Got a view on inflation?

[MongiIG]

[MongiIG]

The coronavirus pandemic has led to a new era of inflation inequality, economists warn, in which poor households bear the brunt of rising prices.  

That’s because a bigger portion of their budget goes toward categories that have spiked in cost. Food is up 6.4% over the past year, for example, while gasoline jumped a whopping 58%. And now many people are facing those higher prices as federal stimulus programs fade away.  

 

“They’re essentially looking to stretch a dollar most days,” said Chris Wimer, co-director of the Center on Poverty & Social Policy at Columbia University. “It’s going to lead to difficult choices between putting gas in the car or paying for your kids’ child care or putting food on the table.” 

A recent analysis by the Penn Wharton Budget Model found that low- and middle-income households spent about 7% more in 2021 for the same products they bought in 2020 or in 2019. That translates into about $3,500 for the average household. 

By contrast, spending by wealthy households went up by only 6%. Full story on CNBC

[skyreach]

Blame the pandemic!!!

It is always interesting when experts blame a specific cause for things going wrong. Though the facts and empirical statistics give indicators of a worsening statistic the actual real primary causer is missed.  So we end up with a flash reporting, in a way.

Inflation has been a problem for some years but where and how it got distributed apparently is not clear to many economists, case in point:

"The coronavirus pandemic has led to a new era of inflation inequality, economists warn, in which poor households bear the brunt of rising prices. " 

Hyperinflation in the stock markets and the property markets is missed.

Commodity prices have been shooting up causing higher input prices to all industries, and hence to food price rises, plus the seasonal increase that often also takes place too. A big cause, missed, or gets underplayed.

Coronavirus is an additional factor that came in but is not the main cause that is being made out to be, by some. People analyze by association with factors they can link to, rather then to search in-depth for the primary cause factors, which may go back in time.

We come across this too often in the media reports  too. They often report a cause that crashes the market when in fact it did not. the trend was already in place prior to that event and the event temporarily (short term) went along with that trend.

It is a little wonder why most economists and bankers (at least in the public data presented as opposed to their real private views) give us misguided conclusions.

Future possibility

China's property market causing an earthquake that is being played down. It cannot get out of the mess it has trapped itself in -- no manipulations the state or the banking system can and when that is applied then it only delays it and makes it far more worse.

The real factors were not handled in the first place  -- pity. Professionals seem to have a habit of repeating the same mega bad practices because they are enticed by the "shot cuts" and "easy means" to big fat profits fast.

One other pointer:

Financial history shows that when nyse margin debt levels reach all-time highs, a bull market is nearing its end. Notable examples include the stock market tops of 1987, 2000 and 2007.

[MongiIG]

51 minutes ago, skyreach said:

BLAME THE PANDEMIC!!!

     IT IS ALWAYS INTERESTING WHEN EXPERTS BLAME A SPECIFIC CAUSE FOR THINGS GOING WRONG. THOUGH THE FACTS AND EMPIRICAL STATISTICS GIVE INDICATORS OF A WORSENING STATISTIC THE ACTUAL REAL PRIMARY CAUSER IS MISSED.  SO WE END UP WITH A FLASH REPORTING, IN A WAY.

     INFLATION HAS BEEN A PROBLEM FOR SOME YEARS BUT WHERE AND HOW IT GOT DISTRIBUTED APPARENTLY IS NOT CLEAR TO MANY ECONOMISTS, CASE IN POINT:

"The coronavirus pandemic has led to a new era of inflation inequality, economists warn, in which poor households bear the brunt of rising prices. " 

HYPERINFLATION IN THE STOCK MARKETS AND THE PROPERTY MARKETS IS MISSED.

     COMMODITY PRICES HAVE BEEN SHOOTING UP CAUSING HIGHER INPUT PRICES TO ALL INDUSTRIES, AND HENCE TO FOOD PRICE RISES, PLUS THE SEASONAL INCREASE THAT OFTEN ALSO TAKES PLACE TOO. A BIG CAUSE, MISSED, OR GETS UNDERPLAYED.

     CORONAVIRUS IS AN ADDITIONAL FACTOR THAT CAME IN BUT IS NOT THE MAIN CAUSE THAT IS BEING MADE OUT TO BE, BY SOME. PEOPLE ANALISE BY ASSOCIATION WITH FACTORS THEY CAN LINK TO, RATHER THEN TO SEARCH IN-DEPTH FOR THE PRIMARY CAUSE FACTORS, WHICH MAY GO BACK IN TIME.

      WE COME ACROSS THIS TOO OFTEN IN THE MEDIA REPORTS  TOO. THEY OFTEN REPORT A CAUSE THAT CRASHES THE MARKET WHEN IN FACT IT DID NOT. THE TREND WAS ALREADY IN PLACE PRIOR TO THAT EVENT AND THE EVENT TEMPORARILY (SHORT TERM) WENT ALONG WITH THAT TREND.

     IT IS A LITTLE WONDER WHY MOST ECONOMISTS AND BANKERS (AT LEAST IN THE PUBLIC DATA PRESENTED AS OPPOSED TO THEIR REAL PRIVATE VIEWS) GIVE US MISGUIDED CONCLUSIONS.

FUTURE POSSIBILITY

     CHINA'S PROPERTY MARKET CAUSING AN EARTHQUAKE THAT IS BEING PLAYED DOWN. IT CANNOT GET OUT OF THE MESS IT HAS TRAPPED ITSELF IN -- NO MANIPULATIONS THE STATE OR THE BANKING SYSTEM CAN AND WHEN THAT IS APPLIED THEN IT ONLY DELAYS IT AND MAKES IT FAR MORE WORSE.

