Monthly Business Survey – Start of August 2024

Economic

Summary:

The Banque de France publishes a range of monthly and quarterly economic surveys that provide a snapshot of the French economy in the form of business climate indicators and short-term forecasts.

Our survey of approximately 8,500 companies and establishments was conducted between 22 July and 5 August. As the period covered coincides with the summer holidays and the Paris Olympic and Paralympic Games (the economic effects of which are only partially captured by the survey), the results and expectations need to be interpreted with caution. According to surveyed business leaders, activity rose in July in market services and construction, and remained little-changed in industry. For August, businesses expect activity to increase in services and industry but to decline in construction. Order books are still deemed weak in almost all industrial sectors, with the notable exception of aeronautics. In the structural works segment of construction, they remain well below pre-Covid levels, due to stagnation in the construction of new builds. Our uncertainty indicator, based on comments from surveyed businesses, has eased slightly, but nonetheless remains high after the strong jumpin our previous survey (conducted between the end of June and start of July), which was linked to the electoral context.

According to industrial firms, selling prices continued to moderate in July against a backdrop of slight growth in raw materials prices. In industry and construction, the proportions of businesses that raised their prices (6% and 3% respectively) were close to pre-Covid July levels.

At the same time, the proportions reporting a drop in their prices (4% and 9% respectively) exceeded pre-Covid levels. In market services, the share of businesses reporting a rise in their prices (8%) is still in the process of normalising.

Recruitment difficulties continued their slow decline, with 33% of businesses mentioning them in July, down from 35% in June.

Based on the survey results, as well as other indicators, we expect GDP to rise significantly in the third quarter of 2024: underlying growth should be around 0.1-0.2%, and the temporary impact of the Paris Olympic and Paralympic Games should add another quarter point. This forecast is subject to both upside risks, linked to possible spillover effects from the Olympic Games, and downside risks stemming from the political uncertainty.

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

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Thomas

Commodity

MUMBAI (Sept 3): India's palm oil imports in August fell more than a quarter from a month ago on ample stocks and as negative margins prompted refiners to curtail purchases of the tropical oil, five dealers said on Tuesday.

Lower purchases by the world's biggest importer of vegetable oils could lead to higher stocks of palm oil in key producers Indonesia and Malaysia, weighing on benchmark futures.

Palm oil imports fell 27% in August from the previous month to 791,000 metric tonnes, according to estimates from dealers.

"In July, imports were substantially higher than local requirements, so refiners curtailed imports this month," said Sandeep Bajoria, CEO of Sunvin Group, a vegetable oil brokerage.

"Furthermore, after the recent price rise in palm oil, it became as expensive as soyoil, providing no incentive to purchase palm oil."

Palm oil typically trades at a discount to soft oils, but it is currently being offered at the same price as competing soft oils for September shipments.

The refining margin flipped to negative territory for palm oil in August, which prompted buyers to curtail purchases, said Rajesh Patel, managing partner at edible oil trader and broker GGN Research.

Soyoil imports in the month jumped 16% to 456,000 metric tonnes, the highest in more than two years, dealers said.

Over the past month, local rapeseed oil prices have increased by more than 8%, which is prompting some refiners to blend rapeseed oil with comparatively cheaper soyoil, said a Jaipur-based edible oil trader.

Sunflower oil imports fell 21% in August to 288,000 metric tonnes, dealers said.

The drop in imports of palm oil and sunflower oil brought down the country's total edible oil imports by 17% to 1.53 million tonnes, as per dealers' estimates.

India is considering an increase in import taxes on vegetable oils to help protect farmers reeling from lower oilseed prices, two government sources said on Wednesday.

India buys palm oil mainly from Indonesia, Malaysia and Thailand, while it imports soyoil and sunflower oil from Argentina, Brazil, Russia and Ukraine.

Industry body the Solvent Extractors' Association of India (SEA) is likely to publish its data on August imports by mid-September.

