BoJ Governor Haruhiko Kuroda told the parliament today, “with our monetary easing steps, we sought to stimulate economic activity and tighten the labour market so that prices and wages would rise more.”
“This was a necessary approach and one that is shared by other central banks,” he said. There was “no better way” to aim at sustainably achieving its 2% inflation target.
US CPI rose 0.5% mom in July, matched expectations. Over the last 12 months, CPI rose 5.4% yoy, unchanged from June’s reading, above expectation of 5.3% yoy.
Core CPI, excluding food and energy, rose 0.3% mom, below expectation of 0.4% mom. Over the past 12 months, CPI core slowed to 4.3% yoy, down from 4.5% yoy, matched expectation.
ECB President Christine Lagarde repeated on Saturday that “inflation is largely transitory”. “Monetary policy will continue supporting the economy in order to durably stabilize inflation at our 2% inflation target over the medium term,” she said. “The ECB is committed to preserving favorable financing conditions for all sectors of the economy over the pandemic period.”
“Once the pandemic emergency comes to an end — which is drawing closer — our forward guidance on rates as well as asset purchases will ensure that monetary policy remains supportive of the timely attainment of our target,” Lagarde said.
Separately, Governing Council member Klaas Knot also said the current inflation is “mostly temporary”. “It is highly relevant to determine whether this is a temporary phenomenon and goes away or not, and whether this becomes a risk and has secondary effects through higher wages and costs, and that is not the case now,” Knot said. “At this moment, we see it as mostly temporary as our economy is reopening after the corona shock and the supply of products is not keeping up with demand.”
ECB Governing Council member Klass Knot said today that recent positive economic data confirmed that a recovery is on the way. He said “recent data solidified the confidence in our baseline scenario”. However, “even in that baseline scenario, economic activity will only approach the pre-Corona 2019 level by the end of our projection horizon, at the end of 2022.”
Separately, Executive Board member Yves Mersch said “we would not need to make use of the full PEPP envelope if the governing council were to assess that market tensions had eased sufficiently.””We are mindful that the size of our balance sheet. The significant stock of acquired assets and reinvestments of the maturing principal payments can have implications for market functioning and price formation,” he added. “The sheer size of the PEPP also goes beyond its primary backstop function by providing additional support to the monetary policy stance.”
In the post meeting press conference, BoJ Governor Haruhiko Kuroda said, “consumer inflation is likely to stay around 1% through the end of the BoJ’s projection period. As such, there is no need to modify the BoJ’s monetary easing.”
“We are not debating an interest rate hike … As shown in the report, we’re not yet in a situation where inflation is steadily accelerating toward the BoJ’s goal. The median forecast of board members is for inflation around 1%. Under such conditions, we are absolutely not thinking about raising rates or modifying our easy monetary policy,” he said.
“If achievement of 2% inflation comes into sight, the BoJ’s board will likely debate an exit strategy and communicate its intention to markets. That in itself won’t be that difficult. The problem is that unfortunately, we haven’t see inflation hit 2%. It’s premature to debate an exit strategy,” he added.
German Gfk Consumer Sentiment for July fell from -24.4 to -25.4, below expectation of 23.0. In June, economic expectations fell from 12.3 to 3.7. Income expectations fell from -8.2 to -10.6. Propensity to buy improved from -16.1 to -14.6.
“The current development in consumer sentiment indicates that consumers are once again more uncertain. This is reflected in the fact that the propensity to save increased again this month,” explains Rolf Bürkl, GfK consumer expert.
“After eight consecutive increases, the consumer sentiment must suffer a first setback. Continued high inflation rates, currently at around six percent, are noticeably eroding the purchasing power of households and preventing private consumption from making a positive contribution.”
In an interview with Bloomberg TV today, BoE Deputy Governor Dave Ramsden highlighted that services inflation, accounting for 45% of the consumer basket for CPI inflation, has been unexpectedly resilient at 6.6%. This figure, he noted, is an indication that UK inflation is increasingly becoming “home-grown.”
Ramsden expressed concern over the stubborn nature of inflation, attributing it to factors such as high wage growth, which remains above 7%. Given the labor-intensive nature of UK’s service sector, these wage pressures are a significant contributor to persistent inflation. This situation leads BoE to anticipate that inflation “is going to stay stubbornly high through next year.”
Regarding monetary policy, Ramsden stated that it would need to remain “restrictive for an extended period of time” to effectively bring inflation down from its current level of 4.6% to the Bank’s target of 2%.
China retail sales growth slowed sharply to 2.8% yoy in August , down from July’s 8.5% yoy, well below expectation of 7.1% yoy. China industrial production growth slowed further to 5.3% yoy, below expectation of 5.8% yoy. Fixed asset investment rose 8.9% ytd yoy, below expectation of 9.1%.
