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ECB Villeroy: No need to choose between fighting inflation and avoiding recession

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    ActionForex.com
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    ECB Governing Council member Francois Villeroy de Galhau said the improved economic situation in Eurozone makes it easy to fight inflation with monetary policy.

    “I don’t think we have to choose between fighting inflation and avoiding a recession,” he added.

    Also, he believed that Eurozone was not very far from the peak of inflation.

    RBA hikes 25bps, further increases needed over the months ahead

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      ActionForex.com
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      RBA raises the cash rate target by 25bps to 3.35% as widely expected. The Board also expects that “further increases in interest rates will be needed over the months ahead”. To assess “how much” further hike is needed, close attention will be paid to “developments in the global economy, trends in household spending and the outlook for inflation and the labour market.”

      The central noted that underlying inflation at 6.9% in December was “high than expected” with “strong domestic demand “adding to the inflationary pressures in a number of areas of the economy.” Inflation is expected to decline to 4.75% this year, then to around 3% by mid-2025. Medium-term inflation expectation remain” well anchored”.

      GDP growth is expected to slow to 1.50% in 2023 and 2024. Unemployment rate is projected to rise form current 3.50% to 3.75% by the end of 2023, and then 4.50% by mid-2025.

      Full statement here.

      Fed Bostic: Strong job data probably translate into more rate hikes than projected

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        ActionForex.com
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        Atlanta Fed President Raphael Bostic told Bloomberg News yesterday, last week’s strong non-farm payroll report will probably mean we have to do a little more work… And I would expect that that would translate into us raising interest rates more than I have projected right now.”

        Bostic previously indicated that he expects interest rate to peak at 5.00-5.25% to get policy sufficiently restrictive. Rate would then stay there throughout 2024. To him, a hike peak could come through an additional quarter-point hike after the two currently envisaged, without ruling out a half-point hike.

        He expects inflation to be in the “low 3s” this year, still well above Fed’s 2% target. “Those last few tenths of a point can take a long time to be realized,” he said. “And so I want to make sure that we are in the right place before we start easing off our policy because the most important thing at this stage is to get our price stability measure as close to target as possible.”

        BoE Pill more concerned about the potential persistence of inflation

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          ActionForex.com
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          BoE Chief Economist Huw Pill said yesterday, “I do have high degree of confidence (about getting inflation to target) because we know what we’re going to do. We’ve done a lot to achieve it, we’re prepared to do more as necessary to ensure that we achieve it sustainably.”

          He also said the BoE had to “guard against doing too much” given the typical 18-month lag for rate hikes to impact the economy. “We are reaching the point where those types of concerns are in the forefront of our minds,” he said. “But if you ask me where we are at the moment, I think we are still more concerned about the potential persistence of inflation.”

          Inflation pressure in the labor market “probably tilts us to saying we haven’t quite got to the point where we’re confident to engage in a discussion of a turning point in rates.”

          BoE hawk Mann: Next step more likely another hike than a cut or hold

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            ActionForex.com
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            BoE MPC member Catherine Mann, a known hawk, said in a speech that “we need to stay the course, and in my view the next step in Bank Rate is still more likely to be another hike than a cut or hold.”

            She noted that “some (global) central bankers are seeing a turning point in data to which they are responding with an inflection in their respective policy paths”.

            Also, “recent market chatter has focused on when central banks will stop hiking and if they will reverse, with fears torn between the risks of overtightening and stopping too soon.

            But for assessment on the turning point, she is looking for “significant and sustained deceleration in higher frequency price increases and in the underlying inflation measures and expectations towards inflation rates that are consistent with achieving the 2% target”.

            She emphasized, “uncertainty around turning points should not motivate a wait-and-see approach, as the consequences of under tightening far outweigh, in my opinion, the alternative.”

            Full speech here.

            Eurozone retail sales dropped -2.7% mom in Dec, EU down -2.6% mom

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              ActionForex.com
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              Eurozone retail sales volume dropped -2.7% mom in December, worse than expectation of -2.5% mom. The volume of retail trade decreased by -2.9% for food, drinks and tobacco and by -2.6% for non-food products, while it grew by 2.3% for automotive fuels.

