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US manufacturing order books and inflation pressures are softening

The June US ISM manufacturing index has dropped to 53.0 from 56.1 (consensus 54.5) with new orders heading into contraction territory at 49.2 versus 55.1 previously – remember 50 is the break-even level with anything above in expansion and anything below signaling contraction. Weaker orders look concerning For now, production is holding up with the component index rising to 54.9 from 54.2, but with new orders contracting and the backlog of orders moderating (53.2 from 58.7) the direction of travel isn’t looking good. Employment was also very soft at 47.3 ...

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U.S. Banks Face a Gathering Stagflation Storm: Starting from a Position of Strength, as Risk of Recession Rises

Since the end of the pandemic-driven recession in the U.S., inflation has increased significantly, reaching levels not seen since the early 1980s. Combined with a sharp deceleration in real economic growth, the economy appears to be entering a stagflationary period, characterized by sharply slowing growth and high inflation. While not Fitch’s current base case, stagflation for purposes of this report refers to a period when inflation, as measured by the CPI, is elevated (greater than 4%) during a low-growth environment (GDP below 1.5%) for an extended period. Similarities with the ...

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Eurozone unemployment reaches new all-time low despite economic slowdown

Unemployment fell to 6.6% in May, keeping pressure on wage growth despite the economy showing signs of weakening Stay up to date with all of ING’s latest economic and financial analysis. Despite a weakening economy, the labour market continues to outperform. At 6.6%, the eurozone unemployment rate has reached a new low. The widespread increases in employment are cushioning the negative impact of the Ukraine war and inflation on the economy and will therefore soften the blow to GDP in the second quarter and over the course of the summer. ...

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Forget rate hikes, these analysts are predicting interest rate cuts next year

Some central bank watchers believe the Fed and the ECB will have to stop their tightening cycles because of an upcoming recession. Central banks around the world might have embarked upon a path of aggressive rate hikes — but not everyone is expecting this approach to last. The U.S. Federal Reserve and the European Central Bank are among those seeking to tamper record inflation with rate hikes. The Fed increased its benchmark interest rate by 75 basis points to a range of 1.5%-1.75% in June, and Chair Jerome Powell has ...

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Global business cycle starts to turn down: Kemp

Global manufacturing activity and freight movements have begun to decelerate as the major economies buckle under the combined impact of inflation, lockdowns, sanctions and rising interest rates. Worldwide industrial production in the three months between February and April was just 3.75% higher than in the corresponding period a year earlier, according to the Netherlands Bureau of Economic Policy Analysis (CPB). Growth has slowed progressively after peaking at nearly 15% in the first quarter of 2021, when the main economies were rebounding from the first wave of the coronavirus pandemic (“World ...

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Fed’s inflation target ambiguity risks market misstep: McGeever

It may just boil down to semantics, and in good times when inflation is low it’s not an issue at all. But the Fed has a communication problem. Inflation’s surge to the highest level in 40 years has shone a light on what exactly the Federal Reserve’s inflation goal is, how policymakers go about achieving it, and how they get their message across to the public and financial markets. Figures on Thursday showed that U.S. inflation, as measured by the annual rate of increase in the personal consumption expenditures (PCE) ...

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Global central bank chiefs say they must prioritize inflation fight over growth

Bringing down high inflation around the world will be painful and could even crash growth but must be done quickly to prevent rapid price growth from becoming entrenched, the world’s top central bank chiefs said on Wednesday. Inflation is breaking multi-decade highs around the world as soaring energy prices, post-pandemic supply chain bottlenecks and in some cases red-hot labor markets are pushing up the cost of everything, and threatening to set off a hard-to-break wage-price spiral. The process is highly likely to involve some pain but the worst pain would ...

