0e3d4e53dc39047191f43808b87cca419b5e48e28ad3cbc686db7d301999fa57;;[{"layout":"linklist","uid":29113,"publicationDate":"29 Mar 16:14","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2023_184832.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRockNs3hFoaK-H67WodFfQjA==&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"CEE Quarterly - Preparing for a turnaround (2Q23)","product":"CEE Quarterly","synopsis":"<ul class=\"ucrBullets\"><li> We expect the economies in EU-CEE to grow by around 0.9% in 2023 and 3.6% in 2024, with most countries avoiding a technical recession this year. The Western Balkans could grow slightly faster than EU-CEE in 2023 and slower in 2024. <\/li><li> Stronger global trade, fewer supply-chain bottlenecks, resilient consumers and more public and private investment will support economic growth. Tight financial conditions at home and abroad and destocking will weigh on growth this year, with negative fiscal impulses slowing the recovery next year. <\/li><li> In Turkey, we expect economic growth of 2.9% in 2023 and 3.7% in 2024, with capital inflows partly offsetting the tightening of monetary conditions if the opposition wins the elections scheduled for 14 May (as we expect). In Russia, we forecast an economic contraction of 2.5% in 2023, followed by a small rebound of around 1.7% in 2024, provided exports do not fall sharply, import substitution improves and public spending does not tighten too much. <\/li><li> Inflation has peaked throughout CEE but is likely to miss targets in 2023-24 as disinflation could be slowed by rising energy prices and taxes, the gradual removal of price caps, FX pass-through and backward-looking wage indexation supporting consumer demand.<\/li><li> Monetary policy has started to loosen through laxer liquidity conditions. In 2023, we expect rates to be cut to 12% in Hungary and to 6.50% in Czechia. In 2024, we expect rates to be cut to 4.50% in Czechia, 5% in Romania, 5.50% in Poland and Serbia, 7% in Russia and 25% in Turkey (following rate hikes to 40% in 2023).<\/li><li> CEE banks are well capitalized and profitable, but central banks need to manage any episode of risk aversion proactively. The Polish banking system would benefit from a blanket solution to end the lawsuits related to CHF mortgage loans.<\/li><li> The risk of funding higher budget deficits in 2023 has been mitigated by bumper issuance in 1Q23. Private and public borrowing from abroad will cover the C\/A deficit not financed through FDI and EU funds. <\/li><li> Gradual European integration for Serbia, following an agreement with Kosovo, could be used as a blueprint for Ukraine. The EU would benefit from investing in the energy infrastructure of the Western Balkans.<\/li><li><strong> In our view, the main risks are: <\/strong> 1. Europe\u00b4s lack of a common vision on how to end the war in Ukraine, which we expect to continue in 2024 without escalating to other countries or non-conventional weapons; 2. war fatigue in CEE; 3. the European Commission\u00b4s more flexible approach to observing whether EU countries respect the rule of law; 4. the growing popularity of Euroskepticism in EU-CEE; 5. Poland and Hungary\u00b4s missing EU funds; 6. political uncertainty if the opposition wins the elections in Poland and Turkey; and 7. Europe\u00b4s lack of a common natural-gas strategy.<\/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":29112,"publicationDate":"29 Mar 14:33","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184831.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJJtmvAqN5jK-6n5vk03tSB0=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Economics Chartbook - Central banks caught between strong data and tense markets (2Q23)","product":"The Unicredit Economics Chartbook","synopsis":"<ul class=\"ucrBullets\"><li><strong> Global: <\/strong> We forecast global GDP growth of 2.4% this year and 3.0% next year, below its pre-pandemic average rate. Indicators of economic activity have been somewhat more resilient than expected at the start of the year, including in the US, the eurozone and China. Still, most of the effects of monetary policy tightening on output have yet to come through, and recent developments in the banking sector could amplify the tightening of credit conditions. While core inflation has generally surprised to the upside despite ongoing improvement in supply chains, we still forecast fairly rapid disinflation this year due to base effects, lower commodity prices, below-potential growth and softening labor markets.