0e3d4e53dc39047191f43808b87cca419b5e48e28ad3cbc686db7d301999fa57;;[{"layout":"linklist","uid":28354,"publicationDate":"05 Aug 17:57","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183832.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJAK3tdK5Bz78JMFvXKjFnJA=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - US payroll surge puts pressure on the Fed to act forcefully ","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> The US economy added 528k jobs in July, more than double expectations (UniCredit 230k, consensus 250k). Despite two consecutive quarters of negative GDP growth, the general health of the labor market suggests the economy does not feel like it\u00b4s in a recession in the usual sense of the word. Payroll gains in the prior two months were revised up by a net 28K, which leaves payrolls now 32k above their pre-pandemic level from February 2020. Payroll gains were broad-based across industries in July. To be sure, the underlying trend for payroll gains is slowing, but only very gradually, as evident by the 3-month average payroll gain decline to 437k in July from 637k last December. Importantly, the current pace of payroll gains is many times what would be required to simply absorb new entrants into the labor market (around 100-150k per month).<\/li><li> The labor market remains extremely tight; that is, the demand for labor is far exceeding the supply of labor. The unemployment rate fell 0.1pp to 3.5% in July, matching the pre-pandemic low. The tightness of the labor market reflects both the fall in the labor force compared to the pre-pandemic trend (in July, the participation rate fell again, likely in part reflecting the rise in new COVID-19 cases), as well as the strong demand for labor. There were 1.8 job openings for every unemployed person in June (which is the latest available data for job openings), down only slightly from the record-high of 2.0 in March. The gap between labor demand and labor supply is so large that it will likely take longer than usual (and perhaps a lot longer) before the slowdown in economic activity will more meaningfully slow the pace of hiring and open up a margin of labor market slack (in normal times, payroll growth is roughly coincident with GDP growth, but these are not normal times). Another signal of a tight labor market is that average weekly hours worked remain well above pre-pandemic levels; in other words, firms are having to work their existing staff more intensively to keep up with demand amid the shortage of workers. Despite slowing economic activity, most firms still report that their biggest headache is trying to find enough workers to meet current demand.<\/li><li> Average hourly earnings (AHE) growth accelerated by 0.5% mom in July, higher than expected, and reflecting the tightness of the labor market. Pay growth in the prior month was revised up 0.1pp to 0.4% mom. The year-on-year rate for AHE was unchanged at 5.2% yoy in July following an upward revision to June. AHE growth was broad-based across industries, although softer in construction, retail trade and, to a lesser extent, manufacturing, which are the relative weak points of the economy. It comes after the wage and salaries component of the Employment Cost Index (the Fed\u00b4s preferred measure of wage growth because it adjusts for selection effects) rose at an annualized rate of 5.7% in 2Q, up from 5.0% in 1Q22. <\/li><li> For the Fed, today\u00b4s labor market report adds pressure to act more forcefully in tightening monetary policy. Notwithstanding the importance of the July CPI report next Wednesday, it seems clear that another 75bp rate hike will be very much on the table at the Fed\u00b4s 20-21 September meeting, and probably is now the base case. As recent remarks by Fed officials have made clear, the central bank really needs to see a slowdown in the labor market before it can feel comfortable that the risks of further second round effects from high inflation to wages have subsided. This report provides no signs of this. The Fed will be particularly concerned about the reacceleration in AHE growth after signs of some moderation in recent months. Wage growth is simply too high to be consistent with the inflation target, which on our estimates would require year-on-year wage growth of around 3.5%, far lower than the current levels of over 5%. The Fed has little choice but to react to these numbers. For central bankers, it\u00b4s about reducing the probability of the worst-case scenario, given the huge uncertainty surrounding the economic outlook (even in normal times and much more so now). Right now, the worst-case scenario for central bankers is that high inflation becomes entrenched via wages and inflation expectations, which would require a more aggressive tightening of monetary