OVERVIEW: OUTLOOK REMAINS STABLE
GDP growth has likely lost some momentum in the third quarter, after accelerating slightly in Q2 on the back of stronger private consumption and rebounding exports. In August, the Chicago Fed National Activity Index—a leading indicator for GDP—moderated notably from July due to weaker industrial output and private consumption activity. Moreover, consumer confidence dropped to its lowest level since February in August, while the increase in nonfarm payrolls eased notably in the same month and average retail sales declined in July–August—all further pointing to a slowdown in private consumption in the quarter. Furthermore, despite remaining upbeat in July–August, the ISM manufacturing PMI was below Q2’s average. On the Covid-19 front, daily new cases of the virus have remained elevated in recent weeks, despite solid vaccination progress, which is likely dampening GDP prospects for Q4.

GDP will expand rapidly this year as the impact of the pandemic fades and the labor market recovers. In 2022, growth should moderate on a less favorable base effect, but recovering household consumption and pentup demand will likely keep momentum upbeat nonetheless. Uncertainty over new Covid-19 variants and ongoing tense relations with China pose downside risks. FocusEconomics panelists see GDP growing 6.1% in 2021. In 2022, our panel sees the economy expanding 4.1%, which is unchanged from the previous month’s forecast. • Inflation ticked down to 5.3% in August from 5.4% in July. This year, inflation is seen overshooting the Fed’s 2.0% target due to ultra-low interest rates and rebounding economic activity. In 2022, price pressures are seen moderating as some supply chain disruptions ease and output normalizes. FocusEconomics panelists see inflation averaging 4.2% in 2021. In 2022, our panel expects inflation to average 2.9%, which is up 0.2 percentage points from the previous month.

At its 21–22 September meeting, the Fed kept the target range at 0.00%– 0.25% in order to spur the economy, but hinted at some tightening in the form of tapering its QE purchases due to healthier economic indicators and stronger price pressures in recent months. Most panelists see the first rate hike in 2023, although a minority expect some tightening in 2022. Our panelists project the federal funds rate to end 2021 at 0.25% and 2022 at 0.33%.

The dollar index appreciated slightly in recent weeks, likely due to a more hawkish tone from the Fed. On 24 September, the dollar index traded at 93.3, strengthening 0.4% month-on-month. Looking ahead, the course of the pandemic, the trajectory of the U.S. 10-year yield rate and geopolitical tensions will have a key bearing on the direction of the USD.

REAL SECTOR
ISM manufacturing index rises slightly in August The Institute for Supply Management (ISM) manufacturing index ticked up to 59.9 in August from 59.5 in July, consequently the index remained wellabove the 50-threshold that separates expansion from contraction in the manufacturing sector. August’s slightly stronger expansion was the result of faster growth in new orders and production. That said, employment levels decreased notably relative to the previous month. On the price front, input prices continued to rise on the back of higher raw material prices but at a slower rate compared to the month prior.

FocusEconomics Consensus Forecast panelists expect industrial production to increase 6.0% in 2021, which is unchanged from last month’s forecast. In 2022, panelists see industrial production rising 4.0%, which is down 0.1 percentage points from the previous month. FocusEconomics Consensus Forecast panelists expect GDP to grow 6.1% in 2021, which is down 0.3 percentage points from last month’s estimate. For 2022, the panel expects the economy to expand 4.1%, which is unchanged from last month.

Retail sales rebound in August Retail sales grew 0.7% in month-on-month seasonally-adjusted terms in August, which contrasted July’s 1.8% decrease. Looking at the details of the release, August’s pick up was broad-based. Food and beverages and general merchandise stores output gained steam, while motor vehicle and parts dealers production contracted at a softer rate. Lastly, non-store retailer sales rose at a stronger rate, while gasoline stations sales moderated. On an annual basis, retail sales rose 15.1% in August, which matched July’s expansion. Meanwhile, the trend improved significantly, with the annual average growth of retail sales coming in at 15.3% in August, up from July’s 14.3% reading. Commenting on August’s print, Francis Généreux, a senior economist at Desjardins, stated: “The growth in retail sales in August, particularly if we exclude motor vehicles, is encouraging and suggests the new wave of the pandemic is not having a major impact on the economy. This could further reassure Federal Reserve officials.” FocusEconomics Consensus Forecast panelists see private consumption growing 7.9% in 2021, which is down 0.1 percentage points from last month’s forecast. For 2022, the panel sees private consumption increasing 3.8%, which is down 0.3 percentage points from the previous month.

