IMF Sees Deeper Recession, Slower Recovery On Covid-19

Trading 24 juin 2020 Commentaire »

The International Monetary Fund on Wednesday forecast a deeper recession, the worst ever, for this year and, a slower and uncertain recovery for next year after the coronavirus, or Covid-19, pandemic plunged the global economy into a crisis like no other.

The global economy is set to shrink 4.9 percent this year, which is worse than the 3 percent contraction predicted in April, the lender said in an update to its World Economic Outlook.

That would be the most severe recession since the Great Depression of 1930s. Private consumption is expected to be weaker-than-expected, reflecting a combination of a large adverse aggregate demand shock from social distancing and lockdowns, as well as a rise in precautionary savings, the report said. Investment is projected to remain subdued as firms delay capital expenditures amid high uncertainty. The growth forecast for next year was lowered to 5.4 percent from 5.8 percent. Consumption is expected strengthen gradually next year and investment to firm up, but both are projected to remain subdued.

"The downgrade from April reflects worse than anticipated outcomes in the first half of this year, an expectation of more persistent social distancing into the second half of this year, and damage to supply potential," IMF Chief Economist Gita Gopinath said in a blog on the IMF website.

"A high degree of uncertainty surrounds this forecast, with both upside and downside risks to the outlook," she added.

The global inflation outlook is also subdued given the weaker demand and lower commodity prices, especially oil.

A scenario presented in the IMF report is based on the assumption of a second global outbreak of the Covid-19 pandemic in early 2021. Under this, the global output is expected to contract about 4.9 percent relative to the baseline in 2021 and remain lower by 3.3 percent in 2022.

An alternative scenario to this sees a faster recovery in the second half of this year due to greater confidence in post-lockdown measures and 50 percent less supply-side scarring. In this, global output improves by about 1.5 percent this year and remains 3 percent above the baseline in 2021.

Countries across the world have gradually reopened their cities by easing the lockdown restrictions that were imposed largely in the second half of March and in April to slow the spread of the coronavirus pandemic. Cities with a high incidence of cases remain under lockdown, while some have brought back restrictions fearing a second wave of infections. The IMF lowered the growth forecast for the advanced economies group by 1.9 percentage points to -8 percent this year. The outlook for next year was raised to 4.8 percent from 4.5 percent. The US growth forecast for this year and next, was lowered to -8 percent and 4.5 percent, respectively. Eurozone growth outlook for this year was cut to -10.2 percent, while the projection for next year was raised to 6 percent. Projections for the emerging market and developing economies group were lowered with the Chinese economy expected to grow 1 percent this year and 8.2 percent next year, supported by policy stimulus. The Indian economy is projected to contract 4.5 percent this year, which was 6.4 percentage points lower than the April projection. The country is experiencing a longer period of lockdown and slower recovery than anticipated in April. In 2021, India's economy is expected to grow 6 percent. For the first time, all regions in this group are projected to experience negative growth in 2020, but there are substantial differences across individual economies, the IMF said. In Latin America, Brazil and Mexico are projected to log more severe contractions of 9.1 and 10.5 percent. More than 90 percent of emerging market and developing economies is projected to register negative per capita income growth in 2020, signalling a likely reversal of the progress made in poverty reduction, the IMF said. Apart from pandemic-related downside risks, escalating tensions between the United States and China on multiple fronts, frayed relationships among the Organization of the Petroleum Exporting Countries (OPEC)+ coalition of oil producers, and widespread social unrest pose additional challenges to the global economy, the report warned. Low inflation and high debt, particularly in advanced economies, coupled with protracted weak aggregate demand could lead to further disinflation and debt service difficulties that, in turn, weigh further on activity, the lender added.

"Given the tremendous uncertainty, policymakers should remain vigilant and policies will need to adapt as the situation evolves," Gopinath said. "All efforts should be made to resolve trade and technology tensions, while improving the multilateral rules-based trading system," she added.


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*U.S. Crude Oil Inventories Rise By 1.4 Million Barrels In Week Ended 6/19

Trading 24 juin 2020 Commentaire »

U.S. Crude Oil Inventories Rise By 1.4 Million Barrels In Week Ended 6/19


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*Belgium June Consumer Confidence -19 Vs. -23 In May; Consensus -28

Trading 24 juin 2020 Commentaire »

Belgium June Consumer Confidence -19 Vs. -23 In May; Consensus -28


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*IMF Lowers 2021 Global Growth Forecast To 5.4% From 5.8%

Trading 24 juin 2020 Commentaire »

IMF Lowers 2021 Global Growth Forecast To 5.4% From 5.8%


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*IMF Cuts 2020 Global Growth Forecast To -4.9% From -3% Seen In April

Trading 24 juin 2020 Commentaire »

IMF Cuts 2020 Global Growth Forecast To -4.9% From -3% Seen In April


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Dollar Little Changed After U.S. House Price Index

Trading 24 juin 2020 Commentaire »

The Federal Housing Finance Agency's U.S. house price index for April has been released at 9.00 am ET Wednesday. The greenback changed little against its major counterparts after the data.

The greenback was trading at 106.77 against the yen, 0.9478 against the franc, 1.2494 against the pound and 1.1272 against the euro around 9:05 am ET.


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Dollar Mixed Ahead Of U.S. House Price Index

Trading 24 juin 2020 Commentaire »

The Federal Housing Finance Agency's U.S. house price index for April is due at 9.00 am ET Wednesday. Ahead of the data, the greenback traded mixed against its major counterparts. While it held steady against the pound and the euro, it rose against the yen and the franc.

