uk inflation

UK inflation unexpectedly rises

By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  

Yesterday was just another day where another policymaker pushed back on the exaggerated rate cut expectations. Federal Reserve's (Fed) Christopher Waller said that the Fed should go 'methodically and carefully' to hit the 2% inflation target, which according to him is 'within striking distance', but 'with economic activity and labour markets in good shape' he sees 'no reason to move as quicky or cut as rapidly as in the past', and as is suggested by the market pricing. So that was it. Another enlightening moment went down the market's throat in the form of a selloff in both equities and bonds. The US 2-year yield – which captures the rate expectations rebounded 12bp, the 10-year yield jumped past the 4%, the US dollar index recovered to a month high and is testing the 200-DMA resistance to the upside this morning, while the S&P500 retreated 0.37%.  

Waller spoke from the US yesterday, but ma

UK inflation reaches 30 year high

UK inflation reaches 30 year high

Walid Koudmani Walid Koudmani 19.01.2022 12:08
While the government and Bank of England have attempted to deal with the rise in prices and creeping inflation, today's figures continue to show that the path forward may be longer than expected. While a slight adjustment in monetary policy may contribute, today’s data showed the highest level in 30 years as the economy is still recovering from the pandemic and could take a significant amount of time to return to normal levels. Ultimately, this situation continues to impact everyday consumers who may see some very noticeable changes to their lifestyle and expenses if the ongoing trend continues. Crypto markets retreat as investors worry about increased regulation and central bank decisions Crypto markets along with other traditional risk assets continue to feel the pressure of incoming fiscal and monetary policy changes from central banks which is due to remove some of the excess liquidity from markets after the unprecedented support received by them, However, crypto is currently dealing a wide variety of negative news and potential increases in regulations which have contributed to the recent pullback across assets as Ethereum continues to hover above the key $3000 psychological level. While fundamental factors may have changed slightly, the second biggest coin is trading at the lowest level in several months and as traders await a catalyst, the situation remains potentially quite volatile. Activision Blizzard acquisition by Microsoft could be a game changer This $68,7 Billion deal could prove to be a turning point for Activision Blizzard, who has seen its share price drop more than 44% in the last year on the back of disappointing results and a number of corporate as well as internal issues. Microsoft announced it will be offering as many Activision Blizzard games as possible within Xbox Game Pass and PC Game Pass, which just reached 25 million subscribers, and might provide the much needed boost in player base. Furthermore, a more direct input in general operations decisions could aim to rectify decisional issues and bring a more united direction for the company moving forward. Investors already reacted to this news favourably with Activision Blizzard stock price gaining over 30% on Tuesday while Sony stock actually fell as shareholders consider the risks associated with this acquisition.  
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Russia And Ukraine Conflict Fuelling Markets. Awaiting The US PPI And UK Inflation Indicators

Swissquote Bank Swissquote Bank 14.02.2022 11:11
The week starts on quite a tense note as the tensions between Ukraine and Russia don’t seem to be headed in the right direction with reports on Friday hinting at the possibility of a Russian invasion before ‘the end of the Beijing Olympics’. European equities are deep in the red, with FTSE 100 somehow doing less bad than the others on rising energy and commodity prices, but the Euro Stoxx is already down 2.33% and the DAX by 2.85%. US crudes flirts with the $95 per barrel, and gold welcomes decent safe-haven capital. While US sovereigns, energy and gold are the favorite destinations for those who are seeking protection in the actual environment, any relief on the Ukrainian front could send the recent gains in oil and gold crumbling. On the economic agenda: US PPI and FOMC minutes will be closely watched. We know that engineering a policy that would bring inflation down to the 2% target in the US would also bring an unnecessary stress on the market and on the economy. Would that help cooling the Fed hawks? Watch the full episode to find out more! 0:00 Intro 0:26 Market update 2:19 Rising oil also fears central bank hawks 3:28 Gold, the safe haven 4:48 Bitcoin under pressure 5:42 Economic calendar: US PPI, FOMC minutes, UK, CAD, JP inflation 8:04 Corporate calendar: Nvidia, Walmart, Roblox 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.
Eurozone PMI Shows Limited Improvement Amid Lingering Contraction Concerns in September

Tightening Alert! How Have Exchange Rates Of Singapore Dollar (SGD), NZD, Canadian Dollar And Korean Won (KRW) Changed?

Marc Chandler Marc Chandler 14.04.2022 13:47
April 14, 2022  $USD, Australia, BOC, China, Currency Movement, ECB, Japan, Turkey, UK Overview: What appears to be a powerful short-covering rally in the US debt market has helped steady equities and weighed on the dollar.  Singapore and South Korea joined New Zealand and Canada in tightening monetary policy.  Attention turns to the ECB now on the eve of a long-holiday weekend for many members.  The tech-sector led the US equity recovery yesterday, snapping a three-day decline.  Most of the major markets in Asia Pacific advanced but Taiwan and India.  Europe's Stoxx 600 is posting small gains for the second day, and US futures are little changed.  The 10-year Treasury yield is a little softer at 2.69%.  It peaked on April 12 near 2.83%.  The two-year yield is almost one basis point lower to about 2.34%.  It peaked on April 6 around 2.60%.  The drop in US yields yesterday and softer than expected jobs data conspired to a 10 bp drop in Australia's 10-year yield.  European yields are 3-4 bp higher, with the periphery leading, perhaps on ideas that the ECB will signal the end of its bond-buying.  The dollar is mostly heavier against the major currencies, with the Swedish krona and New Zealand dollar the strongest.  Among emerging market currencies, those from central Europe have been helped by the euro's bounce.  The high-flying South African rand and Mexican peso have come back a bit lower.  Gold is softer but consolidating inside yesterday's range.  June WTI is pulling back a little after testing the $104 area.  US natgas prices are higher for the fourth session and have risen by around 58% since mid-March.  Europe's benchmark is off about 3% and is near its lowest level since March 25.  Iron ore rose 1.6% after yesterday's 2.5% decline as the sawtooth pattern of alternating gains/declines this week continues.  July copper is edging higher for the third session.  July wheat is struggling after four days of gains.   Asia Pacific Australia's March employment report fell shy of expectations.  Overall, employment rose by 18k, not the 30k the median forecast (Bloomberg survey) anticipated.  Full-time positions rose by 20.5k after increasing by nearly 122k in February.  The unemployment rate was steady at 4.0% rather than slipping as expected.  The participation rate was steady at 66.4%.  It had been expected to increase slightly.  Separately, the Melbourne Institute's measure of inflation expectations rose to a new high of 5.2% from 4.9%.  The central bank is waiting for stronger signs of wage pressures to build before lifting rates, but this risks putting it further behind the curve.  A rate hike is expected after next month's election.   How are Japanese investors responding to the slide in the yen?   For the 10th week of the past 11, Japanese investors have been selling foreign bonds.  US Treasuries are their largest holding, so the divestment hit them hardest.  Given the developments in the foreign exchange market, the repatriation of unhedged proceeds buys more yen.  Sometimes in the past, it appears that the weakness of the yen encouraged Japanese investors to export more savings.   The market will be disappointed if China's benchmark one-year medium-term lending facility rate is not cut tomorrow.   It was last cut by 10 bp to 2.85% in January.  This was the first cut since the pandemic struck in early 2020.  The MLF rate was cut by 20 bp in April 2020 after a 10 bp cut in February.  Covid and the associated lockdowns are hitting an economy that already appeared to be struggling.  More than a token 10 bp cut is necessary.  There are heightened expectations for a cut in reserve requirements as soon as next week.  Prime loan rates may also be reduced next week.  China reports Q1 GDP early next week.  It has expected to have slowed to 0.7% quarter-over-quarter after growing 1.6% in Q4 21.   The pullback in US yields has helped the yen stabilize after sliding for the past nine consecutive sessions.   Still, the greenback has found support ahead of JPY125.00.  A break of the JPY124.80 area is needed to signal anything important technically.  On the upside, the JPY125.60-JPY125.70 area may offer an immediate cap.  Support at $0.7400 for the Australian dollar frayed yesterday but it recovered to almost $0.7470 today before new offers proved too much.  It is finding support in the European morning near $0.7440.  The Chinese yuan has not drawn much benefit from the heavier US dollar.  The greenback did make a new low for the week near CNY6.3625 but recovered and resurfaced above CNY6.3700. The PBOC set the dollar's references rate slightly lower than expected at CNY6.3540 (vs. median forecast in Bloomberg's survey for CNY6.3547).  Europe The ECB meets amid claims by its first chief economist Issing that its approach to inflation has been misguided.   The preliminary estimate of last month's CPI was 7.5% (3% core) year-over-year.  At the same time, growth forecasts are being cut. There has also been a serious blow to consumer and business confidence.  Monetary policy, as is well appreciated, has impact with variable lags.  That is partly why simply subtracting inflation from the bond yield may not be the most robust way to think about real interest rates.  Nominal rates should be adjusted for inflation expectations.  In any event, the takeaway from the ECB meeting will be about the forward guidance on its asset purchases. Does it pullback from last month's decision in which it indicated its monthly bond purchases here in Q2 or does it commit to suspending the Asset Purchases Program at the end of the quarter?  What about the other policy tool discussed in the press that would give the ECB a way to counter a surge in yields that could lead to diverging rates?  It seems like it is not imminent, but more importantly this may be an effort to modify the Outright Monetary Transactions facility that Draghi launched.  Note that there were conditions attached and although the facility has not been used, it seemed to have helped ease the crisis mentality. It reveals something about the power of the communication channel.   Turkey's central bank sets the one-week repo rate today and it is likely to remain at 14%.   What may prove more interesting are the weekly portfolio flows.  In the week ending April 1, foreign investors were net buyers of Turkish bonds for the first time in six weeks. The $104 mln was slightly more than the cumulative total of the last three weeks that they were net buyers (late Jan-mid-Feb). The Turkish lira has stabilized.  Consider that actual volatility (historic) over the past month is about 7.1%.  A month ago, it was around 13%. At the end of last year, it was almost 100%.   The Johnson government lost its junior Justice Minister Wolfson over the "repeated rule-breaking."   Meanwhile, reports suggest the prime minister will likely be fined a second time.  However, sterling is unperturbed by these developments.  It is extending yesterday's dramatic recovery. Sterling posted a key reversal yesterday by falling to new lows before rallying and settling above the previous day's high.  There has been follow-through buying that has lifted sterling to almost $1.3150 today.  Yesterday, it recorded a low near $1.2975.  The $1.3175-$1.3200 area may offer stronger resistance.  The euro is also extending its recovery.  Buying emerged yesterday ahead of $1.08.  It reached a three-day high slightly below $1.0925.  There is a 600-euro option at $1.0920 that expires today.  Nearby resistance is seen around $1.0950.   America US retail sales look to have strengthened, but the devil is in the details.   The median forecast (Bloomberg survey) sees retail sales rising 0.6% after a 0.3% gain in February.  However, high price gasoline can again skew the data. Recall that the CPI figures showed an 18% rise in gasoline prices last month (which accounted for more than half of the 1.2% monthly gain). What Bloomberg calls the control measure, which excludes food services, gasoline, autos, and building materials, is used by some economic models of GDP, which pick up those items through a different time series than the retail sales report.  After being crushed in February, falling 1.2%, the median in Bloomberg's survey calls for a 0.1% gain.  The risk is that rising gasoline prices slams discretionary purchases.  Separately, import and export prices are expected to have continued to accelerate last month.   Although export prices are rising faster than import prices, the US trade deficit has deteriorated. The US reports weekly jobless claims.  Revisions to the seasonal adjustment may be exaggerating the recent decline, but the labor market remains tight in any event.  Business inventories are expected to have risen in February (~1.3%) after a 1.1% gain in January.  While it would be strong, for GDP purposes the key is the change in the change, as it were.  In Q1 business inventories grew by an average of about 1.7% a month.  The slower inventory growth is part of the slowing we anticipate in Q1.  Lastly, the University of Michigan's consumer confidence measures is likely to have deteriorated, but it may be the inflation gauges that draw the most attention.  Many economists suspect US CPI, especially the core measure, may have peaked.   The Bank of Canada delivered the much anticipated 50 bp hike yesterday.   The market has fully priced in a 25 bp hike at the next meeting in early June.  The risk seems to be for another 50 bp hike. The central bank lifted the neutral rate to 2.50% from 2.25% and suggests that is where it was headed.  It lifted its inflation forecasts.  It now expects CPI to average 5.3% this year, up from the 4.2% forecast in January.  Next year's forecast was lifted to 2.8% from 2.3%.  Also, as anticipated, the Bank of Canada will stop recycling maturing proceeds and allow its balance sheet to shrink.  Over the next 12-months about a quarter of the bonds bought on net basis during the pandemic (C$350 bln) will roll-off.   The US dollar posted a key downside reversal against the Canadian dollar yesterday and follow-through selling has been seen.   Initially the greenback made new highs for the move to around CAD1.2675 yesterday before turning around and settled below the previous session's low (~CAD1.2580).  It has been sold to around CAD1.2540 today, which is the (50%) retracement of the greenback's rally off the April 4 low for the year near CAD1.2400.  The next retracement (61.8%) is closer to CAD1.2500.  The Mexican peso's run is getting stretched.  It managed to extend the most recent streak to its fifth consecutive advance yesterday, but the upticks are getting harder to secure. The peso is better offered today, with the dollar near MXN19.80.  Initial resistance may be in the MXN19.88-MXN19.92 area.       Disclaimer
UK Labor Market Shows Signs of Loosening as Unemployment Rises: ONS Report

DAX, EUR/GBP And EUR/USD Recovered Thanks To ECB Interest Rate Decision!? European Central Bank Makes European Indices Gain

Mikołaj Marcinowski Mikołaj Marcinowski 14.04.2022 16:23
It’s not easy time for Europe’s residents and European Central Bank’s decision makers. Ongoing war in the Ukraine with foreseen, intensified warfare and consequences of COVID-19 pandemic influenced economics of many countries. Naturally, the charts show that DAX and CAC40 trade higher than before the outbreak of the virus. To me, it only supports the thesis all mentioned events stopped European indices, companies and countries from growing much, much further. Emphatic European Central Bank (ECB) Let Economies Recover And Stay Strong? Since 2016 the ECB interest rate has amounted to 0%. Having in mind all the events which took place throughout last six years it seems to had been a correct decision. Coronavirus crisis influenced countries despite their economic status so tighter monetary policy would have weaken the euro and equities even further. But… Related article: ECB Interest Rate Decision Is Coming! European Indices (DAX, CAC40) To Plunge Or Rise? What About Forex Pairs? Inflation Is Taking Its Toll! Although the Russia-Ukraine warfare is still there and negotiations don’t seem to be working and stimulus for markets is highly demanded, the inflation is gaining momentum around the world. ECB is trapped in. These two contradictory factors may make decision makers confused, but let’s have a look how have markets reacted to today’s monetary policy statement of ECB. Forex: EUR/GBP Chart Shows Consequent Move Of The Price Strengthening of euro or weakening of British pound is driven by i.a. inflation data coming from the United Kingdom. The news coming from the UK in past months weren’t so optimistic as the inflation hit 30-year-high. EUR/GBP Chart Forex: EUR/USD influenced by both – ECB interest rate decision, war and Fed’s rhetoric As the week is coming to the end we see how many factors shaped the rates of certain currencies. This week’s inflation data of USA and the release of crude oil inventories make the asset quite volatile. Yeah… The right hand side… That’s a drop! EUR/USD Chart DAX Regained After Trading Lower Yesterday’s Morning Significant, ca. 2% decrease is almost compensated. DAX (GER40) Chart CAC40 Is Heading To A 1% Gain French index has been more aggressive until now. Today’s opening gain brought some optimism to investors. CAC40 Chart Source/Data:, Charts: Courtesy Of
For What It Is Worthy To Pay Attention Next Week 23.01-29.01

(USOIL) Crude Oil Price Crisis!? Fed To Boost (USD) US Dollar? UK Inflation Rate Surprised Many This Week, What About The Following One? Economic Calendar by FXMAG.COM

Mikołaj Marcinowski Mikołaj Marcinowski 16.04.2022 17:59
Today, tomorrow and on Monday many countries around the world celebrate Easter. Friday was a day free for many stock markets and banks too. As we wrote yesterday forex market was live so we may say it had some time to stock (sic!) up. The following week is going bring many news and next proves of hawkish rhetoric of Fed, ECB and BoE. Monday – Going East – Chinese GDP On Monday many, many countries – Germany, Italy Spain, Australia and more has a day free. Only in China, very early in the morning GDP and Industrial Production are printed. Previously Gross Domestic Product amounted to 4%. Another indicator released at 3 a.m. – Industrial Production hit 7.5% previously. Related article: Deutsche Bank Shook DAX! French Election, Inflation And ECB Are Factors Which Shaped DAX (GER 40), CAC40, FTSE 100 And IBEX35 - Top Gainers, Top Losers Tuesday – RBA Meeting Minutes – NZD/USD To Plunge Again!? It’s good to have a look at RBA Meeting Minutes in the morning. The document will be released at 2:30 a.m. and may let us prepare NZD rate prediction. At 1:30 p.m. we focus on the data coming from the USA. Building Permits release previously amounted to 1.865M. This indicator let us diagnose the real estate market in the United States. Wednesday - Crude Oil Price To Skyrocket!? CAD/USD And NZD/USD May Fluctuate! First release of the day is Chinese PBoC Loan Prime Rate which takes place at 2:15 a.m. Previously this indicator amounted to 3.7%. At 1:30 p.m. you better follow CAD/USD and other pairs with Canadian dollar as Core CPI may shake the rate. Indicator amounted to 0.8% previous time. Later in the afternoon investors should follow the release of Existing Home Sales (6.02M) and, what’s most important – Crude Oil Inventories. ON April 13th Crude Oil Inventories hit 9.382M! Very late in the afternoon we focus on New Zealand where CPI (Q1) is released. Let’s follow NZD forex pairs then. Thursday – Huge Gain Of US Dollar Index (DXY) Amid Hawkish Fed!? Follow Euro To US Dollar (EUR/USD) and GBP/USD Fluctuations! What Will BoE And ECB Do? Naturally next Fed decision is made in May, but before it happens we all stay updated with the current Fed rhetoric expressed by i.a. Jerome Powell who speaks at 6 p.m. on Thursday. What’s more it’s going to be a really, really market moving day as alongside Powell, BoE’s Bailey and ECB’s Lagarde speaks as well! Additionally, at 10 a.m. the EU CPI is released. After the recent interest rate decision ECB’s rhetoric is definitely worth a follow! Article on Crypto: Hot Topic - NEAR Protocol! Terra (LUNA) has been seeing a consistent downward price trend, DAI Should Stay Close To $1 Friday – GBP/USD To Plunge!? UK Manufacturing PMI Release And BoE’s Lagarde Speaks Again The following week ends with some important releases. We begin with UK Retail sales, Manufacturing PMI, Services PMI and German Manufacturing PMI. In the afternoon Canadian Core Retail Sales (2.5%) is released. The day ends with ECB’s and BoE’s representatives’ testimonies. Source/Data: Economic Calendar
What Direction Could Be Defined By US Data? (ECB) Christine Lagarde Speaks Today. Important Days Ahead Of Us

Euro To US Dollar (EUR To USD): That's An Amazing USD Performance, Will USDCAD (Canadian Dollar) Stay Close? USDJPY (Japanese Yen) Beats Records!

Jason Sen Jason Sen 20.04.2022 10:39
EURUSD retests 37 YEAR TREND LINE SUPPORT AT 1.0760/20. Longs need stops below 1.0670. Obviously there is nothing more important than this level this week. Longs at 1.0760/20 initially target 1.0820/50. Above here is more positive targeting 1.0900/20 then 1.0960/70. USDCAD strong resistance at 1.2650/70. Shorts need stops above 1.2690. A break higher is a medium term buy signal. Related article: Monetary Policy Drives EUR/USD, The Future of the EUR/GBP Awaits the Bank Of England's Speech - Good Morning Forex| FXMAG.COM Very minor support at 1.2610/1.2590 & again at 1.2525/05 today. If we continue lower look for 1.2480/70. We have another buying opportunity at 1.2440/10. Longs need stops below 1.2370. A break lower is an important medium term sell signal. USDJPY beat 14 year trend line resistance at 127.10/50 & rocketed another 200 pips!! The pair has 13 blue bodied daily & 7 weekly candles in a row. So sell signal yet despite severely overbought conditions. Above 129.50 look for 129.90/95 then 130.25/35, perhaps as far as 130.75/85. First support at 128.45/25. Further losses can target 127.80/70. Unlikely but if we continue lower look for strong support at 127.10/126.90. Read next: Gold Price Falls, Volatility in Wheat Futures and The Price Of Palladium| FXMAG.COM EURJPY higher as expected reaching 139.67 & no sell signal yet as we become overbought. Further gains can target 139.95/99 then 140.40/50 & 140.85/95. GBP To USD GBPUSD retests last week's low at 1.2990/70 after the bullish engulfing candle so now we just have to see if we get a double bottom buy signal or if the pair break lower for a sell signal. So far the bulls are winning as we bounce from 1.2977. A break below 1.2955 should be a medium term sell signal. Our longs target 1.3060/70 & 1.3100/10, perhaps as far as first resistance at 1.3150/70. Please email me if you need this report updated or Whatsapp: +66971910019 – To subscribe to this report please visit or email
Market Update: UK Inflation Softens, US Stocks Rally, Bank Earnings, and AI Dominate Headlines

Monetary Policy Drives EUR/USD, The Future of the EUR/GBP Awaits the Bank Of England's Speech - Good Morning Forex

Rebecca Duthie Rebecca Duthie 20.04.2022 10:17
Summary: EUR/USD and Monetary Policy. Bank Of England's Speech on Thursday effect on the GBP related currency pairs. AUD/CHF as a reflection of investor risk sentiment. Related article: Japanese Yen (JPY) Weakens Against The Dollar, USD/CAD Stable And The Inevitable Strengthening Of The USD, IMF/World Bank Events Monetary Policy driving the EUR/USD price action. Since the market opened this morning, the EUR has strengthened against the USD and the market sentiment is bullish, the rise in price is small but significant given the current economic conditions. With the differing monetary policy of the European Central Bank (ECB) and the US Federal Reserve (Fed) the EUR/USD currency pair price is low. In the coming weeks it is likely to see the dollar strengthening thanks to the expectations of the Fed to tighten monetary policy. Whereas, there is no certainty on when the ECB will begin rising interest rates. EUR/USD Price Chart Value of the GBP Awaits BOEs Speech Since the market opened this morning the price of the currency pair has increased, however, market sentiment for the EUR/GBP has changed from bullish yesterday to a mixed today. The strengthening EUR against GBP comes in light of the Bank of Englands (BOE) announcements tomorrow regarding the future monetary policy of the country, investors are expecting more hawkish actions. EUR/GBP Price Chart  Read next: Altcoins' Rally: Solana (SOL) Soars Even More, DOT and SHIBA INU Do The Same! | FXMAG.COM AUD/CHF Since the market opened this morning, the value of the AUD/CHF has increased, and has a bullish market sentiment. This currency pair can be used as a good reflection of risk sentiment, this is because the AUD is risk-on and the Swiss Franc is considered as a safe-haven currency. AUD/CHF Price Chart GBP loses some ground on the JPY The price of the GBP/JPY currency pair has (in general) been on the rise as a result of the rapidly depreciating value of the Yen. However, since the market opened this morning the price has decreased despite the bullish market sentiment, possibly due to the uncertainty regarding the future of the GBP and the upcoming BOE’s announcements. GBP/JPY Price Chart Sources:,,
Challenges Loom Over Eurozone's Economic Outlook: Inflation, Interest Rates, and Uncertainty Ahead