GDP Growth

GDP growth lost some momentum in Q2, after hitting an over 10-year high in Q1. The slowdown was predominately driven by a weaker external sector as export growth tapered and import growth strengthened. However, domestic demand rebounded notably in the quarter—hitting an over 11- year high—as both private consumption and fixed investment surged. Turning to Q3, year-on-year growth is likely losing further momentum due to a slightly less favorable base effect, but the economy should be strengthening on a sequential basis. In August, the government began disbursing electronic vouchers of HKD 5000 to permanent residents, which should be stoking private spending. Moreover, the private sector PMI continued to point to an expansion in activity for July, boding well for GDP. Nevertheless, the government’s “zero Covid-19” strategy continues to hamper the tourism sector amid prolonged travel restrictions. GDP should expand robustly this year, after a two-year-long recession exacerbated by political unrest and Covid-19. A recovering global economy should power external demand, while domestic activity should gradually strengthen, supported by government stimulus. That said, uncertainty over the spread of the Delta variant poses a downside risk to the outlook. 

Real Sector

The IHS Markit Purchasing Managers’ Index (PMI) fell to 51.3 in July from June’s 51.4. As a result, the index remained above the 50-threshold, but pointed to a moderating improvement in the private sector from the previous month. The slight moderation was predominately due to falling employment levels due to rising wage costs. Nevertheless, output and new orders were relatively unchanged accelerating slightly over the previous month. Commenting on the latest reading, Jingyi Pan, economics associate director at IHS Markit, noted: “Demand and output growth accelerated, which had been positive signs, although foreign demand appeared to have softened once again as Covid-19 disruptions remained a prevalent issue abroad. Price pressures also persisted for Hong Kong SAR private sector firms.”

Retail sales grew 2.8% year-on-year in June (May: +7.8% yoy). The outturn marked the worst reading since January. The reading reflected a broad- based downturn across the major sectors, with fuel, supermarkets and food and alcoholic beverages all contracting in June. Lastly, jewelry, watches and valuables sales moderated, while clothing and footwear sales increased. Meanwhile, the trend improved notably, with the annual average variation of retail sales coming in at minus 1.7% in June, up from May’s minus 4.0%.

Gold prices decreased over the past month, as an improving U.S. labor market and expectations for a more hawkish Fed ahead weighed on demand. On 6 August, gold closed the day at USD 1,764 per troy ounce, which was 2.2% lower than on the same day of the previous month. However, the price was down 7.1% on a year-to-date basis and was 14.1% lower than on the same day last year. In mid-July gold prices increased due to a gradual fall in the U.S. 10-year Treasury yield rate, which hit the lowest level since early February at the start of August. Moreover, concerns over the Delta variant spreading to the U.S. and parts of Europe over the past few weeks likely cast a cloud over the economic recovery and supported safe-haven demand, in turn pushing prices higher. Nevertheless, gold prices fell notably since the start of August as healthy U.S. labor market data weighed on safe-haven demand. Moreover, markets are now expecting the Fed to begin tapering its QE purchasing program, which should have further weighed on demand for gold. Gold prices are forecast to stay close to their current level later this year as easing safe-haven demand is offset by higher global inflation and still-accommodative monetary policy. The ongoing pandemic and the path of global bond yields are key factors to watch.

There is a wide range of price scenarios among our panelists, due to gold’s vulnerability to shifts in global sentiment and events. The minimum forecast sees gold averaging USD 1,650 per troy ounce in Q4 2021, whereas the maximum forecast sees gold averaging USD 2,020 per troy ounce.

