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The Role of Energy Markets in the War in Ukraine (UPDATED)

The Issue:
Even though the West could cause great harm to Russia with sanctions on Russian energy exports, so far the United States and Europe have been…



The Issue:

Even though the West could cause great harm to Russia with sanctions on Russian energy exports, so far the United States and Europe have been reluctant to impose the harshest controls on energy. Despite the relatively few direct sanctions on Russian energy products however, the markets for oil and gas have been roiled since the Russian invasion of Ukraine, contributing to rising prices and inflation around the world. As the West finds ways to move away from Russian energy supplies and Russia becomes more isolated from the world economy there will be massive long-term effects for Russia’s energy production.

The Facts:

  • Revenues from oil and natural gas made up 45% of Russia’s federal budget in 2021. Energy exports accounted for roughly two-thirds of the country’s export earnings prior to the pandemic, with oil being Russia’s most important export by far, accounting for around half of export earnings (see chart).
  • Russia is the second most important exporter in world energy markets and Europe is especially dependent upon energy exports from Russia. 
  • Russia is already exporting less oil — about half a million barrels per day in April or possibly as much as three million barrels per day — thanks to sanctions that have made it harder to clear payments, charter ships and obtain insurance. In a tight 100 million barrel per day oil market even a relatively small decrease in supply can have big effects on prices.
  • As one of the lower cost oil producers in the world, Russia tends to profit greatly when there's a big rise in oil prices. However, some of the windfall gains from higher oil prices has been whittled away from Russia by discounts to big buyers like China and India; extra fees that are being paid to insurance companies; higher fees to charterers; and so on.
  • Europeans are moving to reduce their near-term dependence on Russian gas exports and to reduce their dependence on natural gas altogether in the longer term. My estimate is that this year alone we could see perhaps a shift of about 20% of European gas to non-Russian sources, mostly through purchases of liquefied natural gas (LNG). In the longer term, the Russian invasion of Ukraine has provided Europe with additional incentives to accelerate efforts to transition towards clean and efficient alternatives to natural gas.
  • Sanctions that limit Russian access to western technology limit its potential for future productive capacity in energy exports, especially with respect to gas.

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Volkswagen EV Sales In China Surge 90%, Despite Overall Sales Slumping

Volkswagen EV Sales In China Surge 90%, Despite Overall Sales Slumping

In the third quarter, Volkswagen AG saw a robust increase in sales…



Volkswagen EV Sales In China Surge 90%, Despite Overall Sales Slumping

In the third quarter, Volkswagen AG saw a robust increase in sales in Europe and North America, which helped counterbalance a decline in the Chinese market.

The automaker saw its Chinese deliveries fall 5.8% during Q3, according to a Friday morning wrap-up by Bloomberg. But global deliveries rose by 7.4%, amounting to 2.34 million vehicles delivered for Volkswagen. Specifically, sales surged 9.9% worldwide in the month of September alone.

In China, the company faced a slump as third-quarter deliveries dipped to 837,200, and September sales experienced a slight decline of 0.9%.

Despite the decline in China, EV sales continue to be robust in the country. The delivery of all-electric vehicles in China surged by an impressive 90% to 21,662 vehicles in September, largely propelled by ID.3 sales, which outstripped overall market gains of 12%.

Meanwhile, Western Europe witnessed a significant 21% uptick in sales to 799,300 during the third quarter, and North American sales climbed 12% to 257,400.

We noted in late September that competition was so robust in China, some automakers like Mitsubishi were pulling out of the geography. Back in early summer, Volkswagen had slowed its production of EVs due to weakening sales. 

"We are experiencing strong customer reluctance in the electric vehicle sector," Manfred Wulff, head of the works council for Volkswagen's Emden plant said in June. That appears to no longer be the case - at least in China. 

We noted last week that the EV market in China is growing so quickly and prices are plunging at such a rapid rate, that the EU is investigating, claiming that emerging data indicates a probable surge in government-backed, low-cost imports, putting an already fragile EU sector at immediate risk.

The EU has launched an inquiry focused specifically on newly produced electric vehicles intended for carrying nine or fewer passengers; motorcycles, however, are not part of the current probe and the investigation is expected to wrap up within a year.

China's Ministry of Commerce objected to the investigation, claiming it "is solely based on assumption and lacks sufficient evidence," Bloomberg reported last week.

