Business Climate In German Retail Drops Considerably

Data Interpretation

Economic

Summary:

The ifo Business Climate in German retail noticeably deteriorated in July, according to the latest ifo Institute surveys.

The ifo Business Climate in German retail noticeably deteriorated in July, according to the latest ifo Institute surveys. The indicator fell to -25.4 points, down from -19.5 in June. Retailers are significantly more guarded about their current business situation. Their expectations for the coming months have clouded over further. “That makes a significant upturn in retail business in the second half of the year less likely,” says ifo expert Patrick Höppner.

Retailers of bicycles, electrical goods, and electronic household appliances, and drugstores report unfavorable business development. Food retailers and car sellers were also less satisfied. Sellers of bicycles, clothing, furniture, and furnishings assess their business situation as particularly tense.

For the second quarter of 2024, 54.1% of retailers reported insufficient demand. 46.2% had to contend with less foot traffic. The shortage of skilled workers was felt by 32.1%. “There is a lack of skilled workers, even though retailers are currently planning to cut their overall staffing needs,” says Höppner. 6.1% of retailers reported financing difficulties.

To stay updated on all economic events of today, please check out our Economic calendar

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Data Interpretation

Economic

Fed minutes, Jackson Hole, August flash PMI surveys

More insights into whether the Fed will cut interest rates in September will be provided via both July's Federal Open Market Committee (FOMC) meeting minutes and the Jackson Hole symposium in the week. This is especially with the July US CPI release having mirrored the recent PMI price trend in showing easing inflationary pressures, thereby building anticipation for the Fed to cut rates soon. As far as US equity investors are concerned, positive sentiment has risen surrounding central bank policy being a positive contributor to market returns. This is according to the latest August S&P Global Investment Manager Index.

Flash PMI data for August will meanwhile be released on Thursday for the earliest insights into economic conditions. These early economic signals will also be crucial inputs to guide policy ahead of the September FOMC meeting, especially on the prices front for the US. Central bankers across the US and Europe will likely be keen to see that rising cost pressures in July have not translated to higher selling prices that could threaten hopes for rate cuts.

Eurozone inflation data will be eagerly awaited as economists assess the potential for further rate cuts from the ECB. Other economies releasing inflation data include Canada, Japan, Hong Kong SAR, Singapore and Malaysia, with Canada and Japan notably in the spotlight in relation to monetary policy decisions after the Bank of Japan recently raised interest rates and the Bank of Canda reduced its policy rate. Other tier-1 data due in the week include GDP data from Mexico and also Thailand.

Several central bank meetings also take place in the week in Turkey, South Korea, Thailand and Indonesia, though no changes to interest rates are expected across the APAC central banks. Insights on when rate cuts will commence will nevertheless be sought from these meetings.

UK economy retains robust growth momentum

Official data confirmed recent upbeat survey evidence, indicating that the UK economy is faring well in 2024. Gross domestic product rose 0.6% in the second quarter, according to initial estimates form the Office for National Statistics, building on a solid 0.7% gain in the first three months of the year.

Further growth is anticipated for the second half of the year, though most economists - including those at the Bank of England - are expecting the pace of expansion to cool. This slowing in part reflects base effects, as the first half of the year has seen the economy rebound from a mild technical recession in the second half of 2023.

However, survey data suggest that the underlying pace of growth has remained robust into July, suggesting that any slowdown in the third quarter GDP numbers should not be overly concerning. The PMI's headline index tracking output in the manufacturing, services and construction sectors registered 53.1 in July, in line with the average seen in the second quarter. At this level, the PMI is broadly indicative of the UK economy growing at a quarterly pace approaching 0.3%.

Note also that the PMI data show the UK outperforming all other major developed economies bar the US, registering in particular a marked outperformance of manufacturing. Only India and Thailand reported faster manufacturing growth than the UK in July, according to S&P Global's PMI surveys.

Further clues of the UK's third quarter performance will be provided by the upcoming flash PMI data for August.

What to watch in the coming week

August flash PMI data due Thursday

Flash PMI data for August will be released across major developed economies including the US, UK, Eurozone, Japan and Australia, in addition to India. Growth conditions will be observed, especially to see whether service sector gains can continue to help offset a weakening manufacturing picture, after July PMI data pointed to global manufacturing falling into decline.

