EUROZONE: Savings Rate Continues To Reflect Consumer Caution [2/3]
Sep-19 13:11
- The savings rate jumped higher in the initial post-pandemic aftermath, as was seen elsewhere including the US, as consumers were unable to spend their usual amounts on services.
- However, in contrast to the US where the savings rate subsequently pushed to historically low levels as they ran down these accumulated “excess savings”, European consumers haven’t done the same. Instead, the Euro Area saving rate pushed 1pp higher through 2023 into 2024 where it has since plateaued between 15-15.5% with 15.2% as of Q1. That’s higher than any pre-pandemic period since at least 1999 and compares with an average of 13% in 2019.
- The ECB sees this high starting point for the saving rate as a potential growth driver ahead. From the opening statement: “Even if demand for labour is softening, the labour market remains a source of strength, with the unemployment rate at 6.2 per cent in July. Over time, this should boost consumer spending, especially if, as foreseen in the staff projections, people save less of their income.”
- Lagarde provided some further colour on both in the Q&A: “We project the labour market to have a 6.1% unemployment rate in 2027, for instance. We also believe that for savings, which are still very high at about 15% – this is not a given – there is a likelihood that those savings decline and will therefore help with additional consumption.”
- This elevated savings rate helps explain why real consumption growth is only tracking at the lower end of pre-pandemic ranges, at 1.4% Y/Y or circa 1.1% Y/Y in per capita terms in Q2.
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EUR: EUR/USD Boosted on Cook Headlines, EUR/GBP Strength
Aug-20 13:10
- EUR/USD holding the day's gains headed in to the Wall Street opening bell, buoyed by both the modestly softer USD on the call from Trump for Fed's Cook to resign, as well as firm EUR/GBP buying in recent trade, which tips the cross comfortably through 0.8648 highs to print the best levels of the week.
- EUR/GBP has shrugged off the higher-than-expected UK inflation print to rally near 50 pips off the post-data low to mirror the market view higher services CPI today may have only minimal feed-through to the BoE's decision-making process for the rest of this year.
- As a result, EUR/GBP is following the 50-dma higher, which should remain strong support at the close of 0.8626.
SOFR OPTIONS: Mixed Sep'25 SOFR Trade
Aug-20 13:08
- -20,000 SFRU5 95.81/SFRZ5 95.87 put spds, 0.75 net/Sep over
- +4,000 SFRU5 95.62/96.31 call over risk reversals, 0.25 ref 95.9025
CROSS ASSET: Lower Yields are helping some USD Downside
Aug-20 13:06
- A new session high for US Tnotes, now testing Yesterday's high of 111.27, just ahead of the small initial resistance at 111.30+.
- Outright Order flows are still fairly subdued, with all the volumes going through in Desks rolling their September Position into the December Expiry.
- Nonetheless and since Trump's post on Fed Cook, the USD is now on the backfoot, DXY tests session low, and EUR, CHF, and Gold are all testing their respective new intraday high.
