EU: September's Eurozone Industrial Output (MoM) came unexpected at 0.9% from a 0.3% Forecast

Forex

Traders' Opinions

Summary:

The EU economy showed some weakness versus the U.S Dollar after releasing the Eurozone Industrial Output data on 14-11-2022 at 2 PM (GMT +4) with an unexpected result of 0.9%. EURUSD dropped from 1.0325 to 1.0280.

Fundamentals

The EU released the Eurozone Industrial Output MoM report in September on November 14, 2022. The Eurozone Industrial Output is one of the major indicators that affect the market widely, it measures the change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities. A higher-than-expected data is bullish for the Euro, and lower-than-expected data is bearish for the Euro. The data came out to be 0.9%% rather than the forecasted result of 0.3% which is supposedly bullish for the Euro. However, EURUSD dropped widely after this indicator because of the drop from the previous level on MoM. Bears interfered, and the EU economy weakened where EURUSD decreased from 1.0325 to 1.0280.

Gold had nothing to do with this indicator as it stayed stable around $1755 an Ounce.

Major traders are holding their Gold positions for further price increases.

Technical Analysis

EURUSD Daily Chart

EU: September's Eurozone Industrial Output (MoM) came unexpected at 0.9% from a 0.3% Forecast _1

The daily EURUSD pattern shows a bullish engulfing with possible prices touching the 1.0370 level.

Support and resistance:

1.0282

1.0270

1.0252

Pivot: 1.0300

1.0342

1.0330

1.0312

Trading Recommendations

High Probability Scenario:

Long Above: 1.0342

Resistance TP1: 1.0376

Resistance TP2: 1.0420

Alternative Scenario:

Short Below: 1.0286

Support TP1: 1.0236

Support TP2: 1.0195

Risk Warnings and Disclaimers

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Thomas

Energy

This year's COP27 climate summit in Egypt headed into its final week on Monday with nearly 200 countries racing to strike a deal to steer the world towards cutting planet-warming emissions and scale up finance for countries being ravaged by climate impacts.

Some negotiators and observers warn that failure to agree on such "loss and damage" funding could sour the U.N. talks and thwart other deals. The issue has leapt to the top of political priorities at COP27 after more than 130 developing counties successfully demanded it was added to the agenda for the first time.

Following a first week of talks that left much unresolved – and featured speeches from dozens of world leaders, but scant announcements of new funding or pledges to cut emissions faster – negotiators now face a mammoth list of items on which to clinch deals by Friday.

"It's all constructive, but I don't think it's come through as responding with the transformational urgency that people expect," said Tom Evans, a policy analyst for the E3G non-profit think tank, of commitments announced at COP27 so far.

Announcements so far include a few hundred million dollars of funding for poorer nations pledged by Germany, Austria, the United States and others, far off the hundreds of billions that vulnerable countries need to cope with escalating droughts, floods and rising seas each year.

No Backsliding

Government ministers take over the negotiations in Sharm El-Sheikh, Egypt, on Monday to hunt for a deal that attempts to avoid any weakening of ambition to address climate change, even as governments firefight multiple crises, from rampant inflation to Russia's invasion of Ukraine – which some officials expect European delegates to bring up during negotiations this week.

At last year's U.N. climate summit all countries agreed to set tougher climate targets this year to keep average global temperature rises to the 1.5C limit that scientists say would avoid global warming's worst impacts.

Faced with a global energy crisis and looming economic downturn, only around 30 have done so.

Many delegates also have one eye on Bali, where on Monday U.S. President Joe Biden and Chinese leader Xi Jinping – leaders of the world's two biggest polluters – were meeting ahead of the Group of 20 summit. A relaunch of U.S.-China collaboration on climate change, which China halted earlier this year, could help boost negotiations at COP27.

Some negotiators said progress towards deals had stuttered in recent days, after the summit's early breakthrough in agreeing to discuss funding to help vulnerable countries cope with damage from floods, drought and other climate impacts - the politically contentious issue known as loss and damage.