policy along with the associated costs for output and unemployment. While such a policy reaction is understandable, the base case remains that longer-term measures of inflation expectations remain well anchored and, indeed, we currently see no sign of a wage-price spiral. It means the Fed, which is focused on the tail risk, will likely overtighten policy, which sets the economy up for a pretty hard landing next year given the lags with which monetary policy impacts economic activity.Chart 1 shows the US economy added 528k jobs in July, up from a gain of 398k in the prior month. The 3-month average payroll gain was 437k in July, up from 384k in June but down from 637k in December 2021.CHART 1: PAYROLL GAINS ACCELERATE IN JULY<\/li><\/ul>","hash":"0e3d4e53dc39047191f43808b87cca419b5e48e28ad3cbc686db7d301999fa57","available":"0","settings":{"layout":"linklist","size":"default","showanalysts":"0","showcompanies":"0","showcountries":"0","showcurrencies":"0","synopsislength":"-1","synopsisexpand":"0","nodate":"0","nolinktitle":"0","notitle":"0","dateformat":"d M G:i","noproduct":"0","noflags":"0","shownav":"0","oldestedition":"","limit":"12"}},{"layout":"linklist","uid":28342,"publicationDate":"29 Jul 13:39","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183818.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJAK3tdK5Bz781MPRlKGGdVs=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - Austria\u2019s 2Q22 GDP: growth slowed but was still quite strong","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> According to the flash estimate published by the Austrian Institute of Economic Research (WIFO), Austrian GDP grew by 0.5% qoq in 2Q22. Despite the burdens caused by the Russia-Ukraine conflict, the Austrian economy remained on a growth track. Compared to 1Q22, when growth of 1.5% qoq was recorded, supported by the easing of the pandemic measures, growth slowed considerably, as expected. Compared to 2Q21, GDP rose by 4.7%, resulting in growth of 6.5% yoy for the first half of 2022. Austrian GDP is now 2.1% above its pre-crisis level of 4Q19. <\/li><\/ul><ul class=\"ucrBullets\"><li> The slowdown in growth was noticeable in all sectors of the economy. The services sector, which had grown by 2.2% qoq at the beginning of the year, grew by 0.5% qoq in 2Q22. Strong growth impulses came from other services, which include personal services, arts, entertainment and recreation. Here, value added rose by 2.8% qoq. The value added of other business services, such as the provision of professional or technical services, rose by 1.1% qoq. In both cases, development was supported by positive base effects due to the expiration of health-policy measures. This also applies, above all, to value added in accommodation and food services, which increased particularly significantly and thus ensured a slightly positive result of 0.1% qoq in the combined area of trade, transport, accommodation and food services, despite a decline in trade. In addition to increases in the service sectors, solid development in industry also contributed to growth. Value added in industry rose by 0.7% qoq in 2Q22 (1Q22: 1.1% qoq), while construction showed a significant slowdown in growth, to 0.1% qoq, down from 1.6% qoq in 1Q22. <\/li><\/ul><ul class=\"ucrBullets\"><li> On the demand side, the data for 1Q22 show a decline in private consumption of 1.9% qoq (1Q22: +0.8% qoq), analogous to the decline in trade. Despite good development in the labor market, with record employment, increased uncertainty due to the Russia-Ukraine conflict and high price dynamics massively curbed consumer sentiment. After a strong decline in the previous quarter, there was also no expansion of public consumption in 2Q22, after the partial expiration of pandemic-related support. Investment activity, on the other hand, continued to perform positively. Gross fixed-capital formation rose by 1.2% qoq, only slightly weaker than in 1Q22 (+1.6% qoq). Foreign trade also made a positive contribution to growth. Export growth accelerated to 2.7% qoq (1Q22: + 2.3%), while import growth slowed to 0.5% qoq (1Q22: +3.7% qoq). <\/li><\/ul><ul class=\"ucrBullets\"><li> The data for 2Q22 show the first negative consequences of the Russia-Ukraine conflict for the Austrian economy. Growth weakened significantly, in particular due to a sharp decline in consumption as a result of the loss of purchasing power due to increased inflation. The continued rise in inflation, according to the latest flash estimate by Statistics Austria \u2013 to as much as 9.2% year-on-year in July \u2013 should further weigh on consumer spending, and higher costs will reduce willingness to invest. Not only has the WIFO\u2019s business-climate index for the services sector deteriorated significantly in recent months, but sentiment in the construction and industrial sectors has also declined markedly. The future output index in the survey of Austrian purchasing managers in the manufacturing industry has meanwhile fallen below the growth threshold. Ongoing supply-chain problems and high price dynamics, combined with uncertainty caused by the Russia-Ukraine crisis, will lead to a further weakening of economic activity in Austria in the second half of the year, with an increasing risk of recession. <\/li><\/ul>"},{"layout":"linklist","uid":28336,"publicationDate":"28 Jul 17:05","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183812.