     THE REAL FACTORS WERE NOT HANDLED IN THE FIRST PLACE  -- PITY. PROFESSIONALS SEEM TO HAVE A HABIT OF REPEATING THE SAME MEGA BAD PRACTICES BECAUSE THEY ARE ENTICED BY THE "SHOT CUTS" AND "EASY MEANS" TO BIG FAT PROFITS FAST.

ONE OTHER POINTER:

     FINANCIAL HISTORY SHOWS THAT WHEN NYSE MARGIN DEBT LEVELS REACH ALL-TIME HIGHS, A BULL MARKET IS NEARING ITS END. NOTABLE EXAMPLES INCLUDE THE STOCK MARKET TOPS OF 1987, 2000 AND 2007.

    

 

Hi @skyreach

There is no doubt that 2021 was a historic year defined by runaway inflation, coronavirus variants, and resilient stock markets.

With persistent inflation likely to remain a major theme in 2022, it will be interesting to see whether this forces more central banks to tighten monetary policy. Let’s not forget about the current Omicron menace and risks of new variants potentially clouding the global economic outlook. Equity bulls dominated the scene this year but will we see the same in 2022? Or will the combination of rising inflation and tighter monetary policy end the bull run?

We saw some extreme events throughout 2021 with the show set to continue in 2022. It may be wise to fasten your seatbelts in preparation for another eventful and potentially volatile year for financial markets as 2021 slowly comes to an end.

By Lukman Otunuga, Senior Research Analyst

[MongiIG]

[THT]

Price Inflation can be monitored in a rough sense from the "Soft" Commodity sectors - these sectors typically work in unison with energy especially household energies

I published the following in the Time Cycles thread - the sequence in price can, does and HAS Inverted, HOWEVER, the sequence in TIME - NEVER Inverts or alters!

By BEING on the RIGHT side of the expected action you can WIN

The SEQUENCE is there right in the post for you to see, bank for the future etc etc etc

https://community.ig.com/forums/topic/13746-time-cycles/?do=findComment&comment=73143

From the SEQUENCE you should be able to work out the year the TOP/HIGH is expected, what should happen after the high/top and until WHEN and so on

THT

 

[THT]

2 hours ago, skyreach said:

BLAME THE PANDEMIC!!!

     IT IS ALWAYS INTERESTING WHEN EXPERTS BLAME A SPECIFIC CAUSE FOR THINGS GOING WRONG. THOUGH THE FACTS AND EMPIRICAL STATISTICS GIVE INDICATORS OF A WORSENING STATISTIC THE ACTUAL REAL PRIMARY CAUSER IS MISSED.  SO WE END UP WITH A FLASH REPORTING, IN A WAY.

     INFLATION HAS BEEN A PROBLEM FOR SOME YEARS BUT WHERE AND HOW IT GOT DISTRIBUTED APPARENTLY IS NOT CLEAR TO MANY ECONOMISTS, CASE IN POINT:

"The coronavirus pandemic has led to a new era of inflation inequality, economists warn, in which poor households bear the brunt of rising prices. " 

HYPERINFLATION IN THE STOCK MARKETS AND THE PROPERTY MARKETS IS MISSED.

     COMMODITY PRICES HAVE BEEN SHOOTING UP CAUSING HIGHER INPUT PRICES TO ALL INDUSTRIES, AND HENCE TO FOOD PRICE RISES, PLUS THE SEASONAL INCREASE THAT OFTEN ALSO TAKES PLACE TOO. A BIG CAUSE, MISSED, OR GETS UNDERPLAYED.

     CORONAVIRUS IS AN ADDITIONAL FACTOR THAT CAME IN BUT IS NOT THE MAIN CAUSE THAT IS BEING MADE OUT TO BE, BY SOME. PEOPLE ANALISE BY ASSOCIATION WITH FACTORS THEY CAN LINK TO, RATHER THEN TO SEARCH IN-DEPTH FOR THE PRIMARY CAUSE FACTORS, WHICH MAY GO BACK IN TIME.

      WE COME ACROSS THIS TOO OFTEN IN THE MEDIA REPORTS  TOO. THEY OFTEN REPORT A CAUSE THAT CRASHES THE MARKET WHEN IN FACT IT DID NOT. THE TREND WAS ALREADY IN PLACE PRIOR TO THAT EVENT AND THE EVENT TEMPORARILY (SHORT TERM) WENT ALONG WITH THAT TREND.

     IT IS A LITTLE WONDER WHY MOST ECONOMISTS AND BANKERS (AT LEAST IN THE PUBLIC DATA PRESENTED AS OPPOSED TO THEIR REAL PRIVATE VIEWS) GIVE US MISGUIDED CONCLUSIONS.

FUTURE POSSIBILITY

     CHINA'S PROPERTY MARKET CAUSING AN EARTHQUAKE THAT IS BEING PLAYED DOWN. IT CANNOT GET OUT OF THE MESS IT HAS TRAPPED ITSELF IN -- NO MANIPULATIONS THE STATE OR THE BANKING SYSTEM CAN AND WHEN THAT IS APPLIED THEN IT ONLY DELAYS IT AND MAKES IT FAR MORE WORSE.

     THE REAL FACTORS WERE NOT HANDLED IN THE FIRST PLACE  -- PITY. PROFESSIONALS SEEM TO HAVE A HABIT OF REPEATING THE SAME MEGA BAD PRACTICES BECAUSE THEY ARE ENTICED BY THE "SHOT CUTS" AND "EASY MEANS" TO BIG FAT PROFITS FAST.

ONE OTHER POINTER:

     FINANCIAL HISTORY SHOWS THAT WHEN NYSE MARGIN DEBT LEVELS REACH ALL-TIME HIGHS, A BULL MARKET IS NEARING ITS END. NOTABLE EXAMPLES INCLUDE THE STOCK MARKET TOPS OF 1987, 2000 AND 2007.