We noted weeks ago that Tesla's EVs would be included in the investigation. EU executive vice-president Valdis Dombrovskis said in late September that there was “sufficient prima facie evidence” to support the probe. We had previously written about the EU's investigation and Beijing's response via The Global Times. 

As we noted last month, China responded to the investigation via The Global Times, claiming that the EU's probe would likely "backfire" and that the EU's economy would suffer as a result. The publication said that " the EU wields trade protectionist measures to suppress China's EV industry, the European economy may suffer."

The article claimed that the EU isn't bothered by the subsidies, but rather "the rapidly growing market influence of Chinese EV companies" and "the concern that homegrown European enterprises may be unable to compete."

"Clearly, Europe is afraid," The Global Times wrote. "They are afraid of competition from China, so they want to seek trade protectionism as a protective umbrella for European auto makers who are slowly transitioning toward electrification." China added that the EU should "have enough courage to face competition from their Chinese counterparts directly."

Tyler Durden Sat, 10/14/2023 - 07:35

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Era Of ‘Unquestioned And Unchallenged’ Climate Change Claims Is Over

Era Of ‘Unquestioned And Unchallenged’ Climate Change Claims Is Over

Authored by Alex Newman via The Epoch Times (emphasis ours),




Era Of 'Unquestioned And Unchallenged' Climate Change Claims Is Over

Authored by Alex Newman via The Epoch Times (emphasis ours),

Leading voices in the climate community are in an uproar as their warming hypothesis comes under fresh assault by new scientific papers.

(Illustration by The Epoch Times, Getty Images)

The authors of the papers are being attacked and say that “activist scientists” threatened by the new findings are “aggressively conducting an orchestrated disinformation campaign to discredit the papers and the scientific reputation of the authors.”

Indeed, from insults on social media and furious blog posts to Freedom of Information Act (FOIA) requests demanding emails from a journal editor and federal scientist, the controversy is getting heated.

Several scientists who spoke with The Epoch Times expressed shock at the tactics used against those whose latest research is casting renewed doubts on the official climate narrative.

William Happer, Princeton professor emeritus of physics and former climate adviser to President Donald Trump, wasn't surprised by the response to the new findings.

Of course the climate cult will be dismissive of any information—no matter how scientifically correct—that is politically incorrect," he told The Epoch Times, noting that the new findings made important and valid points.

The reason that climate activists are so upset is that the findings of the new papers—a trio of peer-reviewed studies by astrophysicist Willie Soon and dozens of other scientists from around the world—are casting further doubt on the narrative of man-made global warming.

The papers are also fueling even more public skepticism about the U.N Intergovernmental Panel on Climate Change (IPCC), which the authors say ignores the facts as well as climate science more generally.

The rhetoric employed by taxpayer-funded scientists with a vested interest in the climate change narrative to attack the new research was profoundly unscientific, multiple scientists told The Epoch Times.

Atmospheric science professor Michael Mann of Pennsylvania State University, for instance, denounced the authors of one of the new papers as “a group of climate denier [clown emoji]” on X.

Mr. Mann, famous for the now-widely ridiculed “hockey stick” graph purporting to show massive man-made warming, also described the editor of the journal Climate as a “denier clown.”

Gareth S. Jones with the UK Met Office ridiculed the new studies as "nonsense," while smearing the journal publisher for supposedly being "popular with the science denial community."

(Left) Atmospheric science professor Michael Mann is famous for the now-widely ridiculed “hockey stick” graph (L) purporting to show massive man-made warming. The blue curve is the original “hockey stick” with its uncertainty range in light blue. (Right) Scientist Michael Man (L) and director Josh Fox attend the New York Screening of the HBO Documentary

Mr. Jones also denounced the guest editor of Climate’s special issue, Ned Nikolov, for having a "bit of a reputation, so much so that other climate contrarians distance themselves from him."

Mr. Nikolov authored an earlier paper arguing that atmospheric pressure, not greenhouse gases, plays a primary role in temperatures on Earth and on other celestial bodies.

Also chiming in to attack the new papers and the scientists behind them was Gavin Schmidt, director of the NASA Goddard Institute for Space Studies, who's using a FOIA request to demand all of Mr. Nikolov’s emails with relevant scientists.

