April 13. The UK is preparing for new inflationary jumps Analysts of the Confederation of British Industry (CBI) say that the UK is waiting for new jumps in inflation, as well as rising costs for business and an increase in the cost of living. Annual inflation in the country accelerated from February 6.2% to 7% by the end of March. This indicator has updated the record since 1992. At the same time, on a monthly basis in March, consumer prices rose by 1.1% after an increase of 0.8% in February. Alpesh Palea, a leading economist at the CBI, noted that such a jump in inflation in March is not the last, and we should expect another price increase in April, when the increase in marginal energy prices will take effect. The volatility of global commodity prices and ongoing disruptions in supply chains continue to be additional factors of price growth. As a result, businesses will face higher costs, and households will face an increase in the cost of living. Palea believes that the apparent dependence of inflation on the cost of energy carriers underscores the need to double investments in green energy. The economist believes that improving the energy efficiency of residential and commercial buildings will help reduce consumer demand and costs.
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April 14. ECB keeps rates unchanged The European Central Bank expectedly kept the base interest rate on loans at zero, the deposit rate – at minus 0.5%. The rate on margin loans is left at 0.25%. The regulator also announced a reduction in asset repurchase under the Asset Purchase Program (APP) to 30 billion euros in May from 40 billion euros in April. In June, asset repurchase will decrease to 20 billion euros. At the same time, the ECB noted that the adjustment of asset repurchases within the APP in the third quarter will depend on statistical data. The Governing Council intends to keep rates at current levels until inflation in the euro area reaches 2% and is steadily fixed at this level. The Board of Governors also intends to continue reinvesting proceeds from the repayment of securities purchased under the Pandemic Emergency Purchase Program (PEPP) at least until the end of 2024. It is worth noting that the repurchase of securities under PEPP was completed in March of this year. After the ECB meeting, the euro/dollar exchange rate dropped from $1.0923 to $1.0758. The current quote of the EUR/USD pair is $1.0825.
Covid-19 outbreak in China damages growth prospects of country's economy China's economy is set to break growth records, but an unexpected outbreak of coronavirus, forced restrictive measures, and numerous problems abroad are limiting its surge. In Q1 2022, the country's GDP showed fairly strong growth compared to the previous quarter. The GDP jumped by 4.8% on a yearly basis, according to the published data from the National Bureau of Statistics of China. According to Trading Economics, experts had forecasted China's economy to grow at a lower rate of 4.4%. Notably, in Q4 2021, China's GDP rose at an annualized rate of 4%. In the first three months from the beginning of this year, the Chinese economy grew by 1.3%. China is trying to cope with the resulting domestic and external difficulties, compensating for the obvious dips in the economy in March with surprisingly strong growth of indicators in January and February. However, the effects of the COVID-19 outbreak on China's economy cannot be avoided. Severe restrictive measures, which the Chinese government imposed on its population in March, undermined the production of goods and markedly reduced consumer spending within the country. Only the sharp growth of the economy in the first two months of 2022 formed quite optimistic overall figures for the entire first quarter. Consequently, retail sales fell by 3.5% in March, showing a much worse-than-forecast reading, while in January-February they were estimated at 6.7%. The Chinese labor market traditionally experienced a revival in March, as factories usually try to attract as many employees as possible to their shops after the Lunar New Year holiday. This March, however, the sector suffered a severe shock. According to surveys, the national unemployment rate in March was 5.8%, which was last seen only at the beginning of 2020. Moreover, unemployment in more than thirty major cities reached a record 6.0%. The industrial sector in China showed more positive figures in March than the labor market. Given the widespread shutdowns, production managed to increase by 5.0% year-on-year and even beat forecasts of 4.5%. However, we should admit that compared to the unprecedented rise in January-February, when production increased by 7.5%, the figures for March were rather lackluster. The investment into the fixed capital in the first quarter is following a similar scenario: investment increased, but there was some damage in March to the elated growth of the first two months of the year. Thus, investment in fixed capital in the first quarter grew by 9.3% year-on-year, but this growth is not so positive, as in the first two months alone it was as much as 12.2%. Notably, fixed-asset investment is the key growth driver of the Chinese economy. These are the indicators that the Chinese government is counting on. The real estate market in China is increasingly slipping into recession. Home sales by value fell by a full 26.2% year-over-year in March, and new construction declined by 17.5%. According to Reuters, the drop was the largest since early 2020. The unexpected outbreak of coronavirus in China derailed the enthusiastic growth of the economy and sent it into a sluggish state of moderate recovery. The Russian-Ukrainian conflict and the sanctions imposed on Russia have also hit key sectors of the Chinese economy, as they have shaped unprecedented increases in the prices of energy, metals, and wheat, and further undermined global supply chains. Many economists are already highly doubtful that Beijing can achieve its goal of a 5.5% GDP increase this year. The Wall Street Journal notes that demand for Chinese exports in the US and Europe has been severely weakened due to record inflation last seen decades ago.
