ECB Is Fighting Hard To Prevent Markets From Undoing The Tightening Of Financial Conditions

How High May Be Rate Hike By Bank Of Canada? | Japan GDP Ahead

Kamila Szypuła Kamila Szypuła 04.12.2022 18:43
On Wednesday, two goposaraku may catch the attention of investors. The Bank of Canada will announce its monetary policy decisions and Japan will announce its GDP data. Bank Of Canada’s decision The Bank of Canada is expected to conclude a historic year marked by high inflation and aggressive monetary policy tightening with one more interest rate hike on Wednesday. In the wake of inflation soaring this year, the Bank of Canada has raised its key rate six times in a row since March in a race to curb inflation expectations before they are no longer anchored. After raising the main interest rate by a historical full percentage point in July, the Bank of Canada limited the scale of interest rate hikes. Forecasts call for the central bank to raise its key interest rate, which is currently 3.75 percent, by a quarter or a half of a percentage point. After raising its key rate by a historic full percentage point in July, the Bank of Canada has tapered the size of its rate hikes. In September, it announced a three-quarter percentage point rate hike, followed by half a percentage point in October. Now, the end of the rate hike cycle appears to be near. Canada’s economy grew more quickly than expected in the third quarter. Statistics Canada announced that Canada’s gross domestic product grew at an annualized rate of 2.9 per cent in the quarter. But preliminary October data released by Statistics Canada at the same time showed that the economy didn’t grow at all that month. That could give the Bank of Canada a reason to dial back its rate-raising campaign. That shows the Bank of Canada’s rate hikes are already having a significant impact on Canadian households ability to spend money. Japan GDP The world’s third biggest economy has struggled to motor on despite the recent lifting of Covid curbs, and has faced intensifying pressure from red-hot global inflation, sweeping interest rate increases worldwide and the Ukraine war. The unexpected decline reflects the impact of the Japanese currency on the economy and shows that the road to a sustainable post-pandemic recovery is long, with further risks clouding the outlook. Politicians will be hoping the government's latest economic stimulus package will help boost growth in the coming months. The reopening of Japan's borders also creates the prospect of a renewed increase in the spending of foreign tourists attracted by a country that has become much cheaper to travel around. The Bank of Japan maintains the view that the economy needs further support and that inflationary pressures require robust wage growth for price increases to be sustainable and beneficial to the economy. To ease the impact on households and businesses, Prime Minister Fumio Kishida last month proposed an economic stimulus package that includes help to cut energy costs and cash benefits for childcare. Japan's gross domestic product quarter-on-quarter in Q3 is expected to be the same as November's reading, i.e. it will stay at -0.3% Source: investing.com The economy fell in the third quarter for the first time in a year. GDP fell by 1.2% y/y. Typical suspects were the factors driving the decline in GDP - weak global growth and rising inflation, plus a weak yen. The GDP Y/Y result is now expected to reach a horizontal -1.1%. Source: investing.com, boc.com
The Risk-off Mood In The Global Markets Has Strengthened

