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SNB stands pat, downgrades inflation forecasts

    By
    ActionForex.com
    -

    SNB maintained its policy rate at 1.75%, aligning with widespread market expectations. This decision comes alongside a notable downgrade in inflation forecasts, which SNB now expects to remain “within the range of price stability” throughout the forecast period.

    In terms of specific figures, or 2023, average inflation rate is now projected at 2.1%, a reduction from September’s forecast of 2.2%. 2024 forecast has been adjusted to 1.9%, down from the previous estimate of 2.2%. Additionally, 2025 inflation prediction has been lowered to 1.6% from the earlier 1.9% projection.

    The details of the forecast indicate that inflation is expected to peak in Q2 2024, which is lower than previously anticipated peak at 2.2%. Following this, inflation is projected to decline to 1.6% in Q2 of 2025 and maintain this level until Q3 of 2026.

    SNB attributes this downward revision primarily to “recent lower-than-expected inflation” readings. In the medium term, the bank anticipates reduced inflationary pressure from international sources and somewhat weaker second-round effects.

    On the growth front, SNB foresees a period of weak economic performance in the upcoming quarters. This outlook is influenced by subdued demand from international markets and tighter financing conditions. The bank’s projections for GDP growth are set around 1% for 2023 and between 0.5% and 1% for 2024.

    Full SNB statement here.

    Will SNB, BoE, and ECB hint at upcoming rate cuts?

      By
      ActionForex.com
      -

      Three major central banks – SNB, BoE and ECB – are set to announce their policy decisions. All three will keep their interest rates unchanged. This comes in the wake of Fed’s outlined plans for rate cuts in 2024 in the dot plot released overnight. Now, that raises questions about whether these central banks will follow and signal policy loosening for the next year.

      SNB is expected to hold its key policy rate steady at 1.75%. This decision is supported by forecasts from Swiss State Secretariat for Economic Affairs released yesterday, projecting a slowdown in inflation to 1.9% in 2024 and further to 1.1% in 2025. Economic growth in Switzerland is also expected to decelerate to 1.1% in 2024 before rebounding to 1.7% in 2025.

      BoE is anticipated to maintain interest rates at 5.25%. Traders have increased their bets on the BoE cutting rates following the unexpectedly sharp contraction in UK’s monthly GDP for October. The market has fully priced in 100bps easing in monetary policy for 2024, bringing borrowing costs down to 4.25%. The first rate cut is anticipated in June. Today’s voting pattern and accompanying statement from BoE will be under close scrutiny.

      Similarly, the ECB is expected to keep its main refinancing rate at 4.50% and deposit rate at 4.00%. The focus will likely be on new DP and inflation forecasts and their implications for the rate path in the coming year. Money markets are currently pricing in almost 150bps of rate cuts for the next year.

      In terms of currency performance, Swiss Franc appears to be the firmer one for the near term. As long as 0.9543 resistance holds, outlook in EUR/CHF remains bearish. Decisive break of 0.9402 support will resume larger down trend to 61.8% projection of 0.9995 to 0.9416 from 0.9683 at 0.9325.

      GBP/CHF’s fall from 1.1153 resumed this week, and should be on track to 100% projection of 1.1153 to 1.0978 from 1.1085 at 1.0910. Sustained break there could prompt downside acceleration to 1.0779 and below, to resume larger down trend from 1.1574.

      While Euro appears to be light strong then Sterling in the past few days, risk in EUR/GBP remains on the downside as long as 0.8648 resistance holds. Break of 0.8548 will likely bring deeper decline through 0.8491 to resume the medium term down trend.

       

      Australia’s employment rises 61.5k in Nov, unemployment rate ticks up

        By
        ActionForex.com
        -

        Australia’s employment sector grew significant by 61.5k in November substantially surpassing the expected 10.0k. This growth was primarily in full-time employment, which saw an increase of 47k, while part-time employment also rose by 14.5k.

        Despite these positive developments in job creation, the unemployment rate edged up slightly to 3.9%, against expectations of remaining at 3.8%. Participation rate increased by 0.2% to reach 67.2%, and monthly hours worked were flat at 0.0%.

        Bjorn Jarvis, ABS head of labour statistics, stated, “The combination of strong growth in both employment and unemployment in November saw the employment-to-population ratio return to a record high of 64.6 percent and the participation rate reach a new high of 67.2 percent.”