Source: The edge markets

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FOREX.com

Forex

EURUSD Outlook

As we enter September, both the Fed rate cut, and ECB rate cut are looming on the horizon. The EURUSD is entering the month in a corrective mode as the US Dollar index respects the December 2023 support. The upcoming US employment indicators are set to fuel or reverse the current trends, providing further clarity on the upcoming direction of the Fed decision, and making room for an ECB rate cut effect on the chart respectively.

Gold Outlook:

Amid rising ceasefire pressures in the prolonged conflict between Israel and Hamas, gold remains sensitive to these developments as it trades near the 2500 mark. Despite monetary policy expectations and ongoing ceasefire discussions, gold has been unable to break above the 2530 level since August 20, forming a strong resistance barrier.

Technical Outlook

EURUSD, Gold Outlook: EURUSD – Daily Time Frame – Log Scale EURUSD, Gold Outlook: Rate Cuts vs Geo Tensions_1

The EURUSD is nearing a support zone from both a price and Relative Strength Index (RSI) perspective. The daily RSI is approaching its neutral zone, while the chart approaches the lower end of the 1.10 range, with potential support at the 1.1040 level.

Key levels to watch on the upside include the 1.120 and 1.13 zones. On the downside, a break below the 1.10 barrier could pave the way for key support levels at 1.09 and 1.08. A definitive breakout for EURUSD would occur above the 1.13 mark, while a drop back into consolidation would signal further indecision before a clear trend emerges.

From the perspective of Gold

EURUSD, Gold Outlook: XAUUSD – Daily Time Frame – Log Scale EURUSD, Gold Outlook: Rate Cuts vs Geo Tensions_2

Gold continues to trade above the 2500 mark, maintaining a bullish bias. Drops are viewed as buying opportunities, aligning with the lower boundary of its primary channel near the 2465 and 2440 levels. A further decline below 2440 could increase bearish pressures towards 2414 and 2380.

On the upside, a clear range is defined below the 2530 mark. A close above this level is needed to forecast a move toward the upper end of the 2500 range, with 2580 as the next resistance level.

The outlook for both Gold and EURUSD remains cautiously bullish, driven by sensitivity to inflation factors, haven demand between precious metals and the US Dollar, and ongoing monetary policies. Shifts in these factors are likely to have a significant impact on the charts' trajectories.

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Owen Li

Economic

Home prices in India are set to rise steadily over the next few years, driven by demand for luxury properties from cash-rich individuals, according to a Reuters poll of housing experts who forecast rent increases will outpace consumer inflation.

While economic growth in Asia's third-largest economy is likely to outpace its major peers, policy experts warn the benefits are increasingly being funnelled to a select few, leaving millions of job-seekers, especially young people, out of the growth story.

With a supply of affordable homes dwindling and those with cash cornering the property market, many aspiring first-time buyers are being forced to keep renting.

After growing 4.3% last year, national home prices in India were expected to rise 7.75% this year, an upgrade from the 6.0% predicted in May, according to the median forecast from the Aug. 20-Sept. 2 survey of 16 property market experts.

Home prices are then expected to increase 6.0%-6.25% in the next two years. Average home prices in India broadly refer to housing in major cities.

"Housing demand is heavily tilted towards the luxury housing segment. This maintains a seemingly unstoppable growth curve while affordable housing continues to bleed," said Anuj Puri, chairman at ANAROCK Property Consultants.

"Tellingly, there was no new affordable supply. It is little wonder that developers are aligning supply with the prevailing demand and are launching more luxury housing projects now."

In a country of over 1.4 billion people, demand for housing is driven by a few, yet the sheer scale of the market is staggering, offering developers incentives to focus on the ultra-rich as profit margins tighten in the affordable segment.

Ultra-high-net-worth individuals in India typically own more than two properties, with nearly 12% of them planning to buy another home this year, according to Knight Frank's wealth data.

Even after the Reserve Bank of India (RBI) raised interest rates by 250 basis points from May 2022 to Feb. 2023, India's housing market trends barely moved. A post-pandemic frenzy among high-income earners fueled rising prices, further stretching affordability.