The Consequences Of FOMC (USD Index), US CPI Release And European Sentiment | Oanda: "Week Ahead – Volatile Markets"

Ed Moya Ed Moya 09.05.2022 06:48
Every asset class has been on a rollercoaster ride as investors are watching central bankers all around globe tighten monetary policy to fight inflation.  Financial conditions are starting to tighten and the risks of slower growth are accelerating.   The focus for the upcoming week will naturally be a wrath of Fed speak and the latest US CPI data which is expected to show inflation decelerated sharply last month. A sharper decline with prices could vindicate Fed Chair Powell’s decision to remove a 75 basis-point rate increase at the next couple policy meetings. A close eye will also stay on energy markets which has shown traders remain convinced that the market will remain tight given OPEC+ will stick to their gradual output increase strategy and as US production struggles to ramp up despite rising rig counts.  Energy traders will continue to watch for developments with the EU nearing a Russian energy ban.   US Market volatility following the FOMC decision won’t ease up anytime soon as traders will look to the next inflation report to see if policymakers made a mistake in removing even more aggressive rate hikes off the table over the next couple of meetings.  The April CPI report is expected to show further signs that peak inflation is in place.  The month-over-month reading is expected to decline from 1.2% to 0.2%, while the year-over-year data is forecasted to decrease from 8.5% to 8.1%. The producer prices report comes out the next day and is also expected to show pricing pressure are moderating.  On Friday, the University of Michigan Consumer Sentiment report for the month of May should show continued weakness. The upcoming week is filled with Fed speak that could show a divide from where Fed Chair Powell stands with tightening at the June and July meetings.  On Tuesday, Fed’s Williams, Barkin, Waller, Kashkari, Mester, and Bostic speak.  Wednesday will have another appearance by Bostic. Thursday contains a speech from the Fed’s Daly.  On Friday, Fed’s Kashkari and Mester speak.   EU The Russia/Ukraine war and the sanctions against Russia have dampened economic activity in the eurozone. Germany, the largest economy in the bloc has been posting weak numbers as the war goes on. With the EU announcing it will end Russian energy imports by the end of the year, there are concerns that the German economy could tip into a recession. On Tuesday Germany releases ZEW Survey Expectations, which surveys financial professionals. Economic Sentiment is expected to decline to -42.5 in May, down from -41.0 in April. On Friday, the Eurozone releases Industrial Production for March. The Ukraine conflict has exacerbated supply line disruptions, which is weighing on industrial production. The sharp drop in German Industrial Production (-3.9%), suggests that the Eurozone release will also show a contraction. The March estimate is -1.8%, following a gain of 0.7% in February. 
Record-breaking but near-peak inflation in Britain

Record-breaking but near-peak inflation in Britain

Alex Kuptsikevich Alex Kuptsikevich 19.05.2022 08:40
UK consumer prices rose by 2.5% in April, the second-biggest monthly gain in the indicator’s history since 1988. Annual inflation jumped from 7% to 9%, unseen in the indicator’s history. Metals, meanwhile, have withdrawn from the highs The longer-established retail price index last saw a high annual growth rate (11.1% y/y in April) in 1982, while such a big monthly jump (3.4% m/m) was last observed in 1980. However, despite the horror that these figures represent, there are still indications that the UK’s peak annual rate of inflation will be much lower than in the 1980s (22%) or 1970s (27%). While Output Producer Prices are showing an acceleration in the annual growth rate, rising to 14%, Input PPI has slowed from 19.2% to 18.6%. Although remaining volatile in recent weeks, oil and gas have regularly retreated from highs, limiting upward pressure on prices. Metals, meanwhile, have withdrawn from the highs. Read next: Altcoins: What Is Monero? Explaining XMR. Untraceable Cryptocurrency!? | FXMAG.COM Early hints that UK inflation may be slowing in the coming months may allow the Bank of England to raise the rate by 25 points At the same time, there are growing questions about final global demand, which will constrain producers in shifting costs to consumers. Early hints that UK inflation may be slowing in the coming months may allow the Bank of England to raise the rate by 25 points at its next meeting in mid-June and not copy the Fed’s 50-point move. This is moderately negative news for the British currency, which started to retreat from the $1.25 area on the data after a 2.9% rally from last Friday’s lows. Short-term traders should pay particular attention to the 1.2350 area. Read next: Altcoins: What Is Litecoin (LTC)? A Deeper Look Into The Litecoin Platform| FXMAG.COM Already, a dip lower this week would suggest that the brief period of recharging dollar bulls has ended. In this case, GBPUSD could quickly fall below 1.2000, making the 1.1500 area a potential ultimate target for this attack Follow FXMAG.COM on Google News
Eurozone Bank Lending Under Strain as Higher Rates Bite

What's The Future Of British Pound (GBP)? Stocks: Snap Has Fallen! How Far Will New Zealand Dollar Go!? | Least worst choices | Oanda

Jeffrey Halley Jeffrey Halley 25.05.2022 11:05
RBNZ hikes by 50-bps The Reserve Bank of New Zealand has raised policy rates by 0.50% to 2.0% this morning, with Governor Orr setting a hawkish tone in the press conference afterwards. In the statement itself, the RBNZ’s “least worst choices” policy seemed to imply that although external risks remained, the domestic economy was strong and could tolerate tighter monetary conditions. Mr Orr seemed to be saying much the same, suggesting that terminal rates could go above 3.0% and would get there sooner, rather than later. We’ll see just how strong the New Zealand economy is in due course, but a hawkish RBNZ has seen the New Zealand dollar rally by 0.70% to 0.6505 today, making it the biggest currency gainer in Asia today. Elsewhere, Singapore’s GDP growth came in tight on expectations, rising by 3.70% YoY for Q1. With inflation data yesterday also less worse than expected, expectations for another unscheduled tightening by the Monetary Authority of Singapore have receded for now. That may bring some relief to the Malaysian ringgit, which has fallen to 3.20 against the Singapore dollar. Snap Has Fallen In Malaysia itself, Inflation data for April continues to remain benign as domestic demand stays subdued. Inflation YoY rose by just 2.30% and will leave Bank Negara, like Bank Indonesia yesterday, in no hurry to tighten monetary policy. Ominously though, the Malaysian ringgit has shown no strength versus the US dollar. USD/MYR remains at recent highs at 4.4000 even as the greenback is experiencing an extended bull market correction versus the G-10 and EMFX elsewhere. If the US dollar turns higher once again, and the MYR resumes its sell-off, Bank Negara’s hand might be forced. Overnight, the recession word weighed on stock markets once again. European PMI data was a mixed bag. Manufacturing PMIs held steady, while Services PMIs fell as consumer demand takes a hit from the rise in the cost of living. That wasn’t enough to stop the euro rally, powered by suddenly hawkish ECB heavyweights. Bank of England, has already signalled a white flag on bringing down inflation The picture was rather grimmer in the United Kingdom where the most honest central bank in the world, the Bank of England, has already signalled a white flag on bringing down inflation and pencilled in a recession next year. UK Manufacturing PMI held steady at 54.6, but Services PMIs plummeted to 51.8. The UK is facing a winter of discontent as the cost of living soars, with the railways RMT union voting to strike over pay negotiations. Expect more of this going forward. Additionally, the Chancellor is apparently preparing to widen the scope of the windfall tax on energy companies, probably to help pay for his cost of living mini-budget. UK stock markets didn’t like that. Finally, the “party gate” report on those lockdown wine frenzies in the No 10 garden is due for release today, potentially putting more pressure on PM Johnson’s leadership. ​ Little surprise that the sterling slumped versus the euro and the US dollar overnight. In the United States, the recession world hit particularly hard after the Snap Inc. induced meltdown by Nasdaq stocks overnight. US New Home Sales plummeted to 591,000 in April, while Richmond Fed Manufacturing slumped to -9 in May. The S&P Global Services Flash PMI for May fell to 53.5, with Flash Manufacturing easing to 57.5. It was the new home sales that really frightened the street, though, as house building, and its ancillary services and suppliers are a good chunk of US domestic GDP. Soaring mortgage interest rates and petrol prices appear to be doing a lot of the Fed’s work for it before it even gets started. Read next: (TRX) TRON USD Decentralised Blockchain Platform That Focuses On Entertainment And Content Sharing. Altcoins: A Deep Look Into The TRON Network | FXMAG.COM If there is one takeout from all of this for me, it is that rising inflation and borrowing rates are already crimping the demand side of the equation. Unfortunately, we are seeing very little sign of price pressures reducing due to a combination of factors, all of which have been thrashed to death here and in research everywhere. The uncomfortable reality is that central banks are going to be forced to continue the tightening path, even as growth slows around the world, because inflation has proven sticky and not transitory. That is the least worst choice central banks need to make in a stagflationary environment. I am asked every day if we have seen the low in the equity market sell-off. Hopefully, I have answered the question. US President Joe Biden’s trip around Asia continues Finally, US President Joe Biden’s trip around Asia continues. Unfortunately, with its emphasis on containing China and hawking a trade agreement empty of potential access to the US domestic market (Congress needs to approve that), the trip is not going to make much headway in re-establishing US leadership in the region. Asia really needs to see the colour of America’s money. Furthermore, the reliability of the US as a partner has taken a further hit today, with White House officials explicitly refusing to rule out the possibility that the US could enact crude oil export restrictions to help cap energy prices domestically. The US doesn’t have a crude oil problem, it has a refining and transportation problem, but let’s not let facts get in the way. I have warned about food nationalism previously, but if President Biden prioritises November’s mid-term elections over the economic war with Russia, and supporting Europe, it really is every man for himself globally. I can’t see that being positive for equities anywhere, or European asset markets full stop, or for Ukraine. Only the Kremlin is likely to be popping champagne as the US does Russia’s divide and conquer for them. This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Follow FXMAG.COM on Google News
Fed And US Dollar (USD) Are All About Mixed Feelings, Christine Lagarde And ECB In General May Support Euro Even In July. BoE's Bailey Also Teases A Rate Hike. XAU, XAG And Crude Oil Went Higher As USD Weakened | OneRoyal

Fed And US Dollar (USD) Are All About Mixed Feelings, Christine Lagarde And ECB In General May Support Euro Even In July. BoE's Bailey Also Teases A Rate Hike. XAU, XAG And Crude Oil Went Higher As USD Weakened | OneRoyal

OneRoyal Market Updates OneRoyal Market Updates 30.05.2022 10:14
Weekly Recap It was another bearish week for the US Dollar as the greenback continued to sell off from YTD highs. The FOMC meeting minutes, released mid-week, did little to inspire a fresh rally in the Dollar. While the minutes confirmed the Fed’s hawkish stance and reinforced expectations for further 50bps hikes in June and July, there was little in the way of exciting details to get bulls reinvigorated. Additionally, with the Fed having seemingly turned more hawkish since that meeting, the minutes felt a little outdated. Christine Lagarde, ECB And Rate Hikes On the data front, a string of weaker-than-expected indicators out of the eurozone heightened growth concerns. With ECB’s Lagarde essentially confirming a July rate-hike, recession fears weighed on European asset markets though EUR itself remained well bid. Elsewhere, equities markets generally saw a choppy week though most indices ended the week in the green, benefitting from the weaker US Dollar. Read next: Altcoins: What Is Polkadot (DOT)? Cross-Chain Transfers Of Any Type Of Asset Or Data. A Deeper Look Into Polkadot Protocol | FXMAG.COM BOE’s Bailey warned that further rate hikes will likely be necessary in the face of rising inflation. The new fiscal package announced by the UK government this week, aimed at helping households fight rising energy bills, has further increased the likelihood of BOE rate hikes in the near-term. Weaker Dollar, Stronger Crude, Gold And Silver Commodities prices were higher over the week also. Gold, silver and oil all rallied on the back of a weaker US Dollar. With monetary policy divergence between the Fed and other central banks drying up, USD pressure has helped commodities stay afloat recently. Coming Up This Week Australian GDP Australian GDP will be closely watched this week on the back of the recent RBA rate hike. With the bank lifting rates and sounding firmly hawkish in its outlook and assessment, this week’s data might further support growing RBA rate hike expectations. With the country having emerged from one of the longest lockdowns of the pandemic, the economy has been on the bounce-back. However, as we have seen elsewhere, the economy has still been rocked by rising inflation and supply constraints. Traders will be keen to see the extent to which these factors weighed on the economy over the last quarter. BOC Rate Decision The BOC is widely expected to raise rates when it convenes for this month’s meeting mid-week. All 30 economists polled by Reuters ahead of the event are looking for a .5% hike. With this in mind, the focus will be on the bank’s forward guidance. If the BOC gives a clear signal that further hikes are coming in the near future, this should drive CAD higher near-term. However, if there is any indication that the BOC might look to hold off on any further rate hikes near-term, this will likely see cad dragged lower. Read next: Altcoins: Cardano (ADA) What Is It? - A Deeper Look Into Cardano (ADA) | FXMAG.COM US Non-Farm Payrolls The latest set of US labour market indicators this week will be closely watched as we head to the June meeting. Recent Fed commentary has been decidedly hawkish and it would likely take a major downside shock to change this narrative. Even then, it certainly wouldn’t impact the June rate hike and would likely only factor in forward guidance issued by the Fed. Still, with slowdown fears building, any weakness would no doubt act as a headwind to risk sentiment in the short-term. Forex Heat Map Technical Analysis Our favourite chart this week is the Dollar Index (DXY) The DYX has pulled back from recent multi-year highs and is now sitting on a make-or-break level at 101.94. This level was the 2020 closing high price. While the level holds as support, DXY is likely to recover and continue the longer-term bull trend. Below here, however, there is room for the correction to develop further towards next support at 100.37 Economic Calendar Plenty of key data releases to keep an eye on this week including Australian GDP, BOC rate decision and US Non-Farm Payrolls to name a few. Please see full calendar below for the complete schedule . Follow FXMAG.COM on Google News
Euro (EUR) And British Pound (GBP) Losing The Race Against U.S. Dollar (USD)! 1 Year Statistics

Euro (EUR) And British Pound (GBP) Losing The Race Against U.S. Dollar (USD)! 1 Year Statistics

Conotoxia Comments Conotoxia Comments 22.08.2022 16:44
The recent behavior of the euro and the British pound and their potential weakness against the rest of the world's major currencies is beginning to bring concerns about a sustained deterioration in the prospects for these currencies. As Bloomberg commentators note, the behavior of the pound and the euro are worrisome. We have recently seen large shifts in the euro and pound's short-term market interest rates against the U.S. dollar, with a simultaneous weakening of the GBP/USD and EUR/USD exchange rates. Last week was the worst week for the pound in nearly two years, and at the same time, the yield on the UK's 2-year bond rose by 50 basis points. Typically, the opposite happens in developed markets. Expectations of a central bank rate hike and thus an increase in short-term market yields generally strengthen the currency. The collapse in the correlation between the exchange rate and interest rates is usually associated with emerging markets, which may have lost the battle for the credibility of keeping inflation within the inflation target. The energy dependence of the UK and Europe as a whole means that their balance sheets could deteriorate in the near future, while energy commodity inflation shows no signs of abating. Rate hikes in such a situation may not stem the tide of depreciation of the aforementioned currencies, Bloomberg reports. Thus, it seems that the winter months for the EUR and GBP may be a kind of test of the credibility of the economies in the eyes of investors. Their abandonment of investments in the EUR and GBP despite rising interest rates could be potentially worrying. Moreover, it could change the entire scene of the foreign exchange market. In the dollar index, the euro has a weighting of more than 57 percent, while the pound has a weighting of more than 11 percent. Together, these two currencies alone have a weighting of almost 70 percent. Since the beginning of the year, the euro against the U.S. dollar has lost almost 12 percent, and the British pound almost 13 percent. In contrast, since August 2021, the euro has lost almost 15 percent to the dollar, and the British pound less than 14 percent. Of the major currencies, only the Japanese yen has fared worse and has weakened by almost 20 percent against the U.S. dollar over the year. Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.   Source: Pound and euro similar to currencies of emerging markets?
Treading Carefully: Federal Reserve's Rate Hike Pause, ECB and Bank of England on the Horizon

USD/CNY and USD/CNH analysis. Russia’s inflation has been accelerating sharply since the invasion of Ukraine

Ed Moya Ed Moya 09.05.2022 06:53
The focus for the upcoming week will naturally be a wrath of Fed speak and the latest US CPI data which is expected to show inflation decelerated sharply last month. A sharper decline with prices could vindicate Fed Chair Powell’s decision to remove a 75 basis-point rate increase at the next couple policy meetings.   Russia Russia’s inflation has been accelerating sharply since the invasion of Ukraine. In March, CPI rose to 16.7% (YoY) and is expected to climb to 18.1% in April. The driver behind the sharp upswing has been Western sanctions, which have reduced the availability of consumer imports and key components for domestic products. CPI is expected to continue to climb in the coming months.   China China releases its Balance of Trade on Monday and Inflation on Tuesday. Both have downside risks given the disruption to business and the collapse in property sales and sentiment due to the covid-zero policy. Restrictions continue tightening in Beijing and the covid-zero policy has become the biggest headwind to a China recovery. The government reaffirmed its commitment to the policy Friday, sending China stocks lower. Additionally, US-listed China stocks face new delisting risk from US regulators that is weighing on Hong Kong markets especially, where most dual listings live. Negative headlines around Covid 19 or US delisting over the weekend could send China equities sharply lower into the start of the week. USD/CNY and USD/CNH have now risen from  6.4000 to 6.7000 in just two weeks. The PBOC remains comfortable at this stage, being a back door stimulus to manufacturers. The PBOC USD/CNY fixing will be the key indicator as to whether the authorities have said Yuan depreciation has gone far enough.
The GBP/USD Pair's Traders Still Use Every Opportunity To Buy

UK Inflation Is The Highest In Decades!!! China Still Closing Factories, Toyota And Apple Are In Danger?

Saxo Strategy Team Saxo Strategy Team 18.08.2022 09:48
Summary:  U.S. equities took a pause from their week-long advance, with S&P 500 retreating before its 200-day moving average. Target’s Q2 results disappointed as the retailer suffered from high inventories and U.S. consumers shifted from discretionary to grocery items. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S.’s advance higher took a pause yesterday amid higher bond yields and disappointing results from Target (TGT:xnys), -2.7%. Target’s Q2 earnings fell sharply and missed consensus expectations on weaker gross margins due to slower sales in discretionary items and inventory impairments.  Lowe’s (LOW:xnys) reported mixed results, with earnings beating estimates but same-store sales growth weaker than expected. Higher U.S. bond yields triggered by a dramatic rise in U.K. bond yields and reported pension fund rebalancing-related selling added to the equity weakness.  S&P 500 dropped 0.7% and Nasdaq 100 shed 1.2%.  U.S. treasury yields rose from spilling over from a massive rise in U.K. Gilt yields and weak 20-year bond auction U.S. 10-year treasury yields jumped 9bps to 3.05%, taking cues from the sharp move higher in U.K. Gilts and European sovereign bond yields following white-hot UK CPI data. Long-end yields moved further higher on poor results from the 20-year auction.  Short-end yields fell in the late afternoon after the July FOMC minutes signaling that it “would become appropriate at some point to slow the pace of policy rate increases” which reaffirmed the market’s expectation of a 50bps, instead of 75bps on the September FOMC.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hang Seng Index bounced modestly by 0.5%; CSI399 gained 9.6%. Meituan (03690:xhkg) rallied 3.3% after a 9% drop yesterday due to a Reuters story suggesting that Tencent (00700:xhkg) plans to divest its 17% stake (USD24 billion) in Meituan. Tencent denied such a divesture plan last night.  Power tools and floor care equipment maker and a supplier to Home Depot (HD:xnys) and Wal Mart (WMT:xnys), Techtronic Industries (00669:xhkg) jumped more than 10% after better-than-expected results from the two U.S. retailers. China Resources Power (00836:xhkg) +5.7% after reporting weak 1H22 results but more wind and solar projects on the pipeline. Other Chinese power producers also outperformed amid power shortages. China Power (02380:xhkg) surged more than 8%. On Tuesday, China’s Premier Li Keqiang visited Shenzhen and held a meeting with provincial chiefs from Jiangsu, Zhejiang, Shandong, Henan, and Sichuan to reiterate the central government’s push for full use of policies to stabilize the economy. Hong Kong Exchanges (00388:xhkg) fell 1.6% after reporting lower revenues, higher costs, and a 22% YoY decline in EPS, worse than market expectations. After the market close, Tencent reported weak but in line with expectations revenues and better-than-feared earnings in Q2. Tencent’s ADR climbed 3.5% overnight from the Hong Kong close. AUDUSD eying the labor market report, GBP will see more pain ahead A mixed session again overnight for the US dollar with FOMC minutes and US retail sales failing to provide any fresh impetus to the markets. AUDUSD was the biggest loser on the G10 board, sliding below 0.7000 to lows of 0.6911 after real wage data for Q2 showed a massive slump. Labor market data due this morning could further weigh on RBA expectations, if it comes out softer than expected. The weakness seen in the commodity markets, especially iron ore and copper, weighed on the antipodeans. GBPUSD stays above 1.2000 despite a 40bps gains in UK 2-year yields after the double-digit UK CPI print. USDJPY tested the resistance at 135.50 but was rejected for now. Crude oil prices (CLU2 & LCOV2) Crude oil prices made a slight recovery overnight, with WTI futures getting back to over $87/barrel and Brent futures close to $94 after data showed US inventories fell sharply. Sentiment was also supported by comments from OPEC’s new Secretary-General, Haitham Al Ghais, who said that world oil demand will rise by almost 3mb/d this year. He also said there is a high chance of a supply squeeze this year, in part because fears of slowing usage in China are exaggerated. This helped to take the focus off the prospects of the Iran nuclear deal for now. What to consider? Stale FOMC minutes hint at sustained restrictive policy Fed’s meeting minutes from the July meeting were released last night, and officials agreed to move to restrictive policy, with some noting that restrictive rates will have to be maintained for some time to bring inflation back to the 2% target. Still, there was also talk of slowing the pace of rate hikes ‘at some point’, despite pushing back against easing expectations for next year. The minutes were broadly in-line with the market’s thinking, and lacked fresh impetus needed to bring up the pricing of Fed’s rate hikes. Chairman Powell’s speech at the Jackson Hole Symposium next week will be keenly watched for further inputs. US retail sales were a mixed bag July US retail sales are a little softer at the headline level than the market expected (0% growth versus the +0.1% consensus) but the ex-auto came in stronger at 0.4% (vs. -0.1% expected). June’s growth was revised down to 0.8% from 1%. The mixed data confirmed that the US consumers are feeling the pinch from higher prices, but have remained resilient so far and that could give the Fed more room to continue with its aggressive rate hikes. Lower pump prices and further improvements in supply chain could further lift up retail spending in August. UK CPI opens the door for another 50bps rate hike UK headline inflation hits 10.1%, the highest in decades and above the 9.8% expected and for the month-on-month reading of +0.6%, higher than the +0.4% expected. Core inflation hit 6.2% vs. 5.9% expected and 5.8% in Jun. That matched the cycle high from back in April. Retail inflation rose +0.9% MoM and +12.3% YoY vs. +0.6%/+12.0% expected, respectively. The Bank of England has forecast that inflation will peak out this fall at above 13%. While the central bank forecasted a recession lasting for five quarters at the last meeting, it will be hard for them to not press ahead with further tightening at the August meeting, and in fact the scope for another 50bps rate hike is getting bigger. Reserve Bank of New Zealand hikes 50 basis points to 3.00%, forecasts 4% policy rate peak The RBNZ both increased and brought forward its peak rate forecast to 4.00%, a move that was actually interpreted rather neutrally – more hawkish for now, but suggesting that the RBNZ would like to pause after achieving 4.00%. RBNZ Governor warned in a press conference that New Zealand home prices will continue to fall. This is actually a desired outcome after a huge spike in housing speculation and prices due to low rates from the pandemic response and massive pressure from a Labor-led government that had promised lower housing costs were behind the RBNZ’s quick pivot and more aggressive hiking cycle in 2021. Australian wages grew at their quickest pace in eight years, but less than expected Australia’s wage-price index gained 0.7% in the second quarter, just shy of estimates further pressuring the Aussie dollar back toward its 50-day moving average against the US dollar. Annual wage growth came in at 2.6% but real wages - adjusted for headline inflation fell 1% QoQ, and was 3.3% lower than a year earlier, eroding consumer spending power. What’s next. All eyes will be on Australia’s Reserve Bank which might be pressured to hike more than expected at its September meeting. Despite Australian wages growing slower than expected, the RBA estimates retail gas and electric prices to rise 10-15% in the second half of the year, so that will be a focus point when they consider their next move in interest rates. Tencent reported weak but in-line Q2 revenues and better-than-feared earnings Tencent reported a revenue decline of 3% YoY in Q2, weak but in line with market expectations.  Non-GAAP operating profit was down 14% YoY to RMB 36.7 billion and EPS fell 17% YoY to RMB2.90 but they beat analyst estimates.  Revenues from advertising, -18% YoY, were better than expected.  In the game segment, weaker mobile game revenues were offset by stronger PC game revenues. Disappointing results from Target and mixed results from Lowe’s Target reported EPS of USD0.39, missing estimates.  The company indicated strength in food and beverage, beauty, and household essentials but weaker in discretionary categories.  Gross margin of 21.5%, down from 30.4% year-ago quarter and below expectations. Lowe’s reported better than expected EPS of USD4.67 (vs consensus USD4.58) but a decline of 0.3% in same-store sales.  Lowe’s inventories grew 11.6% YoY, substantially lower than peer Home Depot.  With a 15% increase in product costs, the inventory volume was in effect down low-single digit. Power crunch in China shut factories Chongqing is limiting power supply to industrial users from yesterday to next Wednesday.  In Sichuan, Foxconn’s Chengdu factory is suspending operations for six days from August 15 to 20 due to a regional power shortage. The suspension is affecting Foxconn’s supply of iPad to Apple.  The company says the impact “has been limited at the moment” but it may affect shipments if the power outage persists.  The Chengdu government is imposing power curbs on industrial users to ensure electricity supply for the city’s residents.  Toyota and CATL are also suspending some operations in Sichuan due to a power shortage. Foxconn has started test production of the Apple watch in Vietnam Foxconn has started test production of the Apple watch in its factories in Vietnam. With the passage of CHIPS and Science Act earlier this month in the U.S., investors are monitoring closely if Taiwanese and Korean chipmakers as well as their customers may be accelerating the building up of production capacity away from China.  World’s biggest Sovereign Wealth fund posts its biggest half-year loss on record   Norway’s oil fund, the world’s biggest owner of public traded companies lost 14.4% in the six months through to June. In currency terms that’s $174 billion. The slump was driven by the fund’s loss in technology stocks with Meta Platforms (owning Facebook and Instagram) and Amazon, leading the decline. However, just like the market, the fund’s energy sector delivered positive share price performance, benefiting from a sharp rise in earnings in the oil, gas, and refined energy product sector. Meanwhile, investments in logistics property helped the fund’s unlisted real estate holdings gain 7.1%, though they account for 3% of its assets. Japan’s inflation will surge further Japan’s nationwide CPI for July is due to be reported at the end of the week. July producer prices came in slightly above expectations at 8.6% y/y (vs. estimates of 8.4% y/y) while the m/m figure was as expected at 0.4%. The continued surge reflects that Japanese businesses are waddling high input price pressures, and these are likely to get passed on to the consumers, suggesting further increases in CPI remain likely. More government relief measures are likely to be announced, while any little hope for a Bank of Japan pivot is fading. Bloomberg consensus estimates are calling for Japan’s CPI to accelerate to 2.6% y/y from 2.4% previously, with the ex-fresh food number seen at 2.4% y/y vs. 2.2% earlier. For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 18, 2022
For What It Is Worthy To Pay Attention Next Week 23.01-29.01