              EU retail sales contracted -2.6% mom. Among Member States for which data are available, the largest monthly decreases in the total retail trade volume were registered in the Netherlands (-6.3%), Germany (-5.3%) and Luxembourg (-3.8%). The highest increases were observed in Slovakia (+2.3%), Austria (+1.6%) and Romania (+1.3%).

              Full release here.

              UK PMI construction dropped to 48.4, weakest in 2 1/2 years

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                ActionForex.com
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                UK PMI Construction dropped slightly from 48.8 to 48.4 in January, below expectation of 49.5. S&P Global noted that residential work had the steepest drop for 32 months. New orders and employment continued to decrease. But business activity expectations rebounded.

                Tim Moore, Economics Director at S&P Global Market Intelligence, said: “A sharp and accelerated decline in house building activity led to the weakest UK construction sector performance for just over two-and-a-half years in January…. However, there were positive signals for longer-term prospects across the construction sector, with business activity expectations staging a swift rebound from the low point seen last December.”

                Full release here.

                Eurozone Sentix rose to -8 in Feb, stagnation with mini-growth the consequence

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                  ActionForex.com
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                  Eurozone Sentix Investor Confidence rose from -17.5 to -8.0 in February, above expectation of -11.8. That;s also the highest since March 2022. Current Situation Index rose from -19.3 to -10.0, highest since June 2022. Expectations Index rose from -15.8 to -6.0, highest since February 2022. All three indexes had the fourth increase in a row.

                  Sentix said: “Up to now, investors have been assuming a recession, the course of which was initially expected to be severe but has now eased considerably. With the recent improvement, the scenario of stagnation is gaining in contour. The absence of an energy crisis and the rosy corporate news are contributing to the turnaround from the original recessionary path.”

                  “However, the following must be critically observed: So far, the improvement in all subcomponents is running at a negative level. In addition, it is noticeable that the expectations component is hardly running ahead of the current situation. Normally, at economic turning points, the expectations values turn positive much faster, while the current situation is still deep in the red. In these cases, a new, positive perspective emerges. However, this has not been the case so far! Investors expect the status quo of the economy to be maintained to some extent. Stagnation with mini-growth would be the consequence.”

                  Full release here.

                  ECB Holzmann: Monetary policy must continue to show its teeth

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                    ActionForex.com
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                    ECB Governing Council member Robert Holzmann said in a conference, “the risk of over-tightening seems dwarfed by the risk of doing too little.”

                    “Monetary policy must continue to show its teeth until we see a credible convergence to our inflation target,” he added.

                    Holzmann also hailed that the central bank’s timely tightening helped keep inflation expectation anchored, but people were still feeling the impact. “Ultimately, the losses we as euro-area policymakers incur by consistently missing our inflation target come at our own peril.”

                    BoJ Kuroda: Monetary easing steps a necessary approach shared by others

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                      ActionForex.com
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                      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.

                      Gold in pull back on strong Dollar rebound

                        By
                        ActionForex.com
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                        Gold declined sharply last week on the back of strong rebound in Dollar following solid US job and services data. The development indicates short term topping at 1959.47. Deep pull back is now in favor to 55 day EMA (now at 1847.23), or further to 38.2% retracement of 1616.51 to 1959.47 at 1828.45.

                        Still, as long as 55 week EMA (now at 1798.35) holds, the favored case is still that corrective pattern from 2074.84 has completed with three waves down to 1616.51. That is, rise from there is resuming the larger up trend and should break through 2704.84 “sooner” in medium term.

                        However, sustained break of the 55 week EMA will argue that corrective pattern from 2074.84 is developing into a five-wave triangle pattern, and delay upside breakout.

                        USD/JPY extend rebound on BoJ Amamiya rumor, more upside ahead

                          By
                          ActionForex.com
                          -

                          Yen tumbles broadly today after Nikkei newspaper reported, quoting unnamed source that current BoJ Deputy Governor Masayoshi Amamiya was approached by the government to take over Governor Haruhiko’s job. The news was seen as bearish for the currency, as Amamiya would likely stick with the current ultra-loose monetary policy, comparing to a hawkish alternative.

                          Nevertheless, Finance Minister Shunichi Suzuki told reports that he had not heard that the government offered Amamiya the job. The prime minister’s office and the BOJ were also not immediately available to comment. Amamiya did not comment to reporters himself neither.

