Summary With much of the world shunning Russia, countries have turned to the United States for the supply of key commodities. In this short special report we detail how Russia-related supply issues are helping propel export growth and are contributing to the normalization of the U.S. trade balance. U.S. export growth has started to turn a corner, with real goods exports outpacing imports amid a sizable lift in exports of industrial supplies & materials specifically. A look under the hood of recent industrial supplies strength suggests the gain was very much tied to goods that have been at the forefront of supply bottlenecks due to the Russia-Ukraine conflict. Categories associated with natural gas, oil and fertilizer accounted for nearly 70% of the gain in industrial supplies exports in June alone. Russia was previously a large supplier of solid fuel and natural gas to Europe, but as much of the world shuns Russia, the United States is helping to fill the gap by supplying more of those goods than it was before the war. According to the EIA, the U.S. became the world's largest liquefied natural gas (LNG) exporter during the first half of the year and data suggests the U.S. is supplying more to Europe specifically. It's unclear how long this boost will last for exports. Low inventories and colder months ahead suggest European demand should remain elevated, but a fire at a key U.S. LNG export facility is denting U.S. export capacity. We expect the conflict will continue to give way to strength in exports and a narrowing in the U.S. trade deficit. Import growth should continue to slow as goods spending moderates, and while the rest of the world is not immune to the broader economic slowdown, some of these Russia-related supply issues are helping propel export growth higher. Download The Full Special Commentary

The dollar has corrected around 3% from its highs seen last month. This has prompted a few questions about whether the dollar has peaked? Many trading partners would hope that to be the case, but the reality is that the Fed is likely to stay on track with its tightening. We think the dollar is more likely to retest its highs than correct much lower. Driving this view has been consistent rhetoric from the Fed that it will not be blown off target by some softer activity or price data. In fact, it now looks like US activity is accelerating again as lower gasoline prices leave more dollars in the pockets of US consumers. The 2023 US recession narrative looks a tough one to sell near term. And rising energy prices should continue to drive a wedge between the exporters of North America and the importers of Europe, meaning a much greater conviction of a recession in Europe. The ECB’s second 50bp rate hike on 8 September may well conclude its tightening cycle. Rate spreads and the energy income shock make it a very tough environment for the euro. EUR/USD should therefore drift near parity for much of 2H22. Elsewhere in Europe, the Swiss franc continues to be guided higher by the Swiss National Bank. Sterling remains vulnerable on recession fears. Beyond some substantial fiscal stimulus, sterling’s best hope is that the Bank of England delivers on most of the aggressive tightening currently priced into markets. Surging gas prices also spell trouble for the CEE4 currencies. The Polish zloty in particular looks unlikely to hold recent gains. Emerging market currencies have enjoyed a mini-renaissance over the last month. But a difficult external environment makes it hard to sustain those rallies until the dollar turns. Download The Full ING Economic and Financial Analysis

Investors embrace the ‘no recession’ story and take stocks higher. Treasuries remain inverted pointing to ‘a recession’. Gold waffles between maybe it is or maybe it isn’t. Oil under pressure as Saudi Aramco hints at upping production. Big week for the retailers – will it be Christmas in September? Try the Parmegiana Crusted Mahi Mahi. Stocks rose on Friday – posting another week of gains – marking the longest stretch since November 2021. The Dow advanced by 424 pts or 1.3%, the S&P up 73 pts or 1.7%, the Nasdaq raced ahead by 270 pts or 2.1%, the Russell up by 42 pts or 2% and the Transports gained 75 pts or 0.5%.  The mood was helped on Wednesday by the recognition that inflation might just be subsiding as Joey tried to make very clear -  Saying that “the CPI for July came in at 0% m/m….let me repeat that 0%”.......now that sounds great, but when you take out food and energy (which they do) the CPI for July rose by 0.3%...and y/y it is still up 8.5% - or near 40 yr. highs……  but this report did give investors a reason to think that the FED will ‘take a step back’ and raise rates by only 25 or 50 bps…. which they say – will prevent us from going into a recession… (Unless we’re already in one – that is still up for debate)  And here is another news flash- Congress just passed not 1 but 2 massive bills, One a Climate and Chips Bill – which they sold as a Chips Bill and the other a massive TAX and SPEND Stagflation bill …….and both spending bills are expected to only add to the inflation story, rather than reduce inflation as Chucky Schumer tells us. (In addition, they are hiring 87k new IRS agents to go after anyone with a ‘VENMO’ account…. You – know all of those billionaires that are moving money via VENMO and not telling anyone thereby avoiding millions of dollars in taxes! It’s laughable!).  So, my friends - ‘not so fast’…. While inflation did recede in July – one month does not negate the 17 months of advances – (March 2021 – present).  So, is it a bit early to rip off the bandage and celebrate?  