The United Kingdom's Anti­-inflation Plan, The ECB Doesn't Expect A Recession In The Eurozone

Saxo Bank Saxo Bank 09.09.2022 09:19
Summary:  The USD weakened sharply overnight, led by a tumbling USDJPY on comments from Bank of Japan governor Kuroda after he met with Prime Minister Kishida. Risk sentiment was buoyant yesterday and overnight on the weaker US dollar and after the ECB hiked by 75 basis points as most expected, the most in the central bank’s history. EURUSD has backed up well above parity again ahead of an EU Summit that will attempt to outline a common approach to soaring power/gas prices amidst limited supplies ahead of winter.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) US equities continued to rally yesterday with S&P 500 futures pushing above the 4,000 level to close at 4,005, and even more impressively momentum is extending this morning in early European trading hours. The rally still seems to be mostly technically driven, but there was some support for US equities in yesterday’s initial jobless claims data showing little negative pressures in the US labour market. After the US market close, DocuSign shares rose 17% as the technology company delivered a strong result and raised its outlook breathing some fresh optimism into the technology sector. The next big event for US equities is the US August CPI report on Tuesday. Hong Kong’s Hang Seng (HSIU2) and China’s CSI300 (03188:xhkg) Hang Seng Index soared 2.6% today, snapping a six-day losing streak, following August inflation data in China surprised on the downside and raised hope for more monetary easing to come from the Chinese policymakers. Mega-cap internet stocks strongly, Meituan (03690:xhkg) +5.5%, Netease (0999:xhkg) +4.8%, Baidu (09888:xhkg)+3.6%, Alibaba (09988:xhkg) +3.1%, Tencent (00700:xhkg) +1.7%. One notable underperformance in the internet space was Bilibli (09626:xhkg/BILI:xnas) which plunged nearly 17% after reporting a larger than expected loss in 2Q2022 on the deterioration of gross and operating margins. Ahead of the mid-autumn festival, catering stocks gains, Jiumaojiu (09922:xhkg) +6.7%, Haidilao (06862:xhkg) +2.6%. Chinese property names rallied, led by Country Garden (02007:xhkg) which jumped 14%. CSI 300 climbed 1.3%, led by property names, financials and dental services.  USD broadly weaker after ECB meeting and USDJPY correction overnight Bank of Japan Governor Kuroda commented on the undesirability of sharp JPY moves in comments overnight after meeting with PM Kishida. This took USDJPY back below 143.00 two days after it nearly touched 145 in its latest surge higher. The threat of intervention may not hold the JPY higher for long if global yields continue higher again. Elsewhere, the USD was sharply lower despite a solid bounce-back in US treasury yields and EURUSD traded well north of parity again after an initially choppy reception of the expected 75-basis point hike from the ECB and President Lagarde’s press conference. The action took EURUSD back to the cusp of important resistance in the 1.0100 area, which has been the resistance of note for more some three weeks. The move was supported by surging European short yields, although the energy/power situation will remain the focus for the euro. Crude oil (CLV2 & LCOX2) The oil price weakness seen this week following the break below $91.5 and $85 in Brent and WTI may still end up being a temporary development with the dollar weakness seen overnight, especially against the yen and euro, adding a bid back into the market. Dr. Copper meanwhile is recovering as demand from China show signs of improving. Potentially a signal to the energy market of not getting too carried away by a temporary lockdown related slowdown in Chinese demand. However, with US implied gasoline demand falling below 2020 levels last week, a potential recovery above the mentioned level is likely to be muted. Focus on Putin and his threat to cut supply to nations backing the US-led price cap on crude sales and OPEC+ which may intervene should price weakness persist. Copper (COPPERUSDEC22) Copper trades higher with the futures market signaling increased tightness, primarily due to a pickup in Chinese demand and imports, which despite lockdowns has seen the infrastructure push ramping up. In addition, a lower-than-expected August CPI and PPI may give the PBoC more room to ease conditions. Exchange monitored inventory levels has dropped to an 8-month low at a time where mining companies struggle to meet their production targets with top producer Chile seeing its exports slump to a 19-month low due to water restrictions and lower ore quality. Speculators have increased short positions in recent weeks as a hedge against recession and China weakness, and they are now increasingly exposed. Support at $3.54 and for a real upside and trend reversal to occur the price needs to break above $3.78/lb. Bitcoin This morning Bitcoin rose the most in more than a month, surpassing the psychological $20k level and now trading at around $20.5k. This is despite a report published by the White House Office of Science and Technology Policy yesterday, stating that cryptocurrencies make a significant contribution to energy usage and greenhouse gas emissions in the US, and that they recommend monitoring and potential regulation. It could have a significant impact on cryptocurrencies using the proof-of-work consensus mechanism such as Bitcoin. US Treasuries (TLT, IEF) US Treasury yields bounced back toward the top of the range after the previous day’s decline, keeping the attention on the cycle highs for the 10-year yield near 3.50%. The treasury sell-off was sparked around the time of Fed Chair Powell firm comments on fighting inflation, which sent 2-year treasury yields some 8 basis points higher. The latest weekly jobless claims figures was out around the same time and showed the lowest level of claims since late May. What is going on? The ECB hiked interest rates by 75 basis points This was a unanimous decision of the ECB governing council. This is a major signal sent to the market. The move was aimed to catch up with the neutral rate (though the ECB acknowledges they don’t know where the neutral rate is). The ECB also revised upward its inflation forecasts sharply (from 6.8 % to 8.1 % this year). Growth forecasts were also revised. But the ECB still doesn't expect a recession in the eurozone (GDP growth expected at 0.9 % versus prior 2.1 % this year). During the press conference, ECB president Christine Lagarde opened the door to further interest hikes. This is no surprise. She committed to keep hiking over 2, 3 or 4 meetings (including today’s). This implies further hikes until October, December or February, followed by a pause. Forward guidance is not dead, finally. Expect a 50 basis point hike in October, in our view. The German 2-year Schatz yield rose over 20 basis points to yesterday to close at new cycle high of 1.33%. The United Kingdom announces a massive anti­-inflation plan Yesterday, the new prime minister Liz Truss announced a major plan to fight the high cost of living related to energy prices. There are five major measures: 1) capping household bills at £2500 per month. 2) a new £40bn liquidity scheme with the Bank of England for energy firms who need it. 3) no further windfall tax (a tax levied on an unforeseen or unexpectedly large profit). 4) speeding up the deployment of clean energy but at the same time granting more oil and gas licenses for North Sea. and 5) commitment to net zero 2050. If this is successful, it means that the peak in UK inflation will certainly be lower (by 4-5 %). So far, the government believes that the peak could be between 13 and 18 %. This is a broad range. But it shows the level of uncertainty about the short-term economic outlook. Finally, Truss refused to evaluate the total cost of the new plan. Several experts believe it could be close to £150bn, over 6% of UK GDP. DocuSign shares up 17% in extended trading Q2 revenue was much better than expected but confirmed its fiscal year outlook on revenue which was better than the underlying consensus which was clearly below analyst estimates. The company sounded optimistic on the billing outlook, which is the key indicator for future growth, and as a result traders pushed shares 17% higher in extended trading. Apple warned by US government against using Chinese chips Congressional Republicans including Senator Marco Rubio of the Senate intelligence committee and Michael McCaul of the House foreign affairs committee expressed alarm at reports that Apple cited Yangtze Memory Technologies as one of its suppliers of flash memory chips used for phone storage.  “Apple is playing with fire”, said Senator Rubio, threatening scrutiny of the company. Apple said it would not sell iPhones using the chips outside China. What are we watching next? EU Summit today on emergency intervention in power markets and possibly to cap imported Russian gas prices The EU may be able to cap electricity prices, but this could mean a shortage of output relative to demand, i.e., forcing rationing over the winter period when demand surges. Russian leader Putin has called any plan to cap prices “another stupidity”. Swedish election this weekend Swedes go to the polls on Sunday, with the right populist Sweden Democrats expected to become the second-largest political party. In the past, the right-leaning main parties have been unwilling to consider alliances with the Sweden Democrats, as their positions were seen as too extreme, but this has made for very fragile left-coalitions in recent years because of the lack of a sufficient plurality in Parliament. Earnings to watch Today’s key earnings release is Kroger which is a large US supermarket chain with a strong competitive position in the current inflationary environment. Analysts are expecting revenue growth of 8.6% y/y in FY23 Q2 (ending 31 July) and lower operating margin expected due to rising input costs. Today: Kroger Earnings releases next week: Monday: Oracle Tuesday: DiDi Global Wednesday: Inditex Thursday: Polestar Automotive, Adobe Economic calendar highlights for today (times GMT) 0930 – ECB President Lagarde to speak 1230 – Canada Aug. Net Change in Employment / Unemployment Rate 1600 – US Fed’s Waller (Voter) to speak 1600 – US Fed’s George (Voter) to speak Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher         Source:
The UK Markets Remain Volatile, Possible Contraction Of The Eurozone Economy

British Pound (GBP) And UK Economy: Next Week Is Full Of Vital Releases - Inflation, GDP And Labour Market Data

ING Economics ING Economics 09.09.2022 15:38
Next week's US inflation numbers will need to be quite surprising for the Fed to deviate from a 75bp hike at its September meeting. The Bank of England's scheduled meeting has been postponed, and instead the focus will be on several pieces of key UK data In this article US: Core inflation likely to rise to 6.1% UK: Bank of England to stick to 50bp rate hike despite energy package Source: Shutterstock Article updated on 9 September to reflect the postponement of the Bank of England's scheduled meeting US: Core inflation likely to rise to 6.1% We have the last full week of economic data ahead of the September Federal Open Market Committee (FOMC) meeting, but it will take some surprising numbers to make the Fed deviate from a third consecutive 75bp rate hike. After all, the economy is posting decent growth, creating jobs in significant numbers, and Fed Chair Jerome Powell is arguing that “we need to act now, forthrightly, strongly as we have been doing and we have to keep at it until the job is done”. The data includes CPI, which should show headline inflation being depressed by lower gasoline prices, but core inflation is likely to rise to 6.1% from 5.9%. Retail sales should post flat growth, but remember this is a nominal figure and those falling gasoline prices will be a major drag. Real consumption is likely to be up in the third quarter. We also expect manufacturing output to grow further. The deteriorating global outlook and weakening domestic housing market combined with the cumulative impact of policy tightening and the strong dollar means we think the Fed will moderate its hiking to 50bp in November and 25bp in December. Weaker wage pressure and more limited month-on-month increases in CPI thanks to lower import and other input costs would certainly help this argument. UK: Bank of England to stick to 50bp rate hike despite energy package The United Kingdom will observe a period of mourning following Queen Elizabeth II’s death on Thursday, and Parliament will be adjourned during this time. The Bank of England's scheduled meeting has also now been postponed to the following week, but the ONS has confirmed that several pieces of important data will still be released. Here's what we expect: July GDP (Monday): Expect a large bounce-back from June, where the addition of an extra bank holiday artificially distorted the monthly GDP numbers. Depending on the arrangements during the period of mourning, the addition of an extra bank holiday in September is possible, and this would factor into the GDP numbers for the current month. We’ll therefore have to wait until the fourth quarter to get a clearer idea of how the economy is faring in GDP terms, and we suspect there’s still a risk of a negative growth figure. However, the announcement of an energy price guarantee by the government considerably reduces the risk of a deep downturn, and potentially also a technical recession. Jobs (Tuesday): Hiring demand is falling, though recent data and surveys have suggested that the worker shortages plaguing the jobs market have only improved slightly over recent months. The announcement of an energy price cap for businesses should help limit what otherwise could have been a more immediate rise in redundancies as firms’ costs increased. We expect the unemployment rate to remain stable next week, but we’ll also be watching closely for signs of a more pronounced return of inactive workers to the jobs market. Inflation (Wednesday): A 6% fall in petrol/diesel prices through August will drag headline inflation slightly lower. That doesn’t mean we’re past the peak, though the introduction of the energy price cap means inflation is less likely to materially surpass 11% in the autumn. Without the cap, we’d forecast inflation would go to 16% or above in January. This is a double-edged sword for the BoE. On one hand, the reduced the peak in headline inflation should ease concerns about consumer inflation expectations becoming even less anchored. That points to another 50bp rate hike when the BoE meets later in September, despite the Fed and ECB going more aggressively. The BoE has shown in past meetings that it isn’t pressured to follow those other central banks, albeit the hawks will be worried about the recent slide in sterling. They will also argue that the government’s action increases the risk of inflation staying elevated in the medium-term, given the reduced risk of recession, Some members are therefore likely to vote for a 75bp hike at the next meeting. But ultimately with a lot already priced into markets for the BoE, policymakers will be wary about adding fuel to the fire. As we saw with the ECB on Thursday, the decision to go with a 75bp hike saw markets price that as the default move at the next meeting. Key events in developed markets next week Source: Refinitiv, ING This article is part of Our view on next week’s key events View 3 articles   TagsUS Bank of England   Read this 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 UK Markets Remain Volatile, Possible Contraction Of The Eurozone Economy

United Kingdom: Inflation Is Expected To Hit 11% As Energy Price Cap Is Set To Be Applied

ING Economics ING Economics 14.09.2022 13:37
Headline inflation will rise a little further having eased back below 10% in August, and it's likely to stay around 11% into early next year before falling back more dramatically. However, the Bank of England is watching wage growth more closely, as the hawks worry that worker shortages could lead to core inflation staying more persistently above target The introduction of a government cap on household energy prices means that we should now be fairly close to the peak in these headline figures The absence of another upside surprise to UK inflation this month takes a bit of pressure off the Bank of England to move even more aggressively when it meets next week. Headline CPI came in a touch lower than both consensus and last month’s level, at 9.9%, and that’s largely because of a near-7% fall in petrol/diesel prices during August. We expect another 2% decline in next month’s figures. The introduction of a government cap on household energy prices means that we should now be fairly close to the peak in these headline figures. The fact that electricity/gas bills won’t be rising by around 80% in October and a further 30-40% in January means that the peak in CPI should be around 5 percentage points lower. With the government due to cap the average household energy bill at £2500, up from around £2000 now, we expect a peak in the region of 11% in October. That's compared to 16% in January which is what we’d forecasted before the support was announced. UK inflation now set to peak at around 11% after energy price support Source: Macrobond, ING forecasts   We’d expect inflation to stay around there until early next year, before cooling more quickly as energy base effects kick-in. We think it could be more-or-less back to the Bank of England’s 2% target by the end of next year, crazy as that currently seems. But what policymakers are more interested in is core inflation – or to put it more accurately, the more persistent parts of the inflation basket. Here the news is mixed. On a month-on-month price basis, the increases we saw in August do seem fairly broad-based. However, there are signs that ‘core goods’ inflation is easing off, linked perhaps to the rise in retailer inventory levels relative to sales. That’s a function of supply chains beginning to improve, and in some cases commodity prices having fallen, which is coinciding with reduced demand for goods. Higher inventories and lower sales reducing pressure on goods prices Source: Macrobond, ING   However, the Bank is more focused on wage growth, and as we noted yesterday, the worker shortages that have plagued the jobs market for several months now don’t appear to be resolving themselves very quickly. The BoE’s hawks are concerned that this will translate into persistent pressure on wage growth. We aren’t totally convinced this will be enough to swing the pendulum in favour of a 75 basis-point rate hike next week, despite both the ECB and Federal Reserve going down this path. It’s a pretty close call, not least because the hawks will be worried about the recent slide in sterling, and markets are closer to pricing a 75bp move than a 50. But for now, we think another 50bp move next week is the most likely outcome, followed by another such move in November. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
UK GDP Already Falling And Continuing To Do So For This Calendar Year, Copper Is Still Within A Tightening Range

GBP/USD May Be Fluctuating Shortly! The UK CPI Expected To Go Up. Headline Inflation May Reach 10%!

Kenny Fisher Kenny Fisher 18.10.2022 22:01
GBP/USD has edged lower today, after starting the week with sharp gains. In the North American session, GBP/USD is trading at 1.1334, down 0.18%. Read next: JP Morgan Net Income Over $9B | Kanye West Is Buying Parler| FXMAG.COM Pound jumps after Hunt axes tax cuts The pound continues to show strong volatility as the political saga continues in the UK. Truss finally stopped blaming the markets and “global headwinds” for the decline of the British pound and UK gilts on Monday, saying she was sorry for going too “far and too fast” with her economic plan. Truss has insisted she will continue on as leader, but the restless Conservatives, who have sunk in the polls, could decide to pull the plug on Truss’ disastrous leadership. Jeremy Hunt, the new finance minister, wasted no time in abolishing most of the tax cuts contained in the recent mini-budget and told parliament that spending cuts and tax increases were coming, an astounding U-turn. Hunt scaled back the plan to cap energy bills for consumers and that could mean higher inflation. The markets liked what they heard and the pound soared by 1.5% on Monday. Still, the soft economic outlook and the political chaos which has rocked the UK are strong headwinds which will likely weigh on the pound. The UK releases CPI for September on Wednesday, which is expected to edge higher. Headline inflation is projected to hit 10.0%, up from 9.9%, and core CPI is forecast to rise to 6.4%, up from 6.3%. With no sign of inflation peaking, the Bank of England remains under pressure to continue raising interest rates at the November 3rd meeting. Goldman Sachs has downgraded its UK growth outlook, with the economy expected to decline by 1% in 2023, worse than the previous estimate of -0.4%. GBP/USD Technical GBP/USD faces resistance at 1.1373 and 1.1455 There is support at 1.1214 and 1.1085 This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. GBP/USD steadies after rally - MarketPulseMarketPulse
Craig Erlam and Jonny Hart talk UK Autumn Statement and more

The Peak Of The UK Inflation May Come In October, Says ING Economics

ING Economics ING Economics 19.10.2022 09:45
We think UK inflation is now only fractionally away from the peak, which is likely to come in October. But depending on how the government's energy price guarantee is structured beyond April next year, inflation could be 2-3pp higher for much of 2023 if most consumers switch back to the Ofgem regulated price for electricity and gas   UK inflation is back into double-digits once more and at 10.1% is the highest rate in 40 years. But we think we’re only fractionally away from the peak now, which is likely to come in October – though in practice we’re likely to see inflation hover in the 10-10.5% range through to January. Food prices are still a key source of pressure, though there are very early signs in the producer price data that month-to-month gains are slowing. Food inflation is close to 15% now, but again that’s probably close to peaking out. Elsewhere, there are good reasons to think inflation should begin to ease through 2023. Inventory levels among retailers are spiking now supply chains are gradually improving, and more importantly, consumer demand is flagging. That potentially points to aggressive discounting in coming months, or at the very least slower price rises in durable goods categories. But the key question for the 2023 inflation outlook now relates to the energy price guarantee. We explained in more detail yesterday that the Chancellor’s decision to make the government’s energy price support more targeted could see most consumers switch back to the Ofgem-regulated price from April. We still need to see how this is going to work in practice, but such a scenario could add between 2-3pp to headline inflation from April onwards. Making energy price guarantee more targeted could add 2-3pp to inflation from April Source: Macrobond, ING   While on paper you could make a hawkish case out of that for the Bank of England, in practice it’s more likely to be the opposite. The dramatic scaling back of fiscal support by the new Chancellor will be seen as lowering medium-term inflation, and that’s what BoE policymakers will be more interested in. We’ve scaled back our forecast for November’s meeting to a 75bp rate hike, from 100bp previously. The hawks at the BoE will still be acutely worried about the value of the pound and the potential for any further weakness to add to medium-term inflation. But the alternative is hiking aggressively and baking in the extremely high mortgage/corporate borrowing rates now on offer - something which is only likely to amplify a winter recession. We, therefore, think it's more likely that Bank Rate peaks between 3.5-4% by early next year, below market expectations. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The EUR/USD Pair Is Showing A Potential For Bearish Drop

Eurozone Inflation Hits 9.9%, It's The Highest Level In More Than 25 Years!

