decreasing, but at a slower pace than in many other countries. Material and labour shortages are less of an issue but are still relatively high. Government measures such as MaPrimRénov have supported renovation and sustainability activity. For 2023, the budget of this scheme has increased from €2.4 to €2.5 billion but remains lower than the €3.1 billion allocated in 2022. Overall, we expect that the French construction output will stabilise in 2023 and decrease by -0.5% in 2024.   Turkey: uncertainty trumpsIn August, the Turkish construction confidence indicator (EC survey) showed a negative reading of -13.0. However, order books recuperated slightly after the lowest level measured since 2011 was recorded in the first quarter of this year. Fewer contractors complain about low demand, and the issuing of building permits is pretty much stable. The earthquakes at the beginning of this year have caused massive damage to over 300,000 buildings. Our expectation is that reconstruction efforts in the form of higher public investment should generate growth in the construction sector from 2024. This will take place after a further small decline in construction output in 2023, marking six consecutive years of declining building output in Turkey.
European Markets Anticipate Lower Open Amid Rate Hike Concerns

Economic Highlights and Key Events for the Week Ahead: US Inflation, ECB Meeting, UK Labor Market, and More

Ed Moya Ed Moya 11.09.2023 11:32
US This week is all about the US CPI report and retail sales data. If the US demand for goods didn’t weaken that much and if inflation heated up, rate hike expectations for the November meeting might become the consensus.  The inflation report might not be as clear as headline inflation will obviously rise given the surge in gasoline prices, but core might deliver another subdued reading.  Moderation with consumer spending will be the theme as Americans deal with higher energy prices, rising debt levels, and as confidence softens.   Investors will also pay close attention to the University of Michigan’s inflation expectations on Friday. The 1-year outlook for prices may drop from the 3.5% August reading.  Fed speak will be nonexistent as the blackout period begins for the September 20th policy meeting.   Eurozone The European Central Bank meets next week and it’s not clear at this stage what decision they will come to. Refinitiv is pricing in around a 65% chance of a hold, which may signal the end of the tightening cycle – not that the ECB would in any way suggest that at this stage – but expectations do differ. There’s every chance the committee will push through one more, at which point the data is expected to improve regardless making a Fed-style exit all the more difficult. Ultimately, it will likely come down to the projections which will be released alongside the decision. ZEW surveys aside, on Tuesday, the rest of the week is made up of tier-three data. UK  Potentially a big week for the UK ahead of the next monetary policy meeting on 21 September. Andrew Bailey and his colleagues this past week hinted that the decision is in the balance and not the foregone conclusion many expect. Markets are pricing in a more than 70% chance of a hike and more than 50% of another after that by February. If what they said is true, then the labor market report on Tuesday could be hugely significant as further slack could give those on the fence the reassurances they need that past measures, among other things, are working and more may not be needed. Huw Pill also speaks on Monday while Catherine Mann will make an appearance in Canada on Tuesday. GDP on Wednesday could also be interesting, with the rest of the week made up of less influential releases. Russia The CBR is expected to leave the key rate unchanged at 12% on Friday. It hiked very aggressively at the last meeting – from 8.5% – so there is scope for another surprise, with inflation having risen again last month to 5.1%. The rouble has also been in steady decline after rebounding following the last announcement, to trade not far from its recent lows against the dollar.  South Africa A relatively quiet week ahead, with manufacturing figures due on Monday and retail sales on Wednesday. Turkey The CBRT is desperately trying to get inflation under control again with successive large interest rate hikes. In response the currency has stopped making new lows but it has drifted lower again over the last couple of weeks since the surprisingly large last hike. It’s sitting not far from the pre-meeting lows now and inflation data this past week won’t have helped, rising to 58.94% annually. More rate hikes are likely on the way. Next week the focus is on unemployment and industrial production figures on Monday. Switzerland A very quiet week to come, with PPI inflation the only economic release. We’ve been seeing some deflation in recent months in the PPI data which will be giving the SNB some comfort that price pressures are back under control. Another rate hike is no longer viewed as guaranteed, with markets slightly favoring a hold over the coming meetings but it is tight.  