Archive for Economics & Fundamentals

Europe’s Next Recession

By Orbex

Following the drop in US stock indices at the end of last year, there was quite a bit of press talk about a potential recession. But that has gone by the wayside now that the Dow managed one of it’s best starts of the year in history. Europe remained largely ignored, despite having worse economic indicators and stock markets that had tumbled even more than the US’.

Last year’s third quarter GDP in Germany came in negative, though for once the other countries of the block performed better and the eurozone as a whole managed to squeeze out a 0.2% quarterly growth. Should German GDP stay negative during the last quarter, the largest economy in the eurozone would once again slip into a technical recession – just as the ECB is embarking on a tightening program. 

The Reality

We can talk about the next recession in Europe with certainty because of the basic reality of economics: recessions always happen. The questions that perplex economists and traders are when and how – the vital piece of knowledge needed take on the right investment position. So, is Europe due for a recession?

Recessions happen with a frequency of 7-8 years, and Europe managed to get out of the last one at the end of 2012. On the basis of time, the euro area is getting in the normal range for a recession.

However, recessions are typically based on a correction of an underlying economic imbalance created after a period of growth, and Europe hasn’t managed to perform all that well since last slipping into negative growth.

Economists might argue that the 2012 recession was technical, with quarterly negative GDP growth in the low decimals (the worst being Q1, with barely -0.4%); but that same argument can be said for subsequent growth. Quarterly growth has not cracked 1.0% since.

On an annual basis, the best economic performance was 2.8% achieved in Q2, 2017, and since then it has slipped down constantly, to register 1.6% annually in the most recent quarter.

The Data

Broadly speaking, euro area stock indices maxed out in January of last year and have subsequently tumbled between 10-15% over the next twelve months.

However, they’ve been recovering in line with the US since the start of the year. More concerning was the industrial production figure released on Monday which showed a precipitous drop of 3.3%. Although this data series does on occasion slip below zero, this is the first time it registered this degree of low since the middle of the last recession.

On the other hand, as an advanced economy, manufacturing is not the largest industrial sector. That would actually be services, and last month’s PMI for this sector still came in above 50, the line between growth and contraction, but at just 51.2, it’s worst showing in nearly four years.

Unemployment remains low, in fact, the lowest it’s been since the sub-prime crisis. But typically, employment figures are the last to turn negative, as businesses loathe to terminate employees.

Politics As Usual

The issues that grab the headlines around Europe are overwhelmingly political: Brexit, Greek no-confidence vote, populism in Italy, etc. Potential shocks to the market seem more likely to come from parliaments than from a change in data figures. However, given a wide range of fractured challenges the eurozone faces, the other element of concern is the lack of tools to deal with the situation if one of those things turned into a crisis.

The ECB has barely started its tightening cycle; only last month it stopped buying bonds, and interest rates are still negative. The last time the eurozone slipped into recession, Draghi came out to say he’d do whatever it takes to stabilize the situation. Now those tools aren’t available – and even though his term is not up until November, there already is jockeying to replace him.

While many think of a market and economic crash when they hear the word recession, we shouldn’t discount the possibility of the economy simply slipping into negative growth for a while. But, since nothing in the future is certain, we just have to keep scrutinizing the data as it comes out over the next month.

By Orbex

ECB Minutes Reveal Policymakers Proceeding With Caution

By Orbex

The European Central Bank released its meeting minutes from the December monetary policy meeting last week. The minutes showed that ECB officials were close to giving a downbeat assessment of the economic prospects for the Eurozone.

The Central Bank removed the crisis-era monetary stimulus program by ending its 2.6 trillion euro quantitative easing program.

The meeting minutes showed that the policymakers debated highlighting the delicate balancing act. Major central banks withdrew the crisis era support and tightened monetary policy. There are fears of a slowdown in the global economy and institutions act accordingly.