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJAK3tdK5Bz78lX9vbsT9z0I=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - US 2Q GDP: A genuine contraction","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> The US economy contracted at an annualized rate of 0.9% (-0.2% non-annualized) in the second quarter of this year, after contracting 1.6% in the first quarter. Two consecutive quarters of negative growth is regarded as a 'technical recession', although official dating of recessions in the US is done by the NBER, who define a recession as 'a significant decline in economic activity that is spread across the economy and lasts more than a few months'. They look at several indicators to determine this, among them real personal income, nonfarm payrolls and real personal consumption. Given the health of the labor market the NBER will likely judge the US is not in a recession now, but the probability that the economy finds itself in one within the next few quarters has increased significantly.<\/li><li> The US economy is slowing down, this is clear. To see this, consider GDP growth excluding the effects of the most volatile components of GDP, namely inventories and net exports. This measure (so-called final sales to domestic purchasers) fell 0.3% annualized in 2Q after a rise of 2.0% in 1Q. This tells us that while the contraction in 1Q was driven by the volatile components of GDP (mostly net exports), for 2Q the weakness was \u00b4genuine\u00b4. Consumer spending growth slowed, reflecting the negative impact of high inflation on purchasing power. Non-residential fixed investment was flat in 2Q after rising strongly in 1Q, while an important subcomponent, business investment in equipment, fell likely reflecting the impact of heightened economic uncertainty and tighter financial conditions. Residential investment contracted sharply, down 14%, reflecting the impact of higher mortgage rates on affordability and demand.<\/li><li> The modest rise in personal spending conceals a large shift in expenditure away from good and towards services. The bright spot in 2Q was spending on travel and entertainment, which was limited during the pandemic by social distancing.<\/li><li> The 2Q GDP report does not change our view on the Fed. We still expect the Fed to step-down the pace of rate hikes to 50bp in September, and to 25bp in November and December. With the labor market seemingly holding up well for now, the Fed will continue to tighten policy. It likely needs to see slack (or spare capacity) opening up in the labor market before it can be confident that high inflation will not become entrenched via wages and price expectations. The slowdown in economic activity, which is now broad-based, means a deterioration in the labor market is likely to follow soon, and the Fed is unlikely to continue hiking rates beyond the end of this year.Chart 1 shows that GDP contracted 0.9% qoq annualized in the second quarter of this year, after a contraction of 1.6% in the first quarter. Final sales to domestic purchasers (which excludes the contributions from inventories and net exports) was -0.3% in 2Q after +2.0% in 1Q. CHART 1: A TECHNICAL RECESSION<\/li><\/ul>"},{"layout":"linklist","uid":28322,"publicationDate":"25 Jul 16:00","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183795.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJEk1ou_cmVhVkQErcCF6AjM=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Recession probabilities for Germany surging","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Today\u2019s Ifo survey for July was another blow to those, including us, who still have hope that a recession in Germany can be avoided. Business sentiment of companies has virtually tanked across sectors, while the probability of a recession has surged to<\/li><\/ul>"},{"layout":"linklist","uid":28314,"publicationDate":"22 Jul 16:01","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183784.