Thank you Focus Economics

 

Hungary's Economic Outlook Improves

Overview
The recovery should have continued in Q2, after improving domestic demand and a more upbeat external sector underpinned the economy in Q1. A month-on-month rebound in industrial production in May and significantly higher business confidence in the quarter suggest that private sector activity gained steam. Meanwhile, rising consumer confidence throughout the period, rebounding retail sales and a lower unemployment rate on average in April−May hint at strengthening household spending. Moreover, a significantly expansionary fiscal stance—as confirmed by budget data up to June—likely further supported activity. Meanwhile, in mid-July, the government approved a raft of measures to support credit extensions to small businesses and attract foreign investment. Less positively, the European Commission recently proposed further delaying its verdict on Hungary’s recovery plan amid elevated bilateral tensions. • The economy is poised to bounce back robustly this year. The gradual removal of restrictions domestically and abroad, expansionary fiscal and monetary policies, and sizable inflows of EU funds should rekindle domestic and foreign demand. However, the spread of new Covid-19 variants clouds the outlook. FocusEconomics analysts see GDP growing 6.0% in 2021, which is up 0.1 percentage points from last month’s forecast, and 4.8% in 2022. • Inflation rose to 5.3% in June from 5.2% in May, marking the strongest print since October 2012 and moving further above the upper bound of the Central Bank’s 2.0%–4.0% target range. A low base effect, higher energy prices, recovering activity and loose fiscal and monetary policies will see inflation trend higher this year than in 2020. - Focus Economics

Monetary Policy

At its 27 July meeting, the Monetary Council of the Hungarian National Bank (MNB) decided to raise its base rate to 1.20% from 0.90%, marking the second consecutive increase. Moreover, the Bank hiked the overnight deposit rate, the overnight collateralized lending rate and one-week collateralized lending rate by 30 basis points to 0.25%, 2.15% and 2.15%, respectively. Additionally, the Bank decided to terminate the use of the long-term collateralized lending facility. The MNB’s decision was again aimed at curbing persistent inflationary pressures, re-anchoring inflation expectations and reducing upside risks, amid a robust recovery and buoyant wage growth. Headline inflation rose to 5.3% in June, moving further above the Bank’s target range of 3.0% plus or minus 1.0 percentage point, while core inflation accelerated further to 3.8%. The Bank now expects inflation to remain above its tolerance band until the end of this year, before falling back into that range at the beginning of 2022. On the growth front, the economy seemingly continued to perform strongly in Q2 amid a fast vaccine rollout and the gradual lifting of restrictions. As such, the Bank sees the economy expanding by around 6.0% this year and 5.5% in 2022. Looking ahead, the Bank sees supply disruptions, higher commodity prices and international freight costs, along with recovering activity, as the main upside risks to inflation. Therefore, it outlined that July’s rate increase will be the second of a cycle of hikes designed to “ensure price stability, avoid second-round inflationary effects and to anchor inflation expectations”, which will last until “the outlook for inflation stabilizes around the Central Bank target and inflation risks become evenly balanced”. - - Focus Economics

Since Orban won reelection, however, his behavior has called into question not only his democratic bona fides, but also his basic trustworthiness as an ally of the United States and member of the democratic Western world. Increasingly, Hungary is behaving like a rogue state. - Brookings Institute

 

Brent crude prices continued to gain ground over the past month, hitting an over two-and-a-half-year high in early July, boosted by a tight production becoming increasingly outstripped by demand amid a sustained global economic recovery. On 9 July, oil traded at USD 75.6 per barrel, which was up 4.6% from the same day last month. Moreover, the benchmark price for global crude oil was up 78.0% from the same day last year and was 45.8% higher on a year-to-date basis. The preliminary agreement that emerged from the OPEC+ meeting on 1 July pointed to an output increase of 400 million barrels per day (mbpd) per month for the August–December period, which was softer than the expected rise of 500 mbpd for August. This, coupled with the group’s plans to extend the output cut deal from April 2022 until end-2022, bolstered prices. That said, the final agreement fell through due to objections from the UAE over the calculation of production targets, fueling fears of a supply crunch in August if a deal on higher production is not reached, which further boosted prices in turn. This came amid a sustained global economic recovery which bodes well for oil consumption, although the spread of new Covid-19 variants likely bruised prices somewhat. Crude prices are forecast to retreat from their current levels by year-end, as global production gradually rises. Despite July’s roadblocks, OPEC+ is expected to agree on the easing of output cuts for H2 by the end of the month, which will likely restrain oil prices from climbing further in the remainder of the year. That said, recovering economic activity and the release of pent-up travel demand thanks to widespread vaccination efforts bode well for oil demand in H2, which should keep prices elevated. New Covid-19 strains, volatile output in some countries, a potentially prolonged OPEC+ standoff and geopolitical tensions are all major risks to the baseline scenario. 

