0e3d4e53dc39047191f43808b87cca419b5e48e28ad3cbc686db7d301999fa57;;[{"layout":"linklist","uid":28481,"publicationDate":"23 Sep 15:35","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183987.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJI3owJG455DyBOr9iK-WXoA=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Household squeeze intensifies","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> The squeeze on real disposable income caused by surging inflation has taken a heavy toll on consumer sentiment globally, and the eurozone is no exception. The preliminary estimate for consumer confidence for September, published yesterday, recorded a drop to a new all-time low. <\/li><li> Our Chart of the Week shows the unprecedentedly large gap that has opened up between sentiment among households and retailers, with the latter displaying very good resilience so far. The main reason is probably the high pricing power of retailers as the economy rebounded from the slump caused by the pandemic. This has allowed them to pass on to consumers a meaningful share of their higher input costs, thus safeguarding profit margins. <\/li><li> We suspect that this trend will not prove sustainable as the economic outlook darkens and households become progressively less keen on spending the large savings accumulated during the pandemic. Despite a resilient labor market, in the eurozone this is likely to translate into a consumer-driven recession at the turn of the year and reduced profitability for retailers.<\/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":28480,"publicationDate":"23 Sep 14:54","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183986.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJI3owJG455DyBy89IMzqR5I=&T=1&T=1","protectedFileLinkDe":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_184003.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJKZXH2GAVJvL9gnqYNxBvNk=&T=1&T=1","protectedFileLinkIt":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183997.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJI3owJG455DypfGahZNyNl0=&T=1&T=1"},"title":"Oil Update - Five factors that might push Brent back up to USD 100\/bbl","product":"Oil Update","synopsis":"<p><ul class=\"ucrBullets\"><li>Demand concerns due to a weakening global outlook are weighing on oil prices. <\/li><li>We challenge the prevailing market view by highlighting five supply-side factors that might push Brent higher, back up to USD 100\/bbl.<\/li><li>Despite rising recessionary risks, we expect supply shortages to dominate the market narrative over demand destruction fears in the remainder of the year.The price of Brent oil is down by about 25% since the peak of last June when a barrel was trading close to USD 125\/bbl. Futures contracts for oil delivery in July 2023 change hands at close to USD 80\/bbl ' almost USD 15\/bbl below what the market was pricing in back in June. The balance of risks has clearly changed from fears of undersupply due to opportunistic behavior by OPEC+ to concerns about oversupply due to a weakening global economic outlook. Tighter monetary policies across advanced economies, the energy crisis in Europe, and a weakening real estate sector in China, along with that country\u00b4s zero-COVID policy, are dragging down world oil demand. If you take out demand increases due to gas-to-oil shifts (more below), the International Energy Agency expects global oil consumption in 4Q22 to be roughly 1% below pre-pandemic levels. In such a bearish market, where all the attention is on the growing risk of demand destruction, it is easy to overlook supply-side factors that might push oil prices upward in the short term. We identify at least five that could bring Brent prices back towards USD 100\/bbl in the next quarter or so. In our view, supply shortages are likely to dominate the market narrative over demand destruction concerns in the remainder of the year. Factor 1. Spare capacity is increasingly tightSpare capacity ' the volume of production that can be achieved within 30 days and sustained for at least 90 days ' is the oil sector\u00b4s ultimate shock absorber, going up and down depending on demand conditions and production strategies. Around 95% of the world\u00b4s spare capacity is in the hands of four OPEC+ countries: Saudi Arabia, Russia, the UAE and Kuwait, with Riyadh holding the lion\u00b4s share (around 30%). As shown in Chart 1, global spare capacity is, at around 1.9mb\/d, below its 2014-2019 average. Under normal circumstances, oil prices incorporate a risk premium when spare capacity is too low to allow the market to respond to demand shocks or to potential crises that reduce oil supplies, like a war or a terrorist attack. Therefore, a further decline in global spare capacity ' supply is expected to increase by 1mb\/d in 4Q22 ' is likely to exert upward pressure on prices. The only way for spare capacity to increase in the short term, as the activation of traditional wells might take years and massive investments, is if OPEC+ decided to cut production ' something that the market would perceive as bullish for oil prices. And this leads to factor 2. CHART 1. SHORT OF SPARE CAPACITY<\/p><\/li><\/ul>"},{"layout":"linklist","uid":28477,"publicationDate":"23 Sep 12:51","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183983.