Concepts Worth Knowing - Gross Investment And Depreciation

Kamila Szypuła Kamila Szypuła 04.12.2022 11:41
Investments in the vast majority of cases are implemented through the purchase of services and goods by enterprises. Of course, they will be implemented much less often by state institutions or households. Gross investment Gross investment - includes the production of new capital goods and the improvement of existing capital goods, e.g. construction of roads, bridges, buildings and structures, purchase of machinery, technical equipment and tools, means of transport, purchase of product manufacturing licenses. Investments are most often implemented through the purchase of goods and services by enterprises. Less often, however, they are implemented by households and state institutions. The ratio of depreciation to gross investment shows whether a given country has carried out investments at a level allowing for the replacement of the used part of the assets. Gross investments vs. net investments Gross Investments = Net Investments + Depreciation The term of gross investments is closely related to net investments, which are gross investments less the depreciation value of the existing capital stock. Depreciation is an economic reflection of the process of using up the existing stock of fixed capital, more precisely - it reflects the equivalent of using up the capital stock in a given period. The consumption of the stock of physical capital means that some of the goods produced in the economy (i.e. capital goods) should be used to replace the used capital. To sum up - a part of the total investments (ie gross investments) must be allocated to the replacement of the used capital stock in sizes corresponding to depreciation. The remainder of the investment (i.e. net investment) can be used to augment the existing capital stock. Gross investment and measures of production Gross Domestic Product and Gross National Product are measures of production that include gross investment. Due to the difficulties in estimating depreciation on a macroeconomic scale, GNP and GDP are more often used in economic analyses, despite the fact that Net National Product (national income) better reflects the income generated in the economy. Depreciation The term depreciation refers to an accounting method used to allocate the cost of a tangible or physical asset over its useful life. Depreciation represents how much of an asset's value has been used. It allows companies to earn revenue from the assets they own by paying for them over a certain period of time. Assets such as machinery and equipment are expensive. Instead of realizing the entire cost of an asset in year one, companies can use depreciation to spread out the cost and match depreciation expenses to related revenues in the same reporting period. This allows a company to write off an asset's value over a period of time, notably its useful life. Companies take depreciation regularly so they can move their assets' costs from their balance sheets to their income statements. There are many types of depreciation, including straight-line and various forms of accelerated depreciation. Using the straight-line method is the most basic way to record depreciation. It reports an equal depreciation expense each year throughout the entire useful life of the asset until the entire asset is depreciated to its salvage value. The declining balance method is an accelerated depreciation method. This method depreciates the machine at its straight-line depreciation percentage times its remaining depreciable amount each year. Because an asset's carrying value is higher in earlier years, the same percentage causes a larger depreciation expense amount in earlier years, declining each year. The double-declining balance (DDB) method is another accelerated depreciation method. After taking the reciprocal of the useful life of the asset and doubling it, this rate is applied to the depreciable base—its book value—for the remainder of the asset’s expected life. Thus, it is essentially twice as fast as the declining balance method. Source: Begg B., (2007) Macroeconomy
Capitalism And Everything You Need To Know About It

Capitalism And Everything You Need To Know About It

Kamila Szypuła Kamila Szypuła 04.12.2022 11:12
Politics and economics are closely related. Many economic trends or schools of economics define in their theories the role of the state in building the economy, also in capitalism. Capitalism has become the dominant form of economic expansion, learning about its basis and variants can give rise to many discussions. Economic dualism Economic dualism - otherwise known as agrarian dualism or economic dualism, is a phenomenon of the divergence of development paths of the European feudal economy from the mid-15th century. In the countries of Eastern Europe (east of the Elbe River) the farm and serf economy dominated, while in Western Europe (in the countries west of the Elbe River) the seeds of a capitalist economy appeared. Capitalism Capitalism it is a socio-economic system based on the division into owners of means of production (land, natural resources, production plants, etc.) and workers. Profit-oriented production is based on combining the means of the capitalist class with the labor power of workers who do not own any means of production. In this mode of production, mercenaries are theoretically free to dispose of their goods, but in practice they are forced to sell them because it is the only way to ensure their livelihood. Capitalists monopolizing the means of production, on the other hand, created a separate social class which, using its advantage, appropriates the produced good and sells it at a price higher than the sum of the means of production and labor costs. As a result, the workers receive a wage for their work much lower than the value of what they produced, and any surplus stays in the hands of the capitalists. The conflict of interests of classes leads to a growing social conflict, and as a result - to class struggle. The capitalist class and the labor force Initially, the gap between the capitalist class and the working class was enormous. Workers; deprived of all rights; often they did not receive a living wage for their work. This has led to movements demanding a fair distribution. The result of these activities was the formation of many trade unions. Capitalism through the eyes of economists Adam Smith For Smith, the capitalist system was perfect, harmonious, man-oriented. He believed that such an economy enables the state to develop rapidly while ensuring freedom for its citizens. Karl Marx Unlike Adam Smith, he sees many internal contradictions in capitalism, he strongly criticized capitalism for its demoralizing influence on society. John Maynard Keynes John Maynard Keynes, hailed as the greatest economist of the 20th century, pointed out the weaknesses of the capitalist system. According to him, while at the beginning of the era of capitalism, saving was beneficial, as it was aimed at collecting funds for later investments, with the development of the system, saving and investing became separate issues. Nowadays, an entrepreneur invests other people's money, which in effect means that if people are cautious about spending money, it will directly affect the activity of investors, who will wait for a better time to invest. In the longer term, such a reduction in economic liquidity leads to depression and crisis. Keynes argues that the solution to the problem is to eliminate unemployment - public works, that is, to allow the government to manage the economy. Varieties of capitalism State capitalism It is a way of conducting economic policy in which the state intervenes in the basic areas of the economy and focuses on developing the state sector. Collective capitalism People's capitalism (in other words, collective capitalism) is a view that the totality of transformations of ownership relations in the economy, such as the creation of joint-stock companies, bonds, separation of power from ownership, and the development of technology, lead to the emergence of a branch of capitalism; one in which capital is dispersed, which deprives the capitalist of economic advantage and leads to the disappearance of the main cause of the capitalist-worker conflict. Source: Bartkowiak, R. (2010). WspóÅ‚czesne teorie ekonomiczne, Heywood A. (2007). Political ideologies. An Introduction
Final PMIs, Revised GDP, CPI And Retail Sales Ahead

