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German Merkel hailed China market opening isn’t just talk, but action

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    German Chancellor Angela Merkel and Chinese Premier Li Keqiang agreed on protecting multilateral rules-based trading system as they met yesterday. Merkel said “we both want to sustain the system of World Trade Organization rules.” She added that “we hope that Germany and China won’t get caught up in a global spiral of protectionism,” and “we have to express our conviction loud and clear.”

    Merkel also hailed that Chinese is putting real effort in opening up the markets. She pointed to the deal, signed yesterday, for BASF SE to open an 100% owned chemical complex in Gangdong. It’s the first wholely-owned chemical maker project ever. Merkel said “this shows that China’s market opening in these areas isn’t just talk, but action.”

    Li said along side Merkel that multilateralism plays “a strengthening, bolstering role” for the world economy. And, “I can’t imagine anyone can hold back the stream of globalization.”

    Japan Abe in hospital for the second time in a week

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      Concerns over Japanese Prime Minister Shinzo Abe’s health flared up again today as his visited a Tokyo hospital for the second time in a week. Some said Abe was just receiving the results of a medical check-up from a week ago, when he underwent a 7-hour examination. On the other hand, Nippon TV reported that he’s getting treatment for chronic illness.

      Speculations about Abe’s health started earlier this month, with some Cabinet members expressing concerns of his exhaustion on fighting the coronavirus pandemic. There were also detailed reports on Abe’s walking speed. If the longest-serving prime minister couldn’t continue his job on health issue, Deputy Prime Minister Taro Aso would take over temporarily, awaiting the ruling LDP to elect a new leader.

      Fed’s Goolsbee: Job market getting into better balance

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        Chicago Fed President Austan Goolsbee, in recent comments to CNBC, noted that the job market is “getting into better balance,” a sign that the central bank’s policies may be having the desired effect without tipping the economy into a sharp downturn.

        The Chicago Fed head also mentioned the need for a shift in focus from the height of rate hikes to the duration for which these elevated rates might need to be maintained.

        “As long as we’re making progress,” he remarked, “the moment of arguing how high should the rate go is going to fade to how long should we keep rates at this level as inflation is coming down.”

        Eurozone CPI surged to 0.9% yoy in Jan, core CPI rose to 1.4% yoy

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          Eurozone CPI came in at 0.9% yoy in January, up from December’s -0.3% yoy, well above expectation of 0.4% yoy. Core PPI surged to 1.4% yoy, up from 0.2% yoy, well above expectation of 0.7% yoy.

          Looking at the main components of Eurozone inflation, food, alcohol & tobacco is expected to have the highest annual rate in January (1.5%, compared with 1.3% in December), followed by services (1.4%, compared with 0.7% in December), non-energy industrial goods (1.4%, compared with -0.5% in December) and energy (-4.1%, compared with -6.9% in December).

          PPI came in at 0.8% mom, -1.1% yoy in December, versus expectation of 0.7% mom, -1.3% yoy. Industrial producer prices in the Eurozone in December 2020, compared with November 2020, increased by 2.2% in the energy sector, by 0.4% for intermediate goods and by 0.1% for capital goods and for durable consumer goods, while prices remained stable for non-durable consumer goods. Prices in total industry excluding energy increased by 0.3%.

          UK PMI services dropped to 48.9, risk of sliding into a deepening downturn in coming months

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            UK PMI services dropped to 48.9 in March, down from 51.3 and missed expectation of 51.3. That’s the first contraction reading since July 2016. Markit noted slight reduction in service sector activity. New orders fall for the third month running in March. And, prices charged increase at the slowest pace since June 2017. All sector PMI dropped to 50.0, down from 51.4.

            Chris Williamson, Chief Business Economist at IHS Markit, which compiles the survey:

            “A drop in service sector activity indicates that UK GDP contracted in March, with the economy stalling over the first quarter as a whole and at risk of sliding into a deepening downturn in coming months. Both the services and construction sectors are now in decline and manufacturing is only expanding because of emergency stockpiling ahead of Brexit.

            “The underlying picture of demand is even worse than the headline numbers suggest. Service sector order books have contracted at the steepest rate since the height of the global financial crisis in 2009 so far this year, with companies reporting that Brexit uncertainty has dampened demand and led to cancelled or deferred spending, exacerbating a headwind from slower global economic growth.

            “A stalling of the economy in the first quarter will therefore likely turn into a downturn in the second quarter unless demand revives suddenly which, given the recent escalation of Brexit uncertainty, seems highly improbable. Such a scenario leaves the current consensus forecast for the UK economy to grow 1.3% in 2019 looking far too optimistic. IHS Markit currently expects to see just 0.8% growth in 2019, and even this modest performance is perhaps somewhat hopeful given the recent lack of any Brexit developments.”

