Is The Downshift In US Inflation Stalling?

Economic

Summary:

Disinflation has stalled recently, but economists are debating if this is a temporary blip that will soon give way to a softer trend. Tomorrow’s consumer price report for November will be widely read for an update.

The consensus forecast anticipates that the trend will more or less hold steady. The year-over-year change in headline consumer prices is expected to tick up to 2.7% for November vs. 2.6% previously. Core CPI will hold steady at 3.3%, according to Econoday.com’s survey of analysts.

A similar outlook is reflected in the November consumer survey by the New York Fed. Inflation is expected to be roughly 3% a year from now, falling to 2.6% in three years. That’s in line with the outlook before the pandemic.

Is The Downshift In US Inflation Stalling?_1

“To me, this just seems like it’s all a return to normality,” says Alan Detmeister, an economist for UBS.

CapitalSpectator.com’s forecast for core CPI, based on the median of several econometric models, projects that pricing pressure will dip to 3.2% vs. 3.3% in October, based on the median.

Is The Downshift In US Inflation Stalling?_2

Another profile of inflation, using several alternative versions of CPI as well as the conventional versions, shows a renewed upside bias in pricing pressure in October—the first increase since March. This could be noise, but if the rise persists in the November data it will be harder to dismiss.

Is The Downshift In US Inflation Stalling?_3

A Vanguard analyst expects that sticky inflation data will persist in November. A key factor is the ongoing influence of robust shelter prices. “We don’t really see any material softening of that until we get into next year,” says Josh Hirt, senior US economist at the fund manager.

Next year may experience rising reflation risk due to policy changes by the incoming Trump administration. Notably, the president-elect’s campaign promises to raise import tariffs and deport millions of immigrant workers could lift prices, economists reason.

Rate cuts, however, are still on the table for the Federal Reserve at next week’s policy meeting. Futures are pricing in an 86% probability this morning for a 25-basis-points cut at the Dec. 18 FOMC meeting.

Meanwhile, Fitch Ratings predicts that “the risk of stronger inflation in the US is on the rise amid the threat of higher tariffs and still-strong consumer spending.”

The Fed seems to disagree, or so it appears, based on futures data. All eyes now turn to tomorrow’s CPI report for a possible attitude adjustment.

Source:James Picerno

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Saif

Economic

Eight years ago, on this day, OPEC Member Countries and Azerbaijan; the Kingdom of Bahrain; Brunei Darussalam; Equatorial Guinea, which later joined OPEC; Kazakhstan; Malaysia; Mexico; the Sultanate of Oman; the Russian Federation; the Republic of Sudan; and the Republic of South Sudan, met in Vienna, Austria, to discuss the conditions of the global oil market and identify possible means to restore market stability.

These historic, constructive efforts resulted in the establishment of a unique platform to facilitate cooperation and dialogue among its participants – the Declaration of Cooperation (DoC). Notably, other non-OPEC oil producers attended the meeting in support of the initiative.

The resounding success met on 10 December came about following the achievement of two landmark milestones in the history of the global oil industry: the Algiers Accord, which was signed on 28 September 2016 in Algiers, Algeria, at the 170th (Extraordinary) Meeting of the OPEC Conference; and the ‘Vienna Agreement’ adopted on 30 November of the same year in Vienna, Austria, at the 171st (Ordinary) Meeting of the OPEC Conference.

Reflecting on the occasion, HE Haitham Al Ghais, Secretary General of OPEC, stated: “Eight years ago, a group of leading oil producers, including OPEC Member Countries and some non-OPEC oil-producing nations, decided to join forces to address the instability the global oil market was then facing, marking the beginning of a new chapter in multilateralism, international cooperation and the history of the oil industry.”

“These courageous and vital efforts have continued benefiting the industry as a whole, its stakeholders and the global economy, as clearly demonstrated during the market downturn caused by the COVID-19 pandemic, despite the criticism and scepticism by some industry stakeholders,” HE Al Ghais added.

Since its inception, the DoC framework has aimed at facilitating cooperation and dialogue, including at the technical and research levels, among its participants in the interest of oil market stability.