Americas: Fed minutes, Jackson Hole Symposium, Canada inflation, house prices

Minutes from the end-July Federal Open Market Committee (FOMC) meeting will be published midweek for detailed insights into the Fed's thoughts amid high expectations for a September rate cut. Additionally, Fed appearances at the Jackson Hole Symposium will also be viewed as an additional opportunity for US central bankers to telegraph their intentions for rates. The comments will be watched in conjunction with the release of August flash PMI, offering the earliest insights into output and price trends in the US.

Over in Canada, July's inflation figures will be updated on Tuesday with S&P Global Canada PMI data having alluded to higher, but still modest increases in selling prices in July.

EMEA: Eurozone inflation, consumer confidence, Germany PPI, TCMB meeting

The data highlight of the week for Europe will be flash PMI updates for August, shedding light on the latest growth and inflation developments across sectors.

Besides which, the final July print for eurozone inflation will be due at the start of the week. Flash August consumer confidence data will also provide insights into European consumer morale for a comparison with business sentiment available via the PMI Future Output Index.

APAC: RBA minutes, China Loan Prime Rate, BoK, BoT, BI meetings, Japan trade, Thailand GDP, Japan, Hong Kong SAR, Singapore, Malaysia inflation

Central bank meetings in South Korea, Thailand and Indonesia are set to unfold in the new week, while the Reserve Bank of Australia releases August meeting minutes. The Bank of Korea, Bank of Thailand and Bank Indonesia are broadly expected to maintain the status quo regarding monetary policy settings in their upcoming meetings, with potential rate cuts likely due only later in the year.

On the data front, Japan releases inflation and trade data, with the former watched for any signs of rising price pressure after the latest au Jibun Bank Japan Composite PMI pointed to slightly higher selling price inflation. Inflation data will also be due from Hong Kong SAR, Singapore and Malaysia while second quarter GDP will be updated for Thailand.

To stay updated on all economic events of today, please check out our Economic calendar

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Warren Takunda

Stocks

Asian stocks edged up and the dollar slid on Monday after global equities enjoyed their best week in nine months on expectations the U.S. economy would dodge a recession and cooling inflation would kick off a cycle of interest rate cuts.

The prospect of lower borrowing costs saw gold clear $2,500 an ounce for the first time and the dollar dip against the euro, while the yen made a sudden lunge higher that weighed on the Nikkei.

Federal Reserve members Mary Daly and Austan Goolsbee were out over the weekend to flag the possibility of easing in September, while minutes of the last policy meeting due this week should underline the dovish outlook.

Fed Chair Jerome Powell speaks in Jackson Hole on Friday and investors assume he will acknowledge the case for a cut.

"Although it may be too early to declare victory - and central bankers will certainly be prudent to avoid this in their official rhetoric - the inflation scare that had dominated the policy debate since prices started to soar during the pandemic has now largely vanished," said Barclays economist Christian Keller.

"Inflation may not be quite at the 2% target yet, but it is close and going in the right direction."

Futures are fully priced for a quarter-point move, and imply a 25% chance of 50 basis points with much depending on what the next payrolls report shows.

Analysts at Goldman Sachs cautioned that annual benchmark revisions to the jobs series are due on Wednesday which could see a large downward revision of between 600,000 and one million positions, though this would likely overstate the weakness of the labour market.

For now, the expectation of a softer than soft landing for the U.S. economy has S&P 500 futures up 0.2% and Nasdaq futures ahead by 0.3%, on top of last week's gains.

EUROSTOXX 50 futures added 0.2% and FTSE futures eased 0.1%.

MSCI's broadest index of Asia-Pacific shares outside Japan gained 1.0%, having rallied 2.8% last week.

Japan's Nikkei fell 1.2% as the yen rose, though that followed a near 9% bounce last week. Chinese blue chips firmed 0.4%.

The Fed is hardly alone in contemplating looser policy, with Sweden's central bank expected to cut rates this week, and possibly by an outsized 50 basis points.

