News en

What will ECB Governing Council signal? Next week, the ECB Governing Council will meet and will most likely decide on the next 50 basis point (bp) rate hike. The key interest rates will then be 2.5%, 3.0% and 3.25%. What will be more exciting is what outlook the ECB Governing Council will give for the further course of action. The markets' attention will focus on whether there are any changes compared with the wording in December. At that time, the Governing Council had put in place ‘significant further rate hikes’ at a ‘steady pace’. This was a clear indication that a 50bp rate hike was likely, at least for the February meeting. Since then, however, there have been mixed messages from members of the Governing Council about what might happen thereafter. While some members were clearly in favor of an unchanged pace, there were also voices that brought a 25bp hike into play at the March meeting. Thus, it is foreseeable that there will be heated discussions within the Governing Council next week on what to signal to the markets for the then upcoming March meeting. We assume that there will be an agreement on an unchanged wording compared to… Read More »ECB and US Fed decide on interest rates

Summary The 2.1% real PCE growth reported in yesterday's GDP report masked some underlying details which were revealed in today's personal income and spending report. The upshot is that consumer spending did more than lose momentum, it actually declined in the final two months of the year. Consumer flame flickers The staying power of consumer spending flickered out in the fourth quarter. Despite a modest and temporary jump in the saving rate in December, the bills are just stacking up too fast for many American households. After adjusting for inflation, spending on food, energy and other non-durable goods is now down for two months in a row. The weakness is more evident in big-ticket durable goods items where real spending is down four out of the past five months—the largest of those monthly declines were in November and December. Perhaps the most disconcerting development is that real service spending stalled in December. Without the offset from this larger category that typically plods along even during recessions, overall consumer spending ended the year with the only two monthly declines in real spending stacked up back-to-back. The way the GDP math works, that makes it very difficult for first quarter real PCE… Read More »Back-to-back declines in real PCE mean a tough start to 2023

United States: Headline GDP Growth Overstates the Strength of the Economy Real GDP expanded at a 2.9% annualized pace in Q4. While beating expectations, the underlying details were not as encouraging. Moreover, the weakening monthly indicator performances to end the year suggest the decelerating trend will continue in Q1. International: Sentiment in Europe Is Improving, Bank of Canada Calls It Quits For most of 2022, we had concerns that the broader European economy could be on the verge of a deep recession. While a warm winter and falling inflation have not completely abated those concerns, they do lead us to believe the European economic downturn will not be as bad as initially expected. Elsewhere, one of the major central banks opted to formally pause rate hikes this week. Following a 25 bps hike to 4.50%, Governor Macklem of the Bank of Canada declared the central bank's tightening cycle is over.   View the full report

The January Flash PMIs painted a somewhat less negative growth outlook, reflecting lower energy prices and generally easing financial conditions. Both manufacturing and services indices recovered in the euro area, bringing the composite index above 50 for the first time since last June, and pointing towards recovering activity. US indices have remained at recessionary levels, but the January uptick suggests that the risk of a hard landing has eased. Broadly, we expect the global manufacturing PMI to bottom during Q1, which is earlier than we anticipated previously. See the details in Research Global – Global manufacturing PMI heading higher in H1, 25 January, where we also revised our forecast for US GDP growth higher to +0.3% for 2023 (from -0.2%) and +0.9% for 2024 (from +0.5%). The uptick in developed market demand coincides with the brisk reopening-driven recovery in China. We will get more colour on Chinese holiday spending next week, when the January PMIs are due for release. For central banks, the early pick-up in activity is not purely a positive factor, as higher global demand could also mean more persistent inflation. While the European energy situation has eased markedly over the past months following warm weather and lower demand,… Read More »Weekly Focus: Upbeat PMIs paint two-sided risks for the central banks

Stocks are on the rise in the wake of positive jobs, growth, and manufacturing data. However, that ability to treat good news as a positive for equities will be reliant on continued inflation declines, says Joshua Mahony, senior market analyst at online trading platform IG. Equities on the rise as US data dump boosts soft landing hopes “Tech stocks are leading the push higher for US equities today, as a raft of better-than-expected data brings greater confidence that we could be in for a soft landing. Despite expectations that we will see substantial demand destruction as recessionary pressures grow, today’s data deluge brought some optimism that US equities could face a less difficult period after-all. A sharp rise in durable goods orders, better-than-expected GDP, and falling initial jobless claims brought calm within markets that have seen jitters in the face of earnings concerns. However, the fact is that Q4 earnings season has been characterised by better-than-expected earnings (69% beat estimates) and revenues (67% beat estimates). To a large extent this reflects the fact that economists have come into this earnings season with a pessimism that provides a relatively low bar for companies to overcome. ” Good news is good news,… Read More »US data drives equities higher, although inflation remains key