    

 

Agree with most of the above - I remember being with a major UK fund m,anagement group on D-Day October 2008 as the FTSE100 Imploded (as a guest at a conference they organised) - Did not have a clue what had/was happening and were totally clueless as to the bottom of the market

That day changed my life - I began researching the markets for myself, so agree with you totally on the experts not knowing what's going on

[MongiIG]

Central Bank Watch: Fed Speeches, Interest Rate Expectations Update

Dec 30, 2021 |  Christopher Vecchio, CFA, Senior Strategist. DailyFX

CENTRAL BANK WATCH OVERVIEW:

• As 2021 comes to a close, rates markets are less aggressive in their expectations on Fed policy in 2022 and 2023.
• The Fed’s accelerated rate of tapering will see QE end by March 2022, where Fed funds futures are currently discounting the first 25-bps rate hike.
• Fed rate hike odds are still discounting five rate hikes through the end of 2023, with a 63% chance for six 25-bps rate hikes in total.

DOVISH OR HAWKISH TIGHTENING AHEAD?

In this edition of Central Bank Watch, we’ll review comments and speeches made by various Federal Reserve policymakers in the two weeks after the communications blackout window around the December Fed meeting ended. To no surprise, all is quiet on the Fed front, insofar as the Christmas and New Year holidays have seen policymakers go on vacation.

For more information on central banks, please visit the DailyFX Central Bank Release Calendar.

MOSTLY QUIET SINCE DECEMBER FED MEETING

Considering the momentous shift in Fed policy at the December Fed meeting, one may find it surprising that there have been nearly zero communications by Fed officials in the immediate aftermath. But perhaps this is due to market pricing: after all, markets were already pricing in the change to the pace of tapering, and had for several months discounted five-plus rate hikes through the end of 2023. With the holidays upon us, Fed policy officials may have simply opted to take their time off as opposed to inadvertently upsetting the proverbial apple cart; US equity markets are closing out the year at or near all-time highs.

December 15 – The December Fed meeting sees the FOMC increase the rate of QE tapering to $30 billion per month in January and February 2022, which will zero out asset purchases by March 2022. With Powell (Fed Chair) noting that “the economy has been making rapid progress toward maximum employment,” it was determined that “economic developments and changes in the outlook warrant this evolution of monetary policy.”

December 17 – Waller (Fed Governor) suggested that the acceleration in QE tapering positions the Fed to raise rates early in 2022, further commenting that “actually raising interest rates would be a sign of a positive development in terms of where we are in the economic cycle.”

MORE HAWKISH…AND LESS HAWKISH?

Rates markets are starting to twist and turn in a manner that suggests that Fed may be both more hawkish and less hawkish. More hawkish in the sense that rate hikes could arrive sooner than previously anticipated, but less hawkish in the sense that fewer rate hikes may ultimately transpire by the end of 2023 if the Fed acts aggressively in 2022.

We can measure whether a Fed rate hike is being priced-in using Eurodollar contracts by examining the difference in borrowing costs for commercial banks over a specific time horizon in the future. Chart 1 below showcases the difference in borrowing costs – the spread – for the January 2022 and December 2023 contracts, in order to gauge where interest rates are headed by December 2023.

EURODOLLAR FUTURES CONTRACT SPREAD (JANUARY 2022-DECEMBER 2023) [BLUE], US 2S5S10S BUTTERFLY [ORANGE], DXY INDEX [RED]: DAILY TIMEFRAME (JULY 2021 TO DECEMBER 2021) (CHART1)

By comparing Fed rate hike odds with the US Treasury 2s5s10s butterfly, we can gauge whether or not the bond market is acting in a manner consistent with what occurred in 2013/2014 when the Fed signaled its intention to taper its QE program. The 2s5s10s butterfly measures non-parallel shifts in the US yield curve, and if history is accurate, this means that intermediate rates should rise faster than short-end or long-end rates.

There are 140.75-bps of rate hikes (that’s five 25-bps rate hikes plus a 63% chance of a sixth hike) discounted through the end of 2023 while the 2s5s10s butterfly recently is at its narrowest spread since early-November. It’s worth noting that Eurodollar spreads are less aggressive than they were at their December peak, when there was a 100% chance of six 25-bps rate hikes through the end of 2023.

FEDERAL RESERVE INTEREST RATE EXPECTATIONS: FED FUNDS FUTURES (DECEMBER 30, 2021) (TABLE 1)

Fed fund futures, on the other hand, have become more aggressive over the course of the month. Ahead of the December Fed meeting, Fed funds futures were discounting an 81% chance of a 25-bps rate hike in June 2022 – which would be the first rate hike of 2022. Now, at the end of December, Fed funds futures are pricing in March 2022 for the first 25-bps rate hike with a 63% chance.

IG CLIENT SENTIMENT INDEX: USD/JPY RATE FORECAST (DECEMBER 30, 2021) (CHART 2)

USD/JPY: Retail trader data shows 26.88% of traders are net-long with the ratio of traders short to long at 2.72 to 1. The number of traders net-long is 6.60% lower than yesterday and 17.17% lower from last week, while the number of traders net-short is 3.11% higher than yesterday and 10.25% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/JPY prices may continue to rise.

Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USD/JPY-bullish contrarian trading bias.

[skyreach]

THT - Thanks for that ref/ Yes, there is a time cycle. Gann does work and there is a lot of info online that anyone can look at to learn this too. Unfortunately not many companies provide data for markets and shares going back many decades. BIG PITY, because in the US markets they do give data for their markets. UK companies hold back on this!!

17 hours ago, THT said:

https://community.ig.com/forums/topic/13746-time-cycles/?do=findComment&comment=73143

!Thanks THT for this info. YES, there is a TIME CYCLE. GANN had an excellent system. I have studied some of it . Lot of info online. Pity is that UK companies DO NOT PROVIDE DATA GOING BACK MORE THAN 10-YEARS OR 20-YEARS THAT I AM AWARE. US MARKETS IS DIFFERENT.