In currency markets, the dollar lapsed 1.0% to 146.20 yen , and further away from last week's top of 149.40. The euro firmed to $1.1030 , just below last week's peak of $1.1047.

"The overall Fed message this week is likely to reassure market participants looking for confirmation that policy rate cuts are now imminent," said Jonas Goltermann, deputy chief markets economist at Capital Economics.

"As such, the greenback may well remain under pressure in the near term, although given the extent to which Fed easing is already discounted, we doubt there is that much further dollar weakness in store."

A softer dollar combined with lower bond yields to help gold hold at $2,500 an ounce , and near an all-time peak of $2,509.69.

Oil prices dipped again as concerns about Chinese demand continued to weigh on sentiment.

Brent fell 11 cents to $79.57 a barrel, while U.S. crude lost 20 cents to $76.45 per barrel.

Source: Reuters

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FxPro

Cryptocurrency

Market Picture

On Monday morning, the crypto market capitalisation stood at $2.07 trillion, up slightly from $2.05 trillion a week earlier. In the previous two weeks, the market failed to rally above the $2.15 trillion level, which has become a local resistance. The weakness in the crypto market undermines our confidence in a global recovery in risk appetite, even though last week was the strongest week for US equity indices in many months.

Crypto Market Attracts Money, But Prices Don’t Rise_1

Interestingly, the sell-off from local resistance in the crypto market over the past two weeks has been accompanied by a surge in stablecoin capitalisation to new records after a prolonged sideways period from April to the end of July. Typically, the growth in stablecoin volume coincides with the bullish phase of the market. The crypto whales buy on dips, and it is clear from Bitcoin’s dominant dynamics that their focus remains on the first cryptocurrency, whose market share has risen to 56.5% – the highest since April 2021.

Crypto Market Attracts Money, But Prices Don’t Rise_2

Litecoin’s dynamics illustrate what is happening in cryptos, except for the largest coins. Again, it’s mostly selling on growth. Litecoin fell sharply below its 50-day moving average in April and has been selling off on approaches to this line for the past four months. On Sunday, this downtrend touched again at around $67. An intensification of the negative trends could send the price to $56 (the area of the previous uptrend reversal) or even trigger a major liquidation with a slip below $50.

Crypto Market Attracts Money, But Prices Don’t Rise_3

News background

According to SoSoValue, the spot bitcoin-ETFs saw modest total inflows of $32.6 million last week after two weeks of outflows. In contrast, the Ethereum-ETF saw net outflows of $14.2 million last week, with net outflows of $0.42 billion since the products were approved, compared to $17.37 billion for Bitcoin ETFs.

According to Bitcoin Magazine, nearly 75% of all Bitcoins in circulation have been inactive for more than six months, reflecting a hoarding trend. Factor LLC CEO Peter Brandt said Ethereum on the four-hour chart is ‘signalling’ a possible drop to $2,000 or even lower.

Bernstein gave shares of mining companies Riot Platforms, CleanSpark, IREN and Core Scientific an Outperform rating on the market. The IMF proposed an 85% increase in energy tariffs for bitcoin miners globally, which could significantly reduce carbon emissions.

Artificial intelligence-related crypto projects could fail due to the potential ‘collapse of the bubble’ in the sector, according to Blockcircle. AI in cryptocurrency is ‘largely fashionable,’ although there has been little real-world application of neural networks in the crypto sphere.

The absence of US Democratic presidential candidate Kamala Harris from the Crypto for Harris event has led the community to question her support for the crypto industry.

Chainalysis noted that attackers stole cryptos worth nearly $1.6 billion in the first half of the year, increasingly targeting centralised exchanges (CEX). The figure nearly doubled compared to the same period in 2023.

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Warren Takunda

Economic

Sterling recovered further from the depths of its early August lows around 1.16 against the Euro last week, regaining its 200-day moving average at 1.1692 before moving on to test the 100-day average at 1.1747.

Its recovery has been helped by economic data highlighting a resilient labour market, more moderate than expected inflation pressures for July and a continued robust expansion of the economy for last quarter.

Financial market pricing has continued to imply as a result that the Bank of England is likely to be cautious and slow-moving in relation to interest rate cuts in the months ahead, with current pricing implying that the UK is likely to have the second highest interest rate in the G10 group of economies come year-end.