<\/li><li><strong> US: <\/strong> Our GDP growth forecasts are broadly unchanged at 0.5% for 2023 and 0.8% for 2024. We still expect a mild recession but delayed by one quarter to 2Q23-3Q23. Strong data at the start of the year were likely only partly due to unusually warm weather. Going forward, the reduced stock (and unevenness) of personal 'excess savings', a slowdown in consumer credit and a weakening labor market will likely weigh on consumption. A tightening of credit conditions due to banking-sector woes risks amplifying the effects of monetary tightening. We expect headline CPI inflation to fall rapidly to 3% by year-end and to 2% by mid-2024, in large part due to the housing component. PCE inflation will probably be stickier. The Fed is almost done with rate hikes: we expect a final 25bp increase in May and 150bp of cuts in 2024.<\/li><li><strong> Eurozone: <\/strong> We confirm our forecast that GDP will expand by 0.5% this year and by 1.0% in 2024, as recent stronger-than-expected data for activity and the labor market offset some of the looming risk from financial market tensions and a weakening in the credit cycle. Headline inflation is on a downward trajectory while core inflation should peak soon. The ECB retains a tightening bias, but market tensions are likely to accelerate the transmission of monetary policy, hence reducing the need for rate hikes. We are lowering by 25bp the expected trajectory for the deposit rate, envisaging three 25bp increases (in May, June and July) and a peak at 3.75%. We continue to expect 75bp of rate cuts starting in mid-2024.<\/li><li><strong> CEE: <\/strong> In EU-CEE, we forecast GDP growth of 0.9% in 2023 and 3.6% in 2024, with most countries avoiding a technical recession. In Turkey, we expect growth of 2.9% in 2023 and 3.7% in 2024, with an orderly tightening of financial conditions if the opposition wins the elections scheduled for 14 May. Inflation might not fall fast enough in 2023-24 to return inflation to target. As a result, we forecast rate cuts this year only in Czechia and Hungary.<\/li><li><strong> UK: <\/strong> GDP is likely to contract by 0.4% in 2023 and to rise by 0.5% in 2024. This includes a mild recession lasting for most of this year, mainly driven by tight monetary policy. Headline CPI inflation is set to fall rapidly, mostly on account of lower energy prices. While the labor market remains tight, private sector regular pay growth has eased significantly. We forecast the MPC is done with rate hikes and will cut by 100bp in 2024.<\/li><li><strong> China: <\/strong> We confirm our GDP growth forecast of 4.9% for 2023 ' broadly in line with the new official growth target of 'around 5%' ' and 4.7% for 2024. Chinese consumers are expected to be leading the recovery after a prolonged period of spending suppression due to measures to contain COVID-19 infections. On the policy front, the leadership of the Chinese Communist Party reiterated that no major stimulus is in the pipeline. However, both fiscal and monetary policy are likely to remain supportive.<\/li><\/ul>"},{"layout":"linklist","uid":29096,"publicationDate":"26 Mar 13:35","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184806.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJJtmvAqN5jK-hs8uK0U6bMI=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Sunday Wrap","product":"Sunday Wrap","synopsis":"<ul class=\"ucrBullets\"><li> I\u00b4ll argue that excessive de-regulation and poor supervision in the US triggered the fall of Silicon Valley Bank and Signature Bank, which highlighted a broader issue among US regional banks.<\/li><li> I\u00b4ll then outline the mishandling of Credit Suisse by the Swiss authorities, which has now led to broader troubles also in the eurozone.<\/li><li> I propose that the ECB makes further clarification of its financial stability policy, and that the major central banks collectively announce a halt to further rate hikes, at least until the financial stress evaporates.<\/li><\/ul>"},{"layout":"linklist","uid":29092,"publicationDate":"24 Mar 13:21","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184802.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJJtmvAqN5jK-QTrMKOURomA=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - Eurozone PMIs: activity accelerates but divergence between services and manufacturing intensifies","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> The eurozone composite PMI rose from 52.0 to 54.1 in March, well above our and consensus expectations for a broad stabilization. This is the highest level since last May and points to a reacceleration in economic activity as the economy enters the second quarter. The improvement in the composite index was driven by a significant acceleration in the pace of services growth, which more than offset persistent weakness in manufacturing. The decline in the headline manufacturing PMI was partly explained by a further substantial improvement in suppliers\u00b4 delivery times ' the index rose at the fastest pace since the series started in the late '90s, indicating shorter delivery times ' which weighed on the headline index (delivery times enter the manufacturing PMI with a negative sign). At the country level, both France and Germany reported a significant improvement in the composite PMI, and the press release reports that it was the rest of the eurozone that recorded the strongest performance.