Mr. Schmidt mocked Greenpeace co-founder Patrick Moore, one of the authors, saying on X that there was “mo[o]re [expletive] going around” before posting a highly edited version of Mr. Moore’s post on social media.

“The only point of this paper (which every climate denier and their dog has jumped onto), is to launder dirty ‘science’ into a clean made-for-Fox meme,” Mr. Schmidt wrote on X before publishing a more detailed rebuttal on his blog Real Climate.

The latest contrarian crowd pleaser from Soon et al (2023) is just the latest repetition of the old ‘it was the sun wot done it’ trope[1] that Willie Soon and his colleagues have been pushing for decades,” argued Mr. Schmidt, whose federal salary is almost $200,000 per year. “There is literally nothing new under the sun.”

Scientists Respond

The blog post by Mr. Schmidt “is dismissive in an insubstantive way,” said climatologist Judith Curry, who wasn't involved in the new papers but previously served as chair of the School of Earth and Atmospheric Sciences at the Georgia Institute of Technology.

“The response by Schmidt, Mann, and others, particularly with regard to the FOIA request regarding editorial discussions on this paper, reflects their ongoing attempts to control the scientific as well as public dialogue on climate change,” she told The Epoch Times. “In my opinion, their behavior not only reflects poorly on them but is damaging to climate science.”

Ms. Curry, author of "Climate Uncertainty and Risk," who has a post by the lead authors on her blog Climate Etc. to provide a forum for discussion, said the new paper raises “an important issue that is swept under the rug by the IPCC and many climate scientists.”

In particular, it has major implications for how 20th-century climate records are interpreted, she said.

“Further, the issue of the urban heat island effect on global land temperatures remains unresolved, which is also highlighted in the Soon et al. paper,” she said, calling it “a useful contribution to the climate science literature.”

Mr. Soon, the main author of the paper and a principal with the Center for Environmental Research and Earth Sciences (CERES), explained that the three new papers by CERES scientists are a major threat to powerful vested interests.

“For over three decades, the claims and conclusions by U.N. IPCC reports reigned supreme, unquestioned and unchallenged,” Mr. Soon, who was previously with the solar and stellar physics division of the Harvard–Smithsonian Center for Astrophysics, told The Epoch Times. “Our latest series of three published papers show that those claims are scientifically empty.

The new paper shows “very strong evidence” that a global “warming bias is built into the records from urban areas,” according to an expert. (Victor He/Unsplash)

“Our results appear to rock the weak foundation of IPCC, and this must be the reason why you are seeing such instantaneous rejection and outright complaining by activists like Schmidt and Mann.”

Mr. Soon and some of the other scientists involved in the new papers published another groundbreaking study in 2021 showing that solar activity could explain all observed warming.

In a highly unusual development for complex scientific studies, that paper has been downloaded more than 55,000 times since it was published.

“The high level of attention to this paper by people hungry for truth might be the real threats that Schmidt and Mann are worrying about,” Mr. Soon said, pointing to a detailed response to the attacks from critics published on, titled "The orchestrated disinformation campaign by to falsely discredit and censor our work."

Mr. Happer noted that the new paper by Mr. Soon and the other authors, headlined “The Detection and Attribution of Northern Hemisphere Land Surface Warming,” is indeed significant.

The two important and valid points are that there are “huge uncertainties” surrounding how much warming there has been since 1850 and how much of that might be due to human activities, he said.

“The paper presents very strong evidence that a warming bias is built into the records from urban areas,” Mr. Happer told The Epoch Times after reviewing the paper, which he wasn't involved with.

“This extra warming of urban versus rural areas is not caused by increasing concentrations of CO2 and other greenhouse gases. It is caused by humans, but it cannot be reversed by ruinous net-zero policies.”

A groundbreaking study in 2021 had shown that solar activity could explain all observed warming. (David Gannon/AFP via Getty Images)

Mr. Happer, who believes that human CO2 emissions are responsible for “a relatively small contribution” to the “modest warming” that has been observed, agreed with the paper’s conclusion that available data isn't good enough to determine how significant the various factors, such as volcanoes, solar irradiance, and greenhouse gas emissions, are to the warming.

Marc Morano, editor of the popular website Climate Depot, told The Epoch Times that the aggressive reaction to the new papers was an effort to silence dissent from the U.N.-backed narrative.