Conotoxia Comments Conotoxia Comments 19.10.2022 15:26
While consumer inflation seems to be slowing down in the United States, looking at the CPI measure, the opposite is true in the Eurozone or the United Kingdom. Price growth continues to accelerate, according to data released today. What is the inflation rate in Europe? The annual inflation rate in the eurozone rose to 9.9 percent in September 2022, up from 9.1 percent a month earlier. This is the highest inflation rate since measurements began in 1991. Inflation has thus moved further away from the European Central Bank's 2 percent target, which may cause policymakers to continue tightening monetary policy despite the risk of recession. The main upward pressure for eurozone prices came from the energy sector (40.7 percent versus 38.6 percent in August), followed by food (11.8 percent versus 10.6 percent), services (4.3 percent versus 3.8 percent) and non-energy industrial goods (5.5 percent versus 5.1 percent). Annual core inflation, which excludes volatile energy, food, alcohol and tobacco prices, rose to 4.8 percent in September. On a monthly basis, consumer prices rose 1.2 percent, Eurostat reported. Source: Conotoxia MT5, EUR/USD, H4 Prices in the UK are also rising The UK's annual inflation rate rose to 10.1 percent in September 2022 from 9.9 percent in August, returning to the 40-year high reached in July and beating market expectations of 10 percent, trading economics reported. The biggest contributor to the increase was food, which became more expensive by 14.8 percent. Costs also rose sharply for housing and utilities, as they rose by as much as 20.2 percent, mainly, due to soaring electricity or gas prices. In contrast, core inflation on an annualized basis, which excludes energy, food, alcohol and tobacco, rose to a record 6.5 percent, compared to expectations of 6.4 percent, according to data from the Office for National Statistics. Source: Conotoxia MT5, GBP/USD, H4 High inflation in Europe - central banks with no way out? High inflation may not give much room for further action by central banks in the context of executing the so-called pivot, i.e. a turnaround in the current monetary policy, which consists mainly of interest rate hikes. Further price increases could seal further interest rate hikes in the Eurozone or the UK, which in turn could affect household budgets, but also company valuations. Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
Soft PMIs Are Further Signs Of A Weak UK Economy

October's Inflation Print May Be Market Moving

Kamila Szypuła Kamila Szypuła 13.11.2022 12:30
Every month a team of specialists in UK collects around 180,000 separate prices of over 700 items covering everything a typical family might buy, such as milk, bread and bananas. The results of analysis is published evry month as CPI report. The October reading report will be published on November 16. Previous data The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 8.8% in the 12 months to September 2022, up from 8.6% in August and returning to July’s recent high. The largest upward contributions to the annual CPIH inflation rate in September 2022 came from housing and household services (principally from electricity, gas and other fuels, and owner occupiers’ housing costs), food and non-alcoholic beverages, and transport (principally motor fuels). On a monthly basis, CPIH rose by 0.4% in September 2022, compared with a rise of 0.3% in September 2021. The Consumer Prices Index (CPI) rose by 10.1% in the 12 months to September 2022, up from 9.9% in August and returning to July’s recent high. Rising food prices made the largest upward contribution to the change in both the CPIH and CPI annual inflation rates between August and September 2022. Inflation Returning to double-digit inflation will be difficult for ministers and the Bank of England. It shows that price increases have not yet reached their peak, despite the energy price guarantee that will reduce gas and electricity bills this winter. September's inflation figures highlight the severity of the UK's inflation crisis and comes as the country is going through a period of economic instability. The central bank will assess rising price pressures against the government's recent changes to unfunded tax cuts, which could help ease inflation in the coming months. Double-digit inflation is expected to continue. And it will increase again to the level of 10.6%. The monthly change is also forecast to increase by 1.2%. Source: The Outlook Inflation has been on an upward trajectory, and since May this year the pace has accelerated to double digits. Gross domestic product fell 0.2% from the second quarter, a slightly better outcome than the 0.5% decline feared. Overall in the third quarter, service sector output was flat, driven by a fall in consumer-facing services. Retail sales volumes in particular fell 1.9% in the period. The negative data adds to the country’s dampened economic outlook and already depressed consumer sentiment. Some model predicts the UK to enter a recession as early as this year. This is largely due to surges in inflation as the cost of living crisis impacts all demographic groups. The central bank of England expects GDP to continue falling through 2023 and into the first half of 2024. Expectatiosn Here are few reasons why we expect inflation in the UK to fall sharply from the middle of next year. First, the price of energy won’t continue to rise so quickly. The Government has introduced a scheme that caps energy bills for households and businesses for six months. Second, Bank Of England don’t expect the price of imported goods to rise so fast. That’s because some of the production difficulties businesses have faced are starting to ease. Third, there can be less demand for goods and services in the UK. That should mean the price of many things will not rise as quickly as they have done. Source:,
Solid Wage Growth in Poland Signals Improving Labor Market Conditions

UK inflation accelerated in October, remote disabled workers could assist in bringing down unemployment, Asian stocks fell in the wake of missile strike in Poland

Rebecca Duthie Rebecca Duthie 16.11.2022 11:51
Summary: The UK's inflation rate accelerated to 11.1 percent in October. Due to COVID, more disabled employees are now employed. Reports that two individuals were killed by a Russian-made rocket in eastern Poland caused risk-sensitive markets to fall. UK inflation surpassed expectations On the basis of rising energy and food prices, the UK's inflation rate accelerated to 11.1 percent in October, reaching a new 41-year high. The rate increased from 10.1% in September, according to the Office for National Statistics, bringing inflation to its highest point since October 1981. In a Reuters poll, economists predicted a rate of 10.7%. The government's energy price guarantee, which set a maximum on gas and electricity bills at £2,500 for a household using both fuels on average, did not prevent the significant increase in living expenses. One encouraging aspect of the data was that core inflation, which excludes food and energy, remained constant in October at 6.5%, matching its level from the previous month. In his Autumn Statement on Thursday, Chancellor Jeremy Hunt blamed Russia's invasion of Ukraine for the rising cost of living crisis and promised to make "difficult but necessary decisions on tax and spending" to assist lower inflation. “We cannot have long-term, sustainable growth with high inflation. Tomorrow I will set out a plan to get debt falling, deliver stability, and drive down inflation while protecting the most vulnerable,” Hunt said. UK inflation accelerates to 41-year high of 11.1% — Financial Times (@FT) November 16, 2022 Hiring remote disabled workers could assist in Americas labor crisis Although the end of America's widespread labor crisis is still not in sight, some economists contend that having a workforce with a wider range of abilities in today's hybrid workplace could assist. Due to COVID, more disabled employees are now employed thanks to the shift to working from home or using a hybrid approach. Disability-related adults between the ages of 25 and 54 "are 3.5 percentage points more likely to be employed in Q2 2022 than they were pre-pandemic," according to the Economic Innovation Group (EIG). In comparison, non-disabled people continued to have a 1.1 percentage point lower likelihood of being employed. The coronavirus epidemic, which eliminated 500,000 jobs from the American workforce, and the Great Resignation, which began following the outbreak, are both factors in the current labor crisis. According to the U.S. Chamber of Commerce, there would still be around 4 million unfilled positions even if every unemployed person found employment. Prior to COVID, 6.3% of people with disabilities and 5.9% of people without disabilities worked from home. Because it removes obstacles like driving to work and other locations that can be challenging to manage, working remotely boosts productivity for employees with impairments. She pointed out that perks like closed captioning, flexible working hours, medical breaks, and the use of one's own assistive equipment help employees produce the highest-quality work, boosting a company's financial success. Due to their unique perspectives and environments, these people really have an advantage over their non-disabled coworkers who aren't disabled. Hiring remote disabled workers could help close the labor gap, economist says by @tanyakaushal00 — Yahoo Finance (@YahooFinance) November 16, 2022 Missile that hit poland weighing on Asian stocks As investors sought more information on a potential Russian missile assault on Poland, Asian stock markets declined on Wednesday. However, anticipation that the Federal Reserve will hike interest rates more slowly helped to limit losses. As investors locked in a stellar three-day gain streak, Hong Kong stocks had the worst day, with the Hang Seng index down 1.1%. With recent increases, the Hang Seng has come very close to confirming a bull market rally from recent lows. Following reports that two individuals were killed by a Russian-made rocket in eastern Poland on Wednesday, risk-sensitive markets fell. If the attack was carried out by Russia, it would be the first time since Moscow invaded Ukraine that a NATO member had been attacked by Moscow (NATO). The action might also herald an escalation in the confrontation between Russia and Ukraine, especially in light of NATO involvement. However, early remarks from Moscow and Washington imply that such an outcome might not occur. *GLOBAL STOCKS SLIP IN CAUTIOUS TRADE AS MARKETS WEIGH POLAND MISSILE STRIKE — (@Investingcom) November 16, 2022 Sources:,,,
Soft PMIs Are Further Signs Of A Weak UK Economy

The Bank Of England Is Undoubtedly Worried About Inflation

ING Economics ING Economics 16.11.2022 13:10
With the government fixing energy prices until at least April, it looks like October's 11.1% inflation rate could mark the peak. But it's unlikely to fall below double-digits until early next year, and the Bank of England is undoubtedly worried about inflation linked to the tight jobs market. Still, a pivot back to a 50bp hike in December looks likely The latest rise in household energy costs was enough to take UK inflation up to 11.1% in October. That’s a bit higher than was expected, and seems to be partly explained by another punchy 2% month-on-month increase in food prices, and a little bit of upside at the core level. All of this is marginally hawkish for the Bank of England in that its closely watched measure of ‘core services’ inflation, which excludes some volatile components and the impact of VAT changes, came in a few percentage points higher than they’d pencilled in. By our calculation, that sits slightly above 6% YoY, compared to a forecast of 5.7% by the BoE a couple of weeks ago.   As we noted yesterday, worker shortages are proving to be a persistent issue for firms, and that potentially points to stickier inflation rates for service-sector firms where pay is a key pricing input. Still, with hiring demand falling, we suspect we’re near the peak for wage growth. In fact – famous last words – it looks like UK headline inflation is at its peak too, or there or thereabouts. The fact that the government is effectively fixing electricity/gas unit prices below wholesale costs until next April means this is probably as high as it will get, though admittedly we expect headline rates to stay in double-digits until at least February next year. From there, we think there are compelling reasons to expect headline inflation to drift lower through the year, ending up closer to the Bank of England’s 2% target by early 2024. That’s especially true of goods categories, where lower input/shipping prices, stalling consumer demand and rising inventory levels not only point to lower inflation rates, but potentially also outright price falls in certain areas as retailers are forced to become more aggressive with discounting. The story, as we discussed earlier, is less clear-cut for services inflation. UK inflation in 2023 will depend a lot on how energy support evolves after April   Source: Macrobond, ING   The 2023 inflation outlook will also heavily depend on how the government adapts energy support next year. We’re still awaiting detail, but one possibility is that the majority of households switch back to paying the Ofgem regulated price from April. Based on our latest estimates using wholesale energy costs, the average household would pay £3300 in fiscal-year 2023 without any government support, compared to £2500 if prices remain capped. That would initially bump up inflation rates after April by roughly 2pp. While it’s tempting to say that higher headline inflation rates in that scenario would be hawkish for the Bank of England, in practice the opposite is probably true. Reduced energy support would amplify the UK recession that most, including ourselves, now expect. That would imply lower core inflation further down the line. With signs that inflation – both in core and headline terms – is close to or at a peak, and signs of recession mounting, we think the Bank of England is likely to pivot back to hiking in 50bp increments in December. Assuming another 25-50bp hike in February, we think the peak for Bank Rate is likely to be around 4%, a little below what markets are now pricing.   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
Forex: British pound against US dollar - technical analysis - January 2nd

British pound may plunge further, headline CPI expectations lowered

FXStreet News FXStreet News 15.12.2022 16:10
The BOE has raised rates by 50 bps but has refrained from committing to more action. Two members have voted against raising rates at all. The MPC has noted that government action reduces the inflation path. Two 50 bps rate hikes – a different outcome, and it is due to promises about the future. While the Fed wants to continue raising rates, the Bank of England has its doubts. GBP/USD has reacted negatively to the decision, but here is why there may be more in store. 1) Conditional hikes: The BOE stated that the "majority of the Monetary Policy Committee judges that further increases in the bank rate may be required. The critical word here is the word "may." Has the "Old Lady" reached its limit at 3.50%? That would a shallow rate hike cycle. 2) Two wanted to stop right now: Two out of nine MPC members voted against raising rates at all – not even 25 bps. While one member took the hawkish stance of a 75 bps hike, the two dovish members noted weakness in the labor market. This sentiment comes just after the UK reported an increase in wages. What do they know that others do not? Such pessimism is detrimental for the Pound. Read next: In December, the Fed maintained a tougher rhetoric than the market consensus, playing on the bears' side| FXMAG.COM 3) Inflation will not be that high: According to the BOE, the government's new Autumn Statement, the fiscal cuts will cause headline CPI to drop by 0.75% compared to previous forecasts. That means fewer rate hikes. The BOE and its Governor, Andrew Bailey are pessimistic, adding to the gloom Britain is suffering from soaring energy bills, cold weather, and an "advent calendar of strikes." There is more room for the Pound to fall.
Soft PMIs Are Further Signs Of A Weak UK Economy

The U.K. Economy Is In Trouble, Fall Of GDP Is Expected!

Kamila Szypuła Kamila Szypuła 08.01.2023 19:48
A difficult year ahead for the global economy is set to hit some countries harder than others. Inflation was one of the biggest macroeconomic themes in 2022 and it is likely to remain so in 2023. Inflation also contributes to gross domestic product. In Great Britain, this indicator does not look optimistic, and its upcoming reading may turn out to be crucial for the economy this year. The Bank of England has said the country is on track for a prolonged recession, as households struggle to keep up with the soaring costs of food, energy and other basic essentials. Economists opinion Around four-fifths of economists say the UK will experience a much longer recession than its peers. They predict a difficult year 2023 and a potential return to normal by 2024. The UK will face one of the worst recessions and weakest recoveries in the G7 in the coming year, as households pay a heavy price for the government’s policy failings, some economists say. A large proportion of experts expect the UK to fall behind its peers, with gross domestic product already contracting and expected to continue to do so for most or all of 2023. The result is expected to be an increasingly steep decline in household income as higher credit costs add to the pain already caused by soaring food and energy prices. In its macro forecast for 2023, Goldman Sachs forecast a 1.2% decline in UK real GDP over the course of the year, well below all other major G-10 economies. ING pointed out that GDP figures have been somewhat discrepant recently, partly due to the Queen's funeral in September last year. But the economy is clearly weakening and ING expects a negative monthly result in November, after an artificial rebound in October after September's extra day off. Inflation Throughout the last year, the Bank of England has been raising interest rates in an attempt to cool down rampant inflation. This resulted in an increase in interest rates from 0.25% to 3.5%. The cost of borrowing in the UK has increased dramatically, affecting the ability of businesses to borrow money, but also the cost of mortgage payments for millions of Britons. As mortgage repayments increase, household disposable income decreases. Disposable income is also affected by inflation as the cost of goods and services increases. The Office for National Statistics reported last month that Britain's inflation rate was 10.7% in November, down from a 40-year high of 11.1%. GDP Economic activity has slowed sharply in recent months as consumers tighten their belts in response to soaring living costs, while business investment has slumped amid concerns over the strength of the UK and global economy. Last month, GDP showed that the UK economy contracted at a rate of -0.3% in the last quarter. This reinforces speculation that the UK is facing a long recession. When it comes to forecasts for quarterly or year-on-year results, there are no forecasts, but a contraction is to be expected given the prevailing economic conditions. The Pound (GBP) on FX market Based on the current outlook, investors can expect a difficult year ahead for the pound, with the value of sterling coming under significant pressure if the economies of its major counterparts continue to outperform the UK. During the last recession, the pound fell to 1.05 to the euro and 1.14 to the dollar. Cable (GBPUSD) was trading at 1.14 Source:
The UK Economy Expects A Decline And Is Gearing Up For Recession

The UK Economy Expects A Decline And Is Gearing Up For Recession

Kamila Szypuła Kamila Szypuła 04.02.2023 10:41
The UK is expected to be the only major industrialized country whose economy will contract this year. GDP forecast After UK economic output QoQ declined by 0.3% in Q3, many economists expected a similar contraction in Q4. The decline in the third quarter of last year was, according to the Office for National Statistics, partly due to an extra day off in September 2022 for the state funeral of Her Majesty Queen Elizabeth II as some businesses were closed or operating differently that day. The pause in economic activity on September 19, the day of the funeral, contributed to a monthly fall in GDP of 0.8% in September. This was followed by a rebound in October when the UK economy grew by 0.5% month on month. The economy grew a further 0.1% m/m in November, beating expectations of a 0.1% decline as the football world cup in Qatar boosted the UK services sector which grew by 0.2% compared to October. The customer services sector, which includes pubs and other food outlets, recorded an increase of 0.4%. Given the positive GDP growth in October and November and the fact that the World Cup lasted until December 18, it is possible that the UK narrowly avoided a decline in GDP in the fourth quarter, keeping the country from falling into recession. Source: Read next: Domination Of Fast Food Restaurants - McDonaldization| FXMAG.COM When comparing the 2022 quarter to the 2021 quarter, the UK economy is estimated to contract from 1.9% to 0.4% in the fourth quarter. GDP YoY Chart Source: UK in recession? According to the Office for Budget Responsibility, the UK is already in recession. Moreover, manufacturing fell by 0.2%, suggesting that while the fourth quarter as a whole may now show modest growth, the outlook for the future remains challenging, especially given that a reduction in service consumption is expected as the cost of living crisis intensifies this year. The trajectory of the central bank's aggressive monetary policy tightening appears to hold in the short term as inflation continued to hit double digits in November, albeit declining slightly from its 41-year high in October. Combined with the cost of living crisis caused by soaring food and energy prices, widening industrial action and unprecedented pressure on the nation's health service, consumers' purchasing power is unlikely to survive beyond the Christmas treat. The increased cost of credit is likely to put further downward pressure on activity. The Bank of England predicts that the British economy will experience at least four quarters of recession. The bank now predicts that the economy will contract by 1% from 3% and that inflation will fall back to 8% in June before dropping to 3% at the end of the year. The forecast comes as interest rates were raised to 4% from 3.5%, the highest level in more than 14 years. On Thursday, the Bank hinted that interest rates may be approaching a peak, indicating that it will only raise them if it sees signs that inflation will remain high. Bank governor Andrew Bailey said inflation appeared to be coming down but warned that there were still "big risks" that could still affect the economy. Higher interest rates are designed to encourage people to save more and spend less, helping to stop prices from rising as rapidly. Thursday's increase in the cost of credit is the tenth in a row and will add pressure on many households already struggling with the cost of living. The impact will be felt by borrowers through higher mortgage and credit costs, although this should also mean better returns for savers. Source:
Eightcap analyst after UK CPI: It is an interesting position now for the Bank of England., do they need to go back to a few 50-point hikes to cut into the CPI rate?

Joe Jeffries (Eightcap): Based on yesterday's rally and the current trend, the FTSE looks to be solid position ignoring local issues for now.

Joe Jeffriess Joe Jeffriess 14.02.2023 12:11
FXMAG.COM: On Thursday Bitcoin decreased noticeably, what would you address that decrease to? Joe Jeffries (Eightcap): Yes, we noticed that drop; it really was the kick-off for the current pullback. If we look at the daily chart, we can see a decent patch of distribution from the 21st of Jan to the 8th of Feb. Yes price made several new highs, but overall it moved sideways. On Thursday, comments from Fed members looked to confuse the market a touch about what exactly is the Feds policy at present. This confusion, combined with a stagnating price, looked perfect for a round of profit-taking that went a touch far. Since that point, risk markets have struggled for direction. We feel that they could be waiting for today's CPI data to give some guidance. We feel that if CPI data comes in hotter, this could hurt bitcoin further, and if it misses to the downside, we could see a new push higher. Read next: Bartosz Milczarek, CEO at Cryptiony: Customers settle the crypto tax in annual returns, so our business model is also based on annual subscriptions | FXMAG.COM Another factor is the SEC and Paxos. This has had an influence this week on several coins, but for now, bitcoin looks to have mainly shrugged it off. But if it expands, you may see weakness spill over. FXMAG.COM: Are you of the opinion UK retail sales is going to provide support to FTSE? Joe Jeffries (Eightcap): Possibly not, this will depend on the UK CPI data this week, and for now, it's expected to come in at 10.3%, which is still a very high number. If retail sales come in strong, this could add more fuel to the inflation fire. But they are expected to come in at -0.2% and based on how things are going, they may even miss the downside. Anything right now that influences further rate rises could be a negative for the stock market. Based on yesterday's rally and the current trend, the FTSE looks to be solid position ignoring local issues for now. The last GDP M/M came in at -0.5%. This week's US CPI and PPI data will be a factor to watch as it typically has a spillover effect on other major global exchanges.
The Bank Of England Will Be Under Pressure To Continue Hiking Aggressively

UK inflation target of 2% will be not that easy to reach, because of the low unemployment rate and internal inflationary pressures

Alex Kuptsikevich Alex Kuptsikevich 15.02.2023 16:33
The UK’s rate of consumer price inflation remains one of the fastest in the developed world, although January's figures were softer than expected. CPI fell by 0.6% last month, against expectations of a 0.4% drop. Annual inflation slowed from 10.5% to 10.1% (10.3% forecasted). The weaker-than-expected data put downward pressure on the Pound, as it eased some pressure on the Bank of England to raise interest rates. The Input Producer Price Index was also weaker than expected, falling 0.1% m/m against expectations for a 0.2% rise and slowing to 14.1% - an impressive slowdown of more than ten percentage points from a peak of 24.6% in June. Read next: Fed expectations have changed a bit. A record-breaking Federal Fund Rate can affect stock market| FXMAG.COM However, there is a greater likelihood that UK inflation will be more 'sticky' than continental Europe. The retail price index held its annual rate at 13.4% in January. Producer prices rose by 0.5%, much more than the 0.1% expected. Due to the base effect, the inflation rate is falling, which is a relief. However, it should be noted that there is still a long way to go to reach the 2% CPI target, as the unemployment rate is low and internal inflationary pressures are building up to replace the external inflation caused by last year's soaring commodity and energy prices.
UK Gfk Consumer Confidence index got better fourth month in a row

According to Michael Hewson from CMC Markets, Bank of England decision may be split, and British pound may drift lower

Michael Hewson Michael Hewson 17.03.2023 21:00
  Bank of England rate decision – 23/03 – the big question facing UK markets right now is how close the Bank of England is to its terminal rate, with a base rate currently at 4%, and whether recent events across the banking sector will temper its decision to raise rates this week. Over the past few days, we've seen market estimates of the terminal rate fall from 4.8%, closer to 4.25%, due to concerns over the stability of the banking sector, as a result of the Credit Suisse and SVB inspired volatility of the last few days. Recent comments from Governor Andrew Bailey have helped to give the MPC some wriggle room this week, when he said that nothing had been decided when it came to further hikes in rates. Bailey did go on to say that more rate rises would likely be needed and that the lessons of the 1970s ought not to be forgotten. His recent comments that the economy was evolving in line with expectations were particularly laughable given that a few months ago the central bank was saying that the UK economy was already in recession, and now it looks like it may avoid one. The MPC continues to remain split with Tenreyro and Dhingra both opposed to further rate hikes even with headline CPI still above 10% and core prices at 5.8%, and wages at 6.5%. Hawkish MPC member Catherine Mann has continued to insist that more hikes are warranted given stickier inflation dismissing the idea of a pivot to a looser policy, although recent events could temper her outlook here. She did go on to insist that rates would have to stay higher for longer in order for inflation to return to target. This stance seems entirely more credible than the dovish stance of Tenreyro and Dhingra given how stickier UK inflation has always tended to be historically. This is mainly down to the transmission mechanism of a weaker pound, which tends to put a floor under prices. Markets are currently looking for 25bps this week, however, it wouldn't be beyond the realms of possibility if we got no change at all given the recent volatility inspired by events in the US, around the collapse of Silicon Valley Bank, and the events surrounding Swiss bank Credit Suisse, which is creating huge ripples through the European banking sector. What we do know is it's likely to be another split decision and the pound will probably drift lower once Bailey opens his mouth.    
Worst behind us for UK retail despite fall in sales