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJEk1ou_cmVhVPwaQFmwwH4g=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - The unprecedented polarization of US consumer inflation expectations","product":"Chart of the Week","synopsis":"<p><ul class=\"ucrBullets\"><li>Fed hawkishness - and that of many other central banks - in large part reflects concerns that currently high inflation could lead to a de-anchoring of longer-term inflation expectations. Fed Chair Jerome Powell recently remarked, \u00b4If we even see a couple of indicators that bring that [i.e. the anchoring of inflation expectations] into question, we take that very seriously'. If inflation expectations were to become de-anchored, the economic cost of resetting them, via more aggressive rate hikes and tight policy for a long time, would be large. <\/li><li><strong>Our Chart of the Week displays the median, 75<\/strong>th percentile and 25th percentile of responses to the University of Michigan\u00b4s (UMich) survey of consumer inflation expectations for the next 5-10 years. At the June FOMC press conference, Chair Powell called the rise in the June preliminary median reading to 3.3% (from 3.0% in May) 'eye-catching', suggesting it was an important factor in the Fed\u00b4s decision to hike by 75bp instead of the 50bp it had indicated only a few days earlier. As it happens, the June preliminary median reading was subsequently revised down to 3.1%, and the preliminary median reading for July fell to 2.8%, the lowest level since July 2021. This is below its 2001-07 average of 2.9%, and only slightly above its 2012-19 average of 2.6% - a period when PCE inflation was below target in every single year but one.<\/li><li><strong>The median reading hides substantial dispersi<\/strong>on in the distribution of survey responses. Importantly, this dispersion has widened dramatically recently. Indeed, while the 75th percentile of responses was at 5.1% in July, 1.1pp above its 2012-19 average, the 25th percentile slumped to 0.3%, 1.1pp below its 2012-19 average. The recent shift down of the 25th percentile appears likely to have been driven by recession fears. Along with some other recent developments, this should give the Fed reason to believe that upside risks to the inflation outlook might be starting to ease.<\/p><\/li><\/ul>"},{"layout":"linklist","uid":28310,"publicationDate":"22 Jul 12:33","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183778.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJEk1ou_cmVhVWEk9rmAoqnU=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - Eurozone Composite PMI in contraction territory","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> The eurozone PMIs for July point to a significant deterioration of growth momentum at the start of the third quarter, with the composite PMI sliding in contraction territory, from 52.0 to 49.4, for the first time since June 2020 (UniCredit: 50.4, consensus: 51.0). The downturn in the manufacturing sector is gathering pace, whereas momentum in the services sector is near a stand-still as the boost to demand from the reopening has reportedly already faded and cost-of-living worries weigh on new business. This increases downside risks to the outlook in 2H22.<\/li><li> Manufacturing is clearly under pressure as global demand for goods slows fast ' the new orders and output index slipped deeper in contraction territory. This is helping reduce stress on supply chains. The cooling of demand was accompanied by the largest buildup of inventories of finished goods ever recorded by the survey, often linked by survey participants to lower-than anticipated sales to customers and weakened order books. The combination of high inventories of unsold goods and falling new orders spell trouble ahead.<\/li><li> Prices pressures moderated further, more clearly in manufacturing than in services. However, the pace of easing is still slow as both input and output price indices remain high and significantly above pre-pandemic levels. <\/li><li> The good news is that employment growth remains quite resilient despite the marked slowdown in economic activity. Firms are still adding staff in a tight labor market, but this might not last for long if activity fails to rebound.In greater detail: The composite PMI declined from 52.0 to 49.4, with the headlines for the manufacturing and the services sector down to 49.6 and 50.6, respectively.<\/li><\/ul>"},{"layout":"linklist","uid":28297,"publicationDate":"15 Jul 16:49","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183744.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJEk1ou_cmVhVOGUTMJtcYR4=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Eurozone manufacturing faces challenging times","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Ahead of next week\u00b4s flash PMI release for July, our Chart of the Week suggests that the eurozone manufacturing sector is facing challenging times. The new orders-to-inventory ratio, which tends to lead developments in the headline manufacturing PMI, has declined steeply suggesting that the decline in the headline manufacturing PMI should accelerate in the coming months. Since the start of the series in 1997, current levels of the new orders-to-inventory ratio have always seen the headline PMI drop to below 50.