ALSO THERE DOES NOT SEEM TO BE A GOOD VALUE FOR MONEY GENUINE GANN SERVICE I COULD SEARCH FOR ONLINE!!!

GAN % AND GANN ANGLES PLUS THE HIS ANNUAL TIME LINE /CYCLES SEEM TO BE THE KEY BASICS.

ELLIOT WAVE ANALYSIS IS FROM A DIFFERENT PERSPECTIVE AS ITS BASICS ARE FIB RATIOS AND WAVE ANALYSIS. THERE IS TIME ANALYSIS BUT MOST DO NOT SEEM TO KNOW IT OR HOW TO USE IT CORRECTLY.

THOSE WHO DO NOT UNDERSTAND THE CONCEPTS MISUSE IT THEN CLAIM GANN OR ELLIOTT WAVE DOES NOT WORK!!!!

 

 

 

[skyreach]

Lukman Otunuga, Senior Research Analyst Hello , YES 2022 will be very interesting for inflation data and the FED.

     I find the FED deliberately  playing with words making the market players guess this way then that way constantly. INDECISIVE MENTALITY OR A DELIBERATE NON-STATEMENT IN CONCLUSION GIVEN. THAT MAKES THE MARKETS REACT IN A  VOLATILE WAY.

     IF IN YOUR BUSINESS YOU HAD A PERSON WHO WAS OFTEN INDECISIVE IN THEIR CONCLUSIONS OFTEN WOULD YOU THEN BELIEVE THEM, OR CONTINUE TO EMPLOY THEM IN THAT ROLE? WOULD THEY BENEFIT YOU?

     Many experts seem to justify that mentality, "Ohh, they have to because of xyz reasons" BECAUSE THEY CONTINUE TO  BELIEVE THE HYPE.. THE KEY POINTS MISSED ARE :

     The FED IS SUPPOSED TO BE EXPERTS WHO, IF THEY KNOW THEIR BUSINESS OR BECAUSE THEY ABLE TO SOLVE MAJOR ISSUES they can WITH CERTAINTY TELL WHAT IS TAKING PLACE IN THE MARKETS AND WHAT THEY NEED TO DO AT THAT TIME TO TERMINATEDLY HANDLE IT.

     USUALLY THE FED IS BEHIND THE BOND MARKETS CURVE MOVES ON INTEREST RATES. THEY FOLLOW THEM. SO THEY DO NOT KNOW WHAT IS WHAT THEMSELVES. MOST SEEM TO MISS THAT POINT IN THE MARKETS!!!

     THEY USE THE SAME "SOLUTIONS" THEY USED DECADES AGO  AGAIN & AGAIN, WHICH PROVED NOT TO HAVE SOLVED THE ECONOMIC PROBLEMS THEY CLAIM DID, OFTEN. WE END UP WITH A CYCLICAL HEADACHE AND THEY ENCOURAGE MOUNTAIN OF DEBTS BUILD UP TO EXTREME LEVELS.  ENCOURAGE OTHER COUNTRIES OF THE WORLD TO FOLLOW THE SAME MODEL SO EVERYONE IS IN A SIMILAR CONFUSED MESS AND WHEN IT ALL COMES APART THEY CAN SAY, "OH, OTHER COUNTRIES ARE SUFFERING A SIMILAR FATE, SO" NOT OUR FAULTY" "MENTALITY.

     IT IS CONVENIENT TO BLAME OTHER UNEXPECTED FACTORS, LIKE COVID PANDEMICS, THAT "DERAILED THEM". THAT IS AN EXAMPLE OF THE TYPE OF EXCUSES USED BY FAILING PROFESSIONALS.

I HAVE POINTED OUT SEVERAL OTHER POINTS IN MY OTHER BLOGS TOO.

 

[MongiIG]

 

[MongiIG]

Inflation casts a shadow over UK retailers for 2022

Stock MarketsJan 06, 2022 

 

 

 

© Reuters. FILE PHOTO: People walk past a store of clothing retailer Next, in London, Britain, December 2, 2021. Picture taken December 2, 2021. REUTERS/May James

By Paul Sandle and James Davey

LONDON (Reuters) - Three leading British retailers on Thursday underscored the threat they face from inflation this year, with their bosses fretting over the need to remain competitive as surging prices threaten customer spending power.

Next, Britain's most profitable clothing retailer, said it expected higher freight and manufacturing costs to push its prices up by 6% in the second half of 2022, raising doubts as to whether customers' wages would be able to keep up. The Bank of England expects overall consumer price inflation to hit that figure in April, its highest since 1992, before easing off.

Next boss Simon Wolfson told Reuters the gap between general wages and its prices would largely determine the company's fortunes in 2022.

"The positive for retail is that we can adjust our pricing," he said. "So if wage inflation is in line with our price increases - I don't think it will be, but if it is - then it's not going to be nearly as much of a problem as if wage inflation is a long way behind."

Greggs, a food-to-go retailer, said its costs were driven by government-mandated hikes to the minimum wage, and the rise in prices of ingredients. With order contracts in place, it has visibility for the next four to six months.

"This year is a more challenging year than most because you've got inflation coming at you from both the ingredient side and from the labour side," outgoing CEO Roger Whiteside told Reuters.

He said that while Greggs had, and would try, to push through small price rises, the group had to be cheaper than rivals.

B&M, a discount retailer that has performed strongly during the pandemic, upgraded its profit forecast on Thursday. But it tempered its upbeat tone with an acknowledgement that 2022 would bring further supply chain disruption, inflationary pressures and uncertainty from COVID-19.