<\/li><li> In manufacturing, output continued to stagnate, with indices for new orders and backlog orders all falling further below the 50-level. In contrast, in services, demand strengthened to a ten-month high, supporting business expectations at a high level despite businesses expressing concern over the uncertainty caused by recent banking sector stress and the potential impact of further interest rate hikes.<\/li><li> The divergent trends in activity across sectors were mirrored in relative-price trends. In manufacturing, easing supply bottlenecks together with falling demand took further pressure off input prices - the input prices index fell below 50 (indicating price falls) for the first time since July 2020 ' and this is increasingly being passed on to customers. In contrast, in services, both input and output price indices eased only slightly and remained at very high levels, likely mostly due to wage pressure.<\/li><li> The labor market continued to show impressive resilience, driven by the services sector, where the employment index rose to a ten-month high, as firms sought to keep pace with strengthening demand. In greater detail:The composite PMI increased from 52.0 to 54.1. The index for manufacturing declined from 48.5 to 47.1 while that for services rose from 52.7 to 55.6. However, the sharp decline in the manufacturing index largely reflects the shortening of suppliers\u00b4 delivery times.<\/li><\/ul>"},{"layout":"linklist","uid":29089,"publicationDate":"24 Mar 9:33","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184798.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XCa2mi63dMZ1E=&T=1&T=1","protectedFileLinkDe":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184800.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJJtmvAqN5jK-r45hD8xPYP8=&T=1&T=1","protectedFileLinkIt":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184815.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJJtmvAqN5jK-w0Fcez8Nc-M=&T=1&T=1"},"title":"Oil Update - Europe\u00b4s changing oil map","product":"Oil Update","synopsis":"<p><ul class=\"ucrBullets\"><li>The war in Ukraine is transforming Europe\u00b4s oil map, with the Middle East becoming a focal point thanks to its outsized export capacity.<\/li><li>Russian Urals is sweet and light and is especially suitable for producing diesel and jet fuel. Among the largest producers, only Saudi Arabia exports oil of comparable quality.<\/li><li>Increased dependence on Middle Eastern oil will boost OPEC\u00b4s bargaining power and increase Europe\u00b4s vulnerability to a geopolitically chaotic region, where China\u00b4s influence is rising at a time of heightened tensions with the US.The war in Ukraine is transforming Europe\u00b4s energy map. On the natural-gas front, Russia is no longer a key supplier. LNG from Norway, Qatar and the US, along with natural gas from north African and central Asian producers, has replaced a big chunk of Russian exports. On the oil front, similar changes are now taking place in response to bans on Russian crude and petroleum products that were recently introduced at the EU level. So far, the US and Norway have primarily made up for missing Russian barrels. However, since some Russian oil is still finding its way into Europe, going forward, the Middle East will be the only region with the export capacity to replace Russian oil supplies to Europe, but this might boost OPEC\u00b4s bargaining power and increase Europe\u00b4s vulnerability to a geopolitically unstable region, where China\u00b4s influence is rising at a time of heightened tensions with the US.Redesigning the energy mapIn theory, it is easier to redesign the oil map than the natural-gas one. The oil market is globally integrated with no major barriers to the international flow of crude ' besides distance, which can be overcome via higher shipping costs. The natural-gas market, on the other hand, is regionally fragmented because gas has traditionally been transported through pipelines that physically connect across bordering countries. Only if there were enough global liquefication and regassification capacity could LNG make the gas market similar to the oil one, with vessels transporting LNG across the globe to accommodate demand. In practice, however, oil varies from one country to another, sometimes in substantial ways, limiting substitutability. Two primary qualities differentiate one type of oil from another: weight and sweetness. Heavy oil evaporates slowly and contains material used to make heavy products like asphalt. Light oil requires less processing and produces a greater percentage of gasoline and diesel than heavy oil. The standard unit denoting oil weight is API gravity, a metric created by the American Petroleum Institute. Sulfur content determines whether crude oil is sweet or sour. Midstream companies and refiners that transport, store and process sour oil need extra treating capabilities to take out sulfur and sweeten their product. Chart 1 shows that Russian Urals is sweet and light, and it is especially suitable for producing diesel and jet fuel. Among the largest producers, only Saudi Arabia exports oil of comparable quality. CHART 1: THE WIDE VARIETY OF CRUDE OIL<\/p><\/li><\/ul>"},{"layout":"linklist","uid":29072,"publicationDate":"19 Mar 13:21","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184777.