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Germany Ifo business climate falls to 85.2, stuck in recession

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    ActionForex.com
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    German Ifo Business Climate fell from 86.3 to 85.2 in January, below expectation of 86.7. Current Assessment Index fell from 88.5 to 87.0, below expectation of 88.6. Expectations Index fell from 84.2 to 83.5, below expectation of 84.9.

    But sector, manufacturing rose from -17.4 to -16.0. Services fell from -1.7 to -4.9. Trade fell from -26.7 to -29.7. Construction fell from -33.5 to -35.9.

    Ifo said, sentiment among German companies has deteriorated further at the beginning of the year. The German economy is “stuck in recession”.

    Full German Ifo release here.

    ECB to stand pat, await Lagarde’s take on rate cut and economic outlook

      By
      ActionForex.com
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      ECB is widely expected to keep monetary policy unchanged today. Main refinancing rate will be held at 4.50%, and deposit rate at 4.00%. Given the lack of significant new data since the December meeting, it’s improbable that ECB will offer fresh policy directions. Instead, it’s expected that the market will have to await March meeting, which will include new economic projections, for any substantial updates.

      President Christine Lagarde is likely to continue her stance against the speculation of imminent rate cuts. It is anticipated that she will emphasize the persistence of underlying price pressures, especially in the services sector, and highlight the various risks still in play. These risks range from impending wage negotiations to geopolitical tensions, such as the ongoing Red Sea blockade.

      However, the tone adopted by Lagarde regarding the Eurozone’s economic condition will be scrutinized closely. Recent economic data, including this week’s PMIs suggests that Eurozone might be already in a recession in the last quarter and is witnessing a sluggish start to the new year. Should President Lagarde express heightened concern over the economic situation, it could potentially trigger market participants to increase their bets on an earlier rate cut.

      EUR/CHF’s deep retreat this week suggests initial rejection by 55 D EMA (now at 0.9447). Deeper pull back is now mildly in favor as long as 0.9471 holds, towards 0.9252 low. But a break there is not envisaged at this point. Meanwhile, break of 0.9471 will resume the rebound, as a correction to whole down trend from 1.0095, to 38.2% retracement of 1.0095 to 0.9252 at 0.9574.

      US Q4 GDP in spotlight: A test for S&P 500 amid profit taking

        By
        ActionForex.com
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        Financial markets are keenly focused on US GDP data today. Analysts expect GDP to grow at an annualized rate of 2.0% in Q4, marking a slowdown from the previous quarter’s 4.9%, and reaching the lowest rate since Q2 of 2022. This anticipated reading would align with the notion that the US economy, while experiencing a rapid cooling, remains resilient. A key component under scrutiny is the performance of consumption growth, which has been a significant support for the economy.

        Notable profit taking was seen in the US stock markets after initial rally overnight. S&P 500 closed up just 0.08% at 4868.55, after climbing to 4903.68. Technically, there is prospect of a prolonged near-term consolidation given that SPX has just met 100% projection of 3808.86 to 4607.07 from 4103.78 at 4901.99.

        Break of 55 H EMA (now at 4828.70) could trigger deeper correction towards 4682.11 support, which is slightly above 55 D EMA (now at 4658.15), and set the range for sideway consolidations.

        Nevertheless, another rally, as supported by strong GDP data today, and sustained trading above 4901.99 would set the stage for a take on 5000 psychological level quickly.

        US PMI composite rises to 52.3, marked growth acceleration and sharp inflation cooling

          By
          ActionForex.com
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          US PMI Manufacturing rises from 47.9 to 50.3 in January, back in expansion, and the highest level in 15 months. PMI Services rose from 51.4 to 52.9, a 7-month high. PMI Composite rose from 50.9 to 52.3, a 7-month high.

          Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, highlights this as an “encouraging start” to the year, with companies reporting “marked acceleration of growth” alongside “sharp cooling of inflation pressures”.

          Growth momentum has notably intensified, driven by improved demand conditions and steady increase in new orders over the past three months, which has in turn enhanced business confidence to its most optimistic level since May 2022.

          Furthermore, there’s an air of optimism regarding lower inflation in 2024, anticipated to ease the cost of living pressures and potentially pave the way for lower interest rates.

          Notably, the rate of price increases has slowed to its lowest since the early pandemic lockdowns of 2020. Companies report that the current pace of selling price inflation has fallen to “below the pre-pandemic average,” aligning with projections of consumer price inflation descending below Fed’s 2% target.

          Full US PMI release here.

