Germany PPI: The German PPI MoM Came at -4.2% less than expected by 5.1% & less than the Previous Result by 6.5%

Commodity

Summary:

The German economy showed strong volatility following the release of the PPI data on 21-11-2022 at 11:00 AM (GMT +4) with a result of -4.2%. A bullish fundamental signal is already there for the EURUSD.

Fundamentals

The German PPI report for October is released on November 21, 2022. The PPI is one of the major monthly indicators that affect the market widely, it measures the change in the price of goods sold by manufacturers. A higher-than-expected data is bullish for the EUR, and lower-than-expected data is bearish for the EUR. The data came out at -4.2%, a decrease of 6.5% from the previous result and 5.1% from the expected result. If everything went as expected bulls will interfere and a major increase in EURUSD will be noted.

EUR is expected to rise to the 1.03800 level breaking the resistance level, but it is expected to recover from further increase in the upcoming days affected by the interest rate decision for December by the FOMC, the interest rate in Europe, U.S – China tensions, and the overall world political situation.

Major traders are holding their positions on EURUSD for further increases in the prices.

Germany PPI: The German PPI MoM Came at -4.2% less than expected by 5.1% & less than the Previous Result by 6.5%_1

German PPI Chart

Technical Analysis

Gold Daily Chart

Germany PPI: The German PPI MoM Came at -4.2% less than expected by 5.1% & less than the Previous Result by 6.5%_2

The daily gold pattern shows a bearish engulfing with possible prices touching the 1725 level before bouncing up again.

Support and resistance:

1736.12

1733.80

1730.40

Pivot: 1739.52

1747.56

1745.24

1742.84

Trading Recommendations

High Probability Scenario:

Short Below: 1748.00

Support TP1: 1736.00

Support TP2: 1730.00

Alternative Scenario:

Long Above: 1748.00

Resistance TP1: 1753.00

Resistance TP2: 1757.00

Risk Warnings and Disclaimers

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Kevin Du

Economic

Equity investors hoping for a better year in 2023 will be disappointed, according to Goldman Sachs Group Inc strategists, who said the bear market phase is not over yet. Goldman Sachs Strategists Say Bear Market Will Last In 2023, Asia to Outperform_1

Goldman Sachs Strategists Say Bear Market Will Last In 2023, Asia to Outperform_1

"The conditions that are typically consistent with an equity trough have not yet been reached," strategists including Peter Oppenheimer and Sharon Bell wrote in a note on Monday (Nov 21). They said that a peak in interest rates and lower valuations reflecting recession are necessary before any sustained stock-market recovery can happen.

The strategists estimate the S&P 500 will end 2023 at 4,000 index points — just 0.9% higher than last Friday's close — while Europe's benchmark Stoxx Europe 600 will finish next year about 4% higher at 450 index points. Barclays plc strategists led by Emmanuel Cau have the same target for the European gauge and said the path to get there will be "tricky".

The comments come after a recent rally — driven by softer US inflation data and news of easing Covid-19 restrictions in China — that saw several global indices enter technical bull market levels. The sharp rebound since mid-October followed a tumultuous year for global markets as central banks embarked on aggressive rate hikes to tame soaring inflation, stoking concerns of recession.

Goldman's strategists said the gains aren't sustainable, because stocks don't typically recover from troughs until the rate of deterioration in economic and earnings growth slows down. "The near-term path for equity markets is likely to be volatile and down," they said.

The view echoes that of Morgan Stanley's Michael Wilson, who reiterated today that US stocks will end 2023 almost unchanged from their current level, and will have a bumpy ride to get there, including a big decline in the first quarter.

According to his note on Monday, Wilson's clients have pushed back against his view of the S&P 500 falling to as low as 3,000 points in the first three months of next year — a drawdown of 24% from last Friday's close. "What's yet to be priced is the earnings risk, and that is what ultimately will serve as the catalyst for the market to make new price lows," he said.

Meanwhile, Goldman strategists expect Asian stocks to outperform next year, with the MSCI Asia-Pacific ex-Japan ending the year 11% higher at 550 points. Their peers at Citigroup Inc turned more bullish on Chinese stocks on Monday, saying Beijing's pivots on Covid zero and property should lift earnings.

With the bear market still in full swing for now, Oppenheimer and his team recommended focusing on quality companies with strong balance sheets and stable margins, as well as those with deep value and energy and resources stocks, where valuation risks are limited.

Source: Bloomberg

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

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Ukadike Micheal

Political

Rep. Lee Jae-myung, leader of the Democratic Party of Korea (DPK), has come under mounting pressure as corruption investigations surrounding him are intensifying following the arrests of his close aides.

With the probe zeroing in on Lee, ruling party lawmakers are pressuring him to step down, while some DPK lawmakers are demanding official explanations from the party leader.