<\/li><li> Several headwinds are weighing on the outlook for manufacturing. On top of high input prices (particularly for energy) and supply-chain bottlenecks, it is likely that household expenditure-switching away from goods towards services and slower global growth will continue in the coming months. High economic uncertainty is also weighing on durable goods consumption.<\/li><li> The manufacturing sector entering recession would leave services activity as the main driver of growth. This increases downside risks to the outlook in 2H22 when the boost from tourism-related spending is likely to fade.<\/li><\/ul>"},{"layout":"linklist","uid":28272,"publicationDate":"13 Jul 14:00","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183728.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJEk1ou_cmVhVvOI1CziAVwU=&T=1&T=1","protectedFileLinkDe":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183736.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJEk1ou_cmVhVUOkxMhcNXcs=&T=1&T=1","protectedFileLinkIt":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183735.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJEk1ou_cmVhVi9CEg0imzuE=&T=1&T=1"},"title":"Oil Update - The challenge of capping the price of Russian oil ","product":"Oil Update","synopsis":"<ul class=\"ucrBullets\"><li> G-7 leaders recently decided to explore the adoption of a price cap on Russian oil prices in order to mitigate the negative spillovers of the insurance ban announced by the EU that implies, de facto, the removal of Russian oil exports from the market.<\/li><li> The challenge is to find a price for Urals that is low enough to compromise Russia\u00b4s public finances and its war efforts but high enough to incentivize Moscow to keep pumping. An ideal cap should be set between Russia\u00b4s average production costs (around USD 30\/bbl) and its pre-war fiscal breakeven price (around USD 70\/bbl). <\/li><li> Even if an adequate price that does not trigger a sharp depreciation of the RUB is found, the implementation of the cap will be rather challenging, and Moscow has several ways to circumvent it. Such a measure risks to further escalate tensions between Russia and the West and could unintentionally boost oil prices via a higher geopolitical risk premium. Fears of a global recession are weighing on oil prices. After moving close to USD 125\/bbl in early June, Brent is now trading at around USD 100\/bbl. Concerns about declining demand being triggered by the erosion of real household income, tighter monetary policy and rising COVID-19 cases are offsetting worries about an undersupplied oil market. Another source of price relief is the expectation that Russian oil will keep flowing globally thanks to the introduction of a price cap that will circumvent the insurance ban recently approved by the EU, thus easing the problems associated with the undersupply that characterizes the market. In our view, this optimism is misplaced. The implementation and enforcement costs of any such measure are extremely elevated, and Moscow is unlikely to accept the price of its own oil being set artificially without retaliating ' and this sort of uncertainty will contribute to keeping Brent prices elevated going forward. How tough on Russian oil should the West be'With its latest package of sanctions, the EU went beyond an import ban on Russian crude (as originally expected) and imposed a ban, along with the UK, on insurance for tankers carrying Russian crude anywhere in the world. Ninety-five percent of the world\u00b4s tanker liability cover is arranged through a London-based insurance organization called the International Group of Protection and Indemnity Clubs, which heeds European law. Without such insurance coverage, Russia and its customers would have to find alternatives for covering third-party liability claims, including environmental damage and injury such as that associated with oil spills and accidents at sea, which can cost billions of dollars when they happen. This measure implies that Russian oil exports will be de facto removed from the market when the insurance ban kicks in in six months. Russia exports around 5mn b\/d of oil around the world, with roughly 3mn b\/d just going to Europe. As a result of sanctions and self-sanctions imposed by the West, Russian oil production is already expected to be down by 3mn b\/d in July. By the end of the year, also the roughly 2mn b\/d of Russian exports to Asia might be compromised by the insurance ban. Overall, around 5% of pre-pandemic global supply will