RBNZ Hawkesby: Not currently seeing widespread financial distress amongst households or businesses

    According to RBNZ Financial Stability Report, debt servicing costs for households with mortgages are expected to more than double by the end of the year. Despite this, household balance sheets remain resilient, with most having substantial equity buffers. Early-stage arrears have increased but remain low compared to post-Global Financial Crisis levels. Banks’ strong capital positions allow them to support customers, and borrowers facing stress are encouraged to seek assistance from their banks.

    “We are not currently seeing widespread financial distress amongst households or businesses, which reflects the strength in the economy and labour market to date. However, more borrowers may fall behind on their payments this year, given the ongoing repricing of mortgages and expected weakening in the labour market,”Deputy Governor Christian Hawkesby says.

    “Recent profitability and strong capital positions puts banks in a good position to take a long-term view and support their customers. We encourage borrowers encountering stress to talk to their banks, as hardship programmes may be available, and some customers may be able to temporarily switch to interest-only payments or increase the remaining term of their loan.”

    Full RBNZ press release here.

    US ISM manufacturing rose to 47.1, sixth month of contraction

      US ISM Manufacturing PMI rose from 46.3 to 47.1 in April, above expectation of 46.6. Looking at some details, new orders rose from 44.3 to 45.7. Production rose from 47.8 to 48.9. Employment rose from 46.9 to 50.2. Prices rose from 49.2 to 53.2.

      ISM said: “This is the sixth month of contraction and continuation of a downward trend that began in June 2022. Of the five subindexes that directly factor into the Manufacturing PMI, only one (Employment) is in growth territory.”

      “The past relationship between the Manufacturing PMI and the overall economy indicates that the April reading (47.1 percent) corresponds to a change of minus-0.6 percent in real gross domestic product (GDP) on an annualized basis.”

      Full US ISM Manufacturing release here.

      Japan’s PMI manufacturing finalized at 49.5, sector remains in contraction

        Japan’s PMI Manufacturing for April was finalized at 49.5, marginally above March’s 49.2, marking the sixth consecutive month of contraction in the sector. Jibun Bank noted that new order volumes displayed further signs of stabilization, while output charges experienced their strongest rise in five months. Additionally, input delivery times only lengthened slightly.

        Usamah Bhatti, an economist at S&P Global Market Intelligence, commented that the Japanese manufacturing sector remained in contraction territory at the start of Q2 2023. However, the rate of deterioration eased to the softest in the current six-month sequence, primarily due to the slowest reduction in new order inflows since July of last year.

        Bhatti further observed that firms reported supply chains continued on the path to normalization, with the softest lengthening in delivery times in the current 39-month sequence. Inflationary pressures remained historically high, but manufacturers signaled that input prices rose at the softest pace since August 2021. To protect profit margins, firms increasingly passed higher cost burdens onto customers, resulting in charge inflation accelerating to a five-month high.

        Full Japan PMI manufacturing release here.

        China’s manufacturing PMI contracts for first time this year

          Released over the weekend, China’s official PMI Manufacturing declined from 51.9 in March to 49.2 in April, falling short of expectation of 51.4. This drop also brought the reading below the 50-mark, signaling the first contraction in manufacturing activity this year.

          A significant contributor to the decline in the headline indicator was the new orders sub-index, which dipped to 48.8 from 53.6, suggesting a decrease in market demand. Additionally, new export orders decreased to 47.6 from 50.4, reaching a three-month low.

          Senior NBS statistician Zhao Qinghe attributed the contraction in April to a lack of market demand and the high-base effect resulting from the rapid manufacturing recovery in the first quarter. The chemical fiber, ferrous metal mining, and processing sectors have experienced slowed production due to weak market demand, while the special equipment and electrical and mechanical equipment sectors continue to expand, according to a separate NBS statement.

          PMI Services index also fell, dropping from 58.2 to 56.4, below the expected 57.0, but it remains the second-highest reading this year. The composite PMI, encompassing both manufacturing and non-manufacturing activity, declined to 54.4 from 57.0.

          Canada GDP grew 0.1% mom in Feb, but down -0.1% in Mar

            Canada GDP grew 0.1% mom in February, below expectation of 0.2% mom. Both services-producing industries and goods-producing industries edged up 0.1%. Overall, 12 of 20 subsectors increased.

            Advance information indicates that real GDP edged down -0.1% in March. This advance information indicates a 0.6% increase in real GDP by industry in the first quarter of 2023.

            Full Canada GDP release here.

