usd to eur

The New Zealand dollar has reversed directions on Thursday and is sharply lower. In the North American session, NZD/USD is trading at 0.6418, down a massive 1.90% on the day.   US dollar rebounds after FOMC  The New Zealand dollar is showing plenty of volatility. NZD/USD surged 1.76% on Wednesday but has coughed up all of those gains today. The US dollar lost a step after the FOMC meeting, even though the Fed hiked rates by 0.50%, which was the largest rate increase in 20 years. The Fed continues to show a hawkish stance. The rate-hike cycle will remain aggressive, with Fed Chair Powell signalling at yesterday’s meeting that the Fed will deliver further 0.50% hikes at the June and July meetings. Yet the markets chose to focus on Powell’s statement that a 0.75% hike was not being “actively considered”. Although Powell didn’t rule out such a move, the markets were nonetheless elated, sending equities up and the US dollar broadly lower. It didn’t take long for the US dollar to recover, particularly against the New Zealand and Australian dollars. Perhaps as significant as the Fed’s rate hike was its announcement to implement quantitative tightening, after years of quantitative easing as part of its accommodative policy. Starting in June, the Fed will sell USD 45 billion/mth in assets, which will climb to USD 95 billion/mth in September. The Fed is betting that it can curb inflation through rate hikes and a balance sheet reduction, while ensuring a soft landing for the economy and avoiding a recession. The New Zealand labour market remains robust, as confirmed by the Q1 employment report. The unemployment rate remained at a record low of 3.2%, matching expectations. Significantly, wage growth, which climbed to 3.1% YoY, its highest level since 2008. The surge in wage growth is sure to raise pressure on the central bank to deliver another 0.50% rate hike at the May 25th meeting, which would bring the Official Cash Rate to 2.0%.     NZD/USD Technical 0.6391 is under strong pressure in support, as NZD/USD is sharply lower. Below, there is support at 0.6325 There is resistance at 0.6519 and 0.6648       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.

US dollar rebounds on risk aversion The US dollar reversed higher, unwinding all its post-FOMC losses as risk aversion swept other asset markets and US 10-year yields rose and closed above 3.0%. Support at 102.50 held beautifully on a closing basis, signalling more US dollar gains ahead. The dollar index rose by 1.01% to 103.55 overnight gaining another 0.11% to 103.66 in Asia. Support at 102.50 remains intact with immediate resistance at a double top just ahead of 104.00. A close above 104.00 will signal rapid gains to 105.00 and in the bigger picture, the technical picture still says a multi-month rally to above 120.00 is possible.   EUR/USD fell by 0.76% to 1.0540 overnight, easing to 1.0530 in Asia. EUR/USD has nearby support at 1.0470 and resistance at 1.0650. Overall, the EUR/USD technical picture remains extremely bearish. It remains well below its multi-decade breakout at 1.0800, and only a weekly close above there would suggest the downtrend is over for now. Rallies above 1.0700 will remain hard to sustain with risks skewed to a resumption lower. A Russian retaliation to the EU oil embargo targeting natural gas exports would see EUR/USD move toward parity very quickly.   Sterling collapsed overnight after the Bank of England hiked rates by 0.25%, but signalled a UK recession next year, marking 2023 growth down to -0.25%. Combined with US dollar strength, GBP/USD fell by 2.21% to 1.2355, edging up to 1.2360 in Asia. GBP/USD has immediate resistance at 1.2400 and then 1.2635. The technical picture is very negative now and failure of the overnight low at 1.2325 will signal another selloff to 1.2200. In the months ahead, GBP/USD could well test its Brexit and then March 2020 lows.   Japan has returned from holidays today, with USD/JPY rising 0.84% to 131.15 overnight as US 10-year yields shot up through 3.0% once again. Today, USD/JPY has gained 0.30$ to 131.60, with the yen getting no solace from higher than expected Tokyo inflation data. With the Bank of Japan showing no signs of adjusting its 0.25% JGB yield cap, and US rates continuing to climb as the Fed gets busy fighting inflation, downside pressure on the yen seems inevitable. A rally by USD/JPY through 132.35 sets the stage for a move to the 135.00 area next week.   Asian currencies, including the offshore yuan, reversed the previous day’s gains plus interest overnight as the risk aversion wave by equities, and higher US yields, saw investors pile into US dollars. With China officials affirming their commitment to covid-zero, China’s growth fears are providing another headwind to regional currencies. With more and more central banks globally capitulating on inflation denial and moving to a rate hiking stance, pressure on Asian currencies is set to ramp up in the months ahead.   A stronger yuan fixing today by the PBOC has had no notable impact on either USD/CNH or USD/CNY. USD/CNH has powered through resistance at 6.7000, on its way to 6.7150 today. USD/CNY has risen to 6.6740. China authorities are showing no signs of concern about the fall of the yuan, and until they do, Asian regional currencies will remain under pressure from a stronger US dollar and diverging monetary policies. Despite the RBI rate hike, USD/INR is testing resistance at 76.60 today, USD/MYR has risen 0.60% to 4.3750 and still has 4.4500 written all over it. ​ Meanwhile, it looks like the central bank in South Korea and the Philippines are around on the topside of USD/KRW and USD/PHP. USD/SGD is testing 1.3900 this morning and failure could see the pair move towards 1.4100 next week.     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.

The rebound in global equities is fuelling a widespread recovery in G10 pro-cyclical FX against the USD. Still, yesterday's remarks by Jay Powell were a reminder of the very hawkish Fed policy. Ultimately, rate and growth differentials should curb the dollar's weakness against most peers - except for the CAD where today's CPI should endorse more hikes Learn on ING Economics USD: Don't forget the rate and growth factor The rebound in global equities has continued to fuel a recovery in pro-cyclical currencies, and a correction in the safe-haven US dollar and Japanese yen. Overnight, Asian equities were mixed, and the CSI300 failed to follow yesterday’s jump in US-traded Chinese tech stocks following some unusually supportive comments for China’s tech companies from one of Beijing’s top officials, which fuelled speculation of some easing in the current crackdown. Stock index futures suggest a flat open in major Western equity markets today. Clearly, the monetary policy story is playing a secondary role in the market narrative at the moment, but yesterday’s comments by Fed Chair Powell were quite relevant from a signalling perspective, as he firmly reiterated the Fed’s determination to bring inflation sustainably lower, even by hiking beyond the neutral rate if necessary. While the dollar momentum is set to remain weak as long as global assets stay in recovery mode, the notion of aggressive Fed tightening continues to argue against a sustained bearish dollar trend. Incidentally, this week’s moves have likely placed the dollar in a less overbought condition. With this in mind, DXY should find increasing support below the 103.00 area. The US economic calendar includes some housing data today, and Patrick Harker is the only Fed speaker scheduled for remarks. EUR: Upside room starting to shrink EUR/USD has risen in line with other pro-cyclical pairs this week, breaking back above the 1.0500 level and now being at a safe distance from the key 2017-low support of 1.0340, which if breached would probably pave the way for a move towards parity. Today, the eurozone calendar is not busy and only includes the final print of April’s CPI numbers. We’ll also hear from European Central Bank hawk Madis Muller today, although the recent re-pricing higher in ECB rate expectations (markets now fully price in a deposit rate at 1.0% in December) means that the bar for any hawkish surprise is set very high. Our view on the limited downside risk for the dollar beyond the very short term obviously implies that the room for appreciation in EUR/USD should also start to shrink soon. We also believe that markets are pricing in too much tightening by the ECB – though not by the Fed – and expect the theme of growth divergence (exacerbated by the EU-Russia standoff on commodities) to become more relevant into the summer. With this in mind, we suspect that any further rally in EUR/USD may start to lose steam around the 1.0650-1.0700 area, with risks of a return below 1.0500 in the near term being quite material. GBP: Inflation rises, but double digits aren't assured This morning’s inflation report in the UK was broadly in line with consensus expectations, as headline CPI rose to 9.0% (largely due to the increase in the electricity price cap) with the core rate rising to 6.2% year-on-year in April. This means inflation is largely where the Bank of England expects it to be. Still, the BoE projections embed a move to double-digit inflation by the end of the year, a prospect that we are still not convinced will materialise. There are no BoE speakers today. The oversold pound has faced a strong rebound this week, recouping some of its recent sharp losses as global risk appetite improved. While the good GBP momentum may continue as equities find some stability in the coming days, the pound still faces two major downside risks in the coming months: a) a further dovish repricing of BoE rate expectations (the implied rate for end-2022 is still 2.0%); b) Brexit-related risk, as the unilateral suspension by the UK of parts of the Northern Ireland agreement would likely trigger a trade war with the EU. We think cable will mostly trade below the 1.2500 mark during the summer. CAD: Inflation data unlikely to affect BoC policy expectations Inflation data will be released in Canada today, and the market is expecting some signs that the headline rate has peaked (at 6.7% YoY), which would imply a monthly increase of 0.5% in April. Core measures may however continue to inch marginally higher. Barring major surprises in the data today, we suspect that the impact on the Bank of Canada's rate expectations and on the Canadian dollar will be limited. The BoC remains on track to deliver 50bp of rate increases in tandem with the Fed, being able to count on a tight labour market, growing workforce and positive commodity story. In our view, the BoC will ultimately have to deliver more monetary tightening than the Fed in the next year. USD/CAD has broken below 1.2800 and should continue to weaken if we see further signs of stability in global sentiment today. Crucially, the rate and growth differential that may curb EUR/USD don't apply to CAD vs USD given a hawkish BoC and strong growth in Canada, which means that a rally in the loonie should prove more sustainable than the EUR/USD one. We continue to target sub-1.25 levels in USD/CAD by the second half of the year. 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 European Central Bank hawks are calling the shots. The minutes of the ECB’s April meeting just confirmed that the hawks increasingly have the upper hand in discussions. A rate hike in July is no longer uncertain, the only uncertainty is whether it will be 25bp or 50bp   The minutes of the ECB’s April meeting provided more evidence that a majority of policymakers at the ECB have become increasingly concerned about the inflation outlook. The most important elements of the minutes are: Pipeline inflationary pressure. “The war in Ukraine and the pandemic measures in China suggested that pipeline pressures and bottlenecks were likely to intensify further, affecting consumer prices over a relatively long period of time.” Fear of stronger wage growth. While the ECB currently only sees moderate wage pressure, “there could be little doubt that workers would eventually ask for compensation for the loss in real income.” There was also evidence from different countries pointing to some heterogeneity across the eurozone. Greenflation. The accelerated decarbonisation and the attempt to increase Europe’s energy independence was another factor structurally pushing up prices. Also, reshoring efforts could reduce the disinflationary impact of globalisation on wages and inflation. Not whether the ECB will hike in July but by how much As regards the next policy steps, several members claimed that the accommodative monetary stance “was no longer consistent with the inflation outlook”, arguing for a faster normalisation process. Otherwise, inflation expectations could continue to rise further from a level that is already above the Governing Council’s target. Acting too late could also lead to second-round effects and “might have high economic, financial stability and credibility costs if the Governing Council were forced to tighten more aggressively at a later stage in order to re-anchor inflation expectations.” All in all, the minutes confirmed the increasingly hawkish tone of many ECB members since the April meeting. There seems to be an eerie feeling that the ECB is acting too late and quickly needs to join the bandwagon of monetary policy normalisation. This means that the question is no longer whether the ECB should hike interest rates in July but by how much. Former ECB President Mario Draghi once said that “when in a dark room you move with tiny steps. You don’t run but you do move”. It currently looks as if there is a growing majority at the ECB that wants not just to run but to sprint. Read this article on THINK TagsMonetary policy GDP Eurozone ECB 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

Wednesday was another bad day for equities where the MSCI World equity index fell another 3%. The fact that expectations for Fed policy tightening remain intact is a sign that investors appreciate that tackling inflation is now the priority for central banks. This continues to favour the anti-cyclical dollar, but also now the Japanese yen Source: Shutterstock USD: The cavalry ain't coming Yesterday saw the S&P 500 sell off 4%, led by consumer stocks. The fact that some of the biggest main street names are under pressure on the back of profit warnings is a reminder that the squeeze on real incomes is starting to hit home. Over prior decades, decades associated with very dovish Fed policy, one might have expected this magnitude of an equity market sell-off to put a dent in Fed tightening expectations - or expectations that the Fed would come to the equity market's rescue. In fact, the Fed funds futures strip barely budged yesterday. We read this as a sign that investors now appreciate that tackling inflation is the number one priority of the Fed - and the Fed will not easily be blown off course. At the same time, we are still only hearing concerns from Chinese policymakers about the slowdown, rather than any promise of major fiscal support. And one could argue what would be the use of major fiscal support if workers and residents remain trapped in Covid lockdowns? For that reason, it seems very difficult to argue that renminbi depreciation has run its course and we cannot rule out USD/CNY pushing through the 6.80 area over coming weeks and months. This all leaves the anti-cyclical dollar quite well supported. We had made the case on Tuesday for a bounce in the oversold dollar. That bounce did not last long and again it is hard to rule out the dollar edging back to recent highs. Not until the Fed blinks on policy tightening or the rest of the world's growth prospects start to look attractive - neither of which seem likely over coming months - will the dollar put in an important top.  For today, the US calendar is light with just initial claims and existing home sales for April. Housing looks to be one of the most vulnerable sectors of the US economy, but its slowdown (and its effect on dragging core inflation lower) looks a story for much later in the year. DXY has seen a modest bull market correction this week, but can probably edge higher to 104.10 today. Read next: Altcoins: What Is Monero? Explaining XMR. Untraceable Cryptocurrency!? | FXMAG.COM EUR: ECB will have to talk a good game Providing the euro a little support this week has been even more hawkish commentary from the European Central Bank. We had felt that the market would struggle to price in more than 75bp of ECB tightening this year, but central bank hawks such as Klaas Knot have introduced the idea of the ECB moving in 50bp increments. This has helped narrow the two-year German Schatz-US Treasury spread to 225bp from recent wides at 250bp and provided some modest support for the dollar. This can be seen as verbal intervention from the ECB to support the euro. An important policy paper from the ECB a few years ago concluded that two-year rate differentials were the most significant driver of EUR/USD and the ECB's best hope of stablising EUR/USD may indeed be to talk up prospects of the forthcoming tightening cycle. For today, look out for the minutes of the April ECB meeting, where again it might choose to emphasise the more hawkish elements. EUR/USD has had its oversold bounce to 1.0550 and with the global environment remaining challenged, EUR/USD could today drift back through 1.0450/60 to 1.0400. Elsewhere, we note some short-term similarities between both the Swiss franc and the Czech koruna. The central banks behind both currencies would prefer stronger currencies to play their role in delivering stable/tighter monetary conditions. We conclude that EUR/CHF upside may be more limited - and the downside more open - than most believe. While for EUR/CZK, the Czech National Bank (CNB) will want EUR/CZK to continue trading under 25.00 and perhaps lower still - until at least 1 July when a new CNB governor takes over.  GBP: One month realised volatility at 8%! EUR/GBP one month realised volatility is back at 8% - which is very high for a European FX pair. Expect this volatility to continue given much uncertainty about the policy path for both the Bank of England (BoE) and the ECB. Here, we happen to think that tightening cycles in both are over-priced and one would probably think that the BoE cycle gets repriced lower first. Expect EUR/GBP to continue to trade in a very wide 0.8400-0.8600 range, while cable looks more one-way traffic. We have seen the bear market bounce to 1.2500 this week and the difficult external environment would favour a break of 1.2330 support in a move back to the 1.22 lows.  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 ZAR: SARB expected to hike 50bp today The South African Reserve Bank (SARB) is widely expected to hike 50bp to 4.75% today. The policy rate is quite low by emerging market standards, but that is because core inflation is only running at 3.9% year-on-year. A 50bp hike looks unlikely to generate much support to the rand, which is currently being re-priced off of the Chinese growth cycle. With $70bn of portfolio capital having left emerging markets since Russia invaded Ukraine - and with South Africa having large weights in emerging market debt and equity benchmarks - we expect the rand to stay under pressure for the time being.  16.35 is big resistance for USD/ZAR, above which 17.00 beckons for later in the year. Rising US real yields and the China slowdown continue to make the bear case for emerging markets.   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

Curves pivoting flatter fits a narrative further shifting towards growth concerns. As European Central Bank pricing gets more hawkish there is more than just the possibility of 50bp moves that could explain how 100bp in four meetings after June could come to pass, even if that is not our view    USD and EUR curves pivoting flatter around the belly of the curve amid weaker risk assets is a pattern that fits the narrative of market concerns having shifted toward rising risks to the growth outlook as central banks tighten policies amid high inflation. Continuing to lean more hawkish on the hawk-dove seesaw In EUR, markets have further ratcheted up their ECB rate hike expectations. By the end of the year they expect an overnight rate more than 100bp higher from now. If one assumes that the ECB will use the June meeting to prepare the grounds for rate hikes by announcing also the end of all net asset purchases, then this would imply an expectation of 25bp hikes at each of the other four remaining policy setting meetings in 2022 – and a bit more. 25bp hikes at the four ECB meetings starting with July – and a bit more Does that mean the possibility of a 50bp hike by the ECB is catching on?  After all it had been floated by the ECB’s Klaas Knot earlier this week, but his remarks may have been more about signaling a commitment to act forcefully. A sources article published yesterday outlined that a majority of the Council supported at least two 25bp hikes this year, but downplayed the notion of a 50bp move. Read next: Altcoins: What Is Litecoin (LTC)? A Deeper Look Into The Litecoin Platform| FXMAG.COM Curve flattening fits a pattern of growth concerns and tightening central banks Source: Refinitiv, ING Other factors driving aggressive market pricing The aggressive market pricing will to a degree also reflect a higher risk premium amid volatile times, but we would also not exclude some uncertainty being reflected about the evolution of excess reserves in the banking system and how the ECB proceeds with the tiered deposit rate. The expectation is still that larger early repayments of banks’ targeted longer-term refinancing operations borrowings loom in the months ahead, although higher comparable market rates may have now made it more compelling for banks to hold on to the funds beyond June until the September repayment date. On the forwards strip for the ECB meeting periods markets see c.4bp higher overnight rates for the upcoming June meeting, though it may also include outside chances for an immediate ECB rate hike. It is conspicuous that the market prices the largest increase for September, a rise of noticeably more than 30bp while it is below 25bp for the other meetings this year save July. More than 100bp from the ECB in the four 2022 meetings after June Source: Refinitiv, ING   For September the market prices an increase of more than 30bp Perhaps the ECB minutes to be released today will shed more light on the ECB’s internal deliberations on what needs to be done in the face of rising inflation and the balance of risks tilting less favourably. But given how far official communication has already evolved since the April meeting to converge with the market view, the minutes should look dovish, not to say outdated. It was a meeting that still signaled a very gradual move. To be sure, our own expectation is also that aggressive market pricing will likely not be realised with our economists looking for three ECB hikes by the turn of the year. Today's events and market view In the Eurozone the ECB minutes of the 14 April meeting will take the spotlight amid an otherwise quiet data calendar. The minutes have seldomly been market moving, and they should appear especially outdated this time around as ECB communication has evolved quickly since then. We will also hear from the ECB's de Guindos and de Cos today. The other market focus will be today’s busy supply slate. France sells up to €13bn across shorter dated bond lines, including a new 6Y, and linkers. Spain reopens four bond lines including its 20Y green bond for up to €6bn in total.   The US sees publication of initial jobless claims and existing home sales. Read next: Altcoins: What Is Monero? Explaining XMR. Untraceable Cryptocurrency!? | FXMAG.COM Read this article on THINK TagsRates Daily 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

Completing the shift of the market narrative towards growth concerns, bonds are reasserting their role as safe havens. The European Central Bank minutes confirmed the Council's desire to act faster, also with an eye on still ultra low real yields  Risks remain to the upside for rates Bonds' negative correlations with risk assets consolidates amid growth concerns As markets continue to trade in a risk-off fashion, bonds have managed to reassert their role as safe havens. The pattern of bond curves consistently rallying flatter as risk assets sell off has only reestablished itself over the past few sessions. In a way this dynamic completes the transition of the market narrative toward growth concerns, away from being dominated by central banks' prospective tightening lifting market rates out the entire curves. bonds have managed to reassert their role as safe havens This does not mean that data releases couldn't shift the focus again. Next week will offer some opportunities with the release of the flash PMI surveys for instance. And if the Fed deems inflation (expectations) are not coming down fast enough, it may well use the FOMC minutes next week to signal more hawkish moves. The 75bp-hike discussion is not entirely off the table. Unlike the ECB, the Fed has used its meeting minutes as a more active communications tool, such as outlining its plans for the balance sheet run-off. We will also watch the PCE deflator, the Fed's preferred inflation gauge at the end of next week. Risk-off drives curves flatter Source: Refinitiv, ING ECB minutes, outdated but also highlighting the upside in rates The ECB minutes have been overtaken by the quick evolution of ECB communication since the last meeting. The indication now is that a majority of the Council is backing ending net asset purchases in June and hiking for a first time in July is already common place. And markets are attaching some probability to hikes larger than 25bp. The ECB has to increasingly grapple with potential de-anchoring of inflation expectations That does not mean that the known objections of the Council’s doves are invalid: too fast tightening being counterproductive, weighing on growth without being able to do anything about inflation driven by supply shocks. The line of reasoning still holds and explains market concerns reflected in current curve flattening. But the ECB has to increasingly grapple with potential de-anchoring of inflation expectations with some of the related measures already displaying notable shifts. This shift in some inflation expectation measures had been outlined by Isabel Schnabel in one of her more recent speeches. She had also highlighted the still very low level of real yields. This hawkish argument was also found in yesterday’s minutes, with real yields remaining low while the rise in nominal yields was not enough to dampen aggregate demand and bring down inflation in the medium term. Read next: Altcoins: What Is Litecoin (LTC)? A Deeper Look Into The Litecoin Platform| FXMAG.COM EUR real rates have a long way to go Source: Refinitiv, ING   It is worth noting that back around the April ECB meeting the 10Y swap rate was just below 1.6% versus a current level of 1.65%, although following a decent rally after a brief excursion above 2% earlier this month. Real rates remain deeply negative regardless of the maturity, and if this is a measure considered instrumental at reining in inflation over the medium term, then we may have to reckon with more upside to rates. The important question is whether the ECB will have enough time to realize its goals.   The ECB's "separation principle" is still lacking detail The "separation principle" referenced in the ECB accounts states the idea that monetary policy could be set independently from any measures designed to avoid disruptions triggered by any such policy tightening. More specifically to the current situation, Eurozone sovereign bond spreads could be managed while the ECB starts hiking. However, as of now the ECB has still not provided any details on how such a tool could look in practice. Beyond stating the need to keep flexibility and pointing to the potential use of pandemic emergency purchase programme reinvestments, it appears there is no desire to have a broader discussion on the topic just yet. With ECB plans still vague, Italian bonds especially remain vulnerable With ECB plans still vague, Italian government bonds especially remain vulnerable. In the current risk-off environment Italian bonds are still positively correlated with Bunds, ie, they do not trade as risk assets, but the spreads have started to rewiden towards 195bp in 10-year maturities. We still think the market could test out widening this spread towards 250bp before the ECB steps in. ECB plans remain vague, leaving Italian bond spreads vulnerable to further widening Source: Refinitiv, ING Today's events and market views In terms of data and events it will be a quieter session today. The main focus will be on central bank speakers with the ECB's Muller, Kazaks Lane, and Centeno all scheduled for the day. In the UK we will hear from the Bank of England's Chief Economist Huw Pill. Main data of note is the Eurozone consumer confidence. In this shaky risk environment, we expect bonds to retain their poise. It would take a lot of good news for yield upside to resume at the long-end, but central bankers should keep the heat on shorter rates. Read next: Altcoins: What Is Monero? Explaining XMR. Untraceable Cryptocurrency!? | FXMAG.COM Read this article on THINK TagsRates Daily 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 Follow FXMAG.COM on Google News

Summary: Despite growing confidence in the stock market, major indices are struggling to keep up with the volatile market. The ECBs turn to a hawkish attitude could lead toward a stronger Euro. Nasdaq loses value during the trading day on Thursday Equity stocks attempted to rebound during trading on Thursday after a sell-off. The sell off came as market participants grew concerned about whether the Fed’s continuous hawkish attitude could cause a slow down in the U.S economy. In general the investor sell-off attitude seems to be easing somewhat, however markets still remain volatile. NASDAQ Price Chart Read next: Altcoins: What Is PancakeSwap (CAKE)? A Deeper Look Into The PancakeSwap Platform| FXMAG.COM European Central Banks possible tightening of monetary policy During trading on Thursday the Euro saw some strengthening based on the hopes of a more hawkish European Central Bank (ECB) in the summer. As the European Central Bank looks at a 50bps hike in interest rates this July, investor confidence is starting to restore in the Euro. The Euro showed particular strength against the pound sterling, which simultaneously pushed back their next interest rate hike. Sources: pounsterlinglive.com, finance.yahoo.com Follow FXMAG.COM on Google News

Some support measures for the Chinese economy and some stability in the Chinese renminbi have helped usher in a period of consolidation in FX markets. This may well last into next week, although we would consider this a pause not a reversal in the dollar's bull trend. The stronger dollar is also exporting Fed hikes around the world Not until the Fed pours cold water on tightening expectations should the dollar build a top USD: Some consolidation is in order The dollar is now about 2% off its highs seen late last week. Driving that move has probably been some position liquidation and a preference for currencies like the Japanese yen (JPY) and the Swiss franc (CHF) during turbulent times in global equity markets. In fact, yesterday's FX activity looked like the big sell-off in EUR/CHF on Swiss National Bank (SNB) comments which triggered downside stops in USD/CHF and prompted a slightly broader dollar adjustment. Also helping this period of consolidation has been this week's stability in the Chinese renminbi (CNY). The overnight 15bp cut in the 5-year Loan Prime Rate – aimed at supporting the property sector – has instilled a little more confidence in Chinese assets markets. However, we cannot see USD/CNY heading straight back to 6.50. Instead, a 6.65-6.80 trading range may be developing after the recent CNY devaluation.  However, the emerging market environment still looks challenged given that the stronger dollar is effectively exporting tighter Fed policy around the world. Yesterday we saw rate hikes in Egypt, South Africa, and the Philippines. After devaluing the Egyptian pound by 15% in March, authorities there are very much struggling with the external environment. This has seen Egypt's 5-year Sovereign Credit Default swap rise to news highs of 940bp and is a reminder of the challenge North Africa faces from surging food prices. For today, the data calendar is relatively quiet and there may be some interest in what G7 finance ministers and central bank governors have to say after their meeting in Bonn. Reports suggest Japan would like some tweaks to the final G7 communique, but we very much doubt there will be any change in the core FX language that FX rates be market-determined and that excessive volatility and disorderly moves be avoided. DXY could correct a little lower to 102.30, but we see this as bull market consolidation, rather than top-building activity. Not until the Fed pours cold water on tightening expectations should the dollar build a top. And yesterday Fed hawk, Esther George, said that even this 'rough week' in equity markets would not blow the Fed off course.  EUR: ECB hawks in control Minutes of the April ECB meeting released yesterday show that the hawks are calling the shots. The market now prices a 31/32bp ECB rate hike at the 21 July ECB meeting – pricing which has plenty of scope to bounce between +25bp and +50bp over the next two months. This could drag EUR/USD back to the 1.0650/70 area over the coming days – helped by brief periods of calm in the external environment – but as above we would see this as a bear market bounce. Our core EUR/USD view for 2H22 is one of heightened volatility and probably EUR/USD getting close to parity in 3Q22 when expectations of the Fed tightening cycle could be at their zenith. Read next: Altcoins: What Is PancakeSwap (CAKE)? A Deeper Look Into The PancakeSwap Platform| FXMAG.COM GBP: April retail sales provide a reprieve UK retail sales have come in a little better than expected and break/suspend the narrative that the cost of living squeeze is large enough to derail the Bank of England tightening cycle. We would not get carried away with the sterling recovery, however. Sterling is showing a high correlation with risk assets – trading as a growth currency – and the outlook for risk assets will remain challenging for the next three to six months probably. Here's what our credit strategy team thinks of the European outlook.  Cable may struggle to breach the 1.2500/2550 area and 1.20 levels are very possible over the coming months. New-found hawkishness at the ECB means that EUR/GBP may struggle to sustain a move below 0.8450 before returning to 0.8600. Read next: Altcoins: What Is Litecoin (LTC)? A Deeper Look Into The Litecoin Platform| FXMAG.COM CHF: SNB policy makes the case for EUR/CHF sub 1.00 next year As we discuss in an article released yesterday, it looks like the SNB is targeting a stable real exchange rate to fight inflation. Given that Switzerland's inflation is roughly 4% lower than key trading partners, a stable real exchange rate means that the nominal exchange rate needs to be 4% stronger. This will be an added factor supporting the CHF over the coming months and may start to generate interest in trades positioning for a lower GBP/CHF. 1.2080 is a big support level but 1.1860 looks like the near-term target. Read this article on THINK TagsGBP FX Daily ECB CHF 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

Several European Central Bank officials have become more vocal, showing their concern about the weakening euro. As much as we think that these concerns are overdone, strengthening the euro could for the ECB currently be the single most efficient way to temper inflation quickly   In recent days, ECB officials have become more vocal with their concerns about the weak euro. French central bank governor, Villeroy de Galhau, pointed out that a weaker euro would undermine the ECB’s goal of price stability. ECB Executive Board member, Isabel Schnabel, was quoted saying that the ECB was closely monitoring the impact of the weaker euro on inflation. This is in stark contrast with the minutes of the ECB meeting in April, when the exchange rate was only mentioned four times. There was also market speculation that major central banks could go for a kind of Plaza Agreement, using coordinated action and even fx interventions to stop the US dollar from strengthening further and the euro from weakening further. How much of a concern should the recent weakening of the euro really be for the ECB? Since the last ECB staff projections in March, the euro has lost some 5% against the US dollar. The trade weighted euro exchange rate lost almost 2%. However, compared with one year ago, the euro has depreciated by more than 13% vis-à-vis the US dollar and around 6% in trade-weighted terms. In normal times, this weakening of the currency would have been a welcome relief for eurozone exports but at the current juncture it is an additional inflation concern. According to standard estimates, the euro depreciation since March could add another 10 percentage points on inflation this year and 20pp next year. However, at a time in which the main inflationary drivers are energy and commodity prices, which are invoiced in US dollar, the impact of the weaker euro on inflation might be even stronger. With headline inflation rates above 7%, it is hard to see why some ECB officials are concerned about a few additional percentage points. The weak euro might not be the reason for high inflation but it is at least reinforcing it. The main reason why ECB officials have become more vocal on the exchange rate could be the fact that even if higher policy rates will not bring down energy prices or fill containers in Asia, higher policy rates could strengthen the euro. The so-called exchange rate channel could at the current juncture be the most, and probably only, efficient way to ease inflationary pressures relatively quickly. This is why the hawks at the ECB might be inclined to use the currency as an argument to support a 50bp rate hike in July and strong forward guidance that more rate hikes are to come. Expect more than the four references to the exchange rate at the April meeting in the coming weeks ahead of the ECB’s 9 June meeting. Read this article on THINK TagsMonetary policy Eurozone ECB 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

Every Tuesday our Global Macro Strategist Luke Suddards will be analysing the charts of key global asset classes such as FX, commodities and more. Catch him on Twitter - @lukesuddards Also, he produces The Weekly Close Out every Friday, which provides key insights into the main catalysts for all the major global macro assets throughout the week. The analysis takes a hybrid approach - combining fundamental and technical analysis with charts to enhance your trading experience. Sign up here to receive it directly in your inbox: https://cloud.go.pepperstone.com/week ➡️ Follow us on Telegram for daily market news and insights: https://t.me/s/PepperstoneFX Read next: Altcoins: Ripple Crypto - What Is Ripple (XRP)? Price Of XRP | FXMAG.COM Follow FXMAG.COM on Google News

Eurozone: PMI drops slightly as inflation pressures remain The composite PMI fell from 55.8 to 54.9 in May, still signalling decent expansion. With inflation pressures remaining close to all-time highs, this keeps hawkish pressure on the ECB to act quickly despite growth concerns Christine Lagarde, president of the European Central Bank   Squeezed purchasing power, weak consumer confidence, and tightening financial conditions are just a few of the headwinds the eurozone is facing at the moment. Nevertheless, the PMI doesn’t indicate that this is translating into a contracting economy so far, but we do see the first signs of weakness coming through. This is mainly because of the service sector still profiting from fading pandemic restrictions. The May data showed some weakening as the service sector PMI fell from 57.7 to 56.3. While still signalling strong expansion, it is a sign that the reopening boom has started to fade. The manufacturing PMI signalled stalling growth in April, but the indicator improved modestly in May from 50.7 to 51.2. Bugged by input shortages related to the war in Ukraine and lockdowns in China, the sector is having problems with production. At the same time, new orders also decreased for the first time since mid-2020, showing early demand concerns. Inflationary pressures are barely abating though. Input costs have slightly dropped from record highs, and selling price expectations remain close to April’s record high. Some early signs of improvement are unlikely to translate quickly into a fading inflation rate. Moreover, hiring intentions remain strong for now, which will add to labour shortages and subsequently to wage pressures. For the ECB, this is a hawkish signal. The growth outlook is clearly worsening, but the current impact of high inflation and the war is not yet contractionary according to the survey. We have seen ECB doves pushing back at a 50 basis point hike in July, but this PMI release will likely continue the conversation about whether President Christine Lagarde’s promise of no more negative rates by the end of 3Q will already be accomplished at the July meeting, or whether it will be 25bp in July and again in September. The next stop in terms of the ECB's data-driven lift-off is May inflation data, due out next week. Read this article on THINK TagsInflation GDP Eurozone 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

Hawkish ECB boost the single currency The ECB will become the latest central bank to concede on the inflation argument and raise rates in July and September The euro has caught a strong bid against the pound in recent days on the back of some very hawkish commentary from the ECB and poor economic data in the UK. The ECB will become the latest central bank to concede on the inflation argument and raise rates in July and September, as per President Christine Lagarde’s blog, although some support an even more aggressive approach. That’s boosted the euro at a time when the UK economy is facing the prospect of a recession, with PMI data today highlighting the struggles already appearing in the all-important services sector. EURGBP has rallied strongly on the back of this, holding above the 200/233-day SMA band in the process and pushing a breakout of the recent highs. It also broke above the 55/89-period SMA band on the 4-hour chart in the process which has capped its rallies over the last week. Read next: Altcoins: Ripple Crypto - What Is Ripple (XRP)? Price Of XRP | FXMAG.COM The next test for the pair is 0.86 and 0.8650 which has been a key area of resistance on numerous occasions over the last year, with 0.87 potentially offering further resistance above. Eventually, the euro area and others will likely be dragged into the recession conversation which may see the bullish case wane but for now, it’s interest rates that are dominating the conversation and giving the euro a major lift. Follow FXMAG.COM on Google News 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.

The RBNZ signalled a terminal rate around 4.0% in 2023, following a 50bp hike today. We suspect the rate projections may be too hawkish, but this is a story for the long run: for now, 50bp hikes should keep the NZD on track for a return to 0.70 by year-end. Elsewhere, USD may struggle to recover, but a move to 1.08-1.09 in EUR/USD is not our base case The Reserve Bank of New Zealand hiked rates by another 50bp to 2.0% today. Pictured: RBNZ Governor Adrian Orr USD: Risk sentiment remains the primary driver, but downside risks are smaller now The shockwaves that originated from the slump in US tech stocks yesterday seem to have been absorbed without too much trouble by global equity markets, although more signs of sentiment instability did take some steam off the rally in pro-cyclical currencies. The dollar has found some stabilisation after a negative start to the week and should, for now, continue to trade primarily in line with swings in global risk sentiment. Yesterday, new home sales in the US dropped much more than consensus, a first sign of how higher interest rates are starting to impact the US economy. The data also increases the significance of today’s mortgage application numbers, where another big drop (surely possible given the rising mortgage rates) would likely fuel concerns about an economic slowdown. After all, construction makes up 4% of GDP and retail sales are correlated with housing activity. It may be too soon for the dollar to start discounting a higher risk of US slowdown via the Fed rate expectations channel, but some grim mortgage application figures could contribute to the dollar's softish momentum if equities enjoy a session in the green as futures seem to suggest this morning. At the same time, we think that the downside potential for the dollar is shrinking, especially given a more balanced positioning after a widespread position squaring and a still supportive Fed story. When it comes to the Fed, markets will surely take a close look at the minutes from the May FOMC meeting this evening to gauge how much consensus there was about multiple 50bp increases over the summer and whether there were some dissents about ruling out 75bp hikes. We’ll also hear from Lael Brainard today. EUR: A move to 1.08-1.09 would be too stretched EUR/USD broke the 1.0700 mark yesterday, as markets probably feared a wider drop in the eurozone PMIs, which instead came in only slightly below consensus. The combination of some easing in stagflation-related concerns, hawkish re-pricing of ECB rate expectations, and a weak dollar momentum have all contributed to the recent EUR/USD rally. Now, it appears most of the positives are in the price, especially considering that markets are already pricing in 100bp of ECB tightening by year-end, and we think a consolidation looks more likely than an extension of the rally to the 1.08-1.09 region. The eurozone calendar doesn’t include market-moving data releases today, but there is a long line of scheduled ECB speakers to keep an eye on: Christine Lagarde and Klaas Knot in Davos, Robert Holtzmann, Pablo Hernández de Cos and Philip Lane elsewhere. NZD: Has the RBNZ gone too far with rate projection? The Reserve Bank of New Zealand hiked rates by another 50bp to 2.0% today – in line with market expectations – but delivered a substantial hawkish surprise with its updated rate projections, which signalled an even more aggressive front-loading of monetary tightening. The Bank now forecasts the policy rate at 3.25-3.50% by year-end (up from 2.25-2.50% in the February projections) and around 200bp of total tightening by the end of 2023 – therefore signalling a terminal rate around 4.0%. We start to suspect that the RBNZ might have gone too far on the hawkish side with its rate projections and could struggle to deliver on them, especially if we see a considerable cooling-off in the New Zealand housing market and a generalised global slowdown. That, however, is a story for the long run. In the short term, we have a near-guarantee that the RBNZ will deliver two more half-point hikes this summer, which should keep rate expectations anchored to the new RBNZ projections and allow NZD to maintain a wide rate differential against all other G10 currencies. Ultimately, this should fuel a return to 0.7000 in NZD/USD by 4Q22 or 1Q23 at the latest, in our view. However, the short-term outlook for NZD (and its ability to consolidate above 0.6500) remains strictly tied to swings in global risk sentiment and the Chinese economic outlook, which remains a major source of uncertainty. CZK: CNB intervenes rather verbally, but that may change soon Daily banking sector liquidity data over the past two weeks, during which the CNB has officially been intervening in the FX market, do not suggest significant central bank activity. This is in line with our expectation that the CNB's initial intervention was mainly verbal as in March. This was confirmed in an interview last week by Vice Governor Tomáš Nidetzký, who indicated that the market does not want to fight the CNB. Nevertheless, the koruna continues to lose support from the interest rate differential, which has returned to the level of early May. Thus, in our view, the next CNB dovish move (for example the appointment of new board members, new governor forward guidance) will require a more aggressive approach by the central bank in the FX market if it is serious about intervening. We continue to expect the central bank to keep the koruna below 25 EUR/CZK and, given the again surprisingly high CPI prints, may try to get the koruna closer to 24. However, we still don't have much indication of what will happen with interventions after 1 June, when the new board's term begins. Aside from the name of the new governor, we have no indication yet as to who else will be appointed to the board. In our view, this will be a topic for next month and we expect to know the composition of the new board before the CNB meeting in June. Read this article on THINK TagsRBNZ NZD GBP CZK 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:  A technical rally occurred overnight, seeing the S&P500 gain after 7 days of declines, while Agriculture and Energy stocks shone the most, gaining even more momentum proving they are an inflation hedge. In quality tech, Apple shares rose 4% with long-term investors dripping in buy orders. Meanwhile, in big banks JPMorgan gained 6% upon forecasting net interest income to rise, which supported gains in Bank of America, Citigroup. We don’t think the market is at breaking point yet. However see Commodity gains intensifying and offering further upside, as the world worries global wheat supplies could run out in 10 weeks, while demand for lithium batteries rises seeing lithium companies upgrade their earnings and rally. What’s happening in markets that you need to know Big picture themes? Of the Equity Baskets we track across different sectors, we can see select risk appetite is starting to come back in to the market; China’s little giants are up the most month-to-date, supported by China’s fresh interest rate cut. Meanwhile, Cybersecurity stocks were up overnight (but are still down 24% YTD). Year-to-date though, our high conviction asset class, Commodities continues to see the most growth, followed by Defence. In the S&P500 oversold Ag and Bank stocks shine; Agri and Farm Tech stocks were up the most overnight, followed by Diversified Banks. In terms of standout stocks; Ross Stores and Deere (DE) rose the most (9%, 7%), after being two of the most oversold stocks last week. In S&P500 Deer was THE most oversold member. Deer makes 65% of its revenue from Agricultural equipment and selling turf. Earnings are expected to grind higher in 2022 and Deer pays a small dividend yield (1.25%). Asia Pacific’s stocks are trading mixed following more Tech disappointment in the US. While risk sentiment was upbeat overnight on Wall Street, Asia Pac’s markets turned most lower following Snap’s warning that it is unlikely to meet revenue and profit forecasts. Tech sentiment eroded again and further consumer staples earnings results this week are keeping investors cautious. Australia’s ASX200 trades flat, weight by tech falling,  with Block (SQ) down 6% after Bitcoin trades under $30k (Block makes most of its money from BTC transactions). Meanwhile, ASX lithium stocks continue to surge, supported by the new Australian government’s EV stimulus, seeing Liontown (LTR), Allkem (AKE), MinRes (MIN), Pilbara (PLS) dominate the leaderboard and rise 3-4%. Japan’s Nikkei (NI225.I) is down 0.3% led by Recruit (6098) which operates the popular HR engine “Indeed” and company information website “Glassdoor”. Singapore’s STI index (ES3) was however up 0.2% despite a record high inflation and a potential chicken-price shock. Read next: Stablecoins In Times Of Crypto Crash. What is Terra (UST)? A Deep Look Into Terra Altcoin. Terra - Leading Decentralised And Open-Source Public Blockchain Protocol | FXMAG.COM Chinese and Hong Kong equites see lackluster trading despite incremental stimulus measures from the State Council and Biden’s remarks on reviewing tariffs on goods from China.   The attempt to rally in the opening hour in response to positive news of 33 stimulus measures from China’s State Council failed.  Overnight news that Biden will discuss with Treasury Secretary Yellen about reviewing tariffs on goods from China as part of the Biden administration’s effort to ease U.S. inflationary pressures did not incur much excitement. Hang Seng Index (HSI.I) fell 0.8% and CSI300(000300.I) was 0.3% lower. Among the 33 measures was a reduction of RMB60 billion in the purchase tax on passenger cars Great Wall.  Great Wall Motor (02333), Geely (00175) and Guangzhou Automobile (02238) rose 3% to 10% while shares of EV makers fell 3%-9%.  Although reporting a larger than expected 159% YoY increase in revenues and a 30bp improvement of gross margins to 10.4% in Q1, XPeng’s (09868) share fell almost 9% on cautious Q2 guidance.  What to consider? Fed speakers remaining flexible. Fed’s Bostic backed a series of 50bps rate hike moves overnight but hinted at a pause in September if inflation comes down but also opened doors to more aggressive moves if inflation doesn’t cool. Fed’s George said she expects the central bank to raise interest rates to 2% by August (which also means about 100-125bps of rate hikes from the current 0.75-1% rates or 2-3 50bps rate hikes). While the base effects may make headline inflation appear to be softening into the summer, real price pressures aren’t going anywhere and Fed’s hiking pace is likely to continue to prove to be slow. AUD and NZD unable to sustain gains. A fresh slide was seen in NZD this morning following the unexpected decline in retail spending reported today. RBNZ decision is due tomorrow  (in early Asian hours) and it is still a close call between 25 and 50bps rate hike. But it’s more important to note that RBNZ is way ahead of other central banks and getting close to neutral faster than others, which means room for further upside in NZD is limited. AUDUSD is also back below 0.7100 and remains prone to a reversal in risk sentiment more than any domestic developments. While the AUDUSD rose to a 3-week high yesterday, supported by the Australian Labor Government being sworn in after winning the election and bringing in an EV policy ($2k tax incentives), vowing to keep Defense Spending at over 2% of GPD and pledging to offer more childcare support to keep employment high. The USD will likely remain favored for now as risk aversion returns and cut the rally of the AUD.  ECB getting ready to move to exit negative rates. ECB President Lagarde’s comment that the central bank is likely to exit negative rates by the end of the third quarter put a massive bid into the EUR overnight but the pair turned lower from 1.0700 with focus on Fed Chair Powell and PMIs due today. With Fed comments getting repetitive, there is room for ECB’s hawkishness to support the EUR even as Lagarde continues to downplay the possibility of a 50bps rate hike. Germany’s economy shows signs of unexpectedly strengthening in May. Germany’s IFO reading was out at 93.0 versus prior 91.9 in April. The increase is mostly explained by an improved current assessment. The expectations component is almost unchanged and close to levels last seen at the start of the pandemic. Several factors are pushing respondents to be careful regarding the future: supply chain frictions, the Shanghai lockdown, persistent inflationary pressures and lower real disposable incomes of households etc. The German economy will not plunge as it did at the start of the pandemic, of course. But we think that risks of a stagflation are clearly titled on the upside. We will watch closely the first estimate of the May PMIs this morning to have a better assessment of the economic situation in Germany and in the rest of the eurozone.  Potential trading ideas to consider? Singapore’s inflation pain is rising. Core CPI was at a decade high in April at 3.3%, and this is still not a peak. Singapore’s national lunch meal chicken rice is set to get expensive as Malaysia is halting exports of chicken. About 34% of Singapore's chicken imports come from Malaysia. While alternate sources of fresh chicken and options such as frozen chicken may be possible, this is not the last inflation shock to hit the island economy. Vegetable prices are also on the rise due to shortages of supply and the high fertilizer prices. In times like this, we would reiterate the possible inflation hedges remain gold, REITs and commodities. In summary, it is important to look for value investments or stocks that have a solid cash flow generation ability and pricing power but still priced below their fair value. The plot for investing in Lithium thickens.Lithium remains one of our preferred metal exposures for 2022 for upside. Albemarle Corp, the world’s largest lithium producer upgraded its outlook for the second time this month expecting higher lithium prices and demand to further boost their sales. We’ve seen many EV companies sell out of some of their electric vehicles, and this highlights the lack of supply in battery metals, which is also pushing up the lithium price. Albemarle Corp, expects sales to now be as high as $6.2 billion this year, up from its previous estimate of up to $5.6 billion. Read next: Altcoins: What Is Litecoin (LTC)? A Deeper Look Into The Litecoin Platform| FXMAG.COM If have a long time horizon for investing, you could consider dripping money into the market (this is called dollar cost averaging). Remember Shelby Davis said you can make most of your money in a bear market, you just don’t realize it at the time. But the key is to look at quality names that are in a position to return cash to shareholders. So if you want to be in tech for example, you could look at names like Apple, Microsoft and Google, who lead the S&P500 and Nasdaq indices and are growing their earnings and this is likely to continue over the next several years and longer term. The idea is that names like these, will likely lead a secular bull market, once the Market eventually begins to recover. And you ideally want to be in names with growing earnings, rather than throwing darts at some of those names with patchy results that are akin to Ark innovation ETF for example. China’s State Council announced 33 stimulus measures.  An additional VAT credit refund of RMB140 billion brings the overall target of tax refunds, tax cuts and fee reductions to RMB2.64 trillion in 2022.  China is also introducing a reduction of RMB60 billion (equivalent to about 17% of auto purchase tax last year) in tax on passenger car purchases.  The Government is increasing its supports to the aviation industry and railway construction via special bond issuance and loans and is rolling out a series of energy projects.  It is doubling the lending quota for banks to lend to SMEs and allow certain borrowers to postpone repayments.  The State Council also reiterates its support to promote legal and compliant listings of platform companies in domestic as well as overseas markets. Key company earnings to watch this week: Tuesday: Kuaishou Technology, Intuit, NetEase, AutoZone, Agilent Technologies Wednesday: Bank of Nova Scotia, Bank of Montreal, SSE, Acciona Energias Renovables, Nvidia, Snowflake, Splunk Thursday: Royal Bank of Canada, Canadian Imperial Bank of Commerce, Lenovo, Alibaba, Costco, Medtronic, Marvell Technology, Baidu, Autodesk, Workday, VMware, Dell Technologies, Dollar Tree, Zscaler, Farfetch Friday: Singapore Telecommunications   For a global look at markets – tune into our Podcast.  Follow FXMAG.COM on Google News Source: Saxo Bank

Euro falls sharply The euro has reversed directions on Wednesday and is sharply lower. In the European session, EUR/USD is trading at 1.0663, down 0.67% on the day. The euro was up 1.29% on Monday and extended its gains on Tuesday, hitting a 4-week high, after ECB President Lagarde announced that the ECB would raise interest rates in July. On the data front, there weren’t any surprises out of Germany. GDP in Q1 rose by 0.2% QoQ, as expected. Compared to Q4 of 2019, the quarter prior to the Covid-19 pandemic, growth was 0.9% smaller, which means that the economy is yet to fully recover from the Covid crisis. The war in Ukraine and Covid-19 have resulted in supply chain disruptions and accelerating inflation, which has hampered economic growth. German confidence remains in deep-freeze German GfK Consumer Sentiment came in at -26.0 in May, a slight improvement from the April reading of -26.6, which marked a record low. Not surprisingly, consumers put the blame for their deep pessimism on two key factors – the conflict in Ukraine and spiralling inflation. The GfK survey also found that consumer spending has weakened, as high costs for food and energy have reduced spending on non-essential items. 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 The ECB Financial Stability Review, published twice a year, echoed what German consumers are saying. The report bluntly stated that financial stability conditions have deteriorated in the eurozone, as the post-Covid recovery has been tested by higher inflation and Russia’s invasion of Ukraine. The report noted that the economic outlook for the eurozone had weakened, with inflation and supply disruptions representing significant headwinds for the eurozone economy. Given this challenging economic landscape, the euro will be hard-pressed to keep pace with the US dollar. EUR/USD Technical There is resistance at 1.0736 and 1.0865 EUR/USD is testing support at 1.0648. The next support line is at 1.0519 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.