Asian indices grow on hopes for support from government Asia-Pacific stock indices showed mixed trading during Tuesday's session. The Chinese Shanghai Composite and Shenzhen Composite indices increased by 0.12% and 0.06% respectively, while Hong Kong Hang Seng Index showed a rather significant decline of 1.88%. All other regional indicators rose. The Japanese Nikkei 225 index added 0.64%, the Korean KOSPI index gained 0.96%, and the Australian S&P/ASX 200 index increased by 0.52%. The main reason for the growth of Asian indices was the message of the Central Bank of China about the creation and the soon involvement of a series of measures to state support of enterprises, which were most affected by restrictions related to the spread of coronavirus in the country. There will also be an increase in lending in regions with a low rate of credit growth. It is suggested that more credit be given to firms engaged in transporting essential goods during the pandemic. At the same time, there has been an increase in government regulation of companies involved in the technology sector. The Chinese companies whose securities added in value are Link Real Estate Investment Trust gaining 1.55%, CNOOC, Ltd. increasing by 1.4%, and PetroChina Co. adding 1.2%. The Nikkei 225 was boosted by the declining yen. This is more beneficial for exporting companies as it increases their potential income. In February 2022, there was an increase in Japan's industrial production by 2%. In January, this indicator showed a decline of 2.4%. At the same time, the indicator exceeded the forecasts of experts, who assumed that the growth would be only 0.1%. Meanwhile, investors remain concerned about rising energy and food costs. They lack confidence that central banks can combat inflation without undermining business activity in their states. Among the companies on the Japanese index, Pacific Metals Co. added 8.4%, Sumitomo Osaka Cement Co. gained 5.2%, and Mazda Motor Corp. increased by 4.8%. Other Japanese companies showed smaller increases. Toyota Motor Corp. added 1.3%, and Toshiba Corp. jumped by 1.5%. SoftBank Group Corp. dropped by 1.7%, and Fast Retailing Co. decreased by 1.5%. Among the companies on the KOSPI index, Samsung Electronics Co. added 1.35%, and Hyundai Motor Co. increased by 1.1%. However, Kia Corp. grew only by 0.1%. Among the components of the S&P/ASX 200 index, BHP Group, Ltd. jumped by 1.3%, and Rio Tinto, Ltd. increased by 1.5%. Gold quotes fell to more than a week's low St. Louis Federal Reserve President James Bullard sees no need for the Fed to raise interest rates by more than 50 basis points. However, the central bank has previously raised interest rates more strongly, and therefore Bullard does not rule out a potential increase of 75 basis points. Meanwhile, Federal Reserve Bank of Chicago President Charles Evans said on Tuesday that federal funds rates could reach 2.5% by the end of the year. June COMEX gold futures closed down $27.40, or 1.4%, at $1,959 an ounce, the lowest since April 11, while May silver futures fell 76 cents, or 2. 9%, to $25.391 an ounce. As a result of Monday's session, gold reached the closing high for the most actively traded contracts since March 10. That day, trading ended at a 19-month high of $2,000.40, according to Dow Jones data. Gold prices rose in six of the last seven sessions, despite rising Treasury yields and a stronger dollar. Rising bond yields increase the opportunity cost of owning gold, which does not generate coupon income. At the same time, the strengthening of the dollar makes commodities denominated in this currency more expensive for holders of other currencies. The dollar continued to rise on Tuesday: the ICE dollar index, which tracks the dynamics of the US currency against a basket of six other currencies, reached a maximum since March 2020. The Japanese yen fell sharply against the dollar as the BOJ remains overly loose as the US Federal Reserve prepares to sharply raise interest rates and cut its asset balance in an attempt to contain rising inflation. Meanwhile, gold is gaining support amid the Russian-Ukrainian conflict. Gold is considered a safe-haven asset during times of geopolitical uncertainty. Technical analysis shows the potential for growth in gold prices, Otunuga notes, but quotes, apparently, are forming a new range. Support is located around $1960 and resistance is at $2000. In the event of a fall below $1960, prices could drop to $1920. In the event of a break above $2,000, the quotes may test the strength of the resistance levels located at the levels in 2009, 2015 and 2050 dollars. Meanwhile, May copper futures ended the day down 1.8% at $4.718 a pound. July platinum futures fell 3.1% to $988.70 an ounce, while June palladium contracts fell nearly 2.7% to $2,380.40 an ounce.