UK economy: headline inflation rises to 10.4%. Core prices added 0.4%

Michael Hewson Michael Hewson 22.03.2023 13:09
Just when you can't think inflation can't get any worse it does after UK inflation in February unexpectedly rose to 10.4%, when most had expected the headline number to fall back below 10% for the first time since August last year. Core prices rose too Not only that but core prices also rose sharply from 5.8% to 6.2% dealing a blow to the Bank of England's claims that CPI had turned the corner and was starting to come down. Today's data seals the deal on a 25bps rate rise tomorrow but also increases the pressure for the central bank to go further and consider a 50bps move. It also calls into question the claims by Tenreyro and Dhingra that the transmission mechanism of previous hikes is already exerting downward pressure on prices. Based on these numbers it clearly isn't and makes you wonder what it is in the date they are seeing.  More concerning are the areas where inflation is still rising strongly, with food prices up by 18.2%. , while we're also seeing rising prices in restaurants and hotels of 12.1%, in response to rising wages. Housing and household services also saw a year-on-year increase of 11.8%, and with various utility bill prices due to come into effect in April, along with eye-watering council tax rises there is little prospect of a respite in the short or medium term. Earlier this year it was claimed that headline CPI could well fall back to 2% by the autumn by some economists. Judging by the strength of this data that claim looks ever more spurious than ever in the absence of a sharp slowdown in the UK economy.  The MPC now has an even trickier problem to navigate than it had a week ago. With the recent turmoil in bond markets, they had the perfect excuse to signal that they were close to peak rates and that the battle against inflation was gradually being won. That no longer looks to be the case and Bailey and Co don't have the luxury of being dovish in the aftermath of any rate hike tomorrow. Headline and core inflation are on the rise again, and while it could merely be a one-off spike before slipping back, the timing couldn't be worse, with the Bank of England having to explain to the Chancellor of the Exchequer that the battle against inflation might well take a bit longer.  The pound has seen a lift on the back of this data, with today's Fed meeting also offering a window if the US central bank signals a more dovish message when it meets later today. While the Fed has the luxury of being a touch more dovish later today the Bank of England does not. The pound needs to push above the recent range highs of 1.2300 to kick on towards the highs this year above 1.2400.
Bank of England expects inflation to to fall to 3% within 12 months. US inflation decreases a little

UK inflation resurgence points to final 25bp rate hike this week

ING Economics ING Economics 22.03.2023 14:26
January's dip in services inflation seems to have been a temporary one, and the bounceback in core CPI in February is unwelcome ahead of the Bank of England's meeting this week. We expect a final 25bp hike on Thursday UK inflation remained at double-digit levels in February 10.4% Headline inflation in February, up from 10.1% in January     A day before the Bank of England announces its latest decision, it is faced with an unwelcome resurgence in UK core inflation. Core CPI is back up at 6.2% (from 5.8% in January), and more importantly shows that the surprise dip in services CPI last month was a temporary one. Policymakers have signalled this is an area they’re paying particular attention to, not least because service-sector inflation tends to be more ‘persistent’ (that is, trends tend to be more long-lasting than for goods) and less volatile. Inflation in hospitality is proving particularly sticky. Read next: FX Daily: Hiking confidence| FXMAG.COM The caveat here is that the Bank has indicated it is paying less attention to any one single indicator, and is focused more on a broader definition of “inflation persistence” and price-setting behaviour. And in general, the data has been encouraging over the past month or so. The Bank’s own Decision Maker Panel survey of businesses points to less aggressive price and wage rises in the pipeline, and the official wage data finally appears to be gradually easing. Core services inflation has bounced back after January's dip Core services inflation excludes air fares, package holidays and education. Core goods excludes food, energy, alcohol and tobacco. Series vary slightly from BoE estimates, partly due to lack of VAT adjustment Source: Macrobond, ING calculations   We suspect the Bank will want to see more evidence before ending its rate hike cycle entirely, and that’s particularly true after these latest inflation numbers. We’re still narrowly expecting a 25bp hike on Thursday, and we think the BoE will take a leaf out of the European Central Bank’s book and reiterate that it has the tools available if needed to tackle financial stability, thereby allowing monetary policy to focus on inflation-fighting. This was the mantra it adopted last October/November during the mini-budget and LDI pensions fallout in UK markets. However, assuming the broader inflation data continues to point to an easing in pipeline pressures, then we suspect the committee will be comfortable with pausing by the time of the next meeting in May. Click here to read our full Bank of England preview Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Worst behind us for UK retail despite fall in sales

Yesterday's UK inflation prints have undermined previous MPC narrative

Michael Hewson Michael Hewson 23.03.2023 11:15
Despite the recent turmoil in the US banking system the Federal Reserve went ahead and raised rates by 25bps at its meeting last night. While this was broadly in line with expectations, a tweak to the statement was perceived to be more dovish, moderating the language by removing the reference to "ongoing increases will be appropriate", with "some additional policy firming may be appropriate". This helps to give the Fed wriggle room to pause at the next meeting if the data permits, as well as indicating that the end of rate rises could be close. This change saw yields, as well as the US dollar fall sharply, however, US markets after initially pushing higher also fell back and closed lower, after comments from US Treasury Secretary Janet Yellen, in separate comments to US lawmakers, said that there was no commitment to extending banking deposit insurance beyond the current $250k cap.     Powell also admitted that a rate pause was considered due to the banking crisis, while also going on to say that the prospect of rate cuts this year was not being considered. A cursory analysis of the latest dot plot chart confirmed that thought process, even as markets continued to price that very possibility.   Powell also admitted that a rate pause was considered due to the banking crisis, while also going on to say that the prospect of rate cuts this year was not being considered   With US markets closing sharply lower after Yellen's comments, European markets look set to pick up on that negative read across, with a similarly weaker open. Before yesterday's hotter-than-expected UK CPI number for February, the main question facing UK markets was how close the Bank of England was to its terminal rate, and whether recent events across the banking sector would temper its decision to raise rates today. That question got a whole lot more complicated yesterday with a surprise surge in headline CPI in February to 10.4%, driven primarily by food and services prices. What was even more worrying for the central bank was that core prices also surged higher, rising from 5.8% to 6.2%, and undermining the recent narrative from MPC officials that inflation was on its way back down again. The MPC has remained split in recent months split with Tenreyro and Dhingra both opposed to further rate hikes even with headline CPI still above 10% and core prices now on the rise again at 6.2%, and wages at 6.5%. Back in February Bank of England governor Andrew Bailey insisted that the MPC was seeing "powerful downward forces on inflation now" when he testified to the Treasury Select Committee, saying that "I do think we have turned the corner". Those comments haven't aged well even if he did caveat them with concerns about inflation stickiness and serve to give the impression that the Bank of England is almost making it up as it goes along. Read next: The Commodities Feed: Fed hikes| FXMAG.COM Bailey followed up those February remarks with further comments at the start of this month saying he had not seen any data to justify markets pricing in the prospect of further rate hikes, insisting that markets were getting ahead of themselves in pricing a terminal rate of 4.75%. Judging by yesterday's jump in core CPI, that is no longer the case showing that markets had a better idea of what might happen to rates than the Bank of England did at the start of the month. The splits on the MPC while welcome in the context that there isn't a groupthink consensus also serve to give that impression, especially when you have two policymakers leaning away from hikes, and more towards rate cuts at some point in the future. Earlier this month Swati Dhingra was claiming that there was no evidence of persistent cost-push inflation becoming embedded and that inflation would fall back sharply over the rest of the year. That claim is hard to square with monthly price rises in excess of 1%, on both CPI and RPI inflation measures. On the other side of the spectrum, you then have external MPC member Catherine Mann making the case that more hikes are warranted given stickier inflation dismissing the idea of a pivot to a looser policy. She also went on to insist that rates would likely have to stay higher for longer in order for inflation to return to target. Mann's stance seems entirely more credible than the dovish stance of Tenreyro and Dhingra given how stickier UK inflation has always tended to be historically. This is mainly down to the transmission mechanism of a weaker pound, which tends to put a floor under prices. While some have suggested the Bank of England might pass up on another rate rise today, most sensible people think that at the very least we can expect to see another rate hike of 25bps after yesterday's inflation numbers, although we could well see another split decision. It would be a huge surprise if we got no change and would hammer yet another nail in the central bank's credibility when it comes to its inflation-fighting credentials. Before the Bank of England, we have the latest rate decision from the Swiss National Bank, who are expected to raise rates by 50bps to 1.5%, despite the recent turmoil in its own banking backyard with the shotgun marriage of Credit Suisse with UBS. It will be interesting if policymakers there have any postscripts to recent events in terms of their guidance around further rate increases.   Forex EUR/USD – moved through the 1.0800 area and looks set for a retest of the recent range highs at 1.1030. Support should now come in at the 1.0760 area, with stronger support at the March lows at 1.0520. GBP/USD – continues to struggle to push through the 1.2300 area despite a brief push up to 1.2335 yesterday. The pound continues to feel vulnerable to slipping back especially given that the Bank of England tends to lean towards dovish language when it does meet. Currently have support at 1.2170. EUR/GBP – feels like we could see a move towards 0.8900 where we have resistance. Still have strong trend line support at 0.8720, from the lows last August. Support also at 0.8780. USD/JPY – ran out of steam at the 133.00 area and support at 131.00. Below 130.80 targets a return to the 130.00 area.    FTSE100 is expected to open 25 points lower at 7,542 DAX is expected to open 36 points lower at 15,180 CAC40 is expected to open 34 points lower at 7,097
Would Federal Reserve (Fed) go for two more rate hikes this year? Non-voting Bullard say he would back such variant

Coinbase gets Wells notice from the U.S. Securities and Exchange Commision

Saxo Bank Saxo Bank 23.03.2023 12:21
Summary:  The Fed delivered a rate hike as most expected and largely failed to adjust forward projections for policy, but did note that credit conditions are likely to weigh on the economy. The market thoroughly ignored the Fed’s rhetoric and forecasts and continues to look for rate cuts later this year. While Fed Chair Powell spoke at the post-meeting press conference, US Treasury Secretary Yellen unsettled markets by indicating no comprehensive depositor insurance. What is our trading focus? US equities (US500.I and USNAS100.I): it is all about deposits, recession, and credit S&P 500 futures are rallying from yesterday’s lows post the FOMC rate hike despite the Fed’s action will increase the pressure on smaller banks and increase the likelihood of a recession. Today’s focus is how banking stocks will react to the FOMC decision and especially how deposits will develop from here. The rate hike will increase the incentive for depositors to move money from deposits to money market funds adding potentially further funding stress. We remain cautious on equities as the economy will likely move closer to a recession due to yesterday’s rate decision. European equities (EU50.I): focus is back on banks post FOMC rate hike STOXX 50 futures have turned around in early trading after being lower on the open as equities initially responded negatively to the FOMC rate decision of hiking the policy rate by 25 bps. The consensus is that higher policy rates at a high speed coupled with many bonds in the held-to-maturity were causing the problems for smaller banks so the reaction in equities today seems odd. We remain cautious on the banking sector and the real estate sector in the coming weeks. Read next: Yesterday's UK inflation prints have undermined previous MPC narrative| FXMAG.COM Hong Kong equities advance as Tencent’s solid results and upbeat outlook Hang Seng Index rallied for the third day in a row, led by Tencent (00700:xhkg) and pear internet names. Tencent surged nearly 7% after reporting stronger-than-expected online adverting revenues. The tech giant’s upbeat outlook of 2023, citing a broad-based recovery in consumer activities in China added to the market optimism. Orient Overseas (00316:xhkg) soared 16% after the container shipping liner beat earnings estimates. Lenovo (00992:xhkg) jumped 11% on its plan to develop new products based on the Nvidia Drive Thor chip. In A-shares, CSI300 advanced nearly 1%, led by semiconductors and financials. FX: Dollar weakens with EUR and JPY as winners on Powell/Yellen shocks The Fed hiked rates by 25 bps and inserted new language into the policy statement noting forward concern (more below) and the market thoroughly ignored the “dot plot” that largely maintained the December policy forecasts. The dollar fell, but it was Treasury Secretary Yellen’s statements deny a blanket backstopping of all bank deposits that spooked markets and changed the tone far more than the Fed, with US banks and rates under huge pressure and the USD lower again overnight after a mixed close yesterday, with EURUSD well above 1.0900 this morning and USDJPY slumping below 131.00. Focus shifts to BOE today after re-acceleration in inflation yesterday, although sterling has weakened again sharply, possibly in recognition that the BoE may stick to its forecasts on inflation as Governor Bailey seems a reluctant inflation fighter. Crude oil dips on Powell/Yellen double blow to sentiment Crude oil prices trade lower following a three-day bounce that saw both WTI and Brent retrace more than 38.2% of their recent drop. Earlier on Wednesday the market received a boost from a mixed EIA stock report with rising production and rising crude stocks being offset by big draws in fuel products as US total oil and fuel exports reached a record 12.3m b/d. However, risk sentiment received a fresh setback after an expected 25 bps rate hike was followed up by comments from Yellen that the government was not considering “blanket” deposit insurance to stabilize the banking system. Macro-economic developments remain firmly in the driving seat and will continue to dictate the short-term direction, but the combination of a weaker dollar and most of the selling/long liquidation already done the downside risk may be limited. Gold rallies with bonds on hike less, cut later focus The Fed’s 25bps rate hike came in-line with market expectations, but the push back on market expectations of about 100bps of rate cuts for this year failed to materialize, and together with a softer dollar and Yellen’s message that the government is unlikely to unilaterally expand deposit insurance, they added fresh upside momentum to gold, climbing to $1983. The fact gold earlier in the week managed to find support already at $1933, the 38.2% retracement of the recent surge, suggests gold remains in a strong uptrend. However, until the FOMC’s and the markets year-end rate expectations get in line - currently apart by almost one percent - golds upside potential towards a fresh record high may take longer to achieve. ETF buying continues with total holdings up another 12 tons this week on top of the 21 tons that was bought last week. Treasury yields plummeted and may have much more to go The treasury market ignored Fed forecasts and focused on the Fed’s shift in forward concern on credit conditions, but especially Yellen’s statement on bank deposit guarantees (more below). Yields on the 2-year tumbled more than 25 bps to below 3.9% in early trading and the 10-year yield fell 18 bps to 3.43%. What is going on? US risks widespread bank runs from vulnerable banks starting today With US Treasury Secretary Yellen’s commenting "I have not considered or discussed anything having to do with blanket insurance or guarantees of deposits”, the risk of a stampede-like bank run from smaller regional lenders and even some mid-tier and larger banks has risen sharply, one that the Silicon Valley Bank situation shows can happen with alarming speed, given the ease of digital transfers. JP Morgan analyst estimates that some $1 trillion of deposits have already left the most vulnerable banks, about half of that since the SVB collapse of two weeks ago. Certainly, a situation of sufficient severity will trigger the inevitable official response to ensure that no systemic crisis is allowed to balloon and drive dramatic market dysfunction, but the follow-on impact into the economy could be severe on the disruption of credit flows (as alluded to in the Fed’s monetary policy statement last night, even as it touted the solidity of the system). Fed raised rates by 25bps but considered a pause The FOMC lifted the Federal Funds Rate target by 25bps to 4.75-5.00% and the updated economic projections left the terminal rate forecast unchanged at 5.1% while the 2024 rate view was adjusted higher to 4.25% from 4.125% earlier. Chair Powell in his comments later also said that they considered a pause but the consensus was for a rate hike, and that no participants had rate cuts in their base line scenario for this year. The market completely ignored this and redoubled its anticipation of rate cuts during the evening, particulary after US Secretary Treasury Yellen spoke (see below). The new FOMC statement removed reference to ‘ongoing increases in the target range will be appropriate’, though added that ‘some additional policy firming may be appropriate’. The Fed expressed confidence in the banking system, stating that it was ‘sound’ and ‘resilient’, but added that the “recent developments” were likely to result in tighter credit conditions and will weigh on economic activity, hiring and inflation. Janet Yellen says Treasury unlikely to unilaterally expand deposit insurance Treasury Secretary’s comments hit the wires during Fed Chair Powell’s press conference. She said that regulators are unlikely to provide “blanket” deposit insurance to stabilize the US banking system. This brought back concerns on the US banking sector, especially the smaller banks, and risks of more bank runs arise as the US opens on Thursday. The KBW regional bank index slumped 5.7% while the broader KBW bank index was down 4.7%. Economic risks also escalated amid tighter bank lending standards. Tencent’s small growth improvement excites investors Tencent shares rally 7% in Hong Kong trading after the company announced Q4 earnings yesterday after the close reporting Q4 revenue of CNY 145bn vs est. CNY 144.5bn driven by stronger than expected gains in online advertising revenue suggesting underlying improvement in the economy. On the conference call management says that advertisers in China are getting optimistic about the economy recovery and this was the piece investors were looking for. Coinbase gets Wells notice from the SEC Coinbase, the biggest publicly traded cryptocurrency exchange, says it has got a Wells notice from the SEC which means that the SEC will bring an enforcement action against the exchange. Coinbase says it could relate to its spot market or Coinbase Prime (its institutional offering). Coinbase shares are down 10% in extended trading on this news. What are we watching next? Bank of England – hike and guidance expectations justified The very hot February CPI numbers yesterday relative to consensus expectations have the market pricing very high odds for a 25-bp rate hike from the Bank of England today despite the most guidance suggested the Bank is hoping that it can shift to a pausing its rate hike cycle, and Governor Bailey out in recent weeks suggesting there is no guarantee further rate hikes are needed. Observant economists note that at least one measure of the inflation level of most concern – core Services CPI – is still actually slightly below the BoE’s own forecasts even if it rose sharply in YoY terms in February. Interestingly, sterling is heading into this meeting on its back foot and traders should tread carefully here as the Bailey BoE has been difficult to pin down in terms of likely policy moves. Last night was likely the last rate hike of the cycle We suspect that the credit contraction unfolding in the banking system will force the hands of the Fed and we may have seen the last rate hike in this cycle yesterday. U.S. banks, according to the latest survey done by the Fed in January, have already been tightening lending standards sharply before the recent turmoil. Given what has been happening over these two weeks, banks will refrain further from making loans and may cause credit growth to slow or even to contract, especially if deposits are flighty. U.S. Treasury yields, especially in the 2-year to the 5-year segment may fall further. Historically, when the Fed pauses, the short end of the curve performs better than the longer end and the yield curve will steepen. Earnings to watch Today’s key earnings reports are Accenture and Darden Restaurant, both are reporting before the market open, with the latter being a good barometer for US discretionary spending. Darden has a strong same-store network of restaurants and has so far lifted menu prices less than inflation, which has kept customers coming. Analysts expect FY23 Q3 (ending 28 Feb) revenue growth at 11% y/y and EBITDA of $435mn, up from $392mn a year ago. Accenture is expected to report FY23 Q2 (ending 28 Feb) revenue growth of 3% y/y, which is a significant slowdown from 25% y/y from a year ago, as corporate consultancy and technology spending slows on cost cutting. This week’s earnings releases: Thursday: China Mobile, Accenture, General Mills, Darden Restaurants Friday: China Merchants Bank, Meituan, China Petroleum & Chemical Economic calendar highlights for today (times GMT) 0830 – Swiss National Bank Rate Decision 0900 – Norway Norges Bank Rate Decision 1100 – Turkey Central Bank Rate Decision 1200 – UK Bank of England Rate Decision 1230 – US Weekly Initial Jobless Claims 1400 – US Feb. New Home Sales 1400 – Sweden Riksbank Governor Thedeen to speak 1430 – EIA's Weekly Natural Gas Storage Change 1500 – Eurozone Mar. Consumer Confidence 2330 – Japan Feb. National CPI 0001 – UK Mar. GfK Consumer Confidence Source: Global Market Quick Take: Europe – March 23, 2023 | Saxo Group (
Bank of England expects inflation to to fall to 3% within 12 months. US inflation decreases a little

UK economy: inflation exceeded expectations, Nasdaq 100 finished higher yesterday

Michael Hewson Michael Hewson 24.03.2023 13:54
European markets had a disappointing day yesterday with the FTSE100 getting hit particularly hard as some of its big-cap companies got clobbered, on the back of some ex-dividends and weakness in banks and energy stocks. US markets on the other hand finished the day higher led by the Nasdaq 100, as a sharp slide in US 2-year yields helped to underpin a strong session in a reversal of the declines the day before. Equity markets on both sides of the Atlantic have experienced a great deal of chop this past few days as investors look for clues as to where we go next when it comes to an overall sense of direction. Over the past week, we've seen central banks raise rates again, however, there appears to be a sense that we may well have seen or be close to the peaks when it comes to the rate hiking cycle. This is being reflected in sharp declines in short-term yields, however, markets also appear to be pricing in the prospect of rate cuts this year. This seems somewhat premature and something that stock markets have yet to price. Despite the positive finish on Wall Street, European markets look set to lose out with a negative open, as US markets start to come back into favour. Earlier this week UK inflation in February unexpectedly jumped higher, driven by big increases in food prices, as well as sharp rises in restaurant and other hospitality bills. With food price inflation jumping to over 18%, today's February retail sales numbers could well get a similar Valentine's Day boost, albeit in fairly selective areas. One thing that has been notable so far this year is that while consumers have shown a willingness to spend money, they've been particularly selective when it comes to the types of items they choose to allocate their cash to. Read next: US dollar and CHF could be safe havens in the event the turmoil in banks intensify globally| FXMAG.COM In January retail sales posted a surprise increase of 0.5%, which confounded expectations of a -0.3% decline. Today's February numbers could well benefit from a Valentine's Day pick-up as well as increased demand for holiday bookings. In recent company updates airlines have indicated there has been decent demand for seats as well as holiday packages which could also help on the margin. Market expectations are for a gain of 0.2%, however, bearing in mind that January missed expectations by so much it wouldn't surprise if February came with a surprise miss as well. We'll also be getting the latest insight into economic activity for March in France, Germany, and the UK in the form of the latest manufacturing and services flash PMIs. Over the past few months, there has been increasing evidence of divergence between France and Germany when it comes to economic activity in that the French economy appears to be slowing, while German economic activity is picking up slowly albeit from a low base. Economic unrest in France could well make itself felt in the latest manufacturing and services PMIs with expectations of 48 and 52.5 respectively. In Germany, expectations are for modest improvements to 47 for manufacturing and 51 for services. In the UK the services sector underwent a big rebound in January to 53.5, from 48.7 in December, with the bigger question being whether that recovery can be sustained. Initial estimates suggest yes with a forecast of 53. Manufacturing is expected to improve modestly to 49.7 from 49.3.    Forex EUR/USD – moved through the 1.0800 area earlier this week and has the potential to retest the recent range highs at 1.1030. Support should now come in at the 1.0760 area, with stronger support at the March lows at 1.0520. GBP/USD – has struggled to maintain a foothold above 1.2300 pushing up to 1.2343 yesterday. The pound continues to feel vulnerable to slipping back while below the highs for this year at 1.2447. We currently have support at the 1.2170 area, and below that at 1.2020. EUR/GBP – ran out of steam at 0.8865 yesterday, but still have trend line resistance at the 0.8900 level. Also have strong trend line support at 0.8720, from the lows last August. Support also at 0.8780. USD/JPY – slipped back towards support at the 130.20 area, with a break below the 130.00 potentially targeting a move towards 128.20. Currently has resistance at 131.20.   FTSE100 is expected to open 40 points lower at 7,459 DAX is expected to open 70 points lower at 15,140 CAC40 is expected to open 50 points lower at 7,089
Rates Spark: Hawkish white noise