Source:OPEC

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ING

Economic

SSAs face ongoing pressure from the underlying reassessment of sovereign risk

For supranational, sub-sovereign and agency (SSA) bonds, 2024 was, for a large part, a year of gradually widening spreads over swaps. This was mainly the effect of the European Central Bank continuing to normalise its policy implementation amid an overall elevated supply flow. This pushed the entire credit spectrum wider starting from the government bonds space, and Bunds specifically. Some issuers have lagged in the last widening move more than others. Especially for less liquid names, screen prices may not reflect prices where bonds would actually change hands – in many cases, price discovery typically runs through the primary market.

The start of the next year will be key when primary markets reopen and issuers usually frontload a good part of their funding for the year. This can put pressure on spreads. The larger issuers coming early in the year will particularly set the tone for other issuers – all eyes will be on KFW, EIB and of course the EU.

For the time being, the recovery of Bunds may provide some relief as relative valuations now look less stretched – i.e. versus the sovereign, but also less liquid relative to liquid names (think for instance German Laender versus KFW). But to the degree that French political turmoil is the underlying reason this could be a double-edged sword with only core and more liquid names to really benefit. On the positive side, even the latest escalation has had muted spillover into other jurisdictions, save Belgium to some extent.

SSA spreads were pressured wider by Bunds

SSA Spreads Pushed Wider as Underlying Sovereign Levels Get Reassessed_1

The start of the year will set the tone

One question will be whether there is a reason to frontload funding or whether there is room to postpone some of it amid current political uncertainty in France and Germany.

Funding of SSAs via EUR in 2024 had seen a pronounced frontloading with an issuance volume of €80bn in total in January setting a new record. Reasons were many, with the ECB slowing reinvestments, the EU elections in summer and the US presidential race looming later; there was plenty to get ahead of. But it was also due to the overall high funding volume. In the end, January accounted for just below 20% of funding for the entire year, a similar share as in 2023.

The wiggle room now appears limited as overall funding volumes should stay high in 2025. In terms of timing, French politics will remain an ongoing concern and could see another round of legislative elections in the summer. French-related spreads are likely to remain elevated, but it appears that other jurisdictions remain shielded for now.

If potential French elections do not trigger wider spread turmoil and another outperformance leg of Bunds, we think there is a chance that their gradual underperformance trend versus swaps continues amid persistent supply headwinds. This would likely feed through to SSAs again. At the same time, the ECB could signal by mid-year that it is close to being done with easing, while we see long-end rates continuing to drift higher. We think credit curves will likely remain steeper in such an environment.

However, there is still room for SSAs to perform relative to sovereigns, even if that does not translate to tighter spreads versus swaps. More importantly, any underperformance versus swaps might also be moderated by valuations of the SSA sector now being more attractive relative to other asset classes, from covered to (non-)financial corporates.

SSAs are wider, but also relatively more attractive

SSA Spreads Pushed Wider as Underlying Sovereign Levels Get Reassessed_2

High net supply remains a headwind

High grade € SSA issuance from the regions we track – Western Europe, North America, Japan, Australia and New Zealand plus global supranationals – has reached more than €412bn in 2024, well surpassing the €360bn of 2023 and setting a new record. Western Europe typically accounts to more than 90% of the €-denominated issuance, more than a third of which again is solely down to one single issuer – the European Union. For 2025 we expect only a slightly higher gross issuance level closer to €420bn with minor shifts below the surface.

While we await the detailed plans for the next six months from the EU, it has already flagged that gross issuance could increase to €150-160bn in 2025. This comes amid rising refinancing needs with larger bond maturities due next year – €28bn compared to €3bn in 2024. This also means that net issuance could actually decline from €135bn to €122-132bn.

ESM and EFSF will issue €28.5bn in 2025, up from €26bn in 2024, which includes the one USD dollar bond per year from the ESM. For the EIB, we again pencil in around €30bn in €-denominated funding out of roughly €60bn in total. Taking the E-Names and EU together we already arrive at 45% of the total €-issuance we forecast for 2025.

Another 25% of overall issuance will come from the German agencies and Lander. We assume an issuance volume of again close to €105bn, with KFW likely to account for €45bn alone – its €-denominated funding share. Filling in the rest, we look to French and Dutch agencies – slightly lower to similar in magnitude compared to last year, of €18bn and €15bn, respectively – and as the next largest block to supranationals other than the E-names as well as Canadian agencies and provinces – for both we look for slightly lower volumes as especially the latter tend to fund more opportunistically in EURs.