Final PMIs, Revised GDP, CPI And Retail Sales Ahead

Craig Erlam Craig Erlam 04.12.2022 10:16
EU There are a number of economic releases on the calendar next week but it’s almost entirely made up of tier two and three data. That includes final PMIs, revised GDP and retail sales.  The most notable events for the EU over the next week are speeches by ECB policymakers ahead of the last meeting of the year a week later – including President Lagarde on Monday and Thursday – and the final negotiations on the Russian oil price cap as part of a package of sanctions due to come into force on Monday. UK  Compared with the soap opera of the last few months, next week is looking pretty bland from a UK perspective. A couple of tier two and three releases are notable including the final services PMI, BRC retail sales monitor and consumer inflation expectations. I’m not convinced any will be particularly impactful, barring a truly shocking number. Russia The most notable economic release next week is the CPI on Friday which is seen moderating further to 12% from 12.6% in October, potentially allowing for further easing from the CBR a week later. South Africa Politics appears to be dominating the South African markets at the moment as efforts to impeach President Cyril Ramaphosa go into the weekend. The rand has seemingly been very sensitive to developments this week, with the prospect of a resignation appearing to trigger sharp sell-off’s in the currency and the country’s bonds. Under the circumstances, that could bring weekend risk for South African assets depending on how events progress over the coming days.  On the data front, next week brings GDP on Tuesday and manufacturing production on Thursday.  Turkey Ordinarily, especially these days, inflation releases are widely followed but that is less the case for a country and central bank that has such little interest in it. Official inflation is expected to ease slightly, but only to 84.65% from 85.51% in October, hardly something to celebrate. The central bank has indicated that its easing cycle will now pause at 9% so perhaps another reason to disregard the inflation data. Switzerland A quieter week after one of repeated disappointment on the economic data front. Whether that will be enough to push the SNB into a slower pace of tightening isn’t clear, although it has repeatedly stressed the threat of inflation and need to control it. The meeting on 15 December remains this months highlight while next week has only unemployment on Wednesday to offer. China The PBOC announced on 25 November its decision to cut the reserve requirement ratio for banks by 25 basis points, lowering the weighted average ratio for financial institutions to 7.8% and releasing about 500 billion yuan in long-term liquidity to prop up the faltering economy.   In response to the various property crises that have emerged in the real estate sector over the past year or so, i.e. debt defaults by real estate companies, mortgage suspensions leading to unfinished buildings, and real estate-related non-performing loan crises, the Chinese government has issued a new 16-point plan. Focus next week will be on the Caixin services PMI, trade data, CPI release and the protests. China’s strict zero-Covid measures are hammering growth and the public is clearly becoming increasingly frustrated. It will be a fine balance between managing protests and easing Covid-zero measures to support growth in a country not used to the former. India The RBI could potentially bring its tightening cycle to a close next Wednesday with a final 35 basis point hike, taking the repo rate to 6.25%. While the outlook remains cloudy given the global economic outlook, there is some reason to be optimistic. The tightening cycle may soon be at an end, the economy exited recession in the last quarter and Indian stock hit a record high this week, something of an outlier compared with its global peers. Australia & New Zealand Recent figures show that inflation (YoY) in Australia rose to 7.3% in the third quarter, compared to the target range of 2%-3%. The RBA began to weaken their hawkish stance in the past two months, raising rates by just 25 basis points each time to bring the official rate to 2.85%. The market is currently expecting a 25 basis point rate hike next week as well. Also worth noting is Australia’s third quarter GDP trade balance figures. New Zealand inflation (YoY) surged 7.2% in the third quarter, compared to the RBNZ’s inflation target range of 1%-3%. Previously, the RBNZ had been raising rates by 50 basis points but that changed last month as they ramped it up with a 75 basis point hike. The current official rate is now 4.25%. Japan The Japan Tokyo CPI rose by 3.8% year-on-year in November, up from 3.5% in October and the 3.6% expected. Ex-fresh food and energy it increased by 2.5%, up from 2.2% and above the 2.3% expected. Japan’s manufacturing PMI fell to 49.4 in November, the worst in two years, with both new export orders and overall new orders declining and falling below 50 for the fifth consecutive month, which alines with the unexpected 0.3% fall in Japanese GDP in the third quarter. Japan department store sales rose 11.4% year-on-year in October, down from 20.2% in September.    