                          Kuroda’s term will end on April 8 while his deputies Masayoshi Amamiya and Masazumi Wakatabe will have their terms expire on March 19. The final monetary policy policy meeting the three would hold together would be on March 9-10. The more concrete details of the appointments would probably come in early March by latest.

                          USD/JPY’s break of 131.56 resistance should confirm short term bottoming at 127.20, on bullish convergence condition in daily MACD. Further rally should be seen to 55 day EMA (now at 133.28) first. Firm break there will target 38.2% retracement of 151.93 to 127.20 at 136.64, even just as a correction to the decline from 151.93.

                          US ISM services jumped to 55.2, corresponds to 1.8% annualized GDP growth

                            By
                            ActionForex.com
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                            US ISM Services PMI rose from 49.6 to 55.2 in January, well above expectation of 50.4. Looking at some details, business activity/production rose from 53.5 to 60.4. New orders rose sharply from 45.2 to 60.4. Employment ticked up from 49.4 to 50.0. Prices dropped slightly from 68.1 to 67.8.

                            ISM said: “Ten industries reported growth in January, according to the Services PMI®, which was in expansion territory after a single month of contraction and the prior 30-month period of growth. The composite index has indicated expansion for all but three of the previous 155 months.”

                            Nieves continues, “Business Survey Committee respondents indicated that capacity and logistics performance continue to improve. Although responses varied by industry and company, the majority of panelists indicated that business is trending in a positive direction. Employment was unchanged for the month. Some companies still find it difficult to fill open positions, while others are facilitating staff reductions.”

                            “The past relationship between the Services PMI® and the overall economy indicates that the Services PMI® for January (55.2 percent) corresponds to a 1.8-percent increase in real gross domestic product (GDP) on an annualized basis.”

                            Full release here.

                            US NFP surged 517k in Jan, unemployment rate down to 3.4%

                              By
                              ActionForex.com
                              -

                              US non-farm payroll employment surged 517k in January, blows away expectation of 193k. BLS noted, “job growth was widespread, led by gains in leisure and hospitality, professional and business services, and health care.”

                              Unemployment rate dropped from 3.5% to 3.4%, better than expectation of a rise back to 3.6%. Labor force participation rate ticked up from 62.3% to 62.4%.

                              Average hourly earnings rose 0.3% mom, matched expectations. Over the past 12 months, average hourly earnings have increased by 4.4% yoy.

                              Full release here.

                               

                              ECB Wunsch: If core inflation remains persistent, terminal rate of 3.5% would be a minimum

                                By
                                ActionForex.com
                                -

                                ECB Governing Council member Pierre Wunsch said, “I don’t think we’re going to move from 50 basis points (in March) to zero.”

                                “It might be another 50 basis points or we might be moving to 25. I will certainly not exclude another 50 basis points but that’s going to be dependent on the data,” he added.

                                “If core remains persistent, if we keep seeing core momentum being close to 5%, for me a terminal rate of 3.5% would be a minimum,” Wunsch said. “But I don’t want to give any number that is not conditional on incoming data.”

                                “Rates are clearly above 4% in the UK and the U.S.; that would also be a reference for me,” Wunsch said. “Why would we stay at 3% if we have more or less similar core numbers?”

                                “I’m not saying we need to go to 4%… but if incoming data continue to show very persistent core, we will have to look at what the U.S. and UK seem to consider as a restrictive enough interest rates to bring inflation back to 2%.”

                                 

                                EU PPI up 1.1% mom, 24.6% yoy in Dec, EU up 1.2% mom, 25.2% yoy

                                  By
                                  ActionForex.com
                                  -

                                  Eurozone PPI rose 1.1% mom, 24.6% yoy in December. For the month, industrial producer prices increased by 2.5% in the energy sector, by 0.5% for non-durable consumer goods, by 0.4% for durable consumer goods and by 0.3% for capital goods, while prices decreased by -0.5% for intermediate goods. Prices in total industry excluding energy decreased by -0.1%.