The week starts on a positive note after the rally we saw in the US stocks before last week’s closing bell. European futures hint at a positive open. The US 10-year yield stabilized around the 2.75% mark, and the US dollar index is now back to its 50-DMA level, giving some sigh of relief to the FX markets overall. Bonds and Equities One interesting thing is that we observe that the equities and bonds stopped moving together since the 10-year yield hit 3% threshold, suggesting that investors started moving capital to less risky bonds if they quit equities, instead of selling everything and sitting on cash. Read next: Altcoins: Ripple Crypto - What Is Ripple (XRP)? Price Of XRP | FXMAG.COM US Jobs Data, Expensive Crude Oil   That’s one positive sign in terms of broader risk appetite and should help assessing a bottom near the actual levels. But the end of the equity selloff depends on economic data. Released on Friday, the US PCE index fell from 6.6 to 6.3% in April. Due this week, the US jobs data, and the wages growth will take the center stage in the Fed talk. Weak dollar pushes the major peers higher, but the rising oil prices preoccupy investors this Monday. The barrel of US crude is above $117, and the news flow suggests further positive pressure. But till where?   Watch the full episode to find out more! 0:00 Intro 0:24 Market update 1:04 Equity, bond correlation is down since US 10-yield hit 3%! 2:58 Economic data is key: what to watch this week? 4:22 BoC to raise rates 5:09 EURUSD pushes higher 6:10 Oil under positive pressure: OPEC, UK windfall tax 9:19 Corporate calendar: GME, HP earnings, Amazon stock split 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. Follow FXMAG.COM on Google News

What is going on US core PCE prices.  US core PCE data was out on Friday, and it came in as expected at 4.9% y/y and 0.3% m/m. This was slower than last month's 5.2% y/y and may prompt more talk of inflation peaking out. While PCE is the preferred Fed metric, what cannot be ignored right now is that food and energy prices still have more room to run on the upside suggesting that inflation will remain higher for longer. The May CPI print is due on June 10, so that will be the next one on the radar for further cues in terms of Fed's rate hike trajectory but for this week, the focus will be on the jobs report due on Friday Goldman predicts end of battery metal bull market – saying that the prices for key battery metals cobalt, lithium and nickel will fall over the next two years after an over-eager speculation phase. Goldman predicts that lithium prices could drop slightly this year to $54k from recent spot prices near $60k and fall to near $16k in 2023 before rising again further down the road. There’s been “a surge in investor capital into supply investment tied to the long-term EV demand story, essentially trading a spot driven commodity as a forward-looking equity,” the analysts said. “That fundamental mispricing has in turn generated an outsized supply response well ahead of the demand trend.” Oil prices are becoming an important cross-asset driver.  Brent crude oil closed last week just shy of the $120/barrel level (see above) and also just shy of the highest weekly close for the front month contract since the outbreak of war in Ukraine. As the $120 area was often a resistance area during the high oil price period during 2011-14 (although at that time, the US dollar was far weaker), any further significant advance from here will likely dominate market attention and work against further strong improvements in risk sentiment as high energy prices cloud the growth outlook and would erode corporate profit margins. Read next: Altcoins: Ripple Crypto - What Is Ripple (XRP)? Price Of XRP | FXMAG.COM Benchmark Capital and Sequoia Capital put out a dim outlook for technology.  Both venture capital firms were around during the dot-com bubble run-up and burst, and they have both put out perspective and action plans for the companies they have invested in. Those presentations talk about a much dimmer outlook and investors are shifting focus from revenue growth and revenue multiples to that of free cash flow here and now. Cost-cutting and focus on profitable unit metrics are now paramount to survive the coming years. What are we watching next? US Memorial Day Holiday today. This is a major national holiday, so all US markets are closed today. Read next: Altcoins: Tether (USDT), What Is It? - A Deeper Look Into The Tether Blockchain| FXMAG.COM Eurozone inflation prints out this week.  The energy price shock has been bigger for Europe, and May prints are due for Spain, Germany, France, Italy and the Euro-area in the week ahead. Food price pressures continue to build up amid the supply shortages and protectionist measures, and further gains in May will add more weight to the ECB’s resolve to exit negative rates from Q3 with more aggressive tightening. Special meeting of the European Council today and tomorrow.  Talks will focus on the implementation of a proposed embargo on oil imports from Russia (from 2024 onwards according to the latest draft). Hungary is the only EU country against it. The problem is that any new sanctions against Russia require the unanimous agreement of the 27 member states in order to pass. Expect tough negotiations. Hungary’s Prime minister Viktor Orban has recently passed on a “wish list” of demands he wants met to support oil sanctions. This includes a swap line with the European Central Bank and end to the rule of law Article 7 and “conditionality mechanism” procedures, amongst other things. Australian GPD and balance of trade on watch and could disappoint.  Australian GPD data due Wednesday is expected to show economic growth fell from 4.2% YoY to 3% YoY in Q1. Quarterly GPD is expected to grow just 0.7%, following the 3.4% rise in Q4. If data is stronger than what consensus expects, the RBA has more ammunition to rise rates more than forecast, so the AUDUSD might rally. If GPD is weaker, then, the AUD will likely fall. For equities, Australian financials could rally if data is stronger than expected. Secondly, Australian Export and Import data is released Thursday. The market expects Australia’s surplus income (Export income minus imports payments) to rise from $9.4b to $9.5b in April. But given the iron ore price fell 13% in April, the trade data could miss expectations. Follow FXMAG.COM on Google News Several central banks in focus this week.  Tomorrow, the National Bank of Hungary (NBH) will likely deliver a hike of 50 basis points to 5.9 %. The NBH has recently flagged a slowdown in the pace of rate hikes which had a detrimental impact on the Hungarian currency. What the central bank needs to do now is to define more explicitly the risks to growth, the effect that it would have on inflation this year but especially in 2023, the pace of rate hike and how financing conditions could evolve in the next 12-18 months. On Wednesday, the Bank of Canada is expected to increase interest rates by 50 basis points, from 1% to 1.5% (it has downplayed the possibility of a 75-basis-point hike in the short term). The move has already been priced in the market. Further interest hikes will come in the coming months in order to fight inflation which is running at a 31-year high of 6.8% YoY in April. Last week, former Bank of Canada governor Stephen Poloz mentioned the risk that the country will fall into stagflation this year. Earnings Watch.  This week’s earnings releases are weak in terms of impact expect from earnings from Salesforce, Lululemon and Meituan. Analysts are expecting Salesforce to report FY23 Q1 revenue (ending 30 April) growth of 24% y/y on top of a significant operating margin expansion expected to boost free cash flow generation substantially. Monday: Sino Biopharmaceutical, Huazhu Group Tuesday: DiDi Global, Salesforce, HP, KE Holdings Wednesday: Acciona Energias Renovables, China Resources Power, Veeva Systems, HP Enterprise, MongoDB, NetApp, Chewy, GameStop, UiPath, SentinelOne, Elastic, Weibo Thursday: Trip.com, Pagseguro Digital, Remy Cointreau, Toro, Cooper Cos, Meituan, Crowdstrike, Lululemon, Okta, RH, Asana, Hormel Foods Economic calendar highlights for today (times GMT) 0900 – Euro zone Economic, Industrial, Services Confidence surveys 1200 – Germany May Flash CPI 1500 – US Fed’s Waller (Voter) to speak 1700 – ECB's Nagel to speak 2030 – New Zealand RBNZ’s Hawkesby to speak 2300 – South Korea Apr. Industrial Production 2330 – Japan Apr. Jobless Rate 2350 – Japan Apr. Jobless Rate 2350 – Japan Apr. Industrial Production 0030 – New Zealand May ANZ Business Confidence survey 0130 – China May Manufacturing/Non-manufacturing PMI 0130 – Australia Apr. Building Approvals 0130 – Australia Apr. Private Sector Credit Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: Saxo Bank

German inflation continues to accelerate, keeping alive the European Central Bank's discussion on a possible 50bp rate hike in July Record-high inflation in Germany has had an impact on consumers' budgeting and financial planning   German headline inflation surged once again as the war in Ukraine pushed up energy and commodity prices, and inflationary pressure broadens. According to a first estimate based on the regional inflation data, German headline inflation came in at 7.9% year-on-year in May, up from 7.4% YoY in April. The HICP measure came in at 8.7% YoY, from 7.8% in April. Unless there is a sharp downward correction of energy prices in the months ahead, German headline inflation will continue to increase and only start to level off in late summer. Still more inflation in the pipeline We've stopped digging out illustrations of the times when inflation in Germany was at comparable levels. Let’s put it like this: most citizens and policymakers have hardly ever seen these kinds of inflation rates in their professional lives. Sure, the surge in headline inflation is still dominantly driven by energy and commodity prices. However, looking at available regional data, the pass-through of these higher prices to the broader economy is in full swing. In some regional states, food inflation was already at double-digit levels and prices for leisure activities, hospitality, and more general services have been accelerating in recent months. The inflation rate for these items is far above the European Central Bank's 2% target. In fact, in April only 17 out of the 94 main components of the German inflation basket had inflation rates of 2% or less. The only significant U-turn in the upward inflation trend was in packaged holidays. However, this was rather driven by the so-called Easter Bunny effect (the timing of the Easter break) and not so much by disinflationary trends. Consequently, any drop in core inflation on the back of lower packaged holidays inflation will be temporary. Looking ahead, the fact that monthly price increases are still far above their historic average (0.9% month-on-month in May compared with 0.2% in a ‘normal’ May) illustrates the high inflationary pipeline pressure. As much as we would like to see a levelling off in inflation rates, with the war in Ukraine and continued tension and upward pressure on energy, commodity and food prices, headline inflation in Germany will accelerate further in the coming months. We think that the pass-through to all kinds of sectors is still in full swing. Add to this the additional price mark-ups in the hospitality, culture and leisure sectors after the end of lockdowns and it is hard to see inflation coming down significantly any time soon. Against the backdrop of recent geopolitical events, we now expect German inflation to average at more than 8% this year with a chance that monthly inflation rates will enter double-digit territory in the summer. ECB 50bp rate hike not off the table The ECB has clearly passed the stage of discussing whether and even when policy rates should be increased. The only discussion seems to be on whether the ECB should start with a 25bp rate hike in July or 50bp. In this regard, it is quite remarkable that both ECB president Christine Lagarde and ECB chief economist Philip Lane have tried to take back control of this particular discussion. In an interview released this morning, Philip Lane definitely broke with the previous ECB communication strategy to never pre-commit. Instead, he spelled out the roadmap for normalising monetary policy, de facto announcing an the end of net asset purchases in early July, a 25bp rate hike at the ECB meeting of 21 July and another 25bp rate hike at the September meeting. There is nothing wrong with the content of his remarks as it is exactly what we have already been expecting the ECB to do. However, a de facto pre-announcement almost two months ahead of the 21 July meeting is remarkable, to say the least. In any case, as today’s German inflation numbers mark an upside surprise for many, the debate on the magnitude of the first hike, be it 25bp vs 50bp, is not entirely off the table. If core inflation in the eurozone continues accelerating in May and June, Lane and Lagarde could still regret their new pre-commitment. Read this article on THINK TagsMonetary policy Inflation Germany ECB 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

TL;DR It doesn’t make much sense to lend money for free. If Alice wants to borrow $10,000 from Bob, Bob will need a financial incentive to loan it to her. That incentive comes in the form of interest – a kind of fee that gets added on top of the amount Alice borrows. Interest rates profoundly impact the broader economy, as raising or lowering them greatly affects people’s behavior. Broadly speaking: Higher interest rates make it attractive to save money because banks pay you more for storing your money with them. It’s less attractive to borrow money because you need to pay higher amounts on the credit you take out. Lower interest rates make it attractive to borrow and spend money – your money doesn’t make much by sitting idle. What’s more, you don’t need to pay huge amounts on top of what you borrow. Learn more on Binance.com Introduction As we’ve seen in How Does the Economy Work?, credit plays a vital role in the global economy. In essence, it’s a lubricant for financial transactions – individuals can leverage capital that they don’t have available and repay it at a later date. Businesses can use credit to purchase resources, use those resources to turn a profit, then pay the lender. A consumer can take out a loan to purchase goods, then return the loan in smaller increments over time. Of course, there needs to be a financial incentive for a lender to offer credit in the first place. Often, they’ll charge interest. In this article, we’ll take a dive into interest rates and how they work.   What is an interest rate? Interest is a payment owed to a lender by a borrower. If Alice borrows money from Bob, Bob might say you can have this $10,000, but it comes with 5% interest. What that means is that Alice will need to pay back the original $10,000 (the principal) plus 5% of that sum by the end of the period. Her total repayment to Bob is, therefore, $10,500. So, an interest rate is a percentage of interest owed per period. If it’s 5% per year, then Alice would owe $10,500 in the first year. From there, you might have: a simple interest rate – subsequent years incur 5% of the principal or  a compounded interest rate – 5% of the $10,500 in the first year, then 5% of $10,500 + $525 = $11,025 in the second year, and so on.   Why are interest rates important? Unless you transact exclusively in cryptocurrencies, cash, and gold coins, interest rates affect you, like most others. Even if you somehow found a way to pay for everything in Dogecoin, you’d still feel their effects because of their significance within the economy. Take a commercial bank – their whole business model (fractional reserve banking) revolves around borrowing and lending money. When you deposit money, you’re acting as a lender. You receive interest from the bank because they lend your funds to other people. In contrast, when you borrow money, you pay interest to the bank. Commercial banks don’t have much flexibility when it comes to setting the interest rates – that’s up to entities called central banks. Think of the US Federal Reserve, the People’s Bank of China, or the Bank of England. Their job is to tinker with the economy to keep it healthy. One function they perform to these ends is raising or lowering interest rates. Think about it: if interest rates are high, then you’ll receive more interest for loaning your money. On the flip side, it’ll be more expensive for you to borrow, since you’ll owe more. Conversely, it isn’t very profitable to lend when interest rates are low, but it becomes attractive to borrow. Ultimately, these measures control the behavior of consumers. Lowering interest rates is generally done to stimulate spending in times when it has slowed, as it encourages individuals and businesses to borrow. Then, with more credit available, they’ll hopefully go and spend it. Lowering interest rates might be a good short-term move to rejuvenate the economy, but it also causes inflation. There’s more credit available, but the amount of resources remains the same. In other words, the demand for goods increases, but the supply doesn’t. Naturally, prices begin to rise until an equilibrium is reached. At that point, high interest rates can serve as a countermeasure. Setting them high cuts the amount of circulating credit, since everyone begins to repay their debts. Because banks offer generous rates at this stage, individuals will instead save their money to earn interest. With less demand for goods, inflation decreases – but economic growth slows.   ➟ Looking to get started with cryptocurrency? Buy Bitcoin on Binance!   What is a negative interest rate? Often, economists and pundits speak of negative interest rates. As you can imagine, these are sub-zero rates that require you to pay to lend money – or even to store it at a bank. By extension, it makes it costly for banks to lend. Indeed, it even makes it costly to save. This may seem like an insane concept. After all, the lender is the one assuming the risk that the borrower may not repay the loan. Why should they pay?  This is perhaps why negative interest rates are something of a last resort to fix struggling economies. The idea comes from a fear that individuals may prefer to hold onto their money during an economic downturn, preferring to wait until it recovers to engage in any economic activity.  When rates are negative, this behavior doesn’t make sense – borrowing and spending appear to be the most sensible choices. This is why negative interest rates are considered to be a valid measure by some, under extraordinary economic conditions.   Closing thoughts On the surface, interest rates appear to be a relatively straightforward concept to grasp.  Nevertheless, they’re an integral part of modern economies – as we’ve seen, adjusting them can fundamentally alter the behavior of individuals and businesses. This is why central banks take such a proactive role in using them to keep nations’ economies on track. Do you have more questions about interest rates and the economy? Check out our Q&A platform, Ask Academy, where the Binance community will answer your questions.

While our base case is that the Bank of Canada will hike by another 50bp today, the strong macro picture means that a 75bp move cannot be excluded. Elsewhere, data resilience and higher yields should lay the basis for a re-strengtheining of the dollar, and the contrast with a worsening growth picture in Europe may send EUR/USD back to 1.05 in June Source: Shutterstock   Thursday 2 June and Friday 3 June are national holidays in the UK. We will resume the publication of the FX Daily on Monday 6 June. USD: Finding fresh support The dollar has continued to find some support this morning, benefiting from a general sell-off in the bond market, the impact of the EU oil embargo on Russia, and better-than-expected US data (consumer confidence yesterday was a case in point). The past few days seem to have conveyed the message that the Fed’s tightening cycle is based on a sturdier growth story than Europe's (especially after the Russian oil embargo) and the speculation around a September Fed pause is being kept at bay for now. Ultimately, we think all this is laying the basis for a period of gradual re-strengthening in the dollar. Today, data will remain in focus in the US, as the ISM manufacturing and JOLTS job openings for May are released. On the Fed side, John Williams and the arch-hawk James Bullard are both scheduled to speak today, and markets will also keep an eye on regional trends emerging from the Fed’s Beige Book released this evening. All in all, we expect the dollar to find some consolidation and possibly inch higher against most G10 peers for the rest of the week, with the weak bond environment offering a short-term supporting driver (the yen is set to remain the main victim here) and US data - our economist expects another solid US payrolls reading on Friday - still supporting the Fed tightening story and offering a longer-term bullish USD argument. Some stabilisation in global sentiment may allow high-beta currencies – and especially oil-sensitive ones like Canada's dollar and Norway's krone - to find a floor, while other European currencies may remain on the back foot due to a worsening growth outlook in the region. DXY may advance to the 103.00 area in the run-up to the 15 June FOMC meeting. EUR: On track for a return to 1.05 EUR/USD is re-testing the 1.0700 support this morning after a marginal recovery late yesterday proved very temporary. Indeed, the common currency is discounting the re-assessment of the European economic outlook after the EU announced a ban on Russian oil. That news came in conjunction with evidence that inflationary pressures in the eurozone are still not easing, as eurozone-wide CPI figures for May jumped to 8.1% while the core rate advanced to 3.8% year-on-year. While high inflation is keeping the ECB tightening expectations supported, the euro – which is already embedding a good deal of monetary tightening – is struggling to find any solid bullish driver at the moment. In our view, this was a matter of time and we continue to target a return to the 1.0500 area in EUR/USD by the end of this month. Elsewhere in Europe, the Hungarian central bank raised its base rate by 50bp yesterday in line with market expectations, but didn't meet all expectations, including ours. Even the almost historically weak forint did not persuade the central bank to make a bolder move. We did get assurances that monetary policy tightening will continue, but at a slower pace regardless of market or economic conditions. Although the central bank tried to be as hawkish as possible in its communication, it was not enough for the market to reverse the forint's direction. The forint continues to be our least preferred currency at the moment, but on the other hand, still has the most potential to strengthen in the region. We see EUR/HUF around 390 in the short run with a possible quick move to 380 should one of the external factors (war, rule-of-law debate, etc.) show early signs of improvement, reducing the risk premium. GBP: Some weakness (but not a collapse) ahead The pound seems to have been caught in the crossfire of the EU-Russia oil embargo story, largely following other European currencies (except for NOK) lower. This has meant that EUR/GBP has remained tied to the 0.8500 level, which appears to be an anchor for the short term. Given a deteriorating growth outlook in the UK, we expect some GBP weakness ahead and see a move to 0.8600 in the coming weeks as likely. However, we do not see a sterling downtrend morphing into a collapse.   With UK markets closed for two days, expect reduced GBP volatility into the weekend. CAD: We expect 50bp by the BoC today, but 75bp is possible The Bank of Canada is set to raise interest rates for a third consecutive meeting today, and the Bank’s recent communication has strongly suggested we’ll see another 50bp hike. As discussed in our BoC preview, 50bp is also our base case scenario for today, given the strong economy (and an outlook helped by high commodity prices) and jobs market, as well as elevated inflation. Against such a macroeconomic backdrop, we don’t exclude a 75bp move: markets seem to attach a relatively high probability to this scenario given that 70bp are priced in ahead of today’s meeting. As we see a 50bp hike as more likely, there are some downside risks for CAD today, as markets may have to price some 10-20bp out of the CAD swap curve. That said, we think that the BoC will reiterate a very strong commitment to fighting inflation and allow markets to consolidate their bets on at least another 50bp hike in July and a terminal rate around 3.0%. Ultimately, this should put a floor under the loonie, which has been displaying some resilience against the USD rebound, and may not depreciate beyond the 1.2700-1.2750 area even if the 75bp bets have to be scaled back today. 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

Persistent headwinds are pushing the eurozone into a 'muddling through' scenario, and there is a high probability that the region will see one quarter of negative growth this year. But sticky inflation and higher inflation expectations will force the European Central Bank to abandon negative interest rates in the third quarter Muddling through? President of EU Commission Ursula von der Leyen and European Council President Charles Michel at a summit this week in Brussels Content Farewell to negative interest rates Mixed feelings Not exactly the roaring twenties Higher inflation expectations Farewell to negative interest rates In a blog on the ECB’s website, President Christine Lagarde brought forward the growing consensus that has been building within the governing council, namely that stickier-thanexpected inflation requires the quick removal of non-conventional policy measures. A first rate hike in July looks like a near certainty and a 50bp increase cannot be excluded, especially if core inflation comes in higher than expected in the run-up to the July meeting. In any case, negative rates will have disappeared come September. It now seems that the ECB wants to seize the window of opportunity to normalise monetary policy. This requires policymakers to walk a fine line between the rising inflation expectations and economic headwinds. Sentiment divergence between consumers and businesses Source: Refinitiv Datastream Mixed feelings The first quarter showed an upwardly revised 0.3% quarter-on-quarter growth rate, but the second quarter looks more of a conundrum. There is no hard data yet and the sentiment data has been rather inconsistent. Since the start of the war in Ukraine, consumer confidence has dropped to recessionary levels, with the May reading showing hardly any improvement. However, business confidence figures have held up better while still declining. The flash eurozone PMI composite index came in at 54.9, firmly above the boom-or-bust 50 level. This is largely on the back of a strong services sector, which seems to be benefiting from some post-pandemic catch-up demand. Indeed, holiday reservations are back or even above pre-pandemic levels. In the manufacturing sector, the deceleration is more obvious on the back of renewed supply chain problems, higher input prices, and falling orders. Not exactly the roaring twenties There is no clear weakening yet in the labour market, but wages, although rising a bit more rapidly now, are definitely not keeping pace with inflation. At the same time, oil prices are climbing on the back of a (partial) European boycott of Russian oil, further sapping households’ purchasing power. As such, we don’t think that consumption will be a strong growth driver in the coming quarters. And businesses might also become more cautious in their investment plans. That said, there still seems to be a willingness among governments to support the weakest households with fiscal measures. And as the European Commission has proposed extending the escape clause for the Stability and Growth Pact into 2023, not a lot of fiscal tightening should be expected for the time being. We still believe the second or the third quarter of this year might see negative growth. Thereafter, we think the growth pattern will be pretty much in 'muddlingthrough' mode. That should still result in 2.3% GDP growth in 2022 and 1.6% in 2023. Not a recession, but not exactly the roaring twenties either. And downside risk prevails. Both headline and core inflation continue to surpass expectations Source: Refinitiv Datastream Higher inflation expectations Barring a strong increase in natural gas prices amid fewer imports (or a stoppage of supply) from Russia, inflation is probably close to its peak. In May, headline inflation rose to 8.1%, with core inflation at 3.8%. We expect the decrease to be very gradual and it might take until the second half of 2023 before headline inflation falls back below 2%. At the same time, longerterm consumer inflation expectations have now seen an upward shift to 3% in the most recent survey, which explains why the ECB wants to get rates out of negative territory pretty soon. In an interview in Cinco Días, Philip Lane, the ECB’s chief economist, made it very clear that this should be a done deal by September. What happens afterwards will be data-dependent. We don’t think a wage-price spiral will develop, as in the most recent wage agreements the increase foreseen for 2023 is only 2.4%, below the 3% the ECB considers consistent with its 2% inflation objective. That said, we can imagine that the ECB will want to get a bit closer to the elusive “neutral interest rate”. Therefore we think the deposit rate will be raised to 0.25% by year-end, moving to 0.50% in 1Q 2023. Thereafter, a long period of 'wait-and-see' might follow. Source: The eurozone’s muddling through at best | Article | ING Think TagsInflation GDP Eurozone ECB 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 European Central Bank has just announced its stopping net asset purchases by the end of the month and pre-announced two rate hikes of 25bp each in July and September. The door for 50bp in September is set wide open ECB President, Christine Lagarde and President of De Nederlandsche Bank, Klaas Knot in Amsterdam   The ECB definitely pre-commits. In its just-announced policy decisions, the European Central Bank has not only made the upcoming 2.30 pm CET press conference less interesting but also laid out a clear path for the normalisation of monetary policy in the eurozone. The only open question is actually why the ECB hasn't already hiked interest rates today but intends to wait for lift-off until the next meeting on 21 July. The ECB's press release also includes the latest staff projections, showing that inflation is now expected to come in at 6.8% in 2022, 3.5% in 2023 and 2.1% in 2024. GDP growth is expected to come in at 2.8% in 2022, 2.1% in 2023 and 2.1% in 2024. Stagflation is the word in the eurozone. What did the ECB decide? Net asset purchases will end as of 1 July Reinvestments of the Pandemic Emergency Purchase Programme will continue at least until the end of 2024 and will remain the main instrument against a widening of yield spreads The policy rate remains unchanged, but the ECB announced it ‘intends’ to hike rates by 25bp in July and 25bp in September. The door for a rate hike of 50bp in September is wide open as the statement says, “If the medium-term inflation outlook persists or deteriorates, a larger increment will be appropriate at the September meeting.” Door open for 50bp in September With inflation running red hot but at the same time the eurozone economy slowing down and facing stagnation or even recession, the ECB’s window to normalise monetary policy has been narrowing almost by the day. Today’s decision shows it's managed to find a compromise between the doves and the hawks. A 50bp rate hike in July seemed to be fended off by opening the door for 50bp in September. The era of net asset purchases will come to an end in three weeks, and the era of negative interest rates will come to an end before the autumn. Simply put, the ECB just announced the end of a long era. Whether this will also be the start of a new era of continuously rising interest rates, however, is still far from certain. Read this article on THINK TagsMonetary policy Inflation Eurozone ECB 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

Senior Market Analyst Jeffrey Halley talks about news impacting the market and the week ahead. In this week’s podcast, the Euro is approaching parity with the US Dollar for the first time in decades. We discuss the move, the reasons behind it, and what lies ahead for the single currency. But first, it is a quick look at Asian markets where covid-19 concerns in China are weighing on sentiment. Then it is the British Pound and UK data and of course, British politics. From there it is the Bank of England before getting our teeth stuck into US inflation data due tomorrow. We ponder its implications for the market and why it matters to the Fed.   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. Market Insights Podcast (Episode 351) - MarketPulseMarketPulse

The ECB has pre-committed to raising rates by 25 bps in its July meeting. A 50 bps rate increase by the ECB would not come as a surprise. The bank’s rate hike guidance and new anti-fragmentation tool are being eyed. Almost a decade ago, Mario Draghi pledged to do ‘whatever it takes’ to save the euro. Ten years later, the situation is no different and the shared currency is in a dire state yet again. Will European Central Bank (ECB) President Christine Lagarde repeat history by responding to a larger rate hike this Thursday? The central bank meets on July 21 to announce the first interest rate hike in eleven years at 1215 GMT. Lagarde’s press conference will follow at 1245 GMT. ECB could opt for a 50 bps rate hike The ECB is on track to raise rates by 25 bps on Thursday, lifting the key deposit rate to -0.25%. A recent story by Reuters suggested that the ECB policymakers are set to discuss a 50 bps rate hike at the meeting. Therefore, a double-dose rate increase to control record-high inflation will not come as a surprise. Money markets are pricing in 40% odds on a half-point rate hike this week while wagering 97 bps of tightening by September after earlier baking in a one-percentage-point increase. I believe that the ECB will deliver a 50 bps lift-off this month, in the wake of rampant inflation, resumption of the Russian gas supply and the fact that the ECB is way behind the curve. It’s also worth noting that front-loading rates now may allow the central bank some room to pause or go slower on rate hikes when a recession hits. The euro area is battling a record-high inflation rate of 8.6% on an annualized basis, reported in June. Lagarde clearly mentioned in the press conference following the June policy meeting that the rate hike path will remain ‘data-dependent’. Meanwhile, the latest European Commission forecasts showed that inflation is seen at 4% in 2023, lower than the current rate but still double than the central bank’s target. Source: FXStreet But Lagarde did walk back on her words and later said there were "clearly conditions in which gradualism would not be appropriate". Despite the well-telegraphed talks of a 25 bps rate hike, the ECB could follow the US Federal Reserve’s (Fed) footsteps in turning against its pre-committed guidance. With inflation control on top of its agenda, the ECB needs to move forward with bigger rate hikes, as it remains the main laggard in the global tightening bandwagon. Even the Swiss National Bank (SNB) surprised markets with a 50 bps rate rise in its last policy meeting. Meanwhile, the Fed is likely to hike rates by 75 bps next week, totaling 250 bps of increases so far. The premise for a quarter-point rate rise could be also ebbing fears over an imminent recession in the bloc, especially after Russia announced on Tuesday that Russia's Nord Stream 1 pipeline will resume gas flows on schedule this week but at reduced levels. The Nord Stream 1 carries more than one-third of Russia's natural gas exports to Europe and it was critical for the pipeline to restart after it went offline for 10 days on July 11 for annual maintenance. However, a big move this week could trigger a renewed explosion in the peripheral bond yields, already when the Italian bond yields are through the roof amid simmering political turmoil in the region. But the risk could be mitigated by the policymakers if they announce a new bond-buying scheme on Thursday. The new transmission protection mechanism will cap member countries' borrowing costs when they are deemed to be out of sync with economic reality. Sources with knowledge of the matter said, “ECB policymakers home in on a deal to make new bond purchases conditional on next generation EU targets and fiscal rules.” "These include the targets set by the Commission for securing money from the European Union Recovery and Resilience Facility as well as the Stability and Growth Pact, when it is reinstated next year after the pandemic break,” the sources added. Trading EURUSD price with the ECB EURUSD price is witnessing a classic short-squeeze in the lead-up to the ECB showdown after the euro succumbed below parity against the US dollar last week. The pair has recovered roughly 300 pips from a two-decade low of 0.9952 but the further upside remains at the mercy of Lagarde & Co. EURUSD could resume its downtrend towards parity on ‘sell the fact’ trading should the central bank deliver the expected 25 bps rate hike. A double-dose lift-off could restore the ECB’s credibility in fighting inflation, offering a temporary boost to the euro. The main currency pair could extend the short-squeeze towards the critical 1.0360-1.0370 supply zone, eyeing 1.0400 the figure. The upside risks to EURUSD price could be limited if Lagarde fails to commit on big moves in the September meeting. Also, the lack of details on the new anti-fragmentation tool could leave EUR bulls in limbo once again.

Relevance up to 11:00 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. EUR/NOK: The chart shows the movement of EUR/NOK (euro to Norwegian krone) in the daily (D1) chart. This pair may be of interest to those who are ready to open orders for a long period in their trading strategy. Unlike classic currency pairs, EUR/NOK has increased volatility and large spread. It is currently forming a new trend, with support at 9.85 and estimated target at 10.53. In the event of a breakdown, quotes will cease to grow. Good luck! Read more: https://www.instaforex.eu/forex_analysis/318176   Read more: https://www.instaforex.eu/forex_analysis/318176

EURUSD has broken bullish out of its sideways range on back of the CPI numbers released yesterday. EURUSD hasn’t moved far after the breakout however, being rejected at the 0.618 Fibonacci retracement at 1.0360, coinciding with the medium-term falling trend line and 55 SMA. A strong resistance area.RSI is still showing negative sentiment and needs to close above 60 to reverse that. Today EURUSD seems to have another go at the resistance. If EURUSD can push through those resistances, there is room up till around 1.06. Possibly 1.0790. If it fails once again and is pushed back below 1.0280 it could be range bound in past few weeks range for a couple of more weeks. Source: Saxo Group Source: Saxo Group The longer-term picture on EURUSD outlined in previous analysis remains intact. EURUSD trend is down and parity is likely to be tested later in 2022. To reverse that a close above 1.15 is needed.   Source: Saxo Group Source: Technical Update - EURUSD having another go at strong resistance at 1.0360. It might succeed this time | Saxo Group (home.saxo)

Summary:  Weak data out of China overnight, together with a surprise rate cut from the PBOC and collapsing energy prices later on Monday saw the Japanese yen surging higher across the board. Indeed, the two key factors behind its descent to multi-decade lows earlier this year, rising yields and surging energy prices, have eased considerably since mid-June with only modest reaction from the yen thus far. Is that about to change? FX Trading focus: JPY finding sudden support on new disinflation narrative Weaker than expected Chinese data overnight brought a surprise rate cut from the Chinese central bank and seems to have sparked a broadening sell-off in commodities, which was boosted later by a crude oil drop of some five dollars per barrel on the news that Iran will decide by midnight tonight on whether to accept a new draft on the nuclear deal forward by the Euro zone. In response, the Chinese yuan has weakened toward the highs for the cycle in USDCNH, trading 6.78+ as of this writing and  (there was a spike high to 6.381 back in May but the exchange rate has been capped by 6.80 since then), but the Japanese yen is stealing the volatility and strength crown, surging sharply across the board and following up on the move lower inspired by the soft US CPI data point. US long yields easing considerably lower after an odd spike last Thursday are a further wind at the JPY’s back here. In the bigger picture, it has been rather remarkable that the firm retreat in global long-date yields since the mid-June peak and the oil price backing down a full 25% and more from the cycle highs didn’t do more to support the yen from the yield-spread angle (Bank of Japan’s YCC policy less toxic as yields fall) and from the current account angle for Japan. Interestingly, while the JPY has surged and taken USDJPY down several notches, the US dollar is rather firm elsewhere, with the focus more on selling pro-cyclical and commodity currencies on the possible implication that China may be content to export deflation by weakening its currency now that commodity prices have come down rather than on selling the US dollar due to any marking down of Fed expectations. Still, while the USD may remain a safe haven should JPY volatility be set to run amok across markets, the focus is far more on the latter as long as USDJPY is falling Chart: EURJPY As the JPY surges here, EURJPY is falling sharply again, largely tracking the trajectory of longer European sovereign yields, which never really rose much from their recent lows from a couple of weeks back, making it tough to understand the solid rally back above 138.00 of late. After peaking above 1.90% briefly in June, the German 10-year Bund, for example, is trading about 100 basis points lower and is not far from the cycle low daily close at 77 basis points. The EURJPY chart features a rather significant pivot area at 133.50, a prior major high back in late 2021 and the recent low and 200-day moving average back at the beginning of the month. After a brief JPY volatility scare in late July and into early August that faded, are we set for a second and bigger round here that takes USDJPY down through 130.00 and EURJPY likewise? A more significant rally in long US treasuries might be required to bring about a real JPY rampage. Source: Saxo Group The focus on weak Chinese data and key commodity prices like copper suddenly losing altitude after their recent rally has the Aussie shifting to the defensive just after it was showing strength late last week in sympathy with strong risk sentiment and those higher commodity prices. Is the AUDUSD break above 0.7000-25 set for a high octane reversal here? AUDJPY is worth a look as well after it managed to surge all the way back toward the top of the range before. The idea that a weak Chine might export deflation from here might be unsettling for Aussie bulls. The US macro data focus for the week is on today’s NAHB homebuilder’s survey, which plunged to a low since 2015 in June (not including the chaotic early 2020 pandemic breakout months), the July Housing Starts and Building Permits and then the July Retail Sales and FOMC minutes on Wednesday. With a massive relief in gasoline prices from the July spike high, it will be interesting to see whether the August US data picks up again on the services side. The preliminary August University of Michigan sentiment survey release on Friday showed expectations rising sharply by over 7 points from the lowest since-1980 lows of June, while the Present Situation measure dropped a few points back toward the cycle (and record) lows from May. Table: FX Board of G10 and CNH trend evolution and strength. The JPY is the real story today, but as our trending measures employ some averaging/smoothing, the move will need to stick what it has achieved today to show more. Watch out for a big shift in the commodity currencies in coming days as well if today’s move is the start of something. Elsewhere, the JPY comeback is merely taking CHF from strength to strength, although even the might franc has dropped against the JPY today. Source: Bloomberg and Saxo Group Table: FX Board Trend Scoreboard for individual pairs. Big momentum shift afoot today and watching whether this holds and the JPY pairs and pairs like AUDUSD and USDCAD to see if we are witnessing a major momentum shift in themes here. Also note NOK pairs like USDNOK and EURNOK here. Source: Bloomberg and Saxo Group Upcoming Economic Calendar Highlights (all times GMT) 1400 – US Aug. NAHB Housing Market Index 0130 – Australia RBA Meeting Minutes Source: FX Update: JPY jumps on deflating energy prices, fresh retreat in yields.

Dutch GDP rose significantly in the second quarter of this year, up by 2.6% from the previous quarter; it's much stronger than expected. The service sector rebounded particularly well but there was growth in all the main expenditure items. However, the outlook for the second half of the year is negative 'Staff wanted' says this sign at a restaurant in Maastricht, but the economic outlook for the Netherlands is negative 2.6% Dutch GDP growth rate 2Q22 (QoQ) Better than expected Growth supported by expansion of all main expenditure items These are good growth figures for the Netherlands; all expenditures, except inventories, rose. Investment provided the largest contribution to growth; gross capital formation expanded by 5.2% compared with the first quarter. Expenditure volumes rose thanks to a massive increase in transport equipment (37.2%), which had a lot of rebound potential due to earlier supply chain issues. Investment in non-residential buildings (3.7%), ICT equipment (3.2%), machinery & other equipment (2.6%), intangible assets (2.1%) and housing (1.5%) increased. Investment in infrastructure fell (-1.3%) and stock-building also contributed negatively (-0.2% GDP contribution). Household consumption rose 0.9%, particularly because of high spending at the beginning of the quarter. While consumption of services and durable were still expanding, food consumption volumes fell due to higher prices and increased visits to restaurants and bars. It was the first quarter without significant lockdown measures, which mostly ended in  January 2022. Government consumption expanded by 0.1%. Despite still elevated worldwide supply chain disruptions, Dutch exports grew by a decent 2.7%. Goods exports expanded by 2.7%, with both domestically produced goods exports and re-exports showing a positive development. Service exports, such as those driven by incoming foreign tourism, expanded by 2.8%, but remember that this is a rebound from the previous low levels we saw due to the pandemic.  The overall net contribution of international trade to GDP growth was positive (1.2%-point) in the second quarter, because of a long-standing trade surplus and the fact that imports (1.6%) showed weaker growth than exports. The import of services fell by -2.5%. Strong sectorial performance From a sectoral perspective, the value-added growth figure was strongest in the small energy supply sector (8.8% quarter-on-quarter growth). ICT (6.2%), specialised business services (4.5%), semi-public services (3.6%), trade, transport & hospitality (3.6%), water utilities (2.0%), manufacturing (1,2%) also expanded, while output was rather stable in financial services (-0.1%) and agriculture (-0.2%) and value-added contracted in mining & quarrying (i.e. oil & gas, -3.5%). While detailed seasonally adjusted data for subsectors is not available, it seems reasonable to assume that bars & restaurants, travel and recreation, and culture had even more substantial growth than the energy supply sector, given the rebound potential these sectors still had. Outlook less positive The fact that the second-quarter GDP figures were very strong does not mean that the outlook is bright. We maintain that growth will be negative in the coming quarters. Consumers will increasingly be affected by higher prices for energy and food, resulting in cuts to the consumption of other items. Last month we observed the first signs of weakening demand in the value of transactions by ING consumers and the latest figures only seem to confirm that. On top of that, gas prices have risen even further in the past few weeks. Consumer confidence figures have been at record lows for some time, while business sentiment indicators only started to drop recently. While composite indicators are still holding up reasonably well, the balance of business expectations of the economic climate in the next three months has reached its lowest level since the third quarter of 2013, bar the Covid period, according to a survey for the third quarter (mostly executed in July). On a positive note, investment expectations for the current year only fell a little and remained net positive in the third quarter. So we are currently forecasting a mild technical recession for the Dutch economy as our base case. A still very tight labour market, high amounts of Covid-related savings and expansionary fiscal policy in the medium term may somewhat limit the dip in the real economy caused by higher prices. That said, further cuts in energy supplies from Russia are a downward risk scenario that could push energy prices higher still further and put even more pressure on spending and GDP. We’re seeing the first signs of weaker demand Read this article on THINK TagsInflation GDP Consumption 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 euro's depreciation has helped to improve the competitiveness of eurozone businesses but in contrast to previous episodes of euro weakness, exports are hardly benefiting. Remarkably, structurally weaker eurozone economies have gained relative competitiveness since the start of the pandemic Does parity bring relief for eurozone exporters? Euro-dollar reached parity for the first time since 2002 - a milestone that is largely symbolic. However, the weakening of the euro, in general, deserves attention. The euro has been falling against the dollar since mid-2021, which seems to be largely related to diverging central bank expectations and a sudden decline in the eurozone's trade balance. The latter is mainly related to the energy crisis, which has turned a solid trade surplus into a large trade deficit. The high energy prices paid in international markets have played an important role in the weakening of the currency. Because the energy element is so important in the slide of the euro, the euro has weakened most significantly against the dollar. Against other important trade partners, the eurozone has seen its currency weaken less. While the euro has lost 16.2% vis-à-vis the US dollar since 1 January 2021, the trade-weighted exchange rate has only depreciated by 6.9%. The euro's slide has resulted in a lot of imported inflation because we pay for global commodities in dollars. At the same time, gains in competitiveness have been modest. This is far from the best of both worlds. The euro weakening is closely linked to higher energy prices Source: Macrobond, ING Research Competitiveness is improving, but businesses aren't noticing it The competitiveness improvement does require a deeper look, though, as relative inflation between trade partners plays a role. Taking this into account, the real effective exchange rate (REER) for a country is considered to be a key indicator measuring competitiveness. This is an exchange rate which is weighted by local cost developments. In this case, we use unit labour costs. As chart 3 shows, the REER for the eurozone has been sliding, which boosts the competitive position of eurozone companies. This means that despite a limited drop in the nominal effective exchange rate, businesses do seem to be profiting from relatively better price competitiveness. So while the main impact of the weakening euro is definitely negative through higher imported inflation, there is at least some improvement in export competitiveness to be seen, which could cushion the recessionary effects in the domestic market. Competitiveness is improving, but businesses aren't noticing it Source: European Commission, Eurostat, ING Research   The problem is that businesses are far from feeling this though. The Economic Sentiment Indicator has a subindex which reveals how businesses perceive their competitiveness to have changed in their home markets and abroad. This indicates that competitiveness has dropped significantly within the EU and outside. While exports have recovered to the pre-pandemic trend in recent quarters, it looks like the weaker euro has not given an extra push. The question is whether this relates to price competitiveness or whether weakening global demand is causing this. Regardless, it does not look like businesses are profiting from the improved REER at this point, highlighting the fact that the eurozone is currently mainly feeling the burden from the weak euro and is reaping little benefit from it. How has relative competitiveness within the eurozone evolved since the pandemic started? Reflecting on the euro crisis, we noticed a severe deterioration in competitiveness among the ‘periphery’ countries ahead of the crisis. The big question was if the weaker economies could make structural adjustments to become more attractive exporters again and with that, run surpluses. Painful wage adjustments were modestly successful in regaining competitiveness at that point. While competitiveness is not the primary economic problem right now, it is interesting to see if any divergence in competitiveness is emerging again. When looking at the developments in the real effective exchange rate based on unit labour costs against other eurozone economies in recent years, we see interesting differences in performance. Germany, the Netherlands and Belgium have seen their competitiveness deteriorate, while Italy, France and Greece have seen strong improvements. Spanish competitiveness has been stable over recent years, while Portugal has experienced a sizable deterioration. The export powerhouses of the past decade have seen their competitive position slip a little compared to other eurozone countries. This is mainly due to stronger wage growth while productivity growth did not improve in tandem. Overall, this development is a small step towards making the monetary union more coherent and reducing the risk of a new euro crisis triggered by differences in competitiveness. Internal eurozone competitiveness gains are made by France and Italy Source: European Commission, ING Research   A shift in relative competitiveness had already started prior to the pandemic. However, some of the large moves at the start of the pandemic were likely related to how furlough schemes are included in the statistics and so are not necessarily an accurate reflection of underlying competitiveness developments. This seems to be the case for the Netherlands and Greece for example, but in the Dutch case, we still notice a break from the pre-pandemic trend as cost competitiveness ended up at a weaker level in the second quarter. Since energy prices have become a dominant factor and labour cost competitiveness is muddied by government support, a look at a different measure of cost competitiveness is useful. Taking the GDP deflator, a broad price index across the economy, we see that a roughly similar picture emerges. Also here, the Netherlands and Germany have seen cost competitiveness deteriorate compared to other eurozone economies, while Italy and France have seen improvements. Compared to a broader basket of trade partners, the weaker euro dominates but still, we see that Germany and the Netherlands have experienced smaller gains compared to France and Italy. Competitiveness gains have been modest and smallest in the north The euro's depreciation has helped to improve the traditional cost competitiveness of eurozone businesses but in contrast to previous episodes of euro weakness, exports are hardly benefiting. As energy prices are probably a much larger cost concern for eurozone businesses, traditional cost competitiveness indicators have to be taken with a pinch of salt. Still, looking at competitiveness shifts within the eurozone, remarkably, structurally weaker eurozone economies have become relatively more competitive since the start of the pandemic, reducing the risk of a new euro crisis being triggered by stark differences in competitiveness. Read this article on THINK TagsGDP Eurozone 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

Inflation in the Eurozone appears to be rising steadily, which may be influenced by the rising cost of electricity and energy carriers. Today's release of producer prices in Germany suggests that the peak of inflation in the Eurozone may be yet to come. Germany is the eurozone's largest economy, so published readings for that economy could heavily influence data for the community as a whole. Energy for businesses rose by 105 percent. Today we learned that in July producer prices (PPI inflation) rose in Germany at the fastest pace on record. PPI inflation on an annualized basis was as high as 37.2 percent. A month earlier, price growth stood at 32.7 percent, while the market consensus was for inflation of 32 percent. Energy prices still seem to remain the main driver of producer costs. The cost of the aforementioned energy for businesses rose 105 percent compared to July 2021. Had it not been for this factor, producer prices could have risen much more slowly, by only 14.6 percent. - according to the published data. Entrepreneurs could translate such a significant increase in costs into their products, which could also raise consumer CPI inflation as a result. Hence, it is not impossible that a possible peak in inflation in the eurozone is yet to come. It could fall in the last quarter of this year, or early next year, assuming that energy prices begin to stabilize or fall. Otherwise, the eurozone economy could plunge into a deep crisis. EUR/USD near parity again The rate of the EUR/USD pair fell today to 1.0084 (yesterday it was around 1.0200) and again approached parity at 1.0000. Concerns about the eurozone economy may be reflected in the exchange rate. However, it seems that the reaction to negative data is becoming less and less, as if the market has to some extent already discounted some of the bad news that may come in the near future. The European Central Bank's forthcoming actions may put the brakes on the euro's sell-off. According to the interest rate market, the ECB may opt for two rate hikes of 50 basis points each this fall. The market assumes that the ECB will raise the main interest rate to 1.5 percent throughout the cycle. Unlike the Fed, which may reduce the pace of hikes at the end of the year, the ECB may only move with a rapid increase in interest rates. 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: PPI inflation in Germany highest on record. Euro under pressure