Rising inflation is the major cloud on the horizon for the global economy, as supply chain disruption, higher energy costs, labour shortages and a post-lockdown revival in demand for goods pushes up prices at rates not seen for decades.

That will all place additional pressure on consumer spending after years of stagnant wage growth in real terms. In April, British consumers will face a rise in taxes and energy bills.

 

They are also facing higher food prices. Grocery price inflation reached 3.5% in December, its highest since spring 2020, adding nearly 15 pounds ($20) to shoppers' average monthly grocery bills, according to industry data published on Wednesday.

($1 = 0.7392 pounds)

[MongiIG]

The bond market could again set the course for the week ahead, after rapidly rising interest rates gave stocks a choppy start to the new year.

In the coming week, key inflation reports are expected, and Federal Reserve Chairman Jerome Powell is slated to testify Tuesday at his nomination hearing before a Senate panel, while the hearing on Fed Governor Lael Brainard’s nomination to the post of vice chair is set for Thursday.

The week also marks the start of the fourth-quarter earnings period with reports from major banks JPMorgan Chase, Citigroup and Wells Fargo on Friday.

Stocks had a rough first week to 2022, as bond yields rose on both high expectations for Fed interest rate hikes and the view that the omicron variant of Covid is heading for a peak in a matter of weeks. Yields move higher when bonds sell off.

Tech was particularly hard hit, with the Nasdaq Composite down 4.5% for the week, while the Dow was barely negative, down just 0.3%. The Technology Select Sector SPDR Fund was off 4.6% as of Friday afternoon. But banks moved higher on the prospect that rising interest rates would help earnings. The Financial Select Sector SPDR Fund was up 5.4% for the week.

The S&P 500 ended the week at 4677, down 1.9%. Full article: CNBC

Nasdaq 1-year chart

 

10-year Treasury yield over the past month

[MongiIG]

Dollar firm as inflation test looms

EconomyJan 10, 2022 

 

 

 

© Reuters. FILE PHOTO: A U.S. one dollar banknote is seen in this illustration taken November 23, 2021. REUTERS/Murad Sezer/Illustration

By Tom Westbrook

SYDNEY (Reuters) - The dollar started the week with support as traders bet U.S. inflation data and appearances from several Federal Reserve officials would bolster the case for higher interest rates.

After dipping on Friday, the greenback rose 0.2% on the euro in the Asia session, climbing back above its 200-day moving average to $1.1338. It firmed 0.2% on the yen to 115.79, close to last week's five-year high of 116.35.

Asia trade was thinned by a holiday in Japan.

Federal Reserve chair Jerome Powell and governor Lael Brainard testify before Senate committees this week regarding their nominations as chair and deputy chair at the Fed.

U.S. inflation figures are due on Wednesday, with headline CPI seen climbing to a red-hot 7% year-on-year.

"The dollar index is likely to recoup some of its Friday losses this week on Powell's likely hawkish commentary and rising U.S. inflation," said Scotiabank FX strategist Qi Gao.

Eventually, though, he added that the greenback would probably run out of steam, and the index head towards 94 once money markets fully price in a Fed hike in March.

The dollar index was last up 0.1% at 95.912.

U.S.-Russia talks over rising tension in Ukraine also have traders on edge as the two sides seem far apart and failure risks an armed confrontation on Europe's doorstep.

The Australian dollar wobbled around $0.7195, finding a little help from a lift in Aussie bond yields. It faces resistance around $0.7200 and a major barrier at $0.7276 that has held for several weeks now. [AUD/]

The kiwi was steady at $0.6773.

The dollar had met with some selling late last week after a weaker-than-expected headline U.S. job-creation figure squeezed traders out of long dollar positions.

But analysts said better-than-expected unemployment numbers still made a good case for hikes sooner rather than later.

Traders have priced an almost 80% chance of a rate hike in March and a more than 70% chance of another one by June according to CME's FedWatch tool.

Sterling was also marginally weaker on the dollar but has been rallying with bets that the Bank of England (BOE) is likely to be hiking in tandem with the Fed. [GBP/]

It was last at $1.3586, near a two-month high, and close to last week's two-year peak on the euro. Strategists at MUFG reckon traders are too hawkish on their rates expectations in Britain but still think sterling will hold its own.

"We still expect two rate hikes by the BOE which should keep EUR/GBP under modest downward pressure, which will result in GBP/USD advancing to around the 1.4000 level," they said in an outlook note published over the weekend.

Cryptocurrencies have faced pressure from broad selling in risk assets at the start of this year, but were steady in Asia after bitcoin managed to hold support at $40,000 through weekend trade.

Bitcoin last bought $42,000 and ether $3,173.

[MongiIG]

Powell Says Fed to Ensure Inflation Doesn’t Take Root in Economy

EconomyJan 11, 2022 

 

 

 

© Reuters

(Bloomberg) -- Federal Reserve Chair Jerome Powell said the central bank will prevent higher inflation from becoming entrenched while cautioning that the post-pandemic economy might look different than the previous expansion.

“We will use our tools to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched,” Powell said in a brief opening statement prepared for delivery at his confirmation hearing before the Senate Banking Committee. “We can begin to see that the post-pandemic economy is likely to be different in some respects. The pursuit of our goals will need to take these differences into account,” he said in the remarks, released Monday ahead of Tuesday’s hearing.

Powell was nominated by President Joe Biden to serve a second four-year term as head of the nation’s central bank. Governor Lael Brainard was picked to serve as vice chair and will go before the committee Thursday. She succeeds Richard Clarida, who said Monday he will leave office on Jan. 14. Clarida’s investment activities in 2020 -- as the Fed was preparing to signal to markets that it was prepared to take action to buffer the economy from the coronavirus -- have drawn scrutiny.