China The much sought-after consumer and producers’ price inflation data for August will be released this Saturday where market participants will have a better gauge of the current deflationary conditions in China. After a slight improvement in the two sub-components of August’s NBS Manufacturing PM where new orders and production rose to their highest level since March at 50.2 and 51.9 respectively coupled with an improvement in export growth for August that shrunk to a lesser magnitude of -8.8% y/y from -14.5% y/y in July, there are some signs of optimism that the recent eight months of deflationary pressures may have started to abate. The August CPI is expected to inch back up to 0.2% y/y from -0.3% y/y in July and the PPI is forecast to shrink at a lesser magnitude of -3% y/y in August versus -4.4% in July. If the PPI turns out as expected, it will be the second consecutive month of improvement from a persistent loop of deflationary pressure in factory gate prices since November 2022. Other key data to focus on will be new yuan loans and M2 money supply for August which will be released on Monday. It will provide a sense of whether China’s economy is slipping into a liquidity trap despite the current targeted monetary and fiscal stimulus measures enacted by policymakers. Lastly, the housing price index, industrial production, retail sales, and the unemployment rate for August will be released on Friday with both retail sales and industrial production expected to show slight improvement; 2.8% y/y for retail sales over 2.5% y/y recorded in July, 4% y/y for industrial production versus 3.7% in July. Market participants will be keeping a close eye on youth unemployment for August after July’s figure was temporarily suspended by the National Bureau of Statistics without any clear timeline for the suspension. The youth joblessness data in China is of key concern after the youth unemployment rate skyrocketed to a record high of 21.3% in June, around four times more than the national unemployment rate of 5.3%. Lastly, China’s central bank, the PBoC, will announce its decision on a key benchmark interest rate, the 1-year medium-term lending facility rate on Friday and the expectation is no change at 2.50% after a prior cut of 15 basis points.  India Inflation and balance of trade for August will be the focus for the coming week. Inflation data is released on Tuesday and is expected to dip slightly to 7% y/y from 7.44% in July, the highest since April 2022. Balance of trade will be released on Friday and the expectation is for the deficit to widen slightly to -$21 billion from -$20.67 billion in July.   Australia On Monday, the Westpac consumer confidence change for September is expected to improve to 0.6% m/m from a reading of -0.4% m/m in August, following three consecutive interest rate pauses from RBA. The key employment change data for August will be released on Thursday with 24,300 jobs expected to be created, an improvement on the 14,600 reduction in July. Meanwhile, the unemployment rate is expected to slip to 3.6% from 3.7% in July. New Zealand Electronic retail card spending for August is due on Tuesday and is forecast to dip to 1.4% y/y from 2.2% in July. That would represent a declining trend in growth in the past five months. Next up, food inflation for August will be released on Wednesday; its growth rate is expected to slow to 7.8% y/y from 9.6% in July. That would be the slowest growth in food inflation since June 2022. Japan A couple of key data points to note for the coming week. Firstly, the Reuters Tankan Index on manufacturers’ sentiment on Wednesday; after a big jump to +12 in August – its highest level recorded so far this year – sentiment is expected to taper off slightly to +10 for September. Producers’ price index for August will be released on Wednesday and a slight dip is expected to 3.2% y/y from 3.6% in July. Lastly, on Thursday, we will have data on machinery orders from July with the consensus expecting a further decline of 10.7% y/y from -5.8% in June. Singapore One key data to focus on is the balance of trade for August which will be out on Friday. The trade surplus is being expected to increase slightly to $7 billion from $6.49 billion in July. That would be the fourth consecutive month of expansion in the trade surplus.  
European Markets Anticipate Lower Open Amid Rate Hike Concerns

Economic Highlights and Key Events for the Week Ahead: US Inflation, ECB Meeting, UK Labor Market, and More - 11.09.2023