            US PCE inflation slowed to 4.2% yoy, core PCE slightly down to 4.6% yoy

              US personal income rose 0.3% mom or USD 67.9B in March, above expectation of 0.2% mom. The increase in income primarily reflected increases in compensation, personal income receipts on assets, and rental income of persons that were partly offset by decreases in proprietors’ income and personal current transfer receipts

              Personal spending rose less than 0.1% mom or USD 8.2B, better than expectation of -0.1% mom contraction. The increase reflected a USD 44.9 billion increase in spending for services that was partly offset by a USD 36.7 billion decrease in spending for goods

              For the month PCE price index increased 0.1% mom. Excluding food and energy, PCE price index increased 0.3% mom. Prices for goods decreased -0.2% mom and prices for services increased 0.2%. Food prices decreased -0.2% and energy prices decreased -3.7% mom.

              From the same month one year ago, PCE price index March slowed from 5.1% yoy to 4.2% yoy, below expectation of 4.6% yoy. Excluding food and energy, PCE price index ticked down from 4.7% yoy to 4.6% yoy, above expectation of 4.6% yoy. Prices for goods increased 1.6 yoy and prices for services increased 5.5% yoy. Food prices increased 8.0% yoy and energy prices decreased 9.8% yoy.

              Full US personal income and spending release here.

              Eurozone GDP rose 0.1% qoq in Q1, EU up 0.3 qoq

                Eurozone GDP grew 0.1% qoq in Q1, matched expectations. EU GDP rose 0.3% qoq.

                Among the Member States for which data are available for the first quarter of 2023, Portugal (+1.6%) recorded the highest increase compared to the previous quarter, followed by Spain, Italy and Latvia (all +0.5%). Declines were recorded in Ireland (-2.7%) as well as in Austria (-0.3%). The year-on-year growth rates were positive for all countries except for Germany (-0.1%).

                Full Eurozone GDP release here.

                Germany GDP stalled in Q1, worst than expectations

                  Germany GDP stalled in Q1 (price, seasonally and calendar adjusted), below expectation of 0.1% qoq growth. GDP was up a price adjusted 0.2% compared with the first quarter of 2022. The price and calendar adjusted GDP was -0.1% lower because there was one working day more than in the same period a year earlier.

                  The final consumption expenditure of both households and government declined at the beginning of 2023, according to the Federal Statistical Office (Destatis). Positive contributions, in contrast, came from capital formation and exports.

                  Full Germany GDP release here.

                  Swiss KOF dropped to 96.4, the economy cannot find its footing

                    Swiss KOF Economic Barometer dropped from 99.2 to 96.4 in April, dipping slightly lower under its medium-​term average value. KOF said, “at the moment, the Swiss economy cannot really find its footing.”

                    The majority of the indicator bundles are affected by the softening. In particular, the indicators for manufacturing, services, hospitality and private consumption. In contrast, the outlook for foreign demand is stable and that for financial and insurance services is brightening.

                    Full Swiss KOF release here.

                    France’s Q1 GDP sees modest growth of 0.2% qoq

                      France’s Q1 GDP growth came in at a modest 0.2% qoq, slightly outperforming market expectations of 0.1% qoq.

                      Final domestic demand (excluding inventories) contributed negatively to GDP growth, albeit less so than in the previous quarter (-0.1 points in Q1 2023 after -0.4 points). This was due to household consumption stabilizing (0.0% after -1.0%), while gross fixed capital formation (GFCF) experienced a minor decline (-0.2% after 0.0%).

                      In contrast, foreign trade provided a positive contribution to GDP growth (+0.6 points after +0.2 points). Imports decreased this quarter (-0.6% after +0.1%), while exports remained strong (+1.1% after +0.9%).

                      Lastly, the contribution of inventory changes to GDP growth was negative this quarter (-0.3 points after +0.2 points in Q4 2022).

                      Full France GDP release here.

                      BoJ stands pat, to take 1-1.5 yrs to review monetary policy

                        BoJ keeps monetary policy unchanged as widely expected, by unanimous vote. Under the yield curve control, short-term policy interest rate is held at -0.10%. 10-year JGB yield will be kept at around 0% with bond purchases without upper limit. 10-year JGB yield will continue to be allowed to fluctuate in range of around plus and minus 0.50% from 0% level.

                        The central bank maintained the pledge to continue with Quantitative and Qualitative Monetary Easing with Yield Curve Control for “as long as it is necessary” for meeting inflation target in a “stable manner”. It “will not hesitate to take additional easing measures if necessary”. BoJ will conduct a “broad-perspective review of monetary policy”, with a planned time frame of around 12 to 18 months.

                        In the new economic projections, while core inflation forecasts were upgraded, it’s not expected to sustain at the 2% level throughout the horizon.

