News
April 24, 2023

German Ifo improves marginally in April

An improving Ifo index is always good news. However, a weaker current assessment component and below-average expectations do little to take away the stagnation risk for this year

In April, Germany’s most prominent leading indicator, the Ifo index, increased for the seventh month in a row, coming in at 93.6 from 93.2 in March. Expectations improved again but remain below their historical average, while the current assessment component weakened somewhat. This combination nicely illustrates that lower wholesale gas prices and the reopening of the Chinese economy have boosted economic confidence but that the German economy is still far away from strong growth.

Saved from recession – for now

Available hard data for the first two months of the year as well as recent soft indicators point to a surprising growth revival in the German economy. This growth revival is driven by a rebound in industrial activity, helped by the Chinese reopening and an easing of supply chain frictions. But this rebound is also very likely a short-lived one. At the same time, private consumption continues to suffer from still-high retail energy prices. Recent wage settlements, like last weekend’s agreement in the public sector, will offset the loss in purchasing power but only partly and only gradually.

Looking beyond the first quarter and particularly looking into the second half of the year, the German economy will continue its flirtation with recession. This is when the backlog will have been reduced without new strong demand coming in, when the impact of the most aggressive monetary policy tightening in decades will fully unfold and when a slowdown of the US economy will hit German exports. On top of these cyclical factors, the ongoing war in Ukraine, ongoing demographic change and an ongoing energy transition will structurally weigh on the German economy in the coming years.

With seven monthly increases in a row, today’s Ifo index is another illustration of the German economy’s better-than-expected resilience. The drop in wholesale energy prices and the reopening of China have even fuelled a short-lived industrial renaissance. Chances are even high that the first estimate for first quarter GDP growth (to be released on Friday) will show a positive growth figure. However, we expect this rebound to run out of steam soon. The flirtation with stagnation will continue.

source: ING

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source: businessinsider.com

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Ali Sabbaghi
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Trade idea
April 23, 2023

NZDCAD, Long and Short Opportunity

NZDCAD trade idea

NZDCAD trend is bearish.
But for now, this pair is on a demand area. 0.826 to 0.830 range area, so if we want to prepare to buy this currency, we must wait for the change of this downward trend to an upward trend, in this case breaking descending channel and breaking 0.8369 level as resistance and pullback to this level can be prepared to a buying opportunity.
But if we don’t consider the demand area and give more credit to the descending channel and sellers’ pressure, the price reaching the 0.833 area can be attractive for reselling. In this case, the next demand area at 0.815 rates can be your Take profit.

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Ali Sabbaghi
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Weekly Gold
April 23, 2023

Weekly gold Analysis

Fundamental View

Buyers of gold in recession, or sellers of it for a stronger dollar?

Volatility in the bond market and uncertainty about interest rate cuts are pushing the dollar higher, dimming the appeal of gold (XAU).

Last week, the recovery of the US dollar affected the price of gold (XAU) and put pressure on gold. Because market participants assessed the possibility of the Federal Reserve raising interest rates in May. However, there are still many buyers and markets for gold, who see the fear of stagnation more strongly.

Now for this week. There are many things in the US economic calendar that will help traders know what to expect from the Fed. Investors are monitoring Economic growth data (GDP), jobless claims on Thursday, and PCE data on Friday. The GDP print is expected to grow at an annual rate of 2.0% during this period, which means that a recession is not imminent. And If the PCE index prints much higher than expected, it reduces the likelihood that the Fed will hold off on rate hikes in May, especially if economic data is generally positive.

With this data, Investors evaluate the interest rate increase in May. Although the market expects a 25 basis point hike on May 3, uncertainty surrounding the possibility of a rate cut this year has caused volatility in the US bond market. The volatility of the bond market causes the dollar to move.