“The climate establishment is mimicking the same coercive tactics that we saw in COVID,” he said. “If you present any scientific challenge to the official narrative, you are the deplatformed, canceled, censored, and silenced.”

Indeed, the United Nations and other powerful groups are actively working to silence other views on the issue. U.N. Undersecretary-General for Global Communications Melissa Fleming is waging war on what she calls climate “disinformation.”

Read more here...

Tyler Durden Sat, 10/14/2023 - 07:00

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Week Ahead: Softness in US Real Sector, Key UK and Canadian Data, and China’s Q3 GDP

The markets absorbed two shocks last week. The
war in Israel that seems to know of no restraint underpinned oil prices and
appeared to help boost gold…



The markets absorbed two shocks last week. The war in Israel that seems to know of no restraint underpinned oil prices and appeared to help boost gold and the Swiss franc, the only G10 currency to appreciate against the dollar. The other was the continued deluge of US Treasury supply, the coupon auctions that tailed and higher than expected PPI and CPI. Nevertheless, the US 10- and 30-year yields fell nearly 20 bp last week, snapping a six-week uninterrupted increase. In fact, it was only the second weekly decline since the week ending July 21--a dozen weeks ago.

We suggested early last week that provided the war in Israel remains contained, the markets can focus on macroeconomic drivers. This still seems like a fair assessment and December WTI, which gapped higher on Monday drifted lower in the next few sessions to close the gap before jumping ahead of the uncertainty of the weekend and amid Iran's threat to open a new front in the war if the blockade and assault on the Gaza continued. 

The focus on the US economy shifts from prices to the real sector in the days ahead. In particular, the date should show a loss of economic momentum as Q3 wound down, setting the stage for a more dramatic slowdown in Q4 from what the Atlanta Fed's GDP tracker puts slightly above 5%. Beijing has an opportunity to provide more monetary support, but the disappointment with the CPI (flat from 0.1% year-over-year) seems to be the result of food prices that may have been lowered ahead of the October holiday but the economic focus will be on the Q3 GDP, seen to accelerate over Q2 and details for September. The UK and Canada report September CPI. The UK will also report on the jobs market. Expectations for the respective central banks will be sensitive to these high-frequency data points. The swaps market puts the odds a little under 50% for the BOE and a little above 50% for the Bank of Canada.

United States: Throughout the post-Covid economic recovery, many economists have been skeptical, and recession calls have only recently been rescinded. To be sure, it is not just private sector economists. Remember last December, the median forecast by Fed officials was for the economy to grow by 0.4% this year. That was raised to 1% in June and to 2.1% in September. The Atlanta Fed has the economy tracking 4.5% in Q3. The median forecast in Bloomberg's survey is 3.0%, however, it falls to 0.5% in the current quarter. For this to be fair, the economy would have lost momentum into the end of Q3. While the headline nonfarm payrolls figures leaped by 336k, we remain struck by the details, including the loss of full-time positions for the third consecutive month (seasonally adjusted), a surge in uncontracted self-employed (gig workers), and a rise in people who hold two full-time jobs. We look for the data in the coming days to confirm a loss of momentum.

Core September retail sales (excluding autos, gasoline, building materials, and food services) may have declined for the first time in six months. A 0.3% decline would put the annualized rate in Q3 around 2% after almost 6.5% pace in Q2. After rising by more than 1% in July and August combined, industrial output is expected to fall slightly, led by a 0.2% decline in manufacturing. Existing home sales are seen falling for the fourth consecutive month, and the 3.5% decline projected by the median forecast in Bloomberg's survey would be the largest of the year. The index of Leading Economic Indicators has not risen since February 2022 and most likely did not change directions last month. The six-month annualized decline has stabilized in recent months but at -7.5% in August (-9.0% in March), it is still at levels seen in past recessions. Housing starts may be an exception to this trend of weaker data. They tumbled 11.3% in August and are expected to have bounced back by nearly 10% in September. Two regional Fed surveys for October are due. The NY State manufacturing survey recovered smartly in September (1.9 from -19.0 in August) but is likely to have fallen back below zero in October. October Philadelphia Fed's business outlook is due on October 19. The diffusion index has been negative since September 2022 with the sole exception in August before falling back in September. Lastly, the Fed's Beige Book, in preparation for the October 31-November 1 FOMC meeting will be released.