Summary:  The USD is breaking higher still, with important levels falling versus the Euro and yen yesterday. But the pain in sterling is most intense as presaged by the lack of a response to surging UK rates. Can the Bank of England do anything but continue to chase inflation from behind, caught between the Scylla of inflation and the Charybdis of a vicious recession? Also, USDCNH lurks at the top of the range ahead of another PBOC rate announcement on Monday. FX Trading focus: USD wrecking ball swinging again. UK faced with classic ugly choice between taking the pain via inflation or a severe recession The US dollar strength has picked up further after yesterday saw the breakdown in EURUSD below 1.0100 and a shot through 135.50 in USDJPY as longer US yields pushed to local highs. GBPUSD has been a bigger move on sterling weakness as discussed below.  A bit of resilient US data (especially the lower jobless claims than expected and a sharp revision lower of the prior week’s data taking the momentum out of the rising trend) has helped support the USD higher as longer US yields rose a bit further, taking the 10-year US treasury yield benchmark to new local highs, although we really need to see 3.00% achieved there after a few recent teases higher with no follow through higher. Looking forward to next week, the market will have to mull whether it has been too aggressive in pricing the Fed to pivot policy next year on disinflation and an easy-landing for the economy. The steady drumbeat of Fed pushback against the market’s complacency, together with a few of the recent data points (ISM Services, nonfarm payrolls, yesterday’s claims, etc.) has seen some of the conviction easing. But the key test will come next Friday, when Fed Chair Powell is set to speak on the same day we get the July PCE inflation data. Keep USDCNH on the radar through the end of today on the risk of an upside break above the range and Monday as the PBOC is set for a rate announcement (consensus expectations or another 10 bps of easing).   Chart: GBPUSD Lots at stake for sterling as discussed below, as it is a bit scary to see a currency weaken sharply despite a massive ratcheting higher in rate expectations from the central bank. The fall of 1.2000 has set in motion a focus on the 1.1760 cycle low, with an aggravated USD rise here and tightening of global financial conditions possibly quickly bringing the spike low toward 1.1500 from the early 2020 pandemic outbreak panic into focus. It is worth noting that the lowest monthly closing level for GBPUSD since the mid-1980’s is 1.2156. Without something dramatic to push back against USD strength next week from Jackson Hole, it is hard to see how this month may set the new low water mark for monthly closes. Source: Saxo Group GBPUSD slipped below 1.1900 this morning after breaking below the psychologically important 1.2000 level yesterday. As noted in the prior update, it’s remarkable to see the marked weakness in sterling despite the marking taking UK short rates sharply higher – with 2-year UK swaps over 100 basis points higher from the lows early this month. The Bank of England has expressed a determination to get ahead of the inflation spike and the market has priced in a bit more than a 50-basis-points-per-meeting pace for the three remaining BoE meetings of 2022. But is that sufficient given the UK’s structural short-comings and external deficits? Currency weakness risks adding further to spike in inflation this year. The BoE can take a couple of approaches in response: continue with the 50 bps hikes while bemoaning the backdrop and trotting out the expectation that eventually, economic weakness and easing commodity prices will feed through to drop inflation back into the range. Or, the BoE can actually get serious and super-size hikes even beyond the acceleration the market has priced, at the risk of bringing forward and increasing the severity of the coming recession. Until this week, the BoE’s anticipated tightening trajectory had prevented an aggravated weakness in sterling in broader terms, but the currency’s weakness despite a massive mark-up of BoE expectations has ratcheted the pressure on sterling and the BoE’s response to an entirely new level. Turkey shocked with a fresh rate cut yesterday of 100 basis points to take the policy rate to 13.00%. This with year-on-year inflation in Turkey at 79.6% and PPI at 144.6%, and housing measured at 160.6%. The move took USDTRY above 18.00, though it was a modest move relative to the size of the surprise. Turkish central bank chief Kavcioglu said that the bank would also look to “further strengthen macroprudential policy” by addressing the yawning difference between the policy rate and the rate commercial banks are charging for loans (more than double the official policy rate), as the push is to continue a credit-stimulated approach, inflation-be-darned.   Table: FX Board of G10 and CNH trend evolution and strength Note: a new color scheme for the FX Board! Besides changing the green for positive readings to a more pleasant blue, I have altered the settings such that trend readings don’t receive a more intense red or blue coloring until they have reached more significant levels – starting at an absolute value of 4 or higher. So far, most of the drama in sterling is the lack of a response to shifts in the UK yield curve, the broad negative momentum has only shifted a bit here, but watching for the risk of more. Source: Bloomberg and Saxo Group Table: FX Board Trend Scoreboard for individual pairs AUDNZD is crossing back higher, AUDCAD back lower, so NZDCAD….yep. Note the CNHJPY – if CNH is to make more waves, need to see more CNH weakness in an isolated sense, not just v. a strong USD. And speaking of a strong USD, the last holdouts in reversing, USDNOK and USDCHF, are on the cusp of a reversal. Source: Bloomberg and Saxo Group Upcoming Economic Calendar Highlights (all times GMT) 1230 – Canada Jun. Retail Sales 1300 – US Fed’s Barkin (Non-voter) to speak   Source: FX Update: USD surging again, GBP spinning into abyss

For many, this will be the last week of the summer. However, in an unusual twist of the calendar, the US August employment report will be released on September 2, the end of the following week, rather than after the US Labor Day holiday (September 5).   The main economic report of the week ahead will be the preliminary estimate of the August PMI  The policy implications are not as obvious as they may seem. For example, in July, the eurozone composite PMI slipped below the 50 boom/bust level for the first time since February 2021. It was the third consecutive decline. Bloomberg's monthly survey of economists picked up a cut in Q3 GDP forecasts to 0.1% from 0.2% and a contraction of 0.2% in Q4 (previously 0.2% growth). Over the past week, the swaps market has moved from around 80% sure of a 50 bp hike next month to a nearly 20% chance it will lift the deposit rate by 75 bp.  The UK's composite PMI fell in three of the four months through July  However, at 52.1, it remains above the boom/bust level, though it is the weakest since February 2021. The Bank of England's latest forecasts are more pessimistic than the market. It projects the economy will contract by 1.5% next year and another 0.3% in 2024. It has CPI peaking later this year at around 13% before falling to 5.5% in 2023 and 1.5% in 2024. Market expectations have turned more hawkish for the BOE too. A week ago, the swap market was pricing in a nearly 90% chance of another 50 bp hike. After the CPI jump reported in the middle of last week, the market fully priced in the 50 bp move and a nearly 30% chance of a 75 bp hike.   Japanese officials have successfully turned back market pressure that had driven the benchmark three-month implied volatility to 14% in mid-June, more than twice as high as it was at the start of the year  It slipped below 10% in recent days. The BOJ was forced to vigorously defend its 0.25% cap on the 10-year bond. It has spent the better part of the past three weeks below 0.20%. The BOJ has not had to spend a single yen on its defense since the end of June. However, with the jump in global yields (US 10-year yield rose 20 bp last week, the German Bund 33 bp, and the 10-year UK Gilt nearly 40 bp) and the weakness of the yen, the BOJ is likely to be challenged again.   The economy remains challenging  The composite PMI fell to 50.2 in July from 53.2 in June. It is the weakest reading since February. It has averaged 50.4 through July this year. The average for the first seven months last year was 49.0. The government is working on some support measures aimed at extending the efforts to cushion the blow of higher energy and food prices. Japan's Q2 GDP deflator was minus 0.4%, which was half of the median forecast in Bloomberg's survey, but it shows the tough bind of policy. Consider that the July CPI rose to 2.6%, and the core measure, which the BOJ targets, excludes fresh food, rose to 2.4% from 2.2%. The target is 2%, and it was the third month above it. Tokyo will report its August CPI figures at the end of the week.   Australia's flash PMI may be more influential as the futures market is nearly evenly split between a 25 bp hike and a 50 bp move at the September 6 central bank meeting  The minutes from the RBA's meeting earlier this month underscored its data dependency. However, this is about the pace of the move. The target rate is currently at 1.85%, and the futures market is near 3.15% for the end of the year, well beyond the 2.5% that the central bank sees as neutral. The weakness of China's economy may dent the positive terms-of-trade shock. The Melbourne Institute measure of consumer inflation expectations fell in August for the second month but at 5.9%, is still too high.  Through the statistical quirkiness of GDP-math, the US economy contracted in the first two quarters of the year  A larger trade deficit did not help, but the real problem was inventories. In fairness, more of the nominal growth resulted from higher prices than economists expected rather than underlying activity. Still, it does appear that the US economy is expanding this quarter, and the high-frequency data will help investors and economists assess the magnitude. While surveys are helpful, the upcoming real sector data include durable goods orders (and shipments, which feed into GDP models), July personal income and consumption figures, the July goods trade balance, and wholesale and retail inventories.   Consumption still drives more than 2/3 of the economy, and like retail sales, personal consumption expenditures are reported in nominal terms, which means that they are inflated by rising prices  However, the PCE deflator is expected to slow dramatically. After jumping 1% in June, the headline deflator is expected to increase by 0.1%. This will allow the year-over-year rate to slow slightly (~6.5% from 6.8%). The core deflator is forecast (median, Bloomberg's survey) to rise by 0.4%, which given the base effect, could see the smallest of declines in the year-over-year rate that stood at 4.8% in June. Given the Fed's revealed preferences when it cited the CPI rise in the decision in June to hike by 75 bp instead of 50 bp, the CPI has stolen the PCE deflator's thunder, even though the Fed targets the PCE deflator. Real consumption was flat in Q2, and Q3 is likely to have begun on firmer footing.   The softer than expected CPI, PPI, and import/export prices spurred the market into downgrading the chances of a 75 bp hike by the Fed next month  After the stronger than expected jobs growth, the Fed funds futures priced in a little better than a 75% chance of a 75 bp hike. It has been mostly hovering in the 40%-45% range most of last week but finished near 55%. It is becoming a habit for the market to read the Fed dovishly even though it is engaged in a more aggressive course than the markets anticipated. This market bias warns of the risk of a market reversal after Powell speaks on August 26.   At the end of last year, the Fed funds futures anticipated a target rate of about 0.80% at the end of this year. Now it says 3.50%. The pace of quantitative tightening is more than expected and will double starting next month. There is also the tightening provided by the dollar's appreciation. For example, at the end of 2021, the median forecast in Bloomberg's survey saw the euro finishing this year at $1.15. Now the median sees the euro at $1.04 at the end of December. And even this may prove too high.    The FOMC minutes from last month's meeting recognized two risks. The first was that the Fed would tighten too much. Monetary policy impacts with a lag, which also acknowledges that soft-landing is difficult to achieve. The market initially focused on this risk as is its wont. However, the Fed also recognized the risk of inflation becoming entrenched and characterized this risk as "significant." The Jackson Hole confab (August 25-27) will allow the Fed to help steer investors and businesses between Scylla and Charybdis.  Critics jumped all over Fed Chair Powell's claim that the Fed funds target is now in the area the officials regard as neutral. This was not a forecast by the Chair, but merely a description of the long-term target rate understood as neither stimulating nor restricting the economy. In June, all but three Fed officials saw the long-term rate between 2.25% and 2.50%. To put that in perspective, recall that in December 2019, the median view of the long-term target was 2.50%. Eleven of the 18 Fed officials put their "dot" between 2.25% and 2.50%. The FOMC minutes were clear that a restrictive stance is necessary, and the Fed clearly signaled additional rate hikes are required. The discussions at Jackson Hole may clarify what the neutral rate means.  Barring a significant downside surprise, we expect the Fed will deliver its third consecutive 75 bp increase next month. The strength and breadth of the jobs growth while price pressures remain too high and financial conditions have eased encourages the Fed to move as fast as the market allows. However, before it meets, several important high-frequency data points will be revealed, including a few employment measures, the August nonfarm payroll report, and CPI.   The market is also having second thoughts about a rate cut next year  At the end of July, the implied yield of the December 2023 Fed funds futures was 50 bp below the implied yield of the December 2022 contract. It settled last week at near an 8 bp discount. This reflects a growing belief that the Fed will hike rates in Q1 23. The March 2023 contract's implied yield has risen from less than five basis points more than the December 2022 contract to more than  20 bp above it at the end of last week.   Let's turn to the individual currency pairs, put last week's price action into the larger context, and assess the dollar's technical condition  We correctly anticipated the end of the dollar's pullback that began in mid-July, but the power for the bounce surprises. Key technical levels have been surpassed, warning that the greenback will likely retest the July highs.   Dollar Index: DXY surged by more than 2.3% last week, its biggest weekly advance since March 2020. The momentum indicators are constructive and not over-extended. However, it closed well above the upper Bollinger Band (two standard deviations above the 20-day moving average), found near 107.70. Little stands in the way of a test on the mid-July high set around 109.30. Above there, the 110-111.30 area beckons. While the 107.50 area may offer some support now, a stronger floor may be found closer to 107.00.   Euro:  The euro was turned back from the $1.0365-70 area on August 10-11 and put in a low near $1.0030 ahead of the weekend. The five-day moving average slipped below the 20-day moving average for the first time in around 3.5 weeks. The MACD is trending lower, while the Slow Stochastic did not confirm the recent high, leaving a bearish divergence in its wake. The only caution comes from the euro's push through the lower Bollinger Band (~$1.0070). Initially, parity may hold, but the risk is a retest on the mid-July $0.9950 low. A convincing break could target the $0.96-$0.97 area. As the euro has retreated, the US two-year premium over Germany has trended lower. It has fallen more than 30 bp since peaking on August 5. We find that the rate differential often peaks before the dollar.   Japanese Yen: The dollar will begin the new week with a four-day advance against the yen in tow. It has surpassed the (61.8%) retracement objective of the pullback since the mid-July high (~JPY139.40) found near JPY136.00. The momentum indicators are constructive, and the five-day moving average has crossed above the 20-day for the first time since late July. It tested the lower band of the next resistance bans seen in the JPY137.25-50 area at the end of last week. But it appears poised to re-challenge the highs. As volatility increases and yields rise, Japanese officials return to their first line of defense: verbal intervention.  British Pound: Sterling took out the neckline of a possible double top we have been monitoring that came in at $1.20. It projects toward the two-year lows set in mid-July near $1.1760, dipping below $1.18 ahead of the weekend. As one would expect, the momentum indicators are headed lower, and the five-day moving average has fallen below the 20-day moving average for the first time in four weeks. It has closed below its lower Bollinger Band (~$1.1910) in the last two sessions. A convincing break of the $1.1760 low clears the way to the March 2020 low, about 3.5-cents lower. Initial resistance is now seen around $1.1860 and, if paid, could signal scope for another 3/4 to a full-cent squeeze.  Canadian Dollar:  The Canadian dollar was no match for the greenback, which moved above CAD1.30 ahead of the weekend for the first time in a month. The momentum indicators suggest the US dollar has more scope to advance, and the next target is the CAD1.3035 area. Above there, the CAD1.3100-35 band is next. The high since November 2020 was recorded in the middle of July around CAD1.3225. After whipsawing in Q1, the five- and 20-day moving averages have caught the big moves. The shorter average crossed above the longer moving average last week for the first time since July 21. Initial support will likely be encountered near CAD1.2935.   Australian Dollar:  The Aussie was sold every day last week. It is the first time in a year, and its 3.4% drop is the largest since September 2020.   The rally from the mid-July low (~$0.6680) to the recent high (~$0.7135) looks corrective in nature. Before the weekend, it tested the rally's (61.8%) retracement objective. The momentum indicators are falling, and the Slow Stochastic did not confirm this month's high, creating a bearish divergence. A break of the $0.6850-60 area may signal follow-through selling into the $0.6790-$0.6800 band, but a retest on the July low is looking increasingly likely. Initial resistance is now seen near $0.6920.   Mexican Peso:  The peso's four-day slide ended a six-day run. The peso lost about 1.6% last week, slightly better than the 2.25% slide of the JP Morgan Emerging Market Currency Index. This month, the US dollar peaked around MXN20.8335 and proceeded to fall and forged a base near MXN19.81. It has met the (38.2%) retracement objective around MXN20.20 before the weekend. The next (50%) retracement is near MXN20.3230. The 200-day moving average is closer to MXN20.41. The dollar is probing the 20-day moving average seen a little below MXN20.24. The momentum indicators have only just turned up for the greenback. We suspect there may be potential to around MXN20.50 in the coming days.   Chinese Yuan:  The yuan was tagged with more than a 1% loss against the dollar last week, its biggest decline in three months. A combination of poor Chinese data, its small rate cut, and a resurgent US dollar spurred the exchange rate adjustment. At the end of July, China's 10-year yield was about 11 bp on top of the US. However, it switched to a discount after the US jobs data (August 5), and the discount grew every day last week, reaching 35 bp, the most since late June. After gapping higher before the weekend, the greenback reached nearly CNY6.8190, its highest level since September 2020. The next target is around CNY6.85, but given the divergence of policy, a move back toward CNY7.00, last seen in July 2020, maybe a reasonable medium-term target. The PBOC's dollar fix ahead of the weekend showed no protest of the weaker exchange rate.     Disclaimer   Source: Flash PMI, Jackson Hole, and the Price Action

Overview: The euro traded below parity for the second time this year and sterling extended last week’s 2.5% slide. While the dollar is higher against nearly all the emerging market currencies, it is more mixed against the majors. The European currencies have suffered the most, except the Norwegian krone. The dollar-bloc and yen are also slightly firmer. The week has begun off with a risk-off bias. Nearly all the large Asia Pacific equity markets were sold. Chinese indices were a notable exception following a cut in the loan prime rates. Europe’s Stoxx 600 is off by around 1.20%, the most in a month. US futures are more than 1% lower. The Asia Pacific yield rose partly in catch-up to the pre-weekend advance in US yields, while today, US and European benchmark 10-year yields are slightly lower. The UK Gilt stands out with a small gain. Gold is being sold for the sixth consecutive session and has approached the (61.8%) retracement of the rally from last month’s low (~$1680) that is found near $1730. October WTI is soft below $90, but still inside the previous session’s range. US natgas is up 2.4% to build on the 1.6% gain seen before the weekend. It could set a new closing high for the year. Gazprom’s announcement of another shutdown of its Nord Stream 1 for maintenance sent the European benchmark up over 15% today. It rose almost 20.3% last week. Iron ore rose for the first time in six sessions, while September copper is giving back most of the gains scored over the past two sessions. September wheat rallied almost 3% before the weekend and is off almost 1% now.  Asia Pacific Following the 10 bp reduction in benchmark one-year Medium-Term Lending Facility Rate at the start of last week, most observers expected Chinese banks to follow-up with a cut in the loan prime rates today  They delivered but in a way that was still surprising. The one-year loan prime rate was shaved by five basis points to 3.65%, not even matching the MLF reduction. On the other hand, the five-year loan prime rate was cut 15 bp to 4.30%. This seems to signal the emphasis on the property market, as mortgages are tied to the five-year rate, while short-term corporate loans are linked to the shorter tenor. The five-year rate was last cut in May and also by 15 bp. Still, these are small moves, and given continued pressures on the property sector, further action is likely, even if not immediately. In addition to the challenges from the property market and the ongoing zero-Covid policy, the extreme weather is a new headwind to the economy. The focus is on Sichuan, one of the most populous provinces and a key hub for manufacturing, especially EV batteries and solar panels. It appears that the aluminum smelters (one million tons of capacity) have been completed halted. The drought is exacerbating a local power shortage. Rainfall along the Yangtze River is nearly half of what is normally expected. Hydropower accounts for a little more than 80% of Sichuan power generation and the output has been halved. Officials have extended the power cuts that were to have ended on August 20 to August 25. Factories in Jiangsu and Chongqing are also facing outages. According to reports, Shanghai's Bund District turned off its light along the waterfront. Japan's Prime Minister Kishida tested positive for Covid over the weekend  He will stay in quarantine until the end of the month. In addition to his physical health, Kishida's political health may become an issue. Support for his government has plunged around 16 percentage points from a month ago to slightly more than 35% according to a Mainchi newspaper poll conducted over the weekend. The drag appears not to be coming from the economy but from the LDP's ties with the Unification Church. Meanwhile, Covid cases remain near record-highs in Japan, with almost 24.8k case found in Tokyo alone yesterday. Others are also wrestling with a surge in Covid cases. Hong Kong's infections reached a new five-month high, for example. The dollar reached nearly JPY137.45 in Tokyo before pulling back to JPY136.70 in early European turnover  It is the fifth session of higher highs and lows for the greenback. The upper Bollinger Band (two standard deviations above the 20-day moving average) is near JPY137.55 today. We suspect the dollar can re-challenge the session high in North America today. The Australian dollar is proving resilient today after plunging 3.45% last week. It is inside the pre-weekend range (~$0.6860-$0.6920). Still, we like it lower. Initial support is now seen around $0.6880, and a break could spur another test on the lows. That pre-weekend low coincides with the (61.8%) retracement of the rally from last month's low (~$0.6680) to the high on August 11 (~$0.7135). The Chinese yuan slumped to new lows for the year today. For the second consecutive session, the dollar gapped higher and pushed through CNY6.84. The PBOC set the dollar's reference rate at CNY6.8198. While this was lower than the CNY6.8213, it is not seen as much as a protest as an at attempt to keep the adjustment orderly. Europe Gazprom gave notice at the end of last week that gas shipments through the Nord Stream 1 pipeline would be stopped for three days (August 31-September 2) for maintenance  The European benchmark rose nearly 20.3% last week and 27% this month. It rose 35.2% last month and 65.5% in June. The year-to-date surge has been almost 380%. The energy shock seems sure to drive Europe into a recession. The flash August PMI out tomorrow is expected to see the composite falling further below the 50 boom/bust level. Bundesbank President Nagel, who will be attending the Jackson Hole symposium at the end of this week recognized the risk of recession but still argued for the ECB rate increases to anchor inflation expectations. The record from last month's ECB meeting will be published on Thursday. There are two keys here. First, is the color than can be gleaned from the threshold for using the new Transmission Protection Instrument. Second, the ECB lifted its forward guidance, which we argue is itself a type of forward guidance. Is there any insight into how it is leaning? The swaps market prices in another 50 bp hike, but a slight chance of a 75 bp move. The German 10-year breakeven (difference between the yield of the inflation linked bond and the conventional security) has been rising since last July and approached 2.50% last week  It has peaked in early May near 3% before dropping to almost 2% by the end of June. It is notable that Italy's 10-year breakeven, which has begun rising again since the third week of July, is almost 25 bp less than Germany. Several European countries, including Germany and Italy, have offered subsidies or VAT tax cut on gasoline that have offset some of the inflation pressures. Nagel, like Fed Chair Powell, BOE Governor Bailey, and BOJ Governor Kuroda place much emphasis on lowering wages to bring inflation down. Yet wages are rising less than inflation, and the cost-of-living squeeze is serious. They take for granted that business are simply passing on rising input costs, including labor costs, but if that were true, corporate earnings would not be rising, which they have. Costs are being passed through. Later this week, the UK regulator will announce the new gas cap for three months starting in October  Some reports warn of as much as an 80% increase. It is behind the Bank of England's warning that CPI could hit 13% then. The UK's wholesale benchmark has soared 47.5% this month after an 83.7% surge last month. Gas prices in the UK have nearly tripled this year. The UK's 10-year breakeven rose by 38 bp last week to 4.29%, a new three-month high. Although the UK economy shrank slightly in Q2 (0.1%), the BOE warned earlier this month that a five-quarter recession will likely begin in the fourth quarter. Unlike the eurozone, the UK's composite PMI has held above the 50 boom/bust level. Still, it is expected to have slowed for the fourth month in the past five when the August preliminary figures are presented tomorrow. The euro and sterling extended their pre-weekend declines  The euro slipped below parity to $0.9990. The multiyear low set last month was near $0.9950. The break of parity came in the early European turnover. Only a recovery of the $1.0050-60 area helps stabilizes the tone. Speculators in the futures market extended their next short euro position in the week through August 16 to a new two-year extreme and this was before the euro's breakdown in the second half of last week. The eurozone's preliminary August composite PMI due tomorrow is expected to show the contraction in output deepened while the market is expecting the Fed's Powell to reinforce a hawkish message on US rates. After falling to almost $1.1790 before the weekend, sterling made a marginal new low today, closer to $1.1780. The two-year low set last month was near $1.1760. The $1.1850-60 area offers an initial cap. Strike activity that hobbled the trains and underground spread to the UK's largest container port, Felixstowe, which handles about half of the country's containers. An eight-day strike began yesterday. Industrial activity is poised to spread, and this is prompting Truss and Sunak who are locked in a leadership challenge, to toughen their rhetoric against labor. America This is a busy week for the US  First, there is supply. Today features $96 bln in bills. Tomorrow sees a $60 bln three-week cash management bill and $44 bln 2-year notes. On Wednesday, the government sell another $22 bln of an existing two-year floating rate note, and $45 bln five-year note. Thursdays sale includes four- and eight-week bills and $37 bln seven-year notes. There are no long maturities being sold until mid-September. The economic data highlights include the preliminary PMI, where the estimate for services is forecast (median in Bloomberg's survey) to recover from the drop below the 50 boom/bust level. In the middle of the week, the preliminary estimate of July durable goods is expected. Shipments, which feed into GDP models is expected to rise by 0.3%. The revision of Q2 GDP the following day tends not to be a `big market movers. Friday is the big day. July merchandise trade and personal income and consumption measures are featured. Like we saw with the CPI, the headline PCE deflator is likely to ease while the core measure proves a bit stickier. Shortly after they are released, Powell addresses the Jackson Hole gathering.  Canada has a light economic diary this week, but Mexico's a bit busier  The highlight for Mexico will be the biweekly CPI on Wednesday. Price pressures are likely to have increased and this will encourage views that Banxico will likely hike by another 75 bp when it meets late next month (September 29). The July trade balance is due at the end of the week. It has been deteriorating sharply since February and likely continued.    The US dollar rose more than 1% against the Canadian dollar over the past three sessions. It edged a little higher today but stopped shy of the CAD1.3035 retracement objective. Initial support is seen near CAD1.2975-80. With sharp opening losses expected for US equities, it may discourage buying of the Canadian dollar in the early North American activity. The greenback is rising against the Mexican peso for the fifth consecutive session. However, it has not taken out the pre-weekend high near MXN20.2670. Still, the next important upside technical target is closer to MXN20.3230, which corresponds to the middle of this month's range. Support is now seen near MXN20.12.    Disclaimer   Source: No Relief for the Euro or Sterling

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?

Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Technical Market Outlook: The EUR/USD pair had broken below the parity level and made a new swing low at the level of 0.9916 (at the time of writing the analysis). The nearest technical resistance is located at the level of 0.9955 and needs to be clearly violated for a solid bounce. Please notice the weak and negative momentum on the H4 time frame chart supports the short-term bearish outlook for EUR with a potential target seen at the level of 0.9900 or even lower. The US Dollar is still being bought all across the board, so the bearish pressure on EUR is still strong.   Weekly Pivot Points: WR3 - 1.0089 WR2 - 1.0057 WR1 - 1.0035 Weekly Pivot - 1.0025 WS1 - 1.0003 WS2 - 0.9992 WS3 - 0.09960 Trading Outlook: There is no sign of relief for the EUR as the down trend should continue lower towards the level or 0.9900 and below. The EUR is under the strong bearish pressure and as long as the USD is kept being bought all across the board, the down trend will continue. Source: Forex Analysis & Reviews: Technical Analysis of EUR/USD for August 23, 2022

Relevance up to 13:00 2022-08-24 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. The euro and the pound reacted with a decline to the news that economic activity continues to weaken worldwide, and Europe was no exception. It has increased fears that rising prices and the war in Ukraine will lead the world into recession. Accordingly, nothing is surprising in that the euro has fallen below parity against the US dollar as the demand for safe-haven assets has increased again. As today's data showed, the volume of production in the eurozone, which includes 19 countries, decreased for the second month. In August, record inflation for energy and food severely undermined demand, pushing more and more sectors down. The problem also lies in the high activity in the service sector, such as tourism, which has almost stopped. Only in the UK did the purchasing managers' index manage to stay above 50 points, which indicates an increase in activity. But this is what concerns the service sector. Manufacturing activity showed an unexpectedly large drop. In Asia, Japan's output also declined due to a surge in COVID-19 cases, further reducing demand, which is already struggling with the weight of rising inflation. Australia's services sector contracted for the first time in seven months, somewhat offsetting tourism growth. All these data paint a bleak picture for the global economy, as most central banks remain focused on curbing inflation by raising borrowing costs. A little later today, several US PMI data will be released, showing improvements in manufacturing and services. But the published figures of the eurozone indicate a contraction of the economy in the third quarter of this year because the decline in production is currently observed in several sectors, from manufacturers of basic materials and cars to companies engaged in tourism and real estate. Even more painful for investors was the news that Germany began to sink, which showed the sharpest decline since June 2020. All the efforts of the authorities to reduce dependence on Russian natural gas against the background of a reduction in supplies after Ukraine start winning the war. In France, things are also no better – activity there has decreased for the first time in a year and a half. Europe's largest economies cannot withstand record inflation and growing uncertainty. The indicator of the French private sector activity in August reached the lowest level since the failures and amounted to 51 points, while production activity decreased to 49 points. New orders declined both in the service sector and manufacturing, while companies quickly lost confidence in their future. In Germany, the index of business activity in the manufacturing sector turned out to be slightly better than economists' forecasts, but this did not help much, as it amounted to 49.8 points – this indicates a decline in the sphere. The index of business activity in the services sector completely collapsed to 48.2 points. The European economy is experiencing a deepening decline in private sector business activity, riddled with further uncertainty. Against this background, the euro continues to fall. Bulls need to correct the situation very quickly and return to 0.9940 since the problems will only increase without this level. Going beyond 0.9940 will give confidence to buyers of risky assets, opening a direct road to 1.0000 and 1.0130. If there is a further decline in the euro, buyers will certainly show something around 0.9860, but this will not help them much since updating the next annual minimum will only strengthen the bear market. Having missed 0.9860, you can say goodbye to hopes for a correction, which will open a direct road to 0.9820. Nothing good happens for the pound. Buyers need to do everything to stay above 1.1730 – the nearest support level. Without doing this, you can say goodbye to the hopes of recovery. Moreover, in this case, we can expect a new major movement of the trading instrument to the levels: 1.1690 and 1.1640. A breakdown of these ranges will open a direct road to 1.1580. It will be possible to talk about stopping the bearish scenario only after the breakdown and consolidation above 1.1780, allowing the bulls to count on a recovery to 1.1820 and 1.1870. Source: Forex Analysis & Reviews: The answer to the question of why the euro is falling so much

France's business climate stabilised in August at 103, painting a more favourable picture than the PMI indices. However, the sub-indices do not give cause for optimism and there is little doubt that the autumn and winter will be more difficult. Shoppers at the Galeries Lafayette department store on the Champs-Elysees in Paris   The business climate indicator, published by INSEE, stabilised in August at 103, above the long-term average (100). The decline in industry (from 106 to 104) was offset by an improvement in retail trade (from 96 to 99). In the services sector, the indicator remained almost stable at 106. The economic situation depicted by the business climate indicators seems more favourable than the PMI indices for August published on Tuesday suggested. Both the composite PMI and the PMI for the manufacturing sector were below the 50 level, which signifies contraction. Although business sentiment is generally above its long-term average in most sectors, some components of the index are more worrying. In particular, in industry, the stock of finished goods is rising sharply and is back above its long-term average for the first time since July 2020. At the same time, both global and foreign order books are deteriorating. After months of supply difficulties, stocks are now high and will need to be cleared in the coming months, which, combined with a slowdown in global demand, is likely to have a negative impact on production. The fall in production could therefore be faster than the fall in demand, thus accentuating the contraction in activity. We see a similar pattern in the retail sector, where the assessment of expected sales is deteriorating sharply while inventories are rising. Moreover, while industrial managers remain relatively positive about expected production in the coming months, they have revised their production assessment downwards sharply in recent months. This indicates that industrial activity is weaker than expected already this quarter.  There's more optimism in the service sector There's more optimism in the service sector. This is particularly the case in the accommodation and catering sub-sector, thanks to an excellent tourist summer in France. The general and personal outlook of business leaders in the services sector has improved and the economic uncertainty felt has decreased. There is little doubt that the service sector will make a more positive contribution to economic growth in the third quarter than industry, although optimism in the tourism sector could diminish rapidly as the summer fades.  All in all, after a rather good spring, with second quarter GDP up 0.5% Quarter-on-Quarter after the first quarter's drop (-0.2%), and a summer boosted by tourism and good weather, all indicators are now pointing to a much more difficult autumn and winter. The global slowdown in demand, the deterioration in consumer and business confidence, the risks to energy supplies and inflation, which is reaching new heights and undermining purchasing power, are likely to push the European and French economies straight into recession. While French GDP this year could grow by around 2.2% thanks to the second quarter and the carry-over effect, growth will stall in 2023 and will probably be close to 0% for the whole of the year. Read this article on THINK TagsGDP France Eurozone Business climate 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

Bank lending to non-financial corporates continued to be surprisingly strong at the start of summer despite higher rates and high economic uncertainty. A hawkish sign for the ECB Rising corporate bank lending in the eurozone is a hawkish sign for the ECB ahead of its September meeting   Credit to the private sector continued to grow strongly in July. This is somewhat surprising given higher interest rates, low confidence and banks indicating tighter credit standards and weaker demand for borrowing. Nevertheless, growth for non-financial corporate bank lending accelerated from 6.8% year-on-year to 7.7% YoY in July. This sounds dramatic but is mainly due to a large base effect. Nevertheless, month-on-month bank lending to non-financial corporates was still 0.9% in July, well above recent trend growth. Household credit growth slowed from 4.6 to 4.5%. The trend in household bank lending growth is slowing at the moment, which hints at a more immediate effect of higher interest rates. Money growth continues to slow rapidly as the ECB has stopped quantitative easing (QE) and increased interest rates. Broad money growth (M3) fell from 5.7 to 5.5% YoY in July. The narrower estimate M1, considered to be a better leading indicator of economic activity, dropped from 7.2% YoY to 6.7% YoY growth. The tightening of the monetary stance is adding to concerns about economic growth, as signs are becoming clearer that the economy could have already started a mild recession at this point. September ECB Meeting For the ECB, continued strong growth in corporate bank lending could be taken as a sign that the neutral rate is still a bit away. Sliding consumer borrowing points in the other direction, but overall this is a hawkish sign ahead of the September meeting. We expect the ECB to move by another 50 basis points now before signs of a recessionary economic environment become more widespread. Read this article on THINK TagsGDP Eurozone ECB 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

US 2-years Treasury yields is testing June peak at 3.45 forming what looks like an Ascending triangle like pattern. If yields close above 3.45 first target is 3.73 but a move to around 3.90-4.00% is likely.If rejected at the 3.45 we could see US 2-year yields test the lower rising trendline.However, RSI is above 60 with no divergence indicating higher levels are the most likely scenario Source: Bloomberg. US 10-years Treasury yields is struggling to break the 3.11 resistance just peaking above to be rejected at the 0.618 retracement at 3.13. Now being rejected twice the past week it is having another go today. If closing above 3.13 there is some resistance at 3.27 but June peak at 3.50 is likely to be tested.However, the US 10-years is moving in what looks like a rising wedge meaning if it is once again rejected and closes below 3%, a correction down to around the 0.618 retracement at 2.76 is likely. However, RSI is above 60 and no divergence indication yields will break higher Source: Saxo Group The US 10-years Treasury future has broken below 0.618 retracement and support at 117 5/32. If it closes below, it has further confirmed the downtrend and is on course to test June lows at around 114 7/32. Some support at around 116   Source: Saxo Group Euro Bunds gapped lower this morning below key support at 149.75 testing 0.618 retracement at 147.94. RSI is below 40 and no divergence indicating lower levels. We could see buyers trying to close the gap but the former support at 149.75 is now a strong resistance.Some support at around 145.16 Source: Saxo Group   Source: Technical Update - US 2 and 10-years Treasury yields testing key resistance levels. Euro Bund future hit by heavy selling  

We will remember Jackson Hole not just for Powell's hawkish speech, but also for the ECB gearing up its own hawkishness – 75bp hikes are not just for the Fed. Even if just an attempt to invoke the market's help to do the heavy lifting of tightening financial conditions, near term it means more curve flattening. Accelerating inflation still justifies the means  Hawkish ECB communications shift bear flattens the curve... EUR money markets have clearly set their sights on a 75bp hike at the September meeting after the string of hawkish comments over the weekend. The ESTR OIS (euro short-term rate overnight indexed swap) forward for the September reserve period is now at 65bp, implying a 60% probability for a larger move. It was the European Central Bank’s Robert Holzman, Martins Kazaks and Klaas Knot who all hinted more-or-less explicitly at a 75bp hike being on the table while others have called for more forceful action. France’s François Villeroy appears to suggest more frontloading with a call for showing determination now to avoid “unnecessarily brutal” hikes at a later stage. The significance of that hawkish communications shift was underscored by the ECB’s Isabel Schnabel who warned that greater sacrifices may be needed to bring inflation under control. And indeed the ECB’s current official economic outlook certainly still looks overly optimistic against the backdrop of a deepening energy crunch. This all spells further yield curve flattening as the ECB looks more prepared to hike even into a downturn.    The barrage of hawkish ECB comments means more EUR curve flattening is on the cards Source: Refinitiv, ING ...but may signal more reliance on the market to do the heavy lifting While acknowledging further normalisation is appropriate, the ECB’s chief economist Philip Lane struck a more balanced tone. In light of high uncertainty, he argued for a steady pace of hikes to the terminal rate. Smaller hikes would be less likely to cause adverse side effects and make it easier to correct course. Under the current circumstances, we suspect that 50bp would fit his idea of “steady” and “small”. He also notes that policy works through its influence on the entire yield curve. After the July rate hike, higher market rates have meant that the monetary tightening that has already occurred is far greater than just the first policy rate increase. In particular, he notes that mid and longer-end segments of the yield curve are most important for determining financing conditions in the economy and that these are more sensitive to expectations of the terminal rate than the precise path of policy rates towards it. That insight leads us back to one possible aim of the more hawkish communications twist: let the market do the heavy lifting of tightening financing conditions. As long as inflation risks are skewed to the upside, hawkish talk is likely to persist. And as long as the market plays ball, it may not necessarily translate into an even larger 75bp hike. However, one can also argue that when relying on hawkish talk it is even easier to eventually correct course than it is with a strategy of “smaller hikes". At this point, we still think that the ECB will significantly underdeliver compared to what markets are pricing. The crucial question is just when this notion will dawn on markets. The EUR swap curve prices front-loaded hikes in 2022 Source: Refinitiv, ING ECB quantitative tightening on the back burner? It appears that a discussion on quantitative tightening might not be as imminent, which should also come as a relief for periphery bonds. Accelerated ECB rate hikes and political uncertainty in Italy have already brought the benchmark 10Y spread of Italian bonds over German Bunds back towards 230bp. Bringing quantitative tightening to the table could tip the fragile balance towards more widening, even after the introduction of the Transmission Protection Mechanism. But it is quite notable that amid the latest hawkish push on rates, Italy's spreads have actually managed to eke out a small tightening versus Bunds. The Council's views on quantitative tightening seem not quite as aligned as their view on rates. After being brought up last week by the Bundesbank's Nagel and also by subtle hints in the ECB meeting minutes, the ECB’s Olli Rehn now said it was too early to publicly discuss quantitative tightening. While Kazaks said it could be discussed, he added it was too early to implement. Today's events and market view The reason for the ECB's hawkish turn will become more obvious today. As markets are looking for a further acceleration in inflation, all eyes are on the German and Spanish readings today ahead of tomorrow's eurozone flash CPI release which the consensus sees heading to 9%. The core rate is seen accelerating to 4.1%. Also to watch are the business climate indicators today, economic sentiment and consumer confidence, all of which are expected to come in softer. The 1y1y ESTR forward is back to 2.13%, though that is still short of the peak seen in June when it topped 2.5%. It might still push higher from here, but the long end should increasingly lag. In primary markets, Italy will reopen the 5Y, 8Y and 10Y sectors as well as a floating rate bond for a total of up to €8bn. Read this article on THINK TagsRates Daily Federal Reserve ECB 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:  The G3 currencies are chopping around aimlessly versus one another while the bigger story afoot across FX is weakness in the rest of the G10 currencies, particularly in the Swiss franc and Norwegian krone, the currencies that had formerly traded the strongest against the euro as a bit of ECB catchup on tightening guidance and easing energy prices. NOK is particularly weak today, perhaps on fears that the EU is set to cap energy and power prices and may twist Norway’s arm in the process? FX Trading focus: EUR relief and squeeze for now, but remember longer term picture. Is NOK suddenly worried about price caps for its energy exports? Yesterday I highlighted the squeeze risk in EURUSD If the 1.0100 area traded, but the US dollar has remained quite firm, while the real story is in the euro upside squeeze elsewhere, particularly against the Swiss franc as the ECB has gotten religion on the need to bring forward and raise its tightening plans, while the collapse in oil prices and natural gas prices to a lesser degree over the last couple of days has EURNOK shorts running for cover. Yesterday, another flurry of ECB speakers at a conference saw ECB rate expectations pulled back a bit higher as some, including Nagel, argued for a front-loading of rate hikes, which has the market leaning a big harder in favour of a 75-basis point move at next Thursday’s ECB meeting. Still, as the weeks wear on, it is important to realize that Germany being ahead of its schedule on refilling gas storage reserves doesn’t mean the country can meet anything approaching normal gas demand through the winter unless Russia turns up the gas flow rates or the gas can be sourced from elsewhere, as storage is only a fraction of the amount need for winter consumption rates as heating demand jumps. The EU has called an emergency meeting next Friday that will likely result in a cap on electricity and perhaps also natural gas prices for some end users, a  move that will prevent many consumers and especially small businesses from going cold over the winter or going broke or having too much of their budgets swallowed by energy costs. But such a move to cap prices will also have the typical result that demand will remain higher than it would otherwise, and that will have to mean rationing of power/gas, a dicey process to manage. Either way, real GDP will decline if less gas is available, even if Russia does turn back on the gas after turning it off today for a few days of purported maintenance and continues to deliver the trickle of flows that it has been delivering recently. The August US ADP payrolls data release today is the first using a “revamped” methodology that is meant to provide more time and higher frequency data on the labor market, as well as information on pay rises, given the ADP access to salary information. The headline release of +125k was disappointing, but it will take time for the market to trust this data point even if the new methodology eventually proved better for calling the eventual turn in the labor market. Yesterday’s Jul. JOLTS jobs openings survey was nearly a million jobs higher than expected after the prior month was revised solidly higher, suggesting a still very strong demand for labor. The USD picture is still choppy and uncertain, with today’s ADP number chopping long treasury yields back lower after they trade to new local highs. The Friday’s official jobs report will weigh more heavily, with earning surprises potentially the largest factor, while the September 13 CPI data point will weigh heaviest of all ahead of the Sep 21 FOMC meeting. As discussed in this morning’s Saxo Market Call podcast, an Atlanta Fed measure of “sticky inflation” is showing unprecedented relative strength to the BLS’s standard core CPI measure. Chart: EURNOKEURNOK has backed up aggressively higher on the huge haircut to crude oil prices over the last couple of sessions and as the ECB has delivered a far sterner message on its intent to bring forward and steepen rate tightening intentions. As well, if the EU emergency meeting sees the spotlight turned on Norway’s gargantuan profits it is earning on oil and gas profits from the reduction of Russian deliveries, the EURNOK rise could be aggravated well through the pivotal 10.00 area. Source: Saxo Group Table: FX Board of G10 and CNH trend evolution and strength.The US dollar remains strong, with Euro flashing hot in the momentum higher – although questions remain how long this can last. Sterling continues its ugly slide, while CHF has lost moment likely on EURCHF flows, and NOK is losing altitude very quickly as noted above. Source: Bloomberg and Saxo Group Table: FX Board Trend Scoreboard for individual pairs.USDCAD and AUDUSD are looking at interesting levels, with the former having now more decisively broken the range, while AUDUSD is teetering. Note the EURCHF and EURNOK readings trying to flip to positive here, together with other EUR pairs. USDNOK has flipped positive in rapid fashion after yesterday’s flip higher. Source: Bloomberg and Saxo Group Source: FX Update: NOK, NOK, who’s there? Energy price caps?