📅 Economic Calendar

The market is currently looking at a 25 percent hike, with the direction of travel determined by whether the Fed will hold off on interest rate changes after that. While this could support gold prices, the recent market rally and overly technical conditions mean there is still scope for a downside if the Fed’s rate outlook is confirmed. According to the CME FedWatch tool, there is an 84.6% chance of a 25% rate hike in May, with interest rate cuts expected later in the year. Higher interest rates reduce the attractiveness of non-yielding bullion.

Technical View

Gold has taken a downward trend in the four-hour time frame. This precious metal has locked itself in the $1960 to $2020 area. It shows that gold needs some drivers to rise or fall. Any sign of information that leads traders to fear further recession could push gold to the $2020-$2048 highs. But what we think is the better-than-expected print for the US economy makes more downward pressure on XAU.
Gold is currently trading at the price of $1982 dollars and is on a dynamic resistance. There is a possibility of a slight rise for gold at the beginning of the week, but we don’t have any rush to trade. If the economic data encourages us to sell gold, we will wait and do it in the $2000 to $2020 area, and if we going to buy gold, we will do it in $1960 or in the important key area of 1920 dollars.

Calendar events

Affecting news/events for gold

Thu Apr 27: 

🇺🇸 USD Advance GDP q/q and Unemployment Claims

Fri Apr 28:

🇺🇸 USD Core PCE Price Index and USD Employment Cost Index

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Ali Sabbaghi
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Week ahead
April 22, 2023

Week ahead

US Economic Rise in Prices and Inflation: What to Expect from the Federal Reserve

🇺🇸 Last week, US manufacturing and service sector PMIs were released in their preliminary assessment of April.
The data showed that the average price of goods and services rose in April from September last year, and the inflation rate has now risen for three consecutive months. That increase helps explain why net inflation has been stubbornly up 5.6 percent, and points to a possible pick-up, or at least some stickiness, in consumer price inflation. Also, the index data of the contenders have been relatively worse than the market expectations, but the Philadelphia manufacturing survey has been reported to be weaker than the most pessimistic number expected. These data caused the market’s expectations for the interest rate of the Federal Reserve to change slightly.
Federal Reserve officials will remain silent next week as they enter a shutdown period. Still, there’s plenty on the U.S. economic calendar to help traders know what to expect from the Fed.

This week, we first have the consumer confidence index for the month of April, which will be released on Tuesday along with the sales figures for newly built homes in March. On Wednesday, durable goods orders will be released, but the first very important data will be seasonal changes in the gross domestic product (Q1), which will be released on Thursday.

The US economy is expected to have grown during this period, which means that a recession is not imminent. The pending sales will also be published on Thursday. The complexity of decisions is such that any data that induce recession to traders, although it weakens the US dollar, on the other hand, it also increases the demand for the safe dollar.

We consider an upward trend for the US dollar for three reasons

  1. High inflation in Britain
    It causes investors to worry about the increase in global prices and the concern of further price increases, interest rates will increase not only from the BOE but also from the Federal Reserve.
  2. Bullard of the Federal Reserve
    It insists on raising rates two more times. While he is a hawkish person, his views influence the market.
  3. Limited Volatility:
    After last week’s correction, the dollar is benefiting from some demand.

Japan, consistent in Dovish policy

🇯🇵 Last Friday Japan’s PMI data released showed that Japan’s Jibun Bank manufacturing PMI rose to 49.5 in April 2023 from a final 49.2 in March, marking the highest reading since October last year amid further economic recovery. It was the sixth straight month of contraction in the sector, but the mildest in a row, as new orders fell at a slower pace and sales fell to their slowest pace since last July due to a softer decline in foreign demand. Meanwhile, production slowed slightly. At the same time, employment remained unchanged and workloads decreased at a slower pace. On the pricing front, input cost inflation eased to a 22-month low and there were more signs that supply chains are moving closer to stabilization, but output cost inflation picked up. Finally, business sentiment fell to a four-month low but remained stronger than the series average.