        Jarvis also noted that the slowing in hours worked suggests that the overall growth rates in employment and hours worked have become more aligned over the past 18 months. This convergence indicates a “less tight” labor market than previously experienced.

        Full Australia employment release here.

        New Zealand’s Q3 GDP falls unexpectedly by -0.3%, manufacturing sector leads decline

          By
          ActionForex.com
          -

          New Zealand’s GDP unexpectedly contracted by -0.3% qoq in Q3, a significant deviation from the anticipated 0.2% qoq growth. Notably, GDP per capita saw a more pronounced decrease of -0.9%. This downturn in economic activity was primarily led by -2.6% decline in the goods-producing industries. However, there were some positive aspects, with service industries experiencing growth of 0.4%, and primary industries seeing rise of 0.6%.

          Ruvani Ratnayake, national accounts industry and production senior manager, pointed out, “All goods producing industries were down this quarter, led by a fall in manufacturing.”

          Despite the general decline in GDP, there was a silver lining as 8 out of 11 service industries recorded growth during the quarter. The most substantial improvements were observed in healthcare and social assistance, along with rental, hiring, and real estate services.

          On the consumer front, household spending decreased by -0.6% during the quarter. This reduction was across all categories, with notable decline in durable goods. The fall in spending on motor vehicles, which came after a period of higher spending, was a significant factor in this overall decrease.

          Full New Zealand GDP release here.

          DOW hits new record post-FOMC, 10-year yield presses 4%

            By
            ActionForex.com
            -

            DOW surged 1.40% to close at new record high at 37090.24 overnight, after Fed outlined the path for interest rate cuts next year. While some volatility may be expected following this sharp increase, near term outlook will stay bullish as long as 36010.85 support holds. Next near term target is 100% projection of 28660.94 to 34712.28 from 32327.20 at 38378.54.

            For the medium term, DOW would be looking at 61.8% projection of 18213.65 (2020 low) to 36952.65 (2022 high) from 28660.94 (2022 low) at 40241.64, which is close to 40k psychological level.

            In contrast, 10-year yield lost -0.173 to 4.033, after hitting as low as 4.009, just managed to defend 4% handle. Some support could be seen from current level which is close to 55 W EMA (now at 3.956) and the long term trend line support to bring interim rebound.

            However, TNX should have completed the five wave rally from 0.398 (2020 low), and a correction to this up trend is underway. Sustainable support might only be found at 3.253 cluster support level, which is close to 38.2% retracement of 0.398 to 4.997 at 3.240.

            Fed signals three rate cuts in 2024, policy easing on discussion table

              By
              ActionForex.com
              -

              US stocks surged, with DOW hitting new record, while treasury yields and the Dollar tumbled following Fed’s decision to leave interest rates unchanged at 5.25-5.50%. This decision, widely anticipated by the markets, was overshadowed by the Fed’s indication of potential rate cuts in 2024. Fed suggested that three 25 bps cuts could be implemented next year, to bring federal funds rate back to 4.50-4.75%.

              Fed Chair Jerome Powell, in the post-meeting press conference, acknowledged the emerging discussion within about reducing policy restraint. Powell stated, “The question of when it will be appropriate to begin dialing back the amount of policy restraint in place begins to come into view, and is clearly a topic of discussion out in the world and also of discussion for us at our meeting today.” He further noted the general expectation that this issue will be a key focus for Fed going forward.

              The new economic projections present a detailed outlook. The median forecasts indicate that federal funds rate will decrease from the current 5.4% to 4.6% in 2024, further reducing to 3.6% in 2025, and eventually to 2.9% in 2026. The longer-run federal funds rate is held steady at 2.50%. The central tendency for 2024 is at 4.4-4.9%, suggesting a relatively narrow range, and stable rate expectation.

              The projections for GDP growth show a slowdown from 2.6% in 2023 to 1.4% in 2024, followed by a rebound to 1.8% in 2025 and 1.9% in 2026. The unemployment rate is expected to increase from 3.8% in 2023 to 4.1% in 2024 and then stabilize at this level through 2026.

              Regarding inflation, headline PCE inflation is forecasted to decrease from 2023’s 2.8% to 2.4% in 2024, 2.1% in 2025, and 2.0% in 2026. Similarly, core PCE inflation is projected to slow down from 3.2% in 2023 to 2.4% in 2024, and then to 2.2% in 2025 and 2.0% in 2026.

              Some FOMC reviews here.

