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  • US inflation is at a 40-year high 

    #edgeforex #forex #trading #market #comodity #inflation #america #high #year #price #hike #index #supplychain #cryptocurrency #bitcoin year

    The US consumer price index increased 0.8 percent month on month in February, bringing the annual rate of inflation to 7.9 percent, a new 40-year high. 

    It will soon be close to 9% as rising commodity and labour costs are passed on to consumers.

    Food rose 1% MoM and energy rose 3.5 % MoM, resulting in core inflation of 0.5 % MoM/6.4 % YoY when these items are excluded. All of this is in line with market expectations. 

    While supply chain strains and labour shortages are important drivers of inflation, we must also remember that strong stimulus-supported demand is also a factor. Goods price inflation is extremely high, as evidenced by the fact that retail sales are currently 24 percent higher than they were in February 2020.

    In this high-demand environment, corporate pricing power is at multi-decade highs, allowing businesses to pass on cost increases to customers. 

    According to the National Federation of Independent Businesses, the broadest range of businesses are raising their prices – a net 68 percent raised them last month, and we are close to a record for the proportion of businesses expecting to raise them further in the next three months. Inflation will remain well above 2% for the rest of the year. 

    Inflation will rise further in the near future. The increase in gasoline prices to $4.25/gallon from $3.50 in February will be enough to push headline inflation above 8.5 percent in March. 

    Furthermore, rising labour and agricultural and metal commodity costs will inevitably translate into higher input costs for businesses. In a strong corporate pricing environment, as highlighted by the NFIB chart, it will be passed on to consumers in the coming months, so we cannot rule out 9 percent inflation. 

    This will erode consumer spending power and is likely to result in lower consumer activity than would otherwise be the case. Nonetheless, the economy is gaining momentum and creating a significant number of jobs. Given that there are more than 1.7 vacancies for every unemployed person in the United States, corporations are clearly desperate to hire and are willing to raise wages to attract workers so that incomes can continue to rise.

    Despite the uncertainty caused by Russia’s invasion of Ukraine, the Fed has indicated that it will raise the fed funds rate by 25 basis points next week, with a series of rate hikes likely. 

    The geopolitical backdrop is obviously difficult to predict, but our central case is for five additional 25bp rate hikes this year, bringing the fed funds rate to 1.5-1.75 percent by year’s end. 

    The Russia/Ukraine situation is unsettling, but the US economy is gaining momentum and appears to be resilient.

  • COVID cases are increasing in China, with 50 million people under lockdown.

    #edgeforex #trading #markets #forex #china #cities #corona #covud #lockdown #citizen #testing #vaccination #cryptocurrency #bitcoin lockdown

    On Monday, China reported 1,437 cases in dozens of cities. That’s a fourfold increase in just one week. On Monday, various news outlets reported that the total number of Chinese citizens under lockdown had risen to 51 million. 

    As a result, Beijing has declared a state of emergency in the northeastern province of Jilin, home to 24 million people. Furthermore, the southern cities of Shenzhen and Dongguan, which have populations of 17.5 million and 10 million, respectively, have been sealed off in recent days. 

    Beijing is discovering the hard way that its “COVID Zero” approach to fighting the virus has serious drawbacks.

    While the United States and Europe continue to relax their restrictions, a growing number of Chinese citizens are subjected to draconian lockdowns similar to those imposed on Wuhan during the outbreak’s early days two years ago. 

    Although the record number of new cases reported is putting China’s zero-tolerance policy to the test, there is no indication that the country’s leadership is considering abandoning the policy entirely. 

    The Shenzhen lockdown threatens manufacturing and technology production in a city that is home to Huawei and Tencent, as well as one of the country’s main ports. The Shenzhen lockdown has already forced Apple supplier Foxconn to halt iPhone production, weighing on Apple shares earlier Monday.

    While the lockdowns were initially set to last a week, authorities can always choose to extend them. 

    The latest outbreak, according to Shanghai-based virologist Zhang Wenhong, is “the most difficult moment in the past two years” of China’s efforts to eradicate the virus. Shanghai, China’s financial capital, has avoided a full-fledged lockdown so far, but it is subject to some restrictions. 

    Many believe the most recent outbreak in mainland China likely crossed the border from Hong Kong, where case numbers have risen dramatically in recent weeks, prompting authorities to impose lockdowns and build thousands of makeshift quarantine beds.