The ECB’s governing council members debated on the language of the monetary policy. A change in the outlook went from “balanced” to “tilted to the downside.” The minutes revealed details on the worsening conditions in the Eurozone and the global economy.

However, a compromise was struck with the final message coming out as the risks being described as being balanced but “moving to the downside.

The ECB held its meeting in December when it announced an end to its quantitative easing program. The announcement came amid the German economy slowing in the third quarter. This also dragged the Eurozone’s economy lower amid fading prospects for any rebound in economic activity.

ECB looking for opportunities

While the Eurozone economy is still in expansion, the conditions have not worsened yet for the ECB to reactivate its stimulus program.

“It was underlined that the situation remained fragile and fluid, as risks could quickly regain prominence or new uncertainties could emerge,” the ECB said in the minutes.

As a precaution, officials discussed revisiting the cheap, multi-year loans to banks. Also known as the Targeted Long Term Refinancing Operations, the ECB previously used the TLTRO’s during the height of the financial crisis. The discussion on launching the TLTRO comes as the ECB ended its QE program in December.

At the December meeting, the ECB President Mario Draghi cautioned about the growing risks to the economy amid weaker data. The minutes showed that policymakers expect Draghi to be even more cautious. Some members called for a new round of cheap credits to the banks. This is a crucial source of lending especially for fragile Eurozone economies such as Italy, Portugal, and Spain.

The meeting minutes are likely to cement the market expectations that the Central Bank could launch its TLTRO program in the coming months. The expectations increase amid recent data from Germany suggesting that the economy most likely contracted in the fourth quarter of the year as well.

The potential ramifications suggest that the Eurozone growth could also be lower in the final three months of 2018.

Germany’s industrial production and manufacturing output declined as well as weaker exports and imports which impacted the trade balance figures.

“Looking ahead, the suggestion was made to revisit the contribution of targeted longer-term refinancing operations to the monetary policy stance,” the ECB said in its account of the December meeting.

The governing council also discussed reinvestment on the maturing debt.

Interest Rates On Hold For Now

The ECB stated that interest rates will be steady at least until the middle of next year. Market expectations suggest that the ECB could keep rates unchanged until next year.

Recent inflation estimates showed that headline inflation eased from the ECB’s target rate of 2.0%. Core inflation remained steady although still well below the inflation target rate. Inflation and GDP show signs of a slowdown. This could make ECB turn dovish in the upcoming meetings and launch the TLTRO program sooner than expected.

By Orbex

Indonesia holds rate steady to help narrow C/A deficit

By CentralBankNews.info
     Indonesia’s central bank kept its benchmark BI 7-day reverse repo rate steady at 6.0 percent, reiterating this “is consistent with ongoing efforts to reduce the current account deficit to a manageable threshold and maintain the attractiveness of domestic financial assets.”
     However, Bank Indonesia (BI) omitted a reference from its December statement that the policy rate was also kept steady in consideration of the global trend in interest rates in the next few months, illustrating the recent downward shift in the outlook for U.S. and European growth and thus monetary policy.
      The decision to keep the rate steady was largely expected after BI Governor Perry Warjiyo on Wednesday told a panel of lawmakers that BI’s policy remains pre-emptive and the policy rate had almost reached its peak.
     Wariyo added a more favorable outlook for U.S. interest rates would allow Indonesia to rely on other instruments to stabilize financial markets and support economic growth.

      Last year BI raised its policy rate 6 times and by a total of 175 basis points to bolster the exchange rate of the rupiah, which fell sharply from February to November on concern over the country’s widening current account deficit and capital outflows amid a general strengthening of the U.S. dollar that drew strength from the Federal Reserve’s rate hikes.
     But since BI’s last rate hike in mid-November, supported by currency and bond market intervention, the rupiah has roared back to levels seen last June.
    Today the rupiah was trading at 14,188 to the dollar, up 7.3 percent from lows seen in late October and up 1.9 percent this year. However, the rupiah is still down 4.3 percent since the start of 2018.
      In today’s statement BI said it was continuing its strategy of maintaining liquidity in the rupiah money market and foreign exchange market as part of its aim to keep the current account deficit below 2.5 percent of gross domestic product in 2019.
     In the third quarter of last year Indonesia’s current account deficit almost doubled to US$8.8 billion, or 3.37 percent of GDP, the widest since the second quarter of 2014, boosted by the rising cost of oil imports.