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJI3owJG455DyVznahqXk2sc=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - Eurozone PMIs: monetary policy trade-off keeps worsening","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> Eurozone PMIs for September indicate a further weakening of growth momentum and rising likelihood of a recession at the turn of the year. The composite PMI dropped further into contraction territory, to 48.2 from 48.9, its lowest reading since early 2021 (UniCredit and consensus: 48.2). The manufacturing sector remains under pressure with no signs of a turnaround soon, while the deterioration in services activity gathers pace amid intensified erosion of purchasing power of households and the fading of the reopening effect. At a country level, France recorded a moderate acceleration in economic growth from a low level, while in Germany the downturn intensified. The press release signals that outside of these two countries, output contracted in September. Evidence that the latest surge in energy bills is already affecting firms\u00b4 input and output prices further worsens the trade-off faced by monetary policy. <\/li><li> The outlook for the manufacturing sector remains bleak, as both new orders and output indices declined further below the 50 threshold and the balance between new orders and inventories does not point to an improvement ahead. Ongoing weakness in demand, exacerbated by expenditure switching away from goods, continues to reduce stress on supply chains. In services, business expectations remain on a steep downward trajectory. <\/li><li> The PMIs indicate that the latest energy-price shock is already feeding through to pipeline price pressure. Input and output price indices inched higher both in manufacturing and in services, following some months of easing from the peaks. The labor market remains resilient, as firms\u00b4 hiring plans do not seem to be particularly affected by the deterioration in activity. The main uncertainty here is whether this simply reflects a lagged response of employment to output, or the frictions generated by the pandemic have led to a structurally tighter labor market. The jury is still out. <\/li><li> The ECB will take notice of the increased likelihood of recession (which, strangely, is not part of its baseline scenario), but PMI details regarding prices and employment will certainly not pass unnoticed in Frankfurt. The October rate decision remains a very close call between a hike of 50bp and 75bp. In greater detail: The composite PMI declined to 48.2 from 48.9, with the indices for the manufacturing and services sectors down to 48.5 and 48.9, respectively.CHART 1: RECESSION BECOMES INCREASINGLY LIKELY<\/li><\/ul>"},{"layout":"linklist","uid":28451,"publicationDate":"18 Sep 12:11","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183950.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJI3owJG455DyaB7YeeTCcA8=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Sunday Wrap","product":"Sunday Wrap","synopsis":"<p class=\"ucrIndent\">Happy Sunday from Venice,As I mentioned in my note last weekend, I have traveled to Italy to get a better sense of what people think ahead of the election on 25 September.\u00a0Last weekend, the far right captured about 20% of the votes in the election in Sweden, thereby bringing a majority to the right side of the aisle, although a very slim one. In contrast, here in Italy, if the opinion polls are correct, the right and far right will win a big majority next weekend and form the next government with Brothers of Italy leader Giorgia Meloni as the next prime minister ...<\/p>"},{"layout":"linklist","uid":28444,"publicationDate":"15 Sep 11:15","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183939.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJI3owJG455DyrubGq9bgR1Q=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - The concerning surge in UK long-term sickness and inactivity","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> The UK has seen a huge rise in economic inactivity (those neither in nor looking for work) since the onset of the pandemic1, which has contributed to labor shortages. To be sure, over the same period the working age population rose only modestly,2 implying that at least half a million people went from being economically active (either employed or unemployed) to inactive. Most of the rise in inactivity is accounted for by male, older workers.<\/li><li> Our Chart of the Week shows the striking rise in inactivity for males aged 16-64 since the onset of the pandemic in March 2020. Fortunately, the UK Office for National Statistics is one of the few national statistics offices to provide a timely breakdown of the economically inactive by the 'main reason' for inactivity.3 The official statistics show that around half of the rise in inactivity is accounted for by a rise in the long-term sick. Importantly, however, this likely understates the role of long-term sickness.