    Mandatory quarantines and other strict anti-COVID measures have already taken their toll on the mental health of Chinese citizens: as of mid-morning Monday in the Eastern US, police reported three suicide attempts at one quarantine “camp” in the previous day.

  • Forex News March 15, 2022

    #edgeforex #trading #market #forex #recession #germany #expectations #inflation #impact #bond #yields #dollar #stagflation #cryptocurrency #bitcoin stagflation

    Recession

    ZEW notes on the survey report

    Expects stagflation in the coming months Collapsing economic expectations are accompanied by an extreme rise in inflation

    Impact is felt across all sectors of the German economy

    Particularly in energy-intensive sectors and the financial sector

    The euro fell from 1.14 to 1.08 against the dollar as a result of the Russia-Ukraine crisis. The only solace is that there are no real European sanctions against Russian energy. Consumption activity is already being hit hard at this point. So, imagine the ramifications.

    Germany

    Germany March ZEW survey current conditions -21.4 vs -22.5 expected

    Latest ZEW data – 15 March 2022

    Prior -8.1

    Expectations -39.3 vs 10.0 expected

    That’s a poor reading, but it’s to be expected, even though the outlook reading shows a significant deterioration in sentiment. The Russia-Ukraine situation is largely to blame, with inflation fears skyrocketing, likely crippling consumer activity.

    Bond yields

    • Bond yields fall on the day, with the Fed in focus tomorrow.
    • 10-year Treasury yields fall 5 basis points to 2.09 percent.
    • Bond yields are falling on the day after reaching multi-year highs to begin the new week.
    • Treasury yields are reversing some of yesterday’s gains, with 10-year yields now down 5 basis points to 2.09 percent. 2-year yields are down 4 basis points, remaining just above 1.80 percent.
    • In the context of this week, 10-year yields are still attempting to break above the 2% mark.
    • In Europe, 10-year German bund yields have fallen nearly 5 basis points to near 0.32 percent.
    • There hasn’t been much movement in key trading drivers recently, with the Russia-Ukraine situation remaining unchanged. If nothing else, this suggests that bond volatility will be elevated ahead of the Fed’s meeting tomorrow.
    • Powell and company will have a lot of communicating to do right away, deciding whether to hike by 25 bps or 50 bps. The former appears to be the consensus view and what markets have priced in, given that the Fed has also essentially boxed itself into it. But that doesn’t rule out more aggressive pricing in the coming months, when the Fed could hike rates by 50 basis points in May or June.
    • Depending on the communication, that could cause the bond market to tremble.

    Dollar

    • The dollar loses some ground to begin the session
    • The EUR/USD briefly rises above 1.1000
    • The dollar is trading slightly lower to begin European morning trade, as market flows are currently mixed.
    • Treasury yields and equities are lower, but currencies such as the euro are higher, while gold and oil are still consolidating losses for the day. To be honest, it’s difficult to make sense of the flows.
    • 10-year Treasury yields have fallen 3 basis points to 2.11 percent. Futures on the S&P 500 are down 0.5 percent. However, the EUR/USD is gradually rising to just above 1.1000
    • It is worth noting that price action is beginning to move above its key hourly moving averages @ 1.0967-85. For the past few sessions, that has been a key area on which sellers have relied.
    • This comes as the dollar falls against the yen, with the USD/JPY falling 0.2 percent to 117.85. Meanwhile, GBP/USD is up more than 0.3 percent to 1.3050 after flirting with 1.3000 earlier. Aside from some general pushing and pulling, it’s difficult to draw many conclusions from the market at this point. Let’s see if we can get a more coherent picture of the situation in the coming hours. For the time being, the Fed meeting tomorrow will not make it any easier to interpret the moves.

  • As Russia approaches a debt default, concern has turned to global contagion.