In the first half of Wednesday, the euro was growing against the decline of other world currencies for the second consecutive day - the bulls on the euro were still able to work out the growth of the August CPI to 9.1% from the previous value of 8.9% y/y. Data from ADP on employment in the US private sector came out in the evening - 132,000 jobs were created in August against the forecast of 300,000. The US stock index S&P 500 fell by 0.78%, the yield on 5-year government bonds increased from 3.26% to 3.35%, investors continued their weekly withdrawal from risk and the euro lost ground. The pair is currently trying to push through the support level of 1.0020, leaving under which will open the nearest target of 0.9950. Overcoming 0.9950 opens the 0.9850 target. We are also waiting for the signal line of the Marlin Oscillator to go under the turquoise line forming convergence and its decrease to the area of the pink dashed line, from which a stronger correction is likely to form. The price is still above the balance and MACD indicator lines on the four-hour chart, the Marlin Oscillator is still in the positive area, but it has a clear intention to go below the zero line and change direction. The MACD line is approaching the level of 0.9950, thus it will strengthen it, and the price, in case of overcoming this level, will receive a strong impulse to further decline. The critical level of this scenario is 1.0088, the high on August 26th.   Relevance up to 04:00 2022-09-02 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/320504

Trend analysis (Fig. 1). The euro-dollar pair may move downward from the level of 1.0052 (close of yesterday's daily candle) to test 1.0013, the 85.4% retracement level (blue dotted line). Upon reaching this level, an upward movement is possible to 1.0079, the 38.2% retracement level (white dotted line). From this level, the price may continue to move up. Fig. 1 (daily chart). Comprehensive analysis: General conclusion: Today, the price may move downward from the level of 1.0052 (close of yesterday's daily candle) to test 1.0013, the 85.4% retracement level (blue dotted line). Upon reaching this level, an upward movement is possible to 1.0079, the 38.2% retracement level (white dotted line). From this level, the price may continue to move up. Alternative scenario: from the level of 1.0052 (close of yesterday's daily candle), the price may move downward to test the support level of 0.9952 (thick blue line). Upon reaching this level, an upward movement is possible to 1.0010, the 23.6% retracement level (white dotted line).     Relevance up to 08:00 2022-09-02 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/320514

EUR/USD 5M The EUR/USD pair continued to move in a style already familiar over the past two weeks. The price reversed sharply again, and the movement took place inside the 0.9900-1.0072 channel. We have already said that this channel cannot be considered a horizontal channel, although formally it is just that. That movement, which we call flat, is also not really such, but has all the signs of it. Best of all, the current movement fits the description of a "swing", which is actually no better than a flat. The pair failed to settle above the level of 1.0072 for the second time, so now we can count on a certain drop in quotes. From Wednesday's macroeconomic reports, we note inflation in the European Union, which continued to accelerate and now stands at 9.1% y/y. It was after the release of this report that the euro began to appreciate, but we do not believe that these two events are connected. At this time, when it is already known about the possible tightening of the European Central Bank's monetary policy in September, the likelihood of a tougher rate hike does not increase. In regards to Wednesday's trading signals, the situation was slightly better than the day before. Mainly due to the formed area of 1.0001-1.0019. First, a sell signal was formed when the price settled below it, and then a buy signal. The sell signal turned out to be false, but the pair went down 15 points. Therefore, Stop Loss should have been set to breakeven. The long position managed to earn 30 points as the price reached the nearest target level of 1.0072. A rebound from the level of 1.0072 could no longer be worked out, since this signal was formed rather late. COT report: The Commitment of Traders (COT) reports on the euro in the last few months clearly reflect what is happening in the euro/dollar pair. For most of 2022, they showed an openly bullish mood of commercial players, but at the same time, the euro fell steadily at the same time. At this time, the situation is different, but it is NOT in favor of the euro. If earlier the mood was bullish, and the euro was falling, now the mood is bearish and... the euro is also falling. Therefore, for the time being, we do not see any grounds for the euro's growth, because the vast majority of factors remain against it. The number of long positions for the non-commercial group increased by 11,600, and the number of shorts increased by 12,900 during the reporting week. Accordingly, the net position increased by about 1,300 contracts. After several weeks of weak growth, the decline in this indicator resumed, and the mood of major players remains bearish. From our point of view, this fact very eloquently indicates that at this time even commercial traders still do not believe in the euro. The number of longs is lower than the number of shorts for non-commercial traders by 44,000. Therefore, we can state that not only does the demand for the US dollar remain high, but that the demand for the euro is also quite low. The fact that major players are in no hurry to buy the euro may lead to a new, even greater fall. Over the past six months or a year, the euro has not been able to show even a tangible correction, not to mention something more. We recommend to familiarize yourself with: Overview of the EUR/USD pair. September 1. The ECB was late, does not admit its mistakes and continues to do everything "for show". Overview of the GBP/USD pair. September 1. The pound is already falling by inertia and tends to overtake the euro in the fall against the dollar. Forecast and trading signals for GBP/USD on September 1. Detailed analysis of the movement of the pair and trading transactions. EUR/USD 1H The pair has consolidated above the trend line on the hourly timeframe, but still does not leave the feeling that the downward trend continues. At the moment, the pair is generally trading inside the horizontal channel, and this channel has already expanded to 0.9900-1.0072. If the bulls manage to settle above it, then it will be possible to count on a slight increase in the euro, but given the current "swing", there may be constant rollbacks to the downside. We highlight the following levels for trading on Thursday - 0.9900, 1.0019, 1.0072, 1.0124, 1.0195, 1.0269, as well as Senkou Span B (1.0051) and Kijun-sen (1 ,0001). There is not a single level below the level of 0.9900, so there is simply nothing to trade there. Ichimoku indicator lines can move during the day, which should be taken into account when determining trading signals. There are also secondary support and resistance levels, but no signals are formed near them. Signals can be "rebounds" and "breakthrough" extreme levels and lines. Do not forget about placing a Stop Loss order at breakeven if the price has gone in the right direction for 15 points. This will protect you against possible losses if the signal turns out to be false. The European Union will publish the unemployment rate and the index of business activity in the manufacturing sector in the second assessment for August. Both reports are insignificant. Meanwhile, we have the ISM index of business activity in the service sector in the United States, and this report may provoke a market reaction. Explanations for the chart: Support and Resistance Levels are the levels that serve as targets when buying or selling the pair. You can place Take Profit near these levels. Kijun-sen and Senkou Span B lines are lines of the Ichimoku indicator transferred to the hourly timeframe from the 4-hour one. Support and resistance areas are areas from which the price has repeatedly rebounded off. Yellow lines are trend lines, trend channels and any other technical patterns. Indicator 1 on the COT charts is the size of the net position of each category of traders. Indicator 2 on the COT charts is the size of the net position for the non-commercial group.     Relevance up to 02:00 2022-09-02 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/320492

Analysis of transactions in the EUR / USD pair Euro tested 0.9998 at the time when the MACD was far below zero, which limited the downside potential of the pair. Sometime later, it tested the level again, but this time the MACD line was above zero, so the upside potential was limited. This happened after the test of 1.0043. Although the sharp rise in the eurozone consumer price index came as no surprise, it hurt euro's upward outlook in the morning. Then, in the afternoon, dollar was affected by weak employment data from ADP, which suggested that the rate hikes implemented by the Fed hurt the labor market. Today, a number of reports are scheduled to be released, namely the volume of retail trade in Germany, index of business activity in the manufacturing sector and change in the unemployment rate of the eurozone. Good figures will allow buyers to try updating the weekly highs. But in the afternoon, the focus will shift to the data on US jobless claims, ISM manufacturing index and speech by FOMC member Raphael Bostic. For long positions: Buy euro when the quote reaches 1.0026 (green line on the chart) and take profit at the price of 1.0081. A rally will occur if statistics in the Euro area exceed expectations. Take note that when buying, the MACD line should be above zero or is starting to rise from it. Euro can also be bought at 1.0005, but the MACD line should be in the oversold area as only by that will the market reverse to 1.0026 and 1.0081. For short positions: Sell euro when the quote reaches 1.0005 (red line on the chart) and take profit at the price of 0.9959. Pressure will return if the Euro area releases weak economic statistics. The failure of buyers to update yesterday's highs will also end the upward correction. Take note that when selling, the MACD line should be below zero or is starting to move down from it. Euro can also be sold at 1.0026, but the MACD line should be in the overbought area, as only by that will the market reverse to 1.0005 and 0.9959. What's on the chart: The thin green line is the key level at which you can place long positions in the EUR/USD pair. The thick green line is the target price, since the quote is unlikely to move above this level. The thin red line is the level at which you can place short positions in the EUR/USD pair. The thick red line is the target price, since the quote is unlikely to move below this level. MACD line - when entering the market, it is important to be guided by the overbought and oversold zones. Important: Novice traders need to be very careful when making decisions about entering the market. Before the release of important reports, it is best to stay out of the market to avoid being caught in sharp fluctuations in the rate. If you decide to trade during the release of news, then always place stop orders to minimize losses. Without placing stop orders, you can very quickly lose your entire deposit, especially if you do not use money management and trade large volumes. And remember that for successful trading, you need to have a clear trading plan. Spontaneous trading decision based on the current market situation is an inherently losing strategy for an intraday trader.       Relevance up to 09:00 2022-09-02 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/320532

Markets now favour a 75bp hike by the European Central Bank in an upcoming meeting, ignoring the drop in energy prices this week. Gilts are suffering from fears of fiscal spending and foreign outflows Bonds have their hawkish blinkers on and miss a drop in energy prices A beat in core eurozone CPI, with our economist flagging worrying signs of second-round effects from energy to goods prices, has tipped the scales in favour of a 75bp ECB hike in September. The market is now pricing 125bp of tightening over the next two meetings. Another flurry of hawkish comments, from the usual suspects Joachim Nagel and Robert Holzmann, helped convince investors that hawks are winning the front-loading hike debate. What’s more surprising is that the further rise in front-end rates and, expectedly, curve flattening, occurs while European-traded energy prices continue their decline this week. September and October are shaping up to be busy months in terms of supply With so much hawkishness priced and some relief in traded energy, it is tempting to call the peak in 10Y Bund yields, but there is another factor at play. September and October are shaping up to be busy months in terms of supply. Even if volumes do not match the previous years, we ascribe lower issuance to more difficult liquidity conditions, we would expect a greater market impact. The first eight months of the year are a case in point, despite lower volumes, supply has put greater pressure on bond yields across the credit spectrum. Bond sales should push bond yields higher in September and October Source: Bond Radar, ING Gilts have no (foreign) friends UK rates continue to rise relative to their European and US peers. As we wrote recently, divergence in energy prices and inflation explains their jump relative to USD yields. As for the faster rise than European peers, one needs to dig deeper into UK-specific problems. In an economy that is generating a greater proportion of its inflation domestically, the coming fiscal support package stands a greater chance of resulting in a more aggressive Bank of England (BoE) tightening cycle. These fears are probably exacerbated by the current leadership vacuum and the uncertainty about the extent of extra spending and tax cuts that will be unveiled. Fears of fiscal profligacy tend to hit gilts harder. Due to a (historically at least) wider current account deficit, UK markets are more sensitive to a worsening of its twin deficits. The recent decline in net overseas buying of gilts, still positive but the lowest on a rolling three-month basis since 2020 when fears of a mini run on the sterling were rife, did not help. We’re still far from the simultaneous sell-off in UK bonds, stocks, and currency that occurred in March 2020 and prompted the BoE to restart quantitative easing, but the parallel sheds an awkward light on its plan to actively sell bonds, on top of ‘passive’ balance sheet reduction. Foreign buying of gilts is at its lowest since 2020 Source: Refinitiv, ING Today's events and market views Most manufacturing PMIs released today will be second readings with the exception of the Dutch, Spanish, and Italian indices. Italian and eurozone unemployment complete the list of European releases. Supply will remain an important driver of short-term price action with Spain (3Y/10Y/30Y and linker), France (9Y/10Y/16Y), and Ireland (10Y/30Y) lined up for today. In the afternoon, US PMI manufacturing is a second reading but its ISM equivalent is a first. In addition to a decline in the headline figure, markets will look closely for a further drop in the prices paid component. Jobless claims and construction spending are the other US releases we look out for. The pre-ECB meeting quiet period starts today so we would be surprised to hear Fabio Centeno make any comment on monetary policy. The Fed’s own quiet period only starts this weekend so Raphael Bostic might try to out-hawk his colleagues. Read this article on THINK TagsRates Daily ECB Bonds 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 US currency is in tension before the release of the US labor market report, despite the advantage over the European one. At the same time, EUR does not leave attempts to rise and catch up. Currently, the downward trend prevails on the markets, plunging the American and European currencies into pessimism. According to economists at Commerzbank, a long-term strengthening of the US labor market provides significant support to the greenback. Experts put an equal sign between a strong labor market and a growing dollar. According to preliminary estimates, the positive trend in the USD will continue as long as the Federal Reserve adheres to a tight monetary policy. This situation is favorable for the US currency, but undermines the position of the European one. The EUR/USD pair was trading at 1.0012 on the morning of Thursday, September 1, trying to get out of the current range. At the same time, analysts pay attention to the high probability of the pair moving towards parity. The greenback plunged a bit on Wednesday evening, August 31, after the release of macro statistics on the US labor market, but later won back short-term losses. U.S. private-sector jobs increased by 132,000 last month, according to Automatic Data Processing (ADP), an analyst firm. Initial jobless claims in the U.S. surged to 248,000 on Friday, according to preliminary forecasts. Data on unemployment in the country will be released on September 2. Experts expect this indicator to remain at the level of July (3.5%) and to increase the number of jobs in the non-agricultural sector of the country. Many currency strategists rely on strong US employment data and falling unemployment. They consider these indicators the most important for the Fed and its future monetary policy. However, some experts argue that the key indicator for the central bank is the level of salaries. Recall that Fed Chairman Jerome Powell and other members of the FOMC are counting on the "cooling" of the national labor market. Representatives of the Fed are trying to avoid a situation in which wage growth provokes another round of inflation. In such a situation, the increase in the number of vacancies recorded in August is a negative signal for the central bank. Against this background, the European currency seeks to maintain balance and get out of the price hole. However, its efforts are rewarded with rare bursts of recovery, and then a decline. Adding fuel to the fire is uncertainty about the European Central Bank's next steps on the rate. According to Nordea economists, next week the central bank will raise the rate by 75 basis points. The bank believes that even negative forecasts for economic growth in the region will not interfere with this. At present, the inflation rate in the eurozone remains stably high. According to current reports, inflation in EU countries reached an impressive 9.1% in August. Previously, this figure was 8.9%. The current situation undermines the euro's position, which is hardly kept afloat. According to analysts, the weakening of the euro against the dollar is due to the active tightening of monetary policy by the Fed. At the same time, the current parity between currencies may disappear when a compromise is reached in the EU on tightening the monetary policy or when inflation in the United States returns to the target of 2%. However, both situations are unlikely, experts say. According to experts, the 1:1 ratio between the dollar and the euro will remain until the EU countries begin to tighten monetary policy following the example of the United States. However, there are many pitfalls here, as the ECB needs to find a compromise between all the countries of the euro bloc. Many experts believe that by the end of 2022 the balance of power in the EUR/USD pair will change, due to which the topic of parity will be removed. Experts allow changes in the ECB's actions regarding monetary policy. The same is possible with regard to the Fed, which is worried about labor market problems and galloping inflation. According to analysts, the pair will tend to the usual ratio of 1.0500-1.1000. "In the event of a sharp turnaround, the EU economy will receive a solid bonus for the growth of exports and the economy at the expense of the US and China," the experts emphasize. Market participants are concerned about the questions: will the Fed take a decisive approach to monetary policy? Will the ECB follow suit? Many traders and investors are skeptical about the immediate prospects for the dollar and the euro. At the same time, analysts expect a reduction in key rates in the second half of 2023. The implementation of such a scenario will weaken the greenback and limit the potential for its strengthening. In the current situation, some experts believe that the markets are wishful thinking, expecting less rigidity from the Fed in the process of forming monetary policy. In this matter, much depends on the level of unemployment in the country. Excessive strengthening of the labor market in the US is pushing the central bank to tighten monetary policy as soon as possible. Fed officials are stepping up the pace of this tightening, emphasizing that they are ready to temporarily sacrifice the economy for the sake of curbing inflation. However, a few months ago they said they would try to avoid a recession. However, despite the economic upheavals, the US currency remains strong and remains competitive in the global market.       Relevance up to 08:00 2022-09-04 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. Read more: https://www.instaforex.eu/forex_analysis/320524

The almost weekly growth of the euro against other major currencies was not in vain for it - yesterday's fall was 108 points (the market leader), the price attacked the target support of 0.9950, behind which is the target of 0.9850. On the daily chart, the signal line of the Marlin Oscillator has stopped at the line forming the convergence. The synchronous transition of this line by the oscillator and the price breaking through the support of 0.9950 will create another downward momentum for the euro. Probably, the 0.9752 target will be reached. On the H4 chart, the Marlin Oscillator moved into negative territory and managed to gain a foothold in it. The price attempted a short-term consolidation under the MACD indicator line, but the first attempt failed. Now we are waiting for the second such attempt and the advance towards the first target support at 0.9850.     Relevance up to 05:00 2022-09-03 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/320623

The dollar starts September with a combative mood, trading near 20-year highs and benefiting from flows to safe havens. Fears for the fate of the global economy and the drumbeat of leading central banks are rattling traders' nerves. The greenback is also popular with investors, as they need to buy USD to maintain their margin positions in the face of declining stock indices. Players' nervousness is compounded by the fact that stocks are entering a historically weak period for the market. Since 1950, the S&P 500 has fallen by an average of 0.5% in September. This year, everything speaks in favor of repeating historical trends. Over the past two months, the volume of a net short position against S&P 500 futures has grown significantly and reached its highest value in two years. The index just ended the month with its fourth consecutive daily decline on Wednesday. Investors are still under the impression after Federal Reserve Chairman Jerome Powell's statement last Friday that the central bank's key rate should be raised to a level that will allow inflation to be controlled, despite the risks of recession. The S&P 500 index since last Thursday, the last day before Powell's speech in Jackson Hole, lost more than 5%. "The market has received a message that the Federal Reserve is going to fight inflation at any cost. We don't think we've seen a bottom this year," strategists at Optimal Capital Advisors said. On Wednesday, the head of the Federal Reserve Bank of Cleveland, Loretta Mester, continued this topic. She said that the US central bank needs to raise the base rate from the current target range of 2.25%-2.5% above 4% by the beginning of next year and leave it at this level for some time to reduce inflation. Against this background, the yield of two-year US Treasury bonds, which changes in accordance with expectations regarding interest rates, reached the highest level since the end of 2007 yesterday, rising above 3.5%. The higher yield of treasuries pushes up the dollar as investors sell debt denominated in other currencies to get a higher premium on US treasuries. "It doesn't look like they can actually offer decent resistance to the dollar, given such a gloomy global outlook," Rabobank strategists said, referring to other major currencies. "If you sell the dollar, what will you buy?" – they said. The greenback has been growing for three consecutive months, while the euro fell by 6.5% over the same period. The greenback's growth against the single currency reflects concerns that a sharp jump in energy prices in the eurozone, caused by the conflict between Russia and Ukraine, will lead to higher inflation and push the European economy into recession. "High inflation and gas supplies are still serious problems in the euro area. We think this will continue to put downward pressure on the single currency," Commonwealth Bank of Australia analysts said. As data released on Wednesday showed, inflation in the eurozone rose to a record high of 9.1% in August. This strengthened the case for further significant rate hikes by the ECB to tame it. "Before the start of the Jackson Hole symposium, the market expected the ECB to raise the rate by 1 bps by the October meeting, and since then these expectations have only increased. However, a rate hike is unlikely to strongly support the euro against the greenback, given that investors are likely to remain focused on the risks of stagflation in the eurozone and given the safe haven function for the dollar," Rabobank analysts said. "We maintain our EUR/USD target at 0.9500 for one month and still expect the widespread strengthening of the US dollar to persist over the next six months or so," they added. Another unexpected rise in inflation increases speculation about a 75 bps ECB rate hike at next week's meeting. However, MUFG Bank economists do not believe that the euro will benefit from this sharp tightening. "Market participants currently estimate a 71 bps rate hike by the ECB policy meeting on September 8, as well as the fact that it will continue to raise rates to 1.50% by the end of the year. Market expectations of a sharper tightening of policy were supported by the hawkish comments of ECB policy makers after Jackson Hole and the recent announcement of another unexpected increase in inflation in the eurozone. However, we are not convinced that a sharp tightening of the ECB's policy will support the steady growth of the euro, as the risks of recession in the eurozone remain elevated," they said. The eurozone, in case of termination of pipeline gas supplies from Russia, may face a recession in the second half of 2022, analysts at Fitch Ratings believe. "The onset of recession in the eurozone is likely in the second half of 2022, and in 2023, Germany and Italy will experience an annual decline in GDP. Economic vulnerability in the event of termination of pipeline gas supplies remains high, despite recent active efforts to diversify import sources, in particular LNG," Fitch said. With the passing of the summer heat, as well as news that European countries are filling their storage facilities at a faster pace than expected, energy prices in the eurozone have decreased from peak values. However, the European economy, and especially Germany, remain vulnerable to the onset of winter if Russia stops supplying gas, given that storage facilities cover only 25-30% of winter consumption. "It is very difficult to predict how the situation with gas will develop in the European Union in winter, since much will depend, among other things, on the weather and the volume of gas coming from alternative sources to Russia," said the deputy head of the Directorate of the European Commission for Energy in the relevant committee of the European Parliament. The European Commission expects gas prices in Europe to remain at an elevated level in the coming winter and fall in 2024-2025. "We expect that prices will remain at an elevated level in the coming winter, they will fall again in 2024-2025. But they are subject to some fluctuations," EC spokesman Tim McPhie said. Gas prices and sentiment in Europe are now undergoing a serious stress test, as the Nord Stream-1 gas pipeline closed on August 31 for maintenance. All this warns against excessive enthusiasm for the recovery of the European currency at this stage, ING strategists note. The EUR/USD pair ended Wednesday's session with an increase of 0.3%, near 1.0057, having reached a weekly high at 1.0080 during yesterday's trading. At the same time, the USD index fell by 0.1% to 108.65 points. The euro was supported by expectations that the ECB will raise the interest rate by 75 basis points next week.Meanwhile, dollar shorts were mainly caused by the rebalancing of portfolios at the end of the month, turning into consolidation. The EUR/USD pair lost its bullish momentum on Thursday and plunged by almost 150 points from Wednesday's closing levels. At the same time, the USD index rose to the highest levels since June 2002, coming close to 110. The Fed's tough stance is still working in favor of the greenback, and the energy crisis in Europe is against the euro, which has not gone away with the correction of gas prices over the past three days. "Even after reaching new records, the dollar has room for further growth, which is facilitated by the prospects of a global recession and, in particular, the energy crisis in Europe," Generali analysts said. Fears related to the global recession were exacerbated by China, which announced that Chengdu, a city with a population of about 21 million people, was put on lockdown due to coronavirus. Reflecting investors' unwillingness to take risks, key Wall Street indexes mostly declined on Thursday. Friday's US employment report for August carries risks for stocks, because if it is strong, it will increase the prospects for further Fed rate hikes. The Fed's determination is beyond doubt, since it once led the movement among major central banks to aggressively tighten monetary policy. As for the ECB, it has yet to prove that it is really ready to act, and not just talk. "The ECB has yet to convince the markets with its comments to prove that it is willing to endure economic pain in order to effectively combat price risks. Only at this point will the euro be able to really benefit from the ECB's monetary policy on a more sustainable basis," noted the strategists of Commerzbank. "In a crisis, the market is likely to sell the euro as an initial reaction due to fears of a recession. The ECB's determination to fight inflation is likely to have a positive impact on the single currency only at a later stage – if at that time the ECB really sticks to its approach. This means that euro bulls will probably have to be patient for some time," they added. "The markets are now putting in quotes an increase in the ECB rate by 167 bps in total by the end of the year. However, the recent narrowing of spreads on two-year swaps between the euro and the dollar may have already ended, and a reversal – if the ECB does not meet the new hawkish expectations embedded in prices – could send EUR/USD to new lows next week," ING analysts said. They predict that the EUR/USD pair will remain under pressure in the range of 0.9900-1.0100.         Relevance up to 22:00 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. Read more: https://www.instaforex.eu/forex_analysis/320609

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

EUR/JPY has gained some ground in the last couple of weeks, but that doesn't change the larger picture, that a corrective decline is unfolding. We have seen wave A/ as a three-wave decline from 144.25 to 133.40. The question now is whether an X-wave is building before a second three-wave decline takes over. If this is the case, then we should see EUR/JPY peak near 142.33 for a new decline towards at least 131.69. The second option is that we see a break above resistance at 142.33 for a full return to test the peak at 144.25 in a flat correction in wave B/, before the final decline in wave C/ takes over for a decline to 132.66 and possibly 131.69. So, no matter which structure wave B/ ends up in, having the end gold will not change and that is more downside is needed to complete wave 2/.     Relevance up to 07:00 2022-09-05 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/291117

Technical Market Outlook: The EUR/USD pair bounce was capped at the 38% Fibonacci retracement level located at the 1.0078 and pushed down by bears. In order to extend the bounce higher, bulls must break through this level and test the 50% Fibonacci retracement located at 1.0133. The momentum is negative again as the market breaks below the parity level again as the main data from the USA are scheduled for release later on in form of the NFP Payrolls for the month of August. The nearest technical support is seen at 0.9955 and 0.9901. Weekly Pivot Points: WR3 - 1.00077 WR2 - 0.99699 WR1 - 0.99503 Weekly Pivot - 0.99321 WS1 - 0.99125 WS2 - 0.98943 WS3 - 0.98565 Trading Outlook: There is no sign of relief for the EUR as the down trend should continue lower towards the level or 0.9900 and below. The EUR is under the strong bearish pressure and as long as the USD is kept being bought all across the board, the down trend will continue.     Relevance up to 08:00 2022-09-03 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/291129

The US currency is closing the week strongly higher, having confirmed its leading position once again. Its European rival is rapidly losing ground. According to analysts, EUR/USD will be retesting the parity level from time to time, which is not good for the euro. The greenback, which has reached its peak in the past 20 years, started its rally late on Thursday, September 1. On the first day of autumn, the US dollar posted the third week of continuous gains. So, on Friday, it recorded the highest value in the past two decades trading against the euro and the yen. The US dollar hit 20-year highs following the release of the manufacturing index in the US. The data showed that the ISM Manufacturing PMI stayed at the same level of 52.8 in August. Some analysts expected a drop to 52 points. Yet, as the data shows, activity in the US manufacturing sector has notably increased. The indicator has been showing strength for a long time already. In this light, the European currency is noticeably retreating against its American counterpart. The euro opened this week below the parity level but managed to win back some losses later on. In the middle of the trading week, EUR/USD recovered to 1.0078 amid lower gas and oil prices and hawkish comments from the ECB. For your reference, the euro first tested the party level in early July and then slumped to the critical level of 0.9903. The situation only worsened as EUR was struggling to leave the parity level and withstand the downward pressure. On Friday morning, September 2, the EUR/USD pair was trading near 0.9970. There is a possibility that the pair may slightly advance to 0.9980. Its breakout will open the way for sellers towards the area of 0.9800–0.9820. Monetary policy tightening of the US Federal Reserve provides significant support to the greenback. The dollar is getting stronger as the Fed's September meeting is approaching. At the same time, the European currency is in a much less favorable position as it is pressured by a protracted energy crisis in Europe. Market participants expect the Fed to maintain its tight monetary policy as this measure is necessary to tackle accelerated inflation. The rate is projected to increase by 75 basis points to 3-3.25%. On Friday, the employment data in the US will be released. Estimates suggest that the unemployment rate in August stayed close to 3.5% recorded in July. The nonfarm payroll employment has increased by 300K. The Federal Reserve will consider this data to evaluate the state of the labor market and make a decision on the key rate. Experts assume that strong macroeconomic data will greenlight the rate hike through 2023. Markets are sure that the Fed will raise the rate for the third time in September by 75 basis points. For a different scenario, the Fed will need to see a deep decline in the labor market. Yet, there are currently no signs that it is cooling down. This summer, the US economy performed relatively well despite the threat of a recession. However, analysts at Danske Bank are skeptical about the current policy of the Fed. They point out that headline inflation in the country has reached its peak while the labor market and inflationary pressure remain strong. This makes it harder for the regulator to avoid recession as this is where the US economy is headed in 2023, Danske Bank concludes.     Relevance up to 08:00 2022-09-05 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. Read more: https://www.instaforex.eu/forex_analysis/320649

Yesterday, the single currency showed a rather impressive decline, falling below parity again. And it started during the European trading session, under the influence of the actual European macroeconomic statistics. In particular, the final data on the index of business activity in the manufacturing sector turned out to be worse than the preliminary estimate, and fell from 49.8 points to 49.6 points. While the preliminary estimate showed a decrease to 49.7 points. In addition, the data on unemployment also turned out to be not the best, although formally, it fell from 6.7% to 6.6%. But in fact, it remained unchanged, as the previous data were revised upwards. Unemployment rate (Europe): But in the United States, the final data on the index of business activity in the manufacturing sector turned out to be better than the preliminary estimate, which showed a decrease from 52.2 points to 51.3 points. In fact, it dropped to 51.5 points. However, the strengthening of the dollar is still somewhat surprising, as the data on applications for unemployment benefits do not inspire optimism. Of course, the number of initial requests decreased by 5,000. But the number of repeated requests increased by 26,000. And this is quite a lot. Number of retries for unemployment benefits (United States): It is possible that the dollar's growth is purely speculative in anticipation of today's release of the report of the United States Department of Labor. And while the unemployment rate is projected to remain unchanged, data on employment change clearly indicate a high potential for its growth. In addition, 310,000 new jobs should be created outside of agriculture, against 528,000 in the previous month. Such a strong decline in the rate of job creation clearly hints that the US labor market is losing momentum, and the situation is starting to worsen, which will be the reason for a sharp weakening of the dollar. Number of new non-agricultural jobs (United States): The EURUSD currency pair showed local speculative interest in short positions yesterday. As a result, the quote fell below the parity level, having almost reached the lower boundary of the sideways range of 0.9900/1.0050. The technical instrument RSI H4 crossed the middle line 50 from top to bottom during the downward momentum. As a result, the indicator settled in the lower area of 30/50, which indicates the downward mood of market participants. It should be noted that the signals from RSI H4 are of a variable nature due to the fact that the quote, as before, is moving within the sideways formation. MA moving lines on Alligator H4 have many intersections, which corresponds to the flat stage. Alligator D1 is directed to the downside, there is no intersection between the MA lines. This signal from the indicator corresponds to the direction of the main trend. In this case, the strengthening of the downward signal will occur at the moment when the MA (D1) lines are kept below the parity level. Expectations and prospects The convergence of the price with the lower limit of the flat 0.9900 led to an increase in the volume of long positions, as a result, a rebound appeared on the market. Despite the variable speculative interest, the quote is still in the sideways on the basis of a downward trend. Thus, the work can be built on the basis of two tactics: Rebound or breakdown relative to one or another control border. Concretize the above The bounce tactic is seen by traders as a temporary strategy. The breakout tactic is considered the main strategy because it can indicate the subsequent price move. Complex indicator analysis in the short-term and intraday periods have a variable signal due to the current flat. At this time, the indicators indicate a long position due to the price rebound from the lower border of the flat. Indicators in the medium term are focused on a downward trend.     Relevance up to 20:00 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/320635

Analysis of transactions in the EUR / USD pair Euro tested 1.0026 at the time when the MACD was just starting to move above zero, which was a good signal to buy. It led to a price increase of around 15 pips, after which pressure returned mainly because of weak statistics on the Euro area. Sometime later, the pair tested 1.0005, but this time the MACD line was far below zero, which should have limited the downward potential. Surprisingly, the quote continued to move down, and long positions from 0.9959 brought losses. Euro fell yesterday because of the disappointing data on the volume of retail trade in Germany and index of business activity in the manufacturing sector of Germany and the whole Euro area. Similar index from the US also led to its decline as the better-than-expected figure strengthened the positions of euro sellers and dollar buyers. This led to the fall of EUR/USD to yearly lows Data on the foreign trade balance of Germany and producer price index of the eurozone are scheduled to be released today, but they are of little interest to the market. That is why the focus will shift in the afternoon, after the release of reports on the unemployment rate, change in the number of people employed in the non-farm sector, change in the average hourly wage and share of the economically active population in the US. All of these are likely to lead to a surge in volatility as their numbers are expected to be much better than the forecasts. This will prompt another decrease in EUR/USD. The opposite scenario will start an upward correction. For long positions: Buy euro when the quote reaches 0.9978 (green line on the chart) and take profit at the price of 1.0119. A rally will occur only if statistics in the US come out lower than the forecasts. Take note that when buying, the MACD line should be above zero or is starting to rise from it. Euro can also be bought at 0.9959, but the MACD line should be in the oversold area as only by that will the market reverse to 0.9978 and 1.0019. For short positions: Sell euro when the quote reaches 0.9959 (red line on the chart) and take profit at the price of 0.9919. Pressure will return if statistics in the US exceed expectations. Take note that when selling, the MACD line should be below zero or is starting to move down from it. Euro can also be sold at 0.9978, but the MACD line should be in the overbought area, as only by that will the market reverse to 0.9959 and 0.9919. What's on the chart: The thin green line is the key level at which you can place long positions in the EUR/USD pair. The thick green line is the target price, since the quote is unlikely to move above this level. The thin red line is the level at which you can place short positions in the EUR/USD pair. The thick red line is the target price, since the quote is unlikely to move below this level. MACD line - when entering the market, it is important to be guided by the overbought and oversold zones. Important: Novice traders need to be very careful when making decisions about entering the market. Before the release of important reports, it is best to stay out of the market to avoid being caught in sharp fluctuations in the rate. If you decide to trade during the release of news, then always place stop orders to minimize losses. Without placing stop orders, you can very quickly lose your entire deposit, especially if you do not use money management and trade large volumes. And remember that for successful trading, you need to have a clear trading plan. Spontaneous trading decision based on the current market situation is an inherently losing strategy for an intraday trader.     Relevance up to 08:00 2022-09-03 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/320645

The euro is in positive territory today after taking a nasty spill on Thursday. In the European session, EUR/USD is trading at 0.9984, up 0.40%. Euro slides as risk appetite slides Thursday was a day to file away and move on for the euro, as EUR/USD tumbled 1.07%. The euro is under pressure from a high-flying US dollar and is having trouble staying above the symbolic parity line. A combination of solid US numbers, weak eurozone data and lower risk sentiment sent the euro sharply lower. German Manufacturing PMI dipped to 49.1, down from 49.3 in July. This marked a second straight contraction, and was the lowest level since May 2020, at the start of the Covid pandemic. It was a similar story for the eurozone Manufacturing PMI, which dropped from 49.8 to 49.6, a 26-month low. The manufacturing sector continues to struggle with supply chain disruptions and a shortage of workers, and high inflation and an uncertain economic outlook are only exacerbating matters. In the US, the ISM Manufacturing PMI held steady at 52.8, showing modest expansion. The labour market remains strong, with initial jobless claims dropping to 232 thousand, down from 237 thousand a week earlier and much better than the consensus of 248 thousand. Adding to the euro’s woes is the uncertainty over European energy supplies from Russia. Russia has shut down Nord Stream 1 pipeline for three days for maintenance, but Germany has charged that the shutdown is politically motivated and that the pipeline is “fully operational”. Nord Stream is supposed to come back online on Saturday. Even if Moscow does restore service, this episode is a reminder of Europe’s energy dependence on an unreliable Russia. Germany has greatly reduced its dependence on Russian gas, from 55% in February to just 26%, but a cutoff from Moscow would result in a shortage this winter. The week wraps up with the August nonfarm payrolls report. The consensus is for a strong gain of 300 thousand, after the unexpected massive gain of 528 thousand in July. The report could well be a market-mover for the US dollar. The markets are finally listening to the Fed’s hawkish message, and a strong reading will raise expectations of a 0.75% hike in September and likely push the dollar higher. Conversely, a weak report would complicate the Fed’s plans and raise the likelihood of a 0.50% hike, which could result in the dollar losing ground after the NFP release. . EUR/USD Technical EUR/USD is testing resistance at 0.9985. Above, there is resistance at 1.0068 There is support at 0.9880 and 0.9797 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.

Different shades of recession are spreading across the globe at record speed as soaring inflation, geopolitical tensions, and astronomical gas prices show no signs of abating. As central banks grapple with working out how to balance inflation and growth, there's one thing we're sure of: tough times lie ahead In this article A return to reality for Europe The colours of recession Out with the old, in with the new Looking ahead Recession’s coat of many colours ING's Carsten Brzeski on the different shades of recession spreading across the globe.   A return to reality for Europe Returning from the summer break always helps when looking at the bright side of the world's economic prospects. An often heard truism is that relaxed economists make fewer pessimistic forecasts. But when you're tracking the European and, specifically, German economies, no summer break is long enough to make short-term economic forecasts more optimistic. On the contrary, returning to Europe’s economic reality after the summer means returning to a recessionary environment, as gas prices are moving from one astronomic high to the other and will lead to unprecedentedly high energy bills over the winter. Even without a complete stop to Russian gas, high energy and food prices will weigh heavily on consumers and industry, making a technical recession – at least – inevitable. The colours of recession No two recessions, however, are the same. In fact, we are currently seeing different colours of recession across the world. The US economy has actually been in a technical recession – defined as two consecutive quarters of negative growth – but it feels nowhere close to a recession. Our chief international economist in New York, James Knightley, says weaker global growth, the strong dollar and the slowdown in the housing market on the back of higher interest rates, will make it feel like a ‘real’ recession at the turn of the year, however. In other regions of the world, we are not currently seeing fully-fledged recessions, but given that China and emerging markets need higher growth rates than the Western hemisphere, the expected sub-potential growth rates can easily feel recessionary. As a consequence, even if Europe currently remains the epicentre of geopolitical tensions, it almost looks as if recession and recessionary trends are a new export item. Out with the old, in with the new With different shades of recession spreading across the global economy, but inflation still stubbornly high as a result of post-pandemic mismatches of demand and supply as well as energy price shocks, the dilemma for major central banks is worsening: how to balance inflation and growth. In the past, the answer would have been clear: most central banks would have shifted towards an easing bias. Not this time around. We are currently witnessing a paradigm shift, recently illustrated at the Jackson Hole conference. A paradigm shift that is characterised by central banks trying to break inflation, accepting the potential costs of pushing economies further into recession. This is similar to what we had in the early 1980s. Back then, higher inflation was also mainly a supply-side phenomenon but eventually led to price-wage spirals and central banks had to hike policy rates to double-digit levels in order to bring inflation down. With the current paradigm shift, central banks are trying to get ahead of the curve. At least ahead of the curve of the 1970s and 1980s. Whether the paradigm shift of central bankers is the right one or simply too much of a good thing is a different question. What strikes me is that central bankers have implicitly moved away from measuring the impact of their policies by medium-term variables and expectations towards measuring it by current and actual inflation outcomes. This could definitely lead to some overshooting of policy rates and post-policy mistakes. Looking ahead We still think that the paradigm shift will not last that long and looming recessions will bring new pivots, forcing the Fed to stop hiking rates at the end of the year and eventually cutting rates again in 2023, and stopping the ECB from engaging in a longer series of rate hikes. Reasons for this out-of-consensus view are that we expect a more severe recession than the Fed and ECB do, and a faster drop in US inflation, in particular, than the Fed expects. Also, in a recession, any neutral interest rate is lower than in a strong growth environment. Finally (and a bit meanly), central banks have not had a good track record with their inflation predictions over the past few years. In any case, we are back from the summer break and looking ahead to a very exciting autumn. Enjoy reading and stay tuned. TagsMonthly Update   Source: ING Monthly: Recession’s coat of many colours | Article | ING 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 energy crisis in the EU continues to deepen amid Russia's full shutdown of the Nord Stream pipeline over the past weekend. The interruption of gas supply has sent the euro downwards once again. Early on Monday, the European currency lost 0.5% against the US dollar and hit a 20-year low at 0.9903. EUR/USD came under pressure following Russia's decision to extend maintenance of the Nord Stream pipeline. Gazprom shut down the pipeline indefinitely, citing an oil leak in one of its turbines. EU officials believe the technical issues are merely a pretext by the Kremlin to shut down gas exports to the European Union According to the West, Moscow is trying to impose an energy blockade on the EU at the beginning of the heating season in a last-ditch attempt to force EU to relax its sanctions against Russia. At the same time, the Kremlin has blamed Western sanctions imposed on Russia for the pipeline's shutdown. Russia is claiming that sanctions prevent Gazprom from keeping the Nord Stream's turbines running. On Saturday, Gazprom tried to alleviate EU concerns by stating that the company would increase natural gas exports to Europe via Ukraine. However, the West has deemed Gazprom's promises to be unreliable. Such an increase would not fully compensate for the shutdown of Nord Stream. Furthermore, this cannot be a permanent solution. Natural gas deliveries via Ukraine could be difficult due to the ongoing conflict between the two countries. This escalation of the gas war between Russia and the EU is forcing EU policymakers to seek solutions for the supply problem. The EU is worried that the shutdown of Nord Stream could send natural gas prices in Europe even higher. On Friday, EU energy ministers are set to present emergency measures to tackle rising energy prices. These measures would likely include natural gas price caps. Furthermore, EU politicians would push for a reduction in gas demand and consumption in the European Union. The ongoing energy crisis will be in the headlines this week, dimming the short-term prospects of the euro. As the gas conflict escalates, risks of an economic slowdown would rise. With the ECB preparing for another interest rate increase, the timing for these risks could not be worse. The ECB's policy meeting is scheduled to take place on Thursday. The EU regulator is now increasingly expected to carry out more aggressive policy measures after inflation in the eurozone reached 9.1%. However, with the EU facing a renewed threat of an energy collapse, recession, and a serious financial crisis, many analysts do not believe that ECB president Christine Lagarde will take a more hawkish step than in July. Earlier, the European Central Bank increased the key rate by 50 basis points to 0.5%. At the same time, the Federal Reserve hiked the rate by 75 basis points to 2.25-2.5%. The gap between EU and US interest rates could likely increase even further in September, as traders expect another 75 bps move by the Fed in September. It would be a third such increase in a row. "Everything is pointing to a lower euro," Carol Kong, senior associate for international economics and currency strategy at Commonwealth Bank of Australia said. "We've heard a great deal of negative news about the European economy, and I think the decline in the euro can continue this week." On the technical side, EUR/USD bears hold dominance in the market. The 7-week support line at 0.9880 is acting as an additional downside filter for the pair. EUR/USD must regain 1.0100 for bullish traders to return to the market.     Relevance up to 10:00 2022-09-10 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. Read more: https://www.instaforex.eu/forex_analysis/320805

The small increase in retail sales at the start of the third quarter brings little optimism about the outlook. Increased food and fuel spending masked a decline in sales for all other items. Expect consumption to decline from here on due to the purchasing power squeeze that the eurozone is going through Eurozone retail sales in July Retail sales increased by 0.3% in July, which is small enough for this uptick to be in line with the downward trend seen in recent months. The peak in retail sales was in November and sales in July were about 2.5% below that level. Food and fuel caused the small increase in July as all other items saw a decline of -0.4% in terms of sales volumes. A strong increase in Germany and the Netherlands masked declines in the other large eurozone markets. Don’t expect this to be the start of a sustained upturn in sales. The outlook remains rather bleak for the months ahead as real incomes go through an unprecedented squeeze due to high inflation and lagging wages. We expect consumption to contract for the coming quarters on the back of this. For the European Central Bank though, it is definitely no smoking gun for the start of a contraction. With the September meeting coming up and October of course not long after, the doves are looking for clear evidence that the economy is moving into contraction territory. Today’s data will, in that sense, not be of much help. Still, evidence of a recessionary environment is likely to become more apparent as new data comes in. Read this article on THINK TagsInflation GDP Eurozone ECB 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 list of arguments why the German economy is sliding into recession is getting ever longer. The question isn't about whether there'll be a recession but rather how severe and how long it will be Germany Economy Minister, Robert Habeck, speaking about energy at a news conference in Berlin yesterday   Germany’s most prominent leading indicator, the Ifo index, just dropped for the third month in a row, coming in at 88.5 in August, from 88.7 in July. This is the lowest level since June 2020. The positive interpretation is that the weakening of the Ifo index is slowing down. The negative interpretation is obviously that no improvement is currently in sight. Expectations remain close to their all-time lows and were only worse in December 2018 and April 2020. Earlier this morning, the details of German GDP growth in the second quarter brought some positive surprises. Growth was slightly revised upwards to 0.1% Quarter-on-Quarter, from zero in the first estimate, which finally brought the German economy back to its pre-crisis level. Private consumption surprised to the upside (+0.8% QoQ) and even more importantly was revised upwards significantly in the first quarter to +0.8% QoQ, from initially -0.1% QoQ. It was net exports and the construction sector which weighed on economic activity in the second quarter. Ifo index provides more recession evidence Looking ahead, however, it is hard to see private consumption holding up when inflation is high, energy invoices will be doubling or tripling in the coming months and consumer confidence is at all-time lows. Tuesday’s PMI readings already suggested that the economy is in contraction territory and we are afraid that this time around the indicators are right. The Germany economy is quicky approaching a perfect storm In fact, the German economy is quickly approaching a perfect storm. The war in Ukraine has probably marked the end of Germany’s very successful economic business model: importing cheap (Russian) energy and input goods, while exporting high-quality products to the world, benefitting from globalisation. The country is now in the middle of a complete overhaul, accelerating the green transition, restructuring supply chains, and preparing for a less globalised world. And these things come on top of well-known long-standing issues, such as a lack of digitalisation, ageing infrastructure, and an ageing society, to mention a few. In the coming weeks and months, these longer-term changes will be overshadowed by shorter-term problems: high inflation, possible energy supply disruptions, and ongoing supply chain frictions. In recent weeks, these shorter-term problems have become larger as low water levels and the new gas levy have added to inflation and recession concerns. There are some upsides. Surprisingly strong consumer spending in the first half of the year is one. The fact that the filling of the national gas reserves is actually ahead of schedule is another. Gas reserves are currently back to their average levels of 2016-2021. However, it remains far from certain whether gas reserves at 95% in November, as targeted by the government, can get energy consumption through an entire winter without Russian gas. There are simply too many unknowns like the severity of the winter season and the potential reductions in gas consumption by households and corporates. In any case, even without an energy supply disruption, the economy would be facing high energy costs. This alone, combined with the disruption from the low water levels for industry, ongoing geopolitical uncertainty and supply chain frictions, should be enough to push the German economy into a winter recession. Today’s Ifo index adds to the long list of evidence that the German economy is sliding into a winter recession. The question no longer seems to be if it will be a recession. The only question is how severe and how long that  recession will be. Read this article on THINK TagsIfo index Germany Eurozone 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 euro seeks to wrap itself in favor of the gas problems faced by the countries of the eurozone. Most often, the EUR loses, but now there is a small chance for its short-term recovery amid a slowing USD rally. The greenback took a breather on the morning of Tuesday, September 6, to recover from a heady rally. This strategy has led to some decline from all-time highs against the euro, but it is still too early to draw conclusions. The threat of a recession looms over both currencies. Adding fuel to the fire is the high likelihood of a sharp rise in US interest rates. A short-term slowdown in the growth of the USD against key currencies and a slight subsidence against the European one was caused by expectations of statistical data on the index of business activity in the US services sector (ISM). According to preliminary estimates, this figure fell to 55.1% in August from 56.7% in July. Significant support for the US currency is provided by expectations about the rate hike by the Federal Reserve. According to analysts, the central bank is "at a low start" in this matter. At the same time, 62% of specialists include in prices its increase by an additional 0.75 percentage points, up to 3-3.25% per annum. In such a situation, the dynamics of the euro, which has to withstand the gas crisis in the eurozone, is in distress. At the beginning of this week, the euro fell by 0.7% to 0.9880. According to experts, this is the lowest figure in the last 20 years. The current energy crisis has seriously shaken the euro's position. The driver of this fall was the actions of the Russian authorities, who announced a complete suspension of the supply of natural gas through the Nord Stream pipeline. According to analysts, this will increase the economic problems of European businesses and households. Against this background, mass short positions on the European and British currencies were recorded. Experts fear that this trend will strengthen. According to currency strategists at ING Bank, "gas pressures sent the EUR/USD pair to new lows this year." Recall that earlier this week, the pair fell below 0.9900 for the first time since October 2002. According to ING economists, in the near future the EUR/USD pair will continue to fall to a new support level in the range of 0.9600-0.9650. However, this is an extremely low level for a pair, which threatens the existence of the single currency. The EUR/USD pair cruised near 0.9963 on the morning of Tuesday, September 6, winning back previous losses. However, experts warn against euphoria, as the dollar is ready to brace itself and continue its rally, displacing the euro. In such a situation, many analysts see a way out in a further increase in the key rate by the European Central Bank. However, ING economists do not agree with this, who consider it excessive to raise the rate by the central bank by 75 bps at once. According to experts, this will not solve the current problems of the eurozone. ING bank believes that the rate hike by 75 bps at the next meeting, scheduled for Thursday, September 8, is "too big a step for the ECB, which will not help the euro." You should expect it to increase by 50 bps, analysts conclude. Expectations about a sharp rate hike by the ECB (by 75 bps) are fueled by growing inflation in the euro area, the threat of a recession and disappointing macroeconomic data for the region. The icing on the cake was the deepening of the energy crisis in Europe. This undermines the demand for a single currency, experts emphasize. According to current reports, in July, retail sales in the euro area fell by 0.9% in annual terms. At the same time, markets expected a decline of 0.7%. In addition, the Sentix investor confidence index fell to -31.8 points in September from -25.2 points in August. Against this backdrop, Sentix analysts noted a "clear deterioration" in the economic situation in the eurozone, stressing that this is the lowest rate since May 2020. The US currency continues to benefit from the current situation, despite a short-term subsidence. Many experts agree on the long-term upward trend of the dollar, which has been observed since mid-2021. Experts believe that a significant divergence in the monetary strategies of central banks is a significant driver of the growth of the USD against the euro. It is noted that the ECB is still "two steps behind the Fed" in terms of raising rates. The situation was not saved even by its increase by 50 points in July. However, the ECB may revise its strategy and raise the rate at the next meeting by 50-75 bps. Another important factor in the greenback's growth is the stability of the US economy. According to analysts, the US is relatively easy to survive the gas crisis, while selling energy to Europe. In the long term, this state of affairs plays against the ECB and the countries of the European bloc, but it plays into the hands of the Federal Reserve. In such a situation, it is difficult for the ECB not only to raise, but also to keep rates at a high level, unlike the Fed. Under such a scenario, a deep economic downturn in the eurozone is possible, experts warn. The current market environment creates a bullish outlook for the dollar index (USDX). Currently, the bulls on the dollar are in a strong position, pushing the bears. However, the situation may change at any time. In the short and medium term, analysts allow it to rise to an impressive 120 points, that is, an increase of 9%. In a favorable scenario, USDX will head towards the peaks of 2001-2002. However, experts consider this option extreme, although they allow its implementation until the end of 2022.     Relevance up to 08:00 2022-09-11 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. Read more: https://www.instaforex.eu/forex_analysis/320889

Eurozone government deposits at the central bank are subject to a 0% rate cap. This means hundreds of billions of euros could be shifted around. In some cases, this will reduce repo lending or boost demand for safe bonds, all exacerbating the existing collateral shortage Source: Shutterstock The return to positive policy rates will change the incentives for public sector actors in markets Germany’s and Austria’s debt agencies no longer want to lend securities against cash Exiting negative and eventually zero interest rate policies does not simply mean higher rates, but it also means some of the incentives that have dictated the basic market structure and functioning we have become accustomed to over the years of extraordinary policies will change as well. One such change has been highlighted by reports that Germany’s and Austria’s debt agencies are planning to change their repo rules. They no longer want to lend out their securities against cash, but only against other collateral. Why now? And what are the amounts involved? Government cash deposits held at central banks are remunerated at the ECB's deposit facility rate, but importantly that remuneration is capped at zero. Given the vast amounts of excess liquidity in the banking system, short term market rates have traded noticeably below the deposit facility rate. With the deposit facility rate below or at zero the incentive for governments to park cash outside of the central bank were low. But the ECB is now expected to hike the deposit facility rate at a fast pace to well above zero, possibly by 75bp already this week – and the gap to the remuneration capped at 0% will widen quickly. For the abovementioned repos that means that the economics of  government debt agency lending out a security against cash and redepositing at the ECB will change dramatically. Ballooning government central bank deposits are a problem as their remuneration is capped at 0% Source: Refinitiv, ING Germany’s government deposits at the Bundesbank amount to currently €176bn, €120bn of which from the central government Eurozone government deposits at their respective central banks amount to around €600bn currently, fluctuating between €600 to 700bn over the past year. Pre-pandemic they were in the region of €200 to 300bn, already up from around €50 to 150bn before negative interest rates (and then QE) were introduced. But it was the pandemic that has led governments to build up vast cash buffers. Remuneration at the negative depo rate did not matter, it was actually better than market rates. Germany’s government deposits at the Bundesbank amount to currently €176bn, €120bn of which from the central government. Those of Austria at the Oesterreichische Nationalbank amount to €17bn. Certainly not all of that cash originates from the debt agencies' repo operations for which the rules are now tweaked. The operations affected are those that the agencies conduct to support market functioning and market liquidity. Collateral scarcity is set to worsen It all boils down to the one burning issue, the scarcity of high quality collateral. The incentives for the German debt agency to reduce its cash holdings at the central bank are clear. The options are to either seek alternative short term investments, or –  in this special case the simpler solution – to tweak the rules to avoid generating the cash in the first place. Crucially, allowing market participants to effectively only swap securities does not add to the overall availability of government bonds as lending against cash does. While it may still ease price distortions for individual securities, the overall high price for already scarce collateral is unaddressed. As an aside, the ECB's own securities lending against cash (capped at 150bn) has gained importance since late last year, tripling in volume to now account for half of the ECB's overall securities lending. Worsening collateral scarcity is already visible in widening 2Y German swap spreads Source: Refinitiv, ING   There should be an incentive to reduce the cash holdings at the central bank Looking beyond the case where just repo rules are tweaked, there should be an incentive to reduce the cash holdings at the central bank, thus limiting those holdings to the need for safety liquidity buffers. Some countries already have institutional arrangements in place to transfer the cash back to the banking system, via daily repos or the collection of non-collateralised deposits. Those arrangements were more likely meant to smoothen the volatility of the accounts to facilitate the ECB’s liquidity management rather than to structurally reduce the vast amounts that have now accumulated. Cash could of course also be invested in high quality liquid assets - think government bills or similar assets. Alternatively, debt agencies could run down cash buffers, simply by issuing less government paper. All of this to the same effect that the market's collateral availability for is further reduced. This is already visible in the stretched bond valuations (2Y German Schatz in the chart above) relative to swaps. Read this article on THINK

We can expect quite a bit of volatility on Thursday, when the ECB will make its rate decision. Surveyed economists are almost evenly split on whether there will be a 50bps or a 75bps hike. The market has priced in around 68bps, implying a favoritism towards the tighter policy. However, it's still possible to get a bounce in the currency, since the move isn't fully priced in. Though part of the expectations could be influenced by an unusually large amount of debt issuance by Eurozone countries this week. Italy, Austria and Germany are all issuing bonds before the ECB meeting, which could put upward pressure on yields, and obscure how the market is really feeling about what will happen with the rate decision. Putting the pieces together There are good fundamental arguments for both positions, as might be expected. On the one hand, EU inflation is likely to keep rising after Russia cut off supply of gas through Nord Stream 1. Tighter policy might be justified in an attempt to prevent higher energy costs from spreading through the economy. On the other hand, that very possibility of higher energy costs could justify keeping rates on hold. Higher energy costs would contribute to a recession, thus lower prices, and less need for the ECB to take as aggressive attitude. However, the reality is inflation isn't on the "supply side" (that is, because of increased funds) as much as it is due to factors outside the ECB's control. The ECB doesn't control the price of energy, nor the flow of gas from Russia, nor the shutdown of factories because of higher energy and transportation costs. The ECB has one tool, and just because it might not be the most appropriate for the situation, it doesn't mean they won't use it, anyway. The market reaction There is wide expectation that the Fed will also hike rates by 75bps. Meaning that if the ECB goes for only 50bps, the gap between the Euro and the dollar will once again widen. That would put downward pressure on the EURUSD. On the other hand, a 75bps hike would simply maintain the gap, which could help the EURUSD, but would have less buoyancy. The other factor to keep in mind is that ECB staff projections are announced at the same time. This could have a bigger impact on the currency, since forward expectations of rate hikes weigh more on institutional investors. Lately, there have been several ECB members emphasizing that they will push for tighter policy. Some have gone so far as to suggest that rates could go above the "neutral rate" in order to tamp down inflation. That would imply at least another 175bps of hikes over the next four meetings. The future is what matters Those aggressive stances might be tempered if the staff forecasts cut the outlook for the shared economy's growth for this year and next. The last projections showed that the bank expected 2.1% growth for this year, and is likely to be revised downward. Inflation was also projected to be at 2% for next year, something that is likely to be revised upwards.

