EU Trade In Goods: Four Consecutive Quarters With Surplus

Economic

Commodity

Summary:

The EU balance for trade in goods was €40.4 billion in the second quarter of 2024, down from €55.3 billion in the previous quarter.

The EU balance for trade in goods was €40.4 billion in the second quarter of 2024, down from €55.3 billion in the previous quarter. As such, the trade balance has now shown a surplus for 4 quarters in a row, following a period of deficits from the fourth quarter of 2021 to the second quarter of 2023, primarily due to a high deficit for energy offsetting surpluses in other product categories.

In the second quarter of 2024, the surpluses recorded in machinery and vehicles (€56.9 billion), chemicals and related materials (€59.3 billion), food and drink (€13.9 billion), other manufactured goods (€1.8 billion) and other goods (€3.2 billion) outweighed the deficits in energy (-€88.4 billion) and raw materials (-€6.3 billion).

In the second quarter of 2024, imports of goods from non-EU countries to the EU increased by 3.4% compared with the previous quarter, while exports were almost steady, rising 0.7%. Imports grew after having declined for 6 consecutive quarters, while export levels continued to go up for the third quarter in a row.

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Warren Takunda

Economic

The Pound was helped by Bank of England Governor Andrew Bailey, who said it is "too early to declare victory" over inflation, verifying market bets the Bank would skip another rate cut in September.

Both the European Central Bank and Federal Reserve are expected to cut rates in September, with a potential further cut coming from both before year-end. By contrast, the Bank of England looks set to deliver just one more cut before year-end.

This suggests a slower path of cuts from the Bank of England, which provides a fundamental source of support for the Pound against both the Euro and Dollar.

Constructive global market sentiment remains the other key driver behind the Pound's recent outperformance, and Friday's jump in stocks propelled the UK currency to new highs against the Dollar while also bolstering the recovery against the Euro.

The Pound to Euro exchange rate rose above 1.18, while the Pound to Dollar pairing reached 1.32. When screened over a one-week period, the Pound is the best-performing G10 currency and remains 2024's best performer.

Pound Sterling Holds Positive Momentum But Shallow Pullbacks Expected_1

Above: GBP/EUR (top) and GBP/USD at daily intervals.

To be sure, Monday saw markets give back some recent gains, which blunted the Pound's advance, particularly against the U.S. Dollar. Losses were centred on the U.S. technology sector, which showed nerves ahead of Nvidia's midweek results announcement. A lot hinges on how the AI leader performs, and any disappointments could prompt a wider pullback in the tech sector.

Disappointment here can bolster the Dollar from recent levels, but we don't see this impacting Pound exchange rates in a major way. Pullbacks in GBP/USD are likely to be shallow as long as the market thinks the Federal Reserve is set to deliver several interest rate cuts in the coming months.

Fed Chair Jerome Powell said at a speech in Jackson Hole, "the time has come for policy to adjust... the downside risks to employment have increased... We do not seek or welcome further cooling in labour market conditions."

This showed that the Chair is now less concerned about inflation and that his focus is shifting to the job market, where he fears an economic slowdown will boost unemployment. This necessitates rate cuts and raised market expectations for a 50 basis point Fed rate hike in September, although the odds of this retreated somewhat on Monday, helping the Dollar recover somewhat.

"Powell kept the door open to larger 50bp cuts. For instance, he didn’t make any comments about the moves being gradual, which could have implied the Fed would stick to 50bp moves," says Jim Reid, a strategist at Deutsche Bank.

San Francisco Federal Reserve President Mary Daly reiterated the message on Monday, saying, "the time to adjust policy is upon us".

Looking ahead, we look for the Pound's outperformance to be more muted, with the GBP/USD potentially capped at 1.32 in the near-term. We note that the exchange rate has become overbought in the short-term and some unwind is necessary.

Monday's losses in GBP/USD linked to the U.S. tech sector selloff suggest a broader market pullback will temporarily weigh on the UK currency.

GBP/EUR is meanwhile now in a fifth daily advance, which is unusual for this exchange rate. GBP/EUR is a slow mover with a mean reverting tendency, and some softening is also possible here if global markets face a setback.

We will be watching inflation data from the Eurozone this week (Germany on Thursday and all-Eurozone on Friday). Any undershoot in these data could potentially boost expectations for ECB rate cuts, which would, in turn, weigh on the Euro.

Source: Poundsterlinglive

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RBNZ

Economic

The New Zealand commercial property market remains soft due to high interest rates, increased remote working and a continued rise in online shopping, reports the Reserve Bank of New Zealand – Te Pūtea Matua in a Financial Stability Report special topic released today.