    #edgeforex #market #trading #forex #russia #debt #contagion #golbal #monetary #ratings #default #ukraine #cryptocurrency #bitcoin

    • According to ratings agencies and international bodies, Russia is on the verge of defaulting on its debt, but economists do not see a global contagion effect on the horizon. 
    • Kristalina Georgieva, Managing Director of the International Monetary Fund, said on Sunday that sanctions imposed by Western governments on Russia in response to its invasion of Ukraine would cause a sharp recession this year. She went on to say that the IMF no longer considers a Russian sovereign debt default to be a “improbable event.” 
    • Last week, World Bank Chief Economist Carmen Reinhart warned that Russia and its ally Belarus were “dangerously close” to defaulting on debt repayments. 
    • Despite the high risk of default, a wider financial crisis in the event of a Russian default was deemed unlikely for the time being, with global banks’ $120 billion exposure to Russia being deemed “not systematically relevant.” 
    • However, some banks and investment firms may suffer disproportionately. According to the Financial Times, US fund manager Pimco began the year with $1.1 billion of exposure to credit default swaps — a type of debt derivative — on Russian debt.
    • The Russian government has a number of key payment dates coming up, the first of which is a $117 million payment of eurobond coupons denominated in US dollars on Wednesday.
    • Last week, Fitch downgraded Russia’s sovereign debt to a “C” rating, indicating that “a sovereign default is imminent.” 
    • S&P Global Ratings also downgraded Russia’s foreign and local currency sovereign credit ratings to “CCC-,” citing Moscow’s efforts to mitigate the unprecedented barrage of sanctions imposed by the US and its allies as “likely substantially increasing the risk of default.” 
    • The Russian government has a number of key payment dates coming up, the first of which is a $117 million payment of eurobond coupons denominated in US dollars on Wednesday. 
    • Last week, Fitch downgraded Russia’s sovereign debt to a “C” rating, indicating that “a sovereign default is imminent.”
    • Russia’s military conflict with Ukraine prompted a new round of G7 government sanctions, including ones targeting the Central Bank of Russia’s (CBR) foreign exchange reserves; this has rendered a large portion of these reserves inaccessible, undermining the CBR’s ability to act as a lender of last resort and undermining what had been – until recently – Russia’s standout credit strength: its net external liquidity position. Moody’s downgraded Russia’s credit rating to the second-lowest tier earlier this month, citing the same central bank capital controls that are likely to impede payments in foreign currencies, resulting in defaults.
    • Following a slew of Western sanctions imposed in 2014 in response to its annexation of Crimea, Moscow took steps to shore up its financial position. 
    • The government ran consistent budget surpluses and sought to reduce both its debts and its reliance on the US dollar. 
    • The accumulation of substantial foreign exchange reserves was intended to mitigate against the depreciation of local assets, but recent sanctions effectively froze reserves of dollars and euros. Meanwhile, the Russian ruble has reached new lows.
    • To mitigate the resulting high exchange rate and financial market volatility, as well as to preserve remaining foreign currency buffers, Russia’s authorities have enacted capital-control measures, which we understand could prevent nonresident government bondholders from receiving interest and principal payments on time. 
    • Russian Finance Minister Anton Siluanov said Monday that Russia will use its Chinese yuan reserves to pay the coupon on a sovereign eurobond issue in foreign currency on Wednesday. 
    • The payment could be made in rubles if the payment request is rejected by western banks, which Moscow would regard as fulfilling its foreign debt obligations.

    • Although any upcoming payment defaults would be symbolic – Russia has not defaulted since 1998 – Deutsche Bank economists noted that non-payments will likely trigger a 30-day grace period granted to issuers before defaults are officially triggered. 

    • Thirty days still gives time for a negotiated end to the war, so this is probably not the time to see where the full stresses in the financial system may reside.

    With news or write downs, there has already been a significant mark to market loss. However, it is clear that this is an important storey to follow.

    Since the imposition of a web of sanctions on central banks and financial institutions, trading in Russian debt has largely ceased, with government restrictions and actions taken by investors and clearing exchanges freezing most positions. 

    Russian hard currency sovereign securities are indicated at 10 – 30 cents on the dollar and are expected to remain there. 

     Bhatia suggested that the key macroeconomic risk arising from the Ukraine conflict is energy prices, but the spillover pressure to global credit markets will be “relatively muted,” with recent volatility across asset classes continuing. 

    However, given that Russian securities have been repriced to default levels, we believe that the immediate impact is over. 

    Debates about the economic consequences and central bank responses will now take centre stage.

  • China will face repercussions if it assists Russia in evading sanctions.

    #edgeforex #market #trading #forex #russia #ukraine #china #sanctions #invasion #action #beijing #cryptocurrency #bitcoin china

    Russia has asked China for military equipment since the beginning of its invasion of Ukraine on February 24, prompting concern in the White House that Beijing may undermine Western efforts to assist Ukrainian forces in defending their country, according to US officials.