"Discussions on loss and damage have been weak, with not much progress made," said Omar Alcock, a negotiator for Jamaica, one of more than 130 developing and climate-vulnerable countries who demand that countries agree at COP27 to launch a new loss and damage fund.

The issue risks souring the talks and slowing progress on other potential deals.

The 27-country European Union has said it is now open to discussing such a fund, but along with the United States, refuses any outcome that could make rich nations legally liable to pay for climate-related damage, based on their high historical greenhouse gas emissions.

"It's a well known fact that the United States and many other countries will not establish ... some sort of legal structure that is tied to compensation or liability. That's just not happening," U.S. climate envoy John Kerry told the conference on Saturday.

Mohamed Adow, director of Nairobi-based think-tank Power Shift Africa and an observer in the COP27 negotiations, said the lack of progress so far amounted to "a betrayal of vulnerable communities and countries".

India's Fossil Phase Down Push

Rifts are emerging in other negotiation rooms over the so-called cover texts that will form the core political deal from the summit.

India surprised some countries last week by pushing for a deal to phase down all fossil fuels – rather than just coal, as countries agreed at last year's U.N. summit.

That would put oil and gas consumer and producers in the spotlight, somewhat easing the focus on nations that, like India, rely heavily on burning coal for energy. Observers in the negotiations said India's proposal is likely to hit resistance from major oil and gas producers like Saudi Arabia.

"That is definitely going to flare up," one observer said.

Meanwhile, the EU wants all countries to agree to hike their emissions-cutting targets in 2023, a move being blocked by China, which is also resisting attempts by the EU to establish regular international meetings for countries to swap knowledge and track progress on emissions-cutting goals, to make sure they are met.

"We ran out of time this week, but I am confident that an ambitious outcoming will be forthcoming next week," said Belize negotiator Carlos Fuller, of the plan to launch these progress-tracking meetings.

Egypt's most prominent prisoner Alaa Abd el-Fattah's escalation of his hunger strike at the start of the summit has also put the host country's human rights record in focus, threatening to overshadow any deals struck at the two-week event.

Some countries are also seeking deals outside of the formal talks, not least because of the failure of past COP agreements to translate into real-world action. Germany and a group of climate-vulnerable countries launched a "Global Shield" scheme on Monday to attempt to improve insurance for climate disaster-prone countries.

Research published last week during COP27 showed global CO2 emissions are set to rise this year - laying bare the yawning gap between countries' promises to cut emissions in future years, and their actions today which, if continued, would heat the planet to far beyond the 1.5C goal.

Source: Reuters

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Alex

Energy

Africa could capture as much as 10 per cent of the global green hydrogen market by 2050 as demand for cleaner fuel continues to grow amid decarbonisation efforts, a report has said.

African hydrogen projects could create up to 3.7 million jobs and add as much as $120 billion to the continent's gross domestic product in the next three decades, Abu Dhabi's clean energy company Masdar and its Abu Dhabi Sustainability Week platform said in a report on Friday.

"Africa's plentiful solar and wind resources could be leveraged to produce 30 to 60 million tonnes per annum (mtpa) of green hydrogen by 2050, about 5 per cent to 10 per cent of global demand," the report said.

Hydrogen, which comes in various forms including green, blue and grey, is expected to play a key role in the coming years as economies and industries transition to a low-carbon world to mitigate the effects of climate change.

Globally, the size of the hydrogen industry is expected to hit $183bn by 2023, up from $129bn in 2017, according to Fitch Solutions.

French investment bank Natixis estimates that investment in hydrogen will exceed $300bn by 2030.

Blue and grey hydrogen are produced from natural gas, while green hydrogen is produced using renewable energy.

"Scaling up green hydrogen is an opportunity to not only build a robust global-export sector on the African continent but also to accelerate the deployment of renewable energy overall," Mohammad El Ramahi, Masdar's director of asset management and technical services, said.

"The grid-connected renewables used for green hydrogen production can feed energy into the grid to provide affordable clean energy to under-resourced areas — notably, in sub-Saharan Africa, which has an average electrification rate of only 48 per cent," he said.