I think so….remember – since we are seeing history repeat itself (1980/82 and 2021/22) – do not be surprised to see inflation and employment suddenly reverse course and move up in the months ahead – and all that means is – The FED should not change the pace or increment of increases that they have led the markets to believe is happening – meaning 75 bps should be the call, anything less risks the chance that they will be seen as ‘waffling’ – bowing to the pressure…..a mistake for sure.  For those of you NOT around in 1981 – soaring inflation also ‘retreated’ and unemployment mounted (rising to 7.4%) and the FED pivoted –  only to see inflation and unemployment rear their ugly heads and zoom higher – forcing the FED to re-pivot and force rates up to 21% to tame the beast…and that forced the country into a deeper recession – that lasted from July 1981 – thru November 1982 – One that may not have happened had the FED stuck to the plan.   So, I say – stick to the plan…. raise rates by 75 bps in September.  At the moment- the Treasury curve remains deeply inverted…. but don’t tell anyone. The inversion points to the idea that the FED tightening that is coming will send us into a deep recession….and remember- they haven’t said a word about reducing the balance sheet at all…by September – we were supposed to reducing it by $90 billion/month – how’s that working? Oil traded down 2% on Friday on the expectation that any disruption from the damaged pipeline – in the Gulf of Mexico would be short term at best – so any fear that supplies would be disrupted for any length of time are no longer an issue. 7 offshore deep-water platforms had been affected helping to send oil higher on Thursday….…. but that is no longer an issue and so the run up on Thursday was met with selling on Friday.  This morning – oil is trading down $4 to $88/barrel – Saudi Aramco telling us that they are ready to raise crude output to a maximum of 12 million barrels/day IF the Saudi gov’t requests it to meet demand.  Easing of covid restrictions in China and a pickup in demand in the airline industry is behind that request.  Funny, but the Chinese just reported weaker macro data (due to the lockdowns) – so which is it?  A stronger China or a weaker China?     Gold surged by...

There will be no shortage of data releases in the coming week and the RBNZ is poised to hike rates again. But with investors still undecided about the implications of the latest US inflation report on Fed policy, the FOMC minutes might steal the limelight. Meanwhile, thinning liquidity as more traders head for their holiday destinations increases the likelihood of big knee-jerk reactions as markets obsess about the pace of monetary tightening and the risks of a recession. RBNZ leading the tightening race The Reserve Bank of New Zealand is tipped to lift its official cash rate (OCR) for the seventh straight meeting on Wednesday, becoming the first major central bank to take borrowing costs as high as 3% in this cycle. However, the hawkish posturing may be reaching the end of the line and there are downside risks for the New Zealand dollar from the meeting. Back in May, the Bank had forecast that the OCR would peak just below 4% by September 2023. That means there would only be a 100-basis-point increase remaining if it hikes rates by 50 bps in August as expected. But that is assuming that the rate path doesn’t get revised lower. The RBNZ will publish updated forecasts in its quarterly Monetary Policy Statement and given the recent easing in energy and other commodity prices, policymakers might predict a slightly lower terminal rate. But it’s not just the inflation outlook that’s changing. Economic growth is slowing too. Consumption in New Zealand has been subdued lately and the jobless rate unexpectedly ticked up in the second quarter, prompting policymakers to emphasize the negative risks to growth in the July policy statement. Hence, the kiwi, whose rebound versus the US dollar picked up speed over the last week, faces the possibility of being knocked down by either a lower projection of the terminal rate or hints that the pace of tightening could soon switch to 25-bps increments, or both. Aussie hoping for more upside before next RBA decision In neighbouring Australia, the July employment report due Thursday will be the highlight, though wage data for the second quarter a day earlier will be important too. The Reserve Bank of Australia abandoned the use of forward guidance at its last meeting amid the uncertainty surrounding the forecasts for both inflation and growth, so the upcoming releases will likely play a significant role in swaying the odds for or against a 50-bps rate hike in September. Investors widely believe the RBA will raise rates by only 25 bps next month so the scope for expectations to shift towards a 50-bps move is quite large if the job figures impress. There may also be some clues about the size of the next hike in the minutes of the August meeting out on Tuesday. Having just surged back above the $0.70 handle, the Australian dollar could extend its strong gains if rate hike expectations are ratcheted up. Ahead of the domestic agenda, traders will be keeping an eye on some key metrics out of China on Monday. Growth in industrial output and retail sales is anticipated to have accelerated in July. If the data confirms that China’s recovery is gathering steam, there could be a boost for the aussie, as well as broader risk appetite at the start of the week. Will retail sales and Fed minutes spoil the mood? Signs of cooling inflation in America have tempered bets of a 75-bps rate rise by the Federal Reserve in September, hurting the dollar but reviving the stalled rally on Wall Street. It comes after both consumer and producer prices