     Bank Indonesia released the following statement:
   

“The BI Board of Governors agreed on 16th and 17th January 2019 to hold the BI 7-Day Reverse Repo Rate at 6.00%, while also maintaining the Deposit Facility (DF) and Lending Facility (LF) rates at 5.25% and 6.75%, respectively. The decision is consistent with ongoing efforts to reduce the current account deficit to a manageable threshold and maintain the attractiveness of domestic financial assets. Furthermore, Bank Indonesia continues monetary operations strategy to maintain adequate liquidity in the Rupiah money market and foreign exchange market in order to support monetary and financial system stability. Moving forward, Bank Indonesia will continue to optimise its policy mix and strengthen coordination with the Government and other relevant authorities in order to maintain economic stability and strengthen external sector resilience, which entails controlling the current account deficit within the threshold of 2.5% of GDP in 2019. 
Global economic moderation is continuing despite slightly less uncertainty. In terms of the advanced economies, economic consolidation is expected in the United States during 2019 due to a tightening in the labour market and constrained fiscal space. The US Federal Reserve’s dovish monetary stance is forecasted to reduce the pace of Federal Funds Rate (FFR) hikes. Europe’s economy is also predicted to moderate in 2019, which could seriously impact the speed of monetary policy normalisation by the European Central Bank (ECB). In terms of developing economies, China’s economy is decelerating on sluggish consumption and flagging net exports due to simmering trade tensions with the United States as well as the reverberations of the ongoing deleveraging process. Affected by the global economic outlook, international commodity prices are expected to slide, including the global oil price as the United States ramps up production. Meanwhile, global financial market uncertainty slightly eased and induced capital flows back to developing economies in line with the slower pace of FFR hikes and a moderate thawing of US-China trade tensions.
Robust national economic growth is projected in Indonesia on the back of solid domestic demand. Various economic indicators released in the fourth quarter of 2018 point to strong domestic demand, underpinned by private and government consumption. Maintained public purchasing power, upbeat consumer confidence and the favourable impact of preparations for the legislative and presidential elections to be contested this year are boosting private consumption, while government consumption has been be sustained by procurement policy and social assistance disbursements (bansos). Nevertheless, subdued export growth will persist due to a softening in the global economy and declining international commodity prices. On the other hand, imports are also expected to begin retreating in line with the policies implemented yet strong import growth will remain to satisfy domestic demand. Consequently, Bank Indonesia projects national economic growth for 2019 in the 5.0-5.4% range, backed by domestic demand and improvements in the position of net exports. 
Indonesia’s trade balance recorded a deficit in December 2018 despite an influx of non-resident capital flows. The trade deficit stood at USD1.1 billion in the reporting period due to restrained export performance, non-oil and gas exports in particular, as a corollary of global headwinds. Meanwhile, foreign capital inflows returned in December 2018, reaching USD1.9 billion, with the trend persisting into January 2019. A strong position of reserve assets was recorded at the end of December 2019, totalling USD120.7 billion, equivalent to 6.7 months of imports or 6.5 months of imports and servicing government external debt, which is well above the international standard of three months. Moving forward, Bank Indonesia will continue to strengthen coordination with the Government in order to reinforce external sector resilience, which includes controlling the current account deficit in 2019, going toward the range of 2.5% of GDP. 