            Full release here.

            UK PMI manufacturing finalized at 52.1, shifted into reverse gear

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              UK PMI Manufacturing was finalized at 52.1 in July, down from 52.8 in June. That’s also the lowest level in 25 months. S&P Global said that output fell in consumer and intermediate goods industries. Job created accelerated as companies addressed staff shortages.

              Rob Dobson, Director at S&P Global Market Intelligence, said:

              “The UK manufacturing sector shifted into reverse gear at the start of the third quarter. Output contracted for the first time since May 2020, as new order intakes suffered the first back-to-back monthly decreases for two years.

              “Rising market uncertainty, the cost of living crisis, war in Ukraine, ongoing supply issues and inflationary pressures are all hitting demand for goods at the same time, while lingering post-Brexit issues and the darkening global economic backdrop are hampering exports.

              “With the Bank of England implementing further interest rate hikes to combat inflation, the outlook is beset with downside risks. With this in mind, the continued low degree of optimism among manufacturers is of little surprise.”

              Full release here.

              Canada employment rose 94.1k, unemployment rate dropped to lowest since 1976

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                Canada employment market surged strongly by 94.1k in November, well above expectation of 10.0k. Unemployment rate dropped to 5.6%, down from 5.8%. That’s also the lowest level since 1976.

                Full release here.

                Canadian Dollar surges sharply after the release. In particular, against Dollar which is pressured by NFP miss.

                UK TM Fox: 60-40 chance of no-deal Brexit due to EU intransigence

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                  UK Trade Minister Liam Fox said in an interview with the Sunday Times that he saw “not much more than 60-40” chance of a no-deal Brexit. And he put the blame on EU as the “intransigence of the (European) commission is pushing us towards no deal.” He also warned that if EU chooses “theological obsessions of the unelected” over “economic wellbeing of the people”, then it’s a “bureaucrats’ Brexit, not a people’s Brexit”. He went further and said it’s up to EU to choose “ideological purity” or “real economies:”

                  Domestically, Fox also criticized that “there are people trying to undermine, to block and to thwart Brexit and having fought so long and hard to get to this point, I don’t want anything done to jeopardise our exit from the EU.” He added “the most important thing is that we actually leave the EU in March of next year. And my job is making sure that Britain is match fit for whatever Brexit outcome we have.”

                  RBA stands pat, scaled back bond purchases as markets improved

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                    RBA left monetary policy unchanged today as widely expected. The cash rate is held at 0.25%. The bank “will not increase the cash rate target until progress is being made towards” the dual mandate of full employment and inflation target.

                    Target for 3-year government bond yield is also kept at 0.25%. Global financial markets are working “more effectively” and Australian government bond markets has “improved”. Hence, RBA scaled back the size and frequency of purchases, which “to date have totalled around $50 billion”. Though, the 3-year yield target will “remain in place” and the bank is “prepared to scale up” the purchases if necessary.

                    In the baseline scenario for the economy, RBA said output would fall by around -10% over H1 2020 and around -6% over the year. There would be a bounce-back of 6% in 2021. Unemployment rate would peak at around 10% over the coming months and stay above 7% by the end of 2020. Inflation will remain below 2% target over the next few years in the various scenarios considered. In the baseline scenario, inflation will be at 1-1.5% in 2021 and gradually picks up further from there.

                    Full statement here.

                    Yen and Dollar strong on treasury yields, shrug off risk appetite

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                      ActionForex.com
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                      Yen and Dollar are trading as the two strongest ones today, and for the week, as supported by strength in treasure yields. 10 year JGB yield opened higher at 0.088 today and stays firm at 0.085 at the time of writing. It was bounded between 0.023 and 0.049 in July up until this Monday. Judging from the current momentum, 10 year JGB yield is having 1% in sight. Note that Yen is having little reaction to the China led Asian markets rally. It will continue to “listen” more to JGB yield than stocks/risk sentiments.

                      Meanwhile, US 10 year yield gained 0.70 overnight to close at 2.965. The strong rise, as led by 30 year yield’s jump since last Friday, should set the stage for 3.000 handle and above. For now, we’d not seeing any decisiveness for a break of 3.115 high yet. But it’s something that’s worth monitoring. While Dollar seemed to be talked down by Trump’s comment last week, surging yield would bring it back to life.

                      ECB’s Schnabel: Incoming data signals tough final stretch in inflation battle

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                        ECB Executive Board member Isabel Schnabel highlighted in an FT interview the challenges facing Eurozone as it approaches what she terms the “last mile” in the fight against inflation. Despite rapid disinflation experienced due to the reversal of supply-side shocks, Schnabel emphasizes that the region is now entering a “critical phase”. This