In a released, the National Bureau of Statistics said, “generally speaking, in August, the national economy maintained the trend of recovery. However, we must be aware that the international environment is still complicated and severe. At home, it has been felt that the sporadic outbreak of COVID-19 and natural disasters such as floods had caused impact on the economy, and the foundation for the economic recovery still needs to be consolidated”.
US stocks ended mixed overnight with NASDAQ closed at another record, but DOW edged down slightly. Fed left monetary policy as widely expected. FOMC noted, “path of the economy will depend significantly on the course of the virus,” and it pledged to “be prepared to adjust the stance of monetary policy as appropriate”. The commitment to maintain accommodative policy supported overall market sentiment. Additionally, there’s optimism that Congress inched close to compromising on a USD 900B fiscal stimulus package.
NASDAQ closed up 0.50% at 12658.18. Upside momentum is relatively unconvincing as seen in daily MACD. But there is no sign of topping yet. Further rise should be seen to 61.8% projection of 6631.42 to 12074.06 from 10822.57 at 12901.65. The projection level represents an important near term hurdle to clear. Decisive break there could prompt upside re-acceleration in early part of next year. Though, rejection there, followed by 12214.73 support would mix up the medium term outlook a bit, and at least bring deeper correction to 55 day EMA (now at 11853.94) first.
In an interview with BFM television, ECB Governing Council member Francois Villeroy de Galhau emphasized the pivotal role of interest rates in curbing inflation, which he starkly referred to as a “disease.” Drawing a clear line of action against inflationary pressures, he advocated for maintaining a firm grip on the existing measures.
Villeroy underscored the effectiveness of the current strategy by stating, “Inflation is a disease and rates are the medicine. The medicine is starting to work.” T
Diving into specifics, he highlighted the appropriateness of the 4% deposit rate level, voicing his opinion that this rate should be upheld for a “sufficiently long time” to ensure that it effectively counters inflationary trends.
Looking to the future, Villeroy elucidated that once the inflation rate cools down to hover around 2% target, it would then be feasible to consider a reduction in ECB rate.
US CPI rose 0.1% mom in May while core CPI rose 0.1% mom. Annually, headline CPI slowed to 1.8% yoy, down from 2.0% yoy and missed expectation of 1.9% yoy. Core CPI slowed to 2.0% yoy, down from 2.1% yoy and missed expectation of 2.1% yoy.
EUR/USD spikes higher after the release but is quickly under pressure again. Deeper fall could be seen towards 1.1251 minor support. But for now, there is no confirmation of short term topping yet with 1.1251 support intact. Rise from 1.1107 could still extend higher through 1.1347.
In a dual appearance at an event in New Orleans overnight, Richmond Fed President Thomas Barkin and Atlanta Fed President Raphael Bostic provided insights into the Federal Reserve’s ongoing efforts to tame inflation.
Bostic expressed confidence in the current policy stance, which it “likely sufficiently restrictive”, predicting that it should be enough to curb inflationary pressures, albeit with potential challenges ahead. “Inflation is going to get to 2%,” he assured, committing to maintaining a restrictive policy until that target is firmly within sight.
Barkin focused on the anticipated impacts of Fed’s policies, noting that “we are still not seeing the full effects of policy”. He forecasted an economic downturn as necessary for achieving the Fed’s targets: “I believe there’s a slowdown coming. I believe we’re going to need that slowdown, because I think that’s what it’s going to take to convince price-setters the days of pricing power are over.”
Bitcoin stabilized after hitting 33000 and turned sideway. But risk is still staying heavily on the downside with 39636 support turned resistance intact. Current down trend from 68986 could extend with another falling leg, towards 29261 support, which is close to 30k psychological level too. We’d look for bottoming signal around there.
Meanwhile, on the upside, firm break of 39639 will argue that bitcoin has bottomed earlier than expected and bring rebound back towards 55 day EMA (now at 44839). Failure to defend 30k handle will indicate that the larger down trend is still in force for 100% projection of 68986 to 41908 from 52101 at 25023.
Australia’s PMI Manufacturing saw a marginal improvement in July, rising slightly from 47.2 to 47.4. Conversely, PMI Services dropped to a six-month low, moving from 51.2 to 50.8. PMI Composite also decreased from 50.7 to 50.2, the lowest in six months.
Warren Hogan, Chief Economic Advisor at Judo Bank, highlighted that despite a further moderation in the composite output index, “there are no signs of a significant slowdown in Australian business activity in 2024.” He noted that while manufacturing continues to struggle, services sector is still experiencing better activity compared to the end of 2023.
