Europe We’ve seen further weakness in European markets today, with the DAX falling to five-week lows and the FTSE100 to four-week lows, as the fallout from yesterday’s hawkish pivot from the European Central Bank continues to ripple through the market. These concerns have been exacerbated by further hawkish interventions from ECB insiders doubling down on that narrative who suggest the prospect of at least another three times in a row. The DAX has fallen to its lowest levels in 5 weeks, while the FTSE100 is tracking 4-week lows, as investors come to terms with the prospect of higher inflation and higher rates for longer. On the day, rising recession concerns prompted declines across the board after November retail sales missed expectations, with non-store retailers underperforming due to Royal Mail strikes impacting on online sales, with Black Friday not offering much of a boost. Food shopping was the only area that saw any sort of growth, although that hasn’t really helped Ocado which has slipped back sharply and is amongst the worst performers this week. A sharp rise in UK gilt yields also appears to be weighing on house builders, with the likes of Persimmon, and Taylor Wimpey underperforming, with Rightmove shares also under pressure, over concern around higher mortgage rates.   On the plus side, banks are outperforming on the back of hopes of better margins, however that comes with the sting of potentially higher provisions for non-performing loans if the economy slips into recession, and underperforms into 2023. Investors seem unimpressed by the announcement from BT Group that they are looking to merge its global and enterprise units into a single entity in an attempt to save £100m a year.       US US markets have continued where they left off yesterday, taking their cues from weakness in European markets, as they look to close lower for the second week in a row. Adobe shares have edged higher after maintaining its forecast for the new fiscal year. The shares took a dive at the end of Q3 when the company downgraded its Q4 revenue numbers. These came in as expected at $4.53bn yesterday, while profits beat expectations, coming in at $3.60c a share. On guidance Adobe said they expected revenues of $4.6bn to $4.64bn for Q1, while keeping its full estimates unchanged. Reports are also emerging that Goldman Sachs could be set to cut 4,000 people as it looks to improve its financial performance against the backdrop of a much tougher economic outlook. Novavax shares have plunged after announcing that it would be offering 6.5m shares at $10 each. The company has been struggling against its stronger peers for some time now. Earlier this week the shares fell after it announced it had cut its vaccine supply to the UK. Coming on the back of repeated delays to its vaccine and the company has struggled to stay relevant in what has been a tough year for the share price.   FX The pound is slightly weaker after a disappointing set of November retail sales numbers which saw a decline of -0.4%, missing expectations of a gain of 0.3%, although the October number was revised higher to 0.9%. The latest flash PMIs for December pointed to further weakness in the manufacturing sector, falling to 44.7, however services rebounded to 50, from 48.8, although given the strikes we’ve seen so far this month, this number is likely to fall back when the final numbers are released in January. The shift in stance on the part of the ECB yesterday has seen a much firmer tone on the part of the euro over the past couple of days.    Commodities A surge in covid cases which is now impairing any rebound in the Chinese economy, along with rising concerns that central banks will trigger a sharper global slowdown is weighing on prices as we head into the weekend. Oil prices are still on course to finish the week higher, however softer US data yesterday and rising recession risk are pulling prices off their highs of the week. The sharp fall below $1,800 an ounce has slightly undermined the bullish narrative that saw prices rise to their highest levels since June earlier this week. The sharp rise in European yields along with the resilience of the US dollar appears to be weighing on the yellow metal and could see it drift back to the lows last week, unless it can recover the $1,800 level quickly.

