Japan cabinet office stresses importance of avoiding relapse into deflation

    Japan cabinet office stresses importance of avoiding relapse into deflation Japan’s Cabinet Office emphasized, at a meeting of the government’s economic council, the need for stability and sustainability in these positive signs to ensure that Japan does not fall back into a deflationary spiral. They stated, “While there have been some positive signs in recent data, we must ensure they are stable and sustainable so that Japan won’t revert to deflation.”

    In a separate discussion involving academics and private-sector experts, some participants called for BoJ to end quantitative easing once inflation stabilizes around its 2% target. Meanwhile, some participants suggested BoJ should mull over altering its extraordinary stimulus measures if inflation and wages continue their upward trajectory.

    Prime Minister Fumio Kishida emphasized the need for a coordinated approach between the government and the BoJ amidst the growing uncertainty surrounding the economic outlook. He said, “We’re aiming to pull Japan out of deflation and achieve sustained, private demand-driven economic growth” by influencing public perceptions that growth and inflation will continue to rise.

    Fed Williams: To move expeditiously in bringing rate back to more normal levels this year

      In a speech, New York Fed President John Williams said he expects the FOMC to “move expeditiously in bringing the federal funds rate back to more normal levels this year”. The ongoing pandemic and Ukraine war “bring a tremendous amount of complexity and uncertainty”. Fed will “need to be  data dependent and adjust our policy actions as circumstances warrant.”.

      For 2022, Williams expects core inflation to be nearly 4%, before falling to around 2.50% next year, then further decline to close to 2% long-run goal in 2024. He also expects GDP growth to be around 2% in 2022 while unemployment rate to remain around its current low level.

      Full speech here.

      Bundesbank: Dichotomy in German economy will continue, GDP may shrink slightly in Q2

        Bundesbank said in the monthly report that “the German economy should shrink slightly in the spring”, referring to Q2. That’s because “special effects that contributed to a noticeable rise in gross domestic product in the first quarter are either expiring or being reversed.”

        The report added that Germany is facing headwinds from trade tensions, Brexit and slowdown in the global economy. These factors are weighing down on the export-led manufacturing sector. Nevertheless, “the buoyant forces underpinning the strong domestic-oriented sectors of the economy remain fundamentally intact”.

        Overall, “the dichotomy in the economy will continue.”

        Full report here.

        US CPI slowed to 1.5% in Feb, core CPI dropped to 2.1%

          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.

          Full release here.

          ECB de Guindos: Current environment characterized by weakening macroeconomic outlook and increasing uncertainty

            ECB Vice President Luis de Guindos said “the current environment is characterized by a weakening of the macroeconomic outlook and increasing uncertainty, even though the latest indicators point to a stabilization of economic activity.”

            He also warned that “the lower-for-longer interest rate environment creates strains on bank profitability with implications for financial stability.” He urged Eurozone countries to considering raising counter cyclical buffers on bank. That would quickly be released in case of an eventual downturn.

            ECB de Cos: Recent inflation data are somewhat encouraging

              ECB Governing Council member Pablo Hernandez de Cos said, “recent data on euro area inflation and some of its key determinants are somewhat encouraging, but the overall situation still requires caution”.

              But he added that the evidence so far was very preliminary. Careful monitoring is required in some areas, including residual pass-through of inflation shocks, and the symmetry of pass-through of energy price delcines to core inflation and wages, as well ass the effects of Chinese reopening.

              “All these will have to be assessed as part of the full projections exercise under way in the run-up to our March meeting,” De Cos said.

              BoJ’s Ueda: Excessive Yen weakness could prompt monetary policy response

                In an interview with The Asahi Shimbun newspaper, BoJ Governor Kazuo Ueda highlighted extended Yen weakness could prompt further rate hikes by the central bank.

                “If exchange rate trends have an effect on the cycle between wages and prices that cannot be ignored, that would become a reason for responding to the situation through monetary policy,” he explained.

                Ueda also outlined other conditions under which BoJ might consider additional rate hikes, after the landmark shift in March which exited negative interest rates.

                The decision to end negative interest rates was made with a certain level of confidence, quantified by Ueda as “75 percent.” He indicated that an increase in this confidence level to “80 percent or 85 percent” could prompt further adjustments

                Governor also touched on factors likely to boost personal consumption, including the government’s planned income tax cut in June, expected wage increases, and a slowdown in consumer price inflation. These developments, if they materialize as anticipated, could pave the way for a higher interest rate as early as between summer to autumn.

                Moreover, Ueda acknowledged the impact of a “excessively weak yen” on Japan’s economy and consumer prices, suggesting that significant currency weakness could influence future decisions regarding interest rate hikes.