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XCeuJfYmk5L7U=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Sunday Wrap - Sunday Wrap","product":"Sunday Wrap","synopsis":"<ul class=\"ucrBullets\"><li> The sources of recent weeks\u00b4 financial market stress. I conclude that while it\u00b4ll most likely rumble on for some time, it\u00b4s unlikely to develop into a systemic banking crisis in the US or Europe. <\/li><li> The ECB\u00b4s statement on Thursday was near-perfect, given the circumstances (even though I still think the pace of the tightening is excessive ' and it included some peculiarities.)<\/li><\/ul>"},{"layout":"linklist","uid":29063,"publicationDate":"15 Mar 16:47","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184768.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XCPSuco2MtZUs=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Eurozone: profit margins have been at least as important as wages in driving inflation","product":"Chart of the Week","synopsis":"<p><ul class=\"ucrBullets\"><li>Our Chart of the Week illustrates how the growth of the GDP deflator ' which measures the 'price' of gross domestic product per unit of output and is a gauge of domestic price pressure ' accelerated last year at the eurozone level and across the largest economies of the bloc. We break down the deflator into its main determinants ' namely labor costs; firms\u00b4 profitability, as measured by the gross operating surplus (the national-account equivalent of EBITDA); and taxes on production and imports, less subsidies ' all divided by real GDP. In the eurozone, the contribution of unit profits (a proxy for profit margins) to the growth rate of the GDP deflator slightly exceeded that of unit labor costs and was higher than its average over the last two decades. Quarterly data indicate that its contribution significantly increased in the second half of last year.<\/li><li>Our chart also shows that the contribution of unit profits to the growth of the GDP deflator varied significantly from country to country, with Spain and France representing extreme situations in this regard. In Spain, unit profits accounted for almost all the growth of the GDP deflator as solid labor productivity growth largely offset upward pressure from labor costs. In contrast, France experienced a contraction in unit-profit growth, which dampened the increase in the growth rate of the GDP deflator, partly offsetting a strong pick-up in the growth of unit labor costs. The situation was more balanced in Germany and Italy. In Italy, the solid contribution of unit profits largely reflects a significant acceleration in their growth in 4Q22. Of course, our analysis is based on aggregate data, which disguises a lot of variation at the sector level.<\/li><li>This evidence suggests that the ECB should broaden its inflation narrative from its recent focus on labor costs to include the drivers of corporate profitability, which has been surprisingly strong in the last couple of years despite a massive increase in the price of imported inputs. This would provide a more comprehensive picture of the current drivers of underlying price pressure in the eurozone, although this is unlikely to have any meaningful implications for monetary policy (See our Sunday Wrap, 5 March). Going forward, profit margins are likely to ease as demand growth slows, while unit labor cost growth may remain high for longer as wages rise to partly compensate workers for past and current high inflation.<\/p><\/li><\/ul>"},{"layout":"linklist","uid":29057,"publicationDate":"14 Mar 16:11","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184757.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XCV-7a2prYIME=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - US CPI: core inflation moving in the wrong direction ","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> The January CPI report was not the blip that many had hoped for, with consumer inflation rising strongly in February too. Headline CPI inflation was unchanged (and still high) at 0.4% mom, which translated into a 6.0% yoy increase (from 6.4%). The headline figure benefited from a 0.6% mom drop in the energy component, with the natural gas index leading the way with the largest one-month decrease since October 2006. The food index, instead, increased 0.4% mom.