United States

Despite a lot of tightening priced into the swaps market, we believe it is unlikely that the Bank of England will hike rates before the scheduled November meeting. In the US, unemployment remains stable at 3.7% and with wage growth staying elevated, we see few signs that the pace of tightening will slow In this article US: Inflation is sticky as unemployment remains low and wage growth remains elevated UK: Intermeeting Bank of England hike looks unlikely despite ongoing turmoil Canada: Hopeful for a stabilisation in the jobs market Eurozone: Expecting declining trend in retail sales Source: Shutterstock US: Inflation is sticky as unemployment remains low and wage growth remains elevated Financial markets are currently favouring the Federal Reserve implementing a fourth consecutive 75bp rate hike on 2 November and we agree. Inflation is sticky while the near-term growth story is looking OK and the economy continues to add jobs in significant numbers. That message should be reinforced by the upcoming labour report with unemployment staying at just 3.7%, payrolls increasing by around 200,000 and wage growth staying elevated. There are also plenty of Federal Reserve officials scheduled to speak and so far there is little sign of any inclination to slow the pace of policy tightening. The ISM business activity report should remain firmly in growth territory as well with the trade balance making further improvements. As such, we are expecting 3Q GDP to come in at close to 2%. UK: Intermeeting Bank of England hike looks unlikely despite ongoing turmoil UK markets remain volatile, and sensitive to further headlines over the coming week. We remain sceptical that the Bank of England will hike rates before its scheduled November meeting, despite a lot of tightening priced into swaps markets. Instead, we’ll be watching for any update on the Bank’s bond strategy. The BoE was forced to start buying long-dated gilts amid concerns about the stability of UK pension funds, but this is for a limited period and the Bank has said it plans to plough on with gilt sales from the end of the month. We think that’s likely to get pushed back, however, given the strains in the gilt market. Markets will also remain hyper-sensitive to any headlines related to the government’s controversial growth plan. In the first instance, press reports suggest the focus will be on spending cuts to offset some of the planned tax cuts, though this could be both practically and politically challenging. The Office for Budget Responsibility is due to provide a first draft of its post-Budget forecasts to the Chancellor privately on Friday. Canada: Hopeful for a stabilisation in the jobs market In Canada, the jobs market has wobbled of late with employment falling for three consecutive months after some very vigorous increases earlier in the year. We are hopeful of stabilisation in Friday’s September report given the economy is still performing relatively well, but if we are wrong and we get a fourth consecutive fall then expectations for Bank of Canada tightening could be scaled back somewhat – especially after some softer than anticipated CPI prints. We are currently forecasting a 50bp rate hike at the October BoC policy meeting with a final 25bp hike in December. Eurozone: Expecting declining trend in retail sales For the eurozone, it’s a pretty light week in terms of data. Retail sales on Thursday catch the eye as we’ll get more information on consumer spending in the eurozone, as purchasing power remains under severe pressure. We’ve seen a declining trend in spending since last November and have little indication that August data will have shown a big turnaround. Continued declines would fuel our view that the eurozone economy could have already tipped into contraction in the third quarter. Key events in developed markets next week Source:  Refinitiv, ING TagsUnited States Eurozone Canada 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