                Trump: Fed hasn’t done it job properly

                  Trump once again attacked the Fed and claimed that it hadn’t done it job properly. His argument was that otherwise, “Stock Market would have been up 5000 to 10,000 additional points, and GDP would have been well over 4% instead of 3%…with almost no inflation.” However, he made no reference to unemployment rate at decades low, while core PCE was close to target. He also complained that “quantitative tightening was a killer, should have done the exact opposite!”.

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                  According to the Federal Reserve Act, Fed’s statutory objectives for monetary policy include “maximum employment, stable prices, and moderate long-term interest rates”. Fed’s objectives here in case you’re interested.

                   

                  Fed Williams: Tariff is a negative for jobs

                    New York Fed John Williams said in a forum yesterday that the Trump’s tariff war with other countries have “relatively small effect on the economy. But they created higher uncertainty for businesses.

                    Williams said “at least so far the tariffs that have been put in place, by the United States and other countries, when you roll that up into a $20-trillion economy it doesn’t have a big effect overall on economic growth or inflation”. And, the “much more important and larger” effect is higher uncertainty for businesses. As companies put off investments due to the uncertainties, “that’s a negative for jobs in the short run…and a factor that slows the economy relative to what it could be.”

                    Iran urged JCPOA signatories to stand up to US bullying

                      Iranian Foreign Minister Mohammad Javad Zarif called on his counterparts to save the JCPOA Iran nuclear deal in letter that’s partly published by the state news agency IRNA.

                      Zarif emphasized that the deal was the result of “meticulous, sensitive and balanced multilateral talks” and could not be renegotiated as the US requested.

                      And, he urged the remaining signatories, France, Germany, Britain, Russia and China to stand up to US “illegal withdrawal” and its “bullying methods to bring other governments in line”.

                      DOW correcting fall from 25800

                        DOW sees some solid buying today, up 200 pts at the time of writing. But it’s more like a recovery that corrects the fall from 25800.35 to 24217.47. For now, the recovery could extend to 55 H EMA an or above. but strong resistance is likely between 25000/25200. Another fall to 23360.29 is still in favor for the near term.

                        Eurozone unemployment rate dropped to 6.8% in Mar, EU dropped to 6.2%

                          Eurozone unemployment rate dropped from 6.9% to 6.8% in March, matched expectations. EU unemployment rate dropped from 6.3% to 6.2%.

                          Eurostat estimates that 13.374m men and women in EU, of whom 11.274m in Eurozone, were unemployed. Compared with February, the number of persons unemployed decreased by -85k in EU and by -76k in Eurozone .

                          Full release here.

                          BoE Bailey: No precise date in mind on finishing negative rates study

                            BoE Governor Andrew Bailey said he didn’t have a “precise date in mind” regarding when to publish the findings regarding the consultation with banks on interest rates. “There’s a great deal of work we have to do with the banks, particularly to work out what’s doable and what needs to be fixed,” he added.

                            Also, in the current environment, policymakers were “talking about all the tools that could possibly be in the box”. But for the UK, ” UK, there isn’t a great call, I think at the moment, for doing more yield curve control at the short end… so I don’t think it’s something that I would see frankly a great need for at the moment.”

                            EU Juncker: Germany, Austria, Netherlands stand in the way of EU reform

                              European Commission President Jean-Claude Juncker complained that Germany, Austria, Netherlands are hindering Eurozone reforms. He told German newspaper Handelsblatt that “there is no progress with the deepening of the monetary union because the Netherlands, Austria and all too often Germany stand in the way when it comes to solidarity in action and joint responsibility.”

                              On trade negotiations with the US, Juncker said EU is not aiming at a comprehensive deal along the lines of the Trans-Atlantic Trade and Investment Partnership. He also emphasized EU would not want to include agriculture in any trade deal. He added: “The Americans keep trying but we have stood our ground.”

                              DOW breaks 26000 as NAFTA announcement is almost certain

                                Strong risk appetites carries on in early US session. DOW surges over 200 pts, or 0.8% and is back breaks 26000 handle. NASDAQ and S&P 500 extends he record run. Adding to the global trend, US equities are lifted by optimism that NAFTA negotiation is finally having a concrete breakthrough. It’s widely reported that Mexico and the US are hammering out the final details for a bilateral agreement. And an announcement is “also certain” for today.

                                DOW is now pressing a key near term channel resistance. Decisive break there will indicate upside acceleration. In that case, the index could finally catch up with the other two in making new records.