<\/li><li> However, it is core inflation that represents the greatest source of concern. Core consumer prices continued to head in the wrong direction, recording the second straight month of acceleration. Core inflation climbed to 0.5% mom from 0.4%, which in yearly terms translated into a meager 0.1pp deceleration to 5.5% yoy. While core-goods prices were flat (largely due to another large fall in used car prices) after rising in January, core-service inflation continued to trend higher, rising 0.6% mom (or 7.3% yoy, the highest pace since 1982). <\/li><li> Housing prices were the main contributor to the price increase in February, with shelter rising 0.8% mom (up from 0.7%). As we argued in previous notes, shelter prices are likely to decelerate in the coming months given that private surveys of new rents are falling. But attention should be focused on core services excluding housing, which is the key variable to gauge signs of durable disinflation as this category is sensitive to domestic labor-market tightness. Price inflation of this category accelerated to 0.6% mom in February, up from 0.4% mom in the prior month. Both prices for transportation services and recreational activities rose above 1.0% mom. The main drag came from health insurance prices, which dropped 4.1% mom ' mainly due to a statistical technicality that does not affect the PCE deflator that is due to be released later this month. <\/li><li> These price dynamics are especially concerning when thinking about the path for the core PCE deflator ' the Fed\u00b4s preferred measure of inflation. Core-services inflation excluding shelter accounts for about 55% of the PCE basket as opposed to around 30% for the CPI one. Disinflation ahead driven by rents will be much less pronounced in the PCE readings than in the CPI.<\/li><li> At a time of market turmoil, today\u00b4s CPI reading complicates the job for the Fed, which must perform a complicated balancing act between bringing inflation down and preserving the stability of the banking system. Last week, during his testimony before Congress, Fed Chair Jay Powell said the central bank was 'prepared' to accelerate the pace of rate hikes at its 21-22 March meeting if the 'totality' of the data warranted it. Today\u00b4s strong CPI report, combined with the mixed February employment report, might well have tipped the balance in favor of a 50bp hike. However, the stress in the banking system has clearly changed the balance of risks in favor of a more prudent approach. We stick to our view that the Fed will hike rates by 25bp next week. This is in line with market expectations. More in detail: Chart 1 shows that the disinflation process for core CPI inflation in year-on-year terms is progressing at a slow pace. CHART 1. CORE CPI INFLATION GETTING STICKY<\/li><\/ul>"},{"layout":"linklist","uid":29049,"publicationDate":"12 Mar 13:00","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184747.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XCJv0PjxL-i-E=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Sunday Wrap","product":"Sunday Wrap","synopsis":"<ul class=\"ucrBullets\"><li> I\u2019ll discuss how I think the Fed and ECB will handle the uncertainties ahead, and the risk to what markets increasingly price in.<\/li><\/ul><ul class=\"ucrBullets\"><li> I\u2019ll suggest that one of the reasons for the escalation in China\u2019s aggressive stance towards the US may be the prospect of less impressive domestic economic growth \u2013 which only makes de-escalation more complicated.<\/li><\/ul>"},{"layout":"linklist","uid":29048,"publicationDate":"10 Mar 17:03","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184746.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XC7te1pmBOUjM=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - US payrolls: The chances of a soft-landing rise","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> The US economy added a very robust 311k jobs in February after the surge of 504k in January. Payroll gains over the previous two months were revised down a net 34k, but it didn\u00b4t stop the three-month average rising to 351k. This is considerably more than the around 100k per month gain that we estimate would be required to keep the labor market steady i.e. to absorb new entrants and not lead to a rise in the unemployment rate.<\/li><li> In the event, the unemployment rate rose to 3.6% from a 54-year low of 3.4%. This was partly due to a rise in labor force participation, which was larger than the rise in household employment. The rise in the participation rate by 0.1pp to 62.5% is welcome news. It was driven by those aged 16-24 and 25-54, while the participation rate of those aged 55+ continued to fall.