              US PPI at 0.0% mom, 0.9% yoy in Nov

                By
                ActionForex.com
                -

                US PPI for final demand was unchanged at 0.0% mom in November, below expectation of 0.1% mom. Both indexes for final demand goods and services were unchanged. PPI less foods, energy, and trade services edged up by 0.1% mom.

                For the 12 months period, PPI slowed from 1.2% yoy to 0.9% yoy, below expectation of 1.0% yoy. PPI less foods, energy and trade services slowed from 2.8% yoy to 2.5% yoy.

                Full US PPI release here.

                NIESR: BoE may cut rates earlier due to subdued growth

                  By
                  ActionForex.com
                  -

                  NIESR forecasts that UK’s GDP will remain flat Q3. An early prediction for Q1 of 2024 indicates a modest GDP growth of 0.3%, primarily driven by the services sector. NIESR noted that these projections align with UK’s long-term trend of low but stable economic growth.

                  Today’s subdued GDP data, as suggested by NIESR, might be interpreted as a sign by BoE that “no further monetary tightening is needed”. This could pave the way for BoE to “start cutting interest rates earlier than previously expected”, depending on future inflation trends.

                  Full NIESR release here.

                  Eurozone industrial production falls -0.7% mom in Oct, EU down -0.5% mom

                    By
                    ActionForex.com
                    -

                    Eurozone industrial production fell -0.7% mom in October, worst than expectation of -0.3% mom. Production of capital goods fell by -1.4%, intermediate goods and non-durable consumer goods both by -0.6%, while production of durable consumer goods grew by 0.2% and energy by 1.1%.

                    EU industrial production declined -0.5% mom. Among Member States for which data are available, the largest monthly decreases were registered in Ireland (-7.0%), Malta (-2.5%) and the Netherlands (-2.1%). The highest increases were observed in Greece (+6.0%), Portugal (+3.8%) and Czechia (+2.9%).

                    Full Eurozone industrial production release here.

                    SECO downgrades 2024 Swiss growth outlook

                      By
                      ActionForex.com
                      -

                      Swiss State Secretariat for Economic Affairs has revised down its 2024 economic growth forecast for Switzerland, now expecting a growth of 1.1% instead of previous 1.2%. This revision indicates an expectation of below-average growth for the Swiss economy for a second consecutive year. A key factor influencing this outlook is the expected slow growth in the eurozone in 2024, which is anticipated to impact Swiss exports.

                      Looking ahead to 2025, SECO forecasts an economic recovery with growth projected at 1.7%, driven by a gradual global economic rebound. On the inflation front, SECO anticipates deceleration from 2.1% in 2023 (revised down from 2.2%) to 1.9% in 2024, followed by a further reduction to 1.1% in 2025.

                      SECO’s report also underscores several considerable risks to the economic outlook. Ongoing conflict in the Middle East poses geopolitical risks that could lead to surge in oil prices and, consequently, higher inflation. Additionally, the report warns of possibility of tighter international monetary policy in response to sustained core inflation.

                      Other highlighted risks include global debt, potential market corrections in real estate and finance, and balance sheet vulnerabilities at financial institutions. Further, economic developments in Germany and China are noted as potential risks for the international economy that could adversely affect Swiss foreign trade.

                      Energy security remains a concern for Switzerland. Significant energy shortage in Europe, leading to widespread production stoppages and a severe economic downturn, could push Switzerland into a recession coupled with high inflation.

                      Full Swiss SECO forecasts release here.

                      UK GDP shrinks -0.3% mom in Oct, all sectors contract

                        By
                        ActionForex.com
                        -

                        UK’s GDP contracted by -0.3% mom in October, a figure that is notably worse than the expected -0.1% mom. The primary factor contributing to this downturn was the decline in services output, which fell by -0.2% mom. Additionally, production output experienced a sharper drop of -0.8% mom, and construction output also saw a contraction of -0.5% mom.

                        When examining the three-month period leading up to October, UK’s real GDP showed no growth compared with the three months leading to July. During this quarter, while services output saw a marginal growth of 0.1%, both production and construction outputs declined, falling by -0.7% and -0.3%, respectively.

                        Full UK GDP release here.

                        Record highs on the horizon for DOW as market awaits FOMC dot plot

                          By
                          ActionForex.com
                          -

                          US stock market closed generally higher overnight. In particular, DOW now stands just about 1% shy of its all-time high after recent rally. The current uptrend in major indexes is primarily fueled by an increasing speculation among investors that Fed would start cutting interest rates. Today’s FOMC statement and the accompanying “dot plot” are eagerly awaited, as any signs of a dovish stance or indications of policy easing could further fuel the market’s ascent, potentially catapulting the DOW to new record heights before year-end.