<\/li><li> New research by the BoE\u00b4s Jonathan Haskel and Josh Martin4 has shown that long-term sickness can explain almost all (88%) of the pandemic-era rise in inactivity if one accounts for those people for whom long-term sickness is not their 'main reason' for being inactive but nonetheless limits their ability to do paid work. Moreover, the proportion of those either employed or unemployed that report they are long-term sick has also risen more steeply since the pandemic. This is important because the employed long-term sick tend to work fewer hours than the employed non-sick, and the unemployed long-term sick have lower job finding rates than the unemployed non-sick. <\/li><li> We cannot know for sure what has driven the sharp rise in long-term sickness during the pandemic, but at least part of it is likely to be explained by long-covid, longer NHS waiting times and, possibly, mental health issues exacerbated by lockdowns.1The rise in inactivity for people aged 16-64 was 640k from February 2020 until July 2022. Over the same period, the rise in inactivity for those aged 16 and over was more than 900k.2The working age population 16-64 rose 149k from February 2020 until July 2022, a slower pace of increase than in prior years, likely reflecting reduced net immigration.3The reasons given are 'long-term sickness', 'retirement', 'student', 'temporary sickness', 'looking after family\/home', 'discouraged workers', and 'other'.4See Haskel, Jonathan and Josh Martin (2022), 'Economic inactivity and the labour market experience of the long-term sick', unpublished manuscript, Imperial College Business School, July.<\/li><\/ul>"},{"layout":"linklist","uid":28436,"publicationDate":"13 Sep 17:01","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183929.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJI3owJG455DyX0nkEBOBfdw=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - US inflation still widespread","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> US CPI rose 0.1% mom in August after a flat reading in July. The headline was dragged down by a more than 10% mom fall in gasoline prices, which shaved off 0.5pp from headline mom inflation. The main news, however, it that high inflation is still widespread, with core CPI (i.e. excluding energy and food) rising by 0.6% mom, double the consensus forecast. In year-on-year terms, headline CPI inflation eased to 8.3%, down from 8.5% in July, while core CPI inflation rose to 6.3% from 5.9% and is not far from a 40-year high. <\/li><li> Both core goods inflation and core services inflation accelerated. In advance of the report, we had expected core goods inflation to ease due to slowing aggregate demand, expenditure-switching away from goods, the strong US dollar, and an easing of supply-chain constraints. Instead, new car prices and apparel prices rose, while used car prices only fell marginally. We still expect core goods prices to fall, and there is plenty of scope for them to fall given the outsized price rises last year, but it looks like it will take longer than expected.<\/li><li> The strength of core services inflation is not a big surprise, as it tends to be stickier and the labor market remains very tight, but the further acceleration is concerning. Within core services, rents rose another 0.7% mom, as did Owners\u00b4 Equivalent Rent (OER). Although the housing market is weakening and wage growth is showing some signs of moderating, rents\/OER inflation is likely to remain elevated for some time. This is in part because increases in asking rents take time to be reflected in average rents as new rental contracts are agreed. In addition, each month the Bureau of Labor Statistics samples one-sixth of the total housing units in its full sample and computes the average change in rents over the previous six months. Core services inflation excluding shelter accelerated to 0.4% mom in August from 0.1% mom in July, showing that price rises are widespread. Within this group, prices of medical care services rose strongly and tend to be persistent. The prices of travel-related items were weak, led by an almost 5% mom fall in airfares. Airfares typically fall in August, but this year\u00b4s drop was steeper than normal following the unusually high growth in fares during spring and early summer.<\/li><li> The Fed will be concerned by the August CPI report, no doubt. Price rises are simply too fast and too widespread. Whilst we judge that inflation will cool fairly rapidly next year in part as tight monetary policy pushes down on aggregate demand, time is not something the Fed feels it has right now. Indeed, it is focused on reducing the probability of the worst-case outcome, which is a risk scenario where high inflation becomes entrenched via wage and price expectations. The Fed judges that this risk is higher the longer inflation remains high, and the broader inflation is. In order to feel confident that this risk has subsided, the Fed needs to see both a weakening of the labor market and convincing evidence that inflation is sustainably moving down towards its target. Neither of these have happened, so the Fed will have no hesitation in hiking interest rates by another 75bp next week, and the probability of another large move in November has increased (our base case remains a 50bp hike in November, now with upside risks).Chart 1 shows that the low 0.1% mom print for headline CPI inflation was largely driven by a large negative contribution from energy prices, specifically gasoline. Core inflation accelerated.CHART 1: HEADLINE INFLATION DRAGGED DOWN BY ENERGY PRICES<\/li><\/ul>"},{"layout":"linklist","uid":28422,"publicationDate":"11 Sep 12:41","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183913.