The rupiah is appreciating, thus bolstering price stability. On average, the rupiah charged 1.16% higher against the US dollar in December 2018 despite experiencing 0.54% (ptp) depreciation in the same period on a point-to-point basis. The strong rupiah persisted into January 2019 as an influx of foreign capital flowed into the domestic markets in line with sound national macroeconomic fundamentals and slightly eased global financial market uncertainty. For the year, therefore, the Rupiah depreciated 6.05%, or 5.65% (ptp), in 2018. Nonetheless, the point to point Rupiah depreciation was less pronounced than the Indian rupee, South African rand Brazilian real, and Turkish lira. Looking ahead, Bank Indonesia will remain vigilant of global financial market uncertainty and continue to implement exchange rate stabilisation measures in line with the currency’s fundamental value, while continue to maintain market mechanisms and supporting financial market deepening efforts.
Inflation is low and stable in 2018, remaining within the target corridor of 3.5±1% (yoy). CPI inflation was recorded at 0.62% (mtm) in December 2018 in line with cyclical yearend trends. Therefore, inflation in 2018 stood at 3.13% (yoy), which marks the fourth consecutive year that headline inflation has remained on target. Low core inflation was also maintained in line with policy consistency by Bank Indonesia to maintain exchange rate stability and anchor rational inflation expectations. Price pressures on volatile foods were effectively controlled thanks to adequate supply and lower international food prices. Furthermore, inflationary pressures on administered prices were also mild due to minimal government policy prior to the general election. Moving forward, Bank Indonesia will consistently maintain price stability and strengthen policy coordination with the Central Government and Local Administrations to maintain low and stable inflation, which is projected within the inflation target of 3.5±1% in 2019.
Financial system stability has been maintained as the bank intermediation function improves and the banking industry effectively contains credit risk. The Capital Adequacy Ratio (CAR) of the banking industry improved to 23.3% and the Liquidity Ratio to 20.1% in November 2018. In addition, the banking sector maintained a low level of Non-Performing Loans (NPL) at 2.7% (gross) or 1.2% (net). In terms of the intermediation function, credit growth was reported to decelerate from 13.3% (yoy) in October 2018 to 12.1% (yoy) in November 2018, while deposit growth decreased from 7.6% (yoy) to 7.2% (yoy) in the reporting period. On the other hand, economic financing through the financial markets, such as initial public offerings (IPO) and rights issues, corporate bonds, Medium-Term Notes (MTN) and Negotiable Certificates of Deposit (NCD), reached a cumulative total of Rp197.1 trillion (gross) as of November 2018, which is below the Rp276.9 trillion (gross) recorded in the same period last year. Consequently, Bank Indonesia projects credit growth in 2019 at 10-12% (yoy), while predicting deposit growth in the 8-10% (yoy) range. Moving forward, Bank Indonesia will continue to monitor liquidity adequacy and distribution in the banking system in conjunction with the other relevant authorities consistent with efforts to help maintain financial system stability.
Solid domestic economic performance is supported by uninterrupted cash and noncash payment systems. In terms of cash payments, the position of currency in circulation increased by 7.8% (yoy) in December 2018 compared with 7.3% in November 2018. Regarding wholesale noncash payments, the average daily growth of high-value transactions settled through the Bank Indonesia – Real Time Gross Settlement (BI-RTGS) system increased 1.53% (yoy) in December 2018 after declining 1.7% (yoy) in the month earlier. Meanwhile, growth of noncash transaction value settled through the National Clearing System (SKNBI) fell from 9.7% (yoy) in November 2018 to 8.08% in December 2018. Retail transactions through ATM/debit cards, credit cards and e-money grew by 14.3%, 7.9% and 215.4% respectively in the reporting period due to the seasonal effect of Christmas and New Year. Moving forward, Bank Indonesia will also ensure the availability of national payment systems, both operated by Bank Indonesia and the industry, in order to maintain macroeconomic stability.”

