TESTING TIMES

NOVEMBER PUZZLE

Source: Reuters

Samsung Life Insurance and Samsung Fire & Marine Insurance, the respective leading companies in the country’s life and non-life insurance sectors, have raised their interest rates on mortgages, joining a move by banks in response to financial authorities’ increasing pressure to curb the growth of household debt.

The latest action by the major insurance companies is widely seen as their intention to prevent a so-called balloon effect, meaning that mortgage demand could shift to insurance companies, which are subject to relatively looser government regulations.

Samsung Life raised its rates by an average of 0.2 percent on Wednesday.

According to the rates published on the firm’s website, the figures for non-face-to-face loans ranged from 3.49 percent to 4.79 percent, but the rates for face-to-face loans disclosed to the Financial Supervisory Service (FSS) were slightly higher, ranging from 3.59 percent to 4.94 percent. This means the actual interest rates customers will receive when applying for a loan will be on average 0.2 percent higher than before, according to industry officials.

Samsung Fire raised its rates by 0.49 percent on Monday. As a result, its rates have increased to a range of 3.68 percent to 6.13 percent.

These rate hikes came at a time when banks have implemented various measures to curb the growth of housing loans, ranging from raising interest rates to reducing loan terms and limits.

This led the lower end of interest rates on mortgages offered by insurance companies to fall below those of banks for the first time in 10 months.

According to the financial watchdog’s data, Thursday, if a mortgage is set for a property worth 300 million won ($225,000), with a loan amount of 100 million won, a 30-year term and a fixed interest rate, Samsung Life’s mortgage rates range from 3.59 percent to 4.94 percent. In contrast, the rates offered by major banks were recorded at 3.63 percent to 6.03 percent.

With the industry leaders in the insurance sector initiating interest rate hikes, attention is now focused on whether other firms will join the trend.

Raising interest rates is an effective way for these businesses to enhance their returns in terms of asset management.

Now that they have gained justification by aligning with the government’s policy to manage growing household debt, it is cautiously expected that it is only a matter of time before other insurers follow suit.

Some, however, also express concerns, as FSS Governor Lee Bok-hyun recently criticized the banks’ interest rate hikes, describing it as an “easy” way out to comply with the authorities’ instruction to curb the growth of household loans.

“Rather than making overt adjustments to interest rates, we plan to manage mortgages through other measures, such as tightening loan screening processes,” an official from one of the major life insurance companies said.

Source: Koreatimes

BERLIN (Aug 29): Inflation fell in six important German states in August due to lower energy prices, preliminary data showed on Thursday, suggesting Germany's national inflation rate could decline noticeably this month.

In Saxony, the inflation rate fell in August to 2.6% from 3.1% in the previous month, in Brandenburg it fell to 1.7% from 2.6%, in Baden-Wuerttemberg it fell to 1.5% from 2.1%, in Hesse it fell to 1.5% from 1.8% and in Bavaria it fell to 2.1% in August from 2.5% in July.

The inflation rate in North Rhine-Westphalia, Germany's most populous state, fell to 1.7% in August from 2.3% in July.

Economists polled by Reuters forecast a harmonised national inflation rate in Germany - the euro zone's largest economy - of 2.3% in August, down from 2.6% the previous month. National figures will be released later on Thursday.

The inflation data from the states indicate German inflation has fallen more sharply than previously expected, said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, noting that North Rhine-Westphalia accounts for 21% of total inflation.

"That sounds like a good result," de la Rubia said. "From now on, however, things are unfortunately on the up again."

In the next six to twelve months, the inflation rate is likely to move back towards 3%, de la Rubia forecasts.

The German data comes ahead of the euro zone inflation release on Friday. Inflation in the bloc is expected at 2.2% in August, down from 2.6% in the previous month, according to economists polled by Reuters.

"Any downside miss in August inflation data is likely to raise expectations for an October (ECB) rate cut," economists at Nomura said.

The rising likelihood of a German recession and contraction in euro area domestic demand also raise the chance of an October rate cut by the European Central Bank, the economists added.

Fewer companies in Germany are looking to raise their prices in August, according to an Ifo survey published on Thursday.

"Overall, the inflation rate in the coming months is likely to remain below the 2% mark targeted by the ECB," said Timo Wollmershaeuser, head of forecasts at Ifo. Energy in particular is significantly cheaper for consumers than it was a year ago, he noted.

However, Ifo expects core inflation to remain largely unchanged for the time being at around 2.6%, above the ECB’s inflation target.