    He described the current situation in Ukraine as “disturbing,” adding, “We support and encourage all efforts that are conducive to a peaceful resolution of the crisis.”

    Despite the difficult situation, Russia and Ukraine should make every effort to continue negotiations in order to achieve a peaceful outcome.”

    Washington believes China was aware that Russia was planning some sort of action in Ukraine prior to the invasion, though Beijing may not have realised the full scope of what was planned.

    Washington was keeping a close eye on whether or not Beijing provided economic or material support to Russia, and warned that if this occurred, there would be consequences.

    Washington has insinuated to Beijing, privately, that there will be consequences for large-scale sanctions evasion efforts or support to Russia to backfill them.

    According to a senior Biden administration official, the Ukraine war and its impact on regional and global security will be a “significant topic” during Sullivan’s meeting with Yang, given China’s efforts to align “with Russia to advance their own vision of the world order.”

    The meeting, which had been planned for some time, is part of a larger effort by Washington and Beijing to keep open channels of communication open and manage competition between the world’s two largest economies, according to the official.

    The source added, speaking on the condition of anonymity, that no specific outcomes were expected.

    As unappealing as the idea may be to some in the West, it is time to offer the Russian leader an exit with China’s assistance.

    The US announced on Saturday that it would send up to $US200 million ($NZ293 million) in additional weapons to Ukrainian forces as they try to defend themselves against Russian shelling.

    Washington and its allies have imposed unprecedented sanctions on Russia, including a ban on its energy imports, while also providing billions of dollars in military and humanitarian aid to Ukraine.

    Individually and collectively, they have urged China, the Gulf states, and others who have failed to condemn Russia’s invasion to join them in isolating Russia from the global economy.

    Although Chinese President Xi Jinping last week called for “maximum restraint” in Ukraine after a virtual meeting with German Chancellor Olaf Scholz and French President Emmanuel Macron, Beijing has refused to call Russia’s actions an invasion.

    Xi also expressed concern about the impact of sanctions on global finance, energy supplies, transportation, and supply chains, as evidence mounts that Western sanctions are restricting China’s ability to purchase Russian oil.

    In 2020, trade accounted for roughly 46 percent of Russia’s GDP, with much of it going to China, the country’s largest export destination.

  • Forex News March 14, 2022

    #edgeforex #trading #forex #market #china #curfew #lockdowns #russia #foreigncurrency #debt #elonmusk #bitcoin #cryptocurrency curfew

    China

    • China is reportedly planning to impose a curfew in Jilin province beginning Monday. More lockdowns are being announced in China.
    • That’s a population of about 24 million people, with Jilin being one of the three provinces of Northeast China and a major food producer. Jilin reported 895 locally transmitted COVID-19 cases earlier today, prompting the above action.

    Russia

    ·      Russia says it may be forced to pay foreign currency debt in roubles as a result of sanctions The Russian Finance Ministry has approved a temporary procedure for repaying foreign currency debt.

    ·      According to the ministry, it will issue payment orders to correspondent banks in order to make foreign currency payments, but the ability to make those payments will be contingent on sanctions.

    ·      If the payments cannot be made by the foreign correspondent banks, the transaction will be conducted in Russian roubles instead.

    Elon Musk

    Elon Musk has stated that he will not sell his Bitcoin, Ethereum, or Doge in the face of rising inflation.

    Elon Musk’s latest tweet

    A small increase in crypto assets as a result of the tweet.  “,he claims “As a general rule, for those seeking advice from this thread, it is preferable to own physical assets such as a home or stock in companies you believe make good products rather than dollars when inflation is high. I still own and will not sell my Bitcoin, Ethereum, or Dogecoin, for example.”

    He’s responding to comments he made in an earlier tweet about what the “likely inflation rate” will be in the coming years.

    ETH is up 1% on the day to just above $2,600, while Bitcoin is trading near $39,000, down 0.2 percent.

    France

    ·      Latest INSEE data – 14 March 2022

    ·      Prior -€11.3 billion; revised to -€11.4 billion

    ·      Prior -€11.3 billion; revised to -€11.4 billion

    ·      The French trade deficit shrank in January as exports increased by 6.9 percent while imports decreased by 0.6 percent.