When asked what will happen to affordability for first time home buyers over the coming year, property market experts were nearly split, with 10 saying it would improve and eight saying worsen.

"First we have to agree this market is not for everyone. There's a bare minimum income for entry, and with income expected to grow faster than house prices in tier-one cities, affordability will improve only for those who are wealthy and generate enough income," said Pankaj Kapoor, managing director at Liases Foras.

"If your income is 5-10 lakh rupees ($5,961-$11,922), which is average, and the house price is over 50 lakh, you cannot afford in the cities where the jobs are. Even if you find something within your budget, it will be in a far-off location, making it impractical to live there and commute to work."

Ajay Sharma of Colliers International said housing affordability will worsen as housing value increases outstrip salary growth and added "key residential hubs in Bengaluru, Mumbai, Pune and Gurgaon will continue to see rental increases due to focused demand."

A lack of well-paying jobs in smaller towns is driving people to flock to larger cities in search of better opportunities, which has pushed rents much higher in the last few years.

When asked how much will average urban home rents change in India over the coming year, 16 housing experts gave a median forecast of 6.5%-10%, outpacing a consumer price inflation forecast of around 4.5% for the next two fiscal years.

Source: The edge markets

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

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SAXO

Economic

The US dollar has recently faced mounting pressures, raising concerns about whether this signals the beginning of a more sustained period of weakness. August was the dollar's worst month of the year as the July US jobs report and Fed Chair Powell’s comments at Jackson Hole signaled there could be a larger rate cut of 50 basis points coming at the Fed’s September meeting.

The US Dollar spot index (DXY) was down 2.3% in August, registering its second-worst month since the start of 2023 and slipping to over one-year lows.

USD at Crossroads: End of Strength or Start of a Crisis?_1

This came along with US economic data remaining mostly resilient, and soft landing hopes continuing to gain traction. This lands the US dollar in the middle of the ‘dollar smile’ theory, which makes the USD prone to drawdowns as investors go on a hunt for higher yields elsewhere.

The speculator positioning in the US dollar, as a result, has shifted to a net short in the week of August 27 for the first time since January. These developments have led to increased scrutiny of the factors driving the dollar's current trajectory and the risks that could further undermine its position.

USD at Crossroads: End of Strength or Start of a Crisis?_2

Some are looking at the start of Fed rate cuts to put further pressure on the USD, but there could be reasons to expect the trend to reverse, as noted below.

Why the USD Weakness May Have Limited Legs

Market Expectations for the Fed are Tilting Dovish

The market has already priced in 100 basis points of rate cuts by the Federal Reserve for this year, reflecting expectations of a slowing US economy. However, this assumption could be overly pessimistic. If economic data remains even modestly resilient, the market may need to reassess its expectations and shift towards a more hawkish outlook for the Fed. Such a shift would be USD-positive, as higher interest rates would make US assets more attractive to investors, bolstering demand for the dollar.

Recession Risks and Safe Haven Demand

If growth concerns materialize and recession risks escalate to justify market’s expectations for aggressive easing from the Fed, then focus will likely shift back to the dollar's role as a safe haven. In times of economic uncertainty, global investors typically flock to the US dollar, driving up its value. This potential flight to safety could counterbalance any initial pressure from rate cuts, limiting the downside for the dollar.

US Exceptionalism is Intact Even if Growth Slows

Despite a slowing US economy, its resilience relative to other major economies remains intact. US exceptionalism, characterized by strong corporate earnings, a robust labor market, and the dominance of the US dollar in global trade, continues to make the dollar an attractive asset. This could counterbalance recent weakness.

Political and economic risks in the Eurozone are becoming more prominent, compounded by a significant economic slowdown in China. The Eurozone's struggles with stagnant growth, inflationary pressures, and high energy costs, along with China's reduced demand for European exports, could add to the euro's weakness. Political instability in key EU nations and potential fragmentation risks further weaken the euro, making the USD more attractive to global investors.

Geopolitical Risks Remain Elevated

Geopolitical uncertainties continue to create a risk-off environment that traditionally supports the USD as a safe haven. Ongoing conflicts, trade tensions, and potential economic slowdowns in key regions could lead to increased demand for the dollar amidst global risk aversion.