The UK data that will make-or-break a May rate hike

ING Economics ING Economics 14.04.2023 15:27
Barring unpleasant surprises in either the wage growth or service sector inflation numbers due over the next week, we think the Bank of England is more likely to keep rates on hold when it next meets on 11 May Andrew Bailey, governor of the Bank of England   A raft of economic data due over the next week may well decide whether the Bank of England (BoE) hikes rates by another 25 basis points in May. So far, Bank officials have largely refused to be drawn either way, and the most recent March meeting kept the range of options wide open. Formally, the Bank has told us that any further tightening could be needed if we see fresh signs of “inflation persistence”. Officials generally felt that the test had been met by the time of the March meeting, where they hiked rates by 25bp. Nevertheless, the data is clearly moving in the right direction, and we think barring some unwelcome – and unpredicted – surprises in next week’s data, the Bank will be comfortable in keeping rates at 4.25% on 11 May. With policymakers emphasising that much of last year's tightening is still to hit the economy, the BoE is undoubtedly one of the more likely candidates to follow central banks in Canada and Australia into a pause.  Here's what we’re looking out for in the data over the next week: Key data due next week Source: Refinitiv, ING Jobs and wages (Tuesday) The UK jobs market is cooling, albeit slowly. The number of employers proposing redundancies has climbed so far this year, and vacancy numbers have fallen – though the number of vacancies per unemployed worker is not far off one-for-one and remains well above pre-Covid levels. Read next: Poland: CPI falls from its peak but core inflation continues to rise| FXMAG.COM Admittedly, the jobs market is not the place to look for timely indications of economic weakness – the redundancy rate took around 18 months to go from trough to peak during the financial crisis. Still, the question for the Bank of England – and posed by Chief Economist Huw Pill this week – is whether wage growth will come down materially even without a marked deterioration in the jobs market. For now, the data suggest it might. The Bank’s closely-scrutinised Decision Maker Panel survey of chief financial officers shows an easing in wage growth (as well as price) expectations, and also a marked reduction in the proportion of firms experiencing acute labour shortages. The official wage data have also finally started to turn, and regular weekly pay has increased by £1 on average over the past two months of data, compared to a rate of £3-4/month through much of 2022. Wage growth momentum has begun to ease Source: Macrobond, ING calculations   Something similar next week would take the 3M/3M change (ie the average of the past three months' pay level relative to the three months before that) to roughly 4.5% on an annualised basis, down from close to 8% at the tail end of last year. That would be a clear dovish signal for the Bank, though there’s still an open question of how quickly wage growth will ease back even if it has finally peaked. We aren't convinced that the root causes of recent worker shortages have gone away – worker inactivity remains high. While recent pay trends are at least consistent with ending the Bank's tightening cycle, a relatively glacial return of wage growth to target would argue that rate cuts may be less forthcoming. Inflation (Wednesday) Headline inflation looks set to dip back into single digits next week for the first time since August, and we’ll get a more pronounced decline in April as the impact of last year’s energy price hikes begins to filter out of the annual comparison. But when it comes to the BoE’s focus on “persistence”, it’s clear that services inflation is the most relevant metric for the interest rate outlook. We’ve shown in a previous article that service sector inflation is typically less volatile and exhibits more long-lasting trends than many goods categories. The data here has been volatile over the past couple of months, but our best guess for next week is that we get a fractional increase in the rate of service sector inflation. The Bank of England has said it thinks it will stay broadly unchanged in the short term – and therefore we think it would take a material upside surprise to nudge the odds in favour of another rate hike in May. Service sector inflation is probably close to peaking Individual contributions may not always sum exactly to overall services CPI due to rounding Source: Macrobond, ING calculations   Either way, we’re almost certainly close to a peak. The major contributor to services CPI over the past few months has been catering, but signs of reduced wage pressure and – more importantly – much lower gas prices suggest the situation should start to improve. Recent ONS surveys have shown that high energy bills were a much more commonly-cited factor behind recent service sector price rises than labour costs – and we think the same is likely to be true in reverse now gas prices have collapsed. We think services inflation could end the year around 4.5%, down from roughly 6.5% now but still some way above pre-Covid averages of 2.5-3%. As with wage growth, this tends to suggest the BoE won't be as quick to cut rates as say the Fed, where we expect policy easing before year-end. Retail sales/PMIs (Friday) The Bank’s focus on inflation means activity data has assumed much less prominence in the decision-making process. And in any case, recent data have not exactly been clear on the underlying economic trend. Monthly GDP data have been unhelpfully volatile due to an eclectic mix of one-off factors ranging from strikes to the recent World Cup. In practice, the economy seems to be flatlining, and that’s also likely to be the sense from next week’s retail sales numbers. UK retail sales might be bottoming out Source: Macrobond   After a stronger run so far in 2023, we’re likely to see a modest pullback in sales, though with energy prices set to dip from the summer and consumer confidence off the lows, the worst for the retail sector is probably now behind us. Next week’s PMIs are also likely to be consistent with the relatively stagnant economic backdrop. Read this article on THINK TagsUK fiscal policy Bank of England 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
Eightcap analyst after UK CPI: It is an interesting position now for the Bank of England., do they need to go back to a few 50-point hikes to cut into the CPI rate?

Eightcap analyst after UK CPI: It is an interesting position now for the Bank of England., do they need to go back to a few 50-point hikes to cut into the CPI rate?

Joe Jeffriess Joe Jeffriess 19.04.2023 14:39
One of today's morning key events was the release of the UK CPI which came in at 10.1% beating expectations. We asked Joe Jeffries from Eightcap to share his thoughts on the UK inflation print. Joe decided to deliver us with an insightful view on the British pound situation as well. We feel that the BOE will have to continue to hike rates and watch if CPI can finally dip below the 10% point Joe Jeffries (Eightcap): UK CPI beat expectations coming in higher at 10.1% above the 9.8% expected. While this level is below last month's 10.4% it still maintains the 10% and over level. Yes, CPI has decreased from its 11.1 Nov 22 peak, but the number remains above 10% and that's a stubbornly high figure when you compare it to other economies. The US for instance has seen a drop after taking action. So far the issue for the UK is that action hasn't delivered the desired result of a decline in the CPI figure. It is an interesting position now for the Bank of England., do they need to go back to a few 50-point hikes to cut into the CPI rate? Can an already struggling UK economy handle further 50-point hikes? We feel that the BOE will have to continue to hike rates and watch if CPI can finally dip below the 10% point.  British pound Joe Jeffries (Eightcap): The GBP while boosted by the policy in the short term will continue to be subject to the USD influence. If the USD does weaken over time and the policy for the BOE remains hawkish we should continue to see the GBP appreciate. The GBPUSD saw a choppy start to 2023 but so far holds a 3.28% gain since the start of the year.  Read next: UK inflation goes above 10% seventh time in a row. Core inflation hit 6.2%| FXMAG.COM
UK Jobs Report Strengthens Case for June Rate Hike and Signals Caution on Rate Cuts

The most interesting economic events this week are UK CPI, Fed minutes and UK retail sales

Michael Hewson Michael Hewson 22.05.2023 10:32
UK CPI (Apr) – 24/05 – having seen the Bank of England hike rates by another 25bps this month to 4.5% this week's CPI numbers for April could go some way to indicating whether we can expect to see another hike at the June meeting. In recent months UK CPI has remained very sticky, largely driven by food prices which have been rising at close to 20% per year. Unlike its EU and US counterparts the CPI numbers haven't full reflected the decline in energy prices that we've seen over the last few months, however there is an expectation that is merely an effect that has been deferred due to the government energy price cap, which has prevented this effect trickling down into the headline numbers. With the government having withdrawn the package at the end of March, there is now an expectation that this will be reflected in this week's April numbers, in a move that could well be quite sizeable, over the next quarter. This time last year oil prices were above $100 a barrel while UK natural gas prices were over double the level they are now. Expectations are for headline CPI to fall sharply to about 8%, while core prices are forecast to remain steady at 6.2%. Fed minutes – 24/05 – the market reaction to the Federal Reserve's most recent decision to raise rates again by 25bps was a subdued one, given that there had been some speculation that the Fed might signal a pause due to the ongoing regional banking instability. The removal of the language that signalled that more hikes were coming was a notable omission from the Fed statement, and while not inherently dovish, it did strike the right tone in acknowledging the recent change in financial conditions, which are now tighter, without ruling out the possibility that rates could still rise further. The ensuing press conference by Powell was uneventful, however he was at pains to push back on the idea that rate cuts could well soon follow. Powell went on to say that the Fed's next move would depend on how the data and events evolved, but in the context of a tight labour market and high inflation levels, rate cuts still seem some way off. The Fed also indicated that rates are unlikely to come down quickly, with policymakers keen to stress that rates are likely to remain high for some time to come. As we look to this week's minutes the key question is likely to be how much of a caucus there was for a delay instead of the hike that we got, and whether there was a discussion over how many more rate hikes might be needed or whether we are close to the peak. Read next: Yesterday DAX closed at its highest level this year. Today ECB's Lagarde and Fed's Powell speak| FXMAG.COM UK retail sales (Apr) – 26/05 – with inflation at the levels we've seen so far this year, well above 10% and food prices even higher it's surprising that consumers have remained as resilient as they have. In January we saw a surprise gain of 0.9%, followed by an even more solid performance of 1.1% in February. It wasn't too much of a surprise to see a -0.9% decline in the March retail sales numbers with economic activity supressed somewhat by wet weather as widespread strike action amongst healthcare and transport staff, which would have suppressed spending across the board. As Q2 gets under way the Easter holidays will probably have seen an uplift, however the bigger question given that we have seen strike action ripple over into April is how much that has acted as a lag. The recent CBI retail sales numbers did show a modest improvement in April, as did the latest British Retail consortium numbers, so it's unlikely that retail sales will be worse than March. Expectations are for a rise of 0.3%.
Australian Dollar's Decline Persists Amid Evergrande Concerns and Economic Data

UK Inflation Dilemma: Can Rate Hikes Tackle Soaring Prices and Avert Recession?

InstaForex Analysis InstaForex Analysis 31.05.2023 09:00
On Tuesday, the demand for the pound was significantly higher than that for the euro. As soon as this happened, many analysts began to pay attention to the report on prices in UK stores, as shop price inflation accelerated to 9% this month. This indicates that UK inflation is decreasing slowly or not decreasing at all, despite the benchmark interest rate being raised to 4.5%.   The consensus forecast for the Bank of England's rate currently suggests two more quarter point rate hikes in June and August.   This would bring the rate to 5%. Any further tightening without alternatives would push the British economy into a recession, and even the current rate could potentially cause it, despite the BoE's optimistic forecasts. But how can inflation be combated if it hardly responds to the actions of the central bank?     I believe there can only be one disheartening answer: it cannot. If further rate hikes lead to a recession, the Brits, clearly dissatisfied with recent events within the country, may start a new wave of mass strikes. Take note that in the past year, many Brits have openly criticized the British government for the sharp decline in real incomes and high inflation.   If the rate increases further, the economy will contract, leading to an increase in unemployment. If the rate is kept as it is, it might take years for inflation to return to the target level. The BoE is in a deadlock. BoE Governor Andrew Bailey expects inflation to start decreasing rapidly from April. He noted the decline in energy prices, which will somewhat dampen inflationary pressure on all categories of goods and services. However, the April inflation report was unusually contradictory. While headline inflation showed a significant slowdown, core inflation continues to rise.   Therefore, it is not possible to conclude that inflation is slowing down in the general sense. We can only wait and observe. If Bailey turns out to be right, then the BoE will not need to raise the rate to 5.5% or 6%, which currently seems like a fantasy.   However, if inflation continues to hover around 10%, the BoE will need to devise new measures to address it without exerting serious pressure on the economy. It might require patience for several years. It is entirely unclear which option the central bank will choose.   The demand for the British pound may increase as market expectations of a hawkish stance grow. But will these expectations be justified? The pound may rise based on this, but fall even harder when it becomes clear that the BoE is not ready to raise the rate above 5%. I believe that wave analysis should be the primary tool for forecasting at the moment.     Based on the analysis conducted, I conclude that the uptrend phase has ended. Therefore, I would recommend selling at this point, as the instrument has enough room to fall. I believe that targets around 1.0500-1.0600 are quite realistic.   A corrective wave may start from the 1.0678 level, so you can consider short positions if the pair surpasses this level. The wave pattern of the GBP/USD pair has long indicated the formation of a new downtrend wave. Wave b could be very deep, as all waves have recently been equal.   A successful attempt to break through 1.2445, which equates to 100.0% Fibonacci, indicates that the market is ready to sell. I recommend selling the pound with targets around 23 and 22 figures. But most likely, the decline will be stronger.    
Understanding the Factors Keeping Market Rates Under Upward Pressure

Navigating the Data: Central Banks and Market Concerns

ING Economics ING Economics 16.06.2023 09:50
In the end it all boils down to data That tension between persistently high inflation and recession fears is of course a wider and ongoing market theme. Indeed, yesterday’s market reaction to the ECB and the quick fade was probably more down to mixed US data releases that came out just when Lagarde was set to speak.   More hints that US pipeline pressures are easing came from import prices falling faster than expected. And we also saw the weekly jobless claims grind higher again suggesting a softening of the jobs market. As our economist notes, probably not enough to deter the Fed from a potential hike in July following the hawkish pause this week, but enough to keep the market concerned about the outlook. As opposed to the bear flattening in EUR, the US curve bull flattened with the 10Y UST yield dipping towards 3.7% Overall, central banks this week have given themselves the flexibility and room to tighten policies further should data warrant it, keeping upward pressure on front-end rates. Yield curves could invert further but given how far they already stretch, long-end rates could still follow higher in the near term. Only the Bank of Japan (BoJ) bucked the hawkish trend set by the Fed and ECB (and likely continued by the BoE next week) today by leaving policy rates unchanged and dismissing calls for an adjustment higher of its yield curve control cap, currently standing at 0.5%. The lack of action today and the view put forward that the current spike in inflation will prove temporary leaves the market guessing about the timing of a potential normalisation of the BoJ's policy setting.   The long-end reflects markets skepticism with 2s10s curves inverting further Today's events and market view Some calm may return to markets after the key events of this week. It probably won't last too long with UK inflation and the Bank of England decision lined up for next week. And in the US we will also see Fed Chair Jerome Powell giving testimony to Congress.  As for today, in the eurozone we will see the release of the final inflation figures for May, but more attention should go to the usual flurry of ECB speakers in the wake of the meeting, though Lagarde pointed out the “broad consensus” around yesterday’s decision. And it seems the ECB has been successful in curbing the market's preoccupation with the terminal rate level and focussing it on a high-for-longer discussion – note the pricing out of future rate cuts as a driver of the front-end move higher since last week. The main US data release today is the University of Michigan consumer confidence survey, which also includes measures of longer-term inflation expectations. The consensus is for a slight downtick in the latter to 4.1% year-on-year for the 1-year horizon and to 3% for the 5 to 10-year inflation. But we will also see a number of Fed speakers for the first time after the FOMC meeting. In the end, the data will remain the key, for central banks to assess whether they have done enough on inflation, or markets to discern whether too much has been done already to hurt the economy.
USD Weakness Boosts Commodity Complex as Oil Supply Disruptions Drive Prices Higher

Oil Prices Flat and Range-Bound, Market Braces for Economic Uncertainty. Gold Drifts as Data Awaited, Fed's Stance Holds Firm

Craig Erlam Craig Erlam 20.06.2023 13:07
Oil remains choppy but flat and in lower range Oil prices are relatively flat today, mirroring yesterday’s session which was broadly choppy but ultimately directionless. Crude has rebounded strongly since falling toward its 2023 lows early last week but remains in its lower range, roughly between $70-$80 per barrel and it’s showing little sign of breaking that in the short term. While some believe the market will be in deficit later in the year, aided by the Saudi-driven OPEC+ cuts, which could support prices closer to what we saw late last year and early this, the economy remains one significant downside risk to this amid an adjustment in the markets toward higher rates for longer.   Gold drifting as we await more data Gold has started the week slightly softer but very little has changed, in that it remains in the $1,940-$1,980 range that it has spent the vast majority of the last month. It was a very quiet start to the week which is why gold has basically continued to drift and that may continue until we see a significant change in the data. The Fed last week made it perfectly clear that it doesn’t believe it’s done and its commentary this week, including Chair Powell’s appearing in Congress on Wednesday, isn’t likely to change in any significant way from that. It will be interesting to see if we get any response to UK inflation data as a potential signal of stickiness more broadly but then, there’s every chance it could be viewed as a UK issue, rather than an indication of something more, considering how much more the country has struggled until now.  
Italian Inflation Continues to Decelerate in August, Reaffirming 6.4% Forecast for 2023

UK inflation expected to fall to 8.4%, BoE rate hike likely, Powell's testimony, GBP/USD lower

Kenny Fisher Kenny Fisher 21.06.2023 08:47
UK inflation expected to fall to 8.4% on Wednesday BoE likely to raise rates on Thursday Fed Chair Powell to testify before House committee on Wednesday The British pound is lower on Tuesday. In the European session, GBP/USD is trading at 1.2739, down 0.41%.   UK inflation expected to ease The UK releases the May inflation report on Wednesday and BoE policy makers will be hoping that inflation continues to trend lower. Inflation dropped in April to 8.7%, decelerating for a second straight month. The consensus stands at 8.4%, and the good news is that those awful readings above 10% appear to be over. On a monthly basis, inflation is expected to fall to 0.5% in May, down from 1.2% in April. Inflation appears to have peaked and is heading lower, but nobody at the Bank of England is smiling. The UK is expected to have one of the highest inflation rates in the G-20 this year at 6.9% and the BoE’s 2% target is miles away. Finance Minister Sunak has set a goal of lowering inflation to 5% by the end of the year, which seems feasible if inflation continues to downtrend in the coming months. The BoE will be in the spotlight on Thursday when it makes its rate announcement. The markets have priced in a 25-basis point hike at 70%, with a 30% chance of an oversize 50-bp increase. If inflation falls as expected to 8.4% or lower, the MPC should be able to proceed with the 25-bp hike, although central banks have a tendency of surprising the money markets. In the US, it’s an unusually light data calendar this week. There are no tier-1 releases on Tuesday, and the markets are looking ahead to Wednesday, with Jerome Powell testifying before the House Financial Services Committee. Powell will have to clarify to lawmakers the Fed’s interest rate path, as the Fed paused last week after ten straight hikes but expects to renew hiking in July. . GBP/USD Technical 1.2719 is under pressure in support. Next, there is support at 1.2589 There is resistance at 1.2848 and 1.2950  
Beyonce Bounce and Soaring UK Inflation: A Challenge for Bank of England

Beyonce Bounce and Soaring UK Inflation: A Challenge for Bank of England

Michael Hewson Michael Hewson 21.06.2023 13:33
Beyonce bounce keeps a floor under UK CPI Just when you think it can't get any worse, and we thought that UK inflation was on a downward track, UK core CPI goes and jumps to a new 30 year of 7.1%, while headline inflation remained steady at 8.7%. Today's numbers are a further headache for the beleaguered Bank of England monetary policy committee and yet another stick to beat them with.    For a central bank, whose inflation target is 2% and who for so long were insistent that inflation was transitory there is a real risk that anything the central bank does tomorrow will be ignored by financial markets. There is no doubt these numbers are bad news for households as well as the mortgage market, which is already showing signs of strain.   Today's ONS numbers did point to a rather large jump recreation and culture and specifically fees to live music events.   Last week Sweden blamed the "Beyonce" effect for a surprise rise in their own headline inflation rates, and the same thing appears to have happened here in the UK with tickets going on sale for live performances to see Taylor Swift and Beyonce, during the month of May.   Restaurants and hotels also saw a lift during May, and this could have been down to the Coronation and the two bank holidays which provided a lift to that sector.     Food price inflation slowed to 18.3%, however we already know from the latest Kantar survey that in June this slowed to 16.5%, however the process remains glacial, but should continue to slow. The biggest concern is the continued increase in core prices with services inflation remaining sticky, rising to 6.3% from 6% in April.   A lot of this increase in services price inflation will be down to the paying of higher wages to staff, but we can also blame the energy price cap, which has meant that consumers haven't seen sharp falls in the cost of their energy costs straightaway, forcing them to push for higher wages.   This is probably why UK inflation is stickier than its continental peers.   Natural gas prices are already back at levels 2 years ago, yet consumers haven't seen that in their energy bills yet, even as fuel pump prices have. The energy price cap will see a fall in July, and some energy providers are cutting the direct debt payments of their customers already, but it's all so slow.   Amidst all this gloom there is room for optimism if you look at the trends in PPI which tends to be an indicator of where we are heading.   In May input and output prices came in negative month on month to the tune of -1.5% and -0.5%, while China and Germany are also showing increased signs of deflation, which should bring inflation down in the second half of this year. These have been weak all year, however markets aren't looking at these yet, and perhaps they should be because it's likely we'll see inflation come in much lower.    UK gilt yields have jumped sharply on the back of these numbers, with 2-year yields back above 5% and their highest levels since 2008.   Today's numbers have also increased the prospect that we might get a 50bps rate hike, instead of 25bps from the Bank of England tomorrow, pushing bank rate to 5%, to try and get out in front of the narrative, and convince then markets of their determination to hit their 2% target.   Sadly, for the Bank of England that ship has sailed, as very few believe anything they have to say anymore, with financial markets pricing in the prospect of a 6% base rate by the end of this year. As for tomorrow's Bank of England rate decision we could well see the bank raise rates by 50bps instead of the 25bps which is expected.  If we do get 50bps it's quite possible, we may not need a rate hike in August, if the inflation data does start to show signs of easing.   In conclusion, while today's numbers are worrying it's also important not to implement a knee jerk response, when we know part of the reason inflation is sticky is due to the energy price cap. This will come down in July, and in all honesty should be consigned to the dustbin, as its not reactive enough when prices fall.     By Michael Hewson (Chief Market Analyst at CMC Markets UK)
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UK Core Inflation Rises, BoE Likely to Raise Rates as Powell Testifies Before Congress

Kenny Fisher Kenny Fisher 22.06.2023 08:36
UK core inflation rises in May BoE likely to raise rates on Thursday Fed Chair Powell testifies before House Committee The British pound has edged lower on Wednesday. GBP is trading at 1.2724 in Europe, down 0.3%. GBP/USD spiked after today’s inflation release but in currently in negative territory.   UK inflation disappoints The UK released the May inflation report today, and the results were a major disappointment, to put it mildly. With inflation falling for two straight months, there were hopes that the Bank of England’s rate policy was slowly working and the downtrend would continue. The monthly readings showed that headline and core CPI eased, but the annualized readings were worse than expected. Headline CPI remained at 8.7%, above the consensus of 8.4%. Core CPI rose from 6.8% to 7.1%, above the consensus of 6.8%, the highest level since March 1992. The core rate, which excludes food and energy prices, is considered more important, and the 0.3% gain is a huge disappointment for the BoE. The Bank of England won’t have much time to mull over the inflation figures, as it announces its rate decision on Thursday. There’s little doubt that the BoE will have to raise rates for a 13th consecutive time, and today’s inflation numbers mean there is a strong possibility of an oversize 0.50% increase. The BoE finds itself between a rock and a hard place, as it struggles to contain inflation without causing a recession. The resilient labor market has complicated the BoE’s attempts to cool the economy, and the markets are projecting that the Bank Rate, currently at 4.5%, won’t peak until 6%. High inflation has already caused a cost-of-living crisis, and more rate hikes will only exacerbate the pain.   Powell on the hot seat? Fed Chair Powell begins two days of testimony before Congress on Wednesday. Lawmakers are expected to grill Powell about the Fed’s rate policy. The Fed paused at this month’s meeting but is expected to raise rates at the July meeting. Powell has said that he can pull off a soft landing that will avoid a recession and a jump in unemployment, but he’ll likely have to answer pointed questions from lawmakers who are concerned that higher rates will damage the economy. . GBP/USD Technical 1.2719 remains under pressure in support. Next, there is support at 1.2645 There is resistance at 1.2848 and 1.2950    
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Global Stocks Slide on Fears of Recession Triggered by Monetary Tightening