The Dollar Index recorded an outside up day in what seemed like an overreaction to the US CPI, which missed the median forecast by 0.1%. In doing so, it met the (61.8%) retracement objective of its pullback that began from the peak on October 3 near 107.35. That retracement target of 106.65 was exceeded ahead of the weekend as the Dollar Index knocked on 106.80. Recall that the 107.20 area is the halfway mark of the decline from last September's multiyear high (~114.80) to the mid-July low around 99.60. While there may be resistance around 108.00, the next retracement target is closer to 109.00. On the other hand, a break of the 105.25 area strengthens the case that a top is being forged. We note that the five- and 20-day moving averages did not cross as looked likely. The five-day moving average (~106.20) has remained above the 20-day moving average (~106.10) since late July. It offers one way to think about the trend. 

China: There are three things to watch in the coming days in China. First are interest rates. Beijing will set the benchmark one-year Medium Term Lending Facility (MLF) rate before early Monday. After the flat CPI (year-over-year) in September, there is a risk that it will be cut, but more likely it will be left unchanged at 2.50%. The volume may be reduced a little from the CNY591 bln last month. However, it does mean that most likely, banks will maintain the prime rates, even though the last cut in the MLF was not fully passed through. Second, early on October 18, Beijing will announce how the economy performed in Q3. After growing by 0.8% in Q2, China is expected to have grown by 1% in Q3. This would bring the cumulative growth this year to around 4%. The target is 5%. It will also report some of September's details, including industrial production, retail sales, and fixed asset investment. In addition, the latest readings on the property market will be reported. Third, press reports suggest Beijing is considering boosting government borrowing by as much as CNY1 trillion (~$137 bln), and overshooting the 3% budget deficit cap, to provide more support for the economy. Ostensibly, the funds would be used to fund more infrastructure projects, and water projects were specifically cited.

China's mainland markets re-opened from the extended holiday. Despite the sovereign wealth fund buying Chinese bank stocks and talk of another fund to support equities failed to prevent Chinese stocks from falling last week, even though all the other large markets in the region rose, with Japan, Taiwan, South Korea, Australia, and Hong Kong indices raising more than 1%. In fairness, the index that tracks mainland companies that trade in HK rose nearly 2.4%. The yuan softened slightly and as it has done since late August, alternating between weekly gains and losses. Using formal and informal levels, Chinese officials have stabilized the yuan, but with policy divergence still a key driver, and foreign portfolio investors still apparently reluctant to jump back in, the risk is for a weaker yuan. It should not be surprising if Chinese officials step up their efforts if the dollar nears CNY7.3125-75. Still, we suspect that if the dollar moves above JPY150, and strengthens more broadly, Beijing will begrudgingly accept further gradual yuan weakness.

Japan:  Industrial production in Japan fell 1.8% in July and the preliminary estimate was for a flat showing in August. That is subject to revision. Japan's industrial output is volatile on a month-to-month basis. The average monthly change last was zero. If the August reading holds, then the average change this year is -0.1%. The tertiary industry index is reported the following day. It rose at an annualized pace of 2% in Q1 and 4% in Q2. Japan's September trade figures are due also. With one exception (2014), the September trade balance always (past 20 years) improved from August. In August, Japan reported a trade deficit of JPY937.8 bln (~$6.5 bln). Through August, Japan has run a trade deficit of almost JPY8 trillion, down from JPY12.2 trillion in the first eight months of last year. Despite the cheap yen on a trade-weighted basis, Japanese goods exports fell on a year-over-year basis in July and August, the first declines since late 2020.

The national CPI will be released ahead of the next weekend. It is not that it does not matter, but the thunder has been stolen by the Tokyo figures, reported a few weeks ago. Here is what we know: Tokyo's headline pace slowed to 2.8% from 2.9%. The median forecast in Bloomberg's survey was for 2.7%. The core rate (excluding fresh food) slowed a little more than expected, to 2.5% from 2.8%. The measure that excludes fresh food and energy slowed to 3.8% from 4.0%. The nationwide headline measure has been stuck at 3.2%-3.3% since May. It peaked in January at 4.3%. The core rate was at 3.1% in August (and July). Excluding fresh food and energy, nationwide inflation was at 4.3%, the cyclical high seen in three of the past four months. It has not been below 4% since March. Last September, it had risen 1,8% over the previous 12 months.