Summary Forecast Changes We have not made significant changes to our country-specific or global growth outlooks, and continue to believe the global economy will enter recession in 2023. As of now, we believe over 35% of the global economy will slip into recession next year, and forecast global GDP growth of just 1.7%. Should our global GDP forecast prove accurate, the global economy will grow at the slowest pace since the early 1980s. While inflation has likely peaked, we believe central banks will continue to prioritize controlling inflation and will raise interest rates into early 2023. However, tightening cycles are likely to end early next year, and as inflation recedes, we believe most central banks will shift toward supporting growth. We expect select G10 central banks to ease monetary policy by the end of 2023; however, central banks in the emerging markets may decouple and initiate easing cycles earlier in the year. Our view on the U.S. dollar is little changed, and we continue to believe the greenback can experience a bout of renewed strength into early 2023. With the Fed likely to deliver more hikes than markets are priced for, a hawkish Fed should support the greenback. In addition, more Fed hikes combined with an ECB that is now set to deliver aggressively on rate hikes should result in further unsettled global financial markets. Volatile global financial markets should attract safe haven support to the dollar and boost the greenback into Q1-2023. Key Themes Our key theme for 2023 is that of trade-offs, meaning, the combination of elevated inflation and aggressive central bank tightening in 2022 is likely to lead to recessionary conditions forming across many of the world's largest economies, both developed and emerging, in 2023. Higher interest rates can hurt consumers across the G10, especially those economies saddled with an elevated amount of household debt and variable rate mortgages. The inflation issues that defined 2022 will largely still be present in 2023. While headline inflation is likely headed on a downward trajectory, core inflation can prove to be more persistent and remain above central bank target ranges for all of next year. With inflation still elevated, central banks still have work to do as far as containing price growth. However, with recessions imminent, policymakers are likely to shift toward supporting growth and protecting against deep and prolonged economic downturns. Geopolitical developments rattled financial markets and disrupted global economic trends this year, and while the 2023 election calendar is light, politics and geopolitics can still have an impact on the global economy and financial markets. We will be particularly focused on the evolution of local politics in the emerging markets, with more of a focus on previously elected administrations in Latin America as well as upcoming presidential elections in Argentina and Turkey. Read the full report here

As investors hope for a Santa Claus rally in the days ahead, the Grinch is looking to steal their holiday cheer.   Federal Reserve chairman Jerome Powell announced another interest rate hike on Wednesday – this time by half a percentage point. Although the bump up in rates was smaller than previous hikes this year, it wasn't exactly the pivot stock market bulls had wanted. They fear the economy is already heading for a deep recession next year and worry any additional increases in borrowing costs could destabilize the highly leveraged financial system. Stocks got pounded on Thursday and Friday. Precious metals markets succumbed to the broader selling pressure as well. Metals markets had been performing strongly over the past two months. This week's sell-off doesn't necessarily mark a change in that trend. So far it's merely a pullback. There is, of course, a chance that interest rate jitters could spark further downside volatility in gold and silver prices. But persistent inflation pressures are likely to provide a longer-term floor underneath hard asset markets.  Even if the Fed gets inflation rates down, all that means is that the currency will depreciate at a less rapid pace. There is no chance that central bankers will pursue sound dollar policies or restore its lost purchasing power.  Both consumers and businesses are feeling the squeeze from higher prices. At the same time, they are bracing for a hard landing in the economy due to the Fed's aggressive rate hikes.   Clearly, the public cannot trust central bankers to deliver on their mandate of stable prices. Nor can central bankers be counted on to deliver a stable economy.  At the root of the Fed's failures is the problem of fiat currency itself. Money untethered to anything but arbitrary policy decisions made by officials is inherently untrustworthy.  Dishonest money that erodes in value leads inevitably to opportunism, corruption, and fraud. It's no coincidence that the countries with the highest inflation rates tend to be the most corrupt, chaotic, and impoverished. Recently, we've seen chaos in cryptocurrency markets.  Earlier this week, former crypto king Sam Bankman-Fried was charged by federal prosecutors with large-scale fraud in the collapse of his FTX exchange.  Billions of dollars in digital assets entrusted to FTX may be unrecoverable.  The crypto craze that gave rise to shady characters like Bankman-Fried was a product of zero interest rate policy and the rampant speculation it engendered. Under a sound money system, people don't need to speculate on exotic assets in order to avoid losing purchasing power on their savings. There will always be booms and busts in markets and there will always be bad actors playing con games to try to get others to part with their money. But cheating and scheming get amplified in a regime of dishonest money. We will only ever be able to fix what's broken in our economy and in markets by first fixing the money itself. Turning to the retail precious metals market, supply constraints have eased in recent weeks and premiums have come down some, particularly on silver bars and rounds.  Money Meals is not quoting any shipping delays.   In fact, if you are seeing broad shipping delays at any dealer right now, it would be wise to avoid doing business with them.  The wholesale market is currently well supplied, so delays at present should be considered a red flag.