U.S. Earnings, May’s survival & China’s stimulus extends bullish correction

Article by ForexTime

A solid kick off for the U.S. earnings season, Theresa May surviving a vote of no-confidence, China’s central bank pumping record liquidity, and policymaker assurances to take the right actions were all key factors in supporting risk in financial markets and keeping equity bulls in charge.

Upbeat U.S. bank earnings boosted investors’ confidence this week. Goldman Sachs was up 9.5% on Wednesday after beating estimates by a wide margin on both top line and bottom line. Yesterday’s surge in its stock was the best reaction to earnings results in a decade. Bank of America also crushed expectations and ended the day 7.2% higher. The numbers released so far from U.S. banks managed to ease some concerns on the economy. However, confirmation is still needed from other sectors – mainly the cyclical ones – to provide better guidance on how consumers are behaving, which is critical to future earnings.

Prime Minister Theresa May’s government survived a no-confidence vote yesterday, just one day after her humiliating Brexit defeat. This result seemed to have been properly priced into the Pound given the slight reaction to the news. A snap general election appears to be out of the equation now, but there is still a high probability of a second referendum taking place. Although a soft Brexit remains to be the most likely scenario, it’s a tough call to make. Expect an extension of Article 50 to provide a further boost to the Pound, but if May starts to open up to the idea of a second referendum, Sterling may easily jump above 1.30.

Additional stimulus from China also managed to boost sentiment. After cutting taxes in response to disappointing industrial production figures and falling exports, monetary authorities injected a record $84 billion into the country’s banking system. Such actions indicate that China will continue to use all available tools to reduce the impact from ongoing trade tensions with the U.S. However, this will only have a short-term impact on markets and only some sort of agreement with the U.S. to end the current trade tensions will provide a sustainable positive influence.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.


Forex-Time-LogoArticle by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

Theresa May survives no-confidence vote…what next?

Article by ForexTime

Sterling offered a fairly muted reaction on Wednesday evening despite UK Prime Minister Theresa May narrowly surviving a vote of no-confidence in Parliament.

The relatively subdued price action is likely based on the fact that this outcome was already heavily priced in. With May’s victory removing an element of uncertainty at a time where Brexit continues to drain investor confidence, the British Pound has scope to edge higher in the near term. However, this illusion of stability is unlikely to last, especially when considering how the Prime Minister only has a few days to present an alternative Brexit plan to Parliament.

Expectations seem to be growing by the day over the government extending Article 50 in a bid to prevent the UK from crashing out of the European Union without a deal in place. Investors will be paying very close attention to see whether May is able to secure further concessions on the Irish border backstop from the European Union. If Brussels continues to play hardball on the backstop clause, expectations are poised to mount over a Norwegian style Brexit in the cards or in extreme cases a second referendum. With the Pound’s outlook mired by Brexit uncertainty and political risk at home, investors should fasten their seatbelts and prepare for a rough and rocky ride ahead.

In regards to the technical picture, the GBPUSD’s direction remains influenced by Brexit headlines. There needs to break above 1.2920 to open a path higher towards the psychological 1.3000 level.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.


Forex-Time-LogoArticle by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

UK PM’s latest win to boost the pound, FTSE and UK financial assets

By George Prior

Theresa May’s win in the Vote of No Confidence signals “more opportunities than risk for sterling and UK assets” from here, affirms the CEO of one of the world’s largest independent financial advisory organizations.

The bold assertion from Nigel Green, founder and chief executive of deVere Group, comes after the UK Prime Minister clung on to power in a confidence vote on Wednesday evening, a day after her Brexit deal was crushed in the worst ever defeat for a sitting government on Tuesday.

Mrs May won 325 to 306 votes.

Nigel Green notes: “This win for Mrs May – which follows her previous confidence vote win in December – will eliminate, for the time being, the risk of a general election being called.  It therefore removes the risk of an incoming Labour government.

“The likely consequence of May’s Brexit bill defeat is to reduce the risk of a no deal Brexit, since Parliament will now have greater involvement in the Brexit process. This is good news for sterling and UK financial assets.