The poor PMI and retail sales data may have reinforced the BOJ’s view that domestic demand is weak and CPI inflation is largely input and cost driven and, therefore, unsustainable. The central bank will likely continue to pursue an accommodative monetary policy, especially in light of the current poor global economic outlook. Final GDP for the third quarter is in focus next week, with the quarterly figure expected to be negative meaning the economy may be in recession. Lots of other releases throughout the week but the majority, if not all, are tier two and three. Singapore Singapore’s CPI for October was 6.7% (YoY), below expectations of 7.1% and the 7.50% reading. GDP for the third quarter (YoY) was 4.1%, below expectations of 4.2% and 4.40% previously. On the quarter, it was 1.1% down from 1.50%. Next week the only release of note is retail sales on Monday. Economic Calendar Saturday, Dec. 3 Economic Events ECB President Lagarde chairs a roundtable on “The Global Dimensions of Policy Normalization” at a Bank of Thailand conference Sunday, Dec. 4 Economic Data/Events Thailand consumer confidence OPEC+ output virtual meeting ECB’s Nagel and Villeroy appear on German television Monday, Dec. 5 Economic Data/Events US factory orders, durable goods orders, ISM services index Eurozone Services PMI Singapore Services PMI Australia Services PMI, inflation gauge, job advertisements, inventories China Caixin services PMI India services PMI Eurozone retail sales Japan PMI New Zealand commodity prices Singapore retail sales Taiwan foreign reserves Turkey CPI European Union sanctions on Russian oil are expected to begin ECB President Lagarde gives a keynote speech on “Transition Towards a Greener Economy: Challenges and Solutions” ECB’s Villeroy speaks at a conference of French banking and finance supervisor ACPR in Paris ECB’s Makhlouf speaks in Dublin EU finance ministers meet in Brussels The US Business Roundtable publishes its CEO Economic Outlook survey Tuesday, Dec. 6 Economic Data/Events US Trade Thailand CPI RBA rate decision: Expected to raise Cash Rate Target by 25bps to 3.10% Australia BoP, net exports of GDP Germany factory orders, Services PMI Japan household spending Mexico international reserves South Africa GDP Georgia’s US Senate runoff The first-ever EU-Western Balkans summit is held in Albania Goldman Sachs Financial Services conference Wednesday, Dec. 7 Economic Data/Events US Trade MBA mortgage applications China reserves, Trade Australia GDP, reserves Eurozone GDP Canada central bank (BOC) rate decision: Expected to raise rates by 25bps to 4.00% India central bank (RBI) rate decision: Expected to raise rates by 25bps to 6.15% Poland central bank rate decision:  Expected to keep rates steady at 6.75% Singapore reserves Germany industrial production Japan leading index BOJ’s Toyoaki Nakamura speaks in Nagano EIA crude oil inventory report Foreign policy forum is held in Moscow with Russian Foreign Minister Lavrov speaks at a foreign policy forum in Moscow. Thursday, Dec. 8 Economic Data/Events US initial jobless claims Australia trade Indonesia consumer confidence Japan GDP, BoP Mexico CPI New Zealand heavy traffic index South Africa current account, manufacturing production ECB President Lagarde speaks at the European Systemic Risk Board’s sixth annual conference SNB’s Maechler participates in a panel discussion ECB’s Villeroy speaks at the Toulouse School of Economics European Defence Agency holds its annual conference in Brussels Friday, Dec. 9 Economic Data/Events US PPI, wholesale inventories, University of Michigan consumer sentiment China CPI Russia CPI  China PPI, aggregate financing, money supply, new yuan loans Japan M2 New Zealand card spending, manufacturing activity Spain industrial production Thailand foreign reserves, forward contracts Portuguese PM Costa, Spain PM Sanchez, and French President Macron attend a meeting in Spain Sovereign Rating Updates United Kingdom (Fitch) EFSF (Moody’s) ESM (Moody’s) Netherlands (Moody’s) Saudi Arabia (Moody’s) 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.  
Most Likely, Unemployment Will Surge Amid Tight Monetary Policy