Ed Moya Ed Moya 26.06.2023 08:13
Stocks tumble on fears monetary tightening will trigger a recession Fed rate hike bets still only pricing in one last rate increase European bond yields plunge on downbeat global sentiment   US stocks are sliding as the global growth outlook continues to deteriorate following soft global PMI readings.  The risk of a sharper economic downturn is greater for Europe than it is for the US, so that could keep the dollar supported over the short-term.  This has been an ugly week for stocks and that is starting to unravel a lot of the mega-cap tech trades. The Nasdaq is getting pummeled as the AI trade is seeing significant profit taking.      Europe Brief: European stocks got rattled after France posted a surprise contraction with their Services PMI.  Almost all the European PMI readings disappointed and that is bursting the euro trade. Stubborn UK inflation is forcing the BOE to become a lot more aggressive with their rate hiking campaign, which will pile on significantly more pain on people with mortgages. UK Chancellor Hunt needed to do something for homeowners and this year-long break before repossessions is a step in the right direction. Over 2 million UK mortgage holders are going to see skyrocketing monthly mortgage bills and right now it seems it will steadily get worse.     Bostic The Fed’s Bostic delivered a dovish message today after favoring no more rate hikes for the rest of the year. Bostic is optimistic that the Fed will bring down inflation without tanking the job market.  Bostic is in the minority as other members will need to see a significant deterioration in the data.  Today, the service sector PMI declined not as much as expected and is still trading near pre-pandemic levels. The June preliminary Services PMI fell from 54.9 to 54.1, a tick higher that 54.0 consensus estimate. The economic resilience for the US will likely keep the majority of Fed officials with a hawkish stance.       
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Pressure on Market Rates: The Journey for 10yr Rates Back to March Highs

ING Economics ING Economics 06.07.2023 13:42
Market rates are feeling the pressure. Risk assets have been bought into, and inflation is not calming fast enough. Central banks are piling further pressure on them. The US 10yr Treasury yield won't look right until it hits 4% and can take out the prior high. The 10yr Bund yield should get back to 2.75%, at least, and can still look up, possibly to about 3%   The journey for 10yr rates is back to March highs Market rates peaked in March this year. At the time, there was what looked like a relentless rise in rates underway, only to be undercut by the sudden and unexpected implosion of Silicon Valley Bank (SVB), with echoes in Europe as Credit Suisse was forced into a merger. There have been ripples of concern since, but apart from another few manageable banking causalities in the US, there has been a calming of nerves. In fact, we managed to morph from a state of material concern for the system to one of outright 'risk-on'. The coincident rise in market rates is an outcome of this. Plus there's sticky inflation in both Europe and the US (and beyond), and in the US an economy that just won’t lie down. So where now? On the one hand, forward-looking indicators are in a recessionary state, small bank vulnerabilities remain, and lending standards are tight. The eurozone has moved into a state of technical recession, and China is showing only a subdued reopening oomph. That, together with the cumulative effects of rate hikes already delivered, plus the negative real wage growth environment, should ultimately place material downward pressure on market rates as we progress through the second half of 2023. A peaking out for official rate hikes from both the Federal Reserve and the European Central Bank in the coming months would mark an important point in the cycle. From that point on, market rates should be on the decline, and yield curves should be in a dis-inversion mode. But we are not at that point just yet. The latest US core PCE number at 4.9% reminds us that the US is still a "5% inflation economy". We think this will change (inflation will ease lower), but for now, it is what it is until dis-proven. In the eurozone, there has been a material easing in inflation rates, but the headline reading is still high, at 5.5%. UK inflation seems to have stopped falling, but it is still close to 9%, requiring the Bank of England to re-accelerate hikes. In the US, the latest consumer confidence number for June popped back out to 109.7 (versus 100 at neutral). All of this places upward pressure on market rates, and these factors are likely to sustain the upward pressure, at least for as long as an underlying oomph factor remains in play.  
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Soft US CPI is not enough: Fed's hawkish stance remains strong

Ipek Ozkardeskaya Ipek Ozkardeskaya 12.07.2023 08:30
Soft US CPI is not enough.    The US dollar extended losses after breaking a long-term ascending channel base yesterday. The British pound rallied on yet another stronger than expected wages growth data released yesterday morning. Average weekly earnings excluding bonuses increased 7.3% in the three months to May. And although the unemployment rate ticked up to 4%, it was because more Brits started looking for jobs, and not because people lost the jobs they had.   But don't be jealous of Brits that get such a good jump in their pay because UK inflation is still too hot. The average mortgage rate rose to 6.6%, the highest since 2008, inflation in Britain is sitting at 8.7%, and according to truflation, prices grow at a speed that's faster than 11%. The thing is, the robust wages growth partly explains why the Bank of England (BoE) is having so much pain fighting inflation, and that's why yesterday's data fueled the expectation of another 50bp hike from the BoE at its next meeting. The BoE's policy rate is seen peaking at the 6.5/7% range by the Q1 of next year as predicted by many analysts. Cable hit 1.2970 level, the highest since last April, but whether this really could continue will depend on 1. where the US dollar will be headed after today's CPI data in the short run, and 2. where the UK economy is headed if the BoE hikes rates to 6.5/7% range in the long run. Because the BoE hikes will continue pressuring the British housing market, and growth, and that could limit Cable's topside potential following a kneejerk positive reaction.     Lower US CPI won't be enough to soften the Fed hawks' hand.  The consumer price index in the US is expected to have fallen to 3.1% from 4% printed a month earlier. But unfortunately, it won't be enough to prevent the Fed from further rate hikes, because the further fall in headline inflation to 3% is due to a favourable base effect on energy prices, while core inflation is expected to remain sticky at around the 5% mark - still more than twice the Federal Reserve's (Fed) 2% policy target.   Plus, the rebound in oil prices hints that the risk of an uptick in headline inflation is building stronger for the coming months. The barrel of American crude rallied past the 100-DMA yesterday and is flirting with the $75pb level this morning. Trend and momentum indicators remain positive, and we are not in overbought territory just yet, meaning that this rally could further develop. The next natural target for the oil bulls stands at the 200-DMA, at $77pb level. In percentage terms, we are talking about a 12% rally since the start of the month, and the rebound is a response to the further production restriction from Riyadh and Moscow that are determined to push oil prices to at least $80pb level, and also Beijing's stepping up efforts to boost the Chinese economy by fresh monetary and fiscal stimulus.   But despite the lower OPEC supply and news of fresh monetary and fiscal stimulus from China, US crude should see a solid resistance into $77/80 range as, yes, in one hand, OPEC+ is cutting supply to boost prices, and their supply cuts will dampen the global oil glut in H2 - even more so if China finally achieves a healthier recovery. But on the other hand, the Chinese recovery is not a won game just yet, while increased oil output outside the cartel helps keeping price pressure contained. American crude production is on track for a record year this year, and half of the new crude is coming from the US where companies like Devon Energy that deliver strong output thanks to improved efficiencies.     RBNZ stays pat, BoC to deliver a final 25bp hike  The Reserve Bank of New Zealand (RBNZ) kept its policy rate unchanged at 5.5%. Later today, the Bank of Canada (BoC) is expected to announce a final 25bp hike in this tightening cycle. The Fed however is seen hiking two more times as the strength of the US jobs data, combined with solid economic data, and little pain on US housing market thanks to life-long mortgages.   Therefore, it's interesting that the US dollar depreciates while there is nothing that hints at softening in the Fed's hawkish policy stance. That, and the fact that we will soon be flirting with oversold market conditions in the US dollar hint at a rebound in the greenback, if backed with robust core inflation and strong economic data.     By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  
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Key Events in Developed Markets and EMEA Next Week: Fed Tightening, UK Inflation, and Turkish Central Bank Hike

ING Economics ING Economics 17.07.2023 08:26
Key events in developed markets and EMEA next week In the US, upcoming data is likely to hint at a softening growth story though this is unlikely to deter the Federal Reserve from tightening policy again this month. UK inflation data will determine the size of the August rate hike. And the Central Bank of Turkey is expected to hike by 5ppt to 20%.   US: Fed still believes it needs to do more policy tightening The recent softer private sector jobs growth and lower-than-expected inflation data have seen expectations for the terminal Fed funds rate move lower in recent days. Nonetheless, the Fed still believes it needs to do more policy tightening to ensure inflation returns to 2% and stays there. We fully expect a further 25bp rate hike from the Federal Reserve on 26 July but doubt that policymakers will carry through with the second hike that they envisioned in their recent forecasting round. The upcoming data is likely to hint at a softening growth story with industrial activity set to remain subdued. The ISM manufacturing survey has been indicating contraction (sub-50 readings) for eight consecutive months while lower energy prices have resulted in a fall in oil and gas drilling rigs operating in the US from 755 at the start of May to 680 as of last week. Retail sales will be lifted by rebounding auto sales numbers and higher gasoline station sales, but outside of these components, we expect sales to struggle. The weekly Johnson Redbook same-store sales numbers have turned negative year-on-year while Opentable restaurant dining numbers are also down YoY. Consumer credit has also started slowing in recent months, pointing to weak growth in spending. Adding to the fears for a recession will be a fifteenth consecutive drop in the Conference Board’s leading index for the US. Housing data is likely to correct after a very strong set of readings in May, most notably for housing starts. The lack of existing homes available for sale and high mortgage rates are depressing the number of transactions, but construction is improving given stable pricing and a pick up in new home sales due to the lack of properties on the market.
US Retail Sales Mixed, UK Inflation Expected to Ease: Impact on GBP/USD and Monetary Policy

US Retail Sales Mixed, UK Inflation Expected to Ease: Impact on GBP/USD and Monetary Policy

Kenny Fisher Kenny Fisher 19.07.2023 08:21
US retail sales dip, core retail sales rise UK inflation expected to fall The British pound has edged lower on Tuesday. In the North American session, GBP/USD is trading at 1.3038, down 0.27%.     UK inflation expected to fall The UK is lagging behind other major economies in the fight to curb inflation. Will Wednesday’s inflation report bring some good news? In May, CPI remained stuck at 8.7% y/y but is expected to ease to 8.2% in June. The core rate is expected to remain steady at 7.1%. On a monthly basis, headline CPI is expected to fall from 0.7% to 0.4% and the core rate is projected to slow to 0.4%, down from 0.8%. The inflation report could be a game-changer with regard to the Bank of  England’s meeting on August 3rd. The BoE delivered an oversize 50-basis point hike in June and will have to decide between a modest 25-bp hike or another 50-bp increase at the August meeting. Last week’s employment report pointed to wage growth picking up, which moved the dial in favour of a 50-bp increase.   US retail sales report a mixed bag US retail sales for June provided a mixed spending picture. Headline retail sales rose just 0.2% m/m, below the 0.5% consensus estimate and the upwardly revised May reading of 0.5%. Core retail sales were much stronger at 0.6%, above the 0.3% consensus and the upwardly revised May release of 0.3%. The data points to resilience in consumer spending although momentum has slowed. The retail sales report did not change expectations with regard to rate policy, with the Fed expected to raise rates in July and take a pause in September. The Fed has tightened by some 500 basis points in the current rate-hike cycle and this has curbed inflation, which has fallen to 3%. Nevertheless, the Fed remains concerned that the solid US economy and a tight labour market will make it difficult to hit the 2% inflation target, and the Fed hasn’t given any hints that it will wrap up its tightening in July, although the money markets appear to think this is the case.   GBP/USD Technical GBP/USD has support at 1.2995 and 1.2906  There is resistance at 1.3077 and 1.3116    
UK Inflation Data Boosts Chances of August Rate Hike

UK Inflation Data Boosts Chances of August Rate Hike

ING Economics ING Economics 19.07.2023 10:05
Good news on UK inflation bolsters chances of a 25bp August hike UK inflation fell more than expected in June, owing in part to an encouraging decline in service-sector CPI. The August Bank of England meeting is going to be a close call, but we think this latest data makes a 25bp hike more likely than a repeat 50bp increase. Finally, we have some good news on UK inflation. Headline CPI has dropped back to 7.9%, below consensus and almost a full percentage point lower than in May. Much of that can be put down to petrol and diesel prices, which fell by 2.6% across the month – a stark difference to the same period last year, where we saw a near-10% spike amid the ongoing fallout of the Ukraine war. But encouragingly, we also saw a marked slowdown in food inflation. These prices increased by 0.4% on the month, which looks like the slowest month-on-month increase since early 2022. This is a trend that should continue, given that producer prices for food products are now falling on a three-month annualised (and seasonally-adjusted) basis, as the chart below shows.   Producer prices point to further improvements in food inflation   The good news continues for services What matters most to the Bank of England is services inflation, and the good news continues here too. Service-sector CPI slipped back from 7.4% to 7.2%, contrary to both the Bank of England’s and our own forecasts for this to remain unchanged in the near term. As always, we caution that one month doesn’t make a trend, but our expectation is that services inflation should gradually nudge lower through the remainder of this year. While stubbornly high wage growth will ensure that the journey back towards target is a long one, surveys have shown that price rises among service-sector firms (most notably hospitality) can be traced in large part back to higher energy prices. Now that gas prices are dramatically lower, the impetus for firms to continue to raise prices quite as aggressively should fade. Indeed, the proportion of hospitality firms expecting to raise prices over the next few months has tumbled from 46% in April to 26% now, according to ONS survey data.   Has UK services inflation finally peaked?   All in all, we now expect headline inflation to dip back to 6.6% in July, owing to the near-20% fall in household energy prices. Core inflation should slip back to roughly the same level too. Is this enough to convince the Bank of England to opt for a 25bp rate hike in August? We think it probably will – but it's going to be a close call. The Bank will also be looking at the recent wage data, which was stronger than expected but came alongside figures showing a renewed cooling in the jobs market and improvements in worker supply. The risk is that the BoE applies a similar logic to that seen in June. This could mean that if it expects to hike again in September, then it might as well opt for a larger 50bp hike in August. We certainly wouldn’t rule this out.    
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Repricing the Pound: UK Inflation Slows, Bank of England Tightening Expectations Adjusted

ING Economics ING Economics 19.07.2023 10:06
FX Daily: The pound's big repricing is finally happening UK inflation slowed more than expected in June, triggering a large dovish repricing in Bank of England tightening expectations and hitting the overbought pound. We now think a 25bp hike looks more likely than a 50bp move in August. GBP may stay under pressure, especially against the dollar – which we still expect to recover some ground into the FOMC meeting.     USD: Slowly regaining ground? The round of US data releases was quite mixed yesterday, and as discussed by our US economist in this note, likely supported the case for a pause after a July hike by the Federal Reserve. June’s headline retail sales came in a bit softer than expected (0.2% month-on-month) but the control group which excludes some volatile components actually beat consensus (0.6% MoM). The real data miss came on the industrial production side, which confirmed the negative indications of a contracting ISM index and fell 0.5% MoM in June, despite expectations of 0% growth. All in all, markets aren’t lacking evidence of slowing activity in the US, and the addition of the favourable disinflationary backdrop now weakens the case for another hike beyond July. The lagging unemployment remains the last piece of the puzzle to smoothen the transition to a more dovish rhetoric, and one that may keep the Fed leaning on the hawkish side by keeping all options open in July. From an FX perspective, next week’s FOMC meeting could be the opportunity to recover some lost ground. We cannot exclude the possibility that markets will position ahead of the meeting by closing some freshly-built speculative dollar shorts, which could help close the short-term USD undervaluation gap against the euro. Today, some housing data and MBA mortgage applications will be in focus and we still see room for some marginal dollar recovery. One pair that remains overvalued despite recent USD-negative swings is USD/JPY, and we have been observing fresh weakness in the yen during the late US session and throughout the Asian session following dovish comments by Bank of Japan Governor Kazuo Ueda. With a little over a week to go before the BoJ rate announcement, Ueda said it would take a shift in the assessment to achieve its inflation targets in order to change the ultra-accommodative monetary policy stance. We should note that these remarks by Ueda are quite in line with his recent efforts to carefully manage expectations on the dovish side. We don’t necessarily see indications that would significantly lower the chances of a policy shift in July. As noted by Ueda in recent comments, the new projections will remain the key factor next week. Market reaction has likely been heightened by the proximity to the meeting. Not too far from Japan (relatively speaking), New Zealand saw the release of second-quarter inflation overnight. Headline CPI slowed from 6.7% to 6.0% year-on-year, slightly above the 5.9% consensus but still below the bank’s 6.1% forecast. One important caveat: non-tradeable inflation (watched closely by the Reserve Bank of New Zealand) slowed less than the bank’s forecasts, and the RBNZ-issued core inflation gauge remained unchanged from the first to second quarter at 5.8% YoY. Markets now price in 50-60% chance of a hike by November, which looks about right in our view, even though NZD’s near-term outlook remains much more driven by external factors.
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US Interest Rate Speculation and Market Sentiment: Insights from July FOMC Minutes and Soft Landing Narrative

ING Economics ING Economics 11.08.2023 14:28
We expect the minutes from the July Federal Open Market Committee (FOMC) meeting will continue to exhibit hawkish sentiments with the Fed wary about signalling an imminent peak in US interest rates, with markets fully embracing the soft landing story. Meanwhile, in the UK, inflation and wage data will be released. US markets have fully embraced the soft landing story Markets have fully embraced the soft landing story in the United States whereby growth is respectable while inflation is slowing nicely, offering the Fed the opportunity to call time on interest rate hikes and eventually cut rates in early 2024 to cushion the economy from a hard landing, as high borrowing costs and tight lending conditions inevitably take their toll. There is a lot that could go wrong though, most notably the abrupt hard stop in credit expansion seen since March and its impact on economic activity – but that is a medium-term story. In the near term, the upcoming data is unlikely to support market sentiment, with retail sales looking set to post a decent figure thanks in part to Amazon Prime Day lifting spending, higher gasoline prices boosting the value of gasoline station sales, and vehicle sales ticking higher. However, there will be areas of weakness with chain stores seeing poor sales in recent months, suggesting a risk that the year-on-year rate of retail sales growth will slow to a crawl in the next couple of months. Meanwhile, the minutes of the July FOMC meeting will continue to exhibit hawkish sentiments with the Fed wary about signalling an imminent peak in US interest rates, fearing that this could intensify 2024 interest rate cut expectations and in turn trigger a sharp fall in Treasury yields that would be detrimental to the fight to get inflation back to target. Nonetheless, recent Fed comments have suggested that some members of the committee think they may have done enough with the latest inflation data likely to see more members thinking along those lines. The next big Fed event will be the Jackson Hole symposium between 24-26 August, where we expect to hear Fed Chair Jerome Powell give a bit more guidance on the potential near-term path for policy rates. Rounding out the numbers, we will likely see manufacturing production flat-lining after nine consecutive contraction prints from the ISM index. Industrial production overall may rise thanks to higher utility usage.   Retail sales vs weekly Johnson Redbook sales    
UK Inflation Expected to Slow Sharply in July: Market Analysis and Insights - August 16, 2023

UK Inflation Expected to Slow Sharply in July: Market Analysis and Insights - August 16, 2023

Michael Hewson Michael Hewson 16.08.2023 11:10
05:35BST Wednesday 16th August 2023 UK inflation set to slow sharply in July  By Michael Hewson (Chief Market Analyst at CMC Markets UK) European markets had a poor session yesterday, sliding sharply to their   lowest levels in over a month on the back of concerns over the Chinese economy, and a sharp slowdown in domestic demand. US markets also tumbled for the same reason, although banks also got hit on the back of a warning from ratings agency Fitch that it may have to downgrade the whole US banking sector, including the likes of JPMorgan Chase if financial conditions worsened.     Asia markets have continued this trend of market weakness, with the result we can expect to see a lower open for European markets. The pound had a decent day yesterday, buoyed by the stronger than expected wages data, raising the question as to whether the Bank of England will be forced to hike rates again in September? Yesterday's wages data, which saw a record increase of 7.8% for the 3-months to June, has not only given the central bank a headache, but it could end up giving the UK economy a migraine if the bank gets its policy response wrong. For several months now we've had to contend with tone-deaf warnings from the likes of Governor Andrew Bailey and chief economist Huw Pill for workers not to ask for pay rises. This warning has fallen on deaf ears, and rightly so, but such is the mindset of the stewards of monetary policy they seem unable to grasp that this as a good thing and is certainly no wage-price spiral. If anything, this is a consequence of the central bank's failure to grasp the inflation nettle over a year ago, when a lot of people were telling it to hike faster and harder.     What is happening now is that wages are recouping some of the real income loss that consumers have had to bear over the last 15-months, which is no bad thing for longer term demand considerations.  Today's UK CPI numbers will be the first to include the new lower energy price cap, with the inflation report for August also expected to point to weaker price growth. With several MPC members already saying that interest rate policy is already restrictive, even allowing for yesterday's wages numbers, there is a case for making the argument that we should be close to being done on the rate front, even though markets aren't currently pricing that.     We've already seen a sharp fall in headline CPI from 8.7% to 7.9% in June which offers hope that we can expect to see a fall below 7% in today's July numbers to 6.7%, with core inflation set to slow to 6.7% from 6.9%. On a month-on-month basis we are expecting to see a decline of -0.5%, as the effects of a lower energy price cap show up in the numbers. This welcome convergence between wages and prices is long overdue and will help consumers reset their finances at a time when interest rates are still rising, and the lag effects of previous rate hikes have yet to be felt. There is also the risk that in raising rates further the MPC will push rents higher, and thus make inflation stickier.     The MPC needs to look ahead to what is happening with PPI which is expected to see further declines in July with both input and output prices expected to decline by -2.8% and -1.3% respectively. The latest iteration of EU Q2 GDP is expected to show that the economy remained in expansion of 0.3%, although these numbers were flattered by a big gain of 3.3% in the Irish economy, compared to a -2.8% contraction in Q1. These swings tend to be due to how the big US multinationals which are based in Ireland book their sales which obscures how well or not the Irish economy is performing on an underlying level. We'll also get an insight into the deliberations at the most recent Fed meeting after the US central bank raised rates by 25bps at the July meeting after pausing in June.     There were no real surprises from the statement or for that matter from chairman Jay Powell's press conference, as he reiterated his comments from June that additional rate rises will be needed, although he also insisted that the Fed would be data dependant. In the statement it was restated that inflation remained elevated, and that the committee was highly attentive to the risks that prices might remain high. Powell was non-committal on whether the Fed would raise rates again at its next meeting in September, merely restating that if the data warranted it the central bank would do so. Recent commentary from several FOMC policymakers would appear to suggest growing splits between those who think that a lengthy pause is appropriate now, and those who want further tightening. It will be interesting to see whether these come to the fore in the minutes given how they are already manifesting themselves in recent commentary.     Hawks like Fed governor Michelle Bowman continues to push the line the Fed needs to do more, contrast with those like Atlanta Fed President Raphael Bostic who think the Fed needs to pause.     EUR/USD – slid below the 50-day SMA earlier this week falling to the 1.0875 area before rebounding. The main support remains at the 1.0830 area and July lows. Still feels range bound with resistance at the 1.1030 area.     GBP/USD – got a decent lift yesterday after slipping to the 1.2615 area on Monday but continues to find support above the 1.2600 area. A break below 1.2600 targets 1.2400. Until then the bias is for a move back above the 1.2800 area through 1.2830 to target 1.3000.         EUR/GBP – continues to slip back from the recent highs with the 100-day SMA acting as resistance at the 0.8670/80 area. A sustained move below support at the 0.8570/80 area opens the risk of a move towards the 0.8530 area. Above the 100-day SMA targets the 0.8720 area.     USD/JPY – continues to edge higher, with support now at the 144.80 area. The move above the previous peaks at 145.10, opens the prospect of further gains towards 147.50.     FTSE100 is expected to open 18 points lower at 7,371     DAX is expected to open 67 points lower at 15,700     CAC40 is expected to open 25 points lower at 7,242  
Summer's End: Gloomy Outlook for Global Economy