Commercial properties – encompassing office, retail, and industrial spaces – are vital for economic activity. Historically, the performance of the commercial property sector has been sensitive to the economic cycle. The sector can amplify financial sector impacts in economic downturns.

“Weak tenant demand in parts of the commercial property market has led to higher vacancy rates and soft rental growth over the past couple of years. At the same time, high interest rates have strained owners’ cashflows and reduced property values,” Director of Financial Stability Assessment & Strategy Kerry Watt says.

“However, the financial system is well placed to manage the risks. Enhanced regulatory requirements and improvements in lending standards mean we have a system that is more resilient than in the past,” Mr Watt says.

While challenges in the commercial property sector are being managed, concerns could increase if economic conditions worsen. A downturn in the sector could impact construction and employment and increase loan defaults, putting additional pressure on banks.

“It is crucial for banks to stay vigilant and continue monitoring developments in the commercial property market,” Mr Watt says.

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FxPro

Cryptocurrency

Market picture

The crypto market failed to grow steadily, with total capitalisation falling 1.6% to $2.21 trillion. This is a slight correction following the unimpressive performance of the equity market. The Sentiment Index fell back into neutral territory, losing 7 points on the day to 48.

Bitcoin fell below $63K, losing 1.4% in 24 hours and dropping below its 200-day moving average. It’s too early to tell if this line has become resistance.

Ethereum fell 1.7% to $2690, remaining in the lower half of the range from the July highs to the August lows. The $2800 area served as strong support on the dips from April to July this year and now provides important resistance.

Toncoin overnight approached the $5 level, which was the turning point for the early August and May sell-offs. Although impressive bounces have accompanied the decline, the high volume means that we must remain negative on the coin’s near-term prospects.

News background

According to CoinShares, investment in crypto funds rose by $533 million last week, the largest inflow in five weeks and the third consecutive week of growth. Meanwhile, new Ethereum ETF issuers continue to see inflows, with $3.1 billion in new money for the month, partially offset by a $2.5 billion outflow from Grayscale Trust.

A federal court in the Northern District of California rejected the SEC’s request to recognise digital assets traded on the US crypto exchange Kraken as investment contracts. This is a significant victory for Kraken and cryptocurrency users. The exchange’s general counsel said the SEC will no longer be able to rely on its theory that cryptocurrencies are securities.

The combined market value of stablecoins has reached a new all-time high of $168 billion, a figure that has risen for 11 consecutive months. Dynamo DeFi interprets the trend as a sign of an influx of ‘new money into cryptocurrency’.

Tether has helped 145 law enforcement agencies in 40 jurisdictions recover more than $108.8m in USDT since its launch in 2014, the company said. The USDT issuer has also ‘voluntarily’ blocked more than 1,900 wallets linked to illegal activity.

Luke Dashjr said the decentralised nature of the first cryptocurrency has come under threat. Just two companies now control more than 55% of the BTC network’s global hash rate.

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Thomas

Economic

(Aug 27): “The current monetary policy stance seems adequate and provides room to accommodate a temporary increase in inflation,” the OECD said in its Economic Survey on Malaysia published Tuesday. “At the same time, monetary authorities should stand ready to raise rates to counter possible second-round effects from higher energy prices,” it said.

While Malaysia’s inflation has stabilised around 2%, there are “significant risks” around the price growth trajectory that warrants caution, according to the OECD. The report comes as easing price pressures in countries including the US have given central banks the scope to start pivoting to rate cuts. The Philippines reduced borrowing costs from a 17-year high earlier this month while Indonesia and Thailand have signalled openness to loosen monetary settings.

The inflation trend in Malaysia depends a lot on the pace of subsidy removal, which explains why it faces the risk of further monetary tightening unlike its peers. This too, as the inflation effects of the subsidy withdrawal are highly uncertain, according to the OECD.

Prime Minister Datuk Seri Anwar Ibrahim allowed diesel prices to float in June in order to strengthen government finances. He intends to do the same with the more heavily subsidised and most widely used fuel RON95. The move could potentially increase inflation by 3.05 percentage points, according to calculations by RHB Bank Bhd analyst Chin Yee Sian, who expects the government to push the RON95 subsidy removal to end-2024 at the earliest.

Malaysia increased its key rate by 125 basis points over a one-year tightening cycle that started in May 2022, taking the overnight policy rate to 3% from a record low 1.75% during the pandemic. The statutory reserve requirement that was also cut during the height of Covid-19 has remained well below pre-pandemic levels.