The Phases Of The Business Cycle - Economic Growth And Stagnation

Kamila Szypuła Kamila Szypuła 03.12.2022 18:39
Over the years, we have been able to observe how the phases of the business cycle, their length, nomenclature, as well as their classification have changed. The division into smaller and larger cycles (crisis, depression, recovery, boom) has gone down in history, and the classic business cycle consists of two phases: decline (recession) and growth (expansion). Growth is positive, while recession is the opposite. Economic growth Economic growth is nothing more than the process of increasing the production of goods and services in a given country and over a certain period of time (e.g. per year). Economic growth includes those elements of the economy that we can measure (e.g. production, income, employment). The measures of economic growth are gross domestic product (GDP) and gross national product (GNP). Economic growth does not guarantee that all citizens will benefit from it. It happens that some social groups fare better, while others are poorer. For this reason, GDP per capita (GDP per capita) is considered an important measure of economic growth. This indicator is calculated by dividing a country's GDP by its population. Economists distinguish four driving forces of economic growth: labor supply, capital (physical, financial and human), natural resources and technology. Stagnation Simply put, stagnation is a state of the economy in which, in the long term, the volume of production, income of business entities, investment outlays and trade remain at a relatively constant, usually relatively low level, which is usually accompanied by a high level of unemployment. Stagnation may concern the entire economy as well as one indicator (e.g. investments, exports, demand, consumption). This term characterizes an economy in which, first of all, the rate of growth slowed down, and only as a consequence an increase in unemployment. It is characterized by a low level of prices and general economic activity. Economic stagnation - what does it mean? The concept of economic stagnation is understood as a weakening of the pace of development or even a lack of economic growth. It is a situation in which in a given economy an increase in the number of unemployed people can be observed, a decrease in the level of consumption and a decrease in the capital that companies invest in the development of their activities. This state of affairs is also a serious burden for the public sector. The decline in business activity translates into layoffs. This means that the state must allocate more resources to unemployment benefits and other forms of assistance during the economic downturn. Stagflation Stagflation is a macroeconomic phenomenon that describes the occurrence of inflation and economic stagnation at the same time. Then we are dealing with high inflation and low growth and/or economic slowdown. In addition, stagflation occurs when the economy is in recession and the cost of living continues to rise. All this, however, has a negative impact on the life of society. Causes One of the main causes of stagflation is a negative supply shock. It causes an increase in prices on the market and a reduction in raw materials, which in turn causes an economic crisis. Stagflation may also be caused by a break in supply chains, lack of energy resources, and thus a sharp increase in their prices. What are the effects of stagflation? Stagflation is considered by economists to be a highly negative economic phenomenon. Its effect is primarily an increase in unemployment in the country, a reduction in the production of raw materials, a general increase in prices, and as a result, a decrease in the value of the national currency. Source: Begg D., Fischer S., Dornbusch R. (1997) Ekonomia. Makroekonomia
What Is A Recession And What Are Its Consequences?

What Is A Recession And What Are Its Consequences?