“Now we have the news that an election is unlikely to be called in the near future, while new Brexit options are being explored. This too will please financial markets.”

He continues: “The pound, the FTSE and UK financial assets can be expected to rally in the short-term at least.

“Indeed, based on these latest developments, most scenarios favour sterling and UK stocks as they are currently undervalued.

“I believe there to be more opportunities than risk for sterling and UK assets from here.”

Mr Green goes on to say: “But there is a long way to go in recovery to reach pre-Brexit levels – and with so many question marks still surrounding the UK’s divorce from the EU, it is likely to be a bumpy ride.”

The deVere CEO concludes: “Those investors who maintain a properly diversified, multi-asset portfolio will be best-placed to take advantage of the key opportunities and mitigate the potential risks.”

About:

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients.  It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.

Turkey maintains rate and tightening bias

By CentralBankNews.info
     Turkey’s central bank left its policy rate – the one-week repo rate – steady at 24.0 percent,  as expected, citing “some” improvement to the outlook for inflation but cautioned that risks to price still prevail and it will maintain its tight monetary policy stance until there is a “significant improvement” in the outlook for inflation.
      The Central Bank of the Republic of Turkey (CBRT), which has maintained its rate since raising its sharply in September as prices began to rise in response to the fall in the lira’s exchange rate, reiterated its guidance from December that it was keeping a close eye on inflation expectations, prices, the lagged effect of past rate hikes and fiscal policy, confirming that “if needed, further monetary tightening will be delivered.”
     Turkey’s inflation rate has decelerated in the last two months and CBRT said the rebalancing of the economy was becoming more noticeable and import prices and domestic demand had helped improve the outlook for inflation.
      External demand was also maintaining its strength while economic activity was continuing to slow down, partly due to tight financial conditions. The improvement in the current account was expected to continue to improve, the central bank said.
      Headline inflation in December eased to 20.3 percent from 21.62 percent in November and a 15-year high of 25.24 percent in October but most analysts had expected the CBRT to keep its rate steady this month due to the tightening bias that has remained in place since September last year and to avoid any pressure on the lira.
      The CBRT’s medium-term inflation target is 5.0 percent and last November the central bank raised its inflation forecast for 2019 to 15.2 percent from an earlier 9.3 percent and forecast inflation would decelerate to 9.3 percent by the end of 2020.
      September’s 625-basis point rate hike came after two earlier hikes in May and June, with the policy rate rising by a total of 16 percentage points last year.
      The sharp hike in September came after the central bank in July kept its rate steady, disappointing financial markets and raising further doubts over CBRT’s independence from political influence and its commitment to fighting inflation.
      After falling sharply in August, the September hike helped reverse the trend of the lira and since early December last year it has remained relatively stable.
      Today the lira was trading at 5.35 to the U.S. dollar, down a bit over 1 percent this year and down almost one-third since the start of 2018.

     The Central Bank of the Republic of Turkey released the following statement by its monetary policy committee:

“Participating Committee Members

Murat Çetinkaya (Governor), Ömer Duman, Uğur Namık Küçük, Emrah Şener, Murat Uysal, Abdullah Yavaş.
The Monetary Policy Committee (the Committee) has decided to keep the policy rate (one-week repo auction rate) constant at 24 percent.
Recently released data show that rebalancing trend in the economy has become more noticeable. External demand maintains its strength while slowdown in economic activity continues, partly due to tight financial conditions. Current account balance is expected to maintain its improving trend.
While developments in import prices and domestic demand conditions have led to some improvement in the inflation outlook, risks on price stability continue to prevail. Accordingly, the Committee has decided to maintain the tight monetary policy stance until inflation outlook displays a significant improvement.
The Central Bank will continue to use all available instruments in pursuit of the price stability objective. Inflation expectations, pricing behavior, lagged impact of recent monetary policy decisions, contribution of fiscal policy to rebalancing process, and other factors affecting inflation will be closely monitored and, if needed, further monetary tightening will be delivered.
It should be emphasized that any new data or information may lead the Committee to revise its stance.
The summary of the Monetary Policy Committee Meeting will be released within five working days.”