In a week dominated by central bank meetings, the end result was a more hawkish impression despite inflation data for November generally surprising to the downside. In the US, the Fed hiked by 50bp as expected, but with 17 out of 19 FOMC members indicating a Fed funds rate above 5% in 2023 and Chairman Powell saying that the labour market is extremely tight and wage growth high. However, Powell also left a door open for more modest rate hikes in the future, and markets seem to have interpreted the meeting as more or less neutral. Markets were also supported by November inflation data being lower than expected, at just 0.1% m/m for headline CPI and 0.2% m/m for core. However, we note that wage-sensitive components of CPI did not really slow down, and we also see the Fed’s message as rather hawkish, pointing to high rates being maintained for long. The ECB also delivered a 50bp rate hike as expected but with a clear message that rates are going up and that this will not be the last 50bp hike. ECB projections showed inflation exceeding the 2% target even in 2025 and the recession in 2023 being very mild if rates follow pre-meeting market pricing, which also clearly indicates that there is need and room for more hikes than that. ECB President Lagarde did not find much comfort in euro area inflation declining to 10% y/y in November, saying that it will likely rise again in January and February, which we agree with. Markets reacted with a large rise in especially 2 year yields and a stronger EUR, and we have updated our ECB call to expect a peak of 3.25% for the deposit rate in 2023. Much will depend on how inflation and other key variables actually develop over the coming months. PMI data for December rose but remain below 50, so indicating continued but slightly milder decline. The Bank of England was also part of the 50bp hiking club, but was more dovish in its message than the Fed or the ECB, given the weakening of the British economy. But the Swiss central bank followed the trend with a hawkish message accompanying its 50bp rate hike, saying a bit like the ECB that the recession will be mild and that current monetary policy is not tight enough to bring inflation to target. Intervention to support the CHF is also clearly still a tool they can use to bring price growth down. Finally, Norges Bank was surprisingly hawkish, see the Scandi Update section. During the coming week, we expect the Bank of Japan to stick to its outlier position as a central bank not tightening monetary policy, as inflation in Japan largely remains an imported phenomenon. This is the final Weekly Focus in 2022, and over the holidays, we will among other things be keeping an eye on how the Covid situation develops in China, where wide spread contagion could affect supply chains and domestic demand. The US job report for December in the first week of the new year will be important to watch, given the Fed’s concern over the labour market. Download The Full Weekly Focus

Bank of Japan - 20/12 – with the recent weakening of the US dollar which has put the Japanese yen back above the previous intervention levels of just below 150.00 Bank of Japan policymakers are likely to be much more relaxed about where the yen is now, than perhaps they were two months ago. Some of the recent yen strength has also come about as a result of some mutterings that the BoJ might start to look at changing its current policy on yield curve control now that national CPI has moved up to 3.7%, and its highest level in 8 years. While it would be tempting to think this might happen soon this seems unlikely with the central bank likely to opt for a significant overshoot before thinking about tweaking the brakes on its exceptionally easy monetary policy.  US Consumer Confidence – 21/12 – since moving up to a six-month high of 108.30 in September US consumer confidence has started to soften, despite evidence that inflation is starting to come down. The main reason for the slowdown is more than likely down to the fact that interest rate rises from the Federal Reserve are now starting to have an impact on credit costs, which in turn is hammering the US housing market, which has seen sales fall every month this year, except January. We’re also seeing services level inflation starting to become stickier and this also appears to be affecting consumption patterns. This pattern of higher prices is expected to see consumer confidence continue to soften below 100 to 99.9 and a four-month low.             UK Q3 GDP final – 22/12 – we aren’t expecting any surprises from this week’s Q3 final GDP numbers, which are expected to confirm that the UK economy contracted in Q3 by -0.2%, with private consumption set to be the main drag at -0.5%. The -0.2% contraction was slightly better than expected but nonetheless the numbers, and the numbers since then point to a UK economy, like others elsewhere, that is suffering from a deep malaise caused by surging inflation, and shrinking pay packets in real terms, along with a government which appears continuously at war with itself.      