be removed from the market as OPEC+ and the US lack the spare capacity necessary to step in and replace these missing barrels. Hence, market tightness, which is already high, is expected to intensify further, pushing oil prices higher. For this reason, the Biden administration has proposed the introduction of a price cap on Russian oil, a measure endorsed at the latest G-7 meeting. The rationale is to keep Russian oil moving at a low price instead of removing it from the market. Moscow will earn less oil revenues, while global oil supply will be less tight. On paper, the mechanism looks straightforward. Once a price cap is set, buyers of Russian oil would be offered a waiver from the ban on European shipping insurance. Thanks to this exemption, countries like India or China, which have abstained from sanctioning Russia, would be allowed to buy from Moscow not just the barrels that they usually buy but also those that no longer go to Europe and North America, thus freeing up oil from Middle Eastern producers that could redirect part of their Asian exports towards Western countries. In turn, the global oil market would be balanced despite sanctions and prices would decline. In putting such policy into practice, the challenge is to find a price for Urals that is low enough to compromise Russia\u00b4s public finances and its war efforts but high enough to incentivize Moscow to keep pumping. Chart 1 shows that, as a result of Western sanctions, Urals is already selling at a discount of around USD 30\/bbl over Brent. A cap on Urals would likely imply a much bigger gap. The average production cost for Russian oil is around USD 30\/bbl, while its pre-war fiscal breakeven was around USD 70\/bbl (which is probably higher now as a result of higher spending related to the Russia-Ukraine crisis and a fall in non-energy-related tax revenue due to the current slump in economic activity). Thus, any price above USD 30\/bbl would incentivize Russia to sell its oil and any price below USD 70\/bbl would hurt its public finances. This means that the factors that usually determine the price of oil will have to be ignored: production costs of marginal producers, demand momentum, overall spare capacity, inventory levels and a geopolitical risk premium.CHART 1. THE PRICE CAP SPECTRUM<\/li><\/ul>"},{"layout":"linklist","uid":28253,"publicationDate":"10 Jul 12:31","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183703.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJEk1ou_cmVhVq9NSBKlgVzg=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Sunday Wrap","product":"Sunday Wrap","synopsis":"<ul class=\"ucrBullets\"><li> I\u00b4ll argue that while Boris Johnson\u00b4s departure from No 10 will end three years of extreme political chaos in the UK, there is little prospect of a return to sensible UK policies towards Europe, unfortunately.\u00a0 <\/li><li> I\u00b4ll summarize my impression of how the trade-off between inflation and growth will impact policy decisions at the ECB and the Fed during the next 18-24 months: In a nutshell, faster tightening and then a stop next year, if not even a reversal.<\/li><\/ul>"},{"layout":"linklist","uid":28252,"publicationDate":"08 Jul 16:42","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183702.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJEk1ou_cmVhV1b_V_bc5YJc=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - US payrolls: Strong enough for the Fed to hike by 75bp","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> The US economy added 372k jobs in June, better than expected. Job gains in the prior two months were revised down by a cumulative 74k, resulting in job gains of 368k in April and 384k in May. This shows remarkably stable job growth at a time when other indicators of economic activity, from housing to investment to personal consumption, are showing significant deterioration. The three-month average job gain has cooled moderately to 375k in June from 539k back in March. Payrolls are still 524k below their pre-pandemic level in February 2020. In June, payroll gains were fairly broad-based across industries, with payrolls rising slightly even in sectors under pressure, such as retail and construction.<\/li><li> The current level of payroll gains would ordinarily be more than enough to apply downward pressure on the unemployment rate. In the event, however, the unemployment rate was unchanged at 3.6%. This reflected a fall in household employment and an offsetting fall in participation. We put more weight on the payroll measure of employment than the household survey measure of employment. The fall in participation is both surprising and disappointing, and something that will aggravate labor supply shortages.