Source: The edge markets

Above: Labour intends to target a small portion of the tax base, raising the risk that new taxes don't increase overall revenue. Source: IFS.

Above: Labour inherited the fastest-growing economy in the G7. Source: House of Commons Library.

Source: Poundsterlinglive

The European Central Bank (ECB) is scheduled to meet next month for its monetary policy review, making the upcoming Harmonized Index of Consumer Prices (HICP) inflation data from Germany, set to be released on Thursday, particularly significant for its potential impact on the central bank’s policy decisions.

Meanwhile, the Euro (EUR) may relinquish part of its recent strong upward trend, particularly against the US Dollar (USD), if the inflation data from Eurozone economies, especially Germany, indicates a persistent disinflationary trend.

What can we expect from the upcoming German inflation report?

The Federal Statistical Office of Germany (Destatis) will release the official data on Thursday. The annual German Consumer Price Index (CPI) is projected to rise by 2.1% in August, down from the 2.3% increase reported in the previous month. Monthly CPI inflation is expected to show a humble increase of 0.1% during the reported period.

Germany’s annual Harmonized Index of Consumer Prices (HICP), in the meantime, is anticipated to drop to 2.3% in August, down from 2.6% in July. The monthly HICP is likely to come in flat last month, compared to a 0.5% increase in July.

A further cooling of inflation in Europe’s largest economy could suggest softer inflation readings for the entire Eurozone, which will be published on Friday. On this, the headline Eurozone headline CPI is expected to rise by 2.2% in the year to August, a slowdown from the 2.6% increase seen in July, while the core inflation, which strips food and energy costs, is also projected to decrease to 2.8% during the same period, down from a 2.9% uptick in the previous month.

On Tuesday, Dutch policymaker Klaas Knot argued that the European Central Bank (ECB) could gradually lower interest rates as long as inflation is expected to reach its 2% target by the end of 2025 at the latest. He expressed his comfort with gradually easing off the brakes, provided that the disinflation path continues to align with a return to 2% inflation by that time. Knot also mentioned that he would need to wait for the complete set of data and information before deciding his position on whether a rate cut in September would be appropriate.

This cautious tone followed comments from ECB Chief Economist Philip Lane over the weekend, who remarked that it is not yet guaranteed that the central bank will successfully reduce inflation back to its 2% target, indicating that a restrictive monetary policy remains necessary. Lane also emphasized that the monetary stance must remain in restrictive territory for as long as necessary to guide the disinflation process towards a timely return to the target. However, he also cautioned against maintaining high rates for an extended period, as this could result in persistently below-target inflation.

Ahead of the release, TD analysts noted: “Heavy base effects in the energy components will help headline inflation get close to target in the eurozone—in the EZ, the headline rate will likely come down all the way to 2.1% y/y, whereas German HICP inflation should fall to 2.2% y/y. Core inflation should remain sticky though, but remain on a disinflationary path."

When will the HICP inflation report be released, and how could it affect EUR/USD? 

The preliminary HICP inflation report for Germany is scheduled for release at 12:00 GMT. In the lead-up to this inflation data release, EUR/USD seems to have lost some upside impulse after hitting fresh 2024 tops just above 1.1200 the figure at the beginning of the week. 

Markets have now pencilled in around 100 bps of easing by the US Federal Reserve (Fed) in the latter part of the year, with the kick-start of its easing cycle coming as soon as September. However, it is not that clear that the ECB will follow suit, as per recent prudent comments from rate-setters. So far, the broader debate seems to have shifted towards the health of both economies, where the US clearly exhibits a decent advantage. 

If the headline and core inflation data come in hotter than expected, it could bolster expectations for one more ECB rate hike in the next few months, lending support to the European currency and therefore opening the door to the continuation of the ongoing uptrend in EUR/USD. On the flip side, a negative surprise, that is, an acceleration of the disinflationary trend, will carry the potential to remove some strength from the Euro and thus unveil a probable reversal to lower levels.

Pablo Piovano, Senior Analyst at FXStreet.com, notes that the surpass of the 2024 peak at 1.1201 (August 26) could prompt the pair to embark on a probable trip to the 2023 high of 1.1275 (July 18), seconded by the 1.1300 milestone. 

In case of bearish attempts, Pablo suggests that there should be initial contention at the weekly low of 1.0881 (August 8), which appears reinforced by the provisional 55-day SMA at 1.0879 and comes before the critical 200-day SMA of 1.0851. 

All in all, the pair’s constructive bias is expected to persist as long as it trades above the key 200-day SMA, concludes Pablo.

Source: FXSTREET