The overall EUR net funding volume could come in at €200bn, up from €195bn in 2024, but still below the peak levels of 2020 through 2022. However, this does not account for the ECB no longer reinvesting any maturing bonds from its portfolio holdings.

SSA supply will remain at elevated levels

SSA Spreads Pushed Wider as Underlying Sovereign Levels Get Reassessed_3

EU bonds' role within SSAs: challenges and opportunities

The EU remains a focus: for one it dominates the SSA space with its high issuance levels. Paired with its high rating AAA/Aaa/AA+, it also serves as a benchmark to a degree.

The further evolution of that benchmark role was dented this year when MSCI and ICE decided against incorporating the EU into sovereign debt indices. It is not the end of the story, as other index providers iboxx and S&P/Barclays still have to report back on their consultations where feedback rounds just closed in November. It would be surprising if the feedback resulted in materially different conclusions from the earlier two exercises. Still, this topic could be revisited, especially if there were more indications that the NGEU would not remain a one-off. Funding a common defence strategy amid a changing geopolitical landscape for instance could have significant supply implications for the future, although recent headlines suggest that options via a separate financing vehicle are being explored.

Further development was made on other fronts, though. ICE has just launched a Long EU bond futures contract, although it is cash-settled and based on an 8-13Y bond index rather than a basket of deliverable bonds as markets are accustomed to in the eurozone government bonds space. That might hinder it from gaining wider traction. But Eurex – the name behind the government bond contracts – has indicated that the EU is meeting the conditions for a launch of its own contract, especially since the EU has established a repo facility and also joined the Eurex repo platform for clearing and trading.

EU bonds have so far managed to stay aloof of French political

SSA Spreads Pushed Wider as Underlying Sovereign Levels Get Reassessed_4

Those are the more technical underpinnings, but the EU will be closely watched for the impact that France may have on its credit perceptions. Fitch bases its AAA rating for the EU mainly on the capacity of AAA-rated member states to provide financial support if needed. Moody’s, meanwhile, highlights that the rating is more sensitive “to changes in the ratings of the three countries rated Aaa to Aa2 that make large contributions to the EU budget, i.e. Germany, France, and the Netherlands,” though notes a degree of resilience if downgrades are limited in extent and focussed on one member state. S&P seems to follow a GDP-weighted average rating approach more mechanically than currently results in its AA+ assessment.

The market has at its peak placed French swap spreads on levels implying a rating up to three notches lower from its current AA- rating. With two negative outlooks, a one-notch downgrade looks possible over the next year. This alone would unlikely already impact the average calculations underpinning the EU, even as France has an almost 17% weight in the EU. But the market might well see this as the beginning of a cycle if French politics do not show signs of turning the corner on budget issues. An offsetting factor could remain the positive sentiment with regards to Italy and Spain in particular – together with a weight of just over 20%.

EU bonds do look rich versus the French sovereign as the widening of the latter has had a modest spillover effect, but they tended to correlate more with German SSAs in the long run. On this measure, the EU currently is at the wider end of a spread dynamic that has typically stuck to a relatively narrow band.

Source:ING

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Warren Takunda

Economic

The Pound to Euro exchange rate rallied to a new 2024 high at 1.2110 on Tuesday as a well-established uptrend extended ahead of Thursday's European Central Bank (ECB) policy decision.

This means those buying euros are seeing rates of around 1.2050-1.2070 as spreads or fees at the major providers are taken into account.

The move in GBP/EUR appears to be driven by EUR weakness, as we see EUR/USD come under some pressure too. This suggests investors are 'front running' the ECB decision, due Thursday midday.

The ECB is expected to cut interest rates by 25 basis points, although some in the market think it could take a bolder approach and cut by 50bp. The latter move would prompt a further weakening in the Euro.

To cut by 50bp would suggest that ECB decision-makers fear that the Eurozone's economy is struggling and needs assistance, which lower interest rates can provide.

However, declining rates in the Eurozone contrast with those in the UK, where rates are expected to fall at a slower pace.

Sterling trades "stronger against both the dollar and the euro, on expectations for the Bank of England not to cut rates next week, and to lower them only moderately next year," says Asmara Jamaleh, an economist at Intesa Sanpaolo.