In response to the US CPI, the dollar reached its best level against the yen (~JPY149.85) since the October 3 drama when the JPY150 level was momentarily breached. The market is cautious even though most seem to agree with our assessment that there likely was no material BOJ intervention. The cover needed may be a further rise in US yields. Despite the firmer PPI and CPI, the heavy Treasury supply, tailed coupon auctions, and the rise in oil prices, the 10-year US yield settled about 16 bp lower on the week. Recall that the yield had risen by about 40 bp since last month's FOMC meeting and its strong endorsement of the soft-landing higher-for-longer narrative. We suspect a close below the 20-day moving average (~JPY148.85), especially if it corresponds to softer US yields, perhaps on the back of weaker economic data, could signal a more important correction. The dollar has not closed below its 20-day moving average against the yen since late July. Below there, the October 3 low near JPY147.45 would be the next target. 

Eurozone: The high-frequency data includes the German ZEW survey, eurozone, August construction output, and the external account. There are some strong seasonal patterns with the eurozone trade balance. Without fail for the past 20 years, the trade account deteriorates in August and without fail improves in September. The July surplus was 6.47 bln euros. In July 2022, the trade deficit was 36.3 bln euros. We already know that Germany's goods balance narrowed for the second consecutive month to stand at 14.4 bln euros in August, down from 18.1 bln in July and 22.2 bln in June. France also has reported its August trade balance. Its deficit widened slightly to 8.2 bln euros from 8.1 bln. Last August, France reported a 14.76 bln euro deficit. The broader measure, the current account, has begun normalizing or reaching a new normal. In the year before Covid, the eurozone recorded an average monthly current account surplus of 24.9 bln euros a month. In 2021, the average monthly current account surplus was 28.8 bln euros. The terms of trade shock sparked by Russia's invasion of Ukraine pushed the eurozone into a deficit and it averaged a 9.3 bln euro shortfall a month in 2022. Through July, the eurozone has recorded an average current account surplus this year of 14.9 bln euros.

The euro retraced (61.8%) of its recent advance following the US CPI and posted a bearish outside down day. Follow-through selling ahead of the weekend saw the euro fray the $1.05 area. A convincing break would signal a return to the $1.0450 low made earlier this month and possibly $1.04, which is the (50%) retracement of the euro's rally from last September's multi-year low near $0.9525 to the mid-July high close to $1.1275. If $1.05 more or less holds, the euro must reclaim the $1.5060 area to signal another run toward $1.0645-50 as the correction continues.

United Kingdom: The swaps market is pricing in about a 1-in-4 chance of a Bank of England hike when it meets next on November 2, the day after the FOMC meeting concludes. The data in the coming days are going to shape the expectations. The employment data (October 17) are important, especially the wage component. That said, employment on a three-month over three-month metric fell by 207k in July, the biggest drop since October 2020. The September CPI, the following day, is also important. A 0.3% month-over-month rise would allow the year-over-year rate to slip to 6.5% from 6.7%. It would be the slowest pace since February 2022. A 0.3% increase would mean that the UK's CPI in Q3 rose at an annualized rate of less than 1%. In Q2, it rose at an annualized rate of 8%. Unlike most G10 countries, the UK's core rate has slowed to below the headline pace. The core stood at 6.2% in August. The January print of 5.8% is the low for the year. The September retail sales report on October 20 may not impact the interest rate outlook but will shed light on the strength of the consumer. Retail sales fell by 1.5% last September, meaning a flat report this September would erase the 1.4% year-over-year decline.

Sterling surpassed the (61.8%) retracement target of its rally from the October 4 low near $1.2035 to the October 11 peak three cents higher. That retracement is near $1.2150, and sterling approached $1.2130 before the weekend. Nearby resistance is seen in the $1.2200-25 area, but price action warns of a return to the early October low. Intermittent support may be seen near $1.2100. 

Canada: Canada's economic calendar is chock full in the coming days with a report nearly every day. On Monday, the market may not be so interested in wholesale sales and manufacturing sales but may be more interested in the Bank of Canada's business survey results. The economy unexpectedly contracted in Q2. Housing starts, and international transactions on Tuesday are not typically market movers, and in any case, will be overshadowed by the September CPI. The risk here is on the upside. Last September, Canada's CPI rose by 0.1%. If it rose by this year's average of 0.5%, the year-over-year rate will rise for the third consecutive month. It would reach about 4.4%, which would match the highest since February. 