Thursday’s ECB rate decision is apparently on a knife edge. This should also tell you that there is a very broad range of possible hike outcomes by year end, do not dismiss anything. The upshot is higher front-end rates volatility, especially with the explosion in swap spreads and collateral shortage ECB doves out in force, but enough to force a 50bp hike? Despite the ECB’s pre-meeting quiet period being in full force, it seems doves have mounted a last minute, and coordinated, push to a more gradual approach to policy normalisation. Fabio Centeno, Yannis Stournaras, and to a lesser extent Martins Kazaks and Edward Scicluna, seem to push back against the barrage of hawkish comments that have coloured ECB communication in the past few weeks. The disagreement on the face of it does not seem insurmountable, but they highlight that whatever policy decision is taken tomorrow, a 75bp hike is not yet set in stone. A 75bp hike is not yet set in stone The main takeaway from our four doves (for the purpose of these comments at least) was that they did highlight the policy trade-off between fighting inflation and safeguarding growth, something the hawks, and other central banks such as the Fed, have been at pains to dismiss. Ultimately ECB forward guidance, for it hasn’t abandoned the idea of steering market expectations despite what it says, should be taken with a pinch of salt by markets. In addition to a wide range of opinions today, the range of possible economic outcomes into this winter should in turn convince markets that it is very difficult to predict ECB policy even a few meetings into the future. 2Y implied EUR rates volatility has overtaken 10Y Source: Refinitiv, ING Don't get wedded to any specific ECB outcome, and expect more volatility The implications are twofold. First, even out-of-consensus calls like our own for only another 75bp of hikes this year, are far from impossible if the economy takes a turn for the worse between this meeting and the next. On the other hand, more hikes than the roughly 150bp priced for this year, let alone next, are definitely possible, especially if governments expand support measures for energy consumers. The second implication is that rates volatility at the short-end is definitely warranted, more so than for longer maturities which should rely mostly on much slower-moving estimates for long-term equilibrium interest rates. Rates volatility at the short-end is definitely warranted, more so than for longer maturities On the topic of front-end volatility, the explosion in swap spreads is gaining more attention in rates markets. The 0% rate cap on government deposits at the ECB (or at national central banks) means some national treasuries have suspended their repo operations as they will soon get a much worse rate on their deposits than the interest rates they are paying on repos. Similarly, we expect national and sub-national treasuries to prefer parking their excess cash into short-term securities rather than earning nothing by placing it at their domestic central banks. Both effects are worsening the collateral shortage, and widening swap spreads. The collateral shortage is widening the gap between bond yields and swap rates Source: Refinitiv, ING US 10yr continues to journey towards 3.5% The rise in US market rates and the pressure it places on wider core rates continues. The US economy is clearly refusing to lie down, with yesterday's ISM number a reminder of this. The structure of the curve has moved from being a bullish one for bonds to quite a neutral one (positioning of the 5yr to the curve). But it has not quite switched to outright bearish positioning. This continues to imply that a rise in the 10yr back towards the high hit at 3.5% in June remains on the cards, but not necessarily a big rise beyond that (so far). The US economy is clearly refusing to lie down The 2yr is already there (at 3.5%), and the market has 3.75% to 4% as an end game for the Federal Reserve. The risk going forward is that the market decides to edge this even higher. The fact that risk assets are lower will not worry the Fed here. The key thing is whether the system can take it. Based off where banks can print commercial paper as a spread over the risk free rate, the system remains in good shape (as that spread remains exceptionally low). The rising rates environment has more to go, and that also forms the background music as the ECB faces its own key decision on Thursday. Today's events and market view Bank of England governor Bailey and other members will appear in front of the treasury select committee. It is hard to imagine the questions and answers not being heavily interpreted by markets with an eye on next week’s policy meeting. Germany will add to long-end supply this week with a 15Y auction worth €1.5bn. This is the last scheduled euro sovereign bond sale of the week so we expect the long-end to trade better afterwards. Eurozone Q2 unemployment and GDP will feel dated and the economic focus will likely be on US July trade in the afternoon instead. There is a long list of Fed speakers today including Thomas Barkin, Loretta Mester, and Lael Brainard. Read this article on THINK

We expect the European Central Bank (ECB) to hike by 50bp at its September meeting. Markets are pricing in 66bp at the moment, and the consensus is leaning in favour of 75bp, so we see some downside risks for the euro. At the same time, short-term rates have not had much of an impact on EUR/USD lately, and the energy crisis should remain the key driver Four scenarios ahead of the September ECB meeting As discussed in our September ECB preview, policymakers in Frankfurt will likely have to choose between a 50bp or 75bp rate hike this week. We think that a 75bp move would be too hard to digest for the dovish front within the Governing Council, and our call is for a 50bp move. That said, we cannot fully exclude a 75bp hike aimed at frontloading tightening before a recession hits this winter. In our “Crib Sheet”, we analyse four potential scenarios on a scale from dovish to ultra-hawkish and what this can mean for EUR/USD and EUR rates, taking into account the size of the rate hike as well as the ECB’s stance on inflation, growth and quantitative easing/tightening (QE/QT). EUR and ECB crib sheet Source: ING Downside risks for EUR... The market’s pricing for the meeting is currently around 66bp, which by itself suggests some negative reaction by the EUR if our 50bp call proves correct. Much of the market reaction will also be driven by any hints about future policy. Since a reiteration of the meeting-by-meeting, data-dependent approach seems quite likely, markets will have to derive their rate path expectations from the updated staff projections on growth and inflation. In particular, the size and length of a winter recession will be key, and should it become the ECB’s baseline scenario, then some dovish re-pricing across the curve might occur and weigh on the euro. Comments about the euro weakness are likely to be a theme too and could have some impact on the EUR. However, verbal protest about a weak currency is now the norm among many central banks and has notably yielded very few results. Unless any reference to FX interventions is made, markets may not read too much into currency-related comments. ... but the ECB is a secondary driver now Regardless of the direction of the EUR reaction on Thursday, there’s a non-negligible chance that the FX impact will prove rather short-lived. This is because EUR/USD has been blatantly unreactive to ECB rate expectations lately, as the energy crisis has continued to drive the majority of the pair’s moves. In the chart below, we show how the two-year EUR-USD swap rate differential – a gauge of ECB-Fed monetary policy divergence expectations – has moved significantly in favour of the EUR recently, but EUR/USD has failed to follow it higher. EUR/USD hasn't followed the short-term rate differential higher Source: Refinitiv, ING   In our EUR/USD short-term fair value model, the short-term rate differential now has a smaller beta than relative equity performance, which is a gauge of diverging growth expectations and is more directly impacted by the energy crisis. This also means that the short-term undervaluation in EUR/USD has shrunk to around 3-4% from the 5-6% peak seen two weeks ago.   We expect the energy story to return firmly to the driving seat for EUR/USD after the post-ECB reaction. Barring a very hawkish surprise, this should keep EUR/USD below parity and prevent it to reconnect with the more supportive rate differential. The 0.98-0.99 area could prove to be a near-term anchor for EUR/USD, but a further worsening of the energy crisis and/or further dollar strengthening can trigger a drop to the 0.96-0.97 area. Read this article on THINK TagsEURUSD Energy crisis ECB 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

Former US Treasury Secretary Lawrence Summers said dollar has more room to grow given a number of fundamentals behind it. He expressed skepticism over the effectiveness of any intervention to turn the tide for yen. In a statement, Summers stressed that the US has a huge advantage in not being dependent on "outrageously expensive foreign energy." He noted that Washington has taken a stronger macroeconomic response to the pandemic, and that the Federal Reserve is now tightening monetary policy faster than its counterparts. So far, the Bloomberg Dollar Spot Index is up about 11% year-to-date, hitting a record high this week. Dollar reached its highest level against euro since 2002 on Tuesday - 0.9864, while it reached the highest level since 1998 against yen on Wednesday - 144.99. Yen has depreciated faster than euro, causing a more-than-19% fall against dollar this year. This prompted increased warnings from Japanese officials, with Bank of Japan Governor Haruhiko Kuroda meeting with Prime Minister Fumio Kishida to discuss latest concerns on Friday. Japanese officials are not ruling out options as market participants discuss the chances of intervention to buy yen and sell dollars. Japan hasn't done this since 1998, when it teamed up with the US - while Summers was deputy treasury secretary - to help stem the yen's fall. For its part, the US Treasury Department insisted on its unwillingness to support any potential intervention in the forex market to stop the depreciation of yen. Summers stressed that the more fundamental issue for yen is the interest rate adjustments in Japan, both short-term and long-term. The Bank of Japan maintained a negative short-term interest rate, as well as a 0.25% yield cap on 10-year bonds.  Go to dashboard       Relevance up to 14:00 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/321348

Summary:  Today we discuss market risk sentiment brightening in Europe in the wake of Ukrainian momentum on the battlefield since late last week, with EURUSD breaking well above important local resistance. The JPY is nearly as weak as the US dollar as yields have poked higher again. We also discuss developments in crude oil, wheat and rice after an Indian export ban, stocks to watch this week, including Oracle on the earnings report today and key semiconductor stocks as the US is likely to widen its curb on exports to China. Today's pod features Peter Garnry on equities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.     Source:https://www.home.saxo/content/articles/podcast/podcast-sep-12-2022-12092022

Euro is likely to rise as risk appetite will surge if inflationary pressure in the US eases. The lower figure will also affect the Federal Reserve, weakening its grip on rate increases. Recently, US Treasury Secretary Janet Yellen expressed optimism for a slowdown in inflation, but warned that uncertainty remains. The core CPI for August is expected to show growth, while the overall index is likely to slow to 8.1%. Inflation has been a major concern for the Biden administration as high gas and food prices earlier in the year have seriously undermined the president's popularity and the Democrats' prospects for maintaining control of Congress. Also, in response to high price increases, the Federal Reserve has been raising interest rates rapidly. They hope that such a move will curb further price hike as quickly as possible, so there were several increases of 75 basis points at once at the past meetings, and the same is expected in September. But even if inflation slows in August, the Fed is unlikely to step back from its mandate as the central bank intends to do whatever it takes to bring inflation under control. Talking about EUR/USD, there are chances for a further recovery, but only in the event that inflation eases in the US. If the opposite happens, euro will decline, and buyers will have to cling to 1.0100 in order to bring back the possibility of a rally. The nearest target will be resistance level of 1.0150, the breakdown of which will open a direct path to 1.0190 and 1.0240. The farthest target will be the level of 1.0270. In case of a further decrease and breakdown of 1.0100, sellers will become more active in the market, which could push the quote to 1.0030 and 1.0000 In terms of GBP/USD, a lot depends on the 17th figure as its breakdown creates a pretty good chance for a larger upward correction. That will open a direct route to the highs at 1.1750 and 1.1790. The farthest target will be 1.1840. But if pressure on the pair returns, buyers will have to do everything to stay above 1.1660, otherwise, there will be another major sell-off towards the level of 1.16130. Its breakdown will open a direct path to 1.1580 and 1.1550.   Relevance up to 08:00 2022-09-14 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/321521

Falling energy prices are a key downside risk to European rates. Hawkish central banks and fiscal policy mean a further jump in yields is possible, but this may bring forward the bond rally we expected for late 2022/early 2023 Eye-popping volatility in energy markets is making short-dated rates and bonds even more difficult to trade The plunge in traded energy prices continues The European Union’s proposed energy market reforms and consumption curbs managed to draw a line under the continued climb in both traded gas and electricity prices. The impact has been nothing short of spectacular, especially as it occurred in the midst of a gas supply worst-case scenario, a total cut-off of the Nord Stream flow. We’ve highlighted recently that a continued fall in energy prices constitutes a key downside risk to European rates, in EUR and GBP. That downside is growing. From the point of view of rates markets, the (tentative) reaction has been as close as one would expect from energy policy goldilocks: not too effective economically that it provides cover for central banks to hike further, but effective enough that it does allow energy prices to drop. Of course, between the two effects, the drop in energy prices may well be the one that impacts rates the most, but this is far from a foregone conclusion. Central banks are now overtly worried about second-round effects, a de-anchoring of inflation expectations, and a broadening of inflation – all of which could justify a continued hawkish tone. Short EUR rates haven't yet reacted to lower gas prices Source: Refinitiv, ING Bonds remain shaky but the next rally may occur earlier than 2023 The main takeaway from last week’s European Central Bank meeting for EUR rates markets is an updated, more hawkish, ECB reaction function. The ECB seemed to have taken, indeed ripped, more than a few pages out of the Fed’s book. The upshot is that markets should, and have to a large extent already, concluded that euro for euro, the central bank will deliver more monetary tightening if energy prices rise further. We’ll leave it to our economics colleagues to discuss whether this is the right approach going into a recession but we share their scepticism.  The upshot is that a jump in energy prices has so far impacted rates to the upside, but not to the downside. Nothing is set in stone and the further they drop, the more likely they are to take rates with them. For now, we stick to our view, also motivated by the strength of the US economy, that upside risk dominates for bonds. This is particularly true in an environment of fragile investor sentiment and rising supply, as is customary in September and October. If confirmed, however, the milder inflation picture would precipitate the rally in government bonds we expect for late 2022/early 2023, through 1% in the case of 10Y Bunds. Falling inflation expectations are another challenge to the Fed's hawkish stance Source: New York Fed, ING Today's events and market view Today’s eurozone CPI are final readings of the August prints, and so are less liable to surprise, but the forward-looking Zew components should be a good indicator of market sentiment. It’ll be interesting if the drop in traded energy prices and various measures taken to shield customers register in the market mood. Judging from the improvement in risk assets this month, we would say they have. The main fireworks will come from the US, however, with the August CPI report. Consensus, and our own view, is for a drop in headline inflation, but a rebound in core. How markets react to these mixed messages is an important question for rates over the coming weeks and months. The Fed has pushed aggressively against any dovish interpretation of one CPI report in July so a drop in rates and re-steepening of the curve would be notable. The drop in consumer inflation expectations published by the New York Fed yesterday was another challenge to its hawkish stance. The National Federation of Independent Business small business optimism completes the list of releases. Primary market activity will take the form of 3Y/7Y/24Y auctions in Italy, a 2Y debt sale in Germany, and of dual-tranche 5Y/30Y European Union syndication which could raise upwards of €10bn. In the US session, a 30Y T-bond auction is a highlight. Note that 3Y and 10Y auctions already took place yesterday, meaning a lot of supply pressure has already been felt in USD markets, however demand was soft.  Read this article on THINK TagsRates Daily 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 European Central Bank (ECB) could once again engage in banks' profit micro-management by remunerating some bank liquidity at 0% instead of the deposit rate. We review potential deposit and reserve tiering designs and how they may impact money markets Abundant excess liquidity will become very expensive for the ECB As things stand, the ECB is set to pay an increasing amount of interest to banks on the nearly €4.6tr of excess liquidity (EL) outstanding in the banking system. At current deposit rates, this means €34.5bn per year, and if rates reach the 2.5% peak implied by the swap curve in 2023, this would amount to €115bn. Whilst this is sure to be portrayed, unfairly, in some corners as a subsidy to banks, this is not necessarily a problem insofar as banks' financing costs are also increasing. The problem is that a large part of this excess liquidity was provided by the ECB in past targeted longer-term refinancing operations (TLTRO) loans to banks, with a lower average interest rate. As a result, the ECB is now expected to introduce a tiered remuneration for EL. There is a precedent. In 2019, it shielded part of banks' excess reserves held at the ECB (which are part of EL alongside deposits placed at the ECB) from negative interest rates. Back then, the goal was to prevent a collapse in banks' profitability; this time around, the aim is the opposite, but the practice of micro-managing banks' profitability is the same. The distribution of excess liquidity and TLTRO balances is different across countries Source: ECB, ING Potential designs The form tiering of EL takes depends on the ECB's goals. If the aim is simply to offset the benefit offered through TLTROs and to incentivise banks to repay the existing balance, then remunerating a proportion of EL proportional to TLTRO balances at 0% is the way to go. If, on the other hand, the ECB is digging in for a long period of high-interest rates, and high excess liquidity (the remaining portion is explained by the size of its bond portfolio, which will take a lot longer to unwind than TLTRO balances) then it may opt to remunerate at 0% either: a) A multiple of banks' required reserves. This is what it did in 2019, with the multiple set at 6x or b) A proportion of banks’ EL. For instance, calculated as an average balance over a certain period. In the example below, we calibrate the threshold calculated for each method so to the total amount of EL earning 0% at the eurozone level is the same as for a 6x multiple of required reserves, currently around €960bn. In effect, option one is more targeted and limited in time to the maturity of existing TLTRO facilities with the latest due to be repaid in 2024. We surmise this would be an effective way to force TLTRO repayments, but there is a simpler way to achieve this: change TLTRO terms. This is also the option that would cause the most disruptions. For instance, Italian banks would see a greater proportion of their EL earning 0%. Within the two sub-options a) would make the size of EL earning 0% proportional to a bank’s balance sheet, which is not ideal in cases where reserve requirements are not proportional to the EL deposited at the ECB. Similarly to option one above, Italian banks would see a greater portion of their EL earning 0%. Sub-option b) on the other hand would make sure that all banks see the same proportion of their EL remunerated at 0% and at the deposit rate. The ECB will want to make sure the deposit rate remains the marginal policy interest rate The impact on EUR rates and money markets will depend on how the tiering system is structured. We’re assuming that in all cases the amount remunerated at 0% will be fixed (according to one of the methods described above) and that any EL above that threshold will earn the deposit rate. In practice, however, tiering will lower the average rate earned by banks on their EL. It is also possible that for some banks, 0% becomes the marginal interest rate if their EL is below the threshold. An alternative design would be to remunerate at the deposit rates EL until a certain threshold. If that threshold is high enough, it would act as an incentive to repay TLTRO without causing a fall in money market rates. Some tiering options could have disrupting effects on Italian money markets Source: Refinitiv, ING The higher the threshold, the greater the disruptions The most important factor is thus how many banks will find themselves with EL at the ECB below or close to the threshold. In a ‘prudent’ scenario, tiering is designed so that the vast majority of banks find themselves with EL balances well above the threshold. This, however, would only partially reduce the ECB’s interest rate bill. In a more aggressive case, a high threshold means many banks would find that they are earning 0% on all of their EL balance, thus creating an incentive to reduce them by any economical means possible. Irrespective of how it is calculated, the ECB can set the tiering threshold at three levels. 1 High threshold (above €2.5tr of EL earning 0%) At the eurozone level, if the threshold is set so high that more banks have EL below the threshold than above, we would expect a collapse in money market rates as banks rush to lend their cash and disincentivise depositors from parking cash at their branches. This makes this option unlikely as it would amount to a net easing of financial conditions, which is contrary to the ECB’s goal. Even if EL currently stands at €4.6tr, TLTRO repayments could make that figure shrink over the next two years to closer to €2.5bn. 2 Balanced threshold (€1.5-2tr) In a more likely scenario where, at the eurozone level, a majority of banks have EL above the tiering threshold, then the main focus should be on country differences. It may well be that some countries find themselves net lenders of reserves (if they are below the threshold and so earn 0% on all their balances) and others net borrowers (if they are above and so earn the deposit rate on any additional reserves). This would mean a fall in effective interest rates in some countries, for example, Italy and Spain, and a rise in others, for instance, Belgium and Luxembourg. This should be reflected primarily in the fall in repo rates in net lender countries if their domestic banks own a large amount of government debt, but also in a relative fall in deposit rates. If, as we expect, the net lender banks are in Italy and Spain, this could go some way towards helping sovereign spreads tighten but could also disrupt the functioning of the repo market. On the whole, we are unsure if this benefit would offset the operational problems caused to banks. The impact on net borrower countries should be less marked as we assume the marginal deposit rate for domestic banks wouldn’t be altogether different from the prevailing deposit and repo rates. Interestingly, the effect could be to ease financial conditions, on a relative basis, in peripheral countries. 3 Low threshold (below €1.5tr) In the case where the vast majority of banks have EL well above the threshold, including within each country, then we expect the risk of a rush to lend out liquidity less likely. This scenario is the most probable in our view as it would result in less money market disruption but would also mean a lower reduction in the ECB’s interest rate payments to banks.   Depending on how it is calculated, especially if as a multiple of required reserves, then a fall in EL would also bring more banks closer to the threshold. This would imply reducing the multiple over time. Greater impact on ESTR only after larger declines of excess liquidity Source: ECB, ING Money market rates and excess liquidity The overnight rate (ESTR) which is the ECB’s starting point to assess whether its key rates are properly transmitted was pushed below the deposit facility rate when large excess reserves became a feature of the ECB’s policy implementation. Historical relationships between the level of overnight rates and the level of excess reserves suggest that the average rate will only very slowly rise from its depo floor as excess liquidity melts away (by about 1.5bp per €1tr reduction) and take off at an accelerated speed when levels drop below €500bn. At €4.6tr, that seems far away, but also keep in mind the Fed’s experience that the market's plumbing has changed in such a way that these levels have likely shifted higher. The most recent push lower in overnight rates and more significantly also longer unsecured rates such as the 3m Euribor fixing came with the large liquidity injections of the TLTROs amid the pandemic. To the degree that they have changed the short-term funding mix of banks affecting the fixing, repayment of these operations could see this effect unwind again. It is one reason why the impact on overnight rates could already occur at still overall higher levels of excess liquidity than past experience would suggest.         Read this article on THINK TagsRepo rate Interest rates ECB 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 Swiss National Bank holds its quarterly monetary policy meeting on Thursday and is expected to hike its policy rate by around 75bp to 0.50%. The SNB has also been using FX policy to fight inflation. We think the SNB will continue to guide EUR/CHF lower at a rate of around 5-7% a year, in order to keep its real exchange rate stable A stable real exchange rate requires a lower EUR/CHF Since June, the SNB has been very clear: after years of fighting deflation, inflation is currently considered too high and the SNB wants to react by raising its interest rate. Inflation reached 3.5% in August, well below the inflation rate of neighbouring countries but above the SNB's target of between 0% and 2%. Since the SNB is no longer fighting an overvalued exchange rate, but rather believes that a strong Swiss franc is favourable, it can now raise interest rates quickly, without necessarily following the ECB's moves. This is why it moved ahead of the ECB by raising rates by 50 basis points in June. There is little doubt that the SNB will raise rates by at least 75 basis points at Thursday's meeting. A 100 basis point hike like the Riksbank did is not out of the question, especially since the SNB only meets once every quarter, unlike other central banks. However, with inflation "only" at 3.5% in Switzerland and the strength of the Swiss franc allowing imported inflation to fall, 100 points might be a bit too much of a move, so a 75 basis point hike remains more likely. Turning to FX matters, EUR/CHF has come steadily lower since June. Driving this trend have been some key statements from the SNB that (i) it wants to keep the real exchange rate stable and (ii) it will intervene on both sides of the FX market. In practice, we think that means the SNB wants to manage EUR/CHF lower. At the heart of the story is a more hawkish SNB and its view that as a small, open economy a weaker real exchange rate is inappropriate right now in that it would be providing additional stimulus at a time when CPI is overshooting its close to, but not over 2% target. What does a stable real exchange rate mean in practice? In the case of Switzerland, where inflation amongst its trading partners is running nearly 5% higher than in Switzerland, it means that a nominal 5% appreciation of the trade-weighted exchange rate is required to keep the real exchange rate stable. Rather conveniently, as we show in our chart below, the recent bout of Swiss franc strength leaves the trade-weighted Swiss franc around 5% stronger on a year-on-year basis. Not being a member of the G20 grouping allows Switzerland a little more latitude with its FX practices. And the above analysis suggests the SNB may be running a managed float here. With huge FX reserves of close to CHF900bn, the SNB remains a major force to be reckoned with and has the firepower to back up this managed float. Hence the remarks from the SNB in June that it planned to intervene on both sides of the market. Like the Czech National Bank (CNB), the SNB has previously experimented with FX floors, but the managed float underway today is more akin to activity undertaken by the Monetary Authority of Singapore (MAS) which more formally uses a managed float in its monetary toolkit. CHF: Real exchange rate stable YoY, nominal exchange rate +5% YoY Source: SNB, ING forecasts What does this mean for EUR/CHF? Away from the arcane concept of a real or nominal trade-weighted Swiss franc, what does this all mean to the more familiar EUR/CHF? First, it is important that the two biggest weights in the trade-weighted Swiss franc are: (i) the euro at 51% and (ii) the dollar at 23%. If the SNB wants a stronger trade-weighted Swiss franc then clearly EUR/CHF and USD/CHF are going to have to play their parts. Secondly, we have said that the SNB wants to keep the real CHF stable. In the chart above, we present our inflation forecasts, which show the inflation differential staying at around 5% into 2Q23 and only dropping back to zero by end 23. The argument then is that the SNB continues to manage the Swiss trade-weighted index firmer at this 5% year-on-year rate into next Spring before slowing the pace of appreciation. Thirdly, there are many moving parts in the trade-weighted exchange rate, but crucially our stronger dollar view means that USD/CHF may not come lower as the SNB wishes. This places a greater burden on the adjustment in EUR/CHF. Assuming USD/CHF stays flat, EUR/CHF would need to fall at around a 7% per annum rate to get the trade-weighted CHF stronger by 5%. Bringing it all together – and assuming that the SNB has the wherewithal to control EUR/CHF – we can argue that to achieve its objective of keep the real exchange rate stable according to our inflation forecasts, the SNB could be managing EUR/CHF on something like the following path… 4Q22 0.93, 1Q23 0.92, 2Q23 0.91 and flat-lining near 0.90 in 2H23. 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

Italy goes to the polls on Sunday, with results expected through the course of the morning of Monday. Polls are showing a pretty strong lead for Brothers of Italy leader Meloni, so it's unlikely there will be a surprise with the electoral outcome. But, as far as the markets are concerned, a shift in the way Italy's finances are managed and how it relates to the Euro could have an impact on the shared currency. Who is likely to be PM is known, but who will be finance minister is another open question. While the three right-wing parties held a joint rally to close their election campaigns, the leaders put on a show of unity ahead of the polls. But there are still rifts between them, and some rather large egos that have already brought a previous government to a premature end. Negotiations for who will hold which ministers could end up showing the first cracks in the coalition. Possible implications Italy is the third largest economy in the Eurozone, but it's the largest in the so-called "periphery". Italy has had a contentious relationship with Brussels for years now, particularly over the issue of government finance and debt levels. The financial situation has only gotten worse since covid, and accelerated with the gas crisis. For now, the issue of how much money the Italian government is spending has been mostly ignored, but not forgotten. Particularly, apparently, among Italians who seem to be warming to the Euro-skeptic rhetoric of the lead candidate, Meloni. Italy has a debt-to-GDP ratio of 150%, nearly triple the Maastricht criteria. Italy's government deficit last year was 7.2%, well over double the 3% limit of the criteria. Italy's ability to service that debt is increasingly questionable as interest rates rise, particularly in the periphery. Meloni's confrontational attitude towards the EU is likely to further inflame tensions around the issue as well. Will the past repeat? The Euro entered a period of crisis in 2011 driven by a collapse in Greek debt payments. There was substantial worry that it would spread through other periphery countries, such as Spain and Italy. However, a rescue plan was cobbled together, some banks suffered, and the situation was barely averted. The Euro crisis included recessions and talk of a potential breakup of the shared currency. Read next: Cryptocurrency: Bitcoin Up, Ethereum Price Found Support, Ripple Price (XRP) Jumped! | FXMAG.COM Italy's economic situation is worse now than it was then. But not as bad as Greece was at the time. Greek debt lost investor confidence when it was revealed that authorities had misstated economic figures. And the debt-to-GDP ratio was 175%. Greece was not kicked out of the shared currency despite failing almost all the Maastricht criteria, which ultimately allowed more confidence in periphery countries' loose financials. On the other hand, it apparently also meant that the financial leaders of those countries felt they could get away with less fiscal discipline. To the point that even some Italian banks have not been provisioning as much as their American, UK and even German peers under the expectation that if the economic situation gets really bad, they will get a bailout. Just like in 2011. While Meloni might be able to convince voters to support her, getting investors to have confidence in Italy might be a whole different question. And by extension, investors might be worried that at least some of the problems from 2011 might appear again.

The third decline in a row for the eurozone PMI indicates that business activity has been contracting throughout the quarter. This confirms our view that a recession could have already started. At the same time, the August increase in energy prices is translating into stronger price pressures Shoppers in Lubeck, Germany German Composite PMI Reached 45.9 The third quarter clearly marks a turning point in the eurozone economy. After a strong rebound from contractions caused by the pandemic, the economy is now becoming more severely affected by high inflation both at the consumer and producer level. Led by Germany, which saw its composite PMI drop to 45.9 in September, the eurozone saw its composite PMI fall to 48.2. Both services and manufacturing output are well below 50 at 48.9 and 46.2, respectively, signalling broad-based contracting business activity. Read next:  The manufacturing sector is bearing the brunt of the problems. Supply chain problems still disturb production, but weaker global demand has caused backlogs of work to fall as new orders are decreasing quickly. Incidental production stoppages due to high energy costs are also adding to declining production in the sector. But with the tourism season behind us, there are few opportunities left for any marked catch-up effects in the eurozone economy. That has pushed the services PMI deeper into negative territory as consumers are starting to become more cautious in spending as energy bills rise across the monetary union. Overall, the view of a eurozone economy moving into recession seems confirmed by the gloomy September PMI survey. European Central Bank May Hike The Rate By 75bp The surge in gas and electricity prices in August is now leading to further price pressures emerging for businesses in September, even though other costs have been moderating due to weakening global demand. This confirms the stagflationary environment that the eurozone is currently in. The ECB has made clear that it will continue to hike in a determined manner for the short-run, as it tries to battle stubbornly high inflation. A 75 basis point hike in October is therefore definitely on the table, despite a weakening economy. Read this article on THINK TagsInflation GDP Eurozone ECB 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 FX markets kick off the week on an extremely chaotic note. Both the pound and the euro are being severely punished for the political decisions that are taken in the UK and in Italy respectively. Elections in Italy As expected, the far-right candidate Giorgia Meloni won a clear majority in Italy at yesterday’s election, with Brothers of Italy gaining more than 25% of the votes. And Meloni’s right-wing alliance with Salvini’s League and Berlusconi’s Forza Italia got around 43% of the votes: the terrible consequence of the pandemic, the war and the energy crisis. Situation the major currency  The EURUSD has been shattered this morning. The pair dived to 0.9550. But it’s almost worst across the Channel, if that’s any consolation. Investors really hated the ‘mini budget’ announced in UK last Friday. Investors were expecting to hear about a huge spending package from Liz Truss government, but the package has been even HUGER than the market expectations. UK’s 10-year yield jumped more than 20% since last week, the FTSE dived near 2% and Cable tanked below 1.0350 in Asia this morning. Elsewhere, the US dollar index took a lift, and the dollar index is just crossing above the 114 mark at the time of talking. Stock market Outlook Gold dived to $1626 on the back of soaring US dollar. US crude oil plunged below $80 per barrel. The S&P500 fell to the lowest levels since this summer, whereas the Dow Jones fell below the summer dip. Happily, the European equities are better bid this morning, but investors remain tense and worried. Watch the full episode to find out more! 0:00 Intro 0:24 Italy turns right, euro gets smashed 4:15 UK assets treated like EM after the ‘MINI’ budget 7:45 USD rallies, XAU, oil under pressure 8:49 US stocks dive to, or below summer lows on Fed fear Ipek Ozkardeskaya Ipek Ozkardeskaya has begun her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked at HSBC Private Bank in Geneva in relation to high and ultra-high net worth clients. In 2012, she started as FX Strategist at Swissquote Bank. She worked as a Senior Market Analyst in London Capital Group in London and in Shanghai. She returned to Swissquote Bank as Senior Analyst in 2020. #Italy #election #Meloni #UK #mini #budget #EUR #GBP #selloff #USD #rally #crude #oil #XAU #BP #APA #XOM #recession #energy #crisis #SPX #Dow #Nasdaq #investing #trading #equities #stocks #cryptocurrencies #FX #bonds #markets #news #Swissquote #MarketTalk #marketanalysis #marketcommentary ___ Learn the fundamentals of trading at your own pace with Swissquote's Education Center. Discover our online courses, webinars and eBooks: https://swq.ch/wr ___ Discover our brand and philosophy: https://swq.ch/wq Learn more about our employees: https://swq.ch/d5 ___ Let's stay connected: LinkedIn: https://swq.ch/cH

As largely expected, a centre-right coalition led by Giorgia Meloni has secured a clear victory in Italy's election. Meloni will now form a government which will count on a stable majority. For now, concerns about budget decisions and relationships with the EU are quite muted, and both Italian bonds and the euro have bigger short-term issues to deal with Giorgia Meloni secured a clear victory in Italy's election Centre-right got an ample majority in both branches of parliament For once, actual Italian election data broadly confirms what opinion polls had anticipated. According to preliminary data available as we write, the centre-right coalition has got an ample majority (44%), with the centre-left following some way behind (26%). The Five-Star Movement, which runs in isolation, has come third (15%), followed by the centrists of Azione/IV (7.7%). As expected, with the current electoral system attributing a third of seats under a first-past-the-post rule, the ability (or a lack thereof) to form a wide coalition was a decisive factor. The centre-right exploited it very well, mopping up an overwhelming majority of first-past-the-post seats. Based on preliminary data, the centre-right coalition should get a decent majority in both branches of the Parliament.  Meloni to get a mandate to form a government The undisputed big winner in this election was Giorgia Meloni, the leader of Fratelli d’Italia. With 26% of the votes, she prevailed in her coalition by a huge margin over Lega (9%) and Forza Italia (8%). There will be no leadership issue, and she will very likely get the mandate from President Sergio Mattarella to form a new government. This will not happen before mid-October, though, after the first gathering of the houses and the election of their speakers. A new Meloni government could thus be installed by the end of October. Italian election results Source: Italian Ministry of the Interior, ING A tight agenda awaits Meloni, with the budget at the top of the list The scope of Meloni’s lead within her coalition will likely give her the upper hand in many decisions, but we suspect she will be very careful not to humiliate her allies for the sake of stability. Still, on some crucial matters, such as the fiscal stance, she will likely be in a position to effectively oppose calls for more deficit from Matteo Salvini, the leader of Lega, who was a big loser in the polls. As the new budget will have to be approved before year-end, we expect the outgoing Mario Draghi government to set up the macro framework and, possibly, the Planning Document setting the budgetary framework. This should prevent any meaningful deviation from the set track in the short run. More critically, Meloni will over time have to clarify her stance on the international positioning of Italy. If adhesion to the Atlantic Pact seems not at stake, the relationship with Brussels and big eurozone countries will have to be clarified. If participation in the euro project is neatly reaffirmed in the programme, the notion of doing so while defending national interests has yet to be qualified. Not a very short-term issue, but a potential area of conflict for 2023, when the new European fiscal rules will be discussed.   Rates: too early to make long-term calls on policy Italian bonds largely shrugged off the goldilocks result of this weekend’s election: enough votes for the right-wing coalition to ensure stability but not too much so it can change the constitution with a two-thirds majority. Italian spreads tightened into the election in a sign that they have made peace with the prospect of an FdL-led government, for now at least. Focus is now on the early decisions that Meloni’s government will take, including the FinMin appointment, and on the 2023 budget. Longer term, this government’s policies, especially towards Brussels and fiscal discipline, are an unknown quantity. But markets aren’t well equipped to make long-term calls on policy, especially with contradictory near-term signals. Instead, the main driver of Italian bonds over the coming weeks and months is likely to be the broader tone in financial markets. In a context where central banks tighten monetary policy in unison, or even competing with each other in some instances, carry-oriented investors are understandably shy in picking up the additional yields offered by Italy’s bonds. The ECB’s newfound hawkishness is a particular worry, and so is the prospect of it reducing the size of its bonds portfolio through quantitative tightening. FX: Italy is not a short-term concern for the euro The Italian election results seem to have gone mostly unnoticed in the currency market. This is partly due to the predictability of the outcome, but may also denote how markets are giving Meloni the benefit of the doubt after a campaign where she firmly reiterated her intention to respect fiscal rules and maintain Italy’s foreign stance unchanged. Quite crucially, like for government bonds (BTPs), the euro has bigger concerns to deal with – Russia-Ukraine developments and the energy crisis above all – and is now also feeling some spill-over effect from the meltdown in the GBP market over the past two sessions. With the ECB’s hawkishness having blatantly failed to offer the euro any solid support and the dollar staying strong, EUR/USD downside risks remain quite elevated in the near term, even without Italian politics adding any pressure. We think that some Italy-EU confrontation on Meloni’s party's core themes (like immigration) may trigger some adverse market reaction further down the road, and that fiscal decisions may be scrutinised more if she presses forward with tax cut proposals, but it is simply too early for any risk premium to emerge on EUR/USD or even EUR/CHF.   Read this article on THINK TagsItaly elections Italy 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:  Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to Tuesday, September 20, a week leading up to the FOMC meeting, Bank of Japan intervention, a Sterling crisis and the dollar surging to levels not seen in decades. Ahead of these events speculators chose to cut their dollar long by one-third, increasing their gold short to a four year high while adding exposure in grains and crude oil Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial. Link to latest report This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to Tuesday, September 20. A week that saw financial market adjust positions ahead of the FOMC meeting on September 21. In anticipation of another 75 basis point rate hike, the market sold stocks, bonds and commodities while the dollar was bought. As it turned out, the FOMC was the starting shot to a very volatile end of week that saw heightened recession worries, Bank of Japan intervention to support the yen for the first time in 24 years, and an unfolding crisis in the UK sending the Sterling towards an all-time low.   Commodities The Bloomberg Commodity Index dropped 2.3% during the week to last Tuesday with losses seen across most sectors, the exception being grains and livestock. Selling was particularly felt across the energy sector and in precious metals. Money managers responded to these heightened growth and strong dollar concerns by cutting length in energy and softs while adding to already short positions in precious metals. The only sector continuing to see demand were grains where the speculators have now been net buyers in all but one of the last eight reporting weeks. Energy Money managers raised their combined crude oil net long to a seven-week high despite the recessionary clouds growing ever darker and the dollar continued to strengthen. During the reporting week when oil dropped around 3% the total net long in WTI and Brent was raised by 13.5k contracts to 355k lots. The ICE gas long meanwhile slumped by 30% to a 22-month low while in New York the ULSD (diesel) length was cut by 17% to 15.7k contracts. Despite falling by around 7% only small changes were seen in natural gas. Metals Gold selling accelerated last week with the net short jumping by 225% to 33k contracts to near a four-year low. This the culmination of six consecutive weeks of selling driven by a stronger dollar and rising Treasury yields as well a firm belief the FOMC will successfully manage to bring inflation under control next year. Silver saw no major net change with reductions in both long and short positions offsetting each other. The copper net short was unchanged at 4k contacts, the weakest belief in lower prices since June while platinum’s 3.5% rally supported an 82% reduction in the net short to just 2k contracts, again weakest short bet since June. Agriculture The grains sector saw continued demand with speculators having been net buyers in all but one of the past eight weeks. The increase last week was led by a 16% increase in the soymeal long to 102k contracts, a seasonal high while corn buying extended to an eight week. The wheat market which found support from renewed threats to the Ukraine grain corridor saw net buying of both Chicago and Kansas wheat. Overall however the net exposure remains close to zero with a 16k contracts CBT net short partly offsetting a 19k contracts long in KCB wheat. Renewed selling of sugar cut the net long by 72% to 8.6k contracts, the cocoa net short extended to a fresh 3-1/2 year high while long liquidation continued in both coffee and cotton.   Forex Ahead of the post-FOMC dollar surge to a fresh multi-year high against several major currencies, and the first intervention from the Bank of Japan to support the yen in 24 years, speculators had reduced bullish dollar bets by 35% to $13.9 billion, a six month low. The bulk of the change was driven by the biggest amount of short covering in the euro since March 2020, a change that flipped the position back to a long of 33k lots or €4.2 billion equivalent, up from a €6 billion short three weeks ago.The net short in sterling was reduced by 13k lots to 55k lots just days before tumbling to a 37-year low following the announcement of a historic debt financed tax cuts. The yen meanwhile saw no major changes ahead of Thursday’s USDJPY surge and subsequent    What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming   Source: https://www.home.saxo/content/articles/commodities/cot-specs-sold-dollar-and-gold-ahead-of-fomc-26092022

Business sentiment in Germany continued its substantial deterioration in September. The Ifo says the business climate index fell from 88.6 to 84.3 this month. The index has only been lower for two months in its history - in April and May 2020. The actual figures were weaker than expected, at 86.9 and marked a deterioration in the current assessment and economic expectations. As usual, forward-looking markets pay more attention to the development of the expectations component, which recorded its second-lowest fall in history in September from 80.5 to 75.2. However, optimists may note that the current conditions did not deteriorate too sharply. The Index of Current Conditions in September fell from 97.5 to 94.5 against a historical average since 2005 of 96.7. From the latter, it can be concluded that the brunt of the crisis in Germany is still only in the "heads" of the businessmen but could quickly become a self-fulfilling prophecy if expectations do not turn sharply upwards in the coming months.

Summary:  Havoc has spread to the markets, not just with the Fed staying the hawkish course, but with the collapse in confidence in the UK economy after a fiscal policy and lack of monetary policy response adding into the mix with a massive bond selloff. Meanwhile, the surge in the US dollar continued taking its toll on several currencies, and the effect of Japan’s intervention from last week has also faded. Earnings pressure may be the next shoe to drop, and recession concerns also still need to be priced in more broadly. Fed’s high-for-longer message is now being taken seriously The September FOMC meeting was not precisely a pivot point for the Fed, but more so for the markets which finally understood the Fed’s message on inflation. The dot plot, particularly, conveyed two key messages as listed below. Even though the accuracy of the dot plot remains in doubt, given a very weak correlation with what actually transpired previously, it is a great signalling tool to understand the intentions of the FOMC members. Terminal rate is seen at ~4.6%, which was above what Fed funds futures were pricing in before the meeting. Even slower growth and higher unemployment levels, as conveyed by the Fed’s projections, would not deter the central bank from hiking rates There was some pushback on premature easing, with the dot plot showing a 4.5-5.0% rate even at the end of December 2023. Alongside that commitment to tighten, the Fed is now at the full pace of its quantitative tightening program, which is sucking liquidity out of financial markets at a rapid pace. The aim is to shrink the Fed’s balance sheet by $95bn a month — double the August pace. While quantitative tightening strongly influences liquidity conditions and asset markets, it is less useful in directly impacting inflation. While systemic risks from QT may remain contained, it ramps up the rise in Treasury yields as the Fed’s balance sheet shrinks and the amount of Treasuries in private hands increases. Trussonomics pushing UK to an emerging market status Sterling has fallen close to 10% on a trade-weighted basis in a little under two months, and has surpassed the Japanese yen to be the weakest against the US dollar year-to-date. An immediate response from the Bank of England may have saved some face, but remember that last week’s BOE decision was a pretty split vote as well with two members voting for 75bps rate hike and one calling for a smaller 25bps rate hike as well. So, it remains hard to expect a prudent policy response from the BOE, and a parity for GBPUSD in that case may not prove to be the floor. UK’s net forex reserves of $100bn are also enough to only cover two months of imports, or roughly equal to 3% of GDP as compared to Japan’s 20% and Switzerland’s 115%. But it’s not just about the sterling crisis in the UK, but more generally a crisis of confidence. Not to forget, inflation forecasts for end of the year are already at 10%+ levels and the market is now pricing in over 200bps of rate hikes by the end of the year, with two meetings left. The central bank will need to deliver this massive tightening simply to keep the sterling where it currently is and that won’t reverse the impact of the government’s decisions on UK markets. The scale and speed of the hikes could also do significant damage to the economy. The iShares MSCI United Kingdom ETF (EWU:arcx) traded lower by another 1.8% on Monday and is now down 7.3% over the last one week. Bank of Japan’s patience will keep getting tested We wrote earlier about what will need to change to call it a top in the US dollar, and nothing seems to be in order yet except some of the non-US officials starting to get concerned about currency weakness. Still, the intervention from Bank of Japan didn’t have long lasting effects on USDJPY, even as it helped to strengthen the yen against some of the other currencies such as the EUR, GBP or AUD. It may have also helped to stop some speculative shorts. But a coordinated intervention in the yen still remains a far cry, with the weakness in the Japanese yen being BoJ's own-doing due to the yield curve control policy. Japanese government bonds will likely continue to test the patience of Bank of Japan with its yield curve control policy. Downside for Japanese government bonds (JGB1c1) will potentially spike exponentially if the BOJ pivots at some point. Earnings pressure may be next While the Q2 earnings season proved to be more resilient than expectations, intensifying inflation concerns have turned corporates more cautious on the outlook and less optimistic for the near-term earnings performances. We have seen some downward revision of EPS estimates for the third quarter in July and August, and we still cannot rule out further grim outlook and margin pressures. Estimates for S&P 500 earnings in 2022 stood at $226.15 per share as of August 31, according to FactSet. This is down 1.5% from the $229.60 per share estimate as of June 30. For 2023, analysts now expect EPS of $243.68, down 2.8% from the June estimate of $250.61. So far, companies dealt with rising inflation by passing on increased costs to consumers, given the pandemic-era fiscal support measures underpinned strength in the consumer side. These increased pass-through was also visible in higher CPI prints. But with the economic outlook getting duller by the day, there is bound to be some pushback from the consumers and that will likely show up in the earnings report card. From a sectoral perspective, tech stocks will likely be battered as tight corporate budgets weigh and the US 10-year yields are in close sights of 4%. Semiconductors, a barometer of global economic health, could also face further pressure. Meanwhile, the oil and gas sector was the saviour of the Q2 earnings season, but would also likely see some pressure in Q3, unless the outlook starts to look slightly more upbeat with improving capex plans. Dollar pivot is the next key catalyst to watch The majority of the market downfall we have seen so far has come from a rapid shift in cost of capital and correcting peak valuation. The next leg, as discussed above could be the earnings recession. Still, economic recession risks remain and history suggests that the market lows do not come until after the recession begins (see chart below). Still, with the US 10-year yields approaching 4% - which maybe a likely ceiling – the focus turns to a reversal in the US dollar as the next pivot, not the Fed. Testing those key levels could mean a short-term bounce in equities which may be favourable for building new short positions as the trend still remains down. Alternatively, for investors, it would rather be optimal to look for signs of selling exhaustion to accumulate long positions, such as VIX above 40. Historically, a decline in stocks of the order of 20% makes it buying stocks after they have been down 20% from record highs has been a good risk/reward proposition for longer-term investors.     Source: https://www.home.saxo/content/articles/macro/macro-insights-approaching-a-breaking-point-but-not-without-more-pain-first-27092022

The ECB has only two more meetings for the rest of the year. Which means that the space to get inflation under control by the end of December is getting tight. The common bank is behind other major central banks in raising policy, which has kept the shared currency relatively weak. Therefore, there is a lot of expectation on what will happen with inflation. Though, it should be noted that the next ECB meeting isn't until late October, meaning that there is still another round of CPI data coming out before they meet. So, that is likely to have a much bigger impact on what the bank actually decides to do. On the other hand, the series of CPI figures expected later in the week are expected to shape interest rate expectations. And that, in the end, is the main driver of the currency. Restoring credibility A series of ECB officials have come out to talk in a way that suggests potentially stronger action. Rumors of a 75bps hike in October are starting to grow. This is because of the going theory among central bankers that inflation is shaped by the "credibility" of the central bank. That is, it's how confident the market is that it will raise rates as needed to get inflation down. Both Nagel and de Cos made comments to that effect yesterday. But they need to be contextualized within the ECB's Chief Economist Lane's views expressed also yesterday. That is, expecting a significant decrease in inflation through the course of next year. In other words, the ECB might be coalescing around the idea of a sharp rate hiking through the next couple of months to force CPI figures to turn around. It's out of their hands The thing is, while the ECB did expand the monetary base by around 10% during the pandemic, a larger chunk of the inflationary effects come from external factors. Higher energy costs, and increased cost of imported goods from China due to lockdowns, are the two main ones. That isn't something monetary policy can fix. On the other hand, China is seen relaxing some of the covid restrictions, and energy prices have been falling (although over fears of a pending global recession). That could contribute to lower inflation next year regardless of what the ECB does. So, it might come down to a matter of whether the ECB thinks it can control prices. What to look out for On Thursday, Germany reports Inflation figures, which are expected to set the tone for the rest of the shared economy. German September monthly inflation is expected to accelerate to 1.1% from 0.3% prior. That would contribute to annual inflation jumping to 9.5% compared to 7.9% prior. Then on Friday we get EuroZone headline inflation rate expected to move up to 9.6% from 9.1% in August. Of course what the ECB pays the most attention to is the core rate, which is also expected to accelerate, though not as sharply. Core September inflation is forecast at 4.7% compared to 4.3% prior.