          BoC hold rates steady, still concerned about risks to inflation outlook

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            ActionForex.com
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            BoC kept overnight rate unchanged at 5.00% as widely expected. In the accompanying statement, BoC expressed that it’s “still concerned about risks to the outlook for inflation”, in particular the “persistence in underlying inflation”. The central bank’s focus remains squarely on the equilibrium between demand and supply within the economy, closely monitoring inflation expectations, wage growth, and corporate pricing behaviors.

            BoC’s assessment of the economy suggests a phase of stagnation, projecting growth to “likely remain close to zero” through Q1. However, gradual strengthening in growth is anticipated around mid-year, predicated on the expectations of pickup in household spending and boost in exports and business investment, spurred by a recovery in foreign demand. Government spending is also expected to play a significant role.

            For 2024, BoC forecasts GDP growth at 0.8%, a figure that aligns with its October projection. Looking further ahead, the bank anticipates a more robust growth rate of 2.4% in 2025.

            Inflation, a critical concern for the BoC, ended the year at 3.4%. Shelter costs continue to be a significant factor in driving inflation above the target. The central bank’s projections indicate that inflation will hover around 3% during the first half of the year, with expectations of a gradual decline, ultimately returning to the 2% target by 2025.

            Full BoC statement here.

            Bundesbank report warns of German economy’s vulnerability to China’s economic woes

              By
              ActionForex.com
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              In its latest monthly report, Bundesbank issued a cautionary message about China’s current economic struggles and their potential impact on Germany. The report notes that China is grappling with “significant economic problems,” and the relationship between China and Western industrial nations has “noticeably deteriorated recently.” Such geopolitical risks, if they materialize, could have severe repercussions for the German economy.

              The Bundesbank essay posits that “an economic crisis in China of the kind that has occurred in other countries in the past following a correction of excessive credit growth would probably be bearable for the German economy.” However, the impact would not be negligible, with projections indicating that Germany’s real GDP could be -0.7% lower in the first year of a potential crisis in China, and then -1% in the second year.

              The report also highlights a more severe scenario: “However, an abrupt decoupling, for example as a result of a geopolitical crisis, would have a significantly greater impact on German industry in particular.” In such an event, German companies with direct involvement in China could face considerable losses in sales and profit. Industries like automotive, mechanical engineering, electronics, and electrical engineering are particularly reliant on Chinese demand.

              Moreover, Bundesbank emphasizes the broader risks associated with the close economic ties between Germany and China: “the close real economic ties between Germany and China also pose considerable risks for the German financial system.”

               

              Full Bundesbank release here.

              UK PMI composite rises to 52.5, may delay BoE rate cut

                By
                ActionForex.com
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                UK PMI Manufacturing rose from 46.2 to 47.3 in January, a 9-month high. PMI Services rose from 53.4 to 53.8, an 8-month high. PMI Composite rose from 52.1 to 52.5, a 7-month high.

                Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that UK business activity growth has “accelerated for a third straight month”. He described this as a “promising start” to the year.

                According to the survey data, UK economy is expected to grow at a quarterly rate of 0.2% after a flat fourth quarter, thereby “skirting recession and showing signs of renewed momentum”.

                However, Williamson highlighted a crucial implication of this unexpected growth strength in January, which could lead BoE to reconsider the timing of any anticipated interest rate cuts.

                This reassessment is particularly pertinent in light of supply disruptions in the Red Sea, which have reignited inflationary pressures in the manufacturing sector. Williamson indicated that inflation is expected to remain stubbornly in the 3-4% range in the near term.

                Full UK PMI release here.

                Eurozone’s PMI composite climbs to 47.9, price data echo ECB hawks’ caution

                  By
                  ActionForex.com
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                  Eurozone PMI Manufacturing rose from 44.4 to 46.6 in January, a 10-month high. However, PMI services fell from 48.8 to 48.4. PMI Composite rose from 47.6 to 47.9, a 6-month high.

                  Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, noted that Eurozone’s manufacturing sector is experiencing a “widespread easing of the downward trajectory witnessed in the past year”. He highlights that this positive trend is “evident across key indicators such as output, employment, and new orders.”

                  While the services sector is contracting, de la Rubia points out that the contraction is “currently moderate”. He also notes a “silver lining,” as there is an increase in companies expanding their workforce, which indicates a degree of optimism in the market.

                  De la Rubia’s observation that PMI price indicators are in line with the sentiments of the hawks within ECB. He states they are “all about shouting ‘hold your horses'”, emphasizing a need for a measured approach and advising against rushing into early rate cuts.

                  Full Eurozone PMI release here.