“The still higher yields on offer in the UK and stronger cyclical momentum for the UK economy remain supportive for the GBP,” MUFG analysts said in a Friday note.

Pound to Euro Week Ahead Forecast: Eroding Resistance on Charts_1

Above: Pound to Euro rate shown at daily intervals with 100-day moving average (orange) indicating possible areas of technical resistance, while Fibonacci retracements of November recovery and 200-day average (blue) denote prospective areas of support.

There is little meaningful data in the economic calendar to guide Sterling or the Euro one way or the other ahead of Thursday’s S&P Global PMI surveys of the manufacturing and services sectors in the UK and Europe.

The author’s model suggests a narrow trading range spanning the gap between 1.1702 and 1.1754 is likely in the days ahead, which implies that the nearby 100-day moving average at 1.1747 may be likely to offer some resistance to the recovery in GBP/EUR in the absence of a catalyst for a break higher.

This catalyst may or may not come with the S&P PMI surveys out on Thursday, or the speech from Bank of England Governor Andrew Bailey at the Federal Reserve’s Jackson Hole Symposium at 20:00 on Friday. The consensus currently looks for both UK and European PMI indices to ebb modestly for August.

“Despite the recent sell-off, GBP remains the best performing currency in G10 year-to-date,” BofA Global Research strategists said in a note to clients last Thursday.

“The fundamental/secular positives remain the same and we are reassured that recent weakness has not been a reflection on the UK macro-outlook,” they added.

Pound to Euro Week Ahead Forecast: Eroding Resistance on Charts_2

Above: Quantitative model estimates of possible ranges for the week. Source: Pound Sterling Live.

Source: Poundsterlinglive

To stay updated on all economic events of today, please check out our Economic calendar

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FXCM

Commodity

Gold prices have surged to new highs, surpassing $2,500 per ounce, driven by a weakening dollar and growing speculation about potential Federal Reserve rate cuts. Spot gold is currently trading around $2,500 per ounce, with a recent peak at $2,510. This significant increase, over 20% so far this year, is fueled by a mix of economic factors, geopolitical tensions, and substantial central-bank buying.

Recent U.S. economic data, including weak housing numbers and lower-than-expected inflation, has raised expectations for a Fed rate cut as early as September. Since gold typically benefits from lower interest rates, its attractiveness has risen. Additionally, escalating geopolitical risks, such as the ongoing Ukraine conflict and Middle Eastern tensions, have further increased gold's appeal as a safe-haven investment.

Central banks have been a major driver behind the gold rally. Over the past five years, they have substantially increased their gold reserves, now accounting for nearly 10% of global production. Countries like Russia, China, India, and Turkey have been leading this accumulation.

Western investors are also showing growing interest in gold as the Fed nears a possible rate-cutting phase. This combined demand from both Eastern and Western buyers is unprecedented and could push gold prices even higher.

As the Jackson Hole symposium approaches, where Fed Chair Jerome Powell may provide more insight into monetary policy, gold prices are likely to remain sensitive to Fed announcements. Nevertheless, ongoing central-bank demand and geopolitical uncertainty are expected to keep gold prices supported in the near term. Current market expectations suggest a 70% chance of a 25-bps rate cut in September and a 30% chance of a 50-bps cut.

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ING

Forex

USD: Price action is dollar negative

DXY is this morning breaking under 102.16 - the low seen during the flash crash of Monday 5 August. There is no flash crash underway today and instead, the dollar's decline looks to be part of an orderly adjustment cycle as the Fed prepares to cut rates.

Fed communication will be the headline story for this week. It starts today with some introductory remarks from our favourite Fed speaker, Christopher Waller, at 16:15 CET today. Wednesday then sees the release of the FOMC minutes from July - when the Fed switched to re-emphasising its dual mandate of both maximum employment and price stability. Friday then sees the main event of the week, where Chair Jerome Powell speaks on the economic outlook at the Fed's Jackson Hole symposium. In addition, Wednesday sees some provisional annual benchmark revisions to the payrolls report, which could see some downward revisions to job gains made in the year to March 2024.