Hogan also mentioned that the impact of recent tax cuts and cost-of-living support measures has yet to fully manifest in the business conditions and should positively affect consumer spending in future months. Insights from the upcoming final PMIs for July and the reports for August are expected to provide a clearer picture of these effects.
Despite softer activity levels, inflation pressures have not eased significantly. The services sector saw a notable increase in input costs, which rose four points to 63.3—the highest since November 2023. In contrast, manufacturing input costs rose only slightly and are near their lowest in four years. The composite output price index nudged up to 54.1 in July, indicating a small increase but suggesting that inflation is likely stabilizing around an annualized rate of 4% as of mid-2024.
According to a CBI survey, business optimism amongst SME manufacturing firms deteriorated in the three months to October, at the fastest pace since July 2016, around the time of Brexit referendum. Business sentiment dropped to -32 in the three months to October. 64% of respondents cited cited political/economic conditions abroad as likely to limit export orders – a survey record high.
Alpesh Paleja, CBI Lead Economist, said: “Activity among SME manufacturers remains listless. Firms are caught between the perfect storm of perennial Brexit uncertainty at home, and sluggish growth in the global economy. As well as hitting output, orders and hiring, these issues are depressing investment plans across the board.
“As a first step to lifting the malaise, the next government must get behind business to deliver on a Brexit deal, particularly one that unlocks a smooth transition period. Then the real heavy lifting can begin on forging a future relationship with our biggest trading partner. Ending political uncertainty will enable a renewed focus on domestic priorities, which is critical for the economy’s longer-term growth.”
US headline CPI slowed to 1.5% yoy in February, down from 1.6% yoy and missed expectation of 1.6% yoy. Core CPI also slowed to 2.1% yoy, down from 2.2% yoy and missed expectation of 2.2%. yoy.
BoC is widely expected to deliver another rate hike today. The markets seem to have now reached a consensus expectation of a 75bps increase in overnight rate to 4.00%. That would be the highest level since 2008. The tightening cycle shouldn’t stop there, but BoC may indicate that the pace would slow ahead. Some analysts are expecting another 50bps hike in December, followed by a 25bps hike early next year. But the decisions beyond together will very depend on upcoming economic data.
Here are some previews on BoC:
USD/CAD’s up trend was capped at 1.3976 earlier this month, on overbought condition. For now, further rise is expected as long as 1.3501 support holds. Up trend from 1.2005 would target 200% projection of 1.2005 to 1.2947 from 1.2401 at 1.4285 on break of 1.3976. Nevertheless, break of 1.3501 support will bring deeper fall to 55 day EMA (now at 1.3430) and below.
US ISM Services PMI dropped sharply from 56.5 to 49.6 in December, well below expectation of 55.5. Business activity/production tumbled from 64.7 to 54.7. New orders dropped from 56.0 to 45.2. Employment dropped from -1.7 to 49.8. Prices dropped from 70.0 to 67.6.
ISM said: “The past relationship between the Services PMI and the overall economy indicates that the Services PMI for December (49.6 percent) corresponds to a 0.2-percent decrease in real gross domestic product (GDP) on an annualized basis.”
UK CPI surged to 3.2% yoy in August, up from 2.0% yoy, above expectation of 2.9% yoy. That sharp 1.2% jump in CPI was the highest leap recorded, but ONS said “this is likely to be a temporary change. CPI core rose to 3.1% yoy, up from 1.8% yoy, above expectation of 2.9% yoy. RPI also rose to 4.8% yoy, up from 3.8% yoy, above expectation of 4.6% yoy.
Also released, PPI input came in at 0.4% mom, 11.0% yoy, versus expectation of 0.2% mom, 10.3% yoy. PPI output was at 0.7% mom, 5.9% yoy, versus expectation of 0.4% mom, 5.4% yoy. PPI core output was at 1.0% mom, 5.4% yoy.
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RBA’s Kent: Some further tightening may be required
In a speech, RBA Assistant Governor, Chris Kent, indicated that while the effects of previous monetary tightening have not yet been fully realized, “some further tightening ” might be on the horizon to keep inflation in check.
Kent asserted that the policies currently in place are beginning to stymie demand growth, a crucial step towards mitigating inflation.
“The lags of transmission mean that some further effects of rate increases to date are still to be felt through the economy, which will provide further impetus to lower inflation in the period ahead,” he added.
However, with inflation persisting at elevated levels, Kent hinted at the necessity for additional measures. “The Board is paying close attention to economic developments here and overseas, and some further tightening of monetary policy may be required to ensure that inflation, which is still too high, returns to target in a reasonable timeframe.”
Full speech of RBA Kent here.