"It has become highly possible that the black money earned from the Daejang-dong development scandal flowed into the hands of two people and was used in Lee's election campaigns for Seongnam mayor, primary and presidential elections," Chung Jin-suk, incumbent chief of the ruling People Power Party (PPP), said Monday.

He urged Lee to make a "decision" as the party leader to unshackle the DPK lawmakers who have so far been unified in their efforts to protect their leader.

The "two people" Chung was referring to are Lee's confidants ― his vice chief of staff Jeong Jin-sang and Kim Yong, deputy head of the DPK's Institute for Democracy think tank. Both were recently arrested over bribery allegations in connection to the high-profile development project in Seongnam's Daejang-dong, which took place during Lee's time as city mayor.

Jeong is suspected of receiving about 140 million won of bribes between 2013 and 2020 from real estate developers for business favors related to the project, while Kim is speculated to have received over 840 million won in profits from the land development scheme between April and August in 2021.

The prosecutors are expected to keep looking for any suspicious financial connections to Lee.

Testimonies from key figures in the land development scandal are expected to further corner the DPK leader. Nam Wook, a lawyer standing trial over embezzlement allegations, claimed on Monday that he heard that Lee held a stake in one of the private partners of the development project.

He also claimed that he delivered at least 400 million won to Lee in 2014, which he heard was used to fund his election campaign. Lee was reelected as Seongnam mayor that year. Nam gave the testimony during a hearing at the Seoul Central District Court which was held hours following his release from prison after his detention period expired.

As concerns grow within the opposition party that its leader will be the next target of the prosecutors' probe, some party members viewed that Lee should offer explanations about the allegations.

"I don't know, to be honest, whether Lee is really unconnected (with the corruption scandal). I want to believe he is not involved," Rep. Cho Eung-cheon of the DPK said during a local radio interview.

He viewed that the court's decision on Saturday to grant the arrest warrant for Jeong after an intensive eight-hour hearing could mean that some of the allegations raised against the suspect could be true.

"Only Lee, Jeong and Kim know the truth. Maybe now is the time for Lee to offer explanations to some extent," he said. "He should at least offer an apology for causing turmoil due to the arrests of his two confidents. There should be some political gestures expressing regrets about this."

With the arrests of his confidants, it has become highly possible the prosecutors will summon Lee for questioning if they find evidence or testimonies linking him to the alleged illicit political funds.

It is unlikely, however, for the DPK leader to cooperate with the ongoing investigations. He has been flatly denying the allegations, which he views as "political retaliation" against the opposition party.

Shortly after Jeong was arrested, Lee wrote on Facebook that "the truth will never sink," claiming the innocence of Jeong, who he referred to as a "political companion." The lawmaker also vowed that he will concentrate on improving people's livelihoods despite the ongoing probe.

"Our party will continue to look after people's livelihoods and the economy while protecting peace and national security despite the prosecution's suppression," Lee said during a party meeting, Monday.

He also denounced the government for "wasting its power, which should be used in overcoming national crises, on mounting attacks against the opposition party."

Source: koreatimes

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Alex

The week is off to a relatively slow start, with Asia trading mostly in the red and Europe and the US poised to do the same.

We don't get many quiet weeks these days but this may turn out to be one of the few, with the US Thanksgiving bank holiday cutting the week short for many traders and the Fed minutes on Wednesday potentially weighing on activity beforehand.

The recovery rally has stalled over the last week or so as Fed commentary has remained more hawkish than investors wanted. The rebound was also much stronger than is arguably warranted, with the Dow up almost 20% from its October lows.

Policymakers appear keen to stress that one inflation number doesn't make a trend and further evidence will be needed to justify a slower pace of tightening. While they will probably be quietly satisfied that inflation has turned a corner, there may also be a determination not to accept that publicly at the risk of undermining its tightening efforts until now. Another good report next month and the tone will almost certainly notably change.

China stocks tumble as COVID-19 cases rise

The recent news has been less good from China, where surging Covid cases have wobbled markets just as we were seeing an improvement in sentiment. A slight relaxation of Covid restrictions and the prospect of more early next year, alongside a 16-point plan to boost the property market, had triggered a strong rebound in stocks in China and Hong Kong but that has been undermined by the recent surge and restrictions.

Not only would fresh lockdowns in major cities take a sledgehammer to growth into year-end, but it could also complicate any plans that are being put in place to soften the zero-Covid policy next year. We're back into uncertain territory which could slow the recovery in stock markets.

Oil slips further amid China woes

The prospect of more restrictions and therefore lower demand in China has weighed on crude prices recently. Brent slipped back below $90 last week and could register the fourth day of declines if it remains in the red. We're seeing bleak economic prospects all around the globe which continues to weigh on oil prices and if interest rates keep rising as they are, expectations will likely deteriorate further.