Ed Moya Ed Moya 11.09.2023 11:32
US This week is all about the US CPI report and retail sales data. If the US demand for goods didn’t weaken that much and if inflation heated up, rate hike expectations for the November meeting might become the consensus.  The inflation report might not be as clear as headline inflation will obviously rise given the surge in gasoline prices, but core might deliver another subdued reading.  Moderation with consumer spending will be the theme as Americans deal with higher energy prices, rising debt levels, and as confidence softens.   Investors will also pay close attention to the University of Michigan’s inflation expectations on Friday. The 1-year outlook for prices may drop from the 3.5% August reading.  Fed speak will be nonexistent as the blackout period begins for the September 20th policy meeting.   Eurozone The European Central Bank meets next week and it’s not clear at this stage what decision they will come to. Refinitiv is pricing in around a 65% chance of a hold, which may signal the end of the tightening cycle – not that the ECB would in any way suggest that at this stage – but expectations do differ. There’s every chance the committee will push through one more, at which point the data is expected to improve regardless making a Fed-style exit all the more difficult. Ultimately, it will likely come down to the projections which will be released alongside the decision. ZEW surveys aside, on Tuesday, the rest of the week is made up of tier-three data. UK  Potentially a big week for the UK ahead of the next monetary policy meeting on 21 September. Andrew Bailey and his colleagues this past week hinted that the decision is in the balance and not the foregone conclusion many expect. Markets are pricing in a more than 70% chance of a hike and more than 50% of another after that by February. If what they said is true, then the labor market report on Tuesday could be hugely significant as further slack could give those on the fence the reassurances they need that past measures, among other things, are working and more may not be needed. Huw Pill also speaks on Monday while Catherine Mann will make an appearance in Canada on Tuesday. GDP on Wednesday could also be interesting, with the rest of the week made up of less influential releases. Russia The CBR is expected to leave the key rate unchanged at 12% on Friday. It hiked very aggressively at the last meeting – from 8.5% – so there is scope for another surprise, with inflation having risen again last month to 5.1%. The rouble has also been in steady decline after rebounding following the last announcement, to trade not far from its recent lows against the dollar.  South Africa A relatively quiet week ahead, with manufacturing figures due on Monday and retail sales on Wednesday. Turkey The CBRT is desperately trying to get inflation under control again with successive large interest rate hikes. In response the currency has stopped making new lows but it has drifted lower again over the last couple of weeks since the surprisingly large last hike. It’s sitting not far from the pre-meeting lows now and inflation data this past week won’t have helped, rising to 58.94% annually. More rate hikes are likely on the way. Next week the focus is on unemployment and industrial production figures on Monday. Switzerland A very quiet week to come, with PPI inflation the only economic release. We’ve been seeing some deflation in recent months in the PPI data which will be giving the SNB some comfort that price pressures are back under control. Another rate hike is no longer viewed as guaranteed, with markets slightly favoring a hold over the coming meetings but it is tight.  China The much sought-after consumer and producers’ price inflation data for August will be released this Saturday where market participants will have a better gauge of the current deflationary conditions in China. After a slight improvement in the two sub-components of August’s NBS Manufacturing PM where new orders and production rose to their highest level since March at 50.2 and 51.9 respectively coupled with an improvement in export growth for August that shrunk to a lesser magnitude of -8.8% y/y from -14.5% y/y in July, there are some signs of optimism that the recent eight months of deflationary pressures may have started to abate. The August CPI is expected to inch back up to 0.2% y/y from -0.3% y/y in July and the PPI is forecast to shrink at a lesser magnitude of -3% y/y in August versus -4.4% in July. If the PPI turns out as expected, it will be the second consecutive month of improvement from a persistent loop of deflationary pressure in factory gate prices since November 2022. Other key data to focus on will be new yuan loans and M2 money supply for August which will be released on Monday. It will provide a sense of whether China’s economy is slipping into a liquidity trap despite the current targeted monetary and fiscal stimulus measures enacted by policymakers. Lastly, the housing price index, industrial production, retail sales, and the unemployment rate for August will be released on Friday with both retail sales and industrial production expected to show slight improvement; 2.8% y/y for retail sales over 2.5% y/y recorded in July, 4% y/y for industrial production versus 3.7% in July. Market participants will be keeping a close eye on youth unemployment for August after July’s figure was temporarily suspended by the National Bureau of Statistics without any clear timeline for the suspension. The youth joblessness data in China is of key concern after the youth unemployment rate skyrocketed to a record high of 21.3% in June, around four times more than the national unemployment rate of 5.3%. Lastly, China’s central bank, the PBoC, will announce its decision on a key benchmark interest rate, the 1-year medium-term lending facility rate on Friday and the expectation is no change at 2.50% after a prior cut of 15 basis points.  India Inflation and balance of trade for August will be the focus for the coming week. Inflation data is released on Tuesday and is expected to dip slightly to 7% y/y from 7.44% in July, the highest since April 2022. Balance of trade will be released on Friday and the expectation is for the deficit to widen slightly to -$21 billion from -$20.67 billion in July.   Australia On Monday, the Westpac consumer confidence change for September is expected to improve to 0.6% m/m from a reading of -0.4% m/m in August, following three consecutive interest rate pauses from RBA. The key employment change data for August will be released on Thursday with 24,300 jobs expected to be created, an improvement on the 14,600 reduction in July. Meanwhile, the unemployment rate is expected to slip to 3.6% from 3.7% in July. New Zealand Electronic retail card spending for August is due on Tuesday and is forecast to dip to 1.4% y/y from 2.2% in July. That would represent a declining trend in growth in the past five months. Next up, food inflation for August will be released on Wednesday; its growth rate is expected to slow to 7.8% y/y from 9.6% in July. That would be the slowest growth in food inflation since June 2022. Japan A couple of key data points to note for the coming week. Firstly, the Reuters Tankan Index on manufacturers’ sentiment on Wednesday; after a big jump to +12 in August – its highest level recorded so far this year – sentiment is expected to taper off slightly to +10 for September. Producers’ price index for August will be released on Wednesday and a slight dip is expected to 3.2% y/y from 3.6% in July. Lastly, on Thursday, we will have data on machinery orders from July with the consensus expecting a further decline of 10.7% y/y from -5.8% in June. Singapore One key data to focus on is the balance of trade for August which will be out on Friday. The trade surplus is being expected to increase slightly to $7 billion from $6.49 billion in July. That would be the fourth consecutive month of expansion in the trade surplus.  
USD/JPY Climbs to Multi-Year High as BOJ Stands Firm on Policy