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Asia’s factories feeble despite China bounce, feeds global recession fears

Asia’s manufacturing activity stalled in June as many companies were hit by supply disruptions caused by China’s strict COVID-19 lockdowns, while sharp economic slowdown risks in Europe and the United States reinforced fears of a global recession. A string of surveys on Friday showed China’s factory activity bouncing solidly in June though a slowdown in Japan and South Korea, as well as a contraction in Taiwan, highlighted the strain from supply disruptions, rising costs and persistent material shortages. China’s manufacturing activity expanded at its fastest in 13 months in June, ...

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Chinese traders adjust production capacity, diversify market to cut losses in response to weakening US demand

Chinese traders are taking an active approach by adjusting production capacity and diversifying their markets in response to weakened consumption in the US, where inflation is elevated and cannot be easily tamed shortly. Experts predict the situation could worsen in the second half of the year, as the runaway inflation continues to sap the US’ economic recovery. The US’ increasingly weak consumption is shaking the pillar status of the US market among Chinese traders and producers, and some of them the Global Times reached on Monday are mulling cutting production ...

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Inflation pressures weigh heavily on Asia

Rate rises expected In the Philippines, the nation’s central bank will raise interest rates by 25 basis points at a second straight meeting this month, according to a Reuters poll forecast. Meanwhile, Indonesia’s central bank is tipped to maintain its current rate of 3.5 percent, but more than one in four of the economists polled by Reuters expect the rate to be raised in the next quarter as the US Fed tightens sharply. Loh said inflation levels in Asia have not been high compared with those in Europe or the ...

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Another inflation record firms case for bigger ECB rate hikes

Euro zone inflation hit yet another record high in June as price pressures broadened, and its peak could still be months away, firming the case for rapid European Central Bank rate hikes starting this month. Consumer price growth in the 19 countries sharing the euro accelerated to 8.6% from 8.1%, Eurostat said on Friday, higher than expectations for 8.4% and driven primarily by energy prices even as food and services also made a marked contribution. Inflation has risen steadily for more than a year now, initially fuelled by post-pandemic supply ...

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Easing COVID-19 rules, growth focus aid China bulls’ cautious return

The latest easing of coronavirus travel rules combined with other encouraging policy signals have began luring some foreign investors back to Chinese stocks, raising the chances that the market can sustain its bounce after months of heavy selling. As the S&P 500 is about to close its worst first half of any year since 1970 and bonds have taken a thrashing, China’s beaten-down equity markets start looking like a shelter from a global storm of runaway inflation, interest rate hikes, and recession fears. China’s blue-chip CSI300 index .CSI300 is up ...

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S&P cuts China 2022 GDP forecast, says emerging market growth to slow

Coronavirus lockdowns have hit Chinese growth more than expected, ratings agency S&P said as it slashed its forecast for the second time in two months, while emerging market economies will slow in the second half of this year amid high inflation. S&P cut its GDP growth prediction for China to 3.3 per cent, in a report, having already downgraded it to 4.2 per cent in May from a 4.9 per cent forecast made in March. It said higher than expected first-quarter growth in many countries meant its 2022 growth forecast ...

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China to use policy-based, developmental financial instruments to support major projects, expand work-relief programs in key projects

China will adopt policy-based and developmental financial instruments to support the development of major projects, in an effort to expand effective investment and spur employment and consumption, according to the decision made at the State Council’s Executive Meeting chaired by Premier Li Keqiang on Wednesday. The meeting highlighted the need to implement the prudent monetary policy to good effect, better harness structural monetary policy tools, and boost the capability of the financial sector to serve the real economy, so as to keep overall economic performance stable, and to secure employment ...

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Central Banks: ING’s latest calls

Federal Reserve Our call: 75bp in July, 50bp in September and November before switching to 25bp in December. Rate cuts in 2H23. Quantitative tightening (QT) to continue until rate cuts begin. Rationale: To get inflation down quickly we would ideally like to see the supply-side capacity improve to meet strong demand in the US economy. However, supply chain strains, geopolitics/energy prices, and a lack of suitable workers mean this isn’t likely in the near term. Consequently, the onus is on the Fed to respond aggressively to dampen demand, but moving ...

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