The UK economy is expected to remain resilient, while the Eurozone is said to be more exposed to potential trade tariffs from Donald Trump's incoming administration.

"Structural improvements for the UK supply side from closer EU-UK ties remain in scope, particularly given likely U.S. policies from the incoming administration. Relatedly, the UK is likely less exposed to direct tariff risks than the eurozone," says a note from FX analysts at Barclays.

Pound Sterling outperformed its peers in 2024 on expectations that the Bank of England would be among the most cautious cutters in the G10. This means UK interest rates will remain elevated relative to elsewhere.

This can encourage a flow of capital from places such as the Eurozone into the UK, bidding up the Pound against the Euro.

"Heading into the new year, we have made some adjustments to our GBP profile to highlight our conviction that further upside is likely over the medium-term. There are risks, as always, to any forecast profile - deteriorating risk sentiment, higher volatility. But for now, we do not think that the UK Budget is an imminent threat," says Kamal Sharma, FX analyst at Bank of America.

However, there are some reasons to cautious too:

1) This might be the market 'front running' the ECB decision. Often, traders look to trade a likely event before it actually happens to maximise returns.

This means there could be little movement on Thursday when the ECB makes its decision. It also means the Euro could strengthen as investors "sell the rumour, buy the fact".

If the ECB cuts by 25bp and maintains that it will be reactive to the data, the Euro will rally as the more extreme scenario of a 50bp cut fails to materialise.

A number of bank analysts we follow think it is still to early to panic and that the ECB will cut by 25bp.

2) The exchange rate is approaching what could be a significant technical barrier. The weekly chart of GBP/EUR below shows that the pair failed in 2022.

Pound to Euro Exchange Rate Hits New 2024 Best_1

The horizontal line marks the upper limit of the post-Brexit range, and traders might be inclined to book profit and/or actively sell Pound Sterling around here in anticipation of another failure.

However, a break of this resistance opens the door to 1.2188 and then 1.25.

Analysts at Barclays forecast a grind lower for EUR/GBP towards 0.80 in 2025, which translates into a GBP/EUR conversion of 1.25.

3) This morning Pound Sterling Live published a report looking at a potential headwind to the Pound in 2025: the labour market.

The REC is the latest organisation to warn of potential job losses from Rachel Reeves' job taxing budget. The REC reports permanent staff placements index fell to 40.7 in November from 44.1 in October, placing it well below its 54.2 average in the second half of the 2010s.

This represents the largest month-to-month drop since November 2023, taking the balance to a 15-month low.

"The REC survey showed a sharp deterioration in the labour market in November as firms scaled back hiring following the Chancellor's payroll tax hike in the Budget," says Elliott Jordan-Doak, Senior UK Economist at Pantheon Macroeconomics.

This could mean the Bank of England will find itself with more scope to cut interest rates in 2025 as it judges falling wages as a deflationary input in the inflation matrix.

Such an outcome would pose a significant headwind to the Pound, which has risen amid expectations that the Bank will be one of the slowest rate cutters amongst its peers.

Source: Poundsterlinglive

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Owen Li

Economic

Carbon taxes are notoriously unpopular, as can be seen from the Yellow Vests protests in France and other protests elsewhere. Lower-income groups get disproportionally hurt as price increases resulting from such taxes are typically regressive (e.g. Bento et al. 2009, Fullerton et al. 2012, Williams et al. 2015, Goulder et al. 2019, Cronin et al. 2019, Kaenzig 2023). Politicians thus hesitate to price carbon. Also, firms criticise the costs of climate policies.

One strategy to overcome popular opposition is to hand back carbon tax revenue as lump-sum dividends to all citizens. Such climate dividends favour the poor and can offset the regressive nature of carbon taxes. Austria, Canada, and Switzerland have combined carbon pricing with climate dividends (Keohane 2009).

But climate dividends are inefficient, cannot counteract a carbon tax’s negative cost to firms, and tend to shrink the income tax base and public revenue. Carbon tax revenue should thus also be used to fund income-tax cuts and compensate firms. This is more efficient but benefits higher-income groups more. Furthermore, finance ministers want to use carbon tax revenues to plug their widening budget holes.