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Oil market news: while prices falling, return to the old days remains impossible Oil is declining sharply on Monday due to expectations of falling demand for energy resources in China. Thus, June futures on Brent crude on London's ICE Futures exchange is estimated at $101.37 per barrel today, down by 4.49% from the previous session's close. The price of WTI futures for June on NYMEX electronic trading is $97.42 per barrel, which is 4.42% lower than the result of the previous trading. According to last week's results, the price of benchmark Brent crude fell by 4.5% and WTI crude dropped by 4.1%. China's largest city and financial center, Shanghai, reported a record number of new COVID-19 cases in the past two days - 39 deaths. The total number of deaths among those infected in this city with a population of 25 million people now stands at 87. The first deaths in Shanghai were reported on April 18. A lockdown was imposed in Shanghai on March 28, with most businesses shut down, markets and stores closed and residents locked in their homes and apartments. The population in Shanghai is daily tested for COVID-19 and those who test positive are sent to isolation centers. Lockdown in Shanghai strongly affects global markets, as huge batches of Chinese components due to idling in factories and plants simply cannot reach production facilities in other countries. The lockdowns fully affected the demand for gasoline, diesel, and jet fuel, which in China in April is likely to fall by 20% on a yearly basis. According to Bloomberg, the fuel price drop only for the current month has all chances to reach 1.2 million barrels per day. If this forecast comes true, the drop will be the most rapid since the beginning of the COVID-19 pandemic in the Chinese city of Wuhan more than two years ago. In the light of Russia's rapidly developing military action in Ukraine, the situation in the oil markets is getting much worse. However, the disrupted global supply chain system, skyrocketing inflation, and acute shortages of energy resources were observed in the world even before the Russian special military operation, which has only worsened the prospects and made it impossible to find a quick way out of the current situation. However, according to some experts, the conflict in Ukraine will end sooner or later, after which the global commodity market will return to its normal pre-crisis state. For example, analyst Michael Lynch reported in Forbes magazine that Russia's military operation will definitely end. The oil market will no longer have reason to worry, and it is sure to return to normal, and fuel prices will fall to quite acceptable levels. Analysts believe that the situation will be normalized by the lifting of sanctions against Russia. The return to the normal operation of the energy market is probably the main condition for Western European countries to maintain their economies and their usual standards of living. However, the lifting of sanctions is a forced measure for the political elites of the European Union, but not for the United States. US Secretary of State Anthony Blinken, who has repeatedly stressed in his speeches that it did not matter to his country whether Russia ends its military operation or not, the sanctions against it would not be lifted by the United States anyway. Oil Price reported that the long duration of today's stalemate increases the chance that there would be no return to the old pattern. For example, the fact that Europe is shifting from pipeline gas to liquefied natural gas and that Russian exports are shifting to Asian markets is irreversible. In this regard, the prognosis so far is disappointing for buyers: high oil prices promise to remain so for a long time.
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