US Core PCE (Nov) – 23/12 – having seen the Federal Reserve raise rates by another 50bps last week, thus marking a slowdown in the pace of rate rises from the previous 75bps, this week’s core PCE numbers could set a benchmark as to the size of future rate hikes as we head into 2023. Recent PPI and CPI prints have shown that inflation is still coming down, albeit not as fast as perhaps the prevailing narrative of the peak inflation camp would like. In October we saw PCE Core Deflator fall to 5%, while PCE Deflator fell from 6.3% to 6%. In light of last week’s Fed decision this week’s PCE numbers could well start to shape a narrative of whether we get another 50bps when the Fed next meets at the start of next year, or whether we get another step down to 25bps. Carnival Corp Q4 22 – 20/12 – the cruise industry like most in the travel sector has had a difficult two years, and having seen a modest recovery in the share price in 2021, the shares have continued to struggle due to the stop start nature of the recovery in overseas travel. Year to date the shares are down over 50% year to date after hitting a 30 year low in October.  Pre-pandemic in 2019, annual revenues were $20.8bn, and even now don’t look like getting anywhere near that much before 2024. At the end of its 2021 fiscal year annual revenues collapsed to $1.9bn, and while we’re on course to beat that number quite comfortably, as well as the 2020 number of $5.6bn, it will be some time before normal service is resumed. For Q2 the company posted a bigger than expected loss of $1.9bn, while revenues fell short at $2.4bn. While disappointing the numbers were still much better than Q1, while occupancy rates rose to 69% from 54% in Q1, as booking volumes almost doubled. In Q3 Carnival posted a bigger than expected loss of $0.58c a share, which was higher than expected. Q3 revenues came in at $4.31bn so we are seeing a gradual improvement, however this was still below consensus expectations of $4.8bn, which shows there still remains a long way to go. Rising fuel costs are one reason the sector is struggling with Carnival saying it expects to post a Q4 loss as well, due to having to offer discounted prices to drive up passenger numbers. Even when they do encourage passengers on board, they appear to be spending less with revenue per passenger still lower than pre-pandemic....

A flurry of central bank meetings in Central and Eastern Europe next week mark the last major events before the festive season gets underway. Hungary: Central bank unlikely to deliver changes to 'whatever it takes' stance The National Bank of Hungary (NBH) has made it clear on several occasions that the temporary and targeted measures, introduced in mid-October, will remain in place until there is a material and permanent improvement in the general risk sentiment. Although we’ve seen some progress here, we don't think enough has changed to trigger an adjustment in the monetary policy’s hawkish “whatever it takes” setup. See our preview here. Regarding the current account balance, we expect a significant deterioration compared to the second quarter. We see the deficit widening on energy items, considering the country’s energy dependency combined with significantly higher prices paid in hard currency. Czech Republic: Last CNB meeting of the year to confirm a dovish majority The Czech National Bank (CNB) will hold its last meeting of the year on Wednesday. We expect it to be a non-event, with rates and FX regimes unchanged. The new forecast will not be released until February, so it is hard to look for anything interesting at this meeting. Board members have been very open in recent days and hence there is minimal room for any surprises. The traditional dovish majority has publicly declared that interest rates are high enough and continue to choose the "wait and see" path. As always, we have heard warnings that interest rates could go up if necessary. However, the near-zero market reaction shows that the dovish view here is clear. The governor also confirmed this week that the central bank will continue to defend the koruna. At the same time, another board member confirmed that the CNB has not been active in the market for some time. So hard to look for anything new here either.   Turkey: Central bank to keep policy rate unchanged We expect the Central Bank of Turkey (CBT) to keep the policy rate unchanged at 9% in December, having confirmed last month that it had reached the end of the easing cycle by stating that the current level of the policy rate is adequate. However, there are continued expectations for some easing in the current banking sector regulations, along with targeted credit stimulus measures such as Credit Guarantee Fund (CGF) loans. Given the CBT’s signal of strengthening the macro-prudential framework, the release of the “2023 Monetary and Exchange Rate” document will also remain in focus. Key events in developed markets Source: Refinitiv, ING Key events in EMEA/LATAM next week Source: Refinitiv, ING Read the original analysis: Key events in developed markets and EMEA next week