moderated in July. Next week’s slew of indicators will turn the attention back on the economic momentum. The housing market is one of the sectors of the economy being closely watched right now for possible signs of a downturn. Building permits and housing starts for July are released on Tuesday, followed by existing home sales on Thursday. There will be several clues on the manufacturing sector too as the New York and Philadelphia Feds publish their monthly surveys on Monday and Thursday, respectively, while industrial output is out on Tuesday. However, most of the focus will be on Wednesday when the latest retail sales numbers and the minutes of the Fed’s July meeting are due. Retail sales likely decelerated substantially in July and analysts have pencilled in month-on-month growth of just 0.1%, after jumping by 1% in June. Recent data that’s been on the soft side has had a mixed effect in dampening risk sentiment despite fuelling recession fears as the negative pressure has been countered by falling Treasury yields. However, with Fed officials standing firm on their determination to get inflation down towards their 2% target even after the CPI miss, the pullback in yields has likely gone as far...

Can stock markets continue to rally?  What a difference a week makes. Post last week’s weaker than expected July inflation print for the US, which saw annual headline CPI fall to 8.5% from 9.1% in June, the first positive inflation surprise for quite some time, and the market is in risk-on mode. Stock markets reached another milestone last week when the Nasdaq Composite index rose more than 20% from its mid-June low, to end its longest bear market since 2008. Added to this, the dollar has sold off sharply since its mid-July peak, with the dollar index losing 3%. The dollar had been inversely correlated with US stock markets for most of this year, thus, market bulls are looking for further dollar weakness if the stock markets continue to rally. However, the question now is, will the bull market continue? There seems to be two camps out there right now. On the one hand, those who think that the worst of the year’s market sell-off is behind us, now that US inflation looks like it has peaked, and on the other hand, those that are still concerned that the Fed has not finished its interest rate hiking cycle, that inflation is still too high and that the recent uptick in stocks is merely a bear-market rally, albeit an aggressive one. This week’s global economic data may determine who is right.  Below, we look at three events that could determine the direction of stocks and other risky assets this week.    1. FOMC minutes  There are two main pieces of data that we will be looking at this week, including the minutes of the July Federal Reserve meeting and US retail sales. The market had, on balance, concluded that the Fed’s press conference after the July meeting was dovish, with Fed chair Powell ditching forward guidance, refusing to rule out a smaller rate hike at future meetings and his comment that US interest rates at 2.25-2.5% was within the ballpark of neutral Federal Reserve interest rates. This was surprising to some, since at that time US inflation was at a more than 40-year high of 9.1%. However, last week’s cooler than expected inflation rate means that the next FOMC meeting will most likely go down to the wire, with the Fed expected to look closely at August NFPs and the August CPI report. The market has taken a dovish turn when it comes to the Fed’s next rate hike, there is now a 55% chance of a 50bp rate hike at the September Fed meeting, and a 45% chance of a 75bp rate hike. This is down from a 68% chance of a 75bp rate hike for September, just one week ago. Thus, this week’s minutes will be important to watch closely. Does the Fed really think that US interest rates are close to neutral and how much do they want to see inflation fall before they stop hiking rates? These will be important questions in the week ahead. They will determine if the Nasdaq can extend its recent 20% rally, and if some of the weaker US stocks, including meme stocks like AMC, can also continue their recovery. It will also determine the direction for the price of gold, along with the dollar. After the supposedly dovish press conference at the July meeting, the question now is, will the minutes throw a hawkish cat among the pigeons? If so, EUR/USD’s recent rally could be at threat after this pair failed to break $1.0270 resistance at the end of last week.    2. US consumer resilience  US retail sales, released on Wednesday, will also be watched closely as the market expects a slowdown of sales ex autos to -0.1% in July, after a 1% rise in June. However, the steeper than expected decline in US CPI last month, could boost sales. Added to this, there was an increase in the University of Michigan consumer sentiment survey that was released at the end of last week. Longer term inflation rates came down, with consumers expecting inflation next year to be 5%, down from 5.2% in July. Interestingly, consumers’ economic expectations edged up in August, according to the survey, particularly among low- and middle-income consumers, who are sensitive to inflation. This doesn’t mean that inflation is no longer a problem, 48% of respondents to the survey still blamed inflation for eroding their living standards, however, it suggests that there is a risk of an upside surprise to this week’s US retail sale figures on the back of falling gas prices.    2. UK CPI  Unlike the US, we do not expect the UK to follow suit and see a sharp decline in inflation for July. While economists expect inflation to remain flat on the month at 0%, the annual rate of headline CPI is...