                        • Real GDP forecasts (versus January estimates):
                          • Fiscal 2023 at 1.4% (down from 1.7%).
                          • Fiscal 2024 at 1.2% (up from 1.1%).
                          • Fiscal 2025 at 1.0% (new)
                        • CPI Core forecasts (versus January estimates):
                          • Fiscal 2023 at 1.8% (up from 1.6%).
                          • Fiscal 2024 at 2.0% (up from 1.8%).
                          • Fiscal 2025 at 1.6% (new).
                        • CPI Core-Core forecasts (versus January estimates):
                          • Fiscal 2023 at 2.5% (up from 1.8%).
                          • Fiscal 2024 at 1.7% (up from 1.6%).
                          • Fiscal 2025 at 1.8% (new).

                        Full BoJ statement here.

                        Full Outlook for Economic Activity and Prices here.

                        S&P 500 stays near term bullish after biggest rally since Jan

                          US stocks rallied strongly overnight, the DOW and S&P 500 recording their largest rallies since January, and NASDAQ since March. The turnaround in sentiment was driven by Meta’s impressive quarterly performance, which saw shares close up 14%. Additionally, weaker-than-expected Q1 GDP data fueled expectations that Fed is getting closer to ending its tightening cycle, providing ammunition for pessimists to call for a potential rate cut before year-end should the economy continue to deteriorate.

                          Technically, DOW, S&P 500, and NASDAQ all found robust support from their respective 55 D EMA this week. In the case of SPX, the development keeps the rally from 3808.83 alive. Near-term outlook remains bullish as long as 4049.35 support level holds. Break of 4195.44 resistance will confirm resumption of the overall rebound from 3491.58.

                          Meanwhile, a critical obstacle lies in the 4325.28 cluster resistance (61.8% retracement of 4818.62 to 3491.58 at 4311.69) for SPX. Sustained break of this cluster resistance will pave the way for further rally towards historical high of 4818.62. The market’s reaction to the 4300 handle will largely depend on next week’s FOMC rate decision and Chair Jerome Powell’s press conference.

                          Japan industrial production rose 0.8% mom, with signs of moderate pick up

                            Japan’s industrial production expanded for the second consecutive month, recording a 0.8% mom growth in March, surpassing the expected 0.4% mom increase. The growth was driven by output in eight sectors, led by motor vehicles, while declines were observed in seven sectors, including electronic components and devices.

                            The Ministry of Economy, Trade and Industry upgraded its basic assessment for the month, stating that industrial production was “showing signs of moderately picking up” as parts supply shortages continued to ease. This is a marked improvement from the previous month’s assessment of “weakening.” The ministry also projects a further 4.1% growth in industrial production for April and a -2.0% decline in May.

                            Other economic indicators released include 7.2% yoy increase in retail sales for March, surpassing expectations of 6.5% yoy. However, unemployment rate rose for the second month in a row, reaching 2.8%, above expectation of 2.5%.

                            April, Tokyo core CPI, which excludes fresh food, accelerated from 3.2% to 3.5% yoy, exceeding expectations of 3.2% yoy. Core-core CPI, which excludes fresh food and fuel costs, accelerated from 3.4% to 3.8% year-on-year, marking the highest rate since April 1982.

                            US initial jobless claims down -16k to 230k

                              US initial jobless claims dropped -16k to 230k in the week ending April 22, better than expectation of 245k. Four-week moving average of initial claims dropped -4k to 236k.

                              Continuing claims dropped -3k to 1858k in the wee ending April 15. Four-week moving average of continuing claims rose 10k to 1837k, highest since December 18, 2021.

                              Full US jobless claims release here.

                              US GDP grew only 1.1% annualized in Q1, well below expectations

                                US GDP growth for Q1 2023 came in at a mere 1.1% annualized, significantly below the expected 2.0%.

                                The increase in real GDP can be attributed to rises in consumer spending, exports, federal government spending, state and local government spending, and nonresidential fixed investment.

                                However, these increases were partially offset by declines in private inventory investment and residential fixed investment. Meanwhile, imports, which are subtracted when calculating GDP, also increased.

                                Price index for gross domestic purchases rose by 3.8% in Q1, compared to the 3.6% increase recorded in Q4. Personal Consumption Expenditures price index saw a 4.2% increase, up from the previous quarter’s 3.7% increase. Excluding food and energy prices, PCE price index climbed by 4.9%, compared to 4.4% increase in the previous quarter.

                                Full US GDP release here.

                                Eurozone economic sentiment up slightly to 99.3, third month of sideways movement

                                  Eurozone Economic Sentiment Indicator ticked up from 99.2 to 99.3 in April, below expectation of 99.9. This is the third month of a general sideways movement of the indicator. Industry confidence dropped from -0.5 to -2.6. Services confidence rose from 9.6 to 10.5. Consumer confidence rose from -19.1 to -17.5. Retail trade confidence rose from -1.5 to -1.0. Construction confidence was unchanged at 1.0. Employment Expectation Indicator dropped from 108.9 to 107.4. Economic Uncertainty Indicator dropped from 22.4 to 22.2.

