Olivia

Americans increased spending (+1.1%) faster than income (+0.6%) in June. Both figures exceeded expectations, which is a bullish signal for the markets and the dollar as it shows buying is in good shape. But this may only be a good façade, which hides the difficulties. Last month Americans put away $944bn (on an annualised basis), which is the lowest in nominal terms since December 2016. The savings-to-income ratio fell to 5.1%, the weakest since August 2009. The ratio was sustainably below 5% during the final stages of the economic boom: in 2000-2001 and 2005-2008. Both episodes were harbingers of disaster for the stock market and took place during periods of rapid monetary policy tightening by the Fed. The fundamental reason for the weakness in equities during this period is the relatively high market valuation (P/E), as is the case now. Consumers cannot increase spending further, which harms corporate profits and forecasts and ends in staff cuts. Comments from the Fed or the Treasury, led by past Fed chief Yellen, make us look at the current picture, which is quickly becoming obsolete. Further, the economy may have no engine left for growth in the form of consumer spending while the housing… Read More »Americans are cutting savings as they did before markets crashed in 2000, 2008

Summary The Eurozone economy proved pleasantly—and surprisingly—resilient in Q2, with the initial estimate showing the region's GDP grew by 0.7% quarter-over-quarter. Not only was that firmer than the consensus forecast for a 0.2% gain, it was also a modest improvement from the 0.5% gain seen in Q1. The Eurozone July CPI was also released, and showed a further acceleration of inflation across the region. Headline CPI inflation quickened to 8.9% year-over-year, the fastest pace on record. The quickening in inflation was driven by higher food prices, and also reflected broader price gains, as the core CPI quickened to 4.0% and the services CPI quickened to 3.7% We view the Eurozone Q2 GDP figures as resilient enough, and July inflation figures as worrisome enough, to reinforce the case for another 50 bps Deposit Rate increase from the European Central Bank (ECB) in September, even with some concerns about the longer-term economic outlook for the region. View the full report

Summary United States: Busy Data Week Shows Wobbling U.S. Economy Data released this week showed that U.S. economic growth modestly contracted in Q2. New home sales were yet another data release that pointed toward a cooling housing market. The FOMC continued its fight against elevated inflation with its second consecutive 75 bps increase in the federal funds rate. Next week: ISM Manufacturing (Mon), Trade Balance (Tue), Employment (Fri) International: The Global Economic Outlook Dims Over the past several months, concerns about the global economic outlook have intensified, and predications of possible recessions around the world have become more widespread. As a result, we recently further downgraded our outlook and now expect global GDP growth of just 2.3% in 2022 and 1.6% in 2023. Next week: RBA Cash Rate (Tue), BCB Selic Rate (Wed), BoE Bank Rate (Thu) Interest Rate Watch: FOMC Hikes by 75 bps and Indicates More to Come Not only did the FOMC raise its target range for the federal funds rate by 75 bps, which was widely expected, but it signaled that more tightening is likely. That said, the FOMC acknowledged the recent slowdown in economic activity. Topic of the Week: Not Yet a Recession Way Down… Read More »Weekly economic and financial commentary

Today, flash estimates for 2Q GDP growth in the Eurozone countries were released. The EZ surprised markets with strong q/q momentum of +0.7% (1Q: +0.5%), despite inflationary pressures and global uncertainty. Compared to the previous year, 2Q GDP growth was a solid +4.0% (1Q: +5.4%). Top performers included Italy and Spain. Austria also surprised positively. The International Monetary Fund (IMF) has revised its growth forecasts significantly downwards. The IMF now expects global growth of +3.2% (-0.4 pp compared to April) in 2022 and +2.9% (-0.7 pp compared to April) in 2023. The revisions for China and the US are the main drivers of lower global growth expectations. View the full report here

GDP yesterday reported -0.9, we had -1.0 and the Atlanta Fed -1.2. By the data, it was clear the Atlanta Fed was off its forecast. Not that it matters as the currency and market price would've traded to the exact same levels despite the variation to GDP forecasts. The laugh to the forecast is 12 numbers were required and voila, -1.0 was done. Anybody could've performed the same quick operation and found -1.0. Anybody today can factor the new GDP averages and find the next GDP release. Nothing will change in 3 months. The GDP and any economic release is a stand alone entity and factors by itself. The only difference between today and yesterday is a slight change to the averages. And the change is very slight. The 1 year average at 1.04 should drop so the forecast in turn should also drop for the next quarter. NFP is coming and NFP as a stand alone release factors the exact same as GDP averages. The only difference is NFP contains different numbers than GDP. See my blog at btwomey.com for many. many past NFP forecasts. Also see my blog as posted Sunday was weekly levels for 20 currency pairs.… Read More »FX next week: Gold /silver ratios, EUR, GBP, AUD, JPY, NZD