<\/li><li> Average hourly earnings (AHE) growth was 0.3% mom in June, while AHE growth in the prior month was revised up 0.1pp to 0.4% mom. In year-on-year terms, AHE growth eased slightly to 5.1%. The 3M\/3M annualized growth rate of AHE gives a better indication of the recent dynamics ' it was down in June to 4.3% (from a recent peak of 6.1% in January). Importantly, however, it is still too high to be consistent with the inflation target ' on our estimates of pre-pandemic underlying productivity growth, AHE growth would need to be around 3.5% to be consistent with the 2% inflation target.<\/li><li> In our view, today\u00b4s payrolls report, which shows only a mild slowing in the labor market, increases the chances of the Fed hiking by 75bp at its next meeting on 26-27 July. Speaking immediately after the payrolls release, Atlanta Fed President Raphael Bostic said he would fully support another 75bp rate hike at the July meeting. It\u00b4s important because Mr. Bostic has been relatively dovish recently, saying back in late May that a pause in September might be justified. He adds to the number of Fed officials who have publicly said they would support a 75bp hike in July, including San Francisco Fed President Mary Daly, Cleveland Fed President Loretta Mester, Fed Governor Christopher Waller and St. Louis Fed President James Bullard.The first chart shows that non-farm payrolls rose 372k in June after a gain of 368k in April and 384k in May.CHART 1: ROBUST PAYROLL GAINS<\/li><\/ul>"},{"layout":"linklist","uid":28248,"publicationDate":"08 Jul 11:32","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183696.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJPRjevfYGAe4Sqep2iGLamM=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - China frontloads its fiscal stimulus ","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Lockdowns and restrictions of different kinds, including border controls and mass quarantines in key cities like Shanghai and Shenzhen, took their toll on China\u00b4s economic activity in 2Q22. Both retail sales and industrial production contracted sharply in April, with little sign of improvement in May. Survey indicators point to a sizable improvement in economic activity in June, when most restrictions were lifted, but this recovery is unlikely to prevent Chinese GDP from stagnating or even contracting in quarterly terms ' a figure that will be released next week.<\/li><li> Our Chart of the Week shows that the central government is rushing to contain the economic fallout of its zero-Covid strategy by frontloading the issuance of special-purpose bonds that are used by local authorities to fund infrastructure projects. In June, local governments sold CNY 1.2tn worth of bonds ' topping the record CNY 1.0tn hit in May 2020 and exhausting the issuance quota for this year six months in advance. In addition, according to Bloomberg, the Ministry of Finance is now considering bringing forward CNY 1.5tn from next year\u00b4s issuance quota into 2H22 ' a decision that requires the approval of the State Council. If approved, the cumulative issuance for 2022 would be CNY 5.1tn (around 4.5% of China\u00b4s GDP), a record high. <\/li><li> This is the first time that bond issuance has been fast-tracked. The goal is to reactivate upstream industries and revive the construction sector in the hope of achieving the 5.5% growth target for 2022 (we expect growth of close to 4%). This decision likely has political motivations as later in the year the Chinese Communist Party is expected to grant Xi Jinping a third presidential mandate ' and an economy in good health will clearly smooth the process. <\/li><\/ul>"},{"layout":"linklist","uid":28225,"publicationDate":"01 Jul 14:50","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183667.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJPRjevfYGAe4akzYD491W6A=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Are durable goods foreshadowing future disinflation?","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Released today, eurozone headline inflation for June accelerated to a fresh record high of 8.6% yoy (+0.5pp from May). Core inflation fell back slightly, easing by 0.1pp to 3.7% yoy, probably also reflecting temporary government measures in Germany to help households cope with surging transport costs. We expect eurozone core inflation to peak at above 4% yoy in the fall, before entering a clear downward trend next year. Our Chart of the Week shows that indicators of pipeline price pressure have started to signal a possible turning point (from extremely high levels), led by durable goods.