A Week of Central Bank Meetings and Currency Moves: FX Daily Insights

ING Economics ING Economics 18.09.2023 09:33
FX Daily: Up and down - a big week for policy rates and currencies There are a plethora of central bank policy rate meetings this week across the developed and emerging market economies. Rates could be raised as much as 500bp in Turkey, cut 50bp in Brazil, raised 25bp in four G10 economies, and left unchanged in the US. Our baseline assumes that the dollar holds onto its strength through the week.   USD: Dollar looks likely to hold gains It is a big week for policy rate meetings, with six of the G10 central banks in action. Setting the tone for global markets will be Wednesday's FOMC meeting. Here, our team sees a resolutely hawkish Federal Reserve, where despite unchanged rates the Fed, through its statement and dot plots, will hold out the possibility of one further hike to the 5.50-5.75% range later this year.  Even though we should see 25bp rate hikes across four European central banks through the week - see below - we doubt the dollar has to lose much ground - if any. The prospect of a prolonged period of unchanged rates is depressing US interest rates and cross-market volatility and leaving carry trade strategies very much en vogue. This - plus Brent trading close to $95/bbl - is keeping the likes of USD/JPY bid and few expect any substantial move in Bank of Japan policy this Friday. If there is to be a further move from Japan - it will likely come in late October when new economic forecasts are released. It is also a big week for policy rate meetings in emerging markets. In EMEA, the highlight will be whether the Central Bank of Turkey delivers another large hike on Thursday (+500bp expected) in a continuing return to policy orthodoxy, while Brazil should cut rates another 50bp in line with recent guidance. Given the strong interest in the carry trade this year, both the Turkish lira and Brazilian real could stay supported despite these diverging rate stories.  Elsewhere, Asia sees several rate meetings this week, but change is expected in neither China's Loan Prime Rates nor policy rates elsewhere in the region. DXY remains relatively strong and there does not seem a case for a decisive turn lower this week - unless we are all surprised by the Fed. There is a strong band of resistance in the 105.40/80 area, which may well cap this week. But equally, DXY should continue to find decent demand below 105.00. 
Shift in Central Bank Sentiment: Czech National Bank Hints at a 50bp Rate Cut, Impact on CZK Expected