His departure will leave three remaining vacancies on the Fed board in Washington and the White House is expected to soon announce a slate of candidates to fill those seats. 

U.S. central bankers, responding to the hottest inflation in a generation, are hurrying to end pandemic policy support while signaling they’ll raise interest rates sooner than expected. All officials in December indicated they backed raising rates from near zero this year, with a median estimate showing three hikes, compared with nine of 18 officials in September who sought no increase at all in 2022. 

Policy makers worry that price pressures will take root in the U.S. economy. They forecast strong labor markets even while the economy struggles with the omicron variant, which could prolong the pandemic’s disruption to the supply of goods, services and workers.

As Covid-19 spread in early 2020, Powell rapidly cut rates to zero, launched quantitative easing and began rolling out the biggest financial safety net in U.S. history to stem panic in markets and keep credit flowing to U.S. companies. 

In the midst of this, Powell also launched a new policy framework that committed the Fed to not preemptively raise rates as unemployment fell, in order to allow the benefits of a tight labor market to reach minority communities that have missed out in the past. U.S. unemployment fell to 3.9% in December, but the jobless rate for Black Americans rose to 7.1%.

Powell in his remarks lauded the Fed’s supervisory and financial oversight work over the past four years. “We worked to improve the public’s access to instant payments, intensified our focus and supervisory efforts on evolving threats such as climate change and cyberattacks, and expanded our analysis and monitoring of financial stability,” he said.

©2022 Bloomberg L.P.

[MongiIG]

Federal Reserve Chairman Jerome Powell, with a seemingly clear path to a second term heading the central bank, declared Tuesday that the U.S. economy is both healthy enough and in need of tighter monetary policy.

As part of his confirmation hearing before the U.S. Senate Committee on Banking, Housing and Urban Affairs, Powell said he expects a series of interest rate hikes this year, along with other reductions in the extraordinary help the Fed has been providing during the pandemic era.

 

“As we move through this year … if things develop as expected, we’ll be normalizing policy, meaning we’re going to end our asset purchases in March, meaning we’ll be raising rates over the course of the year,” he told committee members. “At some point perhaps later this year we will start to allow the balance sheet to run off, and that’s just the road to normalizing policy.” Full article: CNBC

[MongiIG]

U.S. inflation came in at 7% in December on an annual basis, according to new figures published on Wednesday, its highest print since 1982. Meanwhile, consumer price rises in the U.K., Europe and elsewhere also hit multi-decade highs in recent months, prompting most central banks to begin guiding the market towards a tightening of monetary policy, with the exception of the European Central Bank.

 

U.S. Federal Reserve Chairman Jerome Powell told a Congressional hearing on Tuesday that interest rate hikes and a smaller balance sheet, what he described as a “normalizing” of policy, would be necessary to rein in inflation. CNBC

[skyreach]

What is inflation & the confusions

The fed, bankers, industry and governments talk about it, rattle their brains because of it but what the hell is it really? Lot of clever people in all these places but there is a lot of confusion in the ways it is defined and used.

Inflation is said to be a measure of the rate of rising prices of goods and services in an economy. Inflation can occur when prices rise due to increases in production costs, such as raw materials and wages. A surge in demand for products and services can cause inflation as consumers are willing to pay more for the product.

What is the purpose of CPI and RPI?

The retail prices index (RPI) and the consumer prices index (CPI) are two different measures of inflation that are used by the government to calculate levels of savings interest, state pension and benefits rates, business rates and many other figures.

The CPI is a geometric mean; it is calculated by multiplying the prices of all the items together and then taking the nth root of them, where “n” is the number of items involved. This is always less than or the same as the RPI. That means governments pay out less in pensions, benefits, etc... The CPI was created to benefit the governments payouts and is legally set up (i.e. That a law is passed to allow government to do that).

The RPI includes housing cost such as the mortgage interest payments, house prices and council tax which is not in the case of CPI computation. CPI is considered to be a lead indicator of inflation and thus has more relevance as compared to RPI. The RPI is an arithmetic mean; the prices of everything to be included in it are simply added up and divided by the number of items.

Fare rises and some other price rises use the RPI (which is usually higher than CPI 1-2%), so it is a crafty trick of charging as much as possible by this measure. Hence its use.

Industry uses the RPI for the same reasoning.

The true rate is when all costs that a typical household has to cover are taken into account.

Harry Dent has a better understanding of the definition of inflation.

The common definition of inflation is “too much money chasing too few goods,” which makes it, to paraphrase Milton Friedman, a monetary event. That can happen, and we’re seeing some of it as the government sends out trillions of dollars in relief spending. But there’s another way to get inflation, which is by spending more and getting the same or less in terms of goods and services. It includes all forms of cost to the average family, which includes cost of raising children too .

Whatever any professional defines inflation as the primary basis of investigation should be to determine the primary cause for that effect, and then be able to handle it for a lasting solution.

 

See also my article:

 

[MongiIG]

1 hour ago, skyreach said:

What is inflation & the confusions

Hi @skyreach

Thanks for sharing!

All the best - MongiIG

[MongiIG]

3 hours ago, skyreach said:

What is the purpose of CPI and RPI?

The retail prices index (RPI) and the consumer prices index (CPI) are two different measures of inflation that are used by the government to calculate levels of savings interest, state pension and benefits rates, business rates and many other figures.

 

SA Rand Price Analysis: ZAR Gains as CPI (5.9%) Fuels Rate Hike Probability

 

• SA Inflation Reaches Upper Bound of 3-6% Target Band
• South African Rand – The Best Performing Currency vs the Dollar in 2022

 

SA INFLATION REACHES UPPER BOUND OF 3-6% TARGET BAND

Yesterday, StatsSA released Consumer Price Index (inflation) data which revealed that general prices were almost 6% (5.9%) higher last December than in December of 2020. The South African Reserve Bank (SARB) next meets on the 27th of January where the monetary policy committee will decide on appropriate monetary policy in light of increasing prices and expected rate hikes from developed economies.