<\/li><li> This might be an important indication, because prices of durable goods were the first to accelerate in early 2021, kickstarting the wave of price increases that eventually led to the strong and increasingly broad-based inflation surge we are currently witnessing. <\/li><li> There are good reasons why durable goods would be the first spending category for which price increases start to ease, both in the eurozone and globally. First, they are likely to be most vulnerable to households switching expenditure following the reopening of economies. Second, they are usually comparatively more sensitive to the interest-rate cycle. Third, they tend to suffer the most during times of uncertainty and low consumer confidence. <\/li><li> We expect that lower inflation for durable goods will eventually be followed by a deceleration in the other components of underlying inflation, with non-durable goods probably the next in line. The substantial easing of price increases of industrial raw materials is likely to support this process. However, the timing and the extent of future disinflation remains highly uncertain.<\/li><\/ul>"}]

fca5774f669803887558f1f8bf49f8ba6cbad35f9de48a9f1720f5619f212128;;[{"layout":"linklist","uid":28211,"publicationDate":"29 Jun 20:28","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2022_183652.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRo7cMxi1LPE4sL3kvvrrh5hQ==&T=1&T=1","protectedFileLinkDe":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2022_183783.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRoSMNJHVRnw1efE9a9GZ4Sfg==&T=1&T=1","protectedFileLinkIt":""},"title":"CEE Quarterly - Demand resilience sapped by economic and geopolitical shocks (3Q22)","product":"CEE Quarterly","synopsis":"<p><ul class=\"ucrBullets\"><li>The Russia-Ukraine conflict is likely to be protracted, with long-term economic and political consequences in CEE.<\/li><li>Supply shocks spurred on inflation in 2Q22 and are likely to continue to do so by increasing food and energy prices in 2022 and 2023. <\/li><li>In our baseline scenario, the EU will reduce its dependence on Russian gas by two thirds compared to 2021 and to Russian oil by 90% before year-end, in line with plans. In this scenario, we expect the EU-CEE economies to grow on average by 3.6% in 2022 and 2.6% in 2023, with the Western Balkans lagging. Turkey could grow by 4.4% in 2022 and 3.3% in 2023. In Russia, the economy could shrink by around 10% this year and stall next year.<\/li><li>In a negative scenario, in which deliveries of Russian oil and gas stop suddenly, before the EU finds alternative energy sources, CEE could undergo a very negative growth shock in the first few quarters due to impaired production and falling exports, with its magnitude estimated at between -9pp in Turkey and Romania and -13pp in Slovakia and Slovenia. <\/li><li>The biggest direct impact from a lack of Russian energy imports would be in Hungary and Slovakia, followed by Bulgaria, Czechia and Serbia.<\/li><li>If the EU fails to reduce oil and gas purchases from Russia in line with plans, economic growth would be higher than in our baseline scenario, especially in Central Europe.<\/li><li>Inflation is likely to peak between August and December in most CEE countries, with the exception of Hungary and Poland, where the peak could be postponed to 2023. Inflation is expected to remain well above targets in 2023. There is a risk that fiscal profligacy might fuel inflation in most CEE countries. <\/li><li>We expect central banks to end rate hikes in the autumn at around 9.5% in Hungary, 7% in Poland and Czechia, 6% in Romania and 4% in Serbia. The scope for rate cuts in 2023 is very limited, with the CNB and the NBH most likely to cut. The CBR could cut the policy rate to 8% in 2022 and 7% in 2023. The CBRT might hike in 2023 if there is a change in government. <\/li><li>We expect FX interventions to be a suboptimal offset for insufficient rate hikes. <\/li><li>The protracted Russia-Ukraine conflict is testing hawkishness in the EU and the rule of law in CEE. In our view, the main political risks are: 1. political instability and more populist policies in Poland; 2. the lack of an overhaul of the energy strategy in Hungary; 3. stalling reforms in Czechia, Romania and Slovakia; 4. political volatility and wider economic imbalances in Turkey and 5. lower long-term growth and deindustrialization in Russia.<\/li><li>The EU should act more proactively to foster reforms in the Balkans and around the Black Sea, offering the prospect of a customs union and a common energy policy to candidate countries.<\/p><\/li><\/ul>","hash":"fca5774f669803887558f1f8bf49f8ba6cbad35f9de48a9f1720f5619f212128","available":"0","settings":{"layout":"linklist","size":"default","showanalysts":"-1","showcompanies":"-1","synopsislength":"-1","showcountries":"-1","showcurrencies":"-1","synopsisexpand":"0","nodate":"0","notitle":"0","dateformat":"d M G:i","nolinktitle":"0","noproduct":"0","noflags":"0","shownav":"0","oldestedition":"","limit":"1"}}]