                                US Mnuchin said trade talks with China in final laps; Verbal exchanges on IP theft continued elsewhere

                                  US Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer will be in Beijing on Tuesday to start another round of trade talks with China. Ahead of that, Mnuchin was quoted saying “we’re getting into the final laps.” He also noted, “both sides have a desire to reach an agreement,” and “we’ve made a lot of progress.” Trump also said late week Chinese President Xi Jinping will come to the White House “soon” to seal the trade deal, without giving any details as usual.

                                  But it’s also reported that significant differences remain, including in the area of intellectual property theft. In a UTRS report published last week, it’s criticized that “despite a broad government reorganization, including of intellectual-property responsibilities among government agencies, and proposed revisions to IP laws and regulations, China failed to make fundamental structural changes to strengthen IP protection and enforcement, open China’s market to foreign investment, allow the market a decisive role in allocating resources, and refrain from government interference in private sector technology transfer decisions.”

                                  On Sunday, China hit back and denied the claims typically. National Intellectual Property Administration (NIPA) Director Shen Changyu said that over 5,600 people in some 3,300 cases were arrested for intellectual property rights infringement in 2018. Shen added, “Some countries’ criticisms of China’s IP protection lack evidence and are non-specific.” And, “China has some problems and we are stepping up efforts to fix them. But meanwhile, IP infringement is a global problem that exists in every country”. “Every country should try to improve their business environment and fix their problems, instead of window dressing themselves,”

                                  According to a USTR statement, this week’s meeting will cover issues including intellectual property, forced technology transfer, non-tariff barriers, agriculture, services, purchases, and enforcement. Chinese Vice Premier Liu He will lead a delegation to Washington for additional discussions starting on May 8.

                                  Fed Evans sees interest rate above 4.5% early next year

                                    Chicago Fed President Charles Evans said, “we can bring inflation down relatively quickly while also avoiding a recession.” He pointed to Fed’s projections that unemployment rate will rise form current 3.5% to 4.4% by the end of next year. Core inflation will dropped from August’s 6.2 to 2.8% then.

                                    That’s a “pretty good looking soft landing,” he said. “While this does represent a noticeably softer labor market when compared with today’s, these certainly are not recession-like numbers.”

                                    Evans saw federal funds rising to “a bit above 4.5%” early next year, then “remaining at this level for some time.”

                                    Trump threatens to impose tariffs on all Chinese imports, full interview

                                      Trump spoke with CNBC anchor Joe Kernen on an interview yesterday at the White House. There he complained again the the US has been “ripped off by China for a long time”. And he’s “ready to go to 500”, referring to tariffs on USD 500B of Chinese imports. That’s nearly all of the USD 505.5B Chinese imports in 2017. And he pledged that he’s “not doing this for politics” but “to do the right thing for the country”.

                                      Here is the full interview:

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                                      White House economic adviser Larry Kudlow laid the blame on Chinese President Xi Jinping again. He said, “the problem here is Xi. He doesn’t want to move, and they’ve offered the U.S. absolutely … no options regarding the issue of (intellectual property) theft and forced technology transfer.”

                                      Eurozone PPI rose 1.1% om, 4.3% yoy in March, EU at 1.2% mom, 4.5% yoy

                                        Eurozone PPI rose 1.1% mom, 4.3% yoy in March, above expectation of 0.9% mom, 4.0% yoy. For the month, Industrial producer prices increased by 2.0% in the energy sector, by 1.3% for intermediate goods, by 0.8% for non-durable consumer goods, by 0.3% for capital goods and by 0.2% for durable consumer goods. Prices in total industry excluding energy increased by 0.9%.

                                        EU PPI rose 1.2% mom, 4.5% yoy. For the month, The highest increases in industrial producer prices were recorded in Ireland (+7.9%), Spain (+2.5%) and Portugal (+2.3%), while the only decrease was observed in Estonia (-1.6%).

                                        Full release here.

                                        RBA cuts rate to 0.25%, starts government bond purchases

                                          RBA announces a package of coronavirus response today. Firstly, cash rate is cut by 25bps to 0.25%. Additionally, the central bank will start purchases of government bonds to keep 3 year yield at around 0.25%, starting tomorrow. A three-year funding facility will also be set up to provide credit support to small and medium-sized businesses. Lastly, exchange settlement balances will be remunerated at 10 basis points, instead of zero.

                                          The central said, “the various elements of this package reinforce one another and will help to lower funding costs across the economy and support the provision of credit, especially to small and medium-sized businesses.” “Today’s policy package from the Reserve Bank complements the welcome fiscal response from governments in Australia. Together, these measures will support jobs, incomes and businesses through this difficult period and they will also assist the Australian economy in the recovery.”

                                          Full statement here.