There has been a marked deterioration in confidence across most sectors of the Italian economy. In our view, a GDP contraction might just be avoided in the third quarter, but it is almost inevitable in the fourth  September confidence data points to a broad-based deterioration in the Italian economic picture Consumers are getting gloomy again Data from Italy's National Institute of Statistics (ISTAT) shows that in September, consumer confidence fell back to July’s level, which was the lowest level since May 2020 during the peak of the pandemic. Consumers are increasingly concerned about economic developments and expect a deterioration in household economic conditions. Combined with growing concerns about future unemployment, this translates into a reduced willingness to purchase durable goods. Further fall in manufacturing confidence Confidence in the manufacturing sector fell for the third consecutive month, recording the lowest level since February 2021, driven by weakening demand for consumer and intermediate goods, where orders fell for the third month in a row. The fall was much more contained in the investment goods sector, possibly reflecting the ongoing support of the European Recovery Fund. Production expectations fell markedly across the board, pointing to a further deterioration in industry’s supply-side push over the fourth quarter of 2022. Construction was the only sector to post a monthly gain, partially recouping August’s lost ground. The impact of generous tax incentives on building construction is clearly still at play, and firms’ rising employment expectations seem to reflect confidence that favourable conditions will remain in place. Services no longer a safe haven, as the re-opening effect fades away Today’s release seems to mark a break in developments in the service sector. After stabilising over the summer, confidence in the service sector fell abruptly in September, reaching the lowest level since February 2022. This involved all subsectors, suggesting that the re-opening effect, helped by revamped tourism flows, is fading away. This seems to be confirmed by the decline in retailer confidence. Read next: Tim Moe (Goldman Sachs) Comments On USD And Turbulent Times For Markets In General, Ole Hansen (Saxo)Talks Nord Stream | FXMAG.COM A GDP contraction in the fourth quarter looks inevitable All in all, September's confidence data points to a broad-based deterioration in the Italian economic picture. The jury is still out about whether the third quarter of this year will mark the start of a recession: we still believe that, notwithstanding a very likely manufacturing drag, services and construction might have managed to generate a minor GDP expansion. However, the combined effect of budget-constrained consumption and softer industrial production will make a GDP contraction in the fourth quarter almost unavoidable, marking the start of a technical recession. The new Italian government is set for a tricky start: in a no-growth environment, it will immediately have to craft a budget in which electoral promises will have to come to terms with evaporating fiscal space. Read this article on THINK TagsItaly GDP Italy 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

Spanish inflation fell in September to 9% from 10.5% in August, marking the second consecutive month of decline. These figures fuel hopes that the peak in inflation is now behind us While inflation in Spain is falling, it will nevertheless remain high until the end of the year Spanish inflation falls for the second consecutive month Spanish inflation fell to 9.0% in September from 10.5% a month earlier. This is now the second month in a row in which inflation has fallen. Core inflation, excluding more volatile energy and food prices, also fell slightly to 6.2% from 6.4% last month. The decline in headline inflation is mainly due to base effects that are starting to kick in. We are now comparing energy prices to a period when energy prices started to rise in 2021. Increasing base effects will further weaken year-on-year comparisons. Encouragingly, core inflation has also cooled slightly, suggesting that the strength of second-round effects is waning, mitigating the risks of entering a wage-price spiral. In the coming months, the cooling demand will ease inflationary pressures as it will become more difficult for companies to pass on new price increases to the end customer. Nevertheless, inflation will remain high until the end of the year. For the whole of 2022, we forecast inflation to come out around 9%. In 2023, inflation will gradually start to come down, reaching 4.5%. From 1 October, the Spanish government will reduce VAT on gas from 21% to 5% to soften the inflation shock. However, this will have only a marginal effect on the CPI. According to our calculations, the VAT cut on gas will reduce inflation by only 0.1 percentage point in October. Despite cooling off, ECB will continue its policy of interest rate hikes Despite the cooling trend, inflation remains historically high across the eurozone. Therefore, the current high inflation figures are unlikely to prompt the ECB to ease its monetary tightening policy. Judging from ECB officials' latest speeches, their first priority is to reduce inflation as soon as possible, rather than looking at inflation expectations or medium-term inflation. A 9% inflation rate is still well above the ECB's 2% target. Even with an upcoming recession, we think it likely that the ECB will opt for another 75 basis point rate hike in November as well. Read this article on THINK TagsSpain Inflation Eurozone ECB 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 drop from 97.3 to 93.7 in the eurozone economic sentiment indicator indicates a likely contraction in the economy in the third quarter. Selling price expectations have been on the rise again, increasing the risk of a longer period of stagflation in the eurozone economy Selling price expectations are increasing again as businesses face higher energy costs Is Recession Already Here, In The Eurozone? The eurozone economy is slowing rapidly as high prices reduce business activity and dampen consumer demand. We expect that a recession could, therefore, have already started. For industry, production expectations dropped sharply in September. Backlogs of work have fallen as new incoming orders disappointed in recent months and in some industries production is reduced as high energy costs impact the profitability of production. With energy costs still at unsustainably high levels for some industrial sectors, this is adding to the bleaker outlook for industrial production. For the services sector, confidence fell even more as the post-pandemic catch-up demand is fading and the purchasing power squeeze is starting to bite. The services indicator dropped from 8.1 to 4.9 as businesses indicate that demand has recently weakened and they are becoming gloomier about demand in the months ahead. Read next: Tim Moe (Goldman Sachs) Comments On USD And Turbulent Times For Markets In General, Ole Hansen (Saxo)Talks Nord Stream | FXMAG.COM  Despite the clear slowing of the economy, selling price expectations are increasing again as businesses face higher energy costs again due to the spike in prices in August. This is particularly worrisome as it could prolong a period of stagflation in the eurozone economy. For the ECB, the path is already quite clear: the central bank is set to hike in the coming meetings regardless of a slowing economy. The increase in selling price expectations will only strengthen that view for the October meeting. Read this article on THINK

German inflation reached another peak in September, providing more ammunition for the ECB to hike by 75bp at the October meeting The inflation peak in Germany could be around 13%   German inflation just reached unprecedented double-digit levels coming in at 10.0% year-on-year in September, from 7.9% YoY in August. The HICP measure increased to 10.9% YoY, from 8.8% YoY in August and 8.5% in July. The fact that monthly inflation (1.9% month-on-month) is far above the historical average for September also illustrates that inflation is running red hot in Germany. Inflation will continue to increase We knew that the September numbers would be the first inflation reading without the dampening effect of the government’s energy relief package over the summer months. The end of the so-called €9 ticket for public transportation and the end of a gasoline rebate alone would have pushed up inflation. But inflationary pressure is all over the economy. Looking ahead, the only way for German inflation is up. With high wholesale gas prices now reaching people’s homes and pockets as well as more inflationary pressure in the industrial pipeline – with producer price inflation at 45% YoY – inflation will test even higher levels. It will take until next Spring before headline inflation could start to move down as negative base effects kick in. Based on today's numbers, peak inflation could come in at around 13%. ECB to hike by 75bp in October and more to come For the ECB, today’s German inflation data will add to the long list of arguments in favour of a 75bp rate hike at the October meeting. Since the late summer and probably marked by Isabel Schnabel’s Jackson Hole speech, the ECB’s reaction function has clearly changed. Following in the Fed’s footsteps, the ECB has increasingly focused on actual inflation and to a lesser extent on inflation expectations. It is hard to see how the ECB cannot move again by 75bp with headline inflation still on the rise. In this context, the discussion on whether or not the ECB can actually bring down headline inflation is no longer relevant for the central bank. Even if the unfolding recession is not enough to slow down the ECB’s process of rate normalisation. It clearly is an experiment with a risk of becoming a policy mistake, but for the time being the ECB looks fully determined to continue on the path of aggressive rate hikes. The first real test of how sustainable the consensus within the ECB is will only come at the December meeting. Then, a new round of staff projections is likely to show further downward revisions to growth and could show 2025 inflation at 2%, tempting some of the newly self-declared tough inflation fighters to blink. Unless we see more central banks performing a major U-turn as the Bank of England had to do this week, we expect the ECB to hike rates by some 150bp until early 2023 and the risk is currently rather tilted to more rather than fewer rate hikes. Still, it is not the ECB that can provide short-term relief against inflation, but governments. However, the idea that governments can completely offset all inflationary pressures should also be discarded after this week's developments in the UK. Read this article on THINK TagsInflation Germany Eurozone ECB 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

  Euro To US Dollar - Technical outlook: EURUSD rose through the 0.9750 highs during the New York session on Wednesday after testing the levels close to the 0.9535 lows earlier. The daily chart has confirmed a Morning Star bullish reversal pattern, which could push prices through 1.0200 at least. The potential remains for a push towards 1.0600 which is the Fibonacci 0.382 of the earlier bearish drop between 1.2350 and 0.9535. EURUSD has hit major Fibonacci support close to the 0.9550-0.9600 area as projected on the daily chart here. A significant target has been met just above the 0.9500 handle and the price could also produce a sharp bullish reversal. The bulls are now looking poised to hold prices above the 0.9535 mark and push through the 1.0200 initial resistance at least. Read next: Tim Moe (Goldman Sachs) Comments On USD And Turbulent Times For Markets In General, Ole Hansen (Saxo)Talks Nord Stream | FXMAG.COM EURUSD has interim support just above 0.9500 while resistance is seen at 1.0200, followed by 1.0365. Looking at the daily chart, a break above 1.0200 would signify that the bulls are under control and are looking to push through 1.0600. Only a consistent break below 0.9535 from here will bring back bears into the picture. Trading idea: Potential rally towards 1.0200 and up to 1.0600 against 0.9500 Good luck! Relevance up to 13:00 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/294851

The euro has strengthened its position against the dollar and continues to grow amid repeated statements by European politicians this week that the European Central Bank should raise interest rates by another 75 basis points at the next meeting, which is scheduled for October this year. Data on inflation in the eurozone will be released today, which will surely confirm the correct attitude of European politicians to the current situation, it was just necessary to act a little earlier – the Federal Reserve went too far, which led to such a gap in interest rates and a strong weakening of the euro against the US dollar. In his recent speech, member of the Board of Governors Martins Kazaks stated: "In the current situation, we can still do much more. The next step still needs to be quite large, because we are far from the rates corresponding to 2% inflation. I would support a 75 basis point increase — let's take a bigger step and raise rates." European Central Bank and rate The Latvian official said that this does not mean that 75 basis points are now the "golden mean", and that, probably, as soon as rates will be more in line with the inflation target, future steps need to be done more carefully. His calls for decisive action are supported by other officials from the Baltic region. European Central Bank President Christine Lagarde and other officials from the board of governors told us about something similar this week. The surge in prices caused by Russia's military special operation in Ukraine and the resulting energy crisis prompted ECB officials to start raising rates for the first time in more than a decade — this month rates were raised immediately by a historic three-quarters of a point. Now they are weighing how to proceed, as the price increase is accompanied by ever-increasing forecasts of a recession. Lagarde told European Union lawmakers this week that officials will start considering cutting trillions of euros worth of bonds it accumulated during recent crises only after rates reach that point. Traders estimate the probability of another 75 basis point move next month at 40%. An increase in this amount will double the deposit rate to 1.5% — the highest level since 2009. The opinion of a Latvian politician As for Kazaks' speech, in his opinion, the cost of borrowing will reach a "neutral" level, which does not stimulate or limit the economy by the end of the year. "Of course, we should discuss all the tools so that when it is necessary to make a tough decision, we are ready," Kazaks said. "The ECB should delay its balance sheet reduction program, or quantitative tightening, until next year." According to the Latvian politician, this will prevent the European crisis from flowing into recession. Given that the main source of inflation is the crisis in the energy market, which is of a geopolitical and structural nature, an extremely rapid tightening of monetary policy will simply push the economy into recession. The Technical Outlook  As for the technical picture of EURUSD, the bulls have regained their advantage and the market under their control, which they lost at the beginning of the week, and are now aiming to break through the nearest resistance of 0.9840. It is necessary to do this if they expect the upward correction to continue at the end of this month. A breakdown of 0.9840 will take the trading instrument even higher to the area of 0.9890 and 0.9950. But despite the good upward prospects, protecting the nearest support of 0.9780 is still an important task for the bulls. Its breakthrough will push the euro to a low of 0.9730, but there will be nothing critical in this situation either, since there is the lower boundary of the new ascending channel. Only after missing 0.9730 will it be possible to start getting nervous, as the pair will easily fall into the area of 0.9680 and 0.9640. The Pound (GBP) The pound continues to win back positions one by one thanks to the support of the Bank of England. Now bulls are focused on the 1.1200 resistance, the breakthrough of which will open up prospects for further recovery in the area of 1.1260 and 1.1320. It will be possible to talk about the return of pressure on the trading instrument only after the bears take control of 1.1070, but this will not cause serious damage to the bull market observed since the middle of the week. Only a breakthrough of 1.1070 will push GBPUSD back to 1.1010 and 1.0950.   Relevance up to 08:00 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/323100

Industrial production rebounded more than expected in August, by 2.4% over the month, thanks to the easing of supply constraints. As a result, economic activity could narrowly avoid a contraction in the third quarter, but a recession remains more than likely for this winter A broad rebound After falling by 1.6% over a month in July, French industrial production rebounded in August, increasing by 2.4% over the month. Over a year, the increase was 0.4%. Manufacturing output rose by 2.7% (after -1.6% in July). All branches of industry saw their production increase over the month, except for construction. The rebound was particularly dynamic in automotive production, which increased by 15.6% over the month, thanks to the easing of supply constraints. The August rebound allows industrial production to erase the losses accumulated during 2022 and return to its pre-war level. Nevertheless, output remains 3.5% below its pre-pandemic level. August's strong performance gives hope that industrial production will make a positive contribution to economic growth in the third quarter, which could narrowly avoid a contraction in activity. Headwinds are too strong for the rebound to last Nevertheless, looking ahead, it is to be feared that the effect of reduced supply constraints will not be sufficient to allow the French industry to continue to rebound. In fact, further contractions in industrial activity can be expected. Indeed, the sharp decline in global growth, the contraction in order books since February, the high level of finished goods inventories, high uncertainty, high energy and raw material prices and potential disruptions in energy supply clearly point to a deterioration in the outlook for the French industrial sector in the coming months. The business climate indicator for the sector fell further in September. Since the beginning of the year, it has lost more than 10 points, falling back to the level of spring 2021, thus erasing all its post-lockdowns gains. Moreover, the outlook is not much better in the services sector, which is weighed down by worsening purchasing power, declining consumer confidence and the fading positive effects of the post-pandemic reopening. There is therefore little doubt that France, like its European neighbours, is heading straight for recession. Given the developments of the last few weeks, it is to be feared that French GDP growth will move into negative territory in the fourth quarter, after a probable stagnation in the third quarter. The recession is likely to last throughout the winter, and the prospects for a rebound in the spring of 2023 are fading by the day. We therefore expect growth of 2.4% for the whole of 2022 and -0.4% for the whole of 2023. Read this article on THINK  

Central banks are still far from bailing markets out. There is no evidence that financial stability concerns are distracting them from their inflation fight. Their inflexibility is why we see more upside for rates and spreads Risks remain to the upside for rates BoE and ECB let markets fly on their own If financial stability no doubt registers on central banks’ consciousness, it is doubtful that they see policy implications. The Bank of England (BoE) balking at buying long-end gilts for the second day in a row clearly confirmed that it sees its operation as a temporary backstop, and not something that should dilute its monetary policy stance. Along the same lines, the European Central Bank’s (ECB) reluctance to support peripheral bond markets in August and September 2022 by using PEPP reinvestment flexibility sends a similar message. In the BoE’s case, the gilt long-end received the message loud and clear. 10s30s is racing back towards the levels prevailing before the mini budget and subsequent BoE intervention. If the shape of the curve is the best sign that markets are pricing out BoE intervention, it is the speed of the sell-off that should keep investors up at night. 30Y yields are up almost 40bp this week. Let us hope that pension funds and other structural swap receivers managed to reduce their exposure, or found funding sources for inevitable collateral calls. Markets are forward-looking, and there are no ECB purchases for them to look forward to The glass half full take on European Central Bank (ECB) intervention, or lack thereof, is that spreads remained contained without its help. This is particularly notable in a context of rising core rates and rates volatility. The problem with this take is that markets are forward-looking, and that there are no ECB purchases for them to look forward to. It seems, the bar for purchases is higher than previously thought and could get even higher as hawks seem intent on pushing discussions on quantitative tightening (QT). Read next: RBNZ “Hawkish” Move Offers NZD Support, Australian Retail Sales Rose 0.6% During August| FXMAG.COM Gilt 10s30s is steepening back to its pre-BoE intervention level Source: Refinitiv, ING Central banks can't afford to be complacent on financial stability A look at wider market stress indicators in rates and credit yields a similar conclusion. For the most part, peripheral and core rates are already at crisis levels, but not yet at a breaking point. This is hardly encouraging. A bright spot so far has been short-term funding and money markets but, each time, it is clear that the ECB’s heavy hand is responsible. This is all well and good but the expiration of TLTRO loans, tiering, and the looming QT discussion means markets cannot count on ECB support going forward. Expect to see new highs in yields and spreads as a result of central bank intransigence We think it would be wrong to take comfort in still (barely) functioning markets and that central banks should pay greater attention to financial stability. Balance sheet reduction programmes are adding to financial instability and could ultimately make their fight against inflation harder, not easier, if they are forced to choose between rescuing financial institutions and cooling the economy. Despite the BoE’s intervention last week, we keep a cautious outlook on bond markets. We expect to see new highs in yields and spreads as a result of central bank intransigence. The ECB barely intervened to support spreads in August/September 2022 Source: ECB, ING Today's events and market view European data releases today comprise German and UK construction PMIs and eurozone retail sales, but the minutes of September ECB meeting are likely to steal the limelight. We’re unlikely to get much discussion on QT but we might see some on reserve tiering. Even if this isn’t the case, it is possible that officials discuss in the press the content of yesterday’s ‘non-policy’ meeting discussions on either topics. In the minutes proper, the extent of the ECB’s inflation worries and reasons for a change in reaction function should be the main focus. Jonathan Haskel, of the BoE, is on today’s list of speakers. Bond markets have to absorb supply from Spain (7Y/8Y/10Y/30Y) and France (10Y/30Y/44Y). Today’s US job data menu includes jobless claims and Challenger Job Cuts but this will merely be an appetiser to tomorrow’s employment report. Charles Evans, Lisa Cook, Neel Kashkari, Christopher Waller, and Loretta Mester are all lined up to give their spin on the latest economic, and perhaps financial, developments. Read this article on THINK TagsRates Daily 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

German exports rebounded somewhat in August but high energy prices continue to shrink what was, until recently, still a notoriously high trade surplus Source: Shutterstock   German exports (seasonally and calendar-adjusted) rebounded in August, increasing by 1.6% month-on-month. On the year, exports were up by more than 18%. Imports also decreased, by 3.4% month-on-month, further lowering the trade surplus to €1.4bn. The war in Ukraine has succeeded in delivering what nothing else had managed before: letting the notorious German trade surplus disappear. However, unfortunately, it is not a ‘good’ disappearing of the trade surplus, driven by stronger domestic demand but rather a ‘bad’ disappearing, driven by high energy prices and structurally weaker exports. Also, when interpreting these trade data, don’t forget that they are seasonally and calendar-adjusted but not price adjusted. Even a weaker euro hardly helps Trade is no longer a growth driver but has become a drag on German growth. Since the second quarter of 2021, the growth contribution of net exports has actually been negative. In the past, the current weakness of the euro would at least have brought some smiles to German exporters’ faces. Like almost no other, German exports have often seen an asymmetric reaction to exchange rate developments. The negative impact of a stronger currency is cushioned by inelastic demand and high product quality, while the full price impact of a weaker currency normally adds to export strength. Not this time around. Export order books have weakened significantly in recent months as the global economic slowdown, high inflation and high uncertainty leave clear marks on (not only) German exports. Even if transportation costs have started to come down and global supply chains have improved somewhat, the outlook for the German export sector remains mixed, at best. Read this article on THINK TagsGermany Export Eurozone 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

Corporate supply was €25bn in September, lower than in previous years • Corporate supply amounted to €25bn in September. This is much lower than the average €45bn of recent years. We don’t expect much more supply to come in the ensuing months as much higher funding costs, combined with a volatile market is leaving a rather unattractive environment for issuers. For the coming months, there should be brief windows of opportunity when the markets offer a period of stability. • Corporate supply is now sitting at €202bn thus far this year. We expect no more than €250bn for the year. This will leave supply €100bn short of what was issued last year. Redemptions this year are pencilled in at €223bn. As such net supply will be very low this year. When the purchases of CSPP (and PEPP) and coupon payments are included, net supply is negative, and this leaves the technical picture very strong. • On a YTD basis, the Utilities sector still has the largest credit supply with €43bn followed by Industrial & Chemicals at €35bn, while the Healthcare sector has seen the lowest credit supply with €18bn. In terms of maturity, the 2-6yr maturity bucket has seen the most credit supply with €8bn in September but the 6-9yr maturity bucket remains the one with the highest YTD figure of €57bn. • Corporate Reverse Yankee supply is now at €25bn YTD, after €4bn was issued in September. This is significantly lower than previous years. Limited primary market activity due to the volatile markets and higher funding costs has resulted in supply being concentrated in local currency, and thus relatively lower Reverse Yankee supply. Financials supply still running ahead of previous years • Financials supply amounted to €25bn in September, matching that of August. This is lower than last year’s €37bn figure. Banks senior supply accounted for €19bn of last month’s supply. Financial supply is now sitting at €221bn YTD, still running slightly ahead of previous years. • Another €22bn in covered bond supply in September, following €16bn in August. Covered bonds remain a fan favourite for banks to issue. YTD supply is now at €174bn, up considerably compared to the €101bn full year figures seen in 2020 and 2021. 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

Weak industrial production and retail sales provide further evidence that the German economy continues to slide into recession Industrial production declined... Germany continues to descend into recession. In August, production in industry in real terms was down by 0.8% on the previous month on a price, seasonally and calendar-adjusted basis, from an upwardly revised stagnation in July. Over the year, industrial production was up by 2.1%. Ongoing supply chain frictions as well as the low water levels in German rivers were the main reasons behind this drop in industrial activity. To make things worse, production in the energy sector was down by 6.1% month-on-month and the construction sector by 2.1%. According to the statistical office, production in the energy-intensive sectors was down by 2.1% MoM and by 8.6% compared with February this year. Retail sales in August were down by 1.3%, from an increase of 0.7% in July. Read next: Great Britain Expects Positive Results For Its Economy | FXMAG.COM More to come German industry and the entire economy have not come to an abrupt stop but are rather in the middle of a long and gradual slide into recession. Some examples? At the start of the year, production expectations were close to all-time highs but since the start of the war in Ukraine they have gradually come down, with no end currently in sight. Order books were richly filled at the start of the year and companies were filling inventories. Since then, new orders have dropped in almost every single month, and actual production has weakened since the summer. We don't need a crystal ball to see a further weakening of German industry in the coming months. The full impact of higher energy prices will only be felt in the last months of the year. It is not only the price effect putting a burden on German industry but also the lack of industrial input goods (including industrial gas). Today’s data are like a sneak preview of more to come. High energy prices will increasingly weigh on private consumption and industrial production, making a contraction of the economy inevitable. The only question is how severe such a contraction or recession will be. Read this article on THINK TagsIndustrial Production Germany Eurozone 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 European Central Bank looks determined to follow in the Federal Reserve's footsteps. After the start of aggressive rate hikes, and with no end in sight yet, the next milestone is a reduction of its bond portfolio. However, we think the ECB's hawkishness might be premature. Quantitative tightening will come but not now QT is on the ECB's radar but still a distant prospect The minutes of the ECB's September meeting delivered a couple of interesting insights: the decision to hike rates by 75bp was not taken unanimously, so 75bp increments should not be the new normal. However, the ECB was clearly determined to continue hiking rates significantly. Also, looking beyond the configuration of the key ECB interest rates, the minutes underlined that the Eurosystem's large balance sheet was continuing to provide significant monetary policy accommodation by compressing term premia. The Governing Council felt it appropriate to reiterate that it stood ready to adjust all of the instruments within its mandate to ensure that inflation returned to its medium-term target of 2%. This is a clear signal that reducing the ECB's balance sheet has become an issue. Quantitative tightening (QT) - how to reduce the size of the balance sheet - was also apparently on the agenda at this week's non-monetary policy meeting in Cyprus. However, so far, no information has been leaked from this meeting. Bond yields have already increased significantly in recent months without any quantitative tightening A discussion is one thing, an actual decision another. Just a little more than a week ago, ECB President Christine Lagarde said that the ECB would only start to consider QT when the ECB had completed its monetary policy normalisation. At the same time, bond yields have already increased significantly in recent months without any QT. Also, given the very uncertain economic outlook and more pressure on governments to deliver additional fiscal stimulus, QT at the current juncture could trigger an unwarranted widening of bond spreads, a.k.a, a new euro crisis. This is something the ECB clearly does not want. A premature QT decision also has other risks. It could raise the bar for triggering the Transmission Protection Instrument (TPI) even higher, a development that could actually spark a new euro crisis. As such, an actual decision on QT is very unlikely as it would add to financial stress and uncertainty. However, it's good to at least have a plan for when this is really needed.             How the ECB's QT could work Though quantitative tightening currently looks unlikely, it will come eventually. Given the complicated structure of the ECB's bond purchases across countries, sectors and durations, an outright selling of the bond portfolio will not be an easy one without disturbing markets. Also, don't forget that the ECB's balance sheet not only comprises the bond portfolio but also the series of liquidity operations to support bank lending. These bank lending operations (TLTROs) will be repaid by banks, automatically reducing the balance sheet. Still, when financial markets think of QT, they think of reversing the ECB's asset purchases. In this regard, the option of gradually and more passively reducing its asset portfolio looks the most attractive.   The option of gradually and more passively reducing its asset portfolio looks the most attractive A possible first step would be to (gradually) stop the reinvestments of the Asset Purchase Programme (APP). One way to phase in QT would be to first cap APP reinvestments at 50% of their normal amount during, say, the second and third quarters before ending them in the fourth. In this scenario, the resulting balance sheet reduction would be a manageable €155bn in 2023, doubling to €300bn in 2024. The next step would be to end the reinvestments under the Pandemic Emergency Purchase Programme (PEPP). These would add to the balance sheet reduction in 2025, leading to a total reduction of €388bn (along with the APP reductions). In addition, the ECB could speed up the process with outright sales but we doubt peripheral bond markets would be able to stomach the impact (see next sections). In terms of timing, we take Christine Lagarde's recent comments for granted and expect a gradual end to the APP reinvestments between 2Q and 4Q next year. PEPP reinvestments will stop by the end of 2024. QT could reduce the ECB's balance sheet by €155bn in 2023 and €300bn in 2024 Source: Refinitiv, ING   Whenever it happens, we expect QT to be felt across three dimensions of rates markets: duration, credit (and sovereign) premia, and money markets (through the price of liquidity).  Impact on core yields: moderate at the start One of the channels through which QE influenced markets was by suppressing the compensation for a certain number of risks, including duration risk. At face value, this means that, when the ECB reduces its balance sheet, long-dated yields will rise. So far so good. There is empirical evidence for that. For reference, we find that a €155bn reduction in the ECB's bond portfolio size in 2023 would push 10Y Bund yields up by only 7bp, and a €300bn reduction in 2024 would reduce them by 14bp. If this sounds unimpressive, note that without the €5tn of ECB purchases, 10Y Bund yields would be 230bp higher by this, admittedly rough, estimate. Note also that QT would add to the amount of debt that private markets would have to absorb if European governments were to significantly increase their borrowing to finance energy support packages. This is another argument for a delayed start to QT. A €155bn reduction in the ECB’s bond portfolio size in 2023 would push 10Y Bund yields up by only 7bp What is much more difficult to track is the impact this will have on the shape of the yield curve. On paper, the longer the maturity point, the more QE suppresses yields. We're not expecting a re-steepening as a result of QT, however. The experience of the US and UK has shown that yield curves can invert even in the context of QT. The reason is that other factors have a greater influence, namely that base rates are going above their long-term neutral levels. In short, we're still expecting a German curve inversion next year irrespective of QT. Without QE 10Y German Bund yields would be over 200bp higher Source: Refinitiv, ING Sovereign spreads: adding fuel to the fire When one moves away from so-called ‘risk-free’ markets, the main impact of QE is suppressing credit compensation. In the case of sovereign bonds, QE was instrumental in suppressing eurozone break-up risk in the sovereign crisis of 2010-12, and in subsequent periods of market stress. Our analysis of German yields above implies that the stock, rather than the flow of purchases is the relevant variable to assess market impact. This isn’t so simple for sovereign spreads, where both variables matter. In plain English, we think the impact of QT on sovereign spreads will occur a lot faster than on core yields, once flows turn negative. This explains why spreads already started widening before QT was even discussed, as QE purchases drew to a close in mid-2022. We fear the ECB following through with QT would compound the worries of already stressed financial markets. We struggle to see how peripheral markets would cope with rising interest rates and QT at the same time We struggle to see how peripheral markets would cope with rising interest rates and QT at the same time. This is a key reason why we expect QT to start only once the phase of rising base interest rates is over. Additionally, the ECB keeping spread-support programmes, such as the TPI, at hand would go some way to reassuring markets. It would also mean a slower reduction in the ECB's bond portfolio if it is forced to temporarily buy peripheral bonds. QT will reduce excess liquidity and help widen money market spreads, such as Euribor Source: Refinitiv, ING Money markets: taking away the comfort blanket A large chunk of money market rates also has a credit and duration component, which we covered in the sections above. But the compensation in money markets is even more heavily suppressed by the tide of ECB Excess Liquidity (EL) introduced during successive rounds of QE and loans to banks (TLTROs). As QT begins, EL will shrink by the same amount. In 2023, the estimated €155bn reduction in excess liquidity from QT will pale in comparison to the nearly €2tn reduction coming from targeted longer-term refinancing operations (TLTRO) loan repayments. Each incremental reduction in liquidity will make money market rates more sensitive to other risk factors After that date, however, each incremental reduction in liquidity will make money market rates more sensitive to other risk factors. The widening of money market spreads, for instance Euribor fixings compared to overnight index swaps (OIS), is not linear. The first €2tn reduction will probably have little effect. After that, at the latest after mid-2023, the impact of EL reduction will accelerate. This effect could even be magnified if the ECB decides to effectively lock away a portion of EL using tiered bank reserve remunerations (see our article on that topic). Read this article on THINK TagsQuantitative tightening Interest Rates ECB 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

Activity in the Belgian construction sector is starting to slow. Although order books are still well filled, new orders are coming in more slowly. For this year, we forecast 2.5% growth for the Belgian construction sector, but next year growth will come to a halt Belgian construction activity still 6.1% below its pre-pandemic level Construction activity in Belgium in the first seven months of this year was 0.4% lower than during the same period last year. The war in Ukraine has put activity under pressure even more. In July, construction activity was 1.1% lower than in February before the outbreak of war in Ukraine. In the European Union, construction activity was still up 3.7% for the first seven months of this year, thanks to a strong start to the year. Yet the European average has also been under strong pressure since the war in Ukraine. Construction activity in the EU has declined by 2.2% since February. Rising costs due to sharply increased energy and construction material prices, combined with growing uncertainty due to the war in Ukraine, are weighing on construction activity. As a result, it will take longer to fully recover from the Covid-19 hit. Construction activity in Belgium fell more sharply than the European average during the first lockdown. The recovery afterwards was also weaker. In July 2022, construction volume in Belgium was still 6.1% lower than in July 2019, the same month before the pandemic, while activity in the European Union was already 1.9% above its pre-pandemic level. Fig. 1. Construction production index (July 2019 = 100) Source: Eurostat Construction business confidence down sharply since start of Ukraine war According to the European Commission's confidence indicator, sentiment in the construction sector has fallen sharply since the start of the war. Rising costs and problems in global supply chains have weighed on profitability and caused a lot of construction sites to experience delays. Although pressure on supply chains is still high, it is beginning to normalise. While the pressure on building material prices seemed to ease somewhat during the summer, the prices of energy-intensive building materials rose sharply again in September. Unlike the situation in the spring, this further increase in building material prices is no longer due to higher commodity prices on international markets, but due to higher energy costs, which make the production process of building materials more expensive. From a survey by Embuild, eight in 10 respondents expect further price increases for these materials over the next three months. A number of Belgian producers have already reduced or halted production, which in turn could affect the availability and delivery time of these materials. Falling demand will also make it more difficult to pass on price increases, putting pressure on the industry's profitability. Fig. 2. Evolution of confidence in the construction industry Source: European Commission More companies planning to raise prices again These cost hikes are again increasing sales prices. The European Commission's business survey shows that the net balance of construction companies planning to increase their selling prices rose again in September. Price pressure seemed to have eased somewhat recently, but once again more contractors feel compelled to raise their prices further. However, as demand begins to decline, it is becoming increasingly difficult to pass on these higher costs to the end customer which is putting pressure on profitability. In a survey by Embuild, half of the construction companies already said they were having trouble paying their invoices in the short term. For now, the volume of work is still decent, but the industry is concerned about shrinking order books. Fig. 3. Sales price expectations in the Belgian construction sector Source: European Commission Alongside increased material costs, the sector faces other headwinds In addition to the sharply increased cost of building materials, the construction industry is also struggling with a number of other problems, including shortages of labour and building materials. Although pressure on global supply chains has improved somewhat since early summer, there are still many delays and difficulties in obtaining certain materials. The number of contractors reporting that a lack of materials is hindering production is still quite a bit higher than before the Covid-19 pandemic. In addition, the industry is also struggling to find suitable labour which is holding back activity. Although this figure has come down somewhat recently due to declining demand, this continues to hamper the sector. Fig. 4. Factors hindering activity Source: European Commission Higher mortgage rates weigh on residential market Higher interest rates on a mortgage loan will dampen demand for new residential projects. Mortgage rates on a 20-year term have already doubled this year from 1.4% at the beginning of the year to nearly 3% by the end of September. This translates into a declining number of applications for new mortgage credit for new construction projects. The number of mortgage loans registered in August was 24% lower than in the same month last year. Although it's important to say that the number was exceptionally high last year, partly because many homeowners took advantage of low interest rates to refinance their mortgage loans. We expect these mortgage rates to continue to hover at these higher levels. On top of that, the ongoing war in Ukraine is creating additional uncertainty that may cause people to postpone new construction and renovation projects. All of these factors are translating into declining demand for new projects. Thus, there are fewer new construction projects in the pipeline. The number of licensed new residential buildings decreased by 3.4% in the first five months of 2022 compared to the same period in 2021. Moreover, economic uncertainty is making more households postpone their renovation projects. The European Commission's latest consumer survey shows that the intentions of Belgians to carry out improvement works on their own homes in the next 12 months fell to the lowest level in 12 years in the third quarter. Fig. 5. Belgian's intention to carry out improvement works on own home in the next 12 months Source: European Commission Belgium's residential construction sector likely to hold up better than other countries' On the other hand, purchasing power in Belgium is holding up much better than the European average. According to the Federal Planning Bureau, purchasing power will decline only 0.1% this year thanks to automatic wage indexation and strong job creation. For next year, it predicts a 0.7% increase in purchasing power. As a result, the Belgian residential real estate market, and thus the residential construction sector, is likely to hold up better than in neighbouring countries. In addition, uncertainty due to the ongoing war in Ukraine combined with sharply increased prices for energy and building materials will cause many households to postpone non-urgent beautification and renovation projects. As we expect the Belgian economy to head towards a recession in the winter months, residential construction activity will also weaken further in the second half of the year. The start of 2023 will be difficult. It is likely that the residential construction market will only recover from the second quarter of next year. Negative business sentiment will further dampen the non-residential sector The outlook for the non-residential sector is strongly dependent on the economic context of the companies that need these types of properties. There is little optimism on their part. In September, business confidence fell for the sixth consecutive month. The decline was strongest in manufacturing, but confidence also crumbled further in the service sector. Energy-intensive companies are particularly hard hit by high energy prices. Given the likelihood of the economy slipping further into recession, we expect business confidence to weaken further. The negative sentiment will encourage companies to invest less in non-residential real estate. In September, the component measuring confidence in the construction sector for non-residential buildings (such as commercial spaces, job stores, bank offices, sports complexes, office buildings, etc.) improved slightly but is still strongly negative. Sentiment also fell sharply for government projects in September Public construction projects held up a little better, but confidence also fell sharply in September. Many public clients have had to postpone plans in recent months due to the sharp increase in the cost of building materials and increased operating costs due to high inflation. Notwithstanding, public investments are usually less cyclical and the need for more investment in public infrastructure is still very high. We expect this branch to suffer less from the upcoming recession. Rising headwinds will put brakes on growth in 2023 Although the construction industry started the year well, the sector is facing increasing headwinds. Supply problems have improved but are not yet completely gone. Higher mortgage rates and declining consumer confidence are making builders hesitant about new projects. On top of that, the industry is facing new price increases for energy-intensive building materials. For now, contractors still have plenty of work as they are still catching up due to the supply problems caused by the Covid crisis. Therefore, we still expect the sector to grow by 2.5% this year. For 2023, we expect stagnation, or possibly even a slight contraction in activity. Read this article on THINK TagsReal estate Construction Belgium 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 European Union (EU) Trade Commissioner Valdis Dombrovskis said on Tuesday, “the commission is currently working on a new temporary state aid framework, which will allow EU countries to support companies suffocating under high energy bills.” Further comments “Decoupling from China is not an option for our companies.” “We have deep concerns, particularly concerning the UIS inflation reduction act.” Related reads EUR/USD Forecast: Next bearish target aligns at 0.9650 Chancellor Scholz: Will make it through the winter if Germany continues to adapt

Volatile August production data should be taken with a pinch of salt as underlying developments continue to point to more accentuated weakness over 4Q22, when industry will very likely be confirmed as a drag on growth Car production line in Turin, Italy   According to Istat data, Italy's seasonally-adjusted industrial production increased a surprisingly strong 2.3% month-on-month in August (from an upwardly revised 0.5% in July). The working day adjusted measure posted a 2.9% year-on-year change (from -1.3% YoY in July). "August effect" possibly at play, in 3Q22 industry should remain a drag on GDP growth The broad aggregate breakdown shows that consumer and investment goods were the main drivers of the acceleration while the production of energy contracted. To be sure, this is a positive reading, but it should be taken with a pinch of salt, as the August release is often affected by marked volatility due to firm closures and their impact on seasonal adjustments. In order to get a sense of the underlying developments, we look at the moving quarter and note that over the June-August period, production contracted by 1.2% from the previous three months. Confidence and PMI data point to a deterioration in September While the August reading can still be partially interpreted as evidence that Italian industry continues to be relatively more resilient to international supply chain disruptions and to ballooning energy prices, we expect the picture to get gloomier over the coming months. The manufacturing PMI has been in contraction territory since July and business confidence plunged in September, with the expected production subcomponent down to levels not seen since November 2020. The set of measures recently put in place by the outgoing government to weather the energy inflation shock will help limit the damage for businesses but is unlikely to stop industry from becoming a drag on growth in both 3Q22 and 4Q22. The European Central Bank's tightening mode will not make things any easier over the next few months, possibly weighing on the investment component. A GDP contraction could still be avoided in 3Q22, not in 4Q22 After today’s reading we are mildly comforted in our view that the Italian economy might manage to avoid a contraction in 3Q22 (we expect a minor 0.1% GDP expansion) but remain convinced that this will not be possible in 4Q22, when we project a 0.5% quarter-on-quarter contraction, which should mark the start of a recession. 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 approaching end to the Bank of England’s purchases has sent gilts into a tailspin, a repo facility would help deal with margin financing but won’t solve the underlying problem. Joint EU debt issuance could compound fears of a more hawkish European Central Bank The Bank of England The end of BoE gilt buying looms large The Bank of England (BoE) tried – and failed – to reassure markets about the end of its gilt-buying program on 14 October. Despite a greater buying capacity of £10bn at each of the remaining operations, offers were limited and the BoE only managed to buy less than £1bn on Monday. The underlying concern is that even as its intervention draws to a close, not enough deleveraging has been achieved by pension funds, and that another wave of forced selling will emerge into next week. Volatility could well force the BoE back to the gilt market, maybe as early as today As the BoE itself has said, the aim of the buying facility was to buy pension funds time to shore up their liquidity position. Concerns remain about whether the last week-and-a-half was enough to achieve this in distressed market conditions. Eventually, the gilt sell-off could force the BoE back into the market. As we wrote at the time, we think a longer period of support for gilts will be necessary to restore market confidence. 30Y gilts traded at 4.7% yesterday, just 30bp below their pre-intervention peak, and their weakness dragged the pound lower. Volatility could well force the BoE back to the gilt market, maybe as early as today. And indeed, the Bank just announced that it will extend its purchases to inflation-linked gilts, adding one buying operation of up to £5bn each day this week to the already scheduled conventional gilt purchases. Helpfully, the announcement came alongside the launch of a repo facility accepting a broader range of assets as collateral. The idea is that instead of being forced sellers of, say, corporate bonds due to growing margin requirements, pension funds could instead pledge them as collateral to obtain financing. The facility will be in place for one month. In our view, this should be viewed as a complement to support the gilt market, not as a replacement, as a gilt sell-off (30Y yields have risen 110bp since their post-intervention through, for 30Y inflation-linked gilts, that figure is over 150bp) could still generate margin calls that exceed the fund’s funding capacity. In a further sign of its concern for market stability, the BoE also temporarily suspended its corporate bonds' quantitative tightening (QT) sales for two days. Long-end gilts are back in the danger zone Source: Refinitiv, ING The multi-headed fiscal hydra is back Of course, the difficulties facing the UK are not unique. The Fed’s tightening cycle and the rising dollar are thorns in the side of many central banks already grappling with inflation, including the ECB. In that context, Bloomberg reporting that Germany is dropping its opposition to joint EU borrowing to finance the energy support package is unlikely to be greeted kindly by bond investors. If confirmed, it would mean more issuance in already nervous markets (have a look at today’s supply slate in the last section), but investors would also worry about the inflationary impact and the ECB’s reaction. Markets can find solace from the contradictory sources cited by Reuters late yesterday. The concern however is that the reports come after Germany unveiled an up to €200bn package, drawing criticism from other countries with insufficient bond market liquidity to finance a commensurate package. Joint issuance would be bad news for core bonds which would nervously await the ECB’s reaction. For sovereign spreads, however, this is good news, as EU loans would lower pressure on peripheral bond markets. The prospect of ECB balance sheet reduction also casts a long shadow on bond markets. Klass Knot suggested that QT could begin at the earliest in early 2023. We still doubt QT could start in such a short timeframe but, if it does, we could see phased-out asset purchase programme (APP) redemptions in 2023, followed by pandemic emergency purchase programme (PEPP) redemptions in 2025. The strongest impact should be felt in peripheral debt markets, while it could also compound the tightening of money market spreads (eg rising Euribor vs Estr or Estr vs ECB deposit rate) due to targeted longer-term refinancing operations (TLTROs) repayments. The reduction in ECB purchases has already sent bond yields up Source: ECB, ING Today's events and market view Italian industrial production is the main item on today’s economic calendar but it is fair to say that the attention will be on the heavy bond supply slate after yesterday's gilt-led, long-end sell-off. The EU and Germany have both mandated banks for the sales of 7Y/20Y and 30Y bonds, respectively, via syndication. This will come on top of 2Y and 7Y auctions already scheduled by Germany and the Netherlands. The aftermath of the sales could see relief in the sector provided the gilt sell-off doesn’t accelerate. In that respect, the results of the sale of £0.9bn of 30Y inflation-linked gilts, the epicentre of yesterday's market rout, and the focus of newly announced purchases operations, will be key. In the afternoon, the main flashpoint will be US small business optimism. Our economics team flagged the pricing intention component as an important indicator to watch for declining inflation. The US Treasury kicks off this week's supply slate with a 3Y T-note auction for $40bn. Central bank speakers will also be plentiful. From the ECB, Philip Lane and François Villeroy are on the schedule. We’ll look closely for comments on QT or on the risk of more fiscal spending (see above). Andrew Bailey, of the BoE, will also be closely watched as the Bank’s response to the jitter in the gilt market is coming under greater scrutiny. Read this article on THINK TagsRates Daily 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

A look at monetary policy’s paradigm shift and the impact on central bank balance sheets Source: Shutterstock   Around the world, central banks have aggressively hiked interest rates in an attempt to tackle record-high inflation and to bring inflation expectations back to where they were at the start of the Covid-19 pandemic. In Europe, this shift in monetary policy implied a shift from negative interest rates to positive interest rates but still with abundant liquidity. As central banks are moving into a more ‘normal’ world for monetary policy, this also means that bank reserves will again be remunerated at positive interest rates. Some market participants might have forgotten about this, but this new normal has always been the reality. It is not that banks are suddenly getting remunerated for their deposits at central banks – they always have and there has hardly ever been any speculation about central banks going bankrupt because they only pay interest rates on bank reserves. Admittedly, the current situation is different from anything we have seen in the past as excess liquidity as a result of quantitative easing (QE) and negative interest rates is extremely high. In the period of asset purchases and negative interest rates, national central banks (NCBs) did not hedge their interest rate risk but built reserves to address these risks. Still, with the unexpectedly sharp rise in policy rates, potential losses are arriving faster and exceeding existing buffers. Eurozone central banks running down their buffers, and their equity turning negative, has now become a possible scenario for the years ahead.  Central banks that can print money can never fall short of money. Central banks can make losses but they don’t go bust. Instead, central banks can roll over losses into the next year, have reserves or need to be “bailed out” by the governments via capital injections or an increase in their own capital.  In the eurozone, losses by the European Central Bank (ECB) can first be absorbed by a strategic reserve. If this is not enough, losses will have to be paid by the national central banks according to their share in the ECB’s capital. The ECB’s capital can also be increased, as was the case during the euro crisis when it was increased from €5bn to €10bn. National central bank losses do eventually end up with taxpayers as they transfer their net profits to national Treasuries. In its June 2022 Convergence Report, which covers EU member states that are not yet members of the monetary union, the ECB states that “any situation should be avoided whereby for a prolonged period of time an NCB's net equity is below the level of its statutory capital or is even negative... Any such situation may negatively impact the NCB’s ability to perform its European System of Central Bank (ESCB)-related tasks but also its national tasks. Moreover, such a situation may affect the credibility of the Eurosystem’s monetary policy. Therefore, the event of an NCB’s net equity becoming less than its statutory capital or even negative would require that the respective Member State provides the NCB with an appropriate amount of capital at least up to the level of the statutory capital within a reasonable period of time so as to comply with the principle of financial independence.” A clear hint at how the ECB probably looks at the current situation with national central banks running the risk of negative equity. Credibility is obviously key when talking about potential negative capital cases of central banks. Particularly in a situation in which central banks are trying hard to restore their credibility as inflation fighters, negative equity would be counterproductive. Even more as in a phase of policy rate hikes, printing their own money will not work. The option to print money in order to offset central bank losses would mean purchasing assets while hiking rates. A combination that hardly works. What can be done to reduce excess liquidity Reversed reserve tiering. The ECB introduced a reserve tiering system to deal with the impact of negative deposit rates on banks. Banks were only required to put a fraction of their reserves in the ECB’s deposit facility, the rest could be parked at a zero interest rate in the ECB’s current account facility. Now, a reversal of such reserve tiering makes sense as it allows central banks to not remunerate all reserves. My colleagues Antoine Bouvet and Benjamin Schröder have written an excellent piece on the recent developments of excess liquidity and central banks' options for how to deal with it in the UK, Switzerland and the eurozone. Read it here: Tiers of joy: European central banks adjust their liquidity settings As mentioned in the piece, the Swiss National Bank (SNB) was the first European central bank to actually implement a reserve tiering system at its September meeting. In a nutshell, banks’ sight deposits at the SNB up to a certain threshold will earn the SNB policy rate, currently 0.5%, and 0% on balances above that threshold. This, however, is only part of the story. In parallel, the SNB announced it will conduct liquidity-absorbing operations (Open Market Operations or OMOs).  The question is how to determine the threshold. This could be done by either determining a fixed amount or a multiplier of the reserves (as the ECB did for its first tiering). ECB could change the terms of targeted longer-term refinancing operations (TLTROs). As policy rates rise, the interest banks earn by placing liquidity at the ECB will gradually rise above the rate they are paying on their TLTRO loans, presenting them with an interest rate gain. If this is the sole problem it is intending to solve, one option would be to retroactively change the TLTRO terms by raising the applied interest rate. The ECB would then ‘earn’ a higher interest rate than it has to pay on banks’ deposits. However, such a change in terms would be detrimental to the predictability and attractiveness of future TLTRO operations. With the brunt of TLTRO loans due to expire by the middle of next year, one could also question the need to come up with risky solutions to a problem that will disappear in nine months' time. A design similar to the one described above for the Bank of England, where a fixed amount earns 0% and balances above that threshold earn the policy rate, would guarantee some interest rate saving but wouldn’t provide an incentive for banks to repay TLTRO funds if the threshold is set low enough. If the threshold is set high, then the risk is that 0% becomes the marginal interest rate for many banks and that some countries end up being net lenders, and others net borrowers. The result would be a drop in money market rates in some countries and a rise in others. Reducing excess liquidity is the first step in avoiding negative central bank equity All in all, the rapid transition from negative to positive interest rates comes with unwarranted side effects, particularly as it (intently) coincided with ample liquidity. These side effects are losses for central banks which have triggered the first central banks to quickly withdraw excess liquidity and others are likely to follow. For the ECB, the easiest and least controversial way forward is a reversed tiering of the deposit facility. This option would not be as counterproductive to further rate hikes as offsetting potential losses by printing new money or asking governments for capital injections would be. Read this article on THINK TagsMonetary policy Eurozone ECB Central banks 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