Germany’s Industrial Production Slowdown Sparks Concerns Of A Recession

By Orbex

Latest economic reports from Germany are sparking concerns. The slowdown in the 3rd quarter of 2018 could very well extend into the 4th quarter as well. The slowdown signaled by initial economic indicators comes as the ECB is looking to tighten its monetary policy.

Industrial production figures released over the week showed an unexpected decline in November. The data reflected a mix of headwinds facing Europe’s largest economy amid rising trade tensions and softer global demand.

A monthly survey from the European Commission released last week showed that business confidence fell sharply in December. Various regional manufacturers including Spain, France, Italy, and Germany are downgrading their expectations on business outlook.

The weak patch of data comes as the Federal Reserve has been on policy tightening path. It aims to find a balance between higher interest rates to rein inflation and the global markets.

ECB has also reasons to be concerned

A slowdown from Germany will no doubt raise concerns for the European Central Bank which recently announced an end to its QE program which spanned over the years. Interest rates should remain steady until the middle of next year.

However, the Eurozone’s economy has been rising at a slower pace than what ECB officials had previously estimated. The first slowdown in the third quarter matches the temporary factors such as the automobile emission standards. However, the data released recently showed otherwise.

The ECB will likely face with a tough choice if the German economy continues to slide further. It could spark concerns of a recession, with the ECB’s interest rates near record lows. The Central Bank argued that its bond purchase program was the biggest driver of growth in the Eurozone’s economic recovery.

However, with the QE program ending in December, the slowdown could potentially come back to haunt the policymakers at the central bank.

Some of Germany’s key industrial sectors slowed when adjusted for inflation and seasonal changes. Industrial production dropped 1.9% in November compared to the month before. This was worse as economists forecasted an increase of 0.3%.

Industrial production fell for the second consecutive month as the data for October revised down to show a 0.8% decline on the month.

The data comes as manufacturing orders also fell, as seen in a separate report released earlier in the week.

The German economy declined in the third quarter of the year. This was the first pace of decline since 2015 with weaker exports hitting growth the hardest along with the emission standards hitting automobile production.

Italian economic performance under scrutiny

Besides Germany, the Italian economy also contracted in the third quarter of the year.

Following the weak patch of data, officials in Germany brushed aside the concerns of the economic softness and maintained the narrative that it was only temporary. Germany’s economy ministry said that the drop in industrial production was due to extra vacation days.

However, the slowdown was not just in Germany but also in other major regional economies in the Eurozone.

Growth was seen sliding sharply after reaching a decade high in 2017. The gains came due to a surge in exports and manufacturing which started the year 2018 on an optimistic note. However, the momentum was seen fading toward the end of the year.

The European Commission’s survey showed that the Economic Sentiment Indicator which is an aggregate measure of consumer and business confidence in the eurozone fell to 107.3 in December compared to 109.5 in the previous month. This was the lowest reading in the economic sentiment indicator since January 2017.

By Orbex

 

Pound steady after May defeat; focus on no-confidence vote

Article by ForexTime

Investors were thrown onto an emotional rollercoaster ride yesterday evening as Sterling rallied across the board despite Theresa May’s historic Brexit defeat in the House of Commons.

Expectations were initially elevated over the British Pound witnessing downside shocks in the event of May losing by more than 100 votes. However, bulls were clearly in the driver’s seat with the Pound rebounding against the Dollar after the Prime Minister lost by a record margin of 230 votes. A logical explanation behind the appreciation could be based on the fact that the defeat in the Commons was already heavily priced in. With speculation in the air over May’s overwhelming defeat potentially reducing the probability of a no-deal scenario, Sterling is likely to find near-term support, and this was reflected in price action this morning.