                  Germany’s PMI composite falls to 47.1, continuation of recession

                    By
                    ActionForex.com
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                    Germany PMI Manufacturing rose from 43.3 to 45.4 in January, an 11-month high. PMI Services fell from 49.3 to 47.6, a 5-month low. PMI Composite fell from 47.4 to 47.1, a 3-month low.

                    Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, noted: “Services activity has not only declined for the fourth consecutive month but has also accelerated in its downturn. Manufacturing, remaining in recessionary territory for the 19th straight month, has displayed a somewhat softened downturn.”

                    De la Rubia further added, “Recognizing the inherent uncertainty at this early stage, our GDP Nowcast, which considers the PMI data, suggests a continuation of the recession into the current quarter, however.”

                     

                    Full Germany PMI release here.

                    France’s PMI Composite dips to 44.2: Signals Q1 stagnation with downside risks

                      By
                      ActionForex.com
                      -

                      France PMI Manufacturing rose from 42.1 to 43.2 in January. PMI Services fell from 45.7 to 45.0. PMI Composite fell from 44.8 to 44.2.

                      Norman Liebke, Economist at Hamburg Commercial Bank, said the PMIs show a “depressing picture overall”. According to the bank’s nowcast model, the economy is likely to “stagnate” in Q1, and “risks are to the downside.

                      Liebke added that “most probably, the ECB won’t start cutting rates in the next few months amid surging wages” He further explained that rising input prices, particularly due to higher wages, support the ECB’s cautious stance on reducing interest rates. Businesses in France have been largely successful in transferring these increased costs to consumers, as evidenced by the rise in selling prices, especially in the labor-intensive service sector.

                      Full France PMI release here.

                      Japan’s exports exceed JPY 1T in 2023, US reclaims top export destination

                        By
                        ActionForex.com
                        -

                        Japan’s exports rose 9.8% yoy to JPY 9648B in December, marking the biggest increase in a year. This boost was largely driven by 20.4% yoy jump in exports to US, predominantly from the automotive sector, while exports to Europe climbed by 10.3% yoy. Notably, shipments to China saw 9.6% yoy rise, registering their first growth in 13 months, primarily led by chip-making equipment. In contrast, imports declined -6.8% yoy to JPY 9586B. Consequently, trade balance turned positive, recording JPY 62.1B surplus.

                        Analyzing the whole year, Japan’s trade deficit in 2023 more than halved to JPY -9.29T from the previous year. The country’s total exports rose by 2.8% to reach JPY 100.89T , surpassing the JPY 100T mark for the first time ever. Meanwhile, total imports saw -7.0% decrease to JPY 110.18T.

                        A significant shift was observed in Japan’s export destinations in 2023. US reclaimed its position as the largest recipient of Japanese exports by value for the first time in four years, surpassing China. Exports to US reached JPY 20.27T, showing 11.0% increase, while exports to China decreased by -6.5% to JPY 17.76T.

                        Japan’s PMI shows modest growth, manufacturing still in contraction

                          By
                          ActionForex.com
                          -

                          Japan’s PMI Manufacturing rose fractionally from 47.9 to 48.0 in January, below expectation of 48.2. Manufacturing remained in contraction for the eighth consecutive months. PMI Services rose from 5.15 to 52.7. PMI Composite rose from 50.0 to 51.1.

                          Usamah Bhatti, Economist at S&P Global Market Intelligence, noted that while “modest” the private sector is having the strongest growth since September. However, there was disparity between the sectors, with services reaching a four-month high, while manufacturing marked its eighth consecutive month of contraction.

                          Regarding inflation, Bhatti said input price inflation “remains high historically”. But output inflation eased to its “lowest since February 2022”. This indicates that while input costs are still elevated, businesses are not passing these costs fully onto consumers.

                          Full Japan PMI release here.

                          Australia’s PMI manufacturing Hits 11-month high, services Lagging

                            By
                            ActionForex.com
                            -

                            Australia PMI Manufacturing rose from 47.6 to 50.3 in January, back in expansion, and a 11-month high. PMI Services rose slightly from 47.1 to 47.9, a 3-month high. PMI Composite rose from 46.9 to 48.1, a 4-month high, but still in contraction.

                            Warren Hogan, Chief Economic Advisor at Judo Bank noted the PMI data indicates a that the economy remains on RBA’s “narrow path” for soft landing. He highlights the manufacturing sector’s rebound as a key factor in mitigating broader economic downturn risks.