Central Banks Boost Gold Reserves: Q3 Sees Record Purchases Amid Geopolitical Tensions

ING Economics ING Economics 02.11.2023 12:33
Metals – Central banks' gold purchases increase in third quarter The latest data from the World Gold Council (WGC) showed that the central banks increased their gold purchases to 337t over the third quarter of the year primarily due to higher buying from China (+78t), Poland (+57t), Turkey (+39t) and India (+9t). Cumulatively, purchases by central banks reached 800t over the first three quarters of the year, a record amount bought for a nine-month total as geopolitical concerns pushed central banks to increase allocation towards safety assets. Meanwhile, gold’s demand from other sectors was soft. Demand for bars and coins fell 14% YoY to 296t while gold ETFs reported net outflows of 139.3t over the third quarter of the year. Global jewellery consumption fell 2% year-on-year to 516.2t in the third quarter. Global gold demand (excluding OTC) fell 6% YoY to 1,147t in the third quarter of this year, while cumulative demand (excluding OTC and stock flows) also declined 3.2% YoY to 3,285.7t in the first nine months of the year on slowing jewellery demand, lower consumption in the technology sector and mixed performance of investment sector. However, cumulative demand (including OTC and stock flows) rose 4.7% YoY to 3,692.4t in January-September 2023. In terms of supply, the council reported reasonable growth in both mine production (+2% YoY) and recycling (+8% YoY), resulting in a higher gold supply rising by 6% YoY to 1,267t in the third quarter of the year. Aluminium smelters in China’s southern province of Yunnan are planning to reduce the output again this winter season as the hydropower supply decreases in the dry season, according to the Shanghai Metals Market (SMM). The group further added that the production cuts across four smelters will range from 9% to 40% and are expected to start in the coming days. The total capacity reduction is estimated to be around 1.15mt. Currently, the total operating capacity stands at around 5.65mt as of the end of September. Last year, Yunnan province encountered two rounds of aluminium output cuts due hydropower shortage. Lastly, the latest LME COTR report released yesterday shows that investors decreased net bullish positions for copper by 2,783 lots for a fourth consecutive week to 30,306 lots in the week ending on 27 October, as the recent recovery in the readily available exchange inventories at LME warehouses eased tight supply concerns. A similar move has been seen in zinc with speculators decreasing the net bullish bets by 1,348 lots for a fourth straight week to 30,538 lots over the last reporting week. In contrast, money managers increased net bullish bets in aluminium by 3,014 lots for a second consecutive week to 107,510 lots over the above-mentioned period.
National Bank of Romania Maintains Rates, Eyes Inflation Outlook

CEE Focus: Anticipating Turkey's Rate Hike Amidst Regional Rate Dynamics

ING Economics ING Economics 23.11.2023 13:21
CEE: Turkey hiking rates again Today's calendar in the region is basically empty. Elsewhere today, we have a central bank meeting in Turkey. We expect another rate hike of 250bp to 37.5%, which is broadly in line with expectations, but surveys show a wider range of rate hikes. The latest inflation release in October showed the underlying trend starting to improve not only for the core rate but also the headline. Accordingly, we expect the bank to consider a slower hike. However, risks are on the upside given strong tightening moves since August. In FX, yesterday brought an unexpected turn in Czech rates. The market was heavily paid across the curve, more so than elsewhere in the CEE region. The rates move thus shot the interest rate differential up for once, erasing the potential for the CZK weakness we mentioned earlier. EUR/CZK responded by moving lower and back to 24.450. For now, this seems to match the rate move exactly. However, it is hard to say where rates will head today. Yesterday's statement from the Czech National Bank, released after the rate move, suggests that the discussion about waiting for January inflation continues. On the other hand, weak economic data and a stronger koruna are reasons for lower rates and bets on an earlier rate cut. Despite the timing of the first rate cut, we think the short end of the curve should be lower, leading the CZK to weaker levels. Thus, we remain negative on the currency.
Shift in Central Bank Sentiment: Czech National Bank Hints at a 50bp Rate Cut, Impact on CZK Expected