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJI3owJG455Dy8gBg24vmWq0=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Sunday Wrap","product":"Sunday Wrap","synopsis":"<ul class=\"ucrBullets\"><li> I\u00b4ll reflect on the likely consequences of the completion of the hawks\u00b4 takeover of the ECB.<\/li><li><strong> I\u00b4ll discuss the real damage of Brexit: <\/strong> the economic fallout has been bad, but the more severe casualty is the body politic.<\/li><li> And I\u00b4ll summarize the way I see the likely outlook of the Italian election in two weeks.<\/li><\/ul>"},{"layout":"linklist","uid":28410,"publicationDate":"07 Sep 10:34","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183898.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJAK3tdK5Bz78WUuqWtynlhw=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Boosting labor supply to cool down a hot US labor market","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Labor market tightness in the US remains intense, with almost two job openings for every unemployed person in July (the latest available figure). This is the result of both demand and supply factors. Vacancies for jobs that could start within 30 days remain at exceptionally high levels ' almost two times higher than the 2015-2019 average. On the other hand, the labor force participation rate, which has been on a structural downward trend for two decades, has not recovered its pre-pandemic levels. In August, it rose to 62.4% from 62.1%, but it remains a full percentage point below its February 2020 level. Most of the burden to contain the inflationary pressures stemming from a hot labor market lies with the Fed through tighter monetary policy aimed at taming labor demand to avoid a wage-price spiral. <\/li><li> Our Chart of the Week shows that supply-side policies aimed at bringing Americans back into the labor force would partly shift the burden of the adjustment away from the central bank. A larger pool of workers would increase job searches, fill up vacancies and lower the wage pressures due to labor shortages, reducing the need of creating slack in the economy. The chart shows that, if the labor force participation jumped to 63.4% (the February 2020 level), the vacancy-to-unemployment ratio would return to its pre-pandemic levels ' that was already high by historical standards. <\/li><li> Given the high level of vacancies, many of the new joiners would likely find employment. If they all remained without a job though, which is the assumption made in the chart, the unemployment rate would jump to 5.1% from 3.5% currently. Clearly, the downward impact on wage growth from higher participation is likely to be greater if Americans move from inactivity into employment rather than unemployment because it means they possess the skills that firms are looking for. As a purely illustrative scenario, the chart also shows what would happen to the vacancy-to-unemployment ratio if participation rose of about 66% ' the rate recorded in 2007. <\/li><li> Admittedly, boosting labor force participation at a speed that is sufficiently fast to tame inflation in the short term is challenging. First, there are structural factors, such as the early retirement of many baby boomers, a decline in net immigration flows, and the drop in the youth participation (partly due to longer educational paths) that cannot be easily reversed. Moreover, recent research from Brookings shows that long Covid is keeping as many as four million people out of work. However, policies such as targeted training programs for detached workers (especially older and less educated ones), family-friendly policies for female workers, more widespread use of telework arrangements for less mobile workers and a relaxation in immigration policies could improve the job-matching process and alleviate labor market tightness in a reasonable amount of time, bringing some relief to the Fed. <\/li><\/ul>"},{"layout":"linklist","uid":28397,"publicationDate":"04 Sep 12:32","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183883.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJAK3tdK5Bz78QeqOXsUqo44=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Sunday Wrap","product":"Sunday Wrap","synopsis":"<ul class=\"ucrBullets\"><li> I\u00b4ll elaborate on this critical observation that European inflation is predominantly, if not exclusively, the result of a permanent energy price shock, which stands to cost the EU economy more than 3% of GDP per year. This calls for bold strategic and fiscal policy action with a more careful role to be played by monetary tightening. <\/li><li> Bold action requires great political courage. Mikhail Gorbachev, who died this past week, certainly had that in spades. I\u00b4ll summarize what I think he unleashed, why and how it shapes today\u00b4s world.<\/li><\/ul>"},{"layout":"linklist","uid":28396,"publicationDate":"02 Sep 16:53","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183882.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJAK3tdK5Bz78J0-vxoptqSE=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - US: Solid payrolls give the Fed the green light ","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> The US economy added a solid 315k jobs in August after a large gain of 526k in July. To distinguish between what is a good number and what is not, it\u00b4s worth noting that payrolls would need to rise by around 100k per month in order to not put upward nor downward pressure on the unemployment rate, holding the participation rate constant. In August, payrolls rose above their level in February 2020 for the first time since the onset of the pandemic. Job gains were broad-based across industries, led by education & health, professional services, and retail trade. An alternative measure of employment from the household survey also rose strongly, by 442k in August.