New carbon pricing schemes are thus needed that can gain the electorate’s approval without breaking public finances. Second-best policies imply that governments do not have access to individualised poll taxes and must rely on distorting taxes, such as the labour income tax, to finance public services. In our work (van der Ploeg et al. 2024), we go further by considering a third-best carbon tax reform, which in addition is concerned with incremental tax reform in the sense that one can only use carbon tax revenue for tax reform.

We offer novel insights into how carbon taxation affects households across the income distribution and how policymakers would want to use the carbon tax instrument and the resulting revenue. We argue that one must levy carbon taxes beyond the aggregate damages from global warming to raise additional public revenue to distribute climate dividends and ensure a fair carbon tax reform.

The micro-simulation model

We investigate these issues in a micro-based simulation model for Germany. In our model, households choose to consume from key carbon-intensive consumption categories (e.g. electricity, heating, transport) and other consumption categories. We estimate a flexible disaggregated demand system using the German consumption expenditure survey. For each commodity, we generate a carbon footprint. Households also choose their labour supply depending on their after-tax consumption wage. Demands for consumption and leisure are specific to each household (e.g. marital status, household size, number of children). The government raises revenues using income and carbon taxes. It sets policy to maximise welfare (a weighted sum of the utilities of each household), allowing for inequality aversion. Income taxes paid by each household are captured by a log-linear income tax schedule. We calibrate the preferred value of the coefficient of inequality aversion (1.6) to reproduce Germany’s observed income tax schedule and use this in Table 1 below.

Firms respond to carbon taxes by mitigating emissions, which lowers factor returns, even though they pass on some of the burden to consumers via higher prices. This is the regulatory (efficiency) cost of climate policy. Carbon taxes increase prices according to their carbon intensity. They lower the real wage and employment, which represent efficiency costs. Poorer households are impacted relatively more by carbon taxes. Carbon taxes thus lower emissions at the expense of equity.

We consider three scenarios: (1) recycle carbon tax revenue as climate dividends; (2) use revenue to lower income taxes and make income taxes more progressive; and (3) use revenue for climate dividends and for adjusting the progressivity of the income tax system. In all scenarios, the carbon tax and the way it is recycled are set optimally.

Table 1 Three different recycling scenarios (relative to a no-damages and no-carbon-tax baseline)

Carbon tax Reform: Fair, Efficient, and Budget-Neutral_1

Scenario (1): Recycling all carbon tax revenue as climate dividends

Recycling revenue as climate dividends helps to offset the regressive impact of the tax on the poor. The dividends improve equity by transferring some of the burden away from lower-income households. To illustrate this, Table 1 shows this for Germany when the social marginal damages from global warming are €100/tCO2. (In our paper, we also discuss marginal damages of €0 and €50 per tCO2.) The carbon tax is set at €77/tCO2, below marginal social damages, and each household receives a climate dividend of €341 per year. As a result, emissions fall by more than a third and employment drops by slightly more than 1%.

It is useful to contrast this with scenario (3), where all carbon revenue is optimally recycled to solely reform the income tax system with no climate dividends. While this option is better for efficiency, it is worse for equity, and emissions fall by less as the carbon tax is now only €51/tCO2. As a result, emissions only drop by about a quarter rather than a third. The inability to directly protect the poor is why carbon taxes are lower. Total welfare is much higher if the carbon taxes are set higher and all carbon tax revenue is recycled as climate dividends, as in scenario (1).

Scenario (2): Third-best optimal carbon tax reform

Even higher welfare can be achieved if the income tax system, the carbon tax, and the climate dividend are simultaneously optimised. The carbon tax revenue is thus split between providing a climate dividend and reforming the income tax system. Table 1 indicates that the carbon tax is now much higher than before, €119/tCO2, and even higher than the marginal damages of €100/tCO2. Emissions thus fall much more, by nearly half. Since demand for energy-intensive goods is not very sensitive to price changes, the carbon tax is an efficient way to raise revenue. Hence, the climate dividend is now much higher, €732 per year, albeit employment falls a little bit more and the efficiency loss is much higher (3.7%). But this loss is more than offset by the higher equity gain. Total welfare increases by the most (3.3%) among the three scenarios.