Trend of Improvement: Turkey's Underlying Inflation Holds at 61-62% for Third Consecutive Month

ING Economics ING Economics 04.12.2023 14:35
Continued improvement in Turkey’s underlying inflation trend Annual inflation has remained at 61-62% for a third consecutive month with a better-than-expected monthly November figure. The underlying trend continues to improve. With another better-than-expected monthly reading at 3.3% (vs the consensus at 3.9% and our call at 3.8%), annual inflation in Turkey recorded a slight increase to 62% from 61.4% a month ago. The data reflect elevated upward pressures in services and the impact of natural gas prices. October PPI, on the other hand, stood at 2.8% MoM, translating into 42.2% YoY. The decline in annual PPI from close to triple digits at the end of last year shows improvement in cost pressures despite a Year-on-Year increase in the Turkish Lira equivalent of import prices lately due to commodity price developments and exchange rate increases. Core inflation (CPI-C) came in at 1.96% MoM, inching up to 69.9% on an annual basis on the back of pricing behaviour, exchange rate developments, adjustments in administered prices and inertia in services. However, the underlying trend (as measured by 3m-ma, annualised percentage change, based on seasonally adjusted series), which dropped in October, maintained its recovery in November with a continued decline in not only the core but also the headline rate of goods and services inflation.   Inflation outlook (%)   In the breakdown, all main expenditure groups, with the exception of clothing, positively affected the headline: Among them, housing turned out to be the major contributor with 1.44ppt due to natural prices as households exceeded the free natural gas usage limit. Accordingly, energy inflation jumped to 21.2% from 11.6% a month ago. This was followed by food with 0.74ppt, though annual group inflation moderated to 67.2% (vs the CBT assumption at 66.7% in the latest inflation report release) on the back of both processed and unprocessed food. However, price pressures in processed food were still high, with the second-largest November increase in the current inflation series. 33ppt contribution, on the other hand, was attributable to alcoholic beverages and tobacco with adjustments in cigarette prices. On the flip side, clothing recorded a slight price decline on the back of seasonality. As a result, goods inflation moved slightly up to 52.1% YoY, while core goods inflation receded to 52.2% YoY. Annual inflation in services, which is significantly influenced by domestic demand and wage hikes, maintained its uptrend and reached another peak at 89.7% YoY, attributable to the continuing rise in rents, transportation and telecommunication services.   Annual inflation in expenditure groups   Overall, annual inflation has remained in the 61-62% range for the last three months as pass-through from the post-election adjustment in FX, wages and taxes is reflected in the prices. The monthly trend of inflation may continue to improve if:  currency stability is maintained, adjustments in wages and administered prices prioritize inflation concerns, the impact of geopolitical issues on oil prices remains under control  domestic demand sustains its moderation path. We expect inflation to remain elevated until mid-2024, with further increases above 70% on seasonal effects in January and unfavourable base effects in May. The second half of next year will likely see a sharp downtrend – reflecting this year’s high base and further impact of tighter policy, pulling inflation to 40-45% by the end of the year. At the November MPC meeting, the CBT raised the one-week repo rate to 40.0%, providing guidance that: the pace of monetary tightening would slow the tightening steps would be completed in a short period of time, the monetary tightening required for sustained price stability would be maintained as long as necessary. Accordingly, we expect that the interest rate hike process will be completed at 45.0% with more limited increases of 250 basis points in December and January meetings. However, better-than-expected inflation readings and currency stability may also lead the bank to end the hiking cycle after a single 250bp hike.
Rates Spark: Navigating US CPI Data and Foreign Appetite for USTs

Charting Paths: 2024 Economic Outlook for Central and Eastern Europe and Central Asia