Today, mainly important reports from the United States will appear. The report on inflation and the number of requests for unemployment insurance may significantly affect traders and give a picture of the condition of the US economy. On the old continent, we will mainly focus on the result of the German CPI. German CPI The monthly change and the annual consumer price index met expectations. The monthly change in the German CPI reached 1.9% and rose from 0.3%. Similarly, there was an increase in the annual change of the CPI from the level of 7.9% to the level of 10.0%. Switzerland Producer Price Index There were no forecasts for the Switzerland Producer Price Index. The monthly price of the change in the price of goods sold by manufacturers rose from -0.1% to 0.2%. After weak readings in July and August, this is a positive signal for this sector. On the other hand, the PPI YoY fell by 0.1%, thus reaching the level of 5.4%. BOE Credit Conditions Survey The Bank of England (BoE) will published the results of their Credit Conditions Survey for Q3, 2022. The bank conducts such research every quarter. As part of the Bank of England mission to maintain monetary and financial stability, the bank conducts research to understand credit trends and changes. Today's quarterly survey of construction banks and lenders contributes to this work. The survey covers: Secured and unsecured loans to households. Loans for non-financial corporations, small businesses and non-bank financial companies. Speeches of the day At 8:00 CET the first speech of the day was the speech from Germany. The speaker was President Nagel. He is also voting member of the ECB Governing Council. He's believed to be one of the most influential members of the council. For this reason, his speech may significantly affect the monetary situation of the euro zone. The next speech will be from the Bank of England which is set at 13:00 CET. Dr Catherine L Mann serves as a member of the Monetary Policy Committee (MPC) of the Bank of England. Her public engagements are often used to drop subtle clues regarding future monetary policy. US Core CPI The Core Consumer Price Index (CPI) measures the changes in the price of goods and services, excluding food and energy. The current reading of the indicator is expected to decline by 0.1% to 0.5%. The previous reading was at 0.6% and it was an increase from the July drop (0.3%). On the other hand, the annual change in the index is forecasted at 6.5%. And it may mean an increase from the level of 6.3%. US CPI Today the US inflation report will be published. This report can significantly impact the foreign exchange market. Read more about forecasts for the current level: https://www.fxmag.com/forex/inflation-report-ahead-what-might-it-look-like-in-the-united-states-u-s-cpi US Initial Jobless Claims There will also be a weekly report on the number of unemployment insurance applications today. The previous reading was negative as it rose to a higher level than expected. Current forecasts show a further increase in this number from 219K to 225K. The expected further negative results in a row may translate into deterioration of the economy in this sector. Crude Oil Inventories The weekly report about change in the number of barrels of commercial crude oil held by US firms will be published at 17:00 CET. Forecasts for this period show an increase from -1.356M to 1.750M. The increase in crude inventories is more than expected, it implies weaker demand and is bearish for crude prices. Summary 8:00 CET German Buba President Nagel Speaks 8:00 CET German CPI (YoY) (Sep) 8:00 CET German CPI (MoM) (Sep) 8:30 CET Switzerland PPI (MoM) (Sep) 10:30 CET BOE Credit Conditions Survey 13:00 CET BoE MPC Member Mann 14:30 CET US Core CPI (MoM) (Sep) 14:30 CET US Core CPI (YoY) (Sep) 14:30 CET US CPI (MoM) (Sep) 14:30 CET US CPI (YoY) (Sep) 14:30 CET US Initial Jobless Claims 17:00 CET Crude Oil Inventories Source: https://www.investing.com/economic-calendar/

Trading in the financial markets in the second half of the year is pure pleasure. The stock indices of the US and EURUSD step on the same rake with enviable frequency, counting on a dovish reversal where it does not even exist. Even the acceleration of US core inflation to 6.6% in September, the highest mark in 40 years, was seen as a command to euro fans. Where, where are you heading, fools? When the probability of a 75 bps hike in the federal funds rate in December jumps from 35% to 65%, and its ceiling rises from 4.5% to 5%, selling the US dollar is absolutely the wrong strategy. The US currency is enjoying well-deserved popularity in 2022 due to the aggressive tightening of the Federal Reserve's monetary policy and high demand for safe-haven assets due to recurrent stresses. Why get rid of it if the rate of monetary restriction is increasing, and there is no end in sight to the problems? The same crisis in the British debt market that has swept through global bonds in waves is far from over. Bond yield dynamics The government of British Prime Minister Liz Truss decided to turn it into a farce. They say that it is not the mini-budget that is to blame for the shocks, but the Bank of England, which raised rates more slowly than the Fed. In fact, as European Central Bank President Christine Lagarde says, during a period of monetary policy normalization, care must be taken to shift the focus of fiscal policy towards measures that keep debt sustainable. And what about Germany, which has announced a €200 billion stimulus package to support households hit by the energy crisis? A new fire could break out in the eurozone debt markets. So it turns out that problems arise in the eurozone, and investors flee from them to America. This leads to the strengthening of the US dollar no less than the monetary policy of the Fed. Which, by the way, does not think to slow down. What did the financial markets come up with amid the acceleration of US inflation, but their next campaign against the Fed will most likely end in another fiasco. Of course, EURUSD's paradoxical rise in response to strong core inflation figures can be blamed on the "buy the dollar on the rumor, sell on the facts" principle, but smart people don't do that. They prefer to wait until the bears throw away the ballast, unsure of the continuation of the downward trend of traders, and then move down again. In the end, nothing has changed. The eurozone economy looks worse than the American one, the Fed is already wrapping up the balance sheet, while the ECB is going to start doing this only in 2023, the armed conflict in Ukraine is not over, and there is no end in sight to the energy crisis. Technically, on the EURUSD daily chart, the bulls are trying to start a correction. Their failure to do so will result in the pair closing below the moving average near 0.978. If this happens, the euro will need to be sold on a break of the fair value of 0.97.   Relevance up to 15:00 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/324375

After a hot US inflation report, the focus shifts in the coming week on the inflation result in the euro zone. The figures are published by Eurostat, the statistical office of the European Union. This reading is specific because we see the results for the euro area and not for the whole union. Previous data Inflation has been in an upward trend since the beginning of the year. At first, it went down a tenth of a percent. March grew rapidly by 1.7%, largely due to the start of the war in Ukraine. Later it increased successively, until in August it exceeded the threshold of 9.0%. The euro area annual inflation rate was 9.1% in August 2022, up from 8.9% in July. A year earlier, the rate was 3.0%. European Union annual inflation was 10.1% in August 2022, up from 9.8% in July. The result for the European Union was higher than for the euro area, because in the union there are more countries that have an impact on the final result. The lowest annual rates were registered in France (6.6%), Malta (7.0%) and Finland (7.9%). The highest annual rates were recorded in Estonia (25.2%), Latvia (21.4%) and Lithuania (21.1%). We can observe that the highest inflation results appeared in the countries of Eastern Europe, especially Baltic countries. These countries are closest to Russia and Ukraine, where war is currently being fought, and economically they will suffer the most from it, including high inflation. Source: eruostat.eu Forecast In the euro area, inflation is expected to reach 10.0% Due to the tense situation on the European gas markets, the experts also maintain their forecast of a recession in the euro area. However, the economic slowdown is supposed to be mild. In August, the highest contribution to the annual euro area inflation rate came from energy. It is forecasted that the last quarter of this year will be energy-hard for Europe. For this reason, we can assume that it is the energy sector that will play an important role in the rise in inflation. The price increase in this sector will be significant. According to Eurostat on its Twitter account, energy prices increased by + 40.8%. Another sector that will see significant growth is food, alcohol & tobacco + 11.8%. The prices of many commodities - crucially including food - have also been rising ever since COVID-19 pandemic lockdowns were first introduced two years ago, straining global supply chains, leaving crops to rot, and causing panic-buying in supermarkets. The war in Ukraine again dramatically worsened the outlook, as Russia and Ukraine account for nearly a third of global wheat and barley, and two-thirds of the world's exports of sunflower oil used for cooking. The smallest increase will be in other goods + 5.6% and services + 4.3%.   Euro area #inflation up to 10.0% in September 2022: energy +40.8%, food, alcohol & tobacco +11.8%, other goods +5.6%, services +4.3% - flash estimate https://t.co/6PNYzrCwCS pic.twitter.com/NlnZGeoewp — EU_Eurostat (@EU_Eurostat) September 30, 2022 In the euro area, Estonia will still have the highest inflation (24.2%) and the lowest in France (6.2%). As we can see, the prospects for European economies are bleak. Moreover, with Europe driving up prices, gas is becoming too expensive in other parts of the world.

Looking at all the evidence available so far, it looks like the eurozone fell into a shallow recession in the third quarter. For the European Central Bank, this is unlikely to be enough to prompt an immediate dovish pivot given its determination to hike interest rates in the face of double-digit inflation. We still expect another 75bp hike in October   A recession in the eurozone has now become the near-consensus view, with the IMF being the latest international institution to predict a contraction in the eurozone economy in 2023. The only question seems to be how severe this winter recession will be and when it will start. We take a look at whether the economy actually started to shrink in the third quarter. Soft data suggests that a recession is likely to have started During the pandemic, we developed a nowcast indicator that gave us insight into how the eurozone economy was performing during lockdowns. While it was designed to perform well in the specific circumstances of the pandemic, there is merit in looking at it once again. The big caveat is that electricity use is an important driver of the index, which has of course been subject to large productivity gains as the energy crisis has unfolded. Nevertheless, we see that the direction for most underlying variables is slightly negative at the moment, corresponding to a view that the economy fell into a mild contraction at the end of the third quarter. Nowcast tracker suggests that activity has been moderately declining recently For more on how this index is constructed, read here: https://think.ing.com/articles/introducing-the-ing-weekly-economic-activity-index-for-the-eurozone/ Source: ING Research   Mobility indicators are an important part of the nowcast index. When the economy reopened earlier in the year, we saw a strong increase. But except for workplace activity, most mobility indicators normalised during the spring and have remained at these levels over the course of the third quarter. Our average of the Google mobility indicators shows that the second quarter still saw large mobility gains, while the third quarter was flat. While seasonal factors may understate the performance in this regard, it does seem fair to assume that most, if not all, of the post-lockdown rebound is now behind us. Adding to meagre nowcast data, surveys suggest that a recession is likely to have started already. The composite PMI was below 50 – signalling contraction – for all three months of the third quarter. In fact, it gradually worsened as the quarter progressed, with September showing more serious signs of contraction as the summer months ended. Both services and manufacturing activity are now well below 50. This is a broader indicator of activity, which adds to signs that a shallow recession began in 3Q. Still, some evidence from data not collected from surveys would be useful so as not to miss out on positive surprises. Retail sales are weak and tourism is not expected to make up for it When looking at consumer spending, we see a clear downward trend in retail sales. November last year was the recent peak in sales activity after which a steady decline set in. This is because of the sharp decline in purchasing power that households have experienced since then, but will also be related to the reopening of certain services. With people returning to restaurants and bars and starting to take holidays again, spending patterns have shifted away from goods. The latter seems to be a smaller part of this though. As chart 2 shows, people are spending more than ever in retail, but volumes are down. So the impact of inflation is that people are forced to spend more and more at the store but take home less for it. Interestingly, car sales have been increasing in August, coming from a very low base. Consumers pay more in retail, but take home lower volumes than late last year Source: Eurostat, ING Research   The ECB put a lot of emphasis on the positive impact of tourism on third-quarter growth. This is a bit of a blind spot in terms of more frequent data and could indeed add to positive activity this quarter. Looking at overnight stays in the eurozone, we see that July and August were very close to pre-pandemic levels which suggests continued 3Q strength, but businesses are less optimistic. Surveys suggest that the peak in tourism activity was in June and that the summer may have slightly disappointed. Still, tourism is likely to have added positively to the third quarter GDP growth number. All in all though, it looks like the summer was not strong enough to have kept consumption growth positive overall. Industry limits losses so far due to improving supply chains, but trend is down When looking at industry, we see a divergence between the survey and hard data so far. While surveys suggest a sizable weakening in activity, August data was better than expected. It seems that the improvement in supply chain problems and the availability of inputs to production are allowing businesses to catch up on backlogs of orders. Still, new orders are falling and survey data suggests a weaker September. Particularly in energy-intensive sectors, production seems to have dropped again in September. The German statistical office has started to release a new times series for energy-intensive industry, showing that production in these sectors dropped by more than 8% between February and August. If September was indeed weaker than August, industrial production will have been negative on the quarter, adding to expectations that the economy was already in a shallow contraction in 3Q. Production recovered a bit in August, but energy-intensive sectors look problematic in September Right chart shows total manufacturing and the most energy-intensive sectors Source: Eurostat, Macrobond, European Commission DGECFIN, ING Research   Interestingly enough, trade is very difficult to judge at the moment. Data on volumes is hard to come by and strongly rising prices for energy have caused nominal imports to soar. It looks like real export growth weakened over the summer, but imports could have fallen even more as energy is such an important component and energy use is down due to high prices. This means that net exports could have actually contributed positively to GDP growth last quarter. If this makes growth positive, it would mean that a recessionary environment saw positive growth. Just as the US went through a technical recession in the first half of this year when the economy contracted but no real signs of recession were visible, so the eurozone could be in a technical expansion, where the economy expands in a recessionary setting. Contraction in 3Q, but no smoking gun for a dovish pivot from the ECB Taking this all together, we find enough weakness in recent data to believe that a recession has already started and stick to our forecast of a -0.2% quarter-on-quarter contraction in 3Q. But shallow negative growth – still held up by temporary recovery factors – is also unlikely to give the ECB the smoking gun for a dovish pivot. In fact, at the next ECB meeting on 27 October, there won’t be any new staff projections, nor will there be hard data for September, allowing the ECB to announce another hike by 75 basis points. It will take until the December meeting before the ECB has a better view on the severity of the recession, which should then be enough to embark on a dovish pivot. Read this article on THINK TagsGDP Eurozone ECB 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 Bank of Japan (BOJ) board member Seiji Adachi is back on the wires this Wednesday, noting that “recent yen fall are very rapid,” which “could heighten uncertainty for firms planning capex.” Additional comments “Japan's consumer inflation may accelerate quite rapidly in Oct.” “Japan's inflation to remain high for some time early next year.” “Don't see immediate need to take additional steps to address worsening functioning of JGB market.” Market reaction These comments have little to no impact on the Japanese currency, as it resumes its drop versus the US dollar in early Europe. The pair is trading modestly flat at around daily highs of 149.30, as of writing.

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.

The final estimate of eurozone inflation has been adjusted down from 10% to 9.9%. When looking at the details there's little to be optimistic about. But the chances of peak inflation happening soon are increasing Monthly developments in inflation are concerning Inflation of 9.9% in the eurozone in September marks a huge jump from the 9.1% seen in August. We discussed our first thoughts on the reading here. Now that more detail has been released, let’s see whether there are any positive signs of inflation turning around. Let’s look at monthly developments, which we judge on a seasonally-adjusted basis to allow for month-on-month comparisons (seasonal adjustments are our own). The one bright spot was goods inflation, which fell on a seasonally-adjusted monthly basis from 0.8% to 0.3%. Other than that, jumps in services and food inflation stand out. Energy inflation continues to be too high as well, so the broad conclusion is that inflation remains far too high across all broad categories. Monthly inflation came in hot again as most categories saw prices grow faster than in August Seasonal adjustment from ING Research Source: Eurostat, Macrobond, ING Research   Looking somewhat deeper under the hood, we see that the jump in September was mainly driven by the end of the German €9 ticket for public transport as most other services saw stable price growth compared to last month. Package holidays’ inflation was elevated over the summer but dropped back in August and September, while other categories have been fairly stable (albeit at rates that are far too high). So, next month is likely to see slower services inflation on a monthly basis. Services inflation was driven by the reversal of the €9 public transport ticket in Germany Seasonally adjusted by ING Research Source: Eurostat, Macrobond, ING Research It's far too early to call peak inflation, but chances of a peak soon are increasing Energy inflation saw another uptick in both fuel and electricity and gas categories on a monthly basis due to the bounce back in oil prices and pass-through to the consumer of the August peak in gas prices. For the months ahead, the energy price declines of recent weeks are very welcome for the overall economy, but the question is how quickly that feeds through to consumer prices. Do expect some relief of course as year-on-year growth in spot prices for natural gas has turned negative this month, while it was still 192% in September and 425% in August. We also see declining futures prices, albeit at a slower pace. Annual growth in fuel prices is also steadily dropping, from 15% in September to 11% in October. Energy inflation remains high, but drop in market gas prices should provide some relief Base effects will be more favourable in October and November. The monthly increase in the index last year was strong at 0.7% and 0.8%, which will drop out of the calculations this month. That should add to some relief. But on the other hand, steady increases in food and core inflation are unlikely to be reversed quickly so not too much is expected from the upcoming inflation reading. While we see encouraging news from the energy side, there is too much uncertainty about key drivers of price, such as geopolitical developments and weather, to call peak inflation at this point. Also, core inflation drivers show only modest improvements at this point, so we’re cautious about an immediate peak there too. Still, the current improvements on the energy side should provide some relief for the moment and as strong base effects are fading and price caps are discussed, chances of an inflation peak soon are increasing. Read next: Apple’s New Products | Goldman Sachs’ Results | In Amazon Rejected A Unionization| FXMAG.COM Read this article on THINK

A 75bp hike looks like a done deal but the European Central Bank has a lot on its plate at its October meeting. Quantitative Tightening talks are premature but it will seek to mop up bank liquidity. Rates, sovereign and money market spread upside dominates with the 10Y Bund set to test 2.5%. None of this should be enough to support the EUR President of the European Central Bank (ECB) Christine Lagarde Source: Shutterstock Too optimistic growth forecast no obstacle to a 75bp hike When the ECB meets again next week, it looks as if the entire Governing Council could start humming the old Depeche Mode song “I just can’t get enough” as a choir. The hawks have clearly convinced the few doves left of the necessity to go big on rate hikes again. Contrary to the run-ups to the July and September meetings, there hasn’t been any publicly debated controversy on the size of the rate hike. In fact, ECB President Christine Lagarde seems to have succeeded in disciplining a sometimes very heterogeneously vocal club. The hawks have clearly convinced the few doves left of the necessity to go big on rate hikes again The economic backdrop of next week’s meeting has hardly changed from September. Confidence indicators have continued to drop, while hard data points at a very mild contraction of the eurozone economy in the third quarter. If anything, the ECB’s September growth projections that looked already very optimistic six weeks ago have become even less likely. Needless to say that the outlook for the eurozone economy is surrounded by an extremely high degree of uncertainty. The precise pass-through of higher energy and commodity prices on growth and inflation and the precise fiscal policy reaction are crucial but also very unclear determinants of eurozone growth and inflation in the coming months. A lot on the ECB's plate besides hikes At the current juncture, the ECB has turned a blind eye on recession risks but is highly determined to bring down inflation and inflation expectations. To this end, it is hard to see how the ECB cannot move again by 75bp at next week’s meeting. As the 75bp rate hike looks like a done deal, all eyes will also be on other, more open, issues: excess liquidity, quantitative tightening and the terminal interest rate. As regards excess liquidity, this seems to be the most pressing topic for the ECB and a solution could already be announced next week. Basically there are two possible options: reinstating a tiering multiplier or an ex post change of the terms of the targeted longer-term refinancing operations (TLTROs) in order to trigger early repayments. We think that reinstating a tiering multiplier would be the easiest option. Changing the TLTRO terms could hit the ECB’s credibility and would lead to reluctance of banks to ever make use of the TLTROs in the future again. As regards quantitative tightening, we think that markets have got ahead of themselves. Even if the discussion might have started at the ECB, with current financial stability risks, the recent UK experience and a very uncertain macro outlook, QT is still some way out. Christine Lagarde mentioned several times that interest rates would first have to be brought to their normal or neutral levels before any QT could start. Any QT would rather be an end to reinvestments than actively selling bonds. As we still see that end of the ECB’s rate hike cycle in the first quarter of next year, a gradual phasing out of the reinvestments under the Asset Purchase Programme (APP) could start in Spring 2023, at the earliest. As regards the level of the terminal rate, French central bank governor Francois Villeroy de Galhau said in an interview with the Financial Times that the ECB could “go quickly” to a deposit rate of 2% by year-end. ECB chief economist Philip Lane made similar comments, indicating that the ECB currently sees the neutral interest rate slightly above the common range of between 1% and 2%. We don’t expect a clear communication on where the terminal interest rate could be but see a growing consensus at the ECB that at least the neutral rate is currently a deposit rate of around 2%. This fits into our ECB call of another 50bp rate hike in December and 25bp in February before pausing as there is a high likelihood that already at the December meeting the ECB’s inflation forecasts for 2024 and 2025 will point to a return to price stability. Interestingly, since the start of the year, the ECB surprised to the hawkish side at every single meeting. Next week’s meeting could be the first one without such a surprise as the ECB has finally managed to guide market expectations. A 75bp rate hike looks like a done deal and the reinstatement of a tiering multiplier could be the first answer to tackle excess liquidity. The ECB can simply not get enough of hiking rates aggressively. 10Y Bund and swap rates won't turn before inflation starts declining Source: Refinitiv, ING Rates: upside risk dominates for now High rates volatility, and the underlying uncertainty about the growth and inflation outlooks, don’t allow investors to focus on the long-term picture. We think there is sympathy with the view that the ECB’s hiking cycle will be stopped in its tracks by the looming recession, we doubt many market participants are able to position for it. All this is to say, near-term upside risk dominates and will dominate as long as investors haven’t seen tangible evidence of a downtrend in inflation. This puts 10Y Bund and EUR swaps within touching distance of 2.5% and 3.4% respectively before year-end. 10Y Bund and EUR swaps are within touching distance of 2.5% and 3.4% respectively before year-end With talk of QT, withdrawing bank liquidity, and front-loaded hikes, the ECB is piling risks on financial markets. The debacle in the gilt market in recent weeks should serve as a cautionary tale and is another reason for investor caution. Sovereign spreads have remained relatively stable in a context of elevated rates volatility and QT chatter, all this as Pandemic Emergency Purchase Programme (PEPP) bi-monthly data showed minimal market intervention in August and September. An accelerated timetable for QT would provide the impetus needed for the 10Y Italy-Germany spread to break above the fateful 250bp line. Even with all that’s going on in long-dated interest rates, the action will probably be in money markets after the meeting. Whatever option the ECB retains to cause a repayment of TLTRO loans, the result will at least be a reduction in liquidity and greater sensitivity of money market rates to credit and sovereign spreads. Tiering, the most likely of these options, could have longer-lasting effects, ranging from easing collateral pressure in the best of cases, to differentiated pass-through of interest rates if not designed properly. Money market and sovereign spreads aren't pricing ECB balance sheet reduction yet Source: Refinitiv, ING A strong euro is a welcome – but unlikely – development While it’s true that the ECB has consistently surprised on the hawkish side in the past few meetings, the positive impact on the euro have been null. As shown in the table below, EUR/USD mostly weakened in the six hours following the last five ECB announcements.   Source: ING, Refinitiv We doubt there will be much support to the euro after the October announcement, even if the ECB attaches a hawkish message to a 75bp rate hike, as: 1) EUR/USD beta to short-term rate differentials has remained low; 2) markets have remained structurally pessimistic on the eurozone’s domestic outlook despite the recent drop in gas prices; and 3) the Fed’s hawkishness continues to fuel a strong dollar. Attempts by the ECB to lift the euro through more tightening should still be unsuccessful in the near term and we continue to target 0.92 as a year-end value in EUR/USD, with any upside correction proving only temporary. Read this article on THINK TagsInterest Rates Foreign exchange ECB meeting 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 fight against inflation is much softer in the eurozone than in the United States because of the risk of a social crisis, analysts at Natixis report. The US government and central bank are not afraid of a social crisis “The US strategy is to rapidly reduce inflation, whatever the cost of this strategy (loss of household purchasing power, increase in unemployment), and this strategy can be implemented due to the lack of risk of a social crisis even if households suffer from this policy of rapid inflation reduction.” “The eurozone’s strategy is to reduce inflation very slowly, with the ECB hiking interest rates slowly and household purchasing power being boosted by fiscal deficits.” “The reason for this difference between the strategy of the US and the eurozone is fear in Europe of a social crisis if household purchasing power declines or if the unemployment rate rises.”

This morning, reports from Asia and the Pacific appeared. Traders also are now looking at macro data from the US - Philly Fed Manufacturing Index, the usual weekly data on initial unemployment claims, and data on existing home sales. Japanese Trade Balance (Sep) Japan provided data on exports and imports, and thus on its balance sheet, at the start of the day. The current reading is positive and shows an improvement in the trading result. The current reading is higher than the pronosed -2.167.4B and is at the level of -2.094.0B. For more than a year, Japan has been importing more than exporting, and since May the situation has worsened significantly. The balance then decreased from the level of -842.8B to the level of -2,384.7B. In the following months, the result was above the level of 1,000.0B. This situation is unfavorable for the country, so the current positive reading has a significant impact on the Japanese currency (JPY). Source: investing.com This positive trade result was largely influenced by the positive export performance. The published report shows that exports increased from 22% to 28.9%. He was taller than expected. This is the lowest result during the year. Source: investing.com Australia labor maket reports Australia today presented the result on the appearance of the labor market. The number of employees and the unemployment rate are instances of the country's conditions in this sector. Despite a rebound from the negative area in the previous reading, the number of people employed in September fell to 0.9K. The index scores for the year are generally in a downward trend. The decline will begin in the first half of the year, and the lowest level was in April at 4.0K. It then doubled and the annual peak was at 88.4K. The unexpected drop below zero occurred in the month following the highest score. Therefore, the positive reading from the previous period was significant for the economy. The current reading may weaken not only the economy but also the Australian dolar (AUD). Source: investing.com People's Bank of China Loan Prime Rate The positive news for the Australian labor market is that the unemployment rate remains at 3.5%. Another reading showed that this indicator holds up once again. People's Bank of China Loan Prime Rate will remain at 3.65% for the third time. EU Leaders Summit The most important event of the day for europe is Leaders Summit . The Euro Summit brings together the heads of state or government of the euro area countries, the Euro Summit President and the President of the European Commission. This meetings provide strategic guidelines on euro area economic policy. The comments made at this meeting may give a signal about future decisions, which at the moment are very important not only for the economy but also for the market. US Initial Jobless Claims Every weekly report on the number of individuals who filed for unemployment insurance for the first time during the past week will appear at 14:30 CET. Another increase is expected. The projected number of applications is at the level of 230K. This means that the indicator will be in an uptrend for the second week in a row. Philadelphia Fed Manufacturing Index The Philadelphia Federal Reserve Manufacturing Index rates the relative level of general business conditions in Philadelphia. The last picture of conditions is negative. It has been at a very low level since May, falling below zero levels. The latest reading was at -9.9, expected to rise to -5.0. This is a small but important improvement in conditions. The general appearance is negative. US Existing Home Sales Another important report for the US market is the change in the annualized number of existing residential buildings that were sold during the previous month. The outlook for this indicator is pessimistic. The number is expected to drop from 4.80M to 4.70M. Despite the economic situation, the index remained above 5.0M for a significant part of this year. The first drop below this level took place in July (4.81M). In August, it fell slightly to the level of 4.80M. Another decline may signal a deepening of the downward trend. This means that home sales deteriorate significantly. Source: investing.com Summery 1:50 CET Japan Exports (YoY) (Sep) 1:50 CET Japan Trade Balance (Sep) 2:30 CET Australia Employment Change (Sep) 2:30 CET Australia Unemployment Rate (Sep) 3:15 CET PBoC Loan Prime Rate 12:00 CET EU Leaders Summit 14:30 CET US Initial Jobless Claims 14:30 CET Philadelphia Fed Manufacturing Index (Oct) 16:00 CET US Existing Home Sales (Sep) Source: https://www.investing.com/economic-calendar/

In the current situation, the ECB turns a blind eye to the risk of recession, but is very determined to bring down inflation and inflation expectations. To that end, it is hard to imagine how the ECB could not raise rates again. The economic outlook The economic situation is not looking very good in Europe and the euro area. Recent data showed a worsening picture of the situation. Many experts believe that the region may face a serious recession in the near future. Also the attempts by the ECB to raise the euro exchange rate through further tightening should continue to be ineffective in the near future. The economy is expected to stagnate in the first quarter of 2023. Very high energy prices reduce the purchasing power of the population's income. Moreover, Russia's unjustified aggression against Ukraine continues to undermine the confidence of entrepreneurs and consumers. The steady rise in prices in Europe is making households and businesses prepare for even greater pressure in the coming months. Previous date Economic difficulties have arisen since the start of the covid-19 pandemic. The persistent threats caused by the pandemic continue to pose a threat to the smooth transmission of monetary policy. Nevertheless, the European Central Bank did not manage to raise interest rates at that time and for a long time the rate was at 0.0%. The situation regarding interest rates changed after the second quarter of 2022. Inflation rose sharply, and other macroeconomic data were also not optimistic. For this reason, the ECB decided to raise rates by 50 bp. The first rate hike was expected to be milder, the forecast was at 0.25%. Another hike was also hawkish. And now the rate is 1.25%. It’s true that the ECB has consistently surprised on the hawkish side in the past few meetings, but the positive impact on the euro have been null. Source: investing.com What to expect? The economic background has hardly changed since September. Confidence indicators continue to decline, while data for the third quarter point to a very mild contraction in the eurozone economy. Needless to say, the outlook for the euro area economy is surrounded by an extremely high degree of uncertainty. Price pressures across the economy continued to strengthen and widen, and inflation may increase further in the near term. It is believed that the peak of inflation is close, but the economic situation will depend on the situation related to Russia's invasion of Ukraine. The Governing Council stands ready to adjust all instruments to ensure that inflation stabilizes at the 2% target. Finally, the ECB managed to lead the market expectations and next week's meeting may be the first without such a surprise. According to the minutes from the previous meeting, policy makers at the European Central Bank (ECB) were concerned that inflation might be stuck at a high level, so aggressive tightening was necessary. We can expect that this mood will also replicate at the next week's meeting. The September hike of the ECB by 75bp was expected by the markets, and now it expects that its next move in politics, planned for October 27, will be similar. Contrary to the preparations for the July and September meetings, there was no public controversy about the size of the rate hike. Source: investing.com, ecb.europa.eu

A weaker-than-expected PMI confirms that the eurozone is now in recession. While pipeline price pressures are gradually abating, it seems too soon to give the all-clear on consumer price inflation. The European Central Bank (ECB) will therefore remain in tightening mode until the first quarter of 2023 Downturn confirmed The eurozone composite PMI flash estimate fell to a lower-than-expected 47.1 in October, from 48.1 in September. This is not only a 23-month low but is also the fourth consecutive month that the PMI has been below the 50 boom-or-bust level, clearly suggesting negative GDP growth. The manufacturing PMI came out at 46.6, while the services sector PMI is now at 48.2. The steepest downturns were seen in the most energy-dependent industries, such as chemical and plastics and basic resource sectors. Industrial powerhouse Germany saw the fastest decline in activity, while in France growth merely stalled. Forward-looking components of the survey don’t herald any improvement in the coming months – on the contrary. New orders for goods and services fell for the fourth month in a row. Excluding the Covid-19 pandemic, manufacturing orders saw the biggest drop since April 2009, while the decline in new business inflows into service sector companies was the strongest since June 2013. No wonder that backlogs of orders fell for a fourth consecutive month, especially in manufacturing. While there was still modest employment growth in October, there seems to be job cutting at some firms and hesitancy to hire in the wake of the uncertain economic outlook. This means that the job market is likely to be less of a support for consumption in the coming quarters. Too soon to give the all-clear on inflation In this rapidly weakening economic environment, supply chain delays have eased to the lowest in just over two years. Manufacturers also bought fewer inputs, reflecting lower production plans and inventory reduction policies in the wake of weakening sales. Easing raw material supply constraints were partially offset by rising energy costs and upward wage pressures, keeping the overall rate of input cost inflation elevated. This still translated into a high rate of increase in prices charged for goods and services, with rates of selling price inflation cooling only marginally in both manufacturing and services. While it seems obvious that upstream price increases are now softening, it still seems a bit too soon to give the all-clear on consumer price inflation. This is one of the last important economic data the ECB disposes of in the run-up to the meeting of the Government Council on Thursday. While in our view today’s figure clearly confirms that the eurozone economy is already in recession, the ECB has made it clear that a downturn would not deter it from tightening monetary policy, as long as inflation is not brought under control. With inflation hovering around 10%, the bank surely wants to restore its credibility. We therefore pencil in another 75bp hike this week and 50bp in December. As inflation is likely to start to come down in the first quarter of 2023 and signs of recession will become more prominent, we think the ECB will stop tightening after the February meeting when we expect the deposit rate to have reached 2.25%. Read this article on THINK TagsInflation GDP Eurozone ECB 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

EUR/USD has edged lower at the start of the week. In the European session, EUR/USD is trading at 0.9824, down 0.37%.   Manufacturing, services PMI point to contraction Germany is the locomotive of the Eurozone, and a faltering economy means trouble for the entire bloc. German Service and Manufacturing PMIs remained in contraction territory in September, below the neutral level of 50.0. The Manufacturing PMI fell to 45.7, down from 47.8 (47.0 est). The PMI has declined for a fourth straight month, as high energy costs and weak demand for goods have dampened factory production. German business activity is also struggling, as the Services PMI ticked lower to 44.9, down from 45.0, (44.7 est). The eurozone PMIs are also mired in contraction territory, and with winter coming and no end in sight to the Ukraine war, the PMIs will likely continue to decline in the short term.   ECB expected to hike by 0.75% The ECB meets on Thursday, with policy makers having to contend not only with a gloomy economic outlook, but also with spiralling inflation, with no sign of a peak. Eurozone CPI jumped to 9.9% in September, up sharply from the 9.1% rise in August. The markets have priced in a supersize 0.75% hike, which would bring the cash rate to 2.0% and will be looking for the Bank to declare its commitment to bring inflation back to the 2% target. A jumbo full-point increase is unlikely, but a possibility, given that inflation is close to double-digits. Investors will be monitoring the follow-up press conference, and the euro’s movement could well depend on ECB President Lagarde message to the markets – a signal that further rate hikes are coming would be bullish for the euro.   EUR/USD Technical EUR/USD is testing support at 0.9814. Next, there is support at 0.9753 There is resistance at 0.9924 and 0.9985     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. Euro slips lower on soft German PMIs - MarketPulseMarketPulse

The Spanish unemployment rate rose slightly to 12.7% in the third quarter, but is still very low. However, a sharp decline in hiring intentions shows that a cooling-off in the labour market is on the way. We expect unemployment to rise further in the coming quarters due to the deteriorating economic outlook, peaking at 14.3% in the third quarter of next year We expect unemployment to continue to rise in the coming quarters due to deteriorating economic conditions Unemployment rate slightly up in the third quarter According to INE figures released this morning, unemployment rose to 12.7% in the third quarter from 12.5% in the second quarter. With the exception of the previous quarter, this still puts unemployment at its lowest level since the third quarter of 2008, the start of the financial crisis. Although the unemployment rate is historically low, it is still well above the euro average. Eurostat's harmonised figures, which differ slightly from those published by INE, show that Spain's unemployment rate was 12.4% in August, compared with the eurozone average of 6.6%, a difference of 5.8 percentage points. For under-25s, the deviation from the eurozone average even runs to 12.7 percentage points. This average harbours large differences between regions. In the south of the country (Andalusia, Extremadura, Murcia etc) unemployment is typically above the national average, while the northern regions (Cantabria, Navarre, Catalonia, and so on) pull the average down a bit. We expect unemployment to continue to rise in the coming quarters due to deteriorating economic conditions. We predict that the Spanish economy will enter a mild recession starting in the fourth quarter of 2022 that will continue until the first quarter of next year. This will put some upward pressure on unemployment rates. Since unemployment rates usually lag somewhat behind the economic cycle, the biggest impact will be next year. We think that Spanish unemployment will peak at 14.3% in the third quarter of 2023. Unemployment rate, 1976-2022 Hiring intentions dropped sharply Although the labour market is still very tight, more signals point to a cooling in the coming months. The 12-month moving average of the number of vacancies has been stabilising for several months and seems to be at a peak. Business confidence has also deteriorated sharply in recent months, which will encourage companies to be more careful with new hires. This is already reflected in the latest Manpower survey, which polls every three months on the hiring intentions of companies. The latest results polling hiring intentions in the fourth quarter of 2022 show the largest quarterly decline in the index since the start of the survey in 2003. Although the index was historically high, this points to a turnaround in the labour market. The deteriorating economic outlook is already causing companies to be more cautious about hiring new people. Manpower survey – hiring intentions in the next three months, 2003-2022 A cooling economy will take longer to restore productivity to pre-Covid levels GDP per person of working age, a good measure of an economy's productivity, is still below its pre-Covid levels. Since 2014, following the financial crisis and debt crisis, the productivity parameter was on a strong remount. Between 2014 and 2019, GDP per working age population rose by an average of 2.6% per year. This came to an abrupt end with the onset of the Covid-19 pandemic. In the first two quarters of 2020, GDP per person of working age fell 24.2% from the last quarter of 2019 due to a sharp drop in activity. Afterwards, the measure recovered strongly. In each of the past three quarters, it grew more than 6% year-on-year but is still 3.5% below its 4Q19 pre-Covid levels. However, this increase is likely to be strongly driven by the activation of lower-productivity workers. This pushes GDP per person of working age higher, but puts pressure on real labour productivity per hour worked. We see that the latter has been under strong pressure since the beginning of this year (-3.1%). The end of Covid restrictions has allowed a lot of employees in the tourism and hospitality sector to get back to work, but these are typically employees who contribute relatively less to GDP. The tight labour market also makes it easier for less skilled and recent graduates to find a job – in general, these are also people with lower productivity. With activity again under strong pressure from the energy crisis and high inflation, productivity is likely to fall. Over the winter months, we forecast a contraction of 0.8% in the Spanish economy. As a result, it will probably take until 2024 before GDP per working age person returns to its pre-pandemic level. Productivity – GDP per working age population, Q4 2019 = 100 Spanish labour market supported by strong growth in open-ended contracts The high number of temporary contracts in Spain has long been one of the weaknesses of the Spanish labour market. According to Eurostat data, about 22% of Spaniards were on temporary contracts before the pandemic, compared to an average of 14.4% in the EU. However, the number of open-ended contracts has increased over the past year. The number of permanent employees reached a record high in the second quarter to 13.5 million employees (seasonally adjusted figures), an increase of 8.7% compared to the second quarter of last year. The number of employees on temporary contracts has fallen by 6.7% in the past year to just over four million. The increase started in the middle of last year but was accelerated by the labour market reform approved by the government in December. The share of permanent contracts has increased by three percentage points in one year, from 74% in the second quarter of last year to more than 77% in the second quarter of this year. It is too early to estimate the long-term effects of the labour market reform, but we can already say that the reform, which imposes additional restrictions on the use of temporary contracts, has resulted in many temporary contracts being converted into open-ended contracts. These also offer better protection during economic headwinds. A higher share of permanent contracts is also likely to mean that the rise in the unemployment rate, which usually follows a fall in economic activity, will be less pronounced than during previous recessionary periods. Share of permanent contracts Bleak economic outlook will lead to higher unemployment rate All in all, despite a slight rise in the unemployment rate in the third quarter, the labour market remains very tight. The bleak economic outlook, which is already prompting companies to be more cautious about new hires, will ease the pressure on the labour market in the coming months. We expect the unemployment rate to rise further to 14.3% in 3Q23, partly held back by a higher number of permanent contracts, before slowing down again. Read this article on THINK TagsUnemployment rate Spain Labour market GDP Eurozone 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

Technical Market Outlook: The EUR/USD pair has broken above the wave A high located at the level of 1.0000 and made a new local high at the level of 1.0091. The bulls wait for the ECB interest rate decision that is scheduled for release at 14:15 today in order to continue the rally higher despite the extremely overbought market conditions. In the longer term, the key technical resistance level is located at 1.0389 (swing high from August 11th), so the bulls still have a long road to take before the down trend reversal is confirmed. The mid and long-term outlook for the EUR remains bearish until the swing high seen at 1.0389 is clearly broken.     Weekly Pivot Points: WR3 - 0.99810 WR2 - 0.99177 WR1 - 0.98838 Weekly Pivot - 0.98544 WS1 - 0.98205 WS2 - 0.97911 WS3 - 0.97278 Trading Outlook: The EUR had made a new multi-decade low at the level of 0.9538, so as long as the USD is being bought all across the board, the down trend will continue towards the new lows. In the mid-term, the key technical resistance level is located at 1.0389 and only if this level is clearly violated, the down trend might be considered terminated. Please notice, there is plenty of room to the downside for the EUR to go, all of the potential technical support level are very old and might not be much reliable anymore. Relevance up to 09:00 2022-10-28 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/298587

The press conference after the rate hike announcement showed that the European Central Bank (ECB) is determined to continue hiking interest rates. However, while today's jumbo hike was a no-brainer, we expect much more controversial discussions in December and an end to the hiking cycle in February next year ECB President Christine Lagarde at today's press conference   The ECB has hiked interest rates by 75bp, bringing the deposit facility interest rate to 1.5% and the main refinancing rate to 2%. Contrary to the rate hike decisions in July and September, the size of today’s rate hike seems to have been uncontested and broadly supported by all ECB members. Alongside the expected rate hike, the ECB also announced changes to the current Targeted-Long-Term-Refinancing Operations (TLTRO), in terms of the applied interest rate and earlier repayment dates. The central bank also decided to set the remuneration of minimum reserves at the ECB’s deposit facility rate. Regarding the changed TLTRO terms, from 23 November 2022 onwards, the interest rate on all remaining TLTRO III operations will be indexed to the average applicable key ECB interest rates. There will also be three additional moments for earlier repayments. According to the ECB, “it is necessary to adapt certain parameters of TLTRO III to reinforce the transmission of our policy rates to bank lending conditions so that TLTRO III contributes to the transmission of the monetary policy stance”, which is a bit strange as the latest Bank Lending Survey had already signalled a tightening of lending conditions. As regards the decision to set the remuneration of minimum reserves at the ECB’s deposit rate and no longer at the refi rate, this should hardly have an impact as minimum reserves are currently only a fraction of overall excess liquidity. The ECB did not announce any reverse tiering. The sharpest and biggest rate hike cycle ever The ECB has now hiked interest rates by a total of 200bp over a period of slightly more than three months. It's the sharpest and most aggressive hiking cycle ever. In the previous two hiking cycles since the start of the monetary union, it took the ECB at least 18 months to hike rates by a total of 200bp. Today’s rate hike provides further evidence of the extreme paradigm change at the ECB. A year ago, ECB president Christine Lagarde said at a press conference that “the lady is not tapering”. Now, the ECB has conducted the most aggressive rate hikes in its history, despite a war in Europe, little signs of an overheating economy but rather indications of a looming recession, and record high inflation, which is mainly driven by high energy and commodity prices. A couple of years ago, the same ECB but different main characters might have decided differently. The current ECB, however, has woken up very late to the fact that even if inflation is driven by supply-side factors, too high inflation for too long can damage a central bank’s credibility and plant the seeds for unwarranted second-round effects. At the current juncture of a looming recession and high uncertainty, normalising monetary policy is one thing but moving into restrictive territory is another. With today’s rate hike, the ECB has come very close to the point at which normal could become restrictive. However, during the press conference, Lagarde said that the ECB might still have to hike rates at several more meetings as the job to bring inflation back to target is not done yet. First opening for a dovish pivot in December Looking ahead, the ECB seems determined to continue hiking interest rates, though no longer at the current jumbo size of 75bp. Lagarde tried to give the impression that there will be more than one more rate hike. However, her comments about the fact that the ECB no longer believes in any estimates of a neutral interest rate, after previous comments that the central bank no longer believed in its inflation projections, make it hard to identify the ECB’s precise reaction function. This reaction function can probably be summarised as 'whatever, whenever'. Lagarde also mentioned the word “recession” and stressed that incoming data and the next staff projections at the December meeting would be important. A first opening for a dovish pivot at the December meeting We think that the debate at the December meeting will already be much more controversial than today, delivering another 50bp rate hike. However, as the ECB’s inflation outlook for 2024 was already at 2.3% in September and will very likely be at 2% for 2025 at the December meeting, it is hard to see how the ECB can deliver more than an additional 75bp rate hikes. For us, the terminal rate remains at 2.25% for the deposit rate. The ECB has been too late and too slow with normalising monetary policy. It shouldn’t try to make up for it by being too high for too long. Read this article on THINK TagsMonetary policy Inflation Eurozone ECB 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