                          Expectations are leaning overwhelmingly towards Fed maintaining federal funds rate at the 5.25-5.50% range at today’s meeting. Should Fed decide to keep rates unchanged, it would mark the third successive meeting without a rate hike. Such a decision could be interpreted as a signal that the Fed views its cycle of rate hikes as effectively complete. This sentiment is likely to be mirrored in the revised dot plot, which is anticipated to exclude the rate increase previously suggested for this year. There remains, however, a much less probable scenario where the median dots may indicate a postponed hike.

                          Traders are aggressively pricing in the prospect of Fed beginning its rate-cutting cycle as early as May, with the odds exceeding 50%, as indicated by fed funds futures. Moreover, there’s a similar probability assigned to the expectation of a cumulative one percent rate cut by the end of 2024. It’s important to note, however, that market predictions often tend to be rather unreliable for periods extending beyond one or two months.

                          As for DOW, near term outlook will stay bullish as long as 36010.85 support holds. Next target is 36952.65 record high. Clearing of this record high would pave the way to 100% projection of 28660.94 to 34712.28 from 32327.20 at 38378.54.

                          ADB raises 2023 growth forecast, driven by stronger performance in China and India

                            By
                            ActionForex.com
                            -

                            Asian Development Bank upgrades growth forecasts Developing Asia for 2023, raising projection from 4.7% to 4.9%. This upgrade is primarily attributed to stronger than expected growth in two of the region’s largest economies, China and India. On the other hand, growth forecast for 2024 remains unchanged at 4.8%.

                            Specifically, for China, ADB now projects growth to reach 5.2% in 2023, an increase from previous forecast of 4.9% made in September. Growth rate for China in 2024 is expected to slow to 4.5%, unchanged from prior predictions. In contrast, India’s growth forecast for 2023 is raised from 6.3% to 6.7%, and the country is anticipated to maintain this robust growth rate of 6.7% in 2024.

                            In terms of inflation, ADB made slight adjustments to its forecasts for Developing Asia. Inflation expectation for 2023 is reduced from 3.6% to 3.5%, while forecast for 2024 sees a minor increase from 3.5% to 3.6%.

                            ADB, in its release, highlighted several downside risks to these forecasts. Key among these are the potential for “higher-for-longer interest rates in advanced economies,” which could lead to financial instability. Additionally, potential supply disruptions from factors like El Niño and the ongoing Russian invasion of Ukraine pose risks of renewing energy and food security challenges, which could reignite inflationary pressures.

                            Full ADB release here.

                            Japan’s Tankan manufacturing index rose to 12, highest in nearly 2 years

                              By
                              ActionForex.com
                              -

                              Japan’s Tankan survey for Q4 show signs of strength in both manufacturing and non-manufacturing sectors. Yet, the cautious outlook among manufacturers suggests uncertainty about future economic conditions.

                              Large Manufacturing Index rose from 9 to 12, surpassing the expected figure of 10. This increase marks the third consecutive quarter of improvement and the highest level since Q1 2022. The Non-Manufacturing Index also showed positive development, rising from 27 to 30, exceeding the forecast of 27. This improvement represents the seventh consecutive quarter of growth, reaching its highest point since 1991.

                              However, the outlook for the next three months tells a different story. Large Manufacturing Outlook Index fell from 10 to 8, falling short of the expected 9, indicating less optimism among manufacturers for the near future. In contrast, Non-Manufacturing Outlook Index did improve from 21 to 24, yet it missed the anticipated mark of 25.

                              In terms of capital expenditure, big firms in Japan are projecting an increase of 13.5% for the current fiscal year ending in March 2024. This projection is more optimistic than the median market forecast, which anticipated a 12.4% increase.

                              Full Japan Tankan survey release here.

                              US CPI ticks down to 3.1% in Nov, core CPI unchanged at 4%

                                By
                                ActionForex.com
                                -

                                The latest CPI data for US in November aligns closely with market expectations. CPI rose 0.1% mom while CPI core ex food and energy) rose 0.3% mom. Energy index down -2.3% mom, food index rose 0.2% mom.

                                For the 12 months period, CPI slowed from 3.2% yoy to 3.1% yoy. Core CPI was unchanged at 4.0% yoy. Energy index was down -5.4% yoy while food index was up 2.9% yoy.