The Japanese yen continues to be under pressure from comments from new central bank chief Kazuo Ueda, who indicated the Bank of Japan will stick to its ultra-dovish monetary policy until price stability is achieved.

He said Japan’s inflation, currently around 3 percent, will return to below the BOJ’s 2 percent target later this year due to lower import costs. This week the economic calendar is full of inflation data releases, unemployment rates, and other important data. All of which can be traders’ bets for the Bank of Japan’s decisions on Friday. Although we can’t imagine any policy changes for the BOJ, this week’s data could have an impact on prices. Better-than-expected data could be good for the yen (JPY).

The RBA is waiting for the outcome of previous hikes

🇦🇺 Australian employment data came out surprisingly strong in March. The data showed that the labor market has held up well in the face of higher interest rates.
In monetary policy, the Reserve Bank of Australia kept rates unchanged at 3.6% in April after raising interest rates for ten sessions. Central bank seniors wanted more time to assess the impact of past interest rate hikes on the economic outlook. However, the RBA reiterated that further tightening may be needed to ensure inflation returns to target.
Therefore, whenever more figures are published in the Australian inflation data than expected, the probability of an interest rate increase by the RBA will increase, and traders will price this possibility in the purchase of the Australian dollar (AUD).

Economic calendar

Important news/events for this week are:

On Wed Apr 26:

🇦🇺 AUD CPI q/q and CPI y/y

Thu Apr 27:

🇺🇸 USD Advance GDP q/q and Unemployment Claims

Fri Apr 28:

🇯🇵 BOJ Outlook Report, Monetary Policy Statement and BOJ Press Conference

🇩🇪 German Prelim CPI m/m, CAD GDP m/m

🇺🇸 Core PCE Price Index m/m and Employment Cost Index q/q for USD.

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Ali Sabbaghi
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Market Analysis
April 21, 2023

ECB and FED monetary policies’ differences will expand the Euro-Dollar currency pair to high levels.

The US dollar failed to sustain gains on Wednesday, strengthening EUR/USD. As financial markets falter, the euro-dollar continues to move.

Inflation in the euro area as a whole was confirmed at 6.9 percent annually in March. European Central Bank (ECB) officials continue to suggest interest rate hikes in the future. Philip Lane, the ECB’s chief economist, said a May hike was likely and the data would determine interest rates.

The S&P Global PMI provides new information on economic activity. Isabelle Schnabel pointed out that while inflation has started to ease, core inflation is holding steady. On Thursday, the European Central Bank will publish the minutes of its latest meeting. The 25 basis point rate hike in May is fully priced.

As for the Federal Reserve, policymakers are also seeing more hikes. James Bullard favors a further half-percent contraction as the labor market looks “very, very strong.” Rafael Bostic would prefer just one more rate hike and a long pause. According to Bej’s book, economic activity has “changed little” in recent weeks. The CME FedWatch tool shows an 83 percent chance of an interest rate hike in May, compared with 70 percent a week earlier. Thursday’s US index includes jobless claims, the Philly Fed and home sales.

The EUR/USD pair is waiting for the next catalyst that could push it above 1.1000 or extend the downtrend. If market sentiment favors risk assets, the euro should benefit as well.
For this purpose, in order to ensure the entry into the purchase transaction, we must wait for the failure from the level of 1.098 according to the risks in order to enter the purchase transaction in order to return and correct again to this rate. Buyers will target the level of 1.1044. A drop below the support level of 1.0947 will invalidate the bullish scenario.

EURUSD is trading in a range with a clear ceiling at 1.09776 holding it back for several sessions. While the broad trend is bullish, recent days have seen painful trading. Resistance remains at 1.09776 and then 1.10. Support remains at 1.0947.

Both the Federal Reserve and the European Central Bank will raise interest rates in two weeks. But several details remain unknown. Will the European Central Bank increase by 25 or half points? Will the Fed’s 25 percent hike be the last rate hike?