Job Openings and Labor Turnover 

The number of job openings reached a series high of 9.3 million on the last business day of April, the  U.S. Bureau of Labor Statistics reported today. Hires were little changed at 6.1 million. Total separations increased to 5.8 million. Within separations, the quits rate reached a series high of 2.7  percent while the layoffs and discharges rate decreased to a series low of 1.0 percent. This release  includes estimates of the number and rate of job openings, hires, and separations for the total nonfarm  sector, by industry, by four geographic regions, and by establishment size class.   

Job Openings 

On the last business day of April, the job openings level and rate increased to series highs of 9.3 million  (+998,000) and 6.0 percent, respectively. The job openings series began in December 2000. Job  openings increased in a number of industries with the largest increases in accommodation and food  services (+349,000), other services (+115,000), and durable goods manufacturing (+78,000). The  number of job openings decreased in educational services (-23,000) and in mining and logging (-8,000).  The number of job openings increased in all four regions. (See table 1.)  Hires  In April, the number of hires changed little at 6.1 million. The hires rate was unchanged at 4.2 percent.  Hires increased in accommodation and food services (+232,000) and in federal government (+10,000).  Hires decreased in construction (-107,000), durable goods manufacturing (-37,000), and educational  services (-32,000). The number of hires was little changed in all four regions. (See table 2.)  Separations  Total separations includes quits, layoffs and discharges, and other separations. Quits are generally  voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of  workers’ willingness or ability to leave jobs. Layoffs and discharges are involuntary separations initiated by the employer. Other separations includes separations due to retirement, death, disability, and transfers  to other locations of the same firm.  In April, the number of total separations increased to 5.8 million (+324,000). The total separations rate  was little changed at 4.0 percent. The total separations level increased in retail trade (+116,000) and in  transportation, warehousing, and utilities (+60,000). Total separations increased in the West region. (See  table 3.)  

In April, the quits level and rate increased to series highs of 4.0 million and 2.7 percent, respectively.  Quits increased in a number of industries with the largest increases in retail trade (+106,000),  professional and business services (+94,000), and transportation, warehousing, and utilities (+49,000).  The number of quits increased in the South, Midwest, and West regions. (See table 4.)  In April, the number and rate of layoffs and discharges were little changed at 1.4 million and 1.0  percent, respectively. Both the number and rate reached new series lows. The number of layoffs and  discharges decreased in finance and insurance (-24,000). Layoffs and discharges were little changed in  all four regions. (See table 5.)  The number of other separations was little changed in April at 364,000. Other separations increased in  transportation, warehousing, and utilities (+16,000) and in durable goods manufacturing (+7,000). The  other separations level was little changed in all four regions. 

Review tables and read more at:

BLS APRIL 2021

A new book by Chaganomics founder Chad Hagan on Global Family Office Investing has been published by Palgrave.

Family offices are currently the most attractive group of investors and their structure is more permanent that many of the world’s strongest companies. They are the next hedge funds of the world, if not more. The family office is at the backbone of global commerce, primarily from permanent capital, which results in a different system of management and investing, a hybrid that combines families directly investing in companies to diversify or to build current portfolios with customized returns on investment, vastly different investment goals and investment time frames. 

While “family office” is a new term for many in the industry, the basis and framework behind the family office has existed for more than 500 years. It is wildly important for this system of investing to be understood. In the past decade, billions in profits have been made in technology, let alone other industries, and most of these fortunes will find themselves managed by a family office of sorts. They are also competitors with one another and at times highly influential in the ways of wealth management, wealth creation and associated practices. 

This book offers a global snapshot of family offices, using case studies of family offices like the Rockefeller’s “Room 5600” and covers important direct investment styles of family offices—all supported by hard research and statistics from intelligence partners covering family office investing extensively. It will be of interest to anyone in finance, wealth management, management consulting, market research and investing as a whole. Diving headfirst into the practice of family offices and family office structures, Global Family Office Investing covers the secretive world of family offices around the world, sharing best practices, the culture, history and future of modern global family offices.