The Bank of Canada puts more weight on the underlying core measures. The problem is that the trimmed mean and weighted median measures are sticky, and the central bank has noted it. The trimmed mean rose by 0.3% in August to 3.9%. It was the first increase since last October, but it offset the recent decline, and is at the highest level since April. The weighted median has not fallen since May. It stood at 4.1% in August, which is also the highest since April. Another firm reading and the market may have to take more seriously the risk of a rate hike. The swaps market is currently discounting a little more than a 25% chance of a hike at the October 25 meeting and about a 45% chance of a hike before the end of the year. The calendar is light on Wednesday, and Thursday's industrial and raw material prices do not draw much attention. Instead, Friday (October 20), August retail sales pose headline risk. In July, headline retail sales rose by 0.3%, but were held back by weak autos. Without autos, retail sales rose 1.0%, which offset in full the decline posted in May and June. We know that auto sales rose by about 1.5% (seasonally adjusted) in Land rose another 3.7% in September.

The US dollar extended the pullback from the CAD1.3785 high on October 5 to a low near CAD1.3570 in the first part of last week. It jumped to CAD1.3700 after the US CPI to meet the (61.8%) retracement objective. It stalled ahead of the weekend and sipped back to almost CAD1.3635 area. The next area of support is seen in around CAD1.3600-20. A break of CAD1.3560 is needed to signal a deeper greenback correction.

Australia: The Australian dollar may see new lows for the year before the employment data is reported early on October 19. Through August, Australia has grown an average of 37.7k jobs a month, of which 23.3k have been full-time posts. In the first eight months of 2022, the averages were 50.1k and 51.1k, respectively (a small net loss of part-time jobs). The market sees little chance (~6%) of a rate hike at the November 7 meeting and less than a 25% chance of a hike before the year's out. It had been twice that before the Reserve Bank of Australia met earlier this month. It leaves the Aussie vulnerable to a backing up of US rates, when Australia's two-year discount to the is more than 110 bp. The US premium has not been much more than 120 bp since March. In what will be a blow to the center-left government, Australian voters appear set to reject a proposal that would establish indigenous advisory committee to parliament. The immediate political consequences for the Albanese-led government are modest and the economic consequences, less so. The Australian dollar unwound the six-day rally ahead of the weekend falling back to $0.6285, the year's low set earlier this month. There is little in the way of last October's two-decade low around $0.6170. 

Separately, New Zealand looks poised to put in a new government, led by the National Party and its conservative ally ACT. It will likely require the support of the New Zealand First Party to secure a majority. NZ First and Labour have ruled out working with each other in campaign declarations. Still, it might not prevent the New Zealand dollar from succumbing to the pressure of a rebounding greenback and retesting the $0.5860 area.

Mexico:  The peso benefited from local developments and the broader decline in the greenback. However, the peso stalled as the dollar recovered and US rates rose after the September CPI report. Mexico reported a continued easing of price pressures (September CPI 4.45% and 5.76% core) and a firm August industrial production (0.3% month-over-month and a 0.3% rise in manufacturing output). Industrial production has risen at a 6.3% annualized rate in the three months through August., the same manufacturing. The data highlight in the week ahead is not until the end of the week: August retail sales. A modest rise will not prevent the year-over-year rate from falling for the second consecutive month. In August 2022, retail sales rose by a heady 1.1%. Mexico's retail sales have risen by an average of 0.4% a month through July, while last year's average monthly increase was 0.6%. Such an outcome in August would see the year-over-year rate fall to 4.4%-4.6%. More broadly, the IMF revised up its June forecast for Mexico's GDP by 0.6 percentage points this year and next to 3.2% and 2.1%, respectively.

The dollar's movement against the Mexican peso has followed the general pattern discussed above. Its gains accelerated in the first part of October, reaching almost MXN18.49 on October 6, its highest level since March. It pulled back to about MXN17.7550 before the US CPI report and then bounced back to around MXN18.0850 before consolidating ahead of the weekend below MXN18.00. That pullback met the (61.8%) retracement of the dollar's gains since the low in late September. A break of last week's low could signal a return to the September low near MXN17.35. On the upside, a break of the MXN18.12 may be a signal that the position squaring may not be over. 


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