The upcoming release of S&P Global preliminary PMIs for April could help set direction. Basically, slightly weaker data from the US will resume the bullish trend of the currency pair after fears of a recession. Investors fear that the Federal Reserve will push the US into a recession that will affect the entire world.

The most important US service sector PMI. At the end of the day, Fed officials’ comments — the last before the bank’s shutdown period — will also have an impact.

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Ali Sabbaghi
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Market Analysis
April 19, 2023

High UK inflation, helps to a rate hike

Today’s unexpectedly high CPI growth and the above-consensus reading on core inflation means is now more likely another next month 25bp rate hike from the BOE (Bank of England).

Although these data all indicate high inflation and higher-than-expected costs for the UK, it should be taken into account that UK inflation has been on a downward trend in the past few months.

core CPI stayed at 6.2%, having been expected to slip back towards 6%. Headline inflation unexpectedly stayed in double-digits at 10.1%, though that will start to change in April when the effect of last year’s electricity/gas price hike filters out of the annual comparison. We expect headline CPI to reach the 8% area next month, 5% by summer and roughly 3% around year-end on current trends.

The core CPI printed at 6.2% as expected (prev was 6%), while headline inflation was unexpectedly at 10.1%. However, the effect of last year’s electricity/gas price hike will filter out in April, and headline CPI is expected to reach 8% next month, 5% by summer, and roughly 3% around year-end.

Core CPI is much more important for BOE. Because service-sector inflation trends are more persistent and relevant over the long term for monetary policy.

Instead, it is core goods inflation that is proving much stickier than expected.

with the clear disinflationary trend in durable goods, We doubt high inflation will last given improving supply chains, lower input costs, as well as the lower orders-to-inventory ratios we’ve seen in the surveys over recent months. The Bank of England itself said something similar in its most recent set of meeting minutes.

There is a clear trend of disinflation in durable goods, and the improving supply chains and lower input costs suggest that high inflation will not last. The Bank of England also expressed a similar sentiment in their recent meeting minutes.

However, the data was high enough to push the pound higher across all currency pairs.
The thing is, in this situation, we cannot be very confident about the continued growth of the pound, and even with this positive sentiment, we cannot propose a decline for the pound. because all the data is priced until next BOE meeting, For now, patience is the best option.

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Ali Sabbaghi
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News
April 18, 2023

‘A credit crunch has started’ as banks tighten lending by the most on record, Morgan Stanley CIO says

  • The credit crunch stemming from March’s bank crisis has begun, according to Morgan Stanley’s Mike Wilson.
  • Wilson pointed to a big drop in bank lending and tightening credit standards in recent weeks.
  • The data fuels Wilson’s view that the stock market is in for more pain in 2023.

The credit crunch stemming from the fallout of Silicon Valley Bank has begun, with data showing clear tightening of lending standards by banks, according to Morgan Stanley’s top stock strategist Mike Wilson.

In a note on Sunday, the Morgan Stanley CIO said that the last two weeks have shown the steepest decline in lending on record as banks scramble to offset the breakneck pace of deposit flight, which has accelerated in the month since SVB failed.  

“The data suggest a credit crunch has started,” Wilson said in the note, adding that $1 trillion in deposits has been withdrawn from US banks since the Federal Reserve began raising rates a year ago. 

Further illustrating the credit crunch is the most recent small business lending survey, which last week showed that credit availability has seen its largest drop in 20 years, coming alongside the highest interest rates seen in 15 years. 

That’s worrisome for the US economy and markets, which have already been squeezed since the Fed embarked on an aggressive campaign to raise interest rates and bring down inflation.

Tighter financial conditions could raise the risk that the economy falls into a recession this year, as both companies and households experience difficulty obtaining credit. 

The spate of bank failures and the ensuing credit crunch fuel Wilson’s view that stocks are in trouble this year. 

Previously, Wilson forecasted as much as a 20% drop in the S&P 500 in 2023 as corporate earnings drop, with the worst earnings recession since the 2008 recession potentially on tap this year. 