Read More At Palgrave

Commodities Overview
Growth in global commodity prices accelerated to 6.2% monthon-month in May, from 1.4% in April. The result, which marked the fastest rise since February, was broad-based, with 32 out of the 34 commodities we track posting a price increase in May compared to the previous month. May’s upturn came on the back of improving global demand conditions, which seemed to rekindle the commodity price rally after it lost steam at the outset of Q2. Energy prices rebounded strongly in May, as the easing of lockdown restrictions globally amid accelerating vaccination drives boosted demand for crude oil, while supply disruptions in the U.S. pushed up prices for its derivatives. Meanwhile, base metal prices soared at the quickest pace in nearly 12 years, as fast-recovering manufacturing activity globally and a somewhat constrained supply backdrop bolstered prices for industrial metals. Moreover, precious metal prices posted the strongest increase in nine months, supported by both sturdier industrial demand and their attractiveness as a hedge against inflation. Lastly, agricultural price growth picked up steam in May. FocusEconomics panelists project global commodity prices to rise 30.8% year-on-year in Q4 2021 (previous edition: +28.5% yoy). Recovering demand conditions will likely underpin the upturn, amid the global vaccine rollout and the subsequent easing of restrictions. A sturdy rebound in energy prices should lead the overall increase, thanks to increasing oil consumption owing to recovering economic activity and resuming global travel. Moreover, base metal prices are expected to increase markedly in 2021, on the back of lingering supply disruptions and booming industrial activity amid fiscal spending sprees. In contrast, precious metal prices are forecast to stay largely stable this year, as softer safe-haven demand offsets stronger industrial appetite.

 

Downloaded today by Chaganomics Editor

 

OVERVIEW
Global commodity prices rose 1.4% over the previous month in April, down from March’s 3.0% increase. Although the reading marked the seventh consecutive month of rising prices, the increase was the weakest since October 2020, suggesting that the commodity price rally is losing steam. April’s overall increase came on the back of sustained growth in base metal prices and a rebound in precious metal and agricultural prices. Looking at base metals, copper and steel prices continued to increase robustly due to upbeat demand and ongoing supply concerns, while prices for nickel and lead rebounded strongly. Similarly, gold prices also grew in April—contrasting March’s fall— predominately driven by higher demand from a weaker USD and stronger inflationary pressures, particularly in the U.S. and other developed economies. Furthermore, agricultural prices received a boost from sustained demand and downbeat supply projections for wheat, corn and soybeans. 

On the other hand, energy prices fell modestly and for the first time since September 2020 in April, on the back of weaker crude oil prices. FocusEconomics panelists expect global commodity prices to rise 28.5% year-on-year in Q4 2021 (previous edition: +25.1% yoy). A strong rebound in energy prices should spearhead the upturn, chiefly thanks to improving demand conditions as the global vaccine rollout and the subsequent easing of travel restrictions bode well for oil consumption. Moreover, base metal prices are expected to increase robustly relative to 2020, as fiscal spending sprees prop up industrial demand amid supply disruptions. That said, precious metal prices are forecast to dive this year, mostly on the back of softer safe-haven demand. Lastly, agricultural prices are projected to rise notably this year compared to 2020. Further ahead, our panelists forecast a 3.5% year-on-year decrease in prices in Q4 2022 amid a flattening economic recovery.

ENERGY 

Energy prices decrease in April for the first time since September 2020 Energy prices ticked down 0.3% in April, contrasting March’s 4.3% increase and marking the worst result in seven months, predominately due to lower Brent and WTI crude oil prices. Crude oil prices averaged slightly lower than in the previous month in April, which was likely the result of OPEC+’s decision to ease its production curtailments for May–July. Moreover, despite solid progress on the global vaccine rollout, travel demand remained relatively subdued as most major economies kept some lockdown measures in place to curb the spread of Covid-19, which should have weighed on demand prospects and kept a lid on prices. That being said, prices for natural gas rebounded in April as a result of resilient demand, while prices for uranium also grew robustly in the month after falling in March. Energy prices are expected to trend markedly higher this year, largely due to a low base effect after the fallout from Covid-19 hammered the global economy and oil demand last year. The likely ongoing pickup in the vaccination drive, recovering global economic activity and rebounding travel demand should underpin price growth ahead. That said, while constrained global crude production allowed demand to catch up with supply at the beginning of this year, boosting oil prices in turn, prices are likely to stay close to their current levels through year-end as output cuts are gradually eased. New Covid-19 strains, a quicker-than-expected easing of OPEC+ production curtailments and geopolitical tensions are key risks to the outlook. FocusEconomics panelists forecast a 39.0% year-on-year increase in Q4 2021 (previous edition: +38.7 yoy). Our panelists see annual energy prices dipping 1.5% in Q4 2022.

