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ECB Governing Council member Panetta: The market is currently optimistic about the price of artificial intelligence.On September 21, the European Central Bank (ECB) stated in its Economic Bulletin that soaring natural gas prices may transmit to eurozone inflation more quickly than in the past, but its impact on electricity costs will be smaller due to the growth in renewable energy generation. Wholesale natural gas prices have risen by more than 140% year-on-year, as the war in Iran has restricted global supply and low European inventory levels have increased the risk of further price increases. Since the Russia-Ukraine conflict cut supply in 2022, the European natural gas market has become increasingly liberalized. The ECB stated that subsequent changes, including more flexible pricing and shorter fixed-term contracts, mean that retail prices will also react more quickly. A survey of eurozone central banks found that in more than half of the eurozone countries, changes in wholesale natural gas prices will transmit to natural gas inflation within 1-3 months, a faster pace than in 2022. About one-tenth of the countries experienced a transmission time of 4-6 months, and one-third experienced 7-12 months. Since 2022, the proportion of countries reporting slower transmission, requiring 13-24 months, has decreased from about 40% to about 5%.On September 21st, European Central Bank Governing Council member and Bank of Italy Governor Leon Panetta stated that central banks need to understand who ultimately reaps the economic benefits driven by artificial intelligence (AI), as the way these benefits are distributed will affect aggregate demand and inflation. He believes that AI will drive changes in productivity and economic growth, reshaping the labor market, financial markets, and payment systems. If AI primarily creates new work tasks and increases market expectations of future worker income, then aggregate demand may increase before the full effects of AI-driven productivity gains become apparent, thus prolonging inflationary pressures. If automation becomes dominant, weaker consumption could cause the AI-driven inflation-lowering effects to materialize sooner.September 21 - According to a report released by Indonesias Meteorology, Climatology and Geophysics Agency, a 5.3-magnitude earthquake struck 26 kilometers southwest of Puah Island in Central Sulawesi province, Indonesia, at 2:31 p.m. local time on September 21, with a focal depth of 10 kilometers. No tsunami risk is expected.On September 21, Foreign Ministry Spokesperson Guo Jiakun held a regular press conference. A reporter asked, "The Russian Foreign Ministry spokesperson stated on the 18th that they had sent a note to Japan regarding the US deployment of the Typhon intermediate-range missile system in Kyushu, emphasizing that the deployment is unacceptable and urging Japan to fully acknowledge the outcomes of World War II and cease its remilitarization. China has also recently sent a note to Japan expressing its concern. Can China confirm this and provide details?" Guo Jiakun stated, "The Typhon intermediate-range missile system is a strategic offensive weapon. Japans introduction of this system is further evidence of its accelerated remilitarization, which exacerbates the risks of military confrontation and an arms race, threatens strategic balance and regional stability, and harms the legitimate security interests of neighboring countries. The international community is highly vigilant about this, and people in many Asian countries have voiced their opposition. China has repeatedly lodged strong protests with Japan through diplomatic channels and recently sent a note to Japan reiterating its solemn position."

EUR/USD Expects Fourth Weekly Gains Above 1.0900 Despite The US Dollar's Rebound Advance Ahead Of US NFP

Daniel Rogers

Apr 07, 2023 11:42

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Despite a recent retreat, the EUR/USD bulls maintain control around 1.0920. This reflects the typical Good Friday inactivity and apprehension ahead of the US Nonfarm Payrolls (NFP) report released early in the day. The major currency pair was volatile on Thursday as a result of the US Dollar's initial rebound on fears of a recession, but ended the day unchanged as disappointing US data contrasted with stronger Eurozone data.

 

Fears of a recession in the world's largest economy were prompted by consecutive lackluster US data and falling US Treasury bond yields, giving USD bears a reprieve on Thursday morning. As traders prepared for the all-important NFP, the dollar's subsequent gains were reversed by another disappointing US employment report.

 

Despite this, US Initial Jobless Claims for the week ending March 31 rose to 228K from 200K anticipated and an upwardly revised 246K the prior week. Notable is the increase in Challenger Job Cuts from 77,77K to 89,703K in the given month.

 

Notably, Reuters fanned fears of a recession by citing the most recent decline in the preferred bond market indicator of Federal Reserve (Fed) Chairman Jerome Powell. The most reliable bond market indicator of an imminent economic contraction, according to Federal Reserve research, is the "near-term forward spread" between the forward rate on Treasury bills 18 months from now and the current yield on three-month Treasury bills.

 

According to Reuters, International Monetary Fund (IMF) Managing Director Kristalina Georgieva stated in prepared remarks on Thursday that the global economy is projected to expand by less than 3% in 2023, a decrease from 3.4% in 2022.

 

In other news, Germany's Industrial Production (IP) increased 0.6% year-over-year in February, versus market predictions of -2.7% and previous readings of -1.7%. Additionally, the monthly figures exceeded expectations by 0.1%, coming in at 2.0% compared to 3.7% previously. On Wednesday, Germany Factory Orders for February improved to -5.7% YoY from -12.0% previously revised down and -10.5% market expectations, while MoM growth came in at 4.8% compared to 0.3% expected and 0.5% previous readings.

 

Wall Street and US Treasury bond yields have both reduced weekly losses as a result of these strategies, but investors remain skeptical.

 

In the context of less liquidity surrounding the March US employment report, sporadic activity on the major markets can keep the EUR/USD inactive and prone to abrupt price swings. Notable is the fact that recent dovish Fed forecasts and disappointing US data generate expectations for a positive surprise and enormous price volatility thereafter.


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