The greenback was worth 106.78 against the yen, 0.9473 against the franc, 1.2491 against the pound and 1.1274 against the euro as of 8:55 am ET.


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Czech Central Bank Leaves Key Rate Unchanged

Trading 24 juin 2020 Commentaire »

The Czech National Bank decided to leave its key interest rates unchanged on Wednesday, as widely expected, after cutting it for three straight meetings.

The Bank Board of the CNB maintained the two-week repo rate at 0.25 percent.

The key interest rate was lowered by 75 basis points on March 26 and by 50 basis points on March 16 and another 75 basis points on May 7.

The discount rate was kept unchanged at 0.05 percent and the Lombard rate at 1 percent.


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EUR/USD. Premature panic: specter of a new trade war has scared traders

Trading 24 juin 2020 Commentaire »

The euro-dollar pair shows multidirectional dynamics today. The price returned to the 13th figure in the morning - primarily due to the general weakening of the US currency. But the roles changed in the afternoon: the bears seized the initiative and are now trying to get the pair back under the Tenkan-sen line (which currently corresponds to the 1.1260 mark). From a technical point of view, this is a strategically important price barrier: if the price consolidates on this target, the Ichimoku trend indicator on the daily chart will generate a bullish Parade of Lines signal that will allow buyers to test the next resistance level of 1.1400 and the main resistance level of 1.1420 (three-month high, coinciding with the upper line of the Bollinger Bands indicator on D1).

It is worth noting that the downward momentum of EUR/USD is only partly due to the strengthening of the dollar. The pair is mainly declining due to a sharp weakening of the euro across the market. The dollar itself still demonstrates vulnerability due to many factors that have accumulated throughout the week (increased risk sentiment, weak US macro reports, uncertainty about additional assistance to the US economy, etc.). But the European currency quite unexpectedly "fell under the hand", although the trade conflict between the US and the EU has been smoldering for a long time.

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Let me remind you that Washington voiced its complaints to Europeans back in April last year: according to the White House, some European countries (namely France, Italy, Spain and Germany) illegally subsidized the European aircraft manufacturing concern Airbus, causing the US state $11 billion in annual damage. The US then threatened to introduce additional duties on a number of goods from the above European countries.

A little later - in October last year - Brussels lost a dispute over subsidies for Airbus to the World Trade Organization. This fact was the next stage in the trade confrontation between the United States and the European Union. Washington expressed its readiness to introduce tariffs authorized by the WTO ($7.5 billion), while Brussels expressed a similar willingness to use mirror measures. The White House took advantage of its right on October 18: the United States introduced additional tariffs for the above amount relative to some goods imported from the European Union. The list of these products is quite large - in particular, civilian aircraft levied a 10% tariff, and food and alcoholic beverages (Scotch whiskey, French wine, sire, clothing, coffee) charged 25%. In addition, European pork, yoghurts, butter, olives and other European exports most in demand in the United States fell under new sanctions.

The EU did not remain in debt and asked the WTO to authorize the imposition of retaliatory duties in the amount of 11 billion 200 million dollars for American goods. Today it became known that the WTO will decide on trade return tariffs in July. According to most experts, if Brussels receives a green light in this matter and takes advantage of its right, then losses will be incurred not only by US aircraft manufacturers, but also coal producers, farmers, as well as representatives of the fishing industry. This will be a rather painful blow for Donald Trump, whose rating is already falling against the backdrop of the coronavirus epidemic, mass protests and the economic crisis. The above sectors of the economy are especially important for the head of the White House, since their representatives are concentrated mainly in the states that support the Republicans (in particular, the fishing sector is important for Louisiana, the coal mining industry for Missouri).

Given this disposition, some experts have suggested that the trade war between the US and the EU will continue, thereby exacerbating the situation of the global economy. For example, Trump could bring back the issue of introducing duties on European cars and spare parts. This "Damocles Sword" has been hanging over Europe for a long time, since 2018. Under attack is the automotive industry not only in Germany, but also in France and Italy - according to preliminary estimates, the total cost of the indicated duties is $300 billion. According to experts, in the case of the introduction of American duties, the domino effect will follow: the business climate in the eurozone countries will significantly deteriorate again, thereby slowing down the growth of key indicators and the economy as a whole. This question was put on a "long-playing pause" thanks to trade negotiations, but the White House can play this card at any time, especially against the backdrop of the upcoming presidential election.

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Such prospects greatly excited the market participants. Anti-risk sentiment increased again, providing background support to the dollar as a defensive asset. In turn, the European currency was under pressure - after all, if a trade war with Washington really becomes a reality, the process of economic recovery in the EU could be significantly delayed.

But here is the keyword "if." Firstly, it is not a fact that the WTO will decide in favor of Brussels. Secondly, it is not a fact that Trump will continue to heat up the situation, because the attitude of the Americans towards the trade wars initiated by him is far from unambiguous. And thirdly, even if the WTO allows the European Union to introduce retaliatory duties, it is not a fact that it will use this right. It is likely that Europeans are using this decision as a powerful argument in repeated trade negotiations.

Therefore, in this case, the downward momentum is due to the factor of surprise, while it is too early to talk about the real threats of a trade war. If EUR/USD remains above 1.1260 by the end of the day, then you can consider the longs to the first resistance level of 1.1400 and the main resistance level of 1.1420 (a three-month high coinciding with the upper line of the Bollinger Bands indicator on D1) for the pair.

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*Czech Central Bank Holds Key Rate At 0.25%

Trading 24 juin 2020 Commentaire »

Czech Central Bank Holds Key Rate At 0.25%


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