CNY rises again as USD finds renewed support ahead of next week's FOMC meeting Source: shutterstock Macro outlook Global markets: Expectations for Fed tightening continue to be pared back ahead of next week’s FOMC meeting. The May 23 Fed funds contract implied rate is now 4.74%. It was more than 5% earlier this month. This has also pulled back yields on Treasuries. 2Y Yields fell 13bp yesterday. 10y yields are now 3.919% after dropping 8.4bp overnight. There don’t seem to be any obvious catalysts for this. It is the blackout period so there are no Fed speakers. Falling reverse repo usage may be an indicator that the Fed could at least slow the pace of QT, but other than that, it looks mostly like speculation ahead of the FOMC meeting for some “pivot” hints. Despite the softer yield environment, the USD has caught a small bid and has pushed back below parity with the EUR, maybe benefiting from a softer equity backdrop too as the NASDAQ had another bad day ( -1.63%), following some softer sales guidance from Amazon. Equity futures are also still looking soft, so the current sentiment looks likely to persist through today. The USD was slightly stronger against most of the G-10 currencies,  though the JPY has held onto the ground it made yesterday. Asian FX is split, with the CNY bouncing higher after its plunge yesterday, weakening back to 7.229. The KRW and TWD, both of which topped the Asian FX pack yesterday will likely soften into today’s trading. G-7 Macro: As widely predicted, the ECB hiked the refi-rate by 75bp yesterday, taking it to 2%. This note From our Head Of Macro Research, Carsten Brzeski, summarises the decision and press conference. But in short, the ECB is not done with hiking yet as it moves closer to a restrictive rate setting. We also had 3Q22 US GDP data yesterday, which delivered a bigger-than-expected bounce back of 2.6% (saar). Though as our Chief US Economist, James Knightley states, “the outlook is deteriorating rapidly”. Today, we get preliminary October inflation data from Germany, which may continue to creep higher according to the consensus view.  3Q22 GDP for Germany is also released and should register a decline from the previous quarter, taking Germany one step closer to an official recession.  US September personal income and spending data don’t add much to the stock of macro knowledge and can probably be glossed over, though the University of Michigan consumer confidence data and inflation outlook will be worth a look. And finally, the BoJ meets today. As usual, nothing is likely to happen here, especially now the JPY is off its recent highs (see below).   Japan: Headline Tokyo CPI inflation rose quite sharply to 3.5% YoY in October (vs 2.8% in September, market consensus 3.3%). The core inflation rate excluding fresh food also hit 3.4%, the highest level since 1989. We don't think this morning’s much faster rate of inflation will change the BoJ's policy decision today. The BoJ takes a different view than the ECB. If inflation is not driven by demand-side factors, they will not change the easy policy stance and it seems like they believe this will maintain their credibility. Meanwhile, PM Kishida announced a 29.1 trillion yen extra budget. Including local government spending, the number adds up to 71.6 trillion yen.  South Korea: The authorities continue to calm down money markets by providing easier measures on policies. The BoK also eased some of its micro-policy measures. The BoK will temporarily (for three months starting Nov 1st) accept bonds issued by banks and nine state-owned companies such as KEPCO and KOGAS, as eligible collateral for banks borrowing money from the central bank. The plan to raise the Liquidity Coverage Ratio (LCR) from 70% to 80% will be postponed by three months to May 2023. The BoK will also carry out a temporary RP (until the end of January 2023) with an estimated amount of 6 trillion KRW.  The government also announced plans to ease mortgage terms from early next year. We think this will help ease market nervousness, but the housing market will continue to cool for the time being given that mortgage rates are now reaching 7%. What to look out for: US sentiment and core PCE Tokyo CPI inflation (28 October) Bank of Japan policy meeting (28 October) Australia PPI inflation (28 October) Taiwan GDP (28 October) US personal spending, core PCE and Univ of Michigan sentiment (28 October) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Asia 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 end of October and the beginning of November seems to be hectic time in the foreign exchange market, as the European Central Bank has already communicated its interest rate decisions, and the US Fed will do so on November 2. As a result, the forex market may see above-average volatility. Yesterday the European Central Bank raised its three key interest rates by an expected 75 basis points, the third consecutive hike. It could confirm the ECB's determination that further policy tightening would continue until inflation approaches its 2% target. The main refinancing operations rate and the central bank lending and deposit rates were raised to 2%, 2.25% and 1.50%, respectively, with the decision taking effect on November 2. BBN reported that the ECB said that the current inflation rate, which stood at 9.9% last month, remains "far too high" and would remain at elevated levels in the coming months.  How did the euro exchange rate react to the ECB's decision? Source: Conotoxia MT5, EURUSD, H1 The euro exchange rate fell immediately after the ECB decision, perhaps because the market expected a more hawkish stance. The Bank has changed its statement that interest rates will rise at future meetings to a statement that decisions will be made from meeting to meeting. As a result, the market has pushed back its expectations by a full 25 bps, and is perhaps hoping for a softer tone from the ECB due to a potential recession in 2023. Statements after the ECB decision - will they affect the euro? According to the BBN website, Bank of Lithuania head Gediminas Simkus argued on Friday that the next interest rate hike must be significant. A Simkus hinted at the possibility of the ECB raising key rates by another 75 basis points after yesterday's hike, noting that this should not be the new norm. He also shared expectations that the ECB will raise inflation projections in December. In contrast, Bank of France Governor Francois Villeroy de Galhau said Friday that the European Central Bank needs to be cautious in the way it will approach quantitative tightening. However, he expects rapid moves toward normalizing interest rates, BBN reports.ECB President Christine Lagarde said yesterday that the bank's governing council will formally discuss a reduction in the asset purchase program (APP) in December. What can the Fed do? Recent data from the US show a decline in inflation and a drop in activity in the industrial sector and the real estate market. As a result, the market seems to expect that the Fed may begin to slow down the pace of interest rate hikes, and after the November hike, the chance of an end to the cycle in Q1 2023 seems to be increasing. Moreover, the market may expect that the Fed will still cut interest rates by 50 bps next year. Such expectations could have a negative impact on the US dollar and could strengthen the euro, but confirmation of this could be possible on November 2. Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service) Read more reviews and open a demo account at invest.conotoxia.com 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. 75,21% 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. Read the aricle on Conotoxia.com

Spanish inflation fell in September to 7.3% from 8.9% in September, marking the third consecutive month of decline. The main driver is the fall in the energy component Spanish inflation falls to 7.3% in October Spanish inflation fell to 7.3% in October from 8.9% a month earlier. This is now the second month in a row in which inflation has fallen. Core inflation, excluding more volatile energy and food prices, remained flat at 6.2%. The decline in headline inflation is mainly due to a drop in energy prices. This translates into a significant drop in the energy component. Clothing and footwear prices also rose more moderately than last year, reducing headline inflation, albeit to a lesser extent. From 1 October, the Spanish government reduced VAT on gas from 21% to 5% to soften the inflation shock. However, according to our calculations, this had only a marginal effect on the CPI of 0.1 percentage point. Many factors ease inflationary pressures, but the decline will be very gradual There are many structural factors easing some of the pressure on inflation. Many commodity prices have already fallen sharply from their peak levels a few months ago. Container transport prices have also fallen significantly, and supply chain problems continue to ease. These factors point to less inflationary pressure in the pipeline. Much will also depend on the development of energy prices. These have recently fallen sharply from the peak in August thanks to favourable weather conditions, but the question is how long this will last when winter really starts. Due to all these factors, producer price inflation has also already fallen from 47% in March to 36% in September but is still very high. This ensures that transmission to consumer prices also starts to weaken, and that will continue as the economy slips into recession. Cooling demand will continue to ease inflationary pressures as it will become more difficult for companies to pass on higher prices to the end customer. Although still historically high, the number of companies planning to raise prices further also shows a downward trend in a wide range of sectors. Price selling expectations only continue to edge higher in food and consumer goods.  This shows that inflationary pressures will remain high in the coming months and only very gradually start to ease. For the full year of  2022, we forecast inflation to reach around 8.7%. In 2023, inflation will gradually start to come down, reaching 4.4% in 2023. Read this article on THINK TagsSpain Inflation Eurozone 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 eurozone contraction hasn’t started yet as GDP growth for the third quarter came in at 0.2%. Inflation continues to increase though, which sets the eurozone economy up for a tough winter as a recession is looming Inflation continues to be a problem across the eurozone. Pictured: shoppers in Madrid GDP growth of 0.2% is better than expected A positive surprise for eurozone GDP. In fairness, this has happened often during the pandemic recovery as the rebound effect has been stronger and lasted longer than expected. While cracks in the eurozone economy are clearly showing, the economy continued to expand in the third quarter. In Germany, it looks like this was mainly due to the last legs of the consumer rebound, while in France consumption growth had already stalled. Investment was the positive surprise in France. Spain experienced fast slowing growth but the tourism recovery prevented the economy from going into the red in the third quarter.  Overall, the picture remains bleak though. Consumer confidence is near historical lows as real wage growth is at a multiple-decade low at the moment. This weighs substantially on the consumption outlook, as retail sales have already been trending down over recent quarters. The reopening of economies boosted services, but that effect is now fading. With interest rates up and the economic outlook uncertain, investment expectations are weakening too. We therefore still expect the economy to contract over the coming quarters. Inflation into double digits The inflation rate jumped once again in October, to a whopping 10.7%. This was partly on higher consumer energy prices. The low prices on the wholesale market in recent weeks are clearly not yet translating into declining prices for households. In fact, it’s likely that this will only happen in a few months’ time and even that is a big 'if' because it depends on uncertain factors such as energy supply and the weather of course. Other components saw little bright spots in this October release. Food inflation continues to trend up fast despite commodity prices moderating, and goods inflation is also still showing large monthly gains which that's pushed core inflation up to 5%. Services inflation trended just mildly higher to 4.4% in October. Overall there is still clear evidence that the second round effects of the supply-side shocks to the economy keep pushing up inflation despite moderating demand. Tough time for a pivot? The slightly more dovish tone at the ECB press conference on Thursday indicates we shouldn't come to expect such extensive rate hikes, such as the 75bp rise they gave us last week, to be a feature of forthcoming meetings, especially since a recession is drawing closer. Today’s data will provide more ammunition for the hawks to show that there is no need to make a sudden pivot yet. Overall though, we keep reiterating that current inflation cannot be fought effectively by monetary policy that has the most effect with a big lag. And hawks cannot expect GDP to keep surprising on the upside forever. With economic conditions weakening and a recession in the making for the winter, we think the ECB is going make its next hike somewhat smaller at 50 basis points. Given the historic total size of the hikes the ECB is delivering, that will have quite the slowing impact on the economy next year. Read this article on THINK TagsInflation GDP Eurozone 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

Another plunge in industrial orders shows that last week's positive GDP growth reading was a last hurrah for the economy. The slide into recession continues German industrial orders just took another sharp hit, plunging by 4% month-on-month in September, from -2% MoM in August. On the year, industrial orders were down by almost 11%. Since the start of the year, German order books have shrunk by almost 15%. At the start of the year, German industrial order books were richly filled and provided decent anti-recession insurance. Since the start of the Ukraine war, however, this insurance has lessened by the month. Last week, surprisingly strong GDP growth for the third quarter might have given the impression that the German economy could defy recession. This year’s order book deflation, however, sends a clear signal that these signs of hope are illusionary. The long slide into recession continues. Read this article on THINK TagsIndustry Germany GDP 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

Eurozone retail sales grew by 0.4% month-on-month in September, rounding out a disappointing quarter for sales. We see a continued cloudy outlook for retail as spending power remains under pressure and confidence is still near record lows A modest increase in retail sales in September rounded out a disappointing third quarter in terms of consumer spending. While there were some upside surprises to be noted, the consumer in general has started to reign in spending as the cost-of-living crisis continues and reopening effects from the pandemic fade. The effect of inflation is very apparent in retail sales as consumers bought -2.6% lower volumes in September than in June of last year but have spent 8.1% more. Netherlands and Germany led the way with 1.3 and 0.9% month-on-month increases respectively, while France, Italy and Spain all saw more or less stable retail trade compared to last month. The outlook for retail remains bleak, with ongoing inflation eating into consumer spending power and uncertainty about the economy increasing. This has resulted in record-low consumer confidence over recent months. While that is not necessarily a strong predictor of household consumption, movements as pronounced as this have always been associated with a contraction in consumption. We expect consumption to contract in the current and coming quarter, followed by a very modest recovery. Read this article on THINK TagsRetail sales GDP Eurozone 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

German producer prices lost 4.2% in October; its year-over-year growth rate slowed dramatically by 11.3 percentage points. This is a necessary reversal of the inflation trend that Europe's largest economy has been waiting for. At the same time, it is worth bearing in mind that inflation has climbed too high, accounting for 45.8% y/y in producer prices in the previous two months, and regulators are looking with great concern at how broadly it will be beyond energy and food. Not surprisingly, we saw the first signs of a trend reversal in import prices (-0.9% m/m and slowing from 32.7% to 29.8% YoY in September). In October, we see an impressive drop in producer prices, supported by a cut in wholesale selling prices. The October price decline is an argument against the euro as it brings somewhat closer to the point at which the ECB will stop its rate hikes. But at the same time, we should remember that the ECB overslept now when it should have started its fight against inflation, which took it to higher levels compared to the US and Switzerland. Also, what is most worrying for central banks worldwide is that the longer prices rise at an elevated rate, the more it begins to be regarded as the norm. The inertia of the ECB could well manifest itself in the fact that it will raise rates after Q1 2023, when the Fed has already reached a plateau. Simply put, weak eurozone inflation figures are not a problem for the euro and may even support its strength if the ECB sticks to its hawkish policy while it saves more purchasing power of money.

Markets were quiet yesterday, as the US was closed for Thanksgiving. European markets mostly surfed on the positive reaction from the US equities to the Federal Reserve (Fed) minutes released a day earlier. EU Stocks The German DAX advanced to a fresh 5-month high, as the French CAC40 hit a fresh 7-month high, thanks to the euro’s appreciation against the greenback, which somehow eases the inflationary pressures for the European companies, along with the falling energy prices. Central Banks Elsewhere, the latest minutes from the European Central Bank (ECB) released yesterday revealed that ‘a few’ officials favored a smaller rate increase, than the 75bp that the bank delivered last month, citing the other monetary tightening measures that would help restricting the monetary conditions. The Swedish Riksbank raised its interest rates by 75bp yesterday and said that the monetary tightening will continue to tame inflation in Sweden. The Korean Central Bank raised its interest rates by another 25bp to the highest levels since 2012 and the won gained, whereas the Turkish Central Bank CUT its policy rate by another 150bp points, but said that the easing is perhaps enough at 9%, and that risks on inflation – which stands around 85% officially, and 185% unofficially – increase from here. China In China, the central bank signals lower reserve ratios for banks, and conducts reverse repo operations to boost liquidity in the system, as news of fresh Covid restriction measures creep in. The Chinese news certainly prevent oil bulls from jumping in the market right now, and the American crude consolidates below $80pb this morning, with solid offers seen at $82/85 range. Credit Suisse In Switzerland, Credit Suisse continues making the headlines. The stock price flirts with all-time-lows, as UBS sees its share price extend gains as outflows from CS reportedly benefit UBS. Watch the full episode to find out more! 0:00 Intro 0:32 Soft USD boosts European stocks 4:02 Will the USD further soften? 5:40 Central bank roundup 7:44 China re-closing weighs on oil 8:11 Credit Suisse outflows benefit UBS Ipek Ozkardeskaya  Ipek Ozkardeskaya has begun her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked at HSBC Private Bank in Geneva in relation to high and ultra-high net worth clients. In 2012, she started as FX Strategist at Swissquote Bank. She worked as a Senior Market Analyst in London Capital Group in London and in Shanghai. She returned to Swissquote Bank as Senior Analyst in 2020. #DAX #CAC #FTSE #EUR #GBP #USD #FOMC #ECB #minutes #Riksbank #CBT #SEK #TRY #China #Covid #crudeoil #CreditSuisse #UBS #Thanksgiving #BlackFriday #SPX #Dow #Nasdaq #investing #trading #equities #stocks #cryptocurrencies #FX #bonds #markets #news #Swissquote #MarketTalk #marketanalysis #marketcommentary _____ Learn the fundamentals of trading at your own pace with Swissquote's Education Center. Discover our online courses, webinars and eBooks: https://swq.ch/wr _____ Discover our brand and philosophy: https://swq.ch/wq Learn more about our employees: https://swq.ch/d5 _____ Let's stay connected: LinkedIn: https://swq.ch/cH

The end of the week is quiet due to America's lack of activity due to Thanksgiving. The market's attention will be focused mainly on the Asian and European markets. Today, an important report turns out to be the result of the German GDP. Tokyo CPI At the beginning of today, Japan, and more specifically Tokyo, published its inflation report. In this city, Core CPI increased from 3.4% to 3.6% and it was a higher than expected reading (3.5%). The upward trend of this indicator has been going on since the beginning of May, but since May Core CPI has been above 1.0%. Also CPI increased significantly from 3.5% to 3.8%. The consumer price index only in Tokyo excluding fresh food and energy prices held its previous level of 0.2%. In this city, the rate peaked this year in May (0.4%), and then fell twice. After that, from July to September it held the level of 0.3%. Singapore Industrial Production Singapore Industrial Production MoM increased significantly. Comparing October to September, the change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities was 0.9%, which is a good result as another decline was expected. The same index comparing the result from October 22 to October 21 has fallen. The fall was expected. The current reading is -0.8%, it is the first result in a year that was below zero, but it was higher than the expected -0.9%. This means that the change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities has decreased significantly, but not as much as expected. Source: investing.com German GDP In Germany, both the quarterly and annual change in gross domestic product turned out to be a positive surprise. GDP Q3 YoY was 1.2%. Unfortunately, it was a decrease in comparison to the previous period, the reading of which was at the level of 1.8%. This time it was expected to score 0.1% lower. A very positive result for the German economy as well as for the euro zone turns out to be the reading of GDP Q3 q/q. The index increased by 0.3% compared to the previous period and reached the level of 0.4%. An increase to 0.3% was expected, but the result higher than expected may raise some optimism. German GDP figures show the country’s economy has grown slightly more in the third quarter than anticipated on the back of consumer spending. Switzerland Employment Level The Employment Level measures the number of people employed during the previous quarter. As the current reading shows, the exemplary trend is successively maintained. Employment increased this time to the level of 5,362M. The previous reading was about 46M than (5,316M). Such results show the good condition of the economy, because employment increases household income, and thus these households are able to spend more, which drives the economy because money remains in constant circulation. ECB’s speeches Markets expect only two speeches at the end of the week, and this time only from the European Central Bank (ECB). The first speeches took place at 9:50 CET. The European Central Bank Supervisory Board Member Kerstin af Jochnick spoke. The second and final speech of the day will take place at 18:00 CET, with Luis de Guindos, Vice-President of the European Central Bank The speeches of the ECB's officials often contain references to possible future monetary policy objectives, assessments and measures. What's more, statements can give strength to the euro (EUR), or set it in the opposite direction. Summary: 0:30 CET Tokyo CPI 0:30 CET CPI Tokyo Ex Food and Energy (MoM) (Nov) 6:00 CET Singapore Industrial Production MoM 8:00 CET German GDP (Q3) 8:30 CET Switzerland Employment Level 9:50 CET ECB's Supervisory Board Member Jochnick Speaks 18:00 CET ECB's De Guindos Speaks Source: https://www.investing.com/economic-calendar/

In Italy, business and consumer confidence rebounded in November. The scope of the rebound comes as a surprise, given the high inflation and geopolitical backdrop. This suggests that the GDP contraction, which we still pencil in for the fourth quarter, might be very small Giorgia Meloni, the new prime minister of Italy, has boosted consumer confidence by announcing continued energy support for households     November confidence data marks a widespread improvement both among consumers and businesses, interrupting a decline that started in July. We remain extremely cautious in interpreting the November reading as a sign of reversal, but it shows that the deceleration brought about mostly by the impact of higher inflation might turn out – for the time being – to be a soft one. Consumer confidence gained eight points in November, reaching back to August levels. Interestingly, the main driver of the rebound was a big improvement in the future climate component. Consumers seem to expect an improvement in Italy’s economic conditions, with a positive bearing on future unemployment. Looking at the current environment, with inflation still on the increase and subdued wage dynamics, it is not easy to justify such a reversal. A possible explanation could be post-election relief, as the new Meloni government has announced its continued support to households to compensate for the negative consequences of the energy shock on disposable income. In the business domain, the scope of the rebound in confidence has been widespread, with the exception of construction, where confidence continued its downward trend from historic highs. As with consumers, there seems to be a clear distinction between the present state of business and expectations about it. Taking manufacturers as an example, they see orders deteriorating and highlight an increase in stocks of finished goods, implicitly signalling soft current demand, but at the same time signalling a strong increase in expected production. When looking at services, what stands out is the driving role of tourism. After declining sharply in both September and October, confidence in the tourism sector has rebounded strongly, reaching back to August levels. Interestingly, the improvement is propelled by both current and expected orders, which both post similar substantial gains. On the back of previous confidence data we had anticipated the disappearance of tourism over the fourth quarter; November data seems to suggest that inertia in the sector is strong and that the expected drag on growth might consequently be smaller. All in all, notwithstanding today’s surprisingly strong confidence data, we do not believe an economic turnaround is in the making, as yet. The negative impact of inflation remains in place both for consumers and businesses and we suspect that the refinanced compensation measures will not be enough to prevent a GDP contraction in the fourth quarter of this year. But this will likely be a very small contraction, adding upside risks to our current forecast of a 3.6% GDP growth in 2022.    TagsItaly   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

Sunday marked the start of the World Cup in Qatar. It seems that it could not have taken place without controversy over the preparations for the event. After yesterday's Thanksgiving holiday in the United States, today we may see increased shopping traffic in celebration of Black Friday. A weakening dollar and falling bond yields may have driven the broad market this week.  Macroeconomic data On Wednesday, we learnt about the PMI reading on managerial sentiment in German industry. The reading of 46.7 points surpassed the expected 45 points and came as a positive surprise over the previous reading of 45.1 points. We could also see values for the same indicator from the UK, with a reading of 46.2 points (45.7 had been expected), against the previous reading of 46.2. From this we could see a warming of the market climate, which appears to have caused a 1% rise on the main German DAX index (DE40) since the start of the week.  Source: Conotoxia MT5, DE40, Weekly On the same day, we learned about the number of building permits issued in the United States. Here, the data turned out to be more modest than expected, amounting to 1.512 million (1.526 million was expected). There was also news from the US economy on crude oil inventories, which fell by 3.69 million barrels (a drop of 1 million barrels was expected).  On Thursday, Americans celebrated the Thanksgiving holiday. In Europe, on the other hand, data from the Ifo index measuring expectations for the next six months among German entrepreneurs may have come as a positive surprise. The index came in at 86.3 points, while 85 points were expected, which, like the PMI index, may have comforted markets in their expectations for the future. The stock market Analysts may have been positively surprised by Q3 earnings this week. Among others, we saw better-than-expected earnings per share from technology, software and laboratory equipment maker Agilent Technologies (Agilient), whose EPS came in at 1.53 (expected 1.38). Zoom Video (Zoom), a popular company during the pandemic, also surprised positively, with EPS of 1.07 (expected 0.83).  On Tuesday, US semiconductor company Analog Devices (AnalogDev) showed EPS of 2.73 (2.58 expected), and the maker of software for industries including architecture, engineering and construction showed earnings per share in line with EPS guidance of 1.7.  Of the 11 sectors of the US economy, consumer goods sales grew strongest. The Consumer Staples Select Sector SPDR Fund (XLP) index has gained more than 3% since the start of the week, which may have been influenced by Friday's Black Friday. Source: Conotoxia MT5, XLP, Weekly Currency and cryptocurrency market For another week in a row, we could see a weakening of the US dollar. The valuation of the EUR/USD pair has risen by 0.7% since the beginning of the week and currently stands at 1.04. The weakening of this largest reserve currency was also evident on the GBP/USD pair, which rose by 2% to around 1.21. The other currencies do not seem to show increased volatility. Source: Conotoxia MT5, EURUSD, Weekly There could still be a gloomy mood in the cryptocurrency market. Not even the reports that the largest exchange Binance has set up and contributed USD 1 billion to a fund to support crypto projects are helping. The price of bitcoin is hovering around US$16500 and ethereum around US$1190. Source: Conotoxia MT5, BTCUSD, Daily What could we expect next week? Next week's key macroeconomic data will start with Tuesday's German CPI inflation reading. On the same day, we will learn the previously discussed Chinese manufacturing PMI. On Wednesday, the Eurozone CPI inflation readings appear to be particularly important. On this day, we will also learn the quarterly change in GDP for the United States. On Thursday, we will learn the PMI values for Germany, the United Kingdom and the United States. At the end of the week, we will find out the unemployment rate in the USA. Tuesday will see Q3 financial results from business software developer Intuit (Intuit). Wednesday will bring a report from cloud software company Salesforce (Salesforce). We will end the week with a report from semiconductor company Marvell (MarvelTech). Grzegorz Dróżdż, Junior Market Analyst 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. 75,21% 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. Read the article on Conotoxia.com

Germany's consumer price index fell by 0.5% in November, slowing the year-on-year gain to 10.0%, according to the published Destatis preliminary estimate. The fall exceeded the expected 0.2% m/m decline and maintained the year-over-year rate at 10.4%. We previously pointed out that the October data was the peak of inflation in the eurozone. Fresh data from Germany strengthens this hypothesis. However, this reversal will draw more attention to the ECB's stance. Is this data a reason to lower the rate hike step? Recent comments from ECB members suggest that this is unlikely. Read next: Steen Jakobsen: ECB strategy is praying, hoping and waiting... not exactly action which gives hope for real economy| FXMAG.COM Central banks in the G7 are working to contain the unwinding of inflation. By starting too late, they have faced a rise in core inflation, excluding volatile and problematic food and energy, rising 21% and 38.4% y/y, respectively. In such circumstances, monetary policy at the central bank must remain restrained for an extended period. That means raising rates above neutral (around 2% in the eurozone) for an extended period. History has ample examples where policy easing too early led to repeated inflation shocks, which further strengthened consumer confidence in perpetually high inflation and changed consumer behaviour accordingly.

Headline inflation in Italy stabilised in November, still very much driven by goods, with the energy component starting to reflect an improving base effect. Beware core inflation, though, as its persistence will likely slow down the decline in headline inflation over the first part of 2023 Consumer headline inflation came in at 11.8% year-on-year in November, unchanged from October, and in line with our forecasts. This results from a decline in the non-regulated energy component, of fresh food and transport services, and an acceleration of regulated energy goods, transformed food, other goods and recreational and cultural services. The wide gap between goods inflation (at 17.5% YoY) and services inflation (at 3.8% YoY) remains stable from October. The harmonised HICP measure was also stable at 12.5% YoY. Favourable base effects in energy, but the core measure continues to inch up We are at a time of the year when the base effect starts to be favourable. This was the case with aggregated energy goods, where inflation declined to 67.3% in November from 71.1% in October. However, this is not the case with underlying inflation, which accelerated to 5.7% (from 5.3% in October) signalling that the pass-through of past energy inflation pressures is not over yet. As wage dynamics have so far remained almost unaffected (1.2% YoY in September is the latest reading), risks of further gains in the core component over the next few months should not be dismissed. Peak possibly close, but pace of decline still uncertain Looking ahead, we suspect that the energy component might have reached its peak, but will remain exposed to the vagaries of administrative decisions. For instance, the current €0.30 rebate on fuels will be reduced to €0.18 from December, which will have an impact on the headline measure. More encouragingly, in October producer price inflation recorded a clear deceleration to 28% YoY from 41.7% in September, suggesting that price pressures in the pipeline started to finally cool down. November business surveys seem to confirm this, with the selling price component (over the next three months) declining both in manufacturing and services. This does not mean that the headline peak has now passed. We currently project inflation to remain at the current level into December, and to start a gradual decline thereafter as the deceleration in the energy component should outweigh the inertia in the core measure. For the time being, we are sticking with our average yearly inflation forecast at 8.2% in 2022 and 6.7% in 2023.   Read this article on THINK TagsItaly 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 unemployment rate dropped from 6.6% to 6.5% in October, showing that the labour market remains resilient despite the slowing economy. This will keep the European Central Bank on high alert in its fight against inflation Unemployment in the eurozone is at a record low Another upside surprise from the labour market. Despite an economy moving into recession, unemployment continues to trend down to new records. While German unemployment seems to have bottomed, southern Europe is still experiencing declining unemployment. Spain, Greece and Italy all saw the rate drop in October. The current rate of 6.5% is a new historic low since the series began in 1998 and is consistent with rising nominal wages. From here on, the labour market is set for a slowdown given our expectations of a winter recession. Surveys indeed suggest that the pace of hiring is slowing at the moment, which is set to come with a modest runup in unemployment. Given labour shortages, however, we don’t expect unemployment to increase much. Read next: Poland: Purchasing Managers' Index reached 43.4. The coming months will see a marked slowdown in industrial production growth says ING| FXMAG.COM When we hear ECB president Christine Lagarde say that a mild recession will not be enough to sustainably bring inflation down, this is likely a large part of the mechanism she is referring to. The question is whether that is the case when many supply-side factors are turning disinflationary – but that’s another matter. Expect the ECB to remain on high alert in its fight against inflation, although we do believe that it will opt for a slower pace of rate hikes in the coming months: we're expecting a 50 basis point rise for December. Read this article on THINK TagsGDP Eurozone 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

Tapering of the corporate sector purchase programme (CSPP) and the third covered bond purchase programme (CBPP3) is on the cards for 2023 and will likely be discussed at the ECB's December meeting. Naturally, this is a negative driver for credit, specifically the corporate credit and covered bond markets A notable risk facing credit markets next year is the potential for the European Central Bank (ECB) to reduce the size of its balance sheet via the tapering of the asset purchase programme (APP). This will have rather significant negative effects on the corporate bond and covered bond markets. Our economists expect the ECB to announce a gradual reduction of the reinvestments of its bond holdings under APP at the December meeting, with the aim of stopping the reinvestments by the end of 2023, as highlighted in the report: ECB minutes show tentatively growing recession concerns. This could potentially be in the form of: 1Q - 80% of reinvestments. 2Q - 60% of reinvestments. 3Q - 40% of reinvestments. 4Q - 20% of reinvestments. In addition, pandemic emergency purchase programme (PEPP) reinvestments are set to continue until the end of 2024 but it is possible that in the course of 2023, the ECB will announce a similar quantitative tightening for PEPP as well, starting in early 2024. An abrupt stop or actual bond selling of APP (or PEPP) are risk scenarios but are highly unlikely at this point in time. Corporate bonds and covered bonds will be worse off in the case of tapering If tapering were to happen, this would be a negative driver for corporate bonds, but with many other drivers in the market, it won't move the needle substantially. Covered bonds may be under more pressure from this tapering, as they are already seeing little positivity. Of course, in the case of quicker tapering or an earlier stop to the programme, the effect will be much more severe in both markets. Read next: Hungary: GDP declines by 0.4% in the third quarter. What's behind the drop?| FXMAG.COM The continuation of PEPP reinvestments means relatively little for corporates and covered bonds compared to public debt. CSPP accounts for around 11% of the total APP and CBPP3 accounts for 9%. Meanwhile, corporate bonds account for just 3% of PEPP and covered bonds account for less than half a percent of PEPP. Thus, with a tapering of APP, public debt will be more supported by PEPP, but private debt will see much less support and will subsequently underperform. Corporate bonds – another ingredient in the cocktail of negative drivers Tapering CSPP can be added to the list of risks and drivers of increased volatility in credit, alongside the recessionary environment, high inflation, the Russia/Ukraine war, the energy crisis and supply chain shortages. We foresee the following: The lower level of support will add to the turbulence and increase volatility, but will not necessarily move markets wider. Although this does add to the expectation of further turbulence and increased volatility. More pressure and spread widening in the case of a faster tapering or an abrupt stop as the market becomes more exposed, with a large participant no longer active at all (we see this as less likely). Based on current oversubscription levels, deals can still get done even with lower CSPP participation. Thus, primary market activity shouldn’t struggle to price, meaning less pressure on spread widening. An indirect implication may be supply indigestion, as many corporates may push to issue earlier in the year for a better chance of having the ECB involved in the deal (this may mostly be seen in January). This will add some extra volatility and perhaps underperformance. The tapering of CSPP would strengthen our call for financials over corporates. However, for 2023 we find the call between corporates and financials a hard one to make. For 2022 we saw more value in corporates due to the stronger technical, particularly driven by CSPP. For 2023, we have the following considerations: CSPP reinvestments offer more support for corporates but the tapering of reinvestments is on the cards for 2023. This may lead to some supply indigestion for corporates as many issuers may fund sooner (in the first quarter) if they pre-empt a tapering or stop to reinvestments. The net supply story is more positive for corporates with expected net negative supply, whilst financials will see almost €100bn in positive supply. The duration of non-financial corporate sectors is higher than for the financials, which is in line with our call that 2023 will see longer duration credit show additional relative value. However, looking at the trading ranges, we see that financials have underperformed and are trading at or even above our defined recessionary spread range. There is more value in financials currently. In general, higher interest rates are set to be good for bank earnings. Having said all that, it will be a close call between financials and corporates next year as it’s all about Alpha in 2023 and the external factors that will contribute to earnings sensitivity such as energy usage, supply chain risks, cyclicality, and even geography. Whether it's financial or corporate, doing the credit work and avoiding too much volatility in margins/earnings will drive performance. But with lower reinvestments, we see an additional positive driver for potential being titled towards financials for 2023. In the case of tapering in the potential form as stated above, the below chart illustrates how low reinvestments would be. Initially, reinvestments would pick up in 2023 and support with between €2-4bn per month. Now reinvestments will be notably lower between €1-2bn per month, offering very little support from August onwards.   Full and tapered CSPP reinvestments per month Source: ING, ECB In addition, as we have previously mentioned in our report Decarbonising Corporate Sector Purchase Programme credit: Our take, the ECB has just begun to incorporate climate change considerations into corporate bond purchases, via reinvestments. In the case of tapering reinvestments and an ultimate end to the programme, decarbonising becomes somewhat redundant. This is of course not good news for the environmental, social, and corporate governance (ESG) angle, but we expect ESG credit will outperform nonetheless, albeit perhaps to a lesser extent. Moreover, the effects of decarbonising and focussing on ESG have been rather limited so far. Both corporate ESG and covered bond ESG have not seen any outperformance this year, while the ineligible financials have seen ESG outperformance, particularly in the primary market. Thus relative to holdings, it suggests the ECB has not been a strong catalyst for ESG outperformance. Demand from investors seems to be the larger driver, as illustrated by the substantial inflows into ESG funds.  Covered bonds – a bearish view The scenario plotted here towards the end of the reinvestments of redemptions under the APP is faster than the one assumed in our Covered Bonds Outlook 2023. It means that CBPP3 reinvestments will fall from €36bn to €21bn instead of €28bn in 2023. Reinvestments of 80% in 1Q23 will represent just 26% of the €50bn eurozone-covered bond supply in the first quarter instead of 33%. On the assumption that the ECB reinvests 40% through the primary market and order books will be at least 1.5x, this would mean that primary order sizes from the CBPP3 will likely fall to 15% from 20% in the first quarter of the year. It will likely decline further to 10% in the second quarter and 5% towards year-end under our supply estimate for 2023. Covered bonds will be under more pressure in the case of faster tapering or an abrupt stop to reinvestments. A more rafpid tapering will likely not only have a negative impact on new issue premia against the backdrop of the anticipated heavy supply, but also limit the subsequent secondary performance potential of these transactions. This adds to our already bearish view on covered bonds, which we believe to be expensive in comparison to bank bond instruments further down the liability structure. A quicker-than-anticipated tapering increases the odds that spreads will widen more than anticipated in the first half of the year. We still believe, however, that the impact of tapering on sovereign and SSA spread levels will have the strongest impact on covered bond spreads, more so than the more moderate outright purchases of covered bonds by the CBPP3. Reinvestments by the CBPP3 will be €15bn lower under the 1Q-4Q 2023 tapering scenario Source: ING Read this article on THINK TagsECB Tapering ECB CSPP Credit CBPP 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

Fed Chair Powell has a clear ambition to hike by 50bp in December, and likely the same in February 2023, and maybe more. Given that, and a likely terminal funds rate of at least 5%, the drift lower in the US 10yr yield looks anomalous. Then again, year end can be like that. A move back above 4% still looks probable – it just might take a bit longer to achieve A hawkish hike (even if smaller) now needed to help re-tighten conditions If Chair Powell wanted to use yesterday’s speech to help re-tighten financial conditions, then he won’t be very happy with the impact market reaction. Market rates have fallen, credit spreads are tighter and effectively we’ve gone “risk on”. Financial conditions started out at about 0.6 of a standard deviation tight versus normal pre-Powell. They are now at closer to 0.5 of a standard deviation tight. We think it needs to be a full standard deviation tight, to be at least somewhat statistically meaningful. The reason we are not tighter is (mostly) lower market rates and tighter credit spreads. The US 10yr is now down to 3.7%, more than 50bp below the peak seen at end-October / early-November. Some 8bp of that has come in the wake of Chair Powell’s speech today. At 3.7%, the 10yr yield is some 130bp below the discounted terminal rate of 5%. That’s quite a spread. We think it’s far too wide. It’s telling us one of two things: (1) If the Fed hits 5%, then it’s not sustainable and a cut is coming really soon after that, or (2) The Fed will in fact not hit 5% at all, and they are done in December. The flip from 22 to 23 does not magically rid us of inflation risks Our view? We think the Fed does hit 5% (in February), and that the 10yr should be comfortably back above 4% in anticipation of that. This can happen soon, but could also morph into a turn of the year call, as we're now in this weird end of year swing where anything can happen. There can be some net buying going on as investors square books into year end, often buying back duration that had been shorted during the year. The first quarter of 2023 will bring the realization that the flip from 22 to 23 does not magically rid us of inflation risks that the Fed will feel emboldened to continue to address. Market rates are not fully reflecting this; but they will. Real Treasury yields are positive across the curve, the Fed will want to avoid an early drop Source: Refinitiv, ING EUR inflation solidifies expectations for a 50bp hike The eurozone flash CPI sees inflation having decelerated to 10% in November versus expectations of only a moderate slowing to 10.4% had surprisingly little effect on the market. Our economists also see this report having strengthened the case for a 50bp hike in December after the series of 75bp over the past meetings, but the market has been leaning to a slowed pace already in the wake of the first country readings at the start of the week, reducing the discount to only slightly more than 20% for still another larger 75bp hike after around 50% previously. The more relevant core measure of inflation remains at a painfully elevated 5% Yet away from the energy price-induced, headline-grabbing drop to 10%, the more relevant core measure of inflation has not budged and remains at a painfully elevated 5% year over year, in line with the consensus. The European Central Bank has rightly shifted the focus of the policy debate to underlying inflation and its persistence, being well aware that drops in the volatile headline can lead to false dawns. The bond rally has limited - but not reversed - ECB and Fed hike expectations Source: Refinitiv, ING   The ECB’s Isabel Schnabel has been the most vocal about still worrying underlying trends in her latest speech last week. Chief Economist Lane has employed a more measured tone in his latest expansive blog, though, warning not to read too much into current measures of underlying inflation. In particular he cautioned that the staggered adjustment of wages to the increase in the cost of living can play out over several years, but shouldn’t automatically signal a change in overall wage dynamics, i.e. the onset of a much feared wage-price spiral. The ECB should still have qualms about letting financial conditions ease too much, too early That the ECB isn’t done raising rates is clear. While it is widely accepted that the ECB will have to move into restrictive territory is also widely accepted, the latest inflation data has taken the edge off calls for more larger pre-emptive hiking. This also means that the tailwind for a further curve flattening dynamic is fading, but it should not distract from the prospect of rates possibly staying higher for longer. Similar to the Fed, the ECB should still have qualms about letting financial conditions ease too much, too early in its battle with inflation.   Today's events and market view US rates should remain in the driving seat given the busy data slate and the mixed signals that come from them. Yesterday's US GDP revisions for instance have pointed to a more resilient underlying demand, while last night’s Fed Beige Book hinted at slowing price pressures. Prices will remain in focus with today’s PCE deflator. That could be interesting as it is the Fed’s preferred inflation measure and does not always match what happens in core CPI. Today’s ISM manufacturing could drift just below the break-even 50 level, while the employment component, which markets will draw on ahead of tomorrow’s jobs data, is seen stable at 50. Even after Fed Chair Powell’s speech yesterday, some attention should still fall on Fed speakers in the final days ahead of the pre-meeting black out period. Today will see appearances of the Fed’s Logan, Bowman and Barr.   In secondary markets France and Spain will auction their final bonds for the year. Read this article on THINK TagsRates Daily 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

Rates stability and spread tightening opened a decent issuance window. As a result, corporate supply increased up to €30bn, supply is now at €255bn on a YTD basis. Financials saw €42bn in November, which is the highest figure of this year.   Corporate supply now sitting at €255bn YTD Corporate supply amounted to €30bn in November, a €7bn increase on September’s figure. Rates stability and spread tightening offered a decent window for issuers to hit the market Supply is now at €255bn on a YTD basis, higher than previously anticipated. We don’t expect much more supply to come in December, as primary markets have already began to close. TMT and Autos issued the most in November, at €8bn and €7bn respectively. On a YTD basis, Utilities have supplied the most this year, totalling €57bn and up marginally from last year. Most other sectors are down compared to last year, but none more than Real Estate - falling from €59bn to €24bn. In 2023, we expect lower Real Estate supply again, as well as lower Oil & Gas supply. All other sectors should see a small increase next year as we expect a small increase in supply overall in 2023. We are forecasting a 10% increase, totalling €275bn. This is still well below the historical average. Redemptions are up in 2023, pencilled in at €246bn, the highest year on record. Corporate hybrid supply amounted to €2bn in November, pushing YTD supply up to €12bn, down 68% on last year’s €36bn. We forecast just €15bn for corporate hybrids next year. We expect rather low supply due to the massive change in the arithmetic for the attraction of hybrid capital. Naturgy, Engie and Heimstaden have shown that calls or tenders can be done with no effect on supply, so calls due in the next 18 months becomes a less effective input. We expect all-in funding levels to drop in 2023 and as such that could add some refinancing opportunities. We estimate supply at just €15bn. Substantial financial supply in November leads to €280bn YTD supply Financials supply amounted to €42bn in November, the highest figure of this year. Banks senior supply accounted for €30bn of last month’s supply. Bank capital supply was €7bn. Financial supply is now at €280bn YTD, still notably ahead of previous years. Bank senior has supplied €194bn on this, up 34% YoY. Bank capital is at €27bn YTD, behind last year’s €39bn. Financial services and insurance supply are also down relative to last year at €38bn and €20bn respectively. 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 pressure on consumer spending in early 2023 will lead to a further volume contraction in Dutch retail sales. But price increases will be lower next year (+3.5%), resulting in a turnover growth of about 2.5% There are positive signals from the markets that Black Friday sales in the Netherlands were strong Lower turnover growth in the retail sector in 2023 Estimated sales growth in %, year-on-year Source: Estimates ING Research on the basis of data Dutch Central Statistical Office, * Food, non-food + webshops Consumer willingness to buy at rock bottom Consumer confidence indicators have been in freefall since the last quarter of 2021, reaching the lowest levels since the start of these statistics in October 1986. Pessimism eased somewhat in November, but when it comes to making large purchases, consumers were as negative as they were in October. The decline in willingness to purchase since the fourth quarter of 2021 can be put down to the uptick in Covid-19 cases in the autumn of 2021, the subsequent reintroduction of restrictions, the war in Ukraine, and persistently high inflation (particularly in energy and food) this year. Consumer confidence plummeted in 2022 Indicator of consumer willingness to buy, seasonally adjusted Source: Dutch Central Statistical Office; edit ING Research Drop in the value of debit card transactions ING's debit card data shows that the total value of transactions (debit card, ATM and iDEAL) have fallen since June 2022. The value of transactions was 1.5% lower in the third quarter than in the second. Price increases have prevented a further fall. The year-on-year decline in retail sales volumes was more than 3% in both the second and third quarters. Further contraction is expected in the fourth quarter. Positive market signals of Black Friday sales are hopeful, but may also be the result of pre-emptive Christmas and “Saint Nicholas” purchases, facilitated by the €190 energy compensation paid to many Dutch households. Rising energy bills are expected to dampen purchases in early 2023, despite the energy price cap. Value of transactions in 3Q are 1.5% lower than in 2Q Total value of domestic debit card payments, money withdrawals and iDEAL-payments as index (2Q22 = 100), seasonally adjusted Source: ING data, calculations ING Research Limited growth recovery in online revenue in 2023 The lockdowns in 2020 and 2021 gave a huge boost to online sales, with high growth rates. Since Covid-19 restrictions eased in early 2022, some of those online purchases moved to shopping centres and high streets. This resulted in sales growth for physical stores in the first half of 2022 but a sales decrease in the online segment. In the second half of 2022, there was a (limited) increase in turnover in both online shops and multichannel retailers. However, this is mainly due to price increases. On balance, the revenue reduction will be about 3% overall in 2022. In 2023, online revenue may continue to grow (by 5-10%), helped by sustained inflation. Thanks to investments in logistics and data analysis, a significant part of retail turnover has been transferred to the online channel. Only online-only stores are estimated to have an estimated €6bn higher turnover in 2022 than in 2019. A further shift to online seems feasible, as consumers increasingly value the convenience of online shopping and stock levels in stores are increasingly too low. Decline in online sales in 2022 after high growth during lockdown years 2020/21 and a normalisation of sales growth in 2023 Growth in retail sales in %, year-on-year Source: Dutch Central Statistical Office; edit and estimate ING Research Shop viability under increasing pressure Prime locations in large cities were especially vulnerable during the Covid-19 lockdowns due to the loss of window shopping and the absence of (foreign) tourists. Some retailers managed to maintain profits through government support packages, tax deferrals and rental and banking arrangements. This minimised the number of bankruptcies. However, the difference between retail sectors is considerable. Food retail, drugstores and DIY stores performed better than clothing, footwear and electronics stores. Although the number of bankruptcies is still lower than pre-Covid, the number is increasing. The pressure on consumer spending and further cost increases, plus aid repayment obligations, will put pressure on the viability of an increasing number of shops compared to the period 2020-22. More online shops than non-food stores One in six physical Dutch stores disappeared in the period 2010-21, which is 14,000 stores. In 2021, the number of non-food shops remained stable thanks to Covid-19 support measures, but this is likely to be a one-off. In the last decade, for example, about 4,000 fashion and 1,500 shoe shops disappeared, half of toy stores (from 1,400 to 700) and a quarter of electronic stores (from 4,200 to 3,100). The number of supermarkets increased (+10%), particularly in 2021 (from 6,100 to 6,400). Since 2010, the number of online retailers has increased from 12,500 to more than 80,000. A large proportion of online retailers have minimal sales, but of course there are also some very large online businesses. In both 2020 and 2021, the number of online shops increased by almost 30%. In early 2022, for the first time, there were more online shops than physical non-food stores (22% more). There are now more online stores than physical non-food shops Number of non-food shops and online stores on 1 January 2022 Source: Dutch Central Statistical Office; edit ING Research Further volume contraction in food segment The turnover of food retail is estimated to be 12.5% higher in 2022 than in 2019, an increase of around €5.5bn. More than €3bn of revenue growth was in the Covid-19 year of 2020 and €2bn in 2022 due to high inflation. However, since mid-2021 there has been a downward trend in volume development. Part of consumer spending has moved back from food retail to the hotel and catering industry, events and holidays. However, consumer prices in food retail substantially increased (+10% in the third quarter of 2022) to compensate for increased energy, procurement, transport and personnel costs. These cost items are also under upward pressure in 2023, while overall retail turnover will be dampened as consumers opt to shop in discount supermarkets. As a result, supermarkets, particularly smaller food specialists, will see their already-tight margins fall. A volume contraction of 1% is projected for 2023, resulting in an estimated 5% higher output prices leading to about 4% sales growth. Growth in food retail sales in 2022/23 due to price increases Turnover development in %, year-on-year Source: Dutch Central Statistical Office, *estimate ING Research High turnover growth in non-food retail in 2022 The turnover trend in the non-food segment in the Covid-19 period 2020/21 was strongly determined by the restrictive measures for non-essential stores. For 2022, although an average of 7.5% growth in volume and 13.5% growth in turnover is expected for non-food retail, the difference between the first and second half of the year is huge. In the first quarter, there was a 40% increase in turnover for total non-food, rising to 70% for footwear and 90% for clothing stores. Growth rates normalised in the second quarter and shows lower volumes and sales in euros in the DIY and electronics segments compared to the same period in 2021. In the second half of the year, sales continued to be under pressure, as shown by ING debit card data. Decrease mainly for non-essential consumer purchases Change in transaction value, 3Q towards 2Q, seasonally adjusted Source: ING data, calculations ING Research Downturn is already underway and will continue in 2023 In the third quarter, the transaction value in the fashion, furnishings and electronics retail segments was lower than in the second quarter, ranging from -1% for electronics stores to -6% for fashion (ING payments data via iDEAL). On the other hand, there are also increases, namely for spending in the food retail sector and in drugstores. The latter segment was identified as essential stores during lockdowns but continue to do well, thanks in part to the high sales of self-testing. CBS figures also show that non-food retail is struggling. In the second half of 2022, volume and turnover growth is expected to be significantly lower than in the first half of the year. In furniture and electronics segments, there is even a contraction. Thanks to widespread price increases, there is still some growth in turnover in the second half of the year, except for furniture and DIY shops. A further but lower price increase is also expected in 2023. However, the (mild) recession threatens to reduce volume, despite energy compensation schemes already in place. This is expected to result in minimal revenue growth for non-food retail (+1%). Much lower sales growth in 2023 for non-food shops Turnover development per sector, year-on-year Source: Dutch Central Statistical Office; estimate ING Research Read this article on THINK TagsRetail Netherlands Consumer 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

Live Forex technical analysis & signals on Telegram from a trader with over 35 years of experience. Subscribe now.   NZDJPY resistance at 8555/75. Shorts need stops above 8590.   Targets: 8520, 8480.   CADJPY continues higher as expected but I have not managed to get us in to a long. I should have had us buying on a break above 102.90 so I will use this as a support today. Longs at 102.90/70, stop below 102.50. EURJPY we unfortunately missed buying at first support at 149.75-65 by only 3 pips.   GBPCAD stuck in a 2 week range but longs at support at 167.60/40 worked last week on the bounce to my target of 168.55.   Try longs again at support at 167.60/40 - stop below 167.10.   Targets: 168.20, 168.55, 168.80.Resistance at 1.6880/1.6900. Shorts need stops above 1.6920. Targets: 1.6845, 1.6820.   EURUSD collapsed as predicted on Sunday last week & finally hit my target & Fibonacci support at Fibonacci 1.0730/20, although we over ran to 1.0700.   On Friday as predicted we did recover a little to my first target of target 1.0750/60 with a high for the day exactly here.   No buy signal yet but a break above 1.0750/60 tests strong resistance at 1.0790/1.0810. I would try a short here with stop above 1.0830.   Longs at 1.0730/10 could be risky but if you try, stop below 1.0695.   A break below 1.0695 this week should be a sell signal & can target 1.0630, then 1.0600, perhaps as far as 1.0570.       GBPUSD bounced from just above good support at 1.2290/80 in severely oversold conditions which was as expected.   The pair beat minor resistance at 1.2360/70 but a short position at 1.2390/1.2400 worked perfectly with a high for the day exactly here & a nice tumble to my targets of 1.2340 & 1.2320. A low for the day exactly here in fact.   Could hardly have been more accurate on the levels for GBPUSD last week.   Again shorts at 1.2390/1.2400 should stop loss above 1.2420.   Targets: 1.2340 & 1.2320.   I am not going to suggest a long as I think there is a good chance we will continue lower this week. Watch for a break below the 100 day moving average at 1.2290/80 to trigger further losses despite severely oversold conditions.