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A survey released on August 11th indicated that European Central Bank officials will wait until December to implement their next interest rate cut, likely the final step in this cycle. Economists have pushed back their expectations for the next rate cut by three months compared to their July survey. They believe the deposit rate will fall to 1.75% at that time and remain there for nine to ten months, after which the ECB will be forced to reverse course as demand recovers. Waiting until the final decision in 2025 will give ECB policymakers more time to assess the impact of the trade turmoil unleashed by US President Trump. By December, policymakers will have third-quarter economic data, which will provide a clearer picture of the economys underlying momentum after distortions caused by businesses preempting US tariffs earlier this year have dissipated. The new forecast will also provide their first glimpse into growth and inflation trends through 2028.Li Ning (02331.HK): The company will hold a board meeting on August 21 to approve the interim results.Goldman Sachs has re-positioned its preference for Asian investment-grade dollar bonds over Asian high-yield bonds, citing concerns about the US economy and expectations that the Federal Reserve will take steps to support growth. "With renewed concerns about US growth and valuations at elevated levels relative to end-2024, we believe its time to re-position to overweight Asian investment-grade bonds over high-yield," strategists Kenneth Ho and Sandra Yeung wrote in a Friday report. The return to a more cautious view reflects broader concerns about US growth momentum following recent unexpectedly weak jobs data. Among Asian investment-grade bonds, Goldman Sachs sees the best value in BBB-rated bonds.On August 11th, Goldman Sachs research showed that while US businesses have borne most of the costs of Trumps tariffs so far, the burden will increasingly shift to consumers. Goldman Sachs analysts, including Jan Hatzius, wrote in a report that US consumers had borne approximately 22% of the tariff costs as of June, but if the recent tariffs follow the pattern of previous tariffs, their share will rise to 67%. US businesses have borne approximately 64% of the tariff costs so far, but their share will fall below 10% going forward. Foreign exporters have borne approximately 14% of the tariff costs as of June, and their share could rise to 25% going forward. Overall, US inflation will rise for the remainder of the year. Goldman Sachs forecasts that, assuming an underlying inflation rate of 2.4% after excluding the impact of tariffs, core personal consumption expenditures (PCE) will grow by 3.2% year-on-year in December.Australian Prime Minister Albanese: Tell Netanyahu we need a political solution, not a military solution.

EUR/USD falls to 1.0850 as German/US Data escalates the ECB-Fed Conflict

Alina Haynes

Feb 01, 2023 15:32

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Mid-1.0800s intraday support is reestablished for EUR/USD on Wednesday morning, reversing Tuesday's rebound gains. This demonstrates the market's uneasiness ahead of the Federal Open Market Committee (FOMC) meeting. German economic risks to the EU, as well as mixed data from the United States and fears that Fed Chairman Jerome Powell will yet support hawks, might potentially weigh on the currency.

 

The Eurozone's Gross Domestic Product (GDP) for the fourth quarter (Q4) climbed 0.1% quarter-over-quarter (QoQ) on Tuesday, compared to 0.0% expected and 0.3% earlier. The year-over-year statistics were also good for the bloc, topping the market consensus of 1.8% to achieve 1.9%, compared to 2.3% previously. Nevertheless, German Retail Sales decreased 5.3% month-over-month in December, which was substantially worse than expected. Earlier in the week, the German GDP likewise disappointed EUR/USD pair speculators.

 

In contrast, the US Employment Cost Index (ECI) for the fourth quarter declined to 1.0% compared to market estimates of 1.1% and previous readings of 1.2%. In addition, the Conference Board (CB) Consumer Confidence index dropped from 108.3 to 107.10 in January. The US Chicago Purchasing Managers' Index (PMI) for January, which rose to 44.3 vs 41 expected and 44.9 previous readings, does not merit substantial attention.

 

Aside from the United States, higher profit reports from industry leaders including General Motors, Exxon, and McDonald's alleviated the economic downturn and lifted Wall Street indices. Nevertheless, the Dow Jones Industrial Average (DJIA), the S&P 500, and the Nasdaq all reported daily gains of greater than 1.0% on the previous trading day. In contrast, the yields on 10-year US Treasury notes reversed a three-day rise and returned to 3.51 percent, while their two-year equivalents plummeted to 4.20 percent.

 

It should be noted that JP Morgan's annual survey uncovered a reduction in inflation fears and a rise in recession fears, which tests the risk profile in the middle of pre-Fed anxiety. In spite of this, the world's largest rating agency, Fitch, forecasts that the US Consumer Price Index (CPI) would moderate to the mid-3.0% band in 2023 and the high-2.0% range in 2024, putting pressure on EUR/USD bears.

 

As a result of these variables, S&P 500 Futures see minor losses, while US Treasury bond rates remain sluggish and halt their slide from the previous day. This allows the EUR/USD pair to prepare for the Federal Reserve's dovish rate hike of 0.25 percentage points.

 

While the 0.25 basis point Fed rate hike is virtually expected and has been priced in, EUR/USD traders will also pay close attention to January activity data and Jerome Powell's ability to defend aggressive rate hikes.


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