<\/li><li> Arguably the single most important data point is the moderation in average hourly earnings (AHE) growth to 'only' 0.2% mom (or 2.9% annualized), down from 0.3% mom in January. In year-on-year terms, AHE growth rose to 4.6% from 4.4%, but it was entirely due to a base effect. We had warned before today\u00b4s release that a likely fall back in average weekly hours (which in the event did fall to 34.5 from a downward-revised 34.6 in January) could have mechanically pushed up monthly AHE growth as some pay is recorded monthly and simply divided by average hours worked to yield the AHE amount. In this respect, the moderation in AHE growth looks particularly impressive. Annualized AHE growth has averaged just 3.1% over the last two months, which is broadly in line with its pre-pandemic average and inside the 3-3.5% range that many Fed officials consider to be consistent with the inflation target. Still, it is only two months, and the Fed will want to see whether such pay moderation is sustained.<\/li><li> The Fed will almost surely welcome the moderation in pay growth, and the rise in both unemployment and participation, which points to the labor market becoming better balanced. And, with payroll gains remaining strong, it somewhat increases the chances of a soft-landing. In our view, this favors the Fed hiking by 'only' 25bp at its meeting on 21-22 March, in line with our forecast, and not accelerating the pace of rate hikes. Earlier this week, in his testimony to Congress, Fed Chair Jerome Powell said the central bank was 'prepared' to re-accelerate the pace of rate hikes, but this was conditioned on the key incoming data surprising to the upside, and he said no decision had been taken regarding the size of the hike at its March meeting. Of course, the February CPI report to be released on Tuesday, and other data due for release next week, could materially change the picture, but we don\u00b4t think it will. Recent market turmoil related to bank stress is also likely to favor a more gradual approach by the Fed.Chart 1 shows that nonfarm payrolls rose 311k in February, an easing from the 504k surge in January. The three-month average change rose slightly to 351k from 344k in the prior month, while the six-month average fell slightly.CHART 1: STILL ROBUST PAYROLL GAINS<\/li><\/ul>"},{"layout":"linklist","uid":29032,"publicationDate":"07 Mar 9:26","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184727.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XCZFt1WimMIq0=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - The Fed\u00b4s inflation dilemma","product":"Chart of the Week","synopsis":"<p><ul class=\"ucrBullets\"><li>Today, Fed Chair Jerome Powell will appear before the Senate Banking Committee to deliver the semi-annual monetary policy report to Congress. The testimony will be an opportunity for him to clarify how the thinking among FOMC members has changed since their meeting back in early February, when policy rates were raised by 25bp and the overall communication was less hawkish than before in the wake of a disinflation process that looked to be well on track. In the timespan of a few weeks, all the key activity, employment and inflation-related data have surprised to the upside, triggering a rise in the market-implied path for the federal funds rate, by around 50bp to 5.5% in six months\u00b4 time. <\/li><li>Our Chart of the Week shows that different measures of PCE inflation, which is the measure the Fed targets, indicate that the disinflation process still has a long way to go. Besides the sharp reacceleration in January, the 3-month and 12-month trimmed measure, which smooth out the PCE indicator across both categories and time, has stabilized at around 5% for the last six months ' more than twice as much as the inflation goal. Moreover, as we discussed in our Data Comment ' US CPI: Disinflation hit pause button in January, 14 February, core PCE inflation will likely prove to be stickier than its CPI counterpart over the next few months, due to the different weights used to build the two indicators, with the weight of core services excluding housing much larger in the PCE basket than in the CPI basket. The Fed is particularly focused on this component because wages account for a large share of these service providers\u00b4 costs. <\/li><li>During his testimony, Mr. Powell will likely say that further rate rises are appropriate and that, if the data were to continue to surprise to the upside, then rates would likely have to rise by more than the Fed previously expected. The upcoming payroll and CPI figures will probably determine whether the Fed hikes by another 25bp or 50bp at its upcoming 21-22 March meeting. We think the bar for reaccelerating the pace of rate hikes is high, given that the Fed only recently stepped down the pace and, in the current view of most Fed members, the peak for rates is not far away.