He notes that major indexes holding steady since the SVB episode should not be taken as a sign that everything is fine, but rather an indicator that stocks are at risk of a sudden drop similar to what has been seen in small caps and bank stocks since March. 

“To those investors cheering the softer-than-expected inflation data last week, we would say be careful what you wish for,” Wilson said, pointing to the March Consumer Price Index report, which showed inflation climbing less than expected. “If/when revenues begin to disappoint, that margin degradation can be much more sudden, and that’s when the market can suddenly get in front of the earnings decline we are forecasting,” he added.

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source: businessinsider.com

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Ali Sabbaghi
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Market Analysis
April 18, 2023

Gold price, affected by the weakening of the US dollar

Gold prices are under pressure from a weaker US dollar, and China’s economic recovery, but uncertainty about the Federal Reserve’s monetary policy is limiting growth.

Economic data suggest the economy is not yet close to recession, giving the Federal Reserve room to continue raising interest rates, despite being thought to be closer to the end of the rate hike cycle than other global central banks.

Traders are monitoring comments from Fed officials ahead of the April 22 blackout before the May 2-3 meeting.

The 10-year Treasury yield rose 8 basis points to 3.602 percent and the two-year U.S. Treasury yield rose 9.3 basis points to 4.196 percent, which typically reflects interest rate expectations.

According to CME’s FedWatch Tool, market expectations for a 25-point hike at the May meeting have risen to more than 86% (up from 78% on Friday).
This is the trigger for the decline of gold.
But on the other hand, China’s economic recovery weakened the dollar
However, gains in gold prices were limited by uncertainty over the US Federal Reserve’s monetary policy stance. Investors sought more clarity on the issue, which affected gold demand.

Despite this, news of China’s economic recovery picked up in the first quarter, with the country’s gross domestic product growing 4.5 percent year-on-year, beating expectations. This development increased demand for riskier assets, which in turn put some pressure on the US dollar and led to gold growth.
From a technical point of view, gold is trading within the ascending channel and is now at the bottom of the channel. The resistance level of 2003.55 is very important and the upward return of the price above this level will bring more buyers into the market. We should wait for the price reaction to the rate of 2003.55.

Overall, gold prices rose on Tuesday due to a combination of factors, including a weaker US dollar and news of China’s economic recovery. However, uncertainty over the US Federal Reserve’s monetary policy stance limited gains in the precious metal.

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Ali Sabbaghi
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News
April 18, 2023

China’s GDP for 1Q23 is better than expected

1Q23 GDP grew 4.5%YoY, much faster than the 2.9%YoY recorded for 4Q22. This is a better-than-expected data report. We expect that the government will hold back extra stimulus plans and the yuan should strengthen

GDP grew faster than expected in the first quarter of 2023 with consumption the main growth engine

China’s GDP increased 4.5%YoY in 1Q23, which was better than our forecast of 3.8%YoY, and stronger than the previous quarter’s 2.9%YoY.

The main reason for the faster-than-expected growth was much stronger growth in retail sales, which accelerated to 10.6%YoY in March and 5.8%YoY for 1Q23 after 3.5%YoY growth in January to February. Such rapid retail sales growth has not been seen since June 2021, when it grew 12.1%YoY. The growth in retail sales was mainly boosted by catering.

In contrast, we did not expect infrastructure investment growth to slow to 8.8%YoY for 1Q23, compared to 9%YoY growth in the first two months of the year though infrastructure investment still increased at a speed faster than overall fixed asset investment growth of 5.1%YoY in 1Q23 (5.5%YoY YTD in February).

Even with slower growth in March, we still believe infrastructure should grow faster from 2Q23 after the strong loan growth in March, much of which was for infrastructure projects.