    Europe

    ·      Positive tones as the session begins

    ·      Eurostoxx +0.7 percent

    ·      Germany DAX +1.5 percent

    ·      France CAC 40 +0.6 percent

    ·      UK FTSE +0.2 percent

    ·      Spain IBEX +0.9 percent

    ·      The mood has gradually improved in recent days, as markets have faded out the unrest and discord between Russia and Ukraine. Yes, the situation on the ground remains less than ideal, but market concerns are beginning to ease.

    ·      Oil is well off its highs since 2008, but it is still trading in the triple digits for the time being. In addition, gold has fallen from its peak of $2,070 to $1,970 at the moment.

    Japan

    When Japanese government officials believe the yen FX rate is moving too quickly for their liking, they raise the issue of’stability.’

    According to a Japanese government spokesperson:

    • Forex stability is critical
    • the impact on Japan’s economy is being closely monitored USD/JPY has risen to a five-year high.

  • The Russia-Ukraine conflict has taken a heavy toll on many currencies. 

    #edgeforex #trading #forex #currency #markets #stocks #russia #ukraine #conflict #heavy #toll #attck #war #misfotunes #cryptocurrency #bitcoin #currencies currencies

    Currencies market have not been insusceptible to the lofty misfortunes and wild swings seen in other resource classes as of late, and planners are re-evaluating their techniques considering Russia’s attack of Ukraine.

    The euro rose 0.4 percent against the dollar on Tuesday, as some of the flight to safe-haven assets eased, but it was still down more than 4 percent against the greenback since the war began, as the conflict escalated and attention shifted to the looming threat to European energy supplies. The common currency fell more than 1% on Monday, capping off its worst three-day drop since March 2020. 

    On Tuesday morning in Europe, the Deutsche Bank Currency Volatility Index climbed toward 10%, its highest level since April 2020, during the early stages of the Covid-19 pandemic.

    On Tuesday morning in Europe, the Deutsche Bank Currency Volatility Index climbed toward 10%, its highest level since April 2020, during the early stages of the Covid-19 pandemic.

    Euro slide

    • As indicated by Goldman’s models, the eurozone’s minimized development assumptions last week reduced around 1% from the EUR/USD money pair, while an expansion in the Europe-wide gamble premium – the additional profits a financial backer can expect for facing more gamble challenges was worth almost 4%.
    • Despite the sharp drop in the EUR/USD, these models suggest that the currency should be trading slightly lower—around 1.07-1.08—given the movements in other market variables. 
    • Although caution needs to be executed with estimates, the models indicated that the euro is relatively strong against the Polish zloty (PLN), Swedish krona (SEK), US dollar (USD), Hungarian forint (HUF), and British pound (GBP), while slightly weak against the Swiss franc (CHF).
    • The risk of the Swiss National Bank intervening to halt the currency’s appreciation, on the other hand, has “likely increased now.” 
    • The military conflict has cast significant uncertainty over the region’s macroeconomic outlook; however, even if spillovers harm the eurozone’s growth prospects, this would not necessarily result in sustained euro depreciation, as the European Central Bank may be concerned about the impact on inflation, and governments may respond to the crisis with fiscal easing. 
    • According to BMO Capital Markets, the euro’s smaller decline compared to other European currencies is due in part to the high level of liquidity in the EURUSD exchange rate.
    • The backdrop suggests a period of lower foreign inward investment into Europe, weaker economic growth due in part to rising inflation, and further deterioration in the trade balance due to the high price of oil.

    Ruble and Eastern Europe

    • The Russian rouble has lost over 64% of its worth against the US dollar this year, arriving at a record low, owing generally to the surprising seriousness of Western assents forced on Russia and its monetary framework, which planned to segregate Moscow from the worldwide economy. According to BMO, the effective freeze on the Central Bank of Russia’s ability to use its massive foreign exchange reserves, the majority of which were denominated in euros and held with EU banks, was central to the size of the drop last week.
    • The beneficial starting point of Russia’s external position prior to the invasion, the lack of a full and immediate ban on EU imports of Russian fossil fuels, and the CBR’s doubling of the benchmark interest rate to 20% have all contributed to a reduction in the magnitude of the USDRUB move. 
    • While the global currency market is not formally closed to rouble trading, the sanctions have rendered the currency “highly illiquid.”
    • In addition to the rouble, the currencies of former Soviet satellite states have plummeted, with the PLN, HUF, and Czech koruna (CZK) falling by 8-12 percent in the days leading up to the invasion.
    • According to BMO, the magnitude of the movements indicates capital flight from these currencies.
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