Summary:  In today's edition, we focus on the pace of U.S. credit growth and whether or not it indicates an imminent risk of a U.S. recession. To put it simply, credit growth is stabilizing at a very right level which is not normally consistent with a recession. Other credit aggregates we monitor, such as the credit impulse, are oriented north too. It is currently running at 4.5 % of GDP - this is the highest level since 2011. Click to download this week's full edition of Macro Chartmania composed of more than 100 charts to track the latest macroeconomic and market developments. All the data are collected from Macrobond and updated each week. A majority of market participants believe a soft landing in the United States is an unlikely scenario. Based on the latest credit data, this is still possible though. In the below chart, we show the evolution of commercial and industrial loans and leases. This is an important category of assets that commercial banks report on their balance sheets. This has been published on a quarterly basis by the U.S. Federal Reserve (Fed) since 1947. The latest data for the third quarter was out a few days ago. Commercial and industrial loans and leases are still growing at a strong pace, running at 17.3 % year-over-year in Q3. The last peak was in Q2 2020 – immediately in the aftermath of the outbreak. Growth was without any historical precedent at 88.3 % year-over-year. But the circumstances were out of the ordinary. At Saxo Bank, we also measure the growth of credit using credit impulse. This is a larger aggregate which measures the flow of new credit issued by the private sector as a percentage of GDP (see the chart in today’s Macro Chartmania). It is heading north at 4.5 % of GDP. Both indicators (commercial and industrial loans and leases and credit impulse) are used to predict a recession. When both are in a contraction, this usually ends up in a recession. As you can see, the current credit growth is not consistent with an imminent recession. We believe that the release of the first estimate of the Q3 U.S. GDP on 27 October will confirm the U.S. economy is rather resilient, despite growing concerns about inflationary pressures (the economist consensus expects GDP growth to reach 2.4 %). In our view, the resilient U.S. economic outlook (especially if we compare with the eurozone) and the continued strong inflow of credit in the economy should give the U.S. Federal Reserve enough room for maneuver to hike interest rates in November and beyond. We believe that the central bank will hike rates by 0.75-point next month. Fed officials could also start debating whether and how to slow the pace of increases after that, but more to take into consideration hidden financial risks (notably on the U.S. bond market) rather due to concerns about an imminent recession.  Source: https://www.home.saxo/content/articles/macro/chart-of-the-week-strong-us-credit-growth-25102022

Yesterday, the pound showed impressive growth. Similarly, the euro also showed significant gains. Considering that there was no macro data from the UK, unlike the eurozone, it is more accurate to say that the pound followed the euro. However, this growth contradicted all the macro data.   After all, eurozone inflation slowed down significantly more than expected, while employment in the United States increased substantially more than anticipated. So, the dollar should have extended its growth. But the market went in a different direction, and the formal reason for this was the minutes of the European Central Bank's governing council meeting, which mentioned the possibility of more interest rate hikes. However, the meeting itself took place before there were even rough forecasts for the current inflation.   Just a couple of days ago, several ECB officials explicitly stated that the cycle of interest rate hikes may have come to an end. So, the rise of the euro and, along with it, the pound, goes against common sense. Unless we consider the excessive overbought condition of the dollar, which became the main reason why European currencies increased.   However, there is a high probability that today everything will return to the values at the start of yesterday's trading. Employment data clearly suggests that the content of the US Department of Labor report will be slightly better than expected. In particular, unemployment, which was expected to increase from 3.4% to 3.5%, may well remain unchanged. But if unemployment does increase, the dollar may continue to lose its positions, primarily due to the persistent overbought condition.       During the intense upward movement, the GBP/USD pair jumped above the 1.2500 level. This served as the primary signal of the pound's recovery process relative to the recent corrective move. Due to the sharp price change, on the four-hour chart, the RSI reached the overbought zone, which indicates that long positions are overheated in the intraday period. On the four-hour period, the Alligator's MAs are headed upwards.   This indicates a shift in trading interests. Outlook In this situation, the sharp price change from the day before is a signal of the pound's overbought conditions in the intraday and short-term periods. The target level is set at 1.2550, around which the upward cycle slowed down, which reduced the volume of long positions and resulted in a stagnation. We can assume that the process of the pound's recovery will be temporarily interrupted by a pullback.   However, if the price remains stable above 1.2550, speculators may ignore the technical signal of overbought conditions. In this case, the pair can rise towards the peak of the medium-term trend. The complex indicator analysis unveiled that in the short-term and intraday periods, points to the pound' recovery process.  