In the best case scenario, removing energy subsidies could increase inflation temporarily, said the OECD. But there could also be more enduring second-round effects and more widespread upward pressures, it said.

“Against this background, it is important to avoid a premature easing of the monetary stance and to respond quickly to any inflationary pressures that could result from the planned reform of subsidies,” the OECD report said.

Source: The edge markets

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Kevin Du

Economic

Korea's central bank chief on Tuesday defended the bank's latest rate freeze decision, saying that the level of household debt is inching toward a point that can cause an economic slowdown and a potential financial crisis.

Last week, the Bank of Korea (BOK) held its key rate steady at 3.5 percent for the 13th straight session due to soaring home prices but opened the door for a policy pivot this year.

"We judged that a rate cut can further stoke home prices and increase the volatility in the currency market," BOK Gov. Rhee Chang-yong said at a forum.

There have been various opinions over the central bank's rate freeze decision, but at the moment, policymakers should review why the central bank should hesitate in slashing the key rate in the face of high household debt and soaring home prices, Rhee said.

The central bank's rate freeze decision is intended to highlight the dangers of such a vicious cycle of excessive demand in some areas, namely the posh Gangnam district, according to the central bank chief.

"We are at a point where we could face an economic slowdown if household debt further increases and must brace for a potential financial crisis," he said.

Last week, the central bank said inflation has continued its downward trend and the recovery in domestic demand has been modest.

But it still needs to further monitor how recent measures over the housing market are affecting home prices in Seoul and its surrounding areas and household debt.

The rate freeze came as household debt runs high in the face of a series of lending rate hikes and with tighter lending rules and inflationary pressure in Asia's fourth-largest economy showing signs of easing.

Rhee stressed that rising household debts and home prices should be dealt with immediately to ensure financial stability.

"Household debt should be considered for financial stability, and most board members see the need to curb rising real estate prices," Rhee said in a press conference last week.

Source: Korea times

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Cohen

Stocks

KUALA LUMPUR (Aug 27): FGV Holdings Bhd (KL:FGV) has returned to the black with a net profit of RM86.38 million in the second quarter ended June 30, 2024 (2QFY2024) compared with a net loss of RM12.9 million a year earlier, on higher profits in the plantation, and logistics and support divisions. This was partially offset by weaker performance in the sugar, and oils and fats divisions in the current quarter.

It also managed to turn around a net loss of RM13.49 million in 1QFY2024.

The better performance saw it posting an earnings per share of 2.37 sen for 2QFY2024 compared with a loss per share of 0.35 sen for 2QFY2023.

FGV also saw revenue for the quarter rise by 22.7% to RM5.52 billion from RM4.49 billion in 2QFY2023, driven by a higher average crude palm oil (CPO) price and sales volume. The CPO price rose to RM4,103 per tonne in 2QFY2024 compared with RM4,000 per tonne in 2QFY2023.

In a filing with Bursa Malaysia on Tuesday, FGV said its plantation division registered a profit of RM100.55 million in 2QFY2024 compared with a loss of RM61.64 million a year earlier. This was primarily driven by a 23% rise in fresh fruit bunch (FFB) production to 960,000 tonnes from 780,000 tonnes in 2QFY2023, resulting in a higher yield of 3.76 tonnes per hectare from 2.91 tonnes per hectare respectively.

Additionally, the FFB price increased by 6.5% to RM819 per tonne, while estate operational costs decreased by 6%, it added.

No dividend was declared for 2QFY2024.

For the cumulative six months ended June 30, 2024 (1HFY2024), the group also managed to post a net profit of RM72.89 million compared with a net loss of RM805,000 in 1HFY2023, while revenue rose 10.7% to RM10.06 billion from RM9.09 billion a year earlier.

On prospects, FGV said demand and supply for palm oil are expected to stay steady in the second half of 2024. It is projecting the CPO price to be between RM3,800 per tonne and RM4,000 per tonne in 2024.

"Operationally, FGV will continue prioritising yield enhancement initiatives within its plantation operations by closely monitoring crop harvesting processes and expanding mechanisation for efficient FFB evacuation. The group is actively diversifying its FFB supplier base to enhance supply chain stability.

"On the cost side, the drop in fertiliser prices has helped reduce production cost pressures and is anticipated to continue softening throughout 2024," it added.

As for the sugar division, it remains cautious about the rising geopolitical tensions, which may increase input costs and impact financial performance. Simultaneously, the division is strengthening its presence in domestic and export markets while exploring new regional opportunities.

Barring any unforeseen circumstances, FGV expects a satisfactory performance for the financial year ending Dec 31, 2024 (FY2024), aligned with industry expectations.