ING Economics ING Economics 12.12.2023 13:43
Executive summary Same path, different journeys. 2024 should be the year in which many economies in Central and Eastern Europe, and Central Asia attempt to normalise their economies – be that through a return to growth, lower interest rates and/or better fiscal positions. The journey to that destination, however, will look very different depending on the government and central bankers in charge. When it comes to growth, most of the region, except Turkey, should witness higher growth rates next year. The aggressive rate hiking cycles that many in the region undertook starting in 2021 have served their purpose in turning the tide on inflation. Lower inflation will deliver some welcome real wage growth and private consumption will be a crucial driver of activity across the region next year. The degree to which lower inflation will allow monetary easing to support growth will look very different across the region. Disinflation seems most advanced in the Czech Republic, allowing a 300-400bp easing cycle. We forecast a similar magnitude of rate cuts in Hungary, though from a much higher level. Romania has been struggling with stickier inflation but may still cut rates by 150bp. Poland is the outlier here, where the central bank may well keep rates at 5.75% given the highest upside risk for GDP in the region and the structural opportunities that the new ruling camp may utilise to speed up the economy. Also, Poland has already surprised with 100bp of recent easing. Part of the differentiation in monetary policy may well be driven by the fiscal position. The Czech Republic stands out here in its plans for fiscal consolidation, while both Poland and Romania look set to keep fiscal policy loose – good for short-term growth, bad for inflation. Nonetheless, 2024 growth rates in CEE4 are all expected in the 1.4-3.0% region – substantially better than the 0.3% our team are forecasting for Eurozone growth. Expect politics to remain very much in focus too. Both Poland and Hungary will be keen to secure funds from the EU next year – with Hungary’s need more pressing. We take an optimistic view on the release of funds here, but will be keeping a close watch on the headlines. European parliamentary elections in June will also be very much in focus – with the outcome having some important implications for foreign aid to Ukraine. Romania has a presidential election next year and we see local elections in Turkey too. Talking of Turkey, policymakers have been impressing by their return to policy orthodoxy. A continuation of this policy – including restrictive monetary policy for the majority of 2024 – could well see a turn in the inflation profile by year end. This could see the continued re-assessment of Turkish asset markets by foreign investors. Elsewhere, we highlight Bulgaria’s continued pursuit of euro entry in 2025, we evaluate Croatia’s year in the eurozone and also extend our coverage across the CIS space. In terms of our feature articles, we take a fascinating look into the theme of ‘Carbon and Commodities’ across the region. Poland and the Czech Republic are spending as much as 1% of GDP in securing carbon emission allowances – an expenditure that is hitting their external accounts. And Hungary, Romania and Turkey remain very exposed to natural gas prices. We conclude it has never been a better and more urgent time to scale up investments in energy transition. As always, this Directional Economics showcases ING’s global reach with our local team of experts in the CEE region. Please reach out to them with any questions.
UK Inflation Dynamics Shape Expectations for Central Bank Actions

Charting Paths: 2024 Economic Outlook for Central and Eastern Europe and Central Asia - 12.12.2023