US Election Risks

The US election cycle is heating up, and the race still looks tight between Vice President Harris and former President Trump. This introduces a layer of uncertainty that could lead to increased market volatility. Historically, the USD has seen renewed demand during such periods of political turmoil as investors seek safety.

Risks to the USD Outlook

While there are support factors for the US dollar, several risks could exacerbate its current weakness, potentially leading to a more sustained downturn. We highlight key short-term and long-term catalysts that could signal a looming USD crisis.

Short-Term Catalysts

Pronounced Disinflation in the US: If the disinflation trend in the US outpaces that of the Eurozone and other major economies, it could prompt a more aggressive easing by the Federal Reserve, further pressuring the dollar.

Yield Compression and Carry Trade Unwind: A significant compression in US yields could trigger a rapid unwinding of carry trades, where investors had borrowed in low-yielding currencies to invest in US assets. This unwinding could lead to a sharp selloff in the US dollar.

Speculative Positioning Turning Net Short: The shift in speculator positioning to a net short on the US dollar is a concerning sign. If speculative bets against the dollar continue to grow, it may indicate a broader market belief that the dollar's weakness is not just temporary but part of a more sustained trend. This could increase the risk of a USD crisis, as a self-fulfilling prophecy might unfold, where the dollar declines rapidly as traders pile on short positions.

Long-Term Catalysts

Surge in US Debt Levels and Fiscal Deficit: Unsustainable debt levels and growing fiscal deficits could erode confidence in the dollar's value over time, particularly if investors begin to question the US government's ability to manage its finances.

Loss of Confidence in the Federal Reserve: If the Federal Reserve is perceived as mismanaging inflation or failing to maintain economic stability, it could trigger a loss of confidence among investors, leading to a significant weakening of the dollar. Any risks to the Fed’s independence could also trigger outflows from the USD.

Decline in Global Demand for US Treasuries: A reduction in global demand for US Treasuries as Japanese interest rates rise could lead to higher borrowing costs for the US government and put downward pressure on the dollar. This could also reflect broader concerns about the US economy's health and its ability to service its debt.

Shift Away from the USD as the Global Reserve Currency: A move by global central banks and major economies to reduce their reliance on the US dollar as the global reserve currency could weaken its global standing. This shift could be driven by geopolitical tensions, economic diversification efforts, or the emergence of viable alternatives.

Emergence of a Viable Alternative to the USD: The rise of a credible alternative to the USD in global trade and finance could reduce the dollar's dominance. Whether through digital currencies, regional trade blocs adopting other currencies, or increased use of the euro or yuan, this shift would diminish the USD's global influence.

Conclusion: A More Nuanced Approach to the USD Outlook

While the US dollar is currently facing challenges, a full-blown crisis remains a low-probability event unless these warning signs start to materialize. Investors should stay vigilant and be prepared to adjust their strategies if the landscape begins to shift dramatically.

Considering the current environment, it’s important to take a nuanced perspective on the USD’s path. Potential Fed rate cuts or recession risks may strengthen the Japanese yen (JPY) and Swiss franc (CHF), but the Canadian dollar (CAD) and euro (EUR) face higher risks, potentially offering underlying support for the USD. This is especially relevant given the euro's significant weight of over 50% in the DXY index. Investors should carefully monitor these dynamics as they navigate the complexities of the currency market. USD at Crossroads: End of Strength or Start of a Crisis?_3

USD at Crossroads: End of Strength or Start of a Crisis?_3

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

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Warren Takunda

Economic

The pound sterling could potentially become one of the strongest currencies globally this year, following Britain seeing robust economic growth. A new Labour government elected in early July this year has also gone a long way in reassuring foreign investors, according to several major US investment banks.

Bank of America currency strategists estimate that the pound sterling is likely to touch $1.41 against the dollar, by the end of 2025. If so, this would be a four-year high. By the end of this year, the pound is also expected to rise to $1.35 against the dollar, which would be a two-year high.