In April, Masdar and Egypt's Hassan Allam Utilities signed agreements with leading Egyptian state-backed entities to co-operate on the development of green hydrogen production plants in the country, targeting an electrolyser capacity of 4 gigawatts by 2030, and output of up to 480,000 tonnes of green hydrogen per year.

Masdar is also developing one of the world's largest wind farms in Egypt with a capacity of 10 gigawatts. Dutch joint venture company Infinity Power and Hassan Allam Utilities are other partners in the project, Masdar said earlier this week.

The project will be part of Egypt's Green Corridor initiative — a grid dedicated to renewable energy projects — and will contribute to Cairo's goal of ensuring renewable energy makes up 42 per cent of the country's energy mix by 2035.

Africa could be among the most competitive sources of green hydrogen in the world with a cost of $1.8 to $2.6 per kilogram in 2030, and further decreasing to about $1.2 to $1.6 per kg by 2050, as hydrogen production technology matures and renewable energy costs continue to decline, the report said.

Proximity to demand centres in Europe and Asia also "optimally positions" the continent to build an export-orientated hydrogen sector with exports estimated at 20 to 40 mtpa by 2050.

The remaining 10 to 20 mtpa would serve domestic hydrogen demand, helping to boost electrification of African communities.

In total, $680bn to $1.13 trillion of investment would have to flow into the region by 2050 to reach the production capacity with the largest share of the investments estimated at $320bn to $610bn for renewables to produce the hydrogen, followed by electrolysis plants.

Most of the required capital is expected to come from foreign investors, Masdar said.

Source: The National News

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Thomas

Central Bank

The Monetary Policy Committee (MPC) last week stated that headline and core inflation are expected to remain elevated in 2023 "amid both demand and cost pressures, as well as any changes to domestic policy measures".

For CGS-CIMB Research, one sentence that stood out in the statement was "the OPR adjustment would also pre-emptively manage the risk of excessive demand on price pressures consistent with the recalibration of money policy settings that balances the risks to domestic inflation and sustainable growth".

As headline and core inflation are expected to remain elevated, how high can the OPR climb in 2023?

For now, most economists project 3.25% by the first quarter of next year, although there are some who do not discount that the key rate could touch 3.5% by end 2023.

If so, borrowers should be bracing for tougher times ahead as the last time the OPR stood at 3.5% was from April 2006 to October 2008.

In fact, 3.5% is the highest the OPR has hit since its introduction as the benchmark interest rate.

Malaysia：How High Can the Key Rate Go Next Year?_1

Economists think it is highly unlikely that the OPR will be hiked beyond 3.5% next year in view of a global economic slowdown that has been forecast by various quarters.

"Given the risk of global recession in 2023 and the negative external spillover effect from global monetary tightening on the domestic economy via financial and trade channels, Bank Negara Malaysia is unlikely to raise rates beyond 3.5%.

"Bank Negara will assess the lag impact of previous rate increases, which are expected to have a disproportionate impact on consumption and business activities," says

ACCCIM's Socio-economic Research Centre executive director Lee Heng Guie.

United Overseas Bank (M) Bhd senior economist Julia Goh, who has forecast another 50bps of increases next year to reach 3.25%, opines that the global challenges and signs of slower growth in 2023 reduce the odds of the OPR being pushed beyond 3.25%.

Sunway University Business School professor of economics Dr Yeah Kim Leng recalls that the OPR in the pre-pandemic days was far higher at between 3.25% and 5%.

While he sees the central bank continuing its rate normalisation next year towards the neutral rate, he says that the probability of the OPR hitting 5% next year is "relatively low" amid moderating global inflationary pressures.

Neutral interest rate is the rate at which monetary policy is neither stimulating nor restricting economic growth.

Yeah says his current inflation forecast for 2023 is 3.5% and cautioned that the forecast is subject to a high degree of uncertainty, especially with the deteriorating global growth outlook and the extent to which high global inflation can be subdued.