ING Economics ING Economics 12.12.2023 13:46
Three calls for the Dutch economy in 2024 With 2023 being a year that included a technical recession and high but moderating inflation rates, here are our three calls of the outlook for the Dutch economy in 2024.   Dutch economy leaves recession The Dutch economy should exit the mild recession that so far has lasted three quarters. Forward-looking indicators for business activity have improved, while consumers have also recently become more upbeat. October figures for retail sales indeed seem to confirm that high wages combined with lower inflation translate into the return of growth of not only nominal consumer spending in 4Q23 but also the growth of consumption volumes. The increase in purchasing power continues into 2024, when the government will also contribute to higher net incomes, for example, via a further increase in the minimum wage and its related old age and welfare benefits.Partly thanks to an improving consumption outlook, the Dutch economy is expected to grow by a modest 0.7% in 2024, following economic stagnation in 2023 (0.2%). The largest contribution to economic growth in 2024 is however expected to come from the government. Demography and policy interventions increase public spending. The cooling of the global economy is expected to coincide with only a moderate export development for Dutch firms. Subdued demand expectations and increased financing costs are leading to a contraction in investment. So, despite the end of the recession, the growth rate is expected to remain below the country's long-term potential in the coming period. For our Dutch readers, we refer here to our more elaborate Outlook 2024 (published November 30th 2023).   Return of consumption growth calls Dutch recession to an end Expenditures* as index where fourth quarter of 2019 = 100   Strain in Dutch labour market not wiped out quickly The earlier contraction during 2023 and below-potential growth in the period ahead, combined with increasing bankruptcies and firm exits (now that the tax authority is enforcing inviable businesses to pay back the tax bill that was deferred as part of the Covid support programme) will weaken demand for workers somewhat. This is visible in the employment expectations of businesses.   Employment expectations of Dutch business deteriorated, but remain close to the long-term average Employment* expectations** of business for the next 3 months   We, however, believe that this will not translate into a very large increase in the unemployment rate. We expect the rate to rise moderately to a still relatively low number of 4.2% in 2024. While employment expectations of businesses have come down, they are still slightly above long-term averages, possibly signalling some labour-hoarding behaviour and mild optimism about a return of demand growth. Furthermore, ageing and the expansionary policies of the government, such as investment in greening the economy and in defence, will increase the semi-public sector's claim influence on the labour mark   3. Inflation falls below 2% despite core inflation not yet reaching usual levels In 2024, price pressures will clearly ease compared to 2023, when the HICP consumer price inflation rate was still high (4.2%). Items that will lower inflation in 2024 compared to 2023 include food, transport, transport services, hospitality services and education. Albeit less than in 2023, the energy bill will lower the inflation rate in 2024 too, despite the termination of the energy price cap. This time, the negative contribution of the energy bill comes from tax cuts and lower prices on the international wholesale market for energy. As such, the HICP headline inflation rate is expected to fall to a relatively "normal" 2% in 2024. Core inflation - the rise in prices without volatile goods such as food and energy - of 3.4% will still be at an unusually high level, but it is also coming down from a high 6.5% in 2023. A projected deceleration of wage cost increases will eventually help to reduce service inflation in 2024, which is part of core inflation, but this is expected to happen only gradually. In addition, although the expectations of firms outside the service sector about their sales prices have fallen considerably recently, they are still somewhat higher than on average in the past.   Consumer price inflation in the Netherlands falls below 2% Change in harmonised index of consumer prices year-on-year in % and contributions in %-points
AI Fitness App Zing Coach Raises $10 Million in Series A Funding to Combat Inactivity and Build Healthy Habits

This Week's Focus: US Jobs Report Signals Economic Uncertainty, Turkey Anticipates Annual Inflation at 65.1%

ING Economics ING Economics 03.01.2024 14:45
Key events in developed markets and EMEA this week This week, the main focus in the US will be the jobs report which is expected to indicate that hiring is slowing more meaningfully as economic uncertainty increases. In Turkey, all eyes will be on the release of December annual inflation which we expect to come in at 65.1%.   US: Jobs report expected to indicate that hiring is slowing more meaningfully After the dovish shift from the Federal Reserve at the December FOMC meeting, markets continue to price six 25bp rate cuts for 2024, in line with our long-held view. There are several key data releases that will give the markets food for thought as to what the risks are to this assessment. The ISM reports will give us an update on how businesses are seeing the situation and we expect them to indicate an ongoing soft trend in growth rather than clear evidence of a downturn. The jobs report will be the focus though and that is expected to indicate that hiring is slowing more meaningfully now as economic uncertainty increases. The unemployment rate is likely to tick slightly higher to 3.8% from 3.7%. Markets are on the verge of pricing the first rate cut for March, but we think the Fed is more likely to wait until May. Turkey: Annual inflation expected to increase to 65.1% In December, we expect annual inflation to increase to 65.1% (with a  3.2% month-on-month reading) from 62.0% a month ago, in line with the forecast presented in the latest inflation report of the Central Bank, while core inflation will remain elevated at around 72%. Inertia in services inflation, along with administered price and wage adjustments will likely remain as the major drivers of the inflation outlook in the near term. Key events in developed markets this week Source: Refinitiv, ING Key events in EMEA this week Source: Refinitiv, ING

currency calculator