The key insight is that the third-best optimal carbon tax is set above the marginal damages from global warming, as climate dividends are an efficient way to redistribute, with all carbon tax revenue rebated as climate dividends. Figure 1 indicates that both the level of the carbon tax and total climate dividends increase if policymakers are more concerned about inequality aversion. The third-best optimal carbon tax starts at half the marginal damages if policymakers do not care about inequality but rises to 120% of marginal damages at our preferred degree of inequality aversion.

Figure 1 Effects of different degrees of inequality aversion on carbon tax and climate dividend

Carbon tax Reform: Fair, Efficient, and Budget-Neutral_2

Figure 2 shows that for third-best carbon tax reform emissions, employment and inequality fall as policymakers become more concerned about inequality. Emissions are less than when recycling only climate dividends, except for low degrees of inequality aversion, while employment and inequality are higher, except for very high degrees of inequality aversion.

Figure 2 Effects of optimal policy packages on emissions, hours worked, and inequality

Carbon tax Reform: Fair, Efficient, and Budget-Neutral_3

Summing up

To make carbon pricing acceptable to the electorate, some carbon tax revenue must be rebated as a uniform climate dividend. This helps to counter the adverse effects on the income distribution of a carbon tax. One can do even better if the climate dividends are targeted at the lowest incomes, for example, through social security payments (Tovar et al. 2021, Paoli and van der Ploeg 2021). However, one could do better for both efficiency and equity if carbon taxes are set higher, even above the sum of the marginal damages from global warming, and the extra revenue is used to finance a higher climate dividend and to reform the income tax system. This compensates for some of the regulatory (efficiency) cost of climate policy without jeopardising equity.

Our results align with those of Fried et al. (2024), who show within a general equilibrium framework that it is optimal to hand back two-thirds of carbon tax revenue to cut the distortionary tax on capital income and to use the remaining one-third to make the income tax system more progressive. This recycling scheme also attains higher welfare than handing back all the carbon tax revenue as climate dividends or handing all the revenue back as cuts in distortionary taxes.

More generally, we argue that to simultaneously achieve development and climate goals, it is important to curb inequality and make growth more inclusive (see also Wollburg et al. 2024). An important aspect that needs further consideration for the green transition is to ensure that households and corporations switch from gas-fired central heating to heat pumps and solar panels, from internal-combustion-engine vehicles to electrical vehicles, and invest in green hydrogen. To achieve this, it would be helpful to use some of the carbon tax revenues to finance – via a proportional pricing subsidy – such switching investments for the green transition (Kuhn and Schlattmann 2024). It is also important to help the poor who do not have the cash and cannot borrow to switch to green technologies.

Source:Armon Rezai Frederick Van Der Ploeg

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ING

Economic

Spread risks look more contained and idiosyncratic

The market seems to sense that eurozone risks are by now largely contained and we are looking more at idiosyncratic country stories. The reaction of Bund swap spreads to episodes of eurozone political turmoil had become smaller in scope and more short-lived. Notably, periphery bond spreads have remained on a tightening trend despite French political unrest. In fact, markets are challenging the hierarchy of spreads from the past years as the conventional high-risk countries, e.g. Italy, Spain and Portugal are doing relatively well compared to say France and Belgium.

The market has internalised the European Central Bank’s reaction function to signs of market dysfunction and the ECB’s suite of instruments has also evolved including the Transmission Protection Mechanism (TPI). Add to this that the EU has moved closer together with each of the past crises, culminating in the common debt issuance through the NGEU.

The counterargument is that one cannot expect any further progress as long as political uncertainty hampers leadership in both France and Germany. With debt levels overall still elevated, deficits high and the macro outlook fragile, even the ECB warned recently that 'fiscal slippage' could reignite market concerns over sovereign debt sustainability. The political situation could leave the ECB picking up the pieces again.

Towards a new hierarchy within eurozone bonds

Eurozone Bond Spreads: A Reordering in Progress_1

Eyes will remain on France, but a lot of pessimism is already priced...

This time around all eyes are of course on France. The 10y yield spread of French government bonds over their German peers widened to 88bp in December before retreating to previously already elevated ranges. Further widening looks possible as politics enter a new phase of heightened uncertainty and new parliamentary elections now loom large in summer 2025. But markets had been wary about the prospects of quickly solving French fiscal problems to begin with, as pricing already reflects an expectation of rating downgrades. With the latest widening, French 10y spreads over swaps were more in line with an 'A-' rating rather than its current 'AA-' – three notches lower.