                                  EU ESI was unchanged at 97.3. Employment Expectation Indicator dropped from 107.5 to 106.1. Economic Uncertainty Indicator dropped from 22.1 to 21.8. Amongst the largest EU economies, the ESI improved in Spain (+3.7) and, to a lesser extent, in Poland (+1.1) and Germany (+0.8). While sentiment edged up also in Italy (+0.3), it deteriorated in the Netherlands (-1.6) and, particularly, in France (-4.2).

                                  Full Eurozone Economic Sentiment Indicator release here.

                                  AUD/JPY a top loser as Aussie suffers triple blow

                                    Australian Dollar continues to trade as the worst performer for the week, suffering triple blow including risk aversion, free fall in copper price and RBA speculations. Copper’s selloff accelerated this week and broke to new low in 2023 today. There are increasing doubts on whether RBA will raise interest rate next week or opt for the second pause in a row after yesterday’s CPI data.

                                    AUD/JPY is currently the second biggest mover for the week, just next to EUR/AUD. Current development indicates that corrective recovery from 86.04 has concluded with three waves up to 80.76, after being rejected by channel resistance. This implies that the larger downtrend from 99.32 (2022 high) is ongoing and may be ready to resume.

                                    Immediate focus is now on 87.57 support. Firm break there will confirm this bearish case, and target 38.2% retracement of 59.85 to 99.32 at 84.24. Firm break there could prompt downside acceleration to 100% projection of 99.32 to 87.00 from 92.99 at 80.67. But of course, the whole development would also depend on any surprise from BoJ on Friday.

                                    As for Copper, with breach of 3.8229 support, whole decline from 4.3556 is likely resuming. There is risk of more downside acceleration if it cannot recovery back above 3.9197 support turned resistance soon. Next target would be 100% projection of 4.3555 to 3.8229 from 4.1743 at 3.6416, which is close to 61.8% retracement of 3.1314 to 4.3556 at 3.5990, that is, around 3.6 handle. If this extended selloff in copper materializes, it could put additional pressure on Aussie.

                                    NZ ANZ business confidence dropped slightly, inflation expectation lowest since Mar 2022

                                      New Zealand ANZ Business Confidence index decrease slightly in April, dipping from -43.4 to -43.8. On the other hand, Own Activity Outlook improved from -8.5 to -7.6. A closer look at the details reveals that export intentions jumped from -8.9 to -1.5, while investment intentions remained unchanged at -6.8. Employment intentions rose from -4.6 to -2.4, and pricing intentions fell from 56.8 to 53.7. Cost expectations dropped from 86.4 to 84.2, and profit expectations declined from -33.9 to -37.7.

                                      Inflation expectations decreased from 5.82 to 5.70, reaching the lowest level since March 2022. ANZ observed that the overall decline in inflation signals is consistent with RBNZ gradually gaining traction. However, the situation is far from resolved, as the proportion of firms experiencing high costs and intending to raise prices remains “problematically high”.

                                      ANZ added: “The RBNZ will be encouraged to see the ongoing fall in the inflation indicators in the survey. While there’s still a way to go, inflation is set to continue easing over the year ahead, as they and we are forecasting.

                                      “It’s important to note that the data does not represent a ‘surprise’ for the RBNZ; rather, it’s what they will be expecting to see if their forecasts are to come to fruition, with the OCR able to top out shortly.

                                      “There are risks on both sides: inflation could get “stuck” north of the target band, or global markets could deliver a side-swipe, for example. But the overall message from this month’s survey is “on track.”

                                      Full ANZ Business Confidence release here.

                                      US goods trade deficit narrowed to USD -84.6B in Mar

                                        US goods exports rose USD 4.9B to USD 172.7B in March. Goods imports dropped USD -2.5B to 257.3B. Trade deficit came in at USD -84.6B, smaller than expectation of USD -89.8B.

                                        Wholesale inventories rose 0.1% mom to USD 919.9B. Retail inventories rose 0.7% mom to USD 773.4B.

                                        Full US goods trade balance release here.

                                        US durable goods orders rose 3.2% mom in Mar, ex-transport orders up 0.3% mom

                                          US durable goods orders rose 3.2% mom to USD 276.4B in March, well above expectation of 0.8% mom. Ex-transport orders rose 0.3% mom to USD 179.0B, above expectation of -0.2% mom. Ex-defense orders rose 3.5% mom to USD 259.3B. Transportation equipment rose 9.1% mom to USD 97.4B.

                                          Full US durable goods orders release here.