Domestically, he observes, the pace and magnitude of the implementation of a targeted fuel subsidy system will also shape the short-term inflation trajectory.

However, SERC's Lee believes a neutral interest rate is not static but is in fact dynamic and that it varies based on a range of economic and financial market factors.

"Malaysia's high household debt and a gradual restoration of income level post-pandemic has limited a tighter monetary policy (higher OPR) as it will exert financial pressure on low- and middle-income households/borrowers with high debt gearing," he points out.

Signs that may prompt a pause in rate hikes

A potential trigger to pause rate hikes, Lee says, could come in the form of a sharp pullback in domestic economic growth or peaking of inflation.

For now, the data remains robust, indicating that rates can continue to be adjusted higher. Goh says the robust data is especially true for consumer spending, owing to pent-up demand, reopening of borders and improved tourist arrivals.

"Despite the global challenges, Bank Negara remains positive on Malaysia's economic outlook, which suggests that they have room to adjust rates higher.

"In addition, further aggressive adjustments in US interest rates with potentially higher terminal Fed funds target rates could push other central banks, including Malaysia, to lift rates further over the coming months in order to bridge their interest rate gaps with US rates that will weigh on the foreign exchange movement," she says.

Economists cool on talk of emergency MPC meeting later this year

With the 15th general election around the corner, some wonder whether the central bank may hold an emergency MPC meeting after the polls are concluded to adjust rates.

Economists are cool on the idea as they do not believe the election results would influence Bank Negara's monetary policy.

"In the current context of Bank Negara, that is in the midst of an OPR hikes cycle, the fourth successive 25bps hike in OPR at the final MPC meeting of this year — and a little over two weeks before the polling date of GE15 — underscores Bank Negara's independence in its monetary policy decisions," says Maybank Investment Bank Research in a report.

Lee agrees, pointing to previous crises including the 2008/09 global financial crisis and the recent Covid-19 pandemic where Bank Negara only acted at its regular meetings to unveil carefully choreographed rate moves.

Source: The Edge Malaysia

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Samantha Luan

Stocks

European shares edged higher on Monday, as media stocks were boosted by Britain's Informa, although caution prevailed after a top Federal Reserve policymaker warned that the U.S. central bank would not "soften" its fight against inflation.

The pan-European STOXX 600 index was up 0.2% by 0908 GMT, hovering near 11-week highs after recording its biggest weekly gain in nearly eight months on Friday.

British event's organiser Informa Plc jumped 5.0% after it raised its full-year earnings outlook, boosting the European media sector index by 0.8%. Pearson Plc and German ticketing company CTS Eventim rose over 1% each.

Still, the broader index was trading in a narrower-than-usual two-points range.

The caution came after Fed Governor Christopher Waller said on Sunday that markets should now pay attention to the "endpoint" of interest rate hikes, not the pace of each move, and that the endpoint was likely still "a ways off".

"The Fed is trying to communicate to markets that it isn't going to pivot and is going to continue with this two-way sort of communication of slowing the pace of rate hikes but that doesn't necessarily mean it will get to a lower endpoint," said Giles Coghlan, chief market analyst at HYCM in London.

Readings on U.S. inflation and another employment report will be watched before the Fed's next policy meeting in December.

The STOXX 600 has fallen 11.2% so far this year, less than the S&P 500 index's 16.2% fall. But even at discounted levels, analysts note that European stocks are not as attractive as their U.S. counterparts.

"A war in Europe (Russia-Ukraine) is never good for business. So, if you've got that perennial risk then I don't think it offers value, especially heading into winter it is even more uncertain," Coghlan noted.

Eurozone data has also painted a gloomy picture for the economy, with the European Central Bank sticking to rapid rate hikes to battle inflation even at the risk of tipping the bloc into a recession.

Among stocks, Roche Holding AG slid 3.9% after its Alzheimer's drug candidate could not be shown to markedly slow dementia progression in two drug trials.

Military equipment manufacturer Rheinmetall rose 3.1% after the German company on Sunday agreed to buy Spanish explosives and ammunition maker Expal Systems for an enterprise value of 1.2 billion euros ($1.24 billion).

