A Little Air of 2022 The information presented in this publication is provided for informational purposes only and does not constitute investment advice, a sales offer, or a solicitation to purchase, and should not in any way serve as a basis or be considered as an incentive to engage in any investment. The macro point There is only one piece of good news (or almost) at the start of the year, which is the end of the zero-Covid policy in China. It had brought a large part of the Chinese economy to a halt (regions sometimes representing 40% of China's GDP were confined for several weeks in 2022). It also caused significant disruptions in maritime trade, which fueled the rise in freight rates. As of January 8, China will classify Covid as a category 2 contagious disease, implying a much less strict health protocol. Specifically, local authorities will no longer need to resort to individual isolation and lockdown measures. Moreover, borders are gradually reopening (particularly in Hong Kong). This is good news for the global economy in the short term as it should allow for a decrease in production prices. However, risks remain. In the last twenty days, China has reported over 250 million infections. Officially, the country is not recording any Covid-related deaths. But the reality on the ground is quite different. In Beijing, hospitals and morgues are overwhelmed. This raises two main questions. Firstly, what is the unofficial number of Covid-related deaths that the central government is willing to accept before reintroducing health control measures? Some models (to be taken with caution) indicate that several million Chinese could die. If new lockdown measures are introduced, even on a case-by-case basis, it could fuel inflation again. Secondly, should we fear a return of Covid in Europe? The United States has planned strict control of passengers from China. The entire Schengen area would do well to reimplement health controls aimed at testing and sequencing the viruses identified in all travelers from China. It is unlikely but cannot exclude an increase in contamination cases in Europe if controls are insufficient. In any case, it shows how uncertain the outlook remains at the beginning of the year. Fortunately, some things are immutable. Inflation will remain a central theme in 2023. It is likely that cyclical inflation will continue to decline (this should be confirmed by the publication of the consumer price index in the euro area in December this week). But structural inflation will remain high. In other words, one should not expect a rapid return to the inflation target of 2%. However, not everyone is in the same boat. Hyperinflation (defined as inflation above 50% annually in economics) is the norm in Turkey and Argentina. In Europe, some countries fare better than others. Inflation is in double digits in Poland, Sweden, and Italy in annual terms. However, it is contained in Switzerland (3%) and low in France compared to the majority of European countries (6.2%). In China, it is nonexistent (1.6%). The challenge this year is to determine if the inflation peak is behind us. This is likely the case in the United States (the peak was reached last June). In the euro area, the debate is open. The latest figures indicate a decline, notably reflecting the sharp drop in energy prices (especially gas prices in the wholesale market). But the European Central Bank (ECB) was cautious during its December meeting, indicating that the peak might only be reached by the first quarter of this year. For now, the good news in Europe is that the energy crisis is less severe than expected. There is no blackout (collapse of the power system due to a lack of power). Moreover, messages promoting energy sobriety seem to have had a certain effect on consumption, which is declining compared to the same period last year (weather conditions also play a role). If the energy crisis remains measured, it could reduce the severity of the recession in the euro area. At Mondial Change, we still expect a technical recession – two consecutive quarters of slight GDP contraction. If this is the case, the economic fabric should not suffer too much. In the foreign exchange market, volatility was low during the holiday period, except for JPY pairs. Just before Christmas, the Bank of Japan (BoJ) took traders by surprise by announcing a change in its monetary policy. The central bank eased its control over the yields of ten-year Japanese government bonds. This is officially 'to improve market functioning.' But many analysts interpreted this measure as a signal that the BoJ will gradually exit its ultra-accommodative monetary policy to combat inflation more effectively (which is at a height of more than forty years in the archipelago). The money market is now considering an exit from negative interest rate policy during this year. This would be unprecedented. If this is the case, it would cause significant movements in JPY pairs. In the immediate term, the measure announced just before Christmas slightly supported JPY against its main counterparts. However, it was not enough to make up for the lost ground (JPY shows an underperformance of 8% against the euro in 2022). The very hawkish tone (in favor of significant monetary tightening) of the ECB should support the EUR. Last December, the ECB raised its main interest rate to 2% (an increase of 50 basis points). We believe that the main interest rate could reach 3.25% by mid-2023. A similar situation exists for the CHF. The Swiss National Bank seems ready to take significant measures to combat persistent inflation. Overall, the currencies of Central and Eastern Europe should continue to lag behind. The supports and resistances displayed below indicate, respectively, the low and high points within which the rates should fluctuate during the week.SUPPORTSWEEKLYRESISTANCESWEEKLYS2S1R1R2EUR/USD1.05001.05241.07561.0849EUR/GBP0.86930.87430.99030.9947EUR/CHF0.96990.96990.99101.0003EUR/CAD1.41701.43731.4481.4592EUR/JPY140.30143.91143.93145.72For this first economic week of the year, the focus will, as always, be on inflation. Nothing new. The consumer price index in the euro area is expected to drop to 9.7% year over year in December. It is good news if confirmed. But the evolution of inflation needs to be looked at in detail to determine if the decrease is sustainable or not. American employment is a must-watch. However, we do not think that at this stage it is an important datum for the US Federal Reserve. The December report should have a marginal effect on the EUR/USD pair. Below, you will find the publications and events that should have a major impact on the evolution of currency rates.DAYTIMECOUNTRYINDICATORWHAT TO EXPECT?01/0209:45Manufacturing PMI (December)The consensus expects a stable figure at 47.3.01/0310:30Manufacturing PMI (December)The consensus forecasts a figure of 44.7 in December.10:30Consumer price index (December)Sharp decline expected to 8.9% year over year compared to 10.0% in November.01/0416:00ISM Manufacturing (December)Decline to 48.5 from 49.0 in November.01/0514:15ADP Non-Farm Employment Change (December)150k against 127k01/0611:00Consumer price index (December)Drop to 9.7% year over year from 10.1% in November.14:30US Labor Department Employment Report (December)Unemployment rate stable at 3.7% of the labor force.