There will be limited macro data on Monday, but the fact that there will be some is already a good sign. Mondays often lack both fundamental news and macroeconomics, which negatively affects the nature of movements and volatility. Tomorrow, business activity indices in the service sectors will be published in the European Union, the United Kingdom, and the United States.   We cannot say that these are extravagant data, especially since they will be the second estimates for May. In other words, the market is already familiar with the preliminary estimates. The business activity index in the UK and the ISM index in the US can be considered somewhat important.   However, unexpected values or deviations from forecasts are needed to trigger a market reaction. Without such influence, there won't be much impact on traders' sentiment.     There will be limited macro data on Monday, but the fact that there will be some is already a good sign. Mondays often lack both fundamental news and macroeconomics, which negatively affects the nature of movements and volatility. Tomorrow, business activity indices in the service sectors will be published in the European Union, the United Kingdom, and the United States.   We cannot say that these are extravagant data, especially since they will be the second estimates for May.   In other words, the market is already familiar with the preliminary estimates. The business activity index in the UK and the ISM index in the US can be considered somewhat important. However, unexpected values or deviations from forecasts are needed to trigger a market reaction. Without such influence, there won't be much impact on traders' sentiment.     Analysis of fundamental events: No significant fundamental events are scheduled for Monday. Both currency pairs corrected downwards on Friday, but the short-term upward trends are still intact. However, in the medium-term, a further decline in the euro and the pound is more likely. We believe it is advisable to pay attention to higher charts at the moment. In our weekend articles, we extensively discussed the key points to watch for in the coming week. We recommend reviewing those articles.     General conclusions: Monday will have few important events, but some of the reports may influence market sentiment and consequently affect the movement of major currency pairs. It is crucial to understand the medium-term direction of the euro and the pound this week.   As we have mentioned before, a short-term upward trend has formed, but a downward trend still persists in the longer term. Therefore, the battle between bulls and bears this week will not only be interesting but also significant. Basic trading rules: 1) The strength of the signal depends on the time period during which the signal was formed (a rebound or a break). The shorter this period, the stronger the signal. 2) If two or more trades were opened at some level following false signals, i.e. those signals that did not lead the price to Take Profit level or the nearest target levels, then any consequent signals near this level should be ignored. 3) During the flat trend, any currency pair may form a lot of false signals or do not produce any signals at all. In any case, the flat trend is not the best condition for trading. 4) Trades are opened in the time period between the beginning of the European session and until the middle of the American one when all deals should be closed manually.   5) We can pay attention to the MACD signals in the 30M time frame only if there is good volatility and a definite trend confirmed by a trend line or a trend channel. 6) If two key levels are too close to each other (about 5-15 pips), then this is a support or resistance area.   How to read charts: Support and Resistance price levels can serve as targets when buying or selling. You can place Take Profit levels near them. Red lines are channels or trend lines that display the current trend and show which direction is better to trade. MACD indicator (14,22,3) is a histogram and a signal line showing when it is better to enter the market when they cross.   This indicator is better to be used in combination with trend channels or trend lines. Important speeches and reports that are always reflected in the economic calendars can greatly influence the movement of a currency pair. Therefore, during such events, it is recommended to trade as carefully as possible or exit the market in order to avoid a sharp price reversal against the previous movement. Beginners should remember that every trade cannot be profitable.   The development of a reliable strategy and money management are the key to success in trading over a long period of time.  

In the wake of 10 consecutive interest rate hikes, it is high time for the markets to embrace a more positive outlook. The Powell-led committee's aggressive pursuit of raising benchmark rates, although necessary, has cast a shadow of pessimism over financial markets, potentially overshadowing the remarkable achievements of industry pioneers. Throughout history, monetary policy has proven to be a valuable tool for achieving financial stabilization in economies. The United States has faced its fair share of hardships in recent times, including a prevailing sense of distrust toward local banks and the adverse ripple effects of the debt ceiling conundrum. These challenges have been further exacerbated by soaring nationwide inflation, which has also left its mark on the cryptocurrency market.   It has been 15 months since the Federal Reserve decided to pause the rate hikes, indicating a momentary respite for the nation's monetary defenses. During this time, cryptocurrencies have displayed a bullish trend when examined from a long-term perspective. While current market conditions may appear to be in the red, they could potentially serve as necessary corrections following the rapid price surges witnessed in the crypto asset space. The Federal Reserve's monetary policy is operating as intended, with continuous and comprehensive assessments of economic conditions. Crucially, these assessments should consider the implications not only for industry leaders but also for everyday households. Adopting a bottom-up approach may yield insightful findings regarding the broader impact of monetary policy decisions.   FXMAG.COM: Could you please comment on the FOMC decision? It’s about time for markets to see the brighter side of day after 10 straight interest rate hikes. The Powell-led committee has been on a frenzy of aggressive benchmark rate increases – while necessary – has infected financial markets with pessimism, and that can overshadow the successes and feats of industry pioneers. Monetary policy has historically served as a very useful tool for achieving economy financial stabilization, and the United States economy has been susceptible to quite the hardship in recent times. The distrustful sentiment towards local banks and the adverse ripple effect of the debt ceiling conundrum had been exacerbated with scorching nation-wide inflation. That has also had its impact on the crypto market. It has been 15 months since the Fed decided to pause the rate hikes, which perhaps is an indication that the nation’s monetary defenses are taking a breather. Since the start of the year, cryptocurrencies have been very bullish when putting on the long-term lenses. While contemporary market conditions are more in the red, they potentially serve as corrections to the recent sharp price bumps in crypto assets. The Federal Reserve’s monetary policy is doing as it should, given continuous extensive assessment of economic conditions. What’s pivotal here is the conditions to be assessed, which in my perspective should take into consideration the implications on industry leaders but also those on everyday households; a bottom-up approach may present quite the insightful findings.  