The GBP/USD currency pair has already increased 3.19% so far this year, advancing 2.56% in the last three months. The pair also hit a two and a half year high of $1.32 on 27 August this year.

Kyle Chapman, FX markets analyst at Ballinger Group, told Euronews: “The pound’s runaway performance is in large part a rebound from a long stretch of underperformance in the years after the Brexit referendum in 2016.

“A confluence of factors has precipitated sterling’s rise this year: a Bank of England that has consistently skewed hawkish, a more stable politics, an emerging growth advantage versus the eurozone, and a wider improvement in UK sentiment.

“There are reasons to believe that sterling can hold on to the top spot in the G10 this year. The yen and the high betas (e.g. NOK, SEK, AUD) likely stand to have some better momentum into the final few months of the year, particularly if a normalisation of rates continues to drive a structural dollar decline, but the pound has already opened up a strong enough gap to keep it ahead.

“I think GBP/EUR is a good pair to express a bullish pound view, with the UK economy likely to retain its growth advantage in the near term, which should also threaten quicker ECB cuts.”

Favourable interest rate environment in the UK boosting the pound

One of the key drivers of the pound rise at the moment is the Bank of England continuing to maintain a more hawkish stance, and being slow with its interest rate cuts. Other major central banks such as the US Federal Reserve and European Central Bank (ECB) have been quicker with interest rate cuts.

Higher interest rates usually attract more foreign investment and drive economic growth in the home country, as investors look forward to receiving returns in a stronger currency.

The US Federal Reserve is expected to announce at least three more interest rate reductions, whereas the ECB is likely to go for two more by the end of 2024. In comparison, the Bank of England is expected to slash interest rates only once more by the end of this year.

Other factors, such as the first Labour budget on 30 October, are also likely to boost the value of UK assets and draw investor interest, especially if the government can follow through with the measures set out in the Budget and strengthen the UK’s fiscal system.

Robust private sector performance has also contributed to a stronger pound. Goldman Sachs recently said, as reported by The Times, “Firm activity data should help to dispel overly negative views on the UK and ultimately keep the Bank of England outlook relatively in line with peers, thereby bolstering sterling.

“Fiscal policy will move into focus as we head towards the budget statement at the end of October, but if the new government manages to find the narrow path between delivering on public investment and fiscal credibility, UK local assets could continue to be well-supported.”

Source: EuroNews

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

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Cohen

(Sep 3): Russia's central bank is expected to raise its benchmark interest rate by 100 basis points to 19% at its Sept. 13 meeting to combat inflation and cool the overheated economy, a Reuters poll of analysts showed on Monday.

The consensus forecast of 15 analysts polled by Reuters in late August and early September suggested annual inflation would end 2024 at 7%, down from the current rate of 9.1% but slightly up from the previous poll's forecast of 6.9%.

The central bank anticipates inflation in the range of 6.5-7.0% in 2024 as the supply of goods and services catches up with demand.

At its last meeting in July, the central bank raised its benchmark interest rate by 200 basis points to 18%, the highest level since April 2022, and indicated that tight monetary policy would remain for some time to achieve a sustainable slowdown in inflation.

Analysts predicted that the double-digit benchmark interest rate in Russia would remain until 2027, when it is expected to fall to 9.0%. The central bank forecasts an average benchmark rate of 7.5%-9.5% in 2027.

Analysts projected gross domestic product growth this year at 3.6%, below the updated official forecast of 3.9% announced by Finance Minister Anton Siluanov, following the release of strong data for the first half of the year.

Growth in capital investment, one of the factors behind strong economic growth, is forecast at 7% in 2024, down from 9.8% last year.

The rouble is expected to weaken by over 5% to 96.0 against the U.S. dollar in a year, compared to the current official exchange rate of 91.19.

"Negative factors for the rouble include geopolitical and sanction risks, capital outflows, demand for foreign currency to buy back shares of Russian companies from foreign owners, and increased budgetary expenditures," said Mikhail Vasilyev, chief analyst at Sovcombank.