It is certainly too early for any celebrations, especially when considering how Theresa May will be facing a vote of no-confidence initiated by Labour this evening. The Pound may find some short-term stability if Prime Minister May is able to survive the no-confidence vote, as this outcome removes some element of uncertainty. A situation where the government loses the vote will be detrimental to the Pound because it increases the likelihood of an early general election.

The truth of the matter is that uncertainty remains a major theme with the outcome of the no-confidence vote open to question. With the chance of extending Article 50 increasing by the day, growing speculation around Theresa May seeking further concessions from the EU and expectations floating around about a second referendum – Pound volatility is in the cards.

Away from Brexit and politics, the UK inflation report is scheduled to be released this morning with inflation expected to decline 2.1% in December. The market reaction to the inflation report is likely to be muted as investors focus on Brexit.

In regards to the technical picture, the GBPUSD’s trajectory will be heavily dictated by how the no-confidence vote against Theresa May plays out. A technical breakout above 1.2920 is likely to encourage a move higher towards the psychological 1.3000 level.

Dollar fights back… but for how long?

Across the Atlantic, the Dollar fought back against a basket of major currencies with prices trading around 96.00 as of writing.

The upside potential feels limited, especially when considering how the fundamental themes are weighing on the currency still remain present.. Mixed domestic economic data, dovish comments from Fed officials and growing speculation over the central bank taking a pause in monetary policy tightening this year will continue weighing on the Dollar. Investor appetite towards the Greenback is seen diminishing even further if soft economic data questions its safe-haven status. Sellers still have an opportunity to reclaim control if 96.00 proves to be a stubborn resistance level.

Gold searches for spark

It is becoming increasingly clear that Gold is waiting for a fresh catalyst to make its next major move. The yellow metal continues to trade within a range with resistance around $1296 and support at $1280. A breakout above $1296 will open the gates towards the psychological $1300 level and beyond. On the other hand, weakness below $1280 is seen triggering a decline back towards $1272.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.


Forex-Time-LogoArticle by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

Brexit vote: Pound and market to knee-jerk react before rebounding

By George Prior

The pound has shrugged off a massive government defeat in the UK House of Commons tonight, perhaps because investors see the government’s threat of a no deal Brexit as illusionary given the increasing control over the Brexit process that the legislative body is now taking, affirms the CEO of one of the world’s largest independent financial advisory organizations.

The forecast from Nigel Green, founder and chief executive of deVere Group, comes as UK Prime Minister Theresa May lost the meaningful vote on her government’s EU withdrawal agreement by a significantly large margin of 230 votes and the pound rose by approximately one and a half U.S. cents in response.

Mr Green notes: “It appears the British government is currently in brinkmanship mode.

“Mrs May says she is not ‘running down the clock’ to the deadline of 28th March, but in all likelihood she will be re-submitting her Brexit plan with only a few minor tweaks, and so taking up government and parliamentary time that could perhaps be spent exploring other options that can command more support from MPs. In all probability, the government will seek an extension to Article 50.

Mrs May does not want to be the Prime Minister who takes the country into a chaotic no deal Brexit on 29th March.

“The longer the Brexit process is extended, the less chance of a no deal and greater chance there is of a second referendum that will reject Brexit, or a soft Brexit.  This will please global financial markets and favour the pound and UK financial assets.”

He continues: “Following the leader of the opposition Labour party, Jeremy Corbyn’s tabling of a vote of no confidence, there is greater chance of a general election. But in normal times this would spook the markets and have a directly negative impact (in the short-term at least) on the pound, the FTSE and UK financial assets generally.

“But these are not normal times, and the DUP and Conservative MPs who vote against the government’s Brexit bill are unlikely to vote against the government. A general election seems a low probability outcome.”

Mr Green concludes: “As the uncertainty rumbles on, portfolio diversification should remain the major strategy for investors.”

About:

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients.  It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.