BASE METALS 

Base metal price growth accelerates in April Prices for base metals climbed 4.2% on a monthly basis in April, following a 3.7% rise in March. April’s increase marked the 12th consecutive monthly increase in prices. Base metal price growth gained some momentum in April, as China’s industrial recovery remained relatively upbeat at the beginning of Q2, while a weaker greenback and lower U.S. bond yields likely added further upward price pressure. Notably, lead and nickel prices rebounded in April, while copper and steel prices continued to increase on the back of robust demand and concerns over supply disruptions, as inventory levels fell sharply in the second half of the month. More broadly, demand for base metals for their use in industry was likely supported by the ongoing economic recovery as the JPM global composite PMI suggested economic activity increased at the quickest pace in 11 years in April. Nevertheless, alumina and cobalt prices fell sharply in April relative to March, limiting the overall upturn in base metal prices. Base metal prices are expected to post a strong increase this year compared to 2020, against the backdrop of gradually recovering demand amid strong global fiscal stimulus. While the Chinese economy continues to grow robustly, boosting prices for industrial metals in turn, a quickening economic recovery in Japan, Europe and the U.S. should provide additional support in the remainder of the year. On the supply side, the fading effect of the pandemic will likely drive a rebuild in mining capacity, keeping a lid on prices in turn. Overall, supply chain volatility, new Covid-19 strains and uncertain U.S.-China trade relations pose risks to the outlook. FocusEconomics panelists project prices to rise 16.3% annually in Q4 2021 (previous edition: +10.4% yoy). Our panelists project prices to fall 5.5% in Q4 2022.

PRECIOUS METALS

Precious metal prices rebound robustly in April Precious metal prices were up 3.1% month-on-month in April after falling 3.8% in March, which had marked the sharpest decline since March 2020. Gold prices increased over the previous month, predominately due to a weaker USD and stronger U.S. inflationary pressures, which supported demand for holding non-interest bearing assets such as gold. Moreover, palladium and platinum prices rose notably in April as supply chain disruptions in the semiconductor market led to a stark fall in automobile inventories. This raised production estimates for H2 2021, and supported demand for palladium and platinum in turn for their use in energy efficient vehicles. Furthermore, ongoing complications at two major Russian palladium mines also pushed palladium prices further up in recent weeks. However, silver prices were flat in April relative to the previous month. The 2021 outlook for precious metal prices improved slightly in April, with FocusEconomics panelists projecting prices to fall 2.4% in Q4 2021 (previous edition: -3.7% yoy). The estimate chiefly reflects the anticipation of weaker safe-haven demand, and while expectations are that stronger inflation amid ultra-low interest rates will support demand for gold as a non-yielding asset, uncertainty around the future direction of the U.S. 10-year yield rate will likely weigh on price prospects. Moreover, silver and palladium prices should moderate as supply disruptions ease. Our panelists see precious metal prices losing further ground ahead, projecting a 4.4% decrease in annual terms in Q4 2022. 

AGRICULTURAL

Agricultural prices rebound robustly in April Agricultural prices increased 5.5% month-on-month in April after falling 0.4% in March, which had marked the first drop in prices in seven months. April’s rebound was predominately due to a strong increase in prices for corn, soybeans and wheat. That said, rice, cotton and cocoa prices fell notably in the month, capping the overall upturn. Stronger corn and wheat prices in April were likely the result of still-solid demand prospects and the continued decline in supply projections. Meanwhile, sugar and palm oil prices likely benefited from stronger economic activity more broadly for their use as biofuels. FocusEconomics panelists project agricultural prices to rise 19.6% year-on-year in Q4 2021 (previous edition: +7.7% yoy). Prices should benefit from stronger demand this year as containment measures to control the spread of the virus are eased, particularly supporting prices for coffee and cotton. Moreover, relatively downbeat global supply outlooks for corn and wheat should add some upward price pressure. That said, more stable global supply levels overall will likely limit the upturn somewhat. Our panel projects annual prices to fall 8.6% in Q4 2022.