Kamila Szypuła Kamila Szypuła 03.12.2022 18:09
The media are scaring about economic recession, which should inevitably appear as a consequence of persistently high inflation and a radical increase in the main interest rates. Even in private conversations, you can often hear that many other countries in the world are threatened with recession. What is this? Definition In the economic literature, there is also a definition of recession as a decrease in GDP in two consecutive quarters, where annual dynamics in individual quarters are used to qualify the state of recession without removing the impact of price changes and the impact of seasonal factors. According to John R. Meyer and D. H. Weinberg, a recession is "a period of decline in the general activity of the economy, having a wide impact on various areas of economic life, which lasts at least a year". The terms recession, crisis and depression are synonymous and often used interchangeably. Economists who study business cycles consider the first two terms to be synonymous. After World War II, the term "recession" was often used instead of the term "crisis" (which was initiated by the NBER). However, it is believed that this is mainly due to psychological reasons (less negative reception of "recession"). On the other hand, "depression" is in practice a deeper phenomenon, defined as long-term and very severe recessions. Types Recession is often compared by researchers to the letters of the alphabet, which corresponds to the appearance of this stage on the business cycle chart, and at the same time helps to visually determine its duration and course. Recession types: "V" - the most common type: quick exit from the collapse, return to the growth rate before the recession in no longer than the period of falling into it, "W" - after reaching the bottom of the cycle, the economy quickly recovers, only to collapse again (often deeper) and only after the "second bottom" go into recovery mode, "U" - rapid entry of the economy into a recession, followed by a slowdown in further decline and remaining at a low level of development, it usually takes several years to return to the rate of economic growth before the recession "L" - after reaching the lowest level, the economy is unable to return to a higher growth rate, inverted letter "L" - a relatively quick, but short-lived recovery of the economy is interrupted by a long-term phase of stagnation. In practice From the point of view of economics, recession is a macroeconomic phenomenon that involves a significant slowdown in economic growth. In general, a recession leads to a decline in domestic production, employment, investment and real wages. Instead of growing, the country's GDP is decreasing. Mainly, the recession is visible from the side of entrepreneurs, where it manifests itself as disturbances in financial liquidity, downtime in production due to the lack of orders or materials needed for its implementation. At the level of individuals, i.e. natural persons who do not run a business, recession means higher unemployment and lower wages as well as impoverishment of the society. During a recession, the average citizen begins to spend less, which results in a decline in consumption across the country. Causes The causes of a recession can be very different. The most common causes of recessions include bad monetary policy and excessive state interference in the economy, and in particular in the financial system. War and natural disasters also have an impact on the occurrence of recessions. Consequences The most serious effect of the recession is the decline in gross domestic product (GDP). There is also a decrease in the value of goods and services. GDP decreases, which leads to negative economic growth. Among other, equally serious consequences related to the occurrence of recession, the following can also be distinguished: lowering real wages and incomes in society; decrease in capital expenditures; increase of unemployment; reduction in the level of labor productivity and growth rate; lowering consumer demand. At the same time, along with the decreasing demand for consumer goods, a recession most often leads to a slowdown in price growth, and thus to a reduction in inflation. What comes after a recession? Many experts consider the recession to be the first phase of the economic cycle. According to this theory, a recession is followed by a depression, i.e. low levels of output, prices, interest rates, and employment. How to prevent? When anticipating a recession, stabilization (anti-recession) policy tools can be used, e.g. lowering taxes on enterprises (thus increasing the amount of investment in durable goods), reducing social spending (to stop the budget deficit from growing) or lowering interest rates (assuming that appropriate mix). During the beginning of the recession phase, it is possible to temporarily increase budgetary accidents, influence the weakening of the national currency exchange rate (which allows for a temporary increase in the competitiveness of export goods) or increase the protection of the internal market against the influx of imported goods, in a situation where it does not violate international agreements. Thanks to stabilization policy tools and properly conducted fiscal and monetary policy, recession can be prevented or mitigated. Source: Begg D., Fischer S., Dornbusch R. (1997) Ekonomia. Makroekonomia
Markets Expect A Softer Move From The RBA