That will make the next OPEC+ meeting in a couple of weeks all the more interesting. The group came under fire early last month for its decision to cut output targets by two million barrels per day, even as many countries fight inflation and recession in part as a result of higher oil prices. The question now is whether the group be so bold as to cut output again in light of recent price moves and economic developments.

Paring gains but still encouraging

Gold prices are slipping at the start of the week in risk-averse trade that is supporting the US dollar. The yellow metal has performed extremely well in recent weeks as investors have been buoyed by slightly less hawkish rhetoric from the Fed and some much more positive inflation prints.

It's stalled around $1,780 which was previously a very significant area of support and given some back in recent days but it continues to trade well off the lows which is encouraging. The next test of support could be $1,730 where it met strong resistance on the way down in September and October.

Darker days ahead for crypto?

The landscape is not getting any better for cryptos as we continue to learn more about the fallout from the FTX collapse. Bitcoin is off around 4% this morning, trading below $16,000 and looking very vulnerable. Another sharp drop looks very possible as sentiment in the space has been shredded. It could take some time for that to be repaired and the uncertainty that the FTX scandal has created is an enormous headwind for cryptos in the near term. At this point, I wouldn't be surprised to see $10,000 tested again in the not-too-distant future.

Source: MarketPulse

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Owen Li

Central Bank

The Reserve Bank of New Zealand will hold its last policy meeting of the year on Wednesday (01:00 GMT) and another rate hike is on the cards. After five consecutive 50-basis-point rate increases, policymakers will be pondering an even larger move in December, as, far from the economy cooling, inflationary pressures are at risk of boiling over. With the US dollar under strain from speculation about the Federal Reserve pivoting in the opposite direction, the New Zealand dollar could enjoy a substantial boost should there be a hawkish surprise.

Too hot

Throughout this global tightening cycle, the RBNZ has been at the forefront of the race to raise borrowing costs. However, whilst some sectors of the economy, such as housing, have started to feel the weight of the multiple rate hikes, things are heating up on other fronts.

The labour market in particular has yet to respond to the official cash rate being at the highest in more than seven years. The unemployment rate – at 3.3% – is the lowest in decades thanks to ongoing labour shortages that have pushed up wage growth to the highest on record. Additionally, after a poor second quarter, consumer spending has picked up again in recent months.

RBNZ Might Need to Slam the Brakes in November as Economy Heats up_1

More importantly, inflation in the third quarter was considerably hotter than expected, with the annual rate of CPI easing only marginally to 7.2% – well above the RBNZ's target band of 1-3%. But the worries about simmering inflationary pressures don't stop there. Inflation expectations according to the RBNZ's own survey have started to creep up again, likely raising alarm bells within the Monetary Policy Committee.

Time to join the triple hike club?

All this has led investors to price in higher odds of a 75-bps increase in November versus a 50-bps one, assigning a probability of about 60%. Looking at the RBNZ's last set of economic projections from August, a 75-bps increment seems unlikely as the cash rate was seen peaking slightly above 4%. Raising by 75 bps would immediately take rates above this terminal level to 4.25%. It would also involve quite a significant revision to overall forecasts in the updated quarterly Monetary Policy Statement due to be published the same day.

RBNZ Might Need to Slam the Brakes in November as Economy Heats up_2

The RBNZ might not be comfortable taking such a big leap in one go, especially as it wasn't that long ago when Governor Adrian Orr was describing the tightening cycle as "very mature" to signal that there aren't many rate hikes left to go. Having said that, the October meeting minutes did reveal that the decision was between 50 and 75 bps. Furthermore, the next meeting after this isn't until February 2023, so policymakers might not want to risk playing it safe when the data picture has altered so dramatically.

A hawkish boost for the kiwi

Either way, the projection of the terminal rate looks set to be revised higher, and even if there is only a 'smaller' hike of 50 bps, it would almost certainly be accompanied by a hawkish statement. Hence, there is scope for the New Zealand dollar to extend its recent gains, which for now, appear to have stalled just below the $0.6200 level.

RBNZ Might Need to Slam the Brakes in November as Economy Heats up_3

Given that a 75-bps increase isn't fully priced in, the kiwi could overtake the 38.2% Fibonacci retracement of the 2021-2022 downtrend to meet its 200-day moving average (MA) slightly above $0.6300 in the event of such an announcement. But further gains, specifically towards the August highs and the 50% Fibonacci of $0.6487, would depend on how high the Bank sees the adjusted terminal rate to be.

However, this is also what could trigger a selloff. Should the RBNZ predict the cash rate peaking below the market implied terminal rate of around 5%, the kiwi could be knocked all the way down to the 50-day MA at $0.5823.

It's worth keeping in mind, though, that now that the US dollar appears to have potentially topped out, the upside swings could well be greater than the downside ones.

Source: XM.com

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Alex

Economic

Standard Chartered expects Asia and the Middle East to outperform other regions even as spiralling inflation and a spike in borrowing costs risk tipping major global economies into a recession next year, a senior executive at the bank said.