Customize and filter live economic data via our DaliyFX economic calendar

 

SOUTH AFRICAN RAND – THE BEST PERFORMING CURRENCY VS THE DOLLAR IN 2022

The title of best performing currency vs the greenback comes with a disclaimer. The Rand depreciated against the dollar in November and attempted to consolidate throughout December, meaning that the Rand was due some sort of pullback or return to strength.

Luckily for the ZAR, it was the dollar that experienced a halt and subsequent decline in its trajectory as speculation of an increasingly hawkish Fed - in response to inflation - became largely priced in.

The recent lift in commodity prices has also helped boost the Rand as gold and platinum prices witnessed sizeable moves, while iron ore lags some way behind.

Global Currencies vs The US Dollar

Source: Reuters Graphics

 

Written by Richard Snow for DailyFX.com. 20th Jan 2022.

[MongiIG]

Inflation stations: Five questions for the ECB

EconomyJan 31, 2022 

 

 

 

© Reuters. FILE PHOTO: European Central Bank (ECB) headquarters building is seen during sunset in Frankfurt, Germany, January 5, 2022. REUTERS/Kai Pfaffenbach

By Dhara Ranasinghe

LONDON (Reuters) - Record euro area inflation rates mean price pressures will top the agenda for European Central Bank policymakers meeting on Thursday.

No immediate policy action is expected since the ECB in December laid out plans https://www.reuters.com/markets/rates-bonds/ecb-set-dial-back-stimulus-one-more-notch-2021-12-15 to wind up its 1.85 trillion euro ($2.09 trillion) pandemic stimulus scheme by end-March.

But price pressures remain strong and markets want a sense of whether the ECB is getting closer to a more hawkish stance. Here are five questions on the radar for markets.

1. Will the ECB shift its language on inflation?

Possibly. The ECB has slowly changed its language already and may continue to do so.

ECB chief economist Philip Lane said last week the ECB would tighten policy https://www.reuters.com/article/ecb-policy-lane/ecb-would-respond-if-inflation-stayed-above-expectations-lane-idUKKBN2JZ13A if inflation was seen holding above its 2% target, but such a scenario appears less likely for now.

Euro area inflation hit 5% in December, the highest on record https://www.reuters.com/world/europe/euro-zone-inflation-hits-5-marking-another-record-high-2022-01-07, and is forecast to drop back below target in the fourth quarter.

But some officials view this projection as overly optimistic. January data out the day before the ECB meets could arm the hawks with fresh ammunition to push for a change in tone -- the December meeting minutes revealed deep divisions over inflation. GRAPHIC: When will euro zone inflation peak? https://fingfx.thomsonreuters.com/gfx/mkt/myvmnjmkkpr/ECBFEB1.PNG

2. Could a more hawkish Fed force the ECB to speed up normalisation?

Not likely. Lagarde reckons the ECB does not need to act as boldly as the U.S. central bank given different economic conditions. Labour markets, for one thing, are much tighter in the United States.

"The euro area is not the U.S. and there are no signs of domestic overheating," said PGIM Fixed Income's chief European economist Katharine Neiss.

"But this is not a typical cycle, so there does need to be a degree of humility and the ECB needs to be alive to the potential that the recovery could be stronger than they judged."

A flurry of U.S. rate hikes could complicate life https://www.reuters.com/business/nimble-fed-narrows-normalisation-window-timid-ecb-2022-01-27 for the ECB if the Fed completes its tightening cycle quicker than in the past, leaving the ECB with a shorter time to act. GRAPHIC: Benchmark bond yields are on the rise, https://fingfx.thomsonreuters.com/gfx/mkt/zdvxoaynapx/ECBFEB3.PNG

3. What does the ECB think of market pricing for rate hikes?

Lagarde may push back against market rate-hike bets, which are out of sync with the ECB's ultra-loose monetary policy stance. Higher lending rates in markets could prove problematic if they trigger tighter financial conditions for companies.

Money markets are pricing in a 10 basis-point rate rise by October. Deutsche Bank (DE:DBKGn) reckons https://www.reuters.com/article/ecb-rates-deutsche/ecb-to-hike-rates-by-25-basis-points-in-dec-22-deutsche-bank-idUKKBN2JY1TM the ECB will kick off with an aggressive 25 bps hike in December.

But the ECB has essentially ruled out lifting rates this year. It aims to reduce its asset buying gradually, but it has no plans for now to stop it altogether and it will not hike rates before it is done buying bonds. GRAPHIC: ECB on track to wind down PEPP by end-March, https://fingfx.thomsonreuters.com/gfx/mkt/movanymlwpa/ECBFeb2Capture.PNG

4. When does the ECB expect second-round effects from inflation to emerge?

With inflation higher for longer than anticipated and oil prices elevated, policymakers are watching out for whether this triggers higher wage demands, which in turn push up price inflation.

Policymakers stress they do not see wages responding significantly to inflation. Germany's government believes the economic recovery and higher inflation will likely lead to https://www.reuters.com/article/germany-economy-idUSKBN2K00ZF "somewhat stronger wage growth" this year.

"The case for higher wages is extremely good as we are seeing tighter labour markets in places like Germany and the Netherlands. The question is whether it will be a one off?" said Piet Haines Christiansen, chief strategist, Danske Bank.

"Wages are the missing piece in the puzzle, and if we see inflation there, we will get a rate hike. And that might come as early as Spring next year." GRAPHIC: Will wage pressures pick up in 2022? https://fingfx.thomsonreuters.com/gfx/mkt/mopanymqlva/ECBFEB4.PNG

5. How does the changing response to the pandemic impact the macro picture?

The Omicron coronavirus variant has weighed on the economy, but with most countries avoiding full lockdowns, data suggests activity is holding up relatively well https://www.reuters.com/world/europe/easing-supply-bottlenecks-give-german-business-glimmer-hope-2022-01-25.