The basic resources index rose 0.6% as copper prices stayed near five-month highs amid supportive measures from the Chinese government for its ailing property sector.

Source: Reuters

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Alex

Political

Control of the U.S. House of Representatives hinged on Monday on several tight races that could secure a majority for Republicans following midterm elections that saw President Joe Biden's Democrats beat expectations and retain the Senate.

Republicans were closer to taking the House, having won 211 seats compared to Democrats' 206, with 218 needed for a majority. But the final outcome might not be known for days as officials continue counting ballots nearly a week after Americans went to the polls.

After clinching the Senate over the weekend and dispelling Republican hopes for a "red wave" of gains, Democrats portrayed their performance as vindication of their agenda and a rebuke of Republican efforts to undermine the validity of election results.

Other high-profile uncalled races include the Arizona governor contest, in which Republican Kari Lake, who promoted former President Donald Trump's baseless 2020 election fraud claims, was trailing her Democratic opponent.

There are still some 18 outstanding House races, including 13 considered closely competitive, according to a Reuters compilation of the leading nonpartisan forecasters. Ten of the remaining contests were in liberal-leaning California.

A Republican victory in the House would set the stage for two years of divided government while giving Biden's opponents the power to limit his political agenda and launch potentially damaging probes into his administration and family.

Jim Banks, a Republican congressman from Indiana, said he expects his party to win a slim majority in the 435-seat chamber and serve as "the last line of defense to block the Biden agenda," while launching probes into the U.S. withdrawal from Afghanistan, the origin of COVID and pandemic lockdowns.

"That has to be a focal point of every single committee in the Congress, especially in the House under Republican control," Banks told Fox News on Sunday.

The Democratic speaker of the House, Nancy Pelosi, said on Sunday she would not make any announcements about whether she planned to remain in leadership until after control of the chamber was decided.

There had been speculation Pelosi would resign if Democrats lost their majority, especially after her husband was attacked by an intruder at their San Francisco home last month.

"It's very close," Pelosi, 82, told ABC News on Sunday of the House race. "We haven't given up."

Georgia Run-Off, Arizona Governor Race

Democrats, having secured Senate control with a win by Nevada Senator Catherine Cortez Masto on Saturday, are shifting focus to a Georgia run-off contest that could strengthen their hand in Congress.

A Democratic victory in the Dec. 6 run-off between Senator Raphael Warnock and Republican challenger Herschel Walker would give the party outright majority control, bolstering its sway over committees, bills, and judicial picks.

The Nevada win put Democrats in charge of a 50-50 Senate, with Vice President Kamala Harris holding the tie-breaking vote.

Even if Republicans win a narrow majority in the House, Democrats' performance suggests they had success in portraying their opponents as extremists, pointing in part to the Supreme Court's decision to eliminate a nationwide right to abortion following conservative appointments to the bench.

But the results have also have led to increased scrutiny on Trump, who used his popularity among hard-right conservatives to influence the candidates Republicans nominated for congressional, gubernatorial and local races.

A Republican loss in Georgia could further dampen Trump's popularity as advisers say he considers announcing this week a third run for the presidency in 2024. He has been blamed for boosting candidates unable to appeal to a wide enough audience.

One candidate Trump has staunchly backed is Kari Lake, who is trailing Democrat Katie Hobbs in the race for Arizona governor by 1.1 percentage points with an estimated 93% of votes counted, according to Edison Research.

The election results appeared to draw introspection from top Republican lawmakers. Lindsey Graham, a veteran Republican senator, said planned Senate Republican leadership elections should be postponed until after the Georgia race.

"All Republicans should be focused on winning in Georgia and trying to understand the midterm elections before Senate leadership elections or moving on to the 2024 presidential race," Graham wrote on Twitter.