The London-headquartered lender has been beefing up its transaction banking and financial markets businesses, betting the two regions will still see economic growth while many Western countries face contraction, said Simon Cooper, StanChart's CEO of corporate, commercial and institutional banking business.

"I don't see recession as a big risk in this part of the world. In Asia and the Middle East, I see economies doing well," said Cooper, 55, who is widely seen by the investment community as a potential successor to CEO Bill Winters.

StanChart, which operates in 59 countries with a focus on Asia, Middle East and Africa, is seeing its European and U.S. clients move more business to low-cost Asia.

"In the aftermath of COVID, we've seen the shift to Southeast Asia and neighbouring countries from a manufacturing perspective. That's continued and if anything, accelerated," Singapore-based Cooper told Reuters in an interview.

He said markets are looking to see the timeline for China moving out of its zero-COVID policy.

StanChart, which earns most of its revenue in Asia, reported a 40 per cent rise in pretax profit in the third quarter and raised its income growth forecast for the year as rising rates boost its mainstay lending business.

Cooper also highlighted India as a big beneficiary of supply chain shifts and strong economic growth. "India is probably at the sweetest spot it has been in quite a while. People are starting to see it as a real opportunity," he said.

Cooper, who previously spent more than two decades at HSBC, heads the division that contributed about three-fourths of StanChart's pretax profit in the nine months to September.

StanChart's focus on growth markets and its ability to better withstand the economic downtown come at a time when some global banks have flagged plans to cut jobs as they hunker down for a recession and are impacted by their weak investment banking business.

Income at StanChart's financial markets business surged 17 per cent to a record in the latest quarter. "We've now got a much more balanced financial markets business than we had before, from macro trading to foreign exchange to global credit markets," said Cooper.

"We've seen net client income grow double digits this year," said Cooper, who is also the CEO of StanChart's Europe & Americas business.

Source: Reuters

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

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Owen Li

Central Bank

The Bank of Japan must thoroughly examine its stimulus programme and adjust interest rates more flexibly in response to cyclical economic swings, said Sayuri Shirai, an academic seen as a candidate to become deputy central bank governor next year.

With Japan's economy lacking momentum, the BOJ will likely need to keep interest rates ultra-low even after the term of dovish Governor Haruhiko Kuroda ends in April, said Shirai, who served as a BOJ board member for five years until 2016.

But the BOJ will likely, and ought to, conduct a comprehensive review of Kuroda's decade-long stimulus experiment when his successor takes the helm next year, she said.

"The most important thing the BOJ's new leadership must do is to clarify and simplify its policy communication," Shirai told Reuters in an interview on Monday.

"The BOJ must take steps to enhance the flexibility of monetary policy. Any steps it takes for this purpose would be different from sharp interest rate hikes," she said.

The review would help the BOJ lay the groundwork for a tweak to its monetary framework, said Shirai, who is currently professor at Japan's Keio University.

With experience as an economist at the International Monetary Fund, Shirai is seen by some market participants as a candidate to fill one of the two BOJ deputy governor posts opening up in March.

Under an approach called yield-curve control, the BOJ targets -0.1 per cent for short-term interest rates and around 0 per cent for 10-year bond yields. It also offers to buy unlimited amounts of bonds to defend an implicit 0.25 per cent cap for the 10-year yield, a policy that critics say is distorting bond market functions.

Shirai said the BOJ must take into account its estimate of Japan's neutral interest rate, which was probably very low, when determining the appropriate target for short-term rates. A neutral interest rate neither simulates nor restricts economic growth.

It could then consider whether to adjust the 10-year bond yield target or widen the 50-basis-point band set around that target, she said.

"All in all, there's room to make the BOJ's interest rate policy more flexible," so it could adjust the rate targets more quickly in response to short-term economic swings, she said.

"Increasing flexibility would enhance the effect of its monetary easing and improve the function of Japan's government bond market," she said.

Governor Kuroda has said the BOJ has no intention to withdraw stimulus, including by raising interest rates, until its 2 per cent inflation target is sustainably achieved.

But some investors see the chance of a rate hike when Kuroda departs, because Japan's ultra-low rates have triggered an unwelcome fall in the yen that is propping up import costs and pushing consumer inflation well above the BOJ's 2 per cent target.

"The BOJ doesn't need to rush in making the changes," Shirai said, ruling out the chance of a near-term, major overhaul of yield-curve control. "It's short-sighted and undesirable to make changes to the BOJ's policy immediately after the new leadership is in place."

After a massive asset-buying programme failed to push inflation up to its 2 per cent target, the BOJ shifted to yield-curve control in 2016. But it kept parts of the asset-buying scheme to appease advocates of heavy central-bank money printing, making its policy complex and hard to understand.