We’ve just had an update on US inflation via July’s Consumer Price Index (CPI). Headline CPI, which includes food and energy, rose 8.5% compared to this time last year. This was below the consensus forecast of +8.7% which was in turn significantly lower than last month’s +9.1%. This was the first indication that inflation may have peaked, and we got another one the following day when Producer Prices also came in below expectations. While this is all good news, one month’s data doesn’t make a trend. Nevertheless, it was enough to give equities a significant boost, while the US dollar fell sharply. The probability of the Federal Reserve raising rates by 75-basis points at their next meeting in September fell from just under 70% to 40%. A 50-basis point increase is currently the most likely outcome, according to the CME FedWatch tool which calculates the odds using the fed funds futures markets. Recession? This CPI release rounds off a recent clutch of important market-moving updates. This began a few weeks ago when the US Federal Reserve raised rates by 75 basis points for the second successive month. That wasn’t a surprise, and the stock market rallied even as Federal Reserve Chairman Jerome Powell warned of further increases to come. But what did shock traders was the drop in GDP growth announced the following day. This was unexpected. It also means that the US is technically in recession, using the simple definition of two successive quarters of negative GDP growth. Now, it’s true that it’s the National Bureau of Economic Research (NBER) that officially decides whether the US is in recession or not. It takes unemployment and other factors into account, not just GDP. But we will have to wait months for confirmation, which rather spoils the effect. Of course, knowing if a country is in a recession isn’t particularly helpful for traders. The ‘technical’ definition doesn’t help, as quarterly GDP is one of the most backward-looking pieces of economic data around. In addition, the numbers are continually revised which is why the US needs a committee to rule on the issue. But by the time the NBER announces its decision, it’s quite likely that any recession will already be over. Blow-out payrolls Further complicating the situation were the latest Non-Farm Payroll numbers. These showed an increase of 528,000, way above the 250,000 expected. Also, there were upward revisions to the prior data. Putting all this together, US payrolls are now back to pre-pandemic levels having made back all the 21,568,000 jobs lost in early 2020. On top of this the Unemployment Rate dropped and is now hovering around 50-year lows. If the US is in recession, it’s got a funny way of showing it. But as more people go back into the workplace while GDP declines, then productivity must be falling. If that’s the case then there will be more downside pressure on growth. Hiking into a slowdown It does appear bizarre that the US Federal Reserve would be hiking rates aggressively in the face of an economy which, if not officially in recession, is obviously slowing sharply. But while investors are cheering the possibility that inflation has peaked, prices are still rising four times above the Fed’s 2% target. This requires higher interest rates. But higher rates will exacerbate the slowdown in economic growth. Yet unemployment is near record lows with plenty of vacancies in hospitality and healthcare, even if the tech sector is shedding staff. This would suggest that the US economy can deal with tighter monetary policy, although changes in interest rates act with a considerable lag. The Federal Reserve is clear that bringing down inflation is its number one objective, and to that end we should expect further rate hikes this year. But bond markets are also telling us something, and currently they predict that those hikes will be reversed out quickly as the economy continues to slow. As far as investors are concerned, there are some choppy waters to navigate. It’s more important than ever to stay nimble and alert.