Government fragility was always part of the picture, even if not expected to come to a head quite so soon. The focus is now on the implications for a longer-run debt trajectory and where France finds its place relative to its peers. French spreads are already well above Spain’s and are now close to par with those of Greece.

French bond spreads already reflect a lot of rating pessimism

Eurozone Bond Spreads: A Reordering in Progress_2

... and wider spillover has been muted, which should allow further selective tightening elsewhere

Importantly, the rekindled concerns surrounding France have not prevented, for instance, Italian government bond spreads versus Bunds trading close to the tightest level since 2021. What we are still seeing with regard to the wider eurozone periphery is an increased market optimism on the back of relative political stability and macro resilience leading to hopes for further rating upgrades. With spreads also supported by the general ECB rate-cutting environment for now, this more than counterbalances the impact of the ECB’s gradual quantitative tightening.

This setup may hold in the early part of 2025. But it could become more and more challenging as ECB reinvestments now come to a complete stop. Our central scenario also sees the ECB reaching the trough in policy rates at just below neutral levels by mid-year and longer rates beginning to trend higher, thus steepening the curve from the back end. But the outlook comes with a great degree of uncertainty, not least because of the unpredictability of US politics. Volatility is never a friend of spread products.

For eurozone spreads, that may mean a modest potential for more selective tightening in the early part of the year – if political tensions do not escalate further. But further spread performance in the latter part of the year looks more challenging. A downside risk scenario that would see the ECB cut rates more substantially and also contemplate deploying its balance sheet gains would likely have the most profound impact on spreads, starting with Bunds.

Source: ING

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Glendon

Economic

Forex trading signals are a powerful tool for traders, providing valuable insights into the market and helping traders make informed decisions. For those looking to increase their chances of success in the forex market, finding the best forex trading signals is crucial. These signals can be based on various indicators, such as technical analysis, fundamental analysis, and even sentiment analysis.

In this article, we’ll explore how to find the best forex trading signals, what to look for in reliable signal providers, and tips on how to use them effectively to improve your trading performance.

1. Understand What Forex Trading Signals Are

Before we dive into where to find forex trading signals, it’s essential to understand what they are and how they work.

Forex trading signals are essentially recommendations or alerts that indicate potential entry or exit points in the forex market. These signals can be generated manually by experienced traders or automatically through trading algorithms. They can be based on different factors, such as:

Technical Indicators: Moving averages, RSI, MACD, Fibonacci retracement levels, and candlestick patterns.

Fundamental Analysis: Economic news, interest rate changes, geopolitical events, or economic reports.

Market Sentiment: How other traders are positioned in the market, such as through social media or news sources.

The signals typically include information such as the currency pair, entry point, stop-loss level, and take-profit level.

2. Look for Reliable and Transparent Signal Providers

When looking for the best forex trading signals, the first step is finding a reliable and transparent signal provider. There are many signal providers out there, but not all are created equal.

Here’s how to evaluate them:

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Research reviews and testimonials from other traders who have used the signal provider’s services. Reputable signal providers are often well-reviewed across forex forums, social media groups, and review websites.

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A good signal provider will be transparent about how their signals are generated and the strategy behind them. Be wary of providers that make unrealistic claims or don’t offer insights into their methods.

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There are two main types of signal sources: manual signals and automated signals. Both have their advantages and disadvantages.

Manual Signals:

Manual signals are created by experienced traders who analyze the market and use their expertise to generate trade recommendations. These signals are often more personalized and take into account various market factors.

Pros: Expertise-driven, adaptable to changing market conditions.

Cons: May be less frequent and depend on the individual trader’s availability.

Automated Signals:

Automated signals are generated by algorithms or trading bots that analyze technical indicators, patterns, and market conditions to make trade recommendations.

Pros: Fast, consistent, and available 24/7.

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Tip:

Some traders prefer a combination of both types, using automated signals for consistency while following manual signals for more nuanced analysis.

4. Test Signals with a Demo Account

Before committing real money to forex trading signals, it’s wise to test them using a demo account. Most brokers offer demo accounts that allow traders to simulate live market conditions with virtual capital.

Why It Matters:

Testing signals on a demo account gives you a chance to see how well they perform without risking your own capital. It also helps you understand how the signals work in real market conditions.