EUR/USD is seen consolidating its recent gains to the highest level since April 2022. Bets or smaller rate hikes by the Fed continue to weigh on the USD and lend support. The recent hawkish commentary by ECB officials further acts as a tailwind for the pair. Traders now seem reluctant ahead of the US macro data and key central bank meetings. The EUR/USD pair oscillates in a narrow band above the 1.0900 mark during the Asian session on Thursday and consolidates its recent gains to the highest level since April touched earlier this week. Traders seem to have moved to the sidelines and prefer to wait for important US macro data, which will influence the Fed's rate-hike path and provide a fresh directional impetus. The Advance US Q4 GDP print is due for release later during the early North American session. This will be followed by the Core PCE Price Index – the Fed's preferred inflation gauge – on Friday. In the meantime, the prospects for a less aggressive policy tightening by the US central bank keep the USD bulls on the defensive near an eight-month low and acts as a tailwind for the major. Investors seem convinced that the… Read More »EUR/USD Analysis: US GDP eyed for some impetus, focus remains on FOMC/ECB meetings next week

Trading in the US was eventless, except for the wild moves that marked the opening bell at the NYSE. The S&P500 swung around the 4000, without any major moves up or down, as investors remained undecided faced with mixed company earnings, and mixed economic data. Microsoft announced better-than-expected results yesterday, but the 5% rally in the afterhours trading rapidly faded. Tesla is due to announce its earnings today. In the FX, the US dollar remains under the pressure of soft data, and worryingly softening Fed expectations. The EURUSD is testing the 1.09 resistance on encouraging PMI data, while sterling is softer on growing slowdown worries. In Canada, the Bank of Canada (BoC) is preparing to announce its final 25bp hike. The dollar-CAD puts increasing weight into clearing the 1.3350 support, but crude oil is not helping, as the price of a barrel of American crude continues bumping its head against the solid $82pb wall, the 100-DMA, without being able to break it to the upside.

Dollar Index is ranged below 102 and has some scope to fall to 101 while Euro has moved above 1.09 and looks bullish. Pound can test 1.22 in a correction followed by a rise back to 1.24/25. EURJPY looks bullish to 143 while USDJPY could be ranged below 132. Aussie can test 0.72 on sustained trade above 0.71. USDCNY needs to break and sustain above 6.80 to move up further after its holidays. USDRUB continues to remain within 68-70 region. USDINR rose sharply to close higher yesterday. It is to be seen if it can manage to rise further from here to 81.85-82.00 or fall back to 81.50 or lower levels. EURINR can rise to 89. The US Treasury and the German yields have declined sharply and can fall more before a reversal is seen. The 10Yr GoI lacks momentum and looks vulnerable for a fall while the 5Yr is mixed and can go either way from here. Dow is getting support near 33300 which leaves the chances high for it to break above the immediate resistance and rise further on the upside. DAX has declined but may remain bullish while above the support at 15000. Nikkei is hovering below… Read More »Morning Briefing: Euro has moved above 1.09 and looks bullish

Strengthening PMI figures in the US and Europe have done little to help boost sentiment, as traders await the key Microsoft earnings report, says Joshua Mahony, senior market analyst at online trading platform IG. Equities lose traction despite some encouraging PMI figures “Equities find themselves in the red once again, as investors struggle to gauge whether todays set of mixed PMI surveys provide grounds for optimism or pessimism. Eurozone services brought the one notable area of outperformance, as the sector unexpectedly rose back into expansion territory. However, despite improved readings across both manufacturing and services sectors in the US, it is a case of good news is bad news as it eases pressure on the Fed to consider pivoting anytime soon. ” Microsoft earnings due, with big tech expected to see demand suffer “Microsoft earnings provide the big corporate story of the day, with investors and traders alike expecting to see the giant lose traction on both earnings and profit-front. The decision to slash 10,000 jobs does highlight a bloated business which had grown its workforce by a whopping 77,000 since the beginning of the pandemic (+47%). Today’s Microsoft earnings report is expected to highlight the need to bring costs… Read More »PMI figures fail to lift markets as we await Microsoft earnings

At the conclusion of the latest WEF meeting in Davos, many of the leaders there were optimistic that the world would avoid a recession. Or, at least, if there was a recession, it would be short and shallow. A substantial portion of that optimism relied on an expectation that China would rebound, now that it was putting covid restrictions away. The meeting happened right after the latest GDP figures from the world's second largest economy, which were well above expectations. That helped offset some of the negativity that would be expected when the US reported slower than expected industrial growth. So, it begs the question: Are major investors looking at this as the bottom? Or is there further downside? What to look out for One of the clues could be in PMI data, to see where advance trends in the economy are headed. Over the last several months, most major economies were reporting PMIs below the 50 level, that indicate contraction. But the latest consensus shows that indicator might be starting to rise again, particularly in Europe. Europe's ability to keep up with energy demand has helped boost optimism in the shared economy, with stocks moving to 9-month highs. If… Read More »Global flash PMIs, and the return of investor optimism?