                            Despite the general economic slowdown, Hogan observes that labor demand remains unexpectedly robust, differing from past economic cycles. However, he cautions that inflation pressures are still high, pointing out, “Input and output price indexes remain at levels suggesting CPI inflation is above the RBA’s target range.”

                            Full Australia PMI release here.

                            New Zealand CPI slows to 0.5% qoq, 4.7% yoy in Q4

                              By
                              ActionForex.com
                              -

                              New Zealand CPI rose 0.5% qoq in Q4, down from 1.8% qoq in Q3, matched expectations. Tradeable inflation turned negative to -0.2% qoq, from 1.8% qoq. Non-tradeable inflation slowed to 1.1% qoq, down from 1.7% qoq.

                              Annually, CPI slowed from 5.6% yoy to 4.7% yoy, matched expectations. Tradeable inflation slowed from 4.7% yoy to 3.0% yoy. non-tradeable inflation also slowed from 6.3% yoy to 5.9% yoy.

                              “While this is the smallest annual rise in the CPI in over two years, it remains above the Reserve Bank of New Zealand’s target range of 1 to 3 percent,” consumers prices senior manager Nicola Growden said.

                              Full NZ CPI release here.

                              SNB’s Jordan: Real Franc appreciation hurts, yet no recession in sight

                                By
                                ActionForex.com
                                -

                                SNB Chairman Thomas Jordan, in his overnight address at an event, acknowledged the impact of the Franc’s nominal appreciation on lowering inflation. However, he warned, the “Franc has also appreciated in real terms in 2023. And that hurts, companies feel that.”

                                Despite the challenges posed by Franc’s appreciation, Jordan expressed confidence in the Swiss economy’s resilience. “Economists are confident that there won’t be a recession — and we are also confident, otherwise we would forecast one,” he commented, adding “So no recession, just weak growth.”

                                Looking ahead, Jordan reiterated SNB’s inflation expectations, stating that they anticipate Swiss inflation to approach but not exceed the 2% ceiling of their target range this year. The central bank does not foresee inflation breaching this mark until 2026.

                                 

                                NZD/USD losing downside momentum as NZ CPI awaited

                                  By
                                  ActionForex.com
                                  -

                                  One of the spotlights will turn to New Zealand’s inflation data in the upcoming Asian session. Market are expecting quarterly CPI to rise 0.5% qoq in Q4, slowed from Q3’s 1.8% qoq. Annually, CPI is expected to fall from 5.6% yoy to 4.7% yoy.

                                  Should these predictions materialize, the results would fall significantly below RBNZ’s forecast from the November Monetary Policy Statement, which projected 0.8% qoq and 5.0% yoy, although the annual rate remains well above 1-3% target band.

                                  There is a divergence of opinions regarding RBNZ’s interest rate path this year. While some economists hold the view that OCR will remain at 5.50% through 2024, 2-year swap market is fully pricing in an OCR cut as early as May. Therefore, the inflation data set to be released tomorrow is poised to play a critical role in reshaping these rate cut expectations.

                                  NZD/USD’s fall from 0.6368 lost much momentum after breaching 0.6083 support, but there is no sign of a rebound yet. Sustained break of 0.6083 will strengthen the case that this decline is the third leg of the corrective pattern from 0.6537, and target 0.5771 support next. Nevertheless, break of 0.6138 minor resistance will neutralize immediate bearishness, and bring recovery first.

                                   

                                  BoJ’s Ueda elaborates on inflation and wages, hinting at future policy shifts

                                    By
                                    ActionForex.com
                                    -

                                    During his post-meeting news conference, BoJ Governor Kazuo Ueda confirmed that the economy is aligning with the central bank’s inflation projections, adding “our core-core inflation forecast is at 1.9%, very close to our 2% target”. This closeness, he explained, significantly contributes to BoJ’s growing confidence in sustainably achieving its price target.

                                    However, Ueda acknowledged the challenges in quantifying the exact progress towards this goal. He pointed out that recent movements in service prices have been influenced by several one-off factors and that consumption weakness is impacting these prices. BoJ is analyzing these trends by separating such factors, and Ueda believes that, despite these complexities, “service inflation is gradually accelerating as a trend.”

                                    Ueda also addressed the timing of monetary policy adjustments in relation to wage negotiations. He suggested that waiting for the outcome of wage talks across all firms, including smaller ones, would be impractical due to the extended timeframe this would require. BoJ, therefore, intends to use various economic indicators and data from hearings to predict wage trends. Ueda emphasized the influence of larger firms’ wage negotiations on smaller firms and the availability of data on smaller firms’ profit outlooks as potential early indicators.