Source: Reuters

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Winkelmann

Commodity

Traders' Opinions

XAUUSD

There is no doubt that the focus of the market last week was on the U.S. inflation data for October. The data showed that the U.S. CPI rose 7.7% year-on-year in October, lower than the expected 7.9% and the previous value was 8.2%, falling back below 8% again after 7 months, the smallest increase since January 2022. The U.S. core CPI rose 6.3% year-on-year in October, with 6.5% expected and 6.6% previously. The magnitude of the fall exceeded expectations in the U.S. inflation data, giving the Fed room to slow down aggressive rate hikes, causing Wall Street to be cheered. Meanwhile, the dollar dropped heavily, while U.S. stocks and gold surged, among which gold prices recorded the largest weekly gain in more than two and a half years. The market becoming increasingly optimistic about the future of gold.

U.S. Democrats narrowly retained the control of the Senate last weekend, leaving the Republican Party unable to meet expectations for complete control of Congress in the midterm elections, which slightly limited the gains in gold prices. Nonetheless, Republicans are still hopeful of taking control of the House of Representatives, which is enough to cause a stalemate in the U.S. Congress and virtually block the possibility of passing further spending plans by the Biden administration. If the Biden administration struggles to make a difference in fiscal spending over the next two years, inflation expectations will move further lower. And as the huge pressure exerted on the gold market over the past few months will continue to be released, there is a reason for gold to continue to move higher.

Still, the labor market remains strong despite market expectations that the Fed will slow the pace of rate hikes. Although core inflation cooled more than expected in October, the rental housing sub-item rose further by 0.8% MoM and is still supporting U.S. inflation. And energy inflationary pressures have not been eliminated either, which means the Fed's efforts to fight inflation are still not over. The market expects the federal funds rate to top out at around 5% and rising terminal rates could still bring some resistance to gold.

This week, the market is expected to continue to watch for more statements from Fed officials. Due to the recent rise in various non-U.S. assets, the surge in commodity prices may bring additional inflationary hazards. Powell or other Fed officials may also stand out to curb market enthusiasm and release new "hawkish" signals to prevent market easing expectations from being too strong and the rising risk of an inflationary rebound. In addition, the G20 Leaders' Summit and the APEC Economic Leaders' Meeting will be held successively this week, and the contents of the relevant meeting communiqués are also worth the attention of investors.

Market Outlook for This Week - Commodities_1

On the technical graph, gold prices continue the ferocious rally that started near 1615, and gold prices break 1730 and 1765 in succession, basically confirming the reversal of the downtrend for more than six months. Gold bulls are strong at the moment and are expected to rebound further to near the 1800 mark in the coming sessions. However, gold prices rose overly fast and sharply in the short term, with many cycle indicators having entered the overbought area. At the same time, gold prices also need retracement correction, with support below in the order of 1730, 1700, and 1680.

WTI

The economic slowdown and recession fears have been weighing on oil prices for months. The Economic Bulletin for Europe shows that economic activity in the Eurozone is expected to slow sharply in the coming quarters. However, OPEC+ production cuts from this month and EU sanctions on Russian oil will cause continued supply constraints.

On the demand side, China, a major oil consumer in Asia, has seen a loosening of its control measures against the pandemic. New optimized adjustments have greatly eased tensions over the Asian pandemic and a full reopening of the economy appears to be on the way. Market sentiment has improved considerably, and expectations for oil demand have been fully boosted. Meanwhile, last week, the U.S. CPI data for October fell more than expected, and the expectation of Fed interest rate hikes cooled, which may reinvigorate economic growth and oil demand growth. Coupled with the weaker dollar, oil prices were also given strong support.

In addition, the recent public crude oil inventory data is almost alternating between increase and decrease, regardless of EIA or API. This has some disturbance to oil prices in the short term but will not alter the recent rebound trend.

Market Outlook for This Week - Commodities_2

On the technical graph, WTI fell after surging higher last week and closed lower on the weekly chart. However, the price has gained support near 85.0 in the short term, and the general rally-up structure has not been damaged. In the short term, as long as the WTI does not fall below this position, it is expected to continue the recent oscillating rally. And if the price rises above the position near 93.0 in the future, the upside target will point to 97.0 and near the 100 mark.

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