United States: The US economy has proven to be more resilient than we expected, but the threat of recession lingers on due to lagged effects of rate hikes and tighter lending conditions, while the restart of student loan repayments could come as a financial shock for millions of Americans. We expect a July rate hike but still anticipate several cuts next year.   Eurozone: The latest data show that eurozone growth is not picking up, with services now also losing steam. While it’s not all downhill from here, subdued growth is the best we can hope for. Inflation is now clearly coming down, but the European Central Bank is still set for two more rate hikes   China: The recovery has been narrowly focused on consumer spending, and in particular on catering. But even that looks like it will moderate in the months ahead. The stimulus response so far has been modest, and will probably remain so. Further rate cuts will likely follow which should weaken China's yuan. We are revising our GDP forecasts lower and CNY weaker.   UK: Markets think the UK’s inflation problem is much worse than the US/eurozone, and the Bank of England has doubled down with a more aggressive rate hike. We expect at least two more 25 basis-point hikes, but we think better inflation readings through the summer should allow a pause before winter

Economic calendar for July 10 Monday is traditionally accompanied by an empty macroeconomic calendar. No important statistical data is expected to be published in the European Union, the United Kingdom, and the United States. Therefore, investors and traders intend to rely on the incoming flow of information and news. EUR/USD trading plan for July 10 Due to the technical overbought signal of the euro in the short-term and intraday periods, a price pullback is possible. To continue the current upward cycle, market participants need to overcome the resistance level around 1.1000. If the price remains consistently above this level, it may stimulate an increase in long positions.      

GBP/USD trading plan for July 10 In this situation, the return of the price to the local high indicates a prevailing bullish sentiment among market participants. The pullback we are observing can serve as a stage for regrouping trading forces before further growth. To confirm the continuation of the upward trend, it is necessary to keep the price above the level of 1.2850, which may trigger a technical signal for further growth.       What's on the charts The candlestick chart type is white and black graphic rectangles with lines above and below. With a detailed analysis of each individual candle, you can see its characteristics relative to a particular time frame: opening price, closing price, intraday high and low. Horizontal levels are price coordinates, relative to which a price may stop or reverse its trajectory. In the market, these levels are called support and resistance. Circles and rectangles are highlighted examples where the price reversed in history. This color highlighting indicates horizontal lines that may put pressure on the asset's price in the future. The up/down arrows are landmarks of the possible price direction in the future.  

Russia The Russian central bank is expected to hike the key rate by 50 basis points on Friday, taking it back to 8%. This comes as inflationary pressures are building and the rouble has been falling against the dollar. It hit its lowest level since March last year, recently, which is also more than 10% below its pre-invasion levels.   South Africa The SARB is expected to leave its repo rate unchanged next week at 8.25% after what has been a very aggressive tightening cycle. It’s risen 4.75% since September 2021 but with inflation now close to target – fresh data for June will be released a day earlier on Wednesday – the time to pause may have arrived. Of course, a nasty shock from the CPI could change that.   Turkey The CBRT will announce its latest interest rate decision on Thursday and another wide range of forecasts are likely ahead of the event. The central bank broke away from the unconventional policy approach adopted prior to the election and almost immediately abandoned after, so a large hike is likely on the cards. But the new CBRT Governor was more conservative than many expected at the last meeting and could be again this time. The lira remains near record lows though so the pressure is on.    Switzerland No major releases or events next week.   