                                    BoJ holds steady, with CPI core-core projected at 1.9% in next two fiscal years

                                      By
                                      ActionForex.com
                                      -

                                      BoJ left monetary policy unchanged as widely expected. The forecast for fiscal 2024 CPI core was downgraded, whereas fiscal 2025 CPI core forecast saw a slight upgrade. Notably, CPI core-core forecasts for fiscal 2024 and 2025 were left unchanged at 1.9%, indicating a steady path towards achieving Japan’s 2% inflation target sustainably.

                                      Under Yield Curve Control, BoJ kept short-term policy interest rate unchanged at -0.1%. Additionally, target for 10-year JGB yield remains around 0%, with an allowance for fluctuation below 1.0% upper bound. These decisions were made by unanimous vote.

                                      BoJ noted, “Consumer inflation is likely to increase gradually toward the BoJ’s target as the output gap turns positive, and as medium- to long-term inflation expectations and wage growth heighten.” The central bank also acknowledged the growing “likelihood” of realizing this outlook, albeit with an emphasis on the continued “high uncertainties” surrounding future developments.

                                      In the median economic projections:

                                      • Fiscal 2023 GDP growth at 1.8% (down from October’s 2.0%).
                                      • Fiscal 2024 GDP growth at 1.2% (up from 1.0%).
                                      • Fiscal 2025 GDP growth at 1.0% (unchanged).

                                      On the inflation front:

                                      • Fiscal 2023 CPI core at 2.8% (unchanged).
                                      • Fiscal 2024 CPI core at 2.4% (down from 2.8%).
                                      • Fiscal 2025 CPI core at 1.8% (up from 1.7%).
                                      • Fiscal 2023 CPI core-core at 3.8% (unchanged).
                                      • Fiscal 2024 CPI core-core at 1.9% (unchanged).
                                      • Fiscal 2025 CPI core-core at 1.9% (unchanged).

                                      Full BoJ statement here.

                                      Full BoJ Outlook for Economic Activity and Prices here.

                                      Australia’s NAB business confidence rises to -1 amidst slowing price growth

                                        By
                                        ActionForex.com
                                        -

                                        Australia NAB Business Confidence fell rose from -8 to -1 in December. However, Business Conditions fell from 9 to 7. The decline was observed across several key areas: Trading conditions dropped from 13 to 10, while Employment conditions also decreased slightly from 8 to 7. Profitability conditions remained steady at 6.

                                        NAB Chief Economist Alan Oster noted that “confidence and conditions are softest in manufacturing, retail and wholesale,” attributing this to consumers cutting back on spending over time. Although there was a pickup in confidence within the retail sector in December, Oster expressed caution, stating that “it remains to be seen if this will be maintained.”

                                        Another significant development was the sharp decline in price and cost growth. Labor cost growth eased to 1.8% in quarterly equivalent terms, down from 2.3%. Purchase cost growth also declined from 2.5% to 1.6%. Overall price growth slowed from 1.2% to 0.9%, with notable decrease in retail price growth from 1.8% to 0.6%.

                                        Oster highlighted the significance of this decline in retail price growth, attributing it in part to the sales periods around Black Friday and Christmas. He remarked, “The marked fall in retail price growth in December… is nonetheless an encouraging sign that inflation may have eased at the end of the quarter.”

                                        Full Australia NAB business confidence release here.

                                        New Zealand BNZ services falls to 48.8, back in contraction

                                          By
                                          ActionForex.com
                                          -

                                          New Zealand BusinessNZ Performance of Services Index fell from 51.1 to 48.8 in December, back into contraction territory. This downturn also brings the index below long-term average of 53.4. The increase in negative sentiment is evident, with the proportion of negative comments rising from 54.0% to 58.7%. The primary concerns expressed by businesses revolve around seasonal factors, increasing costs of living, and an overall economic slowdown.

                                          Breaking down the PSI, several key components showed declines. Activity and sales dropped from 48.7 to 47.1, employment fell from 50.6 to 47.5, and new orders/business dipped from 52.2 to 51.2. Additionally, stocks and inventories decreased from 55.0 to 51.5, while supplier deliveries also saw a reduction from 52.8 to 50.5.

                                          Stephen Toplis, BNZ’s Head of Research noted that the softening in PSI, combined with the previously reported weakness in Performance of Manufacturing Index, paints a concerning picture for New Zealand’s near-term economic growth and employment. While tourism has been a critical driver for the services sector and is expected to continue supporting the economy, Toplis emphasized that it cannot solely bear the burden of economic revitalization.

                                          Full NZ BNZ PSI release here.

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