 

Lane has said the Omicron impact will be measured in weeks, not months.

For ECB watchers, signs that economic momentum is gaining pace means pressure to remove stimulus quickly could build. Uncertainties also cloud the outlook, such as how lofty oil prices and a China slowdown might derail growth. GRAPHIC: Euro zone PMI versus the COVID-19 case count, https://fingfx.thomsonreuters.com/gfx/mkt/akpezngoyvr/ECBFeb5.PNG

[MongiIG]

ECB Preview: Inflation Impact on Tightening in Focus, EUR/USD Poised

Feb 3, 2022 |  Warren Venketas, Analyst. DailyFX

EUR/USD ANALYSIS

• Spotlight on ECB press conference: Inflation! Inflation! Inflation!
• EUR/USD overs around 1.13, pending fundamental catalyst.

 

EURO FUNDAMENTAL BACKDROP

After recent economic data throughout the region, hawkish pressure has been mounting on ECB officials. Yesterday’s Euro zone CPI beat echoed prior releases from constituent nations in addition to prior growth and employment metrics in several key areas. Markets have bought into this data and it shows within EUR/USD price action, up almost 1.35% this week.

 

The build-up to the ECB interest rate announcement later today has markets pricing in an almost 100% probability of holding rates (see table below).

ECB INTEREST RATE PROBABILITIES

Source: Refinitiv

Despite mounting inflationary pressures, attention will be given to the post-announcement press conference with particular emphasis on President Christine Lagarde’s outlook on inflation. As of now, the ECB has portrayed a more patient approach to other major central banks with a view of more transitory inflation that is likely to dissipate in late 2022. Should this stance be reinforced, we may see a drop off in Euro strength while an acknowledgement of inflation being more sticky could extend the recent uptrend.

Euro bonds have not been left out of the equation either with 5-year/30-year spreads testing October 2021 lows. Shorter term bonds yields have been accelerating quicker than longer term bond yields traditionally reflective of expectant rate hikes in the near term along with a weak growth outlook long-term (rate hikes can slow economic growth due to the rising cost of borrowing).

EURO 5/30-YEAR INTEREST RATE SWAP SPREAD

Source: Refinitiv

Post-ECB, the US ISM services data (see economic calendar below) will be the next port of call for EUR/USD pundits. Forecasts show a slight decline from previous data but still remains in expansionary territory (above 50).

Source: DailyFX Economic Calendar

 

TECHNICAL ANALYSIS

EUR/USD DAILY CHART

Chart prepared by Warren Venketas, IG

The daily EUR/USD chart shows hesitancy around the 1.1300 psychological level as traders await the ECB meet. Yesterdays candle closed with a lengthy upper wick which may hint at possible downside to come. The Relative Strength Index (RSI) currently sits around the midpoint 50 level which supports the current mixed price action today.

Resistance levels:

• 50-day EMA
• 1.1300

Support levels:

• 1.1186
• 1.1100

IG CLIENT SENTIMENT DATA: BULLISH

IGCS shows retail traders are currently marginally long on EUR/USD, with 51% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment however, the recent change in long and short positions respectively result in an upside bias.

[MongiIG]

The annual inflation rate in Turkey has surged to a 20-year high of 48.7%, state data revealed on Tuesday, despite months of assurances by President Recep Tayyip Erdogan that the soaring figures were just temporary and that his government could ease the pain on Turks weighed down by rising living costs.

Prices of consumer goods spiked 11.1% in January compared to the previous month, according to the Turkish Statistical Institute, higher than analysts’ predictions, which spanned between 9% and 10%.

The Turkish lira lost 44% of its value in 2021 in a rout driven by Erdogan’s refusal to raise rates as inflation consistently climbed. The currency’s turbulence has hit Turks hard, as the value of their salaries dropped and costs of goods and energy dramatically increased. The president has prioritized credit and exports, while consistently arguing — against all economic orthodoxy — that raising rates actually worsens inflation rather than taming it.  

Turkey’s central bank has cut interest rates by 500 basis points since September to 14%.

“The results of Erdogan’s failed monetary policy experiment,” Timothy Ash, senior emerging markets strategist at BlueBay Asset Management, wrote in a note following the inflation report. 

“Hard to see how the CBRT [Turkish central bank] can cut inflation when it’s unable to hike rates and Erdogan is going to be focused on trying to get credit growth up again to boost his popularity ahead of elections.”

Turkish Finance Minister Nureddin Nebati told the Nikkei news agency Wednesday that he predicted inflation will stay below 50%, peaking in April. CNBC

[MongiIG]

FEDERAL RESERVE
U.S. inflation data is like a ‘punch in the stomach’ for the Fed, says Citi economist.
PUBLISHED FRI, FEB 11 2022 | Sumathi Bala, CNBC

KEY POINTS

• The latest U.S. January inflation data came in like a “punch in the stomach” for the Federal Reserve, said the global chief economist of Citi Research Nathan Sheets, adding that means the next rate hike could be as aggressive as 50 basis points.
• The U.S. consumer price index for January surged to 7.5% year-over-year, according to the Labor Department. Both headline and core CPI rose 0.6%, compared to estimates for a 0.4% increase by both measures.

The latest U.S. January inflation data came in like a “punch in the stomach” for the Federal Reserve, which raises the possibility for an aggressive 50 basis points rate hike in March, the global chief economist of Citi Research said.

The consumer price index for January, which measures the costs of dozens of everyday consumer goods, rose 7.5% year-on-year, the Labor Department reported Thursday.

 

[MongiIG]