<\/li><li>At the moment, we expect the Fed to hike two more times, by 25bp in March and May, and to remain on hold for the rest of the year as the effects of cumulative monetary tightening make their way through the economy. However, given the degree of uncertainty, there are clear upside risks to our forecast. If the March releases come in solid but show signs of cooling activity, then we think that the Fed will opt for a more cautious approach. In contrast, if they point to a reacceleration in price and wage dynamics, then the Fed could act boldly at its March meeting, hiking by 50bp and pointing to a higher terminal rate.<\/p><\/li><\/ul>"},{"layout":"linklist","uid":29021,"publicationDate":"05 Mar 14:12","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184716.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XC6LgFmyKYAmE=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Sunday Wrap","product":"Sunday Wrap","synopsis":"<ul class=\"ucrBullets\"><li> A higher and later peak in core inflation is likely to push the ECB to tighten beyond 3.50%. We have put our forecast for policy rates under revision; <\/li><li> The ECB is increasingly looking at the important role played by buoyant corporate profits in the post-pandemic inflation outbreak. While this might ease exaggerated fears of a wage-price spiral, it is unlikely to affect the trajectory of policy rates in the short term.<\/li><\/ul>"}]

fca5774f669803887558f1f8bf49f8ba6cbad35f9de48a9f1720f5619f212128;;[{"layout":"linklist","uid":29113,"publicationDate":"29 Mar 16:14","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2023_184832.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRockNs3hFoaK-H67WodFfQjA==&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"CEE Quarterly - Preparing for a turnaround (2Q23)","product":"CEE Quarterly","synopsis":"<ul class=\"ucrBullets\"><li> We expect the economies in EU-CEE to grow by around 0.9% in 2023 and 3.6% in 2024, with most countries avoiding a technical recession this year. The Western Balkans could grow slightly faster than EU-CEE in 2023 and slower in 2024. <\/li><li> Stronger global trade, fewer supply-chain bottlenecks, resilient consumers and more public and private investment will support economic growth. Tight financial conditions at home and abroad and destocking will weigh on growth this year, with negative fiscal impulses slowing the recovery next year. <\/li><li> In Turkey, we expect economic growth of 2.9% in 2023 and 3.7% in 2024, with capital inflows partly offsetting the tightening of monetary conditions if the opposition wins the elections scheduled for 14 May (as we expect). In Russia, we forecast an economic contraction of 2.5% in 2023, followed by a small rebound of around 1.7% in 2024, provided exports do not fall sharply, import substitution improves and public spending does not tighten too much. <\/li><li> Inflation has peaked throughout CEE but is likely to miss targets in 2023-24 as disinflation could be slowed by rising energy prices and taxes, the gradual removal of price caps, FX pass-through and backward-looking wage indexation supporting consumer demand.<\/li><li> Monetary policy has started to loosen through laxer liquidity conditions. In 2023, we expect rates to be cut to 12% in Hungary and to 6.50% in Czechia. In 2024, we expect rates to be cut to 4.50% in Czechia, 5% in Romania, 5.50% in Poland and Serbia, 7% in Russia and 25% in Turkey (following rate hikes to 40% in 2023).<\/li><li> CEE banks are well capitalized and profitable, but central banks need to manage any episode of risk aversion proactively. The Polish banking system would benefit from a blanket solution to end the lawsuits related to CHF mortgage loans.<\/li><li> The risk of funding higher budget deficits in 2023 has been mitigated by bumper issuance in 1Q23. Private and public borrowing from abroad will cover the C\/A deficit not financed through FDI and EU funds. <\/li><li> Gradual European integration for Serbia, following an agreement with Kosovo, could be used as a blueprint for Ukraine. The EU would benefit from investing in the energy infrastructure of the Western Balkans.<\/li><li><strong> In our view, the main risks are: <\/strong> 1. Europe\u00b4s lack of a common vision on how to end the war in Ukraine, which we expect to continue in 2024 without escalating to other countries or non-conventional weapons; 2. war fatigue in CEE; 3. the European Commission\u00b4s more flexible approach to observing whether EU countries respect the rule of law; 4. the growing popularity of Euroskepticism in EU-CEE; 5. Poland and Hungary\u00b4s missing EU funds; 6. political uncertainty if the opposition wins the elections in Poland and Turkey; and 7. Europe\u00b4s lack of a common natural-gas strategy.<\/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"}}]