While some may be arguing that the dollar does not need to sell off much further, since a Fed easing cycle to 3.00/3.25% is already priced, we would suggest caution in that the Fed cycle has not even started yet and any softer US data could mean Fed rates start to get priced at accommodative and not just neutral.

At the same time, dollar price action has been soft. Gains made on the back of last week's robust July retail sales have proved fleeting and today's dollar weakness is not being led by softer US rates. It therefore seems like speculators are looking to explore some broad dollar weakness ahead of what should be the first Fed cut on 18 September.

As mentioned above, the only event on the US calendar today are those remarks from Christopher Waller. Let's see if DXY can press 101.75 today, below which a move to 101.00 beckons.

EUR: Rising tide of dollar bearishness lifts EUR/USD

EUR/USD is now approaching its highest level of the year (1.1054, 3 January). Understandably there has been no major re-assessment of the euro's prospects and this is an entirely dollar-led move. In fact, this week's eurozone PMI releases should still show an economic bloc struggling to grow, with a composite PMI index stuck near 50. However, Tuesday sees the release of eurozone negotiated wages for the second quarter. Should these prove sticky, investors could start to rein in expectations of European Central Bank easing this year. Currently, another 68bp of rate cuts are priced this year - which we think is 18bp too much.

Back to the main story of dollar weakness. The default story here could be that EUR/USD will remain in its 1.05-1.11 range - a range that has dominated for the last 18 months. However, the Fed is just about to start easing and our economists look for weaker US activity data as ever-tighter US real interest rates bite harder. Should EUR/USD start to trade through 1.11, we would not underestimate its ability to follow through given that realised volatility has been so low, for so long.

Elsewhere, we've published our latest thoughts on EUR/CHF. Swiss exporters think a fair level is 0.98. We think it will trade more in the 0.92/095 area as global interest rates converge on low rates in Switzerland - and whilst the market struggles to price the Swiss policy rate below the 0.50% area.

GBP: Dollar weakness, plus M&A activity may be helping

GBP/USD looks set for a retest of the year's high at 1.3045 as broad dollar weakness dominates global FX markets. We had thought that the Bank of England's dovishness could keep sterling gains in check. On that, BoE Governor Andrew Bailey speaks at the Fed's Jackson Hole symposium this Friday.

What we may be underestimating, however, is the demand for sterling coming through merger and acquisition activity. The UK this year is the target region for over $200bn worth of deals. The impact of M&A on FX is a very cloudy one - e.g. to what extent a cross-border deal is funded locally. But we suspect M&A may be one of the reasons why sterling is staying a little stronger than our baseline forecasts.

CEE: The rally is done unless the payers return to rates markets

The second half of the month is usually quieter in the CEE region. This week, Poland and Turkey will take the spotlight. The calendar is empty for today and the first event this week will be the Central Bank of Turkey meeting tomorrow. We expect rates to be unchanged at 50% in line with expectations. There are continued challenges with the disinflation process, given administered prices, tax hikes and sticky services inflation. We think an improvement in monthly inflation trends, inflation expectations, and a more visible slowdown in economic activity may lead to the start of rate cuts from November. On Wednesday and Thursday, we will see monthly data in Poland including industry, wages, retail sales, and PPI. While the labour market is showing signs of easing with wage growth slowly falling, the economy is gradually recovering but there are still headwinds coming from abroad and from consumers.

CEE currencies saw strong gains last week, but we feel our bullish stance is running out of steam and we will need to see more momentum from the rates market for CEE FX to have room to rally further. Even though rates bounced a little off the lows last week, market expectations are still on the strong dovish side compared to our economists' forecasts. We think this is mainly the case in Poland, where we see the most room for interest rate payers in the CEE region. Although we would now prefer to be neutral on the Polish zloty and Czech koruna at current levels for the next few days after a strong rally, the return of rate payers could bring a further boost to these currencies. HUF rates witnessed this on Friday and the rate differential has once again returned to the highest levels since mid-July. This brings us back to the view that EUR/HUF could return to 390 ahead of next week's National Bank of Hungary meeting. However, the Hungarian market is closed today and tomorrow.

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