Summer's End: Gloomy Outlook for Global Economy

ING Economics ING Economics 01.09.2023 10:08
Remember that 'back to school' feeling at the end of summer? A tedious car journey home after holiday fun, knowing you'll be picking up where you left off? I'm afraid we've got a very similar feeling about the global economy right now. 'Are we nearly there yet?'. No. Very few reasons to be cheerful Lana del Rey's Summertime Sadness classic comes to mind as we gear up for autumn. And I'm not just talking about chaotic weather or even, in my case, disappointing macro data. Most of us have had the chance to recharge and rethink over the past couple of months. and I'm afraid all that R&R has done little to brighten our mood as to where the world's economy is right now. Sure, the US economy has been holding up better than we thought. And yes, the eurozone economy grew again in the second quarter. Gradually retreating headline inflation should at least lower the burden on disposable incomes. And let's be thankful for the build-up of national gas reserves in Europe, which should allow us to avoid an energy supply crisis this winter unless things turn truly arctic. But that's about as upbeat as I can get. We still predict very subdued growth to recessions in many economies for the second half of the year and the start of 2024. The stuttering of the Chinese economy seems to be more than only a temporary blip; it seems to be transitioning towards a weaker growth path as the real estate sector, high debt and the ‘de-risking’ strategy of the EU and the US all continue to weigh on the country's growth outlook. In the US, the big question is whether the economy is resilient enough to absorb yet another potential risk factor. After spring's banking turmoil, the debt ceiling excitement, and more generally, the impact of higher Fed rates, the next big thing is the resumption of student loan repayments, starting in September. Together with the delayed impact of all the other drag factors, these repayments should finally push the US economy into recession at the start of next year. And then there's Europe. Despite the weather turmoil, the summer holiday season seems to have been the last hurrah for services and domestic demand in the eurozone. Judging from the latest disappointing confidence indicators, the bloc's economy looks set to fall back into anaemic growth once again   Little late summer warmth This downbeat growth story does have an upbeat consequence; inflationary pressure should ease further. It's probably not going to be enough to bring inflation rates back to central banks’ targets, but they should be low enough to see the peak in policy rate hikes. Central bankers would be crazy to call an end to those hikes officially; they don't want to add to speculation about when the first cuts might come, thereby pushing the yield further into inversion. And there's also the credibility issue - you never know, prices might start to accelerate again. So, expect major central bankers to remain hawkish at least until the end of the year. In our base case, we have no further rate hikes from the US Federal Reserve and one final rate rise by the European Central Bank.   However, in both cases, these are very close calls, and the next central bank meetings are truly data-dependent. Sometimes, a Golden Fall or Indian Summer can make up for any summertime sadness. But it doesn’t look as if the global economy will be basking in any sort of warmth in the coming weeks. The bells are indeed ringing loud and clear. Vacation's over; school is here. And while I'm certainly too old for such lessons, I'm taken back to that gloomy, somewhat anxious feeling I had as a kid as summer wanes and the hard work must begin once again.   Our key calls this month: • United States: The US confounded 2023 recession expectations, but with loan delinquencies on the rise, savings being exhausted, credit access curtailed and student loan repayments restarting, financial stress will increase. We continue to forecast the Federal Reserve will not carry through with the final threatened interest rate rise. • Eurozone: The third quarter may still be saved by tourism in the eurozone, but the latest data points to a more pronounced slowdown in the coming months. Inflation is falling, but a last interest rate hike in September is not yet off the table. The European Central Bank will be hesitant to loosen significantly in 2024. • China: The latest activity data has worsened across nearly every component. Markets have given up looking for fiscal stimulus, and have started making comparisons with 1990s Japan. We don’t agree with the Japanification hypothesis, but clearly a substantial adjustment is underway, and we have trimmed our growth forecasts accordingly. • United Kingdom: Uncomfortably high inflation and wage growth should seal the deal on a September rate hike from the Bank of England. But emerging economic weakness suggests the top of the tightening cycle is near, and our base case is a pause in November. • Central and Eastern Europe (CEE): Economic activity in the first half of the year has been disappointing, leading us to expect a gloomier full-year outlook. Despite this, we see a divergence in economic policy responses, driven by countryspecific challenges. • Commodities: Oil prices have strengthened over the summer as fundamentals tighten, whilst natural gas prices have been volatile, with potential strike action in Australia leading to LNG supply uncertainty. Chinese concerns are weighing on metals, but grain markets appear more relaxed despite the collapse of the Black Sea deal. • Market rates: The path of least resistance is for longer tenor rates to remain under upward pressure in the US and the eurozone and for curves to remain under disinversion (steepening) pressure. We remain bearish on bonds and anticipate further upward pressure on market rates from a tactical view. • FX: Stubborn resilience in US activity data and risk-off waves from China have translated into a strengthening of the dollar over the summer. We still think this won’t last much longer and see Fed cuts from early 2024 paving the way for EUR:USD real rate convergence. Admittedly, downside risks to our EUR/USD bullish view have grown.     Inflation has only been falling for a matter of months across major economies, but the debate surrounding a possible “second wave” is well underway. Social media is littered with charts like the ones below, overlaying the recent inflation wave against the experience of the 1970s. These charts are largely nonsense; the past is not a perfect gauge for the future, especially given the second 1970s wave can be traced back to another huge oil crisis. But central bankers have made no secret that nightmares of that period are shaping today's policy decisions. Policymakers are telling us they plan to keep rates at these elevated levels for quite some time.
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US Non-Farm Payrolls Support Fed's Strategy: GBP/USD and EUR/USD Analysis, UK Forex Trends, and Rate Hike Expectations

InstaForex Analysis InstaForex Analysis 05.09.2023 14:54
The US non-farm payroll report for August, published on Friday, turned out to be perfect for the Federal Reserve. It's not so much about the figures, which were quite moderate, but about how they perfectly supported the Fed's strategy. The chances of a rate hike at the Fed's September meeting have dropped to 7%, which means it's safe to say that the rate hike cycle is over. Unless, of course, something unbelievable happens, but such assumptions should hardly be expected.   The first rate cut is expected in May 2024, and this forecast has not changed.   What was positive in the report? First and foremost, it was the fact that average hourly earnings increased 0.2% for the month, against the expectations of 0.3%. This is the smallest increase in the last 12 months. Slower wage growth is an important basis for reducing overall inflationary pressure. Nonfarm payrolls grew by 187,000 for the month, defying expectations, which could have been seen as a high level of activity had it not been for a revision to the previous two months' figures of 110,000, which more than offset the excess. The unemployment rate rose from 3.5% to 3.8%, the highest since February 2022. Overall, we can say that the Fed is consistently achieving its goal of cooling the economy to reduce inflationary pressure. Another significant release on Friday was the US ISM manufacturing index, which showed that the slowdown in the US manufacturing sector continues, albeit at a slower pace than expected (47.6 versus a consensus 47). Market activity was reduced on Monday due to the holiday in the United States. EUR/USD The Eurozone Harmonised Index of Consumer Prices jumped 0.6% in August, exceeding expectations of 0.4%. The annual eurozone HICP remained at 5.3% against a forecast of 5.1%. However, the data did not cause any surprise as the core index decreased in line with expectations from 5.5% to 5.3% y/y. After the report, European Central Bank Vice President Guindos stated that the new ECB forecasts would show that inflation prospects had not changed significantly over the summer, although economic prospects had deteriorated. The data indicates a decrease in economic activity in the third and possibly fourth quarters, and the rate decision in September is still open for debate. Earlier on the same day, ECB representative Schnabel (a hawk) stated that underlying inflationary pressure remains high, but economic activity has noticeably decreased. In her opinion, monetary policy remains a topic of discussion at every meeting, so she could not offer a view on what should happen this month. Thus, there is no clear position from the ECB. On Monday, ECB President Christine Lagarde was scheduled to speak, as well as Lane and Panetta, and on Tuesday, Lagarde will speak again with Schnabel and Guindos. Investors are eyeing the speeches for clues on the ECB's plans. If something different from the market consensus on this issue is voiced, increased volatility is inevitable. The net long position on the EUR decreased by 0.4 billion to 21.1 billion over the reporting week, with positioning remaining bullish. However, the trend toward selling the euro is becoming increasingly noticeable. The price remains below the long-term average and is falling again.     A week ago, we anticipated that EUR/USD would attempt a shallow correction after a pronounced two-month decline. This attempt took place, but then the bears attacked, and the euro fell to the recent low of 1.0764, failing to break it on the first attempt. We assume that after a brief consolidation, the downward movement will resume, the lower band of the channel will not hold, and the euro will move towards the nearest target of 1.0634. The dynamics will depend primarily on the stability of the US economic recovery and the Federal Reserve's future course of actions. GBP/USD Bank of England Chief Economist Huw Pill noted that services price inflation has become less favorable recently and that the UK is facing the effects of "second-round" effects (i.e., wage-driven) and that the Committee needs to see through the job aimed at suppressing inflation. Pill referred to two scenarios, the first of which involves a succeeding increase in rates followed by a rapid decrease, and the second involves maintaining high interest rates for an extended period. In his opinion, the profile of the inflation trajectory in both cases will be almost identical, but personally, he leans towards the second approach due to risks to financial stability. In any case, markets are anticipating a rate hike in September to 5.5%, which is already priced in, but a higher rate level appears increasingly unlikely. The net long position on GBP decreased by 0.6 billion to 4.1 billion over the reporting week, and the price dropped sharply.     Within the framework of a short-term correction, the pound rose above the resistance area of 1.2680/90, which we identified in the previous review as a likely level for a sell-off, but after the correction, it went down as expected. We assume that the sell-offs will intensify, the support at 1.2545 will not hold, and the long-term target of 1.2290/2310 remains relevant.  
All Eyes on US Inflation: Impact on Rate Expectations and Market Sentiment

Inflation Fever Breaks: Fed Doves Energized as US CPI Falls, Markets React

Ipek Ozkardeskaya Ipek Ozkardeskaya 16.11.2023 11:14
Inflation fever breaks By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The Federal Reserve (Fed) doves got a big energy boost yesterday by a slightly lower-than-expected inflation report. The headline inflation fell to 3.2% in October from 3.7% printed a month earlier, and core inflation eased to 4% from 4.1% printed a month earlier. Services excluding housing and energy costs – the so-called super core figure closely watched by the Fed - rose only 0.2% and shelter costs rose only 0.3%, down from a 0.6% advance printed a month earlier. The soft set of inflation print cemented the expectation that the Fed is done hiking the interest rates. The US 2-year yield – which best captures the rate bets – tanked 24bp to 4.81%. The 10-year slipped below 4.50% and activity on Fed funds futures gives around 95% chance for a no rate hike in December. That probability stood at around 85% before yesterday's US CPI data.   In equities, the S&P500 jumped past its 100-DMA, spiked above the 4500 mark, and closed the session a few points below this level. Nasdaq 100 extended its gain to 15850. In the FX, the US dollar took a severe hit. The index fell 1.50% on Tuesday, pulled out a major Fibonacci support and sank into the medium-term bearish consolidation zone. The EURUSD jumped to almost the 1.09 level. Yes, there is no mistake – to nearly 1.09 level, and Cable flirted with the 1.25 resistance. What a day!   A small parenthesis on UK inflation   Good news came from Britain this morning, as well. Inflation in the UK fell 6.7% to 4.6% in October, lower than the 4.7% penciled in by analysts. Core inflation also eased more than expected to 5.7%. There is growing evidence that the major central banks' efforts are bearing fruit. Cable is sold after the CPI data, but the pullback will likely remain short-lived if the USD appetite continues to wane globally.   
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Taming Inflation: Bank of England's Services Inflation Falls Below Forecast, Diminishing Rate Hike Prospects

ING Economics ING Economics 16.11.2023 11:25
Good news for the Bank of England as services inflation falls further than expected Services inflation has undershot the Bank of England's forecast for October, and that all but rules out any more tightening this year. We expect services inflation to fall back to the 3.5-4% area next summer and that would be a catalyst for rate cuts to begin. To no great surprise, UK inflation plunged in October as the impact of lower gas prices finally showed through in a meaningful way. Last year’s 25% increase in household energy bills has dropped out of the annual comparison, while electricity/gas prices fell by 7% in October this year. And though a much less important factor in this latest drop, food price inflation has slowed dramatically too. Producer prices suggest the level of consumer prices at the checkout could actually start falling over the next few months. The net result is that headline CPI now stands at 4.6%, down from 6.7% in September. It’s unlikely to change much again before year-end. Inevitably this will raise a few smiles in Downing Street, and much of the focus of today’s data will be on the fact that Prime Minister Rishi Sunak has met his goal of ‘halving inflation’. But the Bank of England has to be pretty pleased too. That’s because services inflation, the key metric for policymakers, came in much lower than the Bank had anticipated. Services CPI now stands at 6.6% on a year-on-year basis, below the BoE’s 6.9% forecast. That’s lower than we’d expected too, and this is partly because we’d been expecting another large increase in rents in October. The ONS reportedly updates social rents once per quarter and in April and July, we saw unprecedented increases in the overall rent category because of this, helping to push up services inflation. That ultimately didn’t happen last month, and while it’s a fairly niche quirk that would not likely have meant anything for monetary policy, it might help explain some of the difference with the BoE’s forecast.   UK services inflation and ING forecasts   Even so, we can be pretty confident now that services inflation has indeed peaked and is trending downwards. Surveys show that fewer firms are raising prices now, and for the service sector we think that can be partly explained by lower gas prices. Higher energy costs late last year were reported by firms to be a key driver of higher consumer prices, and we expect the same to be true in reverse now that gas prices are down. Further progress on services inflation may be limited in the short-term – we expect it to end the year just above 6% - but we expect it to come down more readily from the spring and reach the 3.5-4% area next summer. Together with lower wage growth by that point, we think this will be a key catalyst for rate cuts to begin from August. Today’s figures also all but rule out a resumption of rate hikes in December, though the chances were already low. This was the only CPI release before the next meeting, and we’ll only get one more wage release before then. The next move in rates is therefore likely to be down.
Inflation Slows, Prompting Speculation of Rate Cuts: Impact on Markets and Government Goals

Inflation Slows, Prompting Speculation of Rate Cuts: Impact on Markets and Government Goals

Michael Hewson Michael Hewson 16.11.2023 11:49
Having seen the cap come down in April, headline inflation slowed to 8.7% from 10.1% in March, and knowing that further reductions were coming in June and October it wasn't unrealistic to assume similar sharp slowdowns in these months as well, which is precisely what has happened with October CPI slowing to 4.6% and core CPI slowing to 5.7%.   Of course, we've heard a lot today from the UK Treasury, as well as the government that they have succeeded in their goal to get CPI below 5% by the end of the year, which is hilarious given that what we've seen today has happened despite them, and not because of them. Let's not forget this is the government which raised tax rates and made people worse off.   The reality is this was a goal that was always easier to achieve than not, given what we have been seeing in headline PPI numbers these past few months, and the fact we knew the energy price cap was keeping inflation higher than it should have been.   The actual reality is were it not for the design of the energy price cap, headline inflation would have fallen much quicker than it has, merely confirming the idea that there is no political intervention that can't make a big problem even worse, and which in turn helped to create the very stickiness we are seeing in wages growth which is making services inflation stickier than it might have been.   This has meant that UK services inflation has taken longer to come down than it should have, although we have seen a modest slowdown to 6.6% from 6.9% in September. The effect of the energy price cap is evident in where we've seen the biggest slowdown in October inflation, with household and services inflation declining -1.9% month on month, compared to an 8.7% increase in October 2022. Gas costs fell 31% in the year to October 2023, while electricity costs fell 15.6%, which is the lowest annual rate since January 1989.   That said gas and electricity prices are still well above the levels they were 2 years ago, with gas prices still higher by 60%, but nonetheless what the last 24 hours have told us is that its increasingly likely that central banks are done when it comes to further rate hikes, and that pricing is now shifting to who is likely to cut rates first.   On that count the jury remains out, however given the recent gains in the US dollar over the last few months, the repricing of rate risks suggests that the US dollar might still have the biggest downside risk even if the Fed is the last to start cutting.   On that score it looks to be between the ECB and the Bank of England when it comes to which will cut rates first with markets pricing 78bps from the Bank of England by June next year. At this point this seems a little excessive in the same way markets were pricing a 6.25% base rate back in June.   That said the thinking has shifted, and rather than higher for longer further weakness in the economic data will only reinforce the idea that rates have peaked and that cuts are coming, with the debate now on extent and timing. This is no better reflected than in the UK 2-year gilt yield which is now 100bps below its June peaks having fallen as low as 4.54% earlier today.    On the score of who is likely to be first out of the traps in rate cuts it's more than likely to be the ECB, perhaps as soon as the end of Q1 next year, with the Bank of England soon after, which will be good news for households, as well as governments when it comes to debt costs.   Despite today's undershoot on UK inflation the pound has managed to hold onto most of its gains against the US dollar of the last 24 hours having hit 2-month highs earlier today, above 1.2500 and closing above its 200-day SMA for the first time since 13th September yesterday.   The euro has also rallied strongly, similarly closing above its 200-day SMA, in a move that could signal further gains, while equity markets also rallied strongly. The strongest moves came in the Nasdaq 100 and S&P500 which posted their biggest one-day gains since April, with the Nasdaq 100 coming to within touching distance of its July peaks at 15,900. We need to see a concerted push through here to signal a return to the 2021 peaks.   The S&P500 similarly broke out of its downtrend from its July peaks, retesting its September peaks, with a break of 4,520 potentially opening the prospect of a return to those July highs at 4,590.   While US markets have rallied strongly, the reaction in Europe has been much more tepid which suggests an element of caution when it comes to valuations for European stocks. The DAX has managed to recover above its 200-day SMA and above its October highs, while the FTSE100 reaction has been slightly more measured compared to the FTSE250 which has seen strong gains this past two days, pushing up to 2-month highs in early trade today.    In summary today's inflation numbers are good news for consumers across the board, especially given that headline CPI has fallen below the base rate for the first time since 2016, however the Bank of England will still be concerned about services inflation, as well as wage inflation, which is still above 7%.   While markets are cheering the end of inflation it is clear that central bankers will be reluctant to do so less it return in 2024.
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Asia Morning Bites: US-China Talks Show Progress, Treasury Yields Rise, and Global Markets React

ING Economics ING Economics 16.11.2023 12:15
Asia Morning Bites High-level communication to resume between the US and China as Biden hails meetings with Xi as making "real progress". Taiwan's main opposition parties are reported to be combining forces for the upcoming Presidential Election.   Global Macro and Markets Global markets:   A mixed run of US data yesterday resulted in Treasury yields pushing higher again. 2Y yields rose 7.6bp to 4.912%, while yields on 10Y US Treasuries rose 8.4bp taking them back above the 4.50% level to 4.531%. EURUSD has dropped slightly following this yield reversal but remains at 1.0849 for now. The AUD is reasonably stable at just over 0.65, but the GBP and JPY have both lost more ground. USDJPY is now 151.29. Most of the Asian FX pack made decent gains yesterday, but will probably revert to a weakening bias today. US stocks made only very small gains yesterday. Chinese stocks did far better. The Hang Seng rose 3.92% while the CSI 300 rose 0.7% on the slight improvement in activity data. On the political front, a resumption of high-level dialogue as President Biden hails talks with President Xi as making “real progress”, is probably the main win from the Pre-APEC session. Elsewhere, the Financial Times reports that the two main opposition parties in Taiwan will join forces against the DPP for January’s Presidential elections. It remains to be seen which party’s candidate will stand for the Presidential role. This, it is reported, will be determined by a third-party analysis of how the parties are polling. These parties are viewed as being more open to dialogue with Mainland China, so they could usher in a less tense election period than has historically been the case. G-7 macro: Yesterday’s US data stuck with the theme of price pressures waning, but activity remaining more resilient (see here for a more detailed note from JK). PPI inflation dropped to 1.3% YoY following a 0.5% MoM decline, and core PPI inflation also slowed to 2.4% YoY from 2.7%. Retail sales, however, were expected to fall 0.3% MoM in October, but only fell 0.1%. The control group of sales which strips out volatile items, rose 0.2%MoM – in line with expectations. UK inflation released yesterday showed a larger-than-expected fall. The CPI inflation rate tumbled to 4.6% from 6.7%. The news flow today won’t be quite as interesting. US export and import price data is rarely a market mover. Although we do also get industrial production, which is forecast to decline by 0.4% MoM, as well as the Philly Fed business survey and usual weekly jobs figures. Japan:  Exports for October rose 1.6%YoY – beating the forecast 1.0% gain, while imports were also a little less negative than expected at -12.5% YoY, though not enough to dent the trade balance. In adjusted terms, the deficit shrank to -JPY462bn. Alongside the trade figures, core machine orders data for September showed a decent 1.4% increase, beating expectations, though still leaving the annual rate down 2.2% YoY Australia: October employment was fairly strong. The total employment change from the previous month was +55,000, up from +7,800 in September. Most of the gain was due to a 37,900 rise in part-time jobs, so the total figure flatters the positive impact this will have on domestic demand. Full-time employment rose 17,000. There was a much bigger than usual increase in unemployment, which helped lift the unemployment rate to 3.7% from 3.6%.   Philippines:  The Bangko Sentral ng Pilipinas (BSP) is expected to keep rates unchanged today at 6.5%.  BSP hiked policy rates by 25bp two weeks ago in an off-cycle move so they are expected to hold today.  BSP Governor Remolona however could retain his hawkish rhetoric should inflation projections for 2024 point to another year of above-target inflation.    What to look out for: Australia jobs data and BSP meeting Japan trade balance (16 November) Australia labour report (16 November) Philippines BSP policy (16 November) US initial jobless claims and industrial production (16 November) Singapore NODX (17 November)
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Surprise Surge in UK Inflation Triggers Market Response

Ipek Ozkardeskaya Ipek Ozkardeskaya 17.01.2024 15:55
UK inflation unexpectedly rises By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Yesterday was just another day where another policymaker pushed back on the exaggerated rate cut expectations. Federal Reserve's (Fed) Christopher Waller said that the Fed should go 'methodically and carefully' to hit the 2% inflation target, which according to him is 'within striking distance', but 'with economic activity and labour markets in good shape' he sees 'no reason to move as quicky or cut as rapidly as in the past', and as is suggested by the market pricing. So that was it. Another enlightening moment went down the market's throat in the form of a selloff in both equities and bonds. The US 2-year yield – which captures the rate expectations rebounded 12bp, the 10-year yield jumped past the 4%, the US dollar index recovered to a month high and is testing the 200-DMA resistance to the upside this morning, while the S&P500 retreated 0.37%.   Waller spoke from the US yesterday, but many counterparts are wining, dining and speaking in the World Economic Forum in Davos this week, which doesn't only offer snowy and a beautiful scenery this January, but it also serves as a platform to many policymakers to bring the market back to reason. Expect more comments of this hawkish kind during this week. It turns out that one of the most popular topics of this year's WEF is rising inflationary risks due to the heating tensions in the Red Sea which disrupt the global trade roads and explode the shipping costs.  

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