How to Test:

Place trades based on the signals you receive and track the results over a period of time. This will give you an idea of the provider’s accuracy and reliability.

5. Evaluate the Signal’s Risk-to-Reward Ratio

Not all forex signals are created equal, and it’s essential to evaluate the risk-to-reward ratio of any given signal. A good signal should have a favorable risk-to-reward ratio, meaning the potential reward should outweigh the risk.

How It Works:

If a signal suggests entering a trade with a stop-loss of 30 pips and a take-profit of 90 pips, the risk-to-reward ratio would be 1:3. This is generally considered a good risk-to-reward ratio, as you stand to gain more than you risk on each trade.

A signal provider with a consistently high risk-to-reward ratio has a higher chance of generating profitable trades over time.

6. Stay Disciplined and Follow Your Strategy

Once you’ve found a reliable source of forex trading signals, it’s essential to stay disciplined and follow your trading plan. Many traders fail to achieve consistent success not because the signals are bad, but because they deviate from their strategy or let emotions dictate their trades.

Stick to Your Plan:

Follow the signals as instructed—enter at the suggested levels, use the recommended stop-loss, and take-profit levels. If you consistently modify the strategy, you may be sabotaging your own success.

Avoid Overtrading:

Don’t trade just because you’re receiving signals. Overtrading can result in unnecessary losses. Only take trades that fit your trading strategy and risk tolerance.

7. Consider the Cost of Forex Signal Services

While some forex signal services are free, many charge a subscription fee. It’s important to evaluate whether the cost is justified by the value the service provides. A good signal provider should offer enough quality and consistency to make the subscription fee worthwhile.

Free Signals:

Free services can be helpful for beginners, but they may not be as reliable or accurate as paid services.

Paid Signals:

Paid services often offer more advanced features, better customer support, and more reliable results. However, always assess the performance before committing to a paid plan.

Conclusion

Finding the best forex trading signals requires careful research, evaluation, and testing. By following the tips outlined in this article, traders can enhance their chances of finding reliable and accurate signals that align with their trading goals. Remember, no signal is foolproof, but when combined with sound risk management and a disciplined approach, forex trading signals can be a valuable tool for improving your trading success.

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Is The Downshift In US Inflation Stalling?

Source:James Picerno

Declaration of Cooperation Reaches Eight Years

Source:OPEC

SSA Spreads Pushed Wider as Underlying Sovereign Levels Get Reassessed

SSAs face ongoing pressure from the underlying reassessment of sovereign risk

SSA spreads were pressured wider by Bunds

The start of the year will set the tone

SSAs are wider, but also relatively more attractive

High net supply remains a headwind

SSA supply will remain at elevated levels

EU bonds' role within SSAs: challenges and opportunities

EU bonds have so far managed to stay aloof of French political

Source:ING

Pound to Euro Exchange Rate Hits New 2024 Best

Source: Poundsterlinglive

Carbon tax Reform: Fair, Efficient, and Budget-Neutral

The micro-simulation model

Scenario (1): Recycling all carbon tax revenue as climate dividends

Scenario (2): Third-best optimal carbon tax reform

Summing up

Source:Armon Rezai Frederick Van Der Ploeg

Eurozone Bond Spreads: A Reordering in Progress

Spread risks look more contained and idiosyncratic

Towards a new hierarchy within eurozone bonds

Eyes will remain on France, but a lot of pessimism is already priced...

French bond spreads already reflect a lot of rating pessimism

... and wider spillover has been muted, which should allow further selective tightening elsewhere

Source: ING

How to Find the Best Forex Trading Signals for Consistent Success

1. Understand What Forex Trading Signals Are

2. Look for Reliable and Transparent Signal Providers

Track Record and Performance:

Reputation and Reviews:

Transparency:

3. Evaluate the Signal Source

Manual Signals:

Automated Signals:

Tip:

4. Test Signals with a Demo Account

Why It Matters:

How to Test:

5. Evaluate the Signal’s Risk-to-Reward Ratio

How It Works:

6. Stay Disciplined and Follow Your Strategy

Stick to Your Plan:

Avoid Overtrading:

7. Consider the Cost of Forex Signal Services

Free Signals:

Paid Signals:

Conclusion

Risk Disclosure