<\/li><li> The labor market remains very tight, with two job openings for every unemployed person in July, up from just over one job opening pre-pandemic. However, the main news from the August employment report is that there are signs that the large imbalance between labor demand and labor supply maybe starting to ease. First, the labor force (i.e. those who are either employed or unemployed and actively seeking work) rose by a large 786k in August, the largest rise since January. The jump in participation, which was larger than the 442k rise in household employment, pushed the unemployment rate up by 0.2pp to 3.7%. Second, average weekly hours edged down to 34.5 from 34.6. It\u00b4s still slightly above its pre-pandemic level, reflecting that firms are having to work their existing workers longer to meet demand amid hiring difficulties. Third, average hourly earnings growth eased to 0.3% mom in August, down from 0.5% mom in July, leaving the year-on-year rate unchanged at 5.2%. It\u00b4s only one month, but wage growth of 3.8% mom at an annualized rate in August is not far above the level of 3.5% that would be roughly consistent with the 2% inflation target plus our estimate of underlying labor productivity growth of around 1.5%.<\/li><li> On this evidence, the Fed will be comfortable with hiking interest rates by another 75bp at its meeting on 20-21 September based. Yes, there are some signs that labor shortages are easing, which is good news for the inflation outlook, but the solid rise in employment shows the labor market has significant momentum, and the Fed appears to want to see a margin of spare capacity opening up in the labor market to be confident that very high price inflation does not become entrenched into wage and price setting. The next key data will be the August CPI report, due to be published on 13 September. It\u00b4s likely to show monthly inflation was fairly low, at around 0.2-0.3% mom, largely driven by lower gasoline prices, while core inflation probably remained strong. Based on the 'totality' of the data, we think the Fed will hike by 75bp later this month.Chart 1 shows that nonfarm payrolls rose by 315k in August after a large gain of 526k in July. Payroll gains in June were revised down by 105k to a still strong 293k.CHART 1: SOLID PAYROLL GAINS<\/li><\/ul>"},{"layout":"linklist","uid":28367,"publicationDate":"23 Aug 12:24","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183845.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJAK3tdK5Bz78j8nG0V8pZ4Q=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - Eurozone PMIs signal contraction but no collapse","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> Eurozone PMIs for August indicate rising likelihood of economic contraction in the third quarter but not a collapse. The composite PMI slipped further into contraction territory, to 49.2 from 49.9, its lowest reading since early 2021 (UniCredit and consensus: 49.0). The manufacturing sector remains a weak spot, although there are signs that the downturn in output and new orders might be approaching its trough. The index for services activity lost further momentum and now points to stagnation, with firms reporting that erosion of purchasing power caused the post-pandemic recovery in demand to stall. At a country level, France joined Germany in recording a composite PMI below 50. The press release signals that outside of these two countries, output increased marginally. <\/li><li> Pressure on the manufacturing sector remains intact, as both new orders and output indices remained well below the 50 threshold. Ongoing weakness in demand helped reduce stress on supply chains and led to the largest build-up of inventories of finished products since the survey began in 1997. However, after a big slide, the new orders-to-inventory ratio stopped declining. If confirmed, this would suggest that downward pressure on activity might start easing in the coming months. Yet, a recovery does not seem to be in the cards, given the intensifying squeeze of real incomes, expenditure switching from goods to services and lingering uncertainty with regard to energy supply. <\/li><li> Prices pressure moderated further, both in manufacturing and in services. However, the pace of reduction is still slow, as both input and output price indices remain high and significantly above pre-pandemic levels. <\/li><li> Employment growth softened further but confirmed its resilience amid a marked slowdown in economic activity. Together with indicators of vacancies and labor shortages, this points to a labor market that remains tight. This will be a key factor for the ECB to consider when it makes its September rate decision. A 50bp hike remains the most likely scenario. In greater detail: The composite PMI declined to 49.2 from 49.9, with the headlines for the manufacturing and services sectors down to 49.7 and 50.2 respectively.<\/li><\/ul>"},{"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>"}]

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"}}]