Markets Expect A Softer Move From The RBA

Kamila Szypuła Kamila Szypuła 03.12.2022 16:00
In the first half of December we will have a litany of central bank meetings. The ball will start rolling with Reserve Bank of Australia and Bank of Canada next week, both of which are set to raise interest rates, albeit at a slower pace. The Outlook Economic development since the last RBA meeting has been favorable. The labor market remains extremely tight and the unemployment rate has fallen to its lowest level in half a century. Meanwhile, wage growth accelerated in the last quarter, which is usually a sign of strengthening inflationary forces. The problems with the COVID-19 in China and the closure of this economy because of COVID situation, hits Australia. There is no doubt that Australia, the world's most dependent economy on China, is shaken by the shock wave of the virus. Accounting for one-third of Australia's total exports, it has caused significant economic problems across huge swaths of the Australian economy in recent times. Inflation Against expectations for an increase, both headline and core inflation rates for Australia's monthly inflation series fell in October. The headline inflation rate fell from 7.3% year-on-year in September to only 6.9% YoY in October. How the RBA fight against inflation? The RBA is working very hard to cool economic growth. It raised interest rates extremely quickly, from 0.1% to 2.85% in six months. They are expected to raise them more. Interest rate hikes slow down the economy and fight inflation in a number of ways: households pay more for a mortgage, leaving less for discretionary spending; the australian dolar (AUD) appreciates, driving down imports and discouraging people from buying local produce; The return on savings is higher, which encourages people to save rather than spend, the cost of borrowing is high, which makes businesses less likely to borrow and spend. Interest rate hikes are designed to divert money from spending to local businesses, making those businesses feel like they can't raise prices and wages. The RBA's job is to keep inflation an average of 2 to 3% a year and currently inflation is well above that target. Expectations The latest inflation figures might provide a reprieve for mortgage holders from ongoing escalating interest rate rises when the Reserve Bank meets on December 6 to decide on the official cash rate. The Australian economy continues to run at full capacity, setting the stage for another interest rate hike. Investors say that the cycle of monetary policy tightening may be stopped as soon as this month. This is mainly because inflation fell unexpectedly in October, fueling hopes that the worst was over. With house prices also falling and external threats intensifying as the Chinese economy loses momentum, there are solid arguments for a slowdown in the RBA. Markets currently rate a 75% probability of a quarter point rate hike and a 25% chance of no change at all. Westpac chief economist Bill Evans still believes the RBA needs to raise interest rates by 0.25 percentage points both in December and at its next meeting in February to quell continued inflationary pressures. The RBA said it would watch the data to see how many more rate hikes are needed to cool inflation without crushing the economy. The problem is that most of the data is from a few months ago, before rate hikes became popular. It takes some time for interest rates to take effect.
Poland: A Pause In Its Rate Hiking Is Officially Declared

Poland: A Pause In Its Rate Hiking Is Officially Declared

ING Economics ING Economics 03.12.2022 12:15
Following a lower CPI reading, the Polish Monetary Policy Council officially declared a pause in its hiking cycle. So for next Wednesday, we are expecting the rate to remain at 6.75%. In Hungary, we see month-on-month headline inflation at around 1.8% and the core rate at 1.7%, due to a slowdown in both the industrial and service sectors In this article Poland: end of the cycle Turkey: risks are still on the upside Hungary: year-on-year indices of inflation rise further   Shutterstock Poland: end of the cycle NBP rate in December (6.75% - unchanged) The Polish Monetary Policy Council officially declared a pause in its rate hiking though in practice, this is the end of the cycle. With CPI inflation moderating from 17.9% year-on-year in October to 17.4% YoY in November (flash estimate) and GDP growth pointing to weak household spending and fixed investment, the Council is unlikely to tighten further anytime soon. Policymakers will wait for the impact of rate hikes delivered so far and hope that further tightening by central banks in core markets, along with a global economic slowdown, will bring Polish inflation down. However, the National Bank of Poland's target of 2.5% (+/- 1 perc. point.) is not in sight over the medium term. Turkey: risks are still on the upside In November, we expect annual inflation to change direction and drop to 84.4% (2.9% on monthly basis) from 85.5% a month ago, as base effects start to kick in. These will become more pronounced in December and early next year. Stability in the currency is another factor for some moderation in the pace of increase lately. However, the risks lie to the upside given the deterioration in pricing behaviour and still prevailing cost-push pressures. Hungary: year-on-year indices of inflation rise further October economic activity data is due next week in Hungary. We expect the retail sector to post a slowdown in sales volume, as household purchasing power is increasingly hit by rising inflation. Business survey indicators, including the PMI, suggest that we might also see a temporary slowdown in industrial production in October,  after a surprisingly strong September. The next big thing however is the November inflation print. We see food prices rising further as domestic producer prices are skyrocketing in the food industry (close to 50% YoY). Still, the strengthening of the forint may ease some pressure on imported inflation, and as aggregate demand retreats, inflation in services could also slow down. In all, we see the month-on-month headline inflation rate at around 1.8% and core inflation at 1.7%. But these rates are still higher than last year’s figures from the same month, thus the year-on-year indices are going to rise further, with the headline and core rates surpassing 22% and 23%, respectively. When it comes to the budgetary situation, unlike in the previous two months, we see a monthly deficit. This is fuelled by the extra pension adjustment by law due to high inflation. This payment triggered a significant outflow of cash in November, pushing the monthly budget balance into negative territory despite rising revenues from high inflation and windfall taxes, in our view. Key events in EMEA next week Refinitiv, ING TagsTurkey Poland MPC Hungary EMEA Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more