Industrial production grew only at 3.9%YoY in March and 3.0%YoY in 1Q23 and was only slightly faster than the 2.4%YoY growth in the previous quarter. We see fairly modest growth in industrial production as a result of the drag imposed by weakening external demand in the US and Europe. By categories, most electronic production recorded contraction in 1Q23. Micro-computers, integrated circuits and smart devices fell 22.5%YoY, 14.8%YoY and 7%YoY in 1Q23, respectively, and reflecting the burden of US export bans.

China’s retail sales jumped, led by catering

China’s investment is led by infrastructure

Property investment is gradually recovering

Investment by the property sector contracted 5.8%YoY in the first quarter which is slightly worse than the 5.7%YoY contraction in the first two months of 2023. This could be due to the large housing inventories in the market even though property developers that have not defaulted on their bonds and loans should be able to get financing to continue their existing construction. 

On the other hand, residential property sales increase 7.1%YoY YTD in 1Q23 compared to 3.5% in 4Q22. This is quite encouraging as it suggests that some home buyers are regaining confidence in property developers. If pre-sold housing is digested by the market, property developers should be able to get fresh cash flow from home sales in 2024.

What is the implication of this GDP report?

With consumption as high as 10%YoY in March, there is no immediate need for fiscal stimulus to support consumers.

But the government will probably keep its plan of infrastructure investment as a supplementary growth engine as we expect the external market to deteriorate further in 2023.

In short, with this GDP report, we believe there is no immediate need for the government to put massive stimulus into the economy.

Yuan should be supported by this GDP report

USDCNY and USDCNH should strengthen on the back of this report. When comparing the fundamentals of the US and China, China’s economy is strengthening and will get stronger over the rest of the year. In contrast, the US economy will likely continue to slow. This should support the yuan against the dollar from the second quarter. Our forecast on USDCNY and USDCNH is 6.5 by the end of 2023.

source: ING

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Ali Sabbaghi
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Market Analysis
April 13, 2023

US and Canadian dollars, interest rates, and inflation

US CPI and FED meeting

🇺🇸 Yesterday, the US Consumer Price Index was released for the month of March.
Consumer price, Core CPI index monthly changes and net consumer price index annual benchmark all had a uniform decrease.
The decline of the headline index in the monthly and annual criteria is a positive point, but the stubbornness of net consumer spending is a negative point in relation to dealing with inflation.
After the release of the report, Fed Funds futures are pricing around 60% for a 0.25% interest rate hike at the May meeting, compared to 75% before the release. CPI report was much anticipated.

We also had the $32 billion auction of ten-year US bonds. A weak 10-year Treasury auction has failed to show strong demand for bonds despite the release of promising inflation data, and participants are likely to be cautious ahead of the release of FOMC minutes.
The top yield of 3.455% lowered WI by 0.02, which is not as bad as last month’s 0.27%, but worse than the average of 0.013 over the past six auctions.

FOMC meeting

In response to the meeting minutes, some reaction of Dawish can be seen in the market, however, considering that after the March meeting, several members of the Federal Reserve talked about the economy and banking conditions, there is no new point in the meeting minutes.

Bank of Canada, interest rate decision

🇨🇦 As expected, the Bank of Canada kept its interest rate unchanged at 4.5%.

The quantitative contraction continues to complement this restrictive stance.

The Governing Council continues to assess whether monetary policy is sufficiently restrictive to ease price pressures and remains ready to raise the policy rate further if needed to return inflation to the 2 percent target.

The Bank remains steadfast in its commitment to restoring price stability for Canadians.

CPI inflation is expected to decline rapidly to around 3 percent in the middle of this year and then gradually decline to a target of 2 percent by the end of 2024.

Recent data reinforce the Board of Governors’ confidence that inflation will continue to decline over the next few months.

However, returning inflation to 2 percent may be more difficult as inflation expectations are slowly falling, service price inflation and wage growth remain high, and corporate pricing behavior has yet to normalize.

By determining monetary policies, the Governing Council will focus especially on these indicators and the evolution of core inflation to measure the progress of CPI inflation to the target.

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Ali Sabbaghi
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