In a recent interview with FXMAG.COM, we had the privilege of discussing the current state of inflation in the United States with Michael Stark, an experienced analyst from Exness. As inflation has been a hot topic of discussion and concern for both investors and policymakers, we sought Stark's insights on whether the downward trend in inflation will continue in the third quarter. According to Stark, unless there are any significant unforeseen events, it is likely that inflation will continue to fall in the U.S., albeit not by a substantial margin. He points out that American non-core inflation has been steadily slowing since the previous summer, with monthly fluctuations showing some variability. One of the primary factors contributing to the deceleration in inflation is the strong cycle of monetary tightening, which has been one of the most robust in history. Coupled with the relatively steady price of oil compared to the previous year and supply chains returning to a semblance of normalcy for most products, the pressures on inflation have become less evident. Additionally, weaker job data in the USA, traditionally considered a significant driver of inflation, have also played a role in the moderation of price increases. FXMAG.COM: Will inflation continue to fall in the U.S. in the third quarter? Barring some exceptional event, yes, but maybe not by very much. American non-core inflation has slowed consistently since last summer although the monthly declines in the rate have been somewhat variable. This has been one of the strongest cycles of monetary tightening in history and, combined with the price of oil remaining relatively steady compared to last year and supply chains back to normal or something resembling normal for most products, the biggest pressures on inflation are much less clear now. Job data in the USA – traditionally cited as being a key driver of inflation – have also been weaker overall since the second quarter. However, it’s probably too early to start expecting a return to 2% inflation even by the end of the year. Now that the Fed is likely to pause hikes and possibly start cutting in the second quarter of 2024, we might see inflation stick above the old target. Inflation is quite unpredictable more than a few months ahead, but holding PMIs might suggest that it could remain above target for longer.  

Australia: Rate hike forecast is hanging by a thread The headline inflation rate has now fallen below 5% which will encourage thoughts that the RBA tightening cycle has peaked - though progress over the next few months will be harder. Our final 25bp rate hike call for 4Q23 is hanging by a thread.   This was much lower than expected We were not expecting Australian inflation to fall markedly this month. Large electricity tariff hikes were going to be part of today's figures, and incorporating these into our forecasts, it looked more likely that inflation would at best fall only a little, or more likely, would remain roughly unchanged with an outside chance that it actually rose a bit.  So the fall in inflation to 4.9% YoY in July from 5.4% was a shock, albeit a welcome one.  We did see the housing component rise by 1.3% over the previous month, up from 0.3% MoM in June, and this will have been where the electricity tariff increases will be evident. But declines in food and beverage prices as well as holidays (part of the recreation subindex) look to have offset all of that and more, and there was a large rump of the CPI basket, especially on the service side (education, health, finance) where prices apparently did not move at all in July, which will have helped pull the average for the whole basket down.     Australian CPI MoM% change by component   Progress over the coming months may be slow From a month ago, the CPI index rose only 0.25%, which if maintained over the medium term, would bring the inflation rate back within the RBA's 2-3% target range over the coming 12 months. But month-on-month increases really do need to stay down at these sorts of rates or lower, since base effects, including this month (last year's July CPI index rose 0.7%MoM) have been doing a lot of the hard work in bringing inflation down recently.  Over the next three months, the corresponding 2022 monthly increases were all 0.3%, so if July's CPI increase is maintained for the next three months, we will see inflation falling only by a further 0.1-0.2pp. Any upside deviation from this, and inflation may start to edge higher again, and for that reason alone, we are holding on to the final 25bp rate hike in 4Q23, but we admit, we are a lot less comfortable with this view than we were yesterday.   A final rate hike for the RBA looks more doubtful If, in addition to a decent run of inflation date over the next month, we also see some corroboration from the real economy, for example, a repeat of last month's softer labour market data, then we will almost certainly trim out the final cut. At that point, the question will change to consideration of when and how the RBA might begin to row back from its current restrictive setting. Will this be a modest reduction to take policy rates back to a more neutral setting in the face of a fairly soft landing, or will it be cutting more aggressively to shore up a more rapidly slowing economy? In truth, we don't know the answer to this. Our expectation is for the former scenario, but there are a great many moving parts to this, including how the external environment (China and the United States in particular) shape up. And we won't be ruling out more downbeat scenarios until we have much more evidence to support the soft-lending hypothesis. The AUD quickly shrugged off the weaker inflation print. Broader USD trends will probably be more important in the coming months for the AUD than any marginal changes to RBA policy expectations.      