                                Full US CPI release here.

                                German ZEW rises to 12.8 on increasing expectation of ECB rate cut

                                  By
                                  ActionForex.com
                                  -

                                  German ZEW Economic Sentiment rose slightly from 9.8 to 12.8 in December, above expectation of 8.8. Current Situation Index rose from -79.8 to -77.1, but missed expectation of -75.5.

                                  Eurozone ZEW Economic Sentiment rose sharply from 13.8 to 23.0, well above expectation of 11.2. Current Situation Index, however, fell marginally by -0.9 pts to -62.7.

                                  ZEW President Achim Wambach noted the slight improvement in Germany’s economic outlook could be attributed to doubled expectations of interest rate cuts by ECB in the medium term. In particular, significantly more optimistic expectations are observed in the construction industry.

                                  Full German ZEW release here.

                                  UK payrolled employment fell -13k in Nov, unemployment rate steady at 4.2% in Oct

                                    By
                                    ActionForex.com
                                    -

                                    UK payrolled employment fell slightly by -13k in November, compared with October. Comparing with November 2022, payrolled employment rose 1.1% yoy or 333k. Meanwhile monthly pay increased by 5.3% yoy, slowed from 6.2% yoy.

                                    In the three months to October, unemployment rate was unchanged at 4.2% yoy. Average earnings (including bonus) growth slowed from 8.0% yoy to 7.2% yoy, below expectation of 7.7% yoy. Average earnings (excluding bonus) growth slowed from 7.7% yoy to 7.3% yoy, below expectation of 7.4% yoy.

                                    Full UK labor market release here.

                                    Japan’s PPI slows to weakest pace since February 2021

                                      By
                                      ActionForex.com
                                      -

                                      Japan’s PPI slowed notably from 0.9% yoy to 0.3% yoy in November, but beat expectation of 0.1% yoy. That’s nonetheless still the weakest pace since February 2021. November marked the 11th straight month in which the pace slowed.

                                      Export prices was unchanged at 0.9% yoy. Import price decline slowed from -12.7% yoy to -9.7% yoy, staying negative for the eighth month.

                                      During the month, PPI rose 0.2% mom. Import prices rose 0.7% mom. Export prices fell -0.2 %Mom.

                                      Producer price growth stayed below the most recent consumer inflation reading for a third month. Growth in consumer prices excluding fresh food inched up to 2.9% in October.

                                      Full Japan PPI release here.

                                      Australia’s NAB business confidence and conditions decline, signaling continued soft growth

                                        By
                                        ActionForex.com
                                        -

                                        Australia NAB Business Confidence fell from -3 to -9 in November. Business Conditions fell from 13 to 9. Trading conditions fell from 19 to 13. Profitability conditions fell from 11 to 6. Employment conditions were unchanged at 8.

                                        NAB Chief Economist Alan Oster remarked, “Both confidence and conditions declined in the month and after a period of relative stability through mid-2023 appear to be softening further.” He pointed out that, excluding the pandemic period, business confidence is at its weakest since around 2012. This was a time characterized by significantly weaker conditions and slowing growth in advanced economies.

                                        Despite these declines, Oster noted that business conditions remain above average, reflecting their strong starting point. He emphasized the importance of monitoring whether this drop in confidence continues and if a trend develops in business conditions. For the moment, these indicators suggest “ongoing soft growth in Q4”.

                                        Full Australia NAB business confidence release here.

                                        Australia’s Westpac consumer sentiment rose to 82.1, still far from upbeat

                                          By
                                          Westpac Banking Corporation
                                          -

                                          The latest release from Australia reveals a modest uptick in Westpac Consumer Sentiment Index, which rose by 2.7% mom to 82.1 in December. Despite this increase, Westpac’s analysis describes the sentiment as “still very weak,” emphasizing that “consumers remain far from upbeat.”

                                          Regarding RBA’s next meeting on February 5-6, Westpac said, the “there is now a higher bar” to further tightening. It highlights the “subdued growth profile” and a “particularly weak household sector” underscored by the recent consumer sentiment results, suggesting that these factors might raise the threshold for another rate hike.

                                          However, it’s important to note the central bank’s stance towards inflation. RBA has expressed a “very low tolerance for any upside surprises” in inflation rates, making the upcoming inflation data and the detailed quarterly release, due in late January, pivotal for February policy decision.

                                          Full Australia Westpac consumer sentiment release here.

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