Bank of England meeting – 04/08 – having seen the Federal Reserve hike rates by 75bps last week, the pressure is on the Bank of England to at least follow with a bumper rate hike of its own. Since the Bank of England was given its independence the Monetary Policy Committee has never raised rates by more than 25bps, while they’ve never been slow to cut them by much more than 25bps increments. This appears to speak to the conservative nature of the central banks mindset, and thus makes it difficult to move out of that narrow way of thinking. With inflation now at 9.4% and at the Bank of England’s own admission set to go as high as 11% the central bank is running out of excuses not to hike in a more aggressive fashion. With industrial action now part of the background noise, wage growth is likely to remain well underpinned over the coming months. At its June meeting the MPC once again issued a baffling statement of intent over its response to inflationary pressure. They said that they would act “forcefully” on inflation if necessary, following it up by saying they expect inflation to peak at an… Read More »The week ahead: Bank of England, RBA, US non-farm payrolls, BP, Rolls Royce and HSBC results

The coming week is shaping up to be another crucial one for gauging recession risks and monetary policy paths. It’s NFP week in the United States and the RBA and Bank of England will decide whether to accelerate their hiking cycles. The ISM PMIs are bound to attract a lot of attention as well in the US as growth concerns intensify. Elsewhere, employment figures in Canada and New Zealand, and manufacturing PMIs out of China will be the highlights. Meanwhile, a meeting of OPEC+ countries might yet result in a decision to produce more oil.

Gold closed the second straight week in positive territory. Falling US T-bond yields helped XAUUSD gather bullish momentum. Additional gains are likely in case buyers clear $1,780 resistance. Following a consolidation phase above $1,700 at the beginning of the week, gold gathered bullish momentum and climbed to its highest level since early July above $1,760. Although the yellow metal lost its bullish momentum on Friday, it managed to close the second straight week in positive territory. The near-term technical outlook points to a bullish tilt and XAUUSD looks to extend its recovery ahead of the July jobs report from the US. What happened last week? The data from the US fueled recession fears earlier in the week but investors refrained from taking large positions ahead of the US Federal Reserve’s policy announcements. The headline General Business Activity Index of the Federal Reserve Bank of Dallas’ Texas Manufacturing Outlook Survey dropped to -22.6 in July from -17.7 in June. On Tuesday, the Conference Board (CB) reported that the Consumer Confidence Index declined to 95.7 from 98.4 in June. “Inflation and additional rate hikes are likely to continue posing strong headwinds for consumer spending and economic growth over the next six months,”… Read More »Gold Weekly Forecast: XAUUSD needs to clear $1,780 to extend rebound

EUR/USD reversed modest intraday losses on Thursday amid the emergence of fresh USD selling. A technical recession in the US reaffirmed a gradual Fed rate hike path and weighed on the USD. The European gas crisis acted as a headwind for the euro and kept a lid on any meaningful upside. Investors now look forward to important Eurozone macro data and the US PCE for a fresh impetus. The EUR/USD pair witnessed good two-way price moves on Thursday and the intraday volatility was sponsored by a combination of factors. The shared currency was weighed down by worries that a halt of gas flows from Russia could trigger an energy crisis in the Eurozone. In fact, the Russian state-controlled energy giant Gazprom said on Wednesday that natural gas deliveries to Germany via the Nord Stream 1 pipeline have been cut further to 20% of capacity. The pipeline operator had announced the first reduction on Monday to 40% citing a missing turbine. Apart from this, political instability in Italy – ahead of elections in September – added to concerns about the regions economic outlook and further undermined the euro. That said, the emergence of fresh US dollar selling assisted the pair to… Read More »EUR/USD Forecast: 1.0270-80 area holds the key for bulls, Eurozone macro data/US PCE eyed

EUR/USD – 1.0181 Despite euro's erratic fall from last Thurday's 2-week high of 1.0278 to retrace rise from July's 20-year bottom at 0.9953 to 1.0097 in post-FOMC, subsequent rally on broad-based usd's weakness due to less hawkish comments by Fed's Powell suggests pullback possibly over, above 1.0257 would yield stronger gain to 1.0295/00. On the downside, only below 1.0150/55 would risk another fall towards 1.0097. Data to be released on Thursday: Australia retail sales, export prices, import prices. France producer prices, Italy industrial sales, trade balance, EU business climate, economic sentiment, industrial sentiment, services sentiment, consumer sentiment, Germany CPI. US GDP, PCE prices, initial jobless claims, continuing jobless claims, KC Fed manufacturing and Canada average weekly earnings.