Analysis of macroeconomic reports:   There are several macroeconomic events on Friday, with the most important ones in the United Kingdom. In the UK, reports on quarterly GDP and industrial production for September will be published. The industrial production report is not crucial, but in the case of a significant deviation of the actual value from the forecast, market reaction is possible. The same goes for the GDP report. If its value matches the forecast, no reaction is expected, despite the importance of this report. In the United States, the University of Michigan's consumer sentiment index will be published, which is also a secondary report. Analysis of fundamental events: From Friday's fundamental events, we can highlight the speeches by representatives of the Federal Reserve's monetary committee, Logan and Bostic. However, Fed Chair Jerome Powell has already spoken twice this week. If his first speech did not touch on monetary policy, in the second one, he noted that the key rate may rise again if the situation requires it. Therefore, we probably won't hear anything more important than these statements.     General conclusion: On Friday, there will be interesting events, but in general, they may not lead to significant price changes. On Thursday, Powell's speech supported the dollar, but the US currency should continue to rise in the coming weeks even without the help of the Fed chairman. On Friday, only the British reports have a real chance of influencing the movement of the GBP/USD pair. And the pound may pull the euro along with it. But this is only during the European session.   Basic rules of a trading system: 1) Signal strength is determined by the time taken for its formation (either a bounce or level breach). A shorter formation time indicates a stronger signal. 2) If two or more trades around a certain level are initiated based on false signals, subsequent signals from that level should be disregarded. 3) In a flat market, any currency pair can produce multiple false signals or none at all. In any case, the flat trend is not the best condition for trading. 4) Trading activities are confined between the onset of the European session and mid-way through the U.S. session, post which all open trades should be manually closed. 5) On the 30-minute timeframe, trades based on MACD signals are only advisable amidst substantial volatility and an established trend, confirmed either by a trend line or trend channel. 6) If two levels lie closely together (ranging from 5 to 15 pips apart), they should be considered as a support or resistance zone.   How to read charts: Support and Resistance price levels can serve as targets when buying or selling. You can place Take Profit levels near them. Red lines represent channels or trend lines, depicting the current market trend and indicating the preferable trading direction. The MACD(14,22,3) indicator, encompassing both the histogram and signal line, acts as an auxiliary tool and can also be used as a signal source. Significant speeches and reports (always noted in the news calendar) can profoundly influence the price dynamics. Hence, trading during their release calls for heightened caution. It may be reasonable to exit the market to prevent abrupt price reversals against the prevailing trend. Beginning traders should always remember that not every trade will yield profit. Establishing a clear strategy coupled with sound money management is the cornerstone of sustained trading success.

Warm weather spells trouble for Natural Gas US natural gas prices experienced a noticeable decline with NATGAS trading nearly 4% lower at the start of the week. This downturn can be attributed to the prevailing forecasts indicating a shift towards warmer weather in the United States in the coming days as the expectation of milder temperatures has cast a shadow on natural gas prices as it suggests a potential decrease in demand, particularly at the start of the heating season.    Projections for the next 8-14 days consistently point towards above-average temperatures spanning a more extensive geographic scope across the United States and this prediction of higher-than-average temperatures intensifies the downward pressure on natural gas prices.   Looking at the technical situation shows the persistence of a bearish trend since the end of October 2023.   This further reflects the delicate balance between weather forecasts, demand dynamics, and market trends, emphasizing the sensitivity of natural gas prices to external factors.   While this appears to be the current situation, a sudden shift towards a colder climate prediction could bring a significant rebound of prices in the near term.