                                  EU PPI rose 1.2% mom, 25.2% yoy. The highest monthly increases in industrial producer prices were observed in Ireland (+43.2%), Bulgaria (+6.0%) and Sweden (+4.4%), while the largest decreases were recorded in Portugal (-3.2%), Croatia (-2.6%) and Slovakia (-2.5%).

                                  Full release here.

                                  UK PMI services finalized at 48.7 in Jan, downside remained relatively shallow

                                    By
                                    ActionForex.com
                                    -

                                    UK PMI Services was finalized at 48.7 in January, down from December’s 49.9, fastest contraction since January 2021. PMI Composite was finalized at 48.5, down from prior month’s 49.0, in contraction for the sixth straight months.

                                    Tim Moore, Economics Director at S&P Global Market Intelligence:

                                    “January data pointed to the weakest service sector performance for two years as cutbacks to business and consumer spending resulted in a fourth consecutively monthly reduction in output levels. The latest survey illustrates that the UK economy risks falling into recession as labour shortages, industrial disputes and higher interest rates take their toll on activity.

                                    “However, the downturn in service sector output remained relatively shallow at the start of 2023. Encouragingly, new order volumes moved closer to stabilisation and export sales picked up in January, which contributed to a marginal upturn in overall employment numbers.”

                                    Full release here.

                                    ECB Simkus and Kazimir: Mar rate hike is not the last

                                      By
                                      ActionForex.com
                                      -

                                      ECB Governing Council member Gediminas Šimkus said, “I see positive trends for inflation”. Headline inflation might have peaked but core hasn’t. He added that March’s rate hike might not be the last. For May, it could be 25bps or 50bps.

                                      “I think that we are already moving towards that terminal rate,” Šimkus noted. Also, a rate cut in 2023 is unlikely, but possible in 2024 if disinflation trend becomes prominent.

                                      Separately, another Governing Council member Peter Kazimir said in a statement today, “The March increase will not be the last… we will decide how many more will be needed later,” adding that “the battle against inflation is far from won”.

                                      Eurozone PMI services finalized at 50.8 in Jan, remains too early to completely disregard recession risks

                                        By
                                        ActionForex.com
                                        -

                                        Eurozone PMI Services was finalized at 50.8 in January, up from December’s 49.8, hitting a 6-month high. PMI Composite was finalized at 50.3, up from prior month’s 49.3, a 7-month high.

                                        Looking at some member states, Ireland PMI Composite rose to 3-month high at 52.0. Spain rose to 6-month high at 51.6. Italy rose to 7-month high at 51.2. Germany rose to 7-month high at 49.9. France was unchanged at 49.1.

                                        Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:

                                        “A resumption of business output growth, even marginal, is welcome news and suggests that the eurozone could escape a recession…. However, it remains too early to completely disregard recession risks.

                                        “In particular, the impact of higher interest rates on economic growth has yet to be fully felt, and many companies are relying on backlogs of previously placed orders, accumulated during the pandemic, to sustain growth.”

                                        Full release here.

                                        NASDAQ enjoying best year start in decades as focus turns to NFP

                                          By
                                          ActionForex.com
                                          -

                                          Overall risk sentiment is on the positive side as market focus turn to non-farm payroll report today. The messages from Fed and BoE this week were clear that the tightening cycle is close to a peak. It’s just a matter of 4.75-5.00% or 5.00-5.25% for Fed, and 4.25% or 4.50% for BoE. While ECB is still staying the course and at least two more hikes are on the card according to unnamed source, rate will peak below 4% handle.

                                          Markets are expecting 193k NFP job growth in January, with unemployment rate ticked up from 3.5% to 3.6%. Average hourly earnings are expected to grow 0.3% mom. For investors, the ideal scenario is solid job growth, with gradual uptick in unemployment rate and modest wages growth. That scenario would keep Fed on track to pause in Q2.

                                          NASDAQ rally has been rather impressive, up 16% year-to-day, logging the best performance since 1975. Based on current momentum, 38.2% retracement of 16212.22 to 10088.82 at 12427.95 should be taken out with ease for the near term. The real test is on 13181.05 cluster resistance (50% retracement at 13150.52). Sustained break there will build up the case of bullish trend reversal. But in any case, further rally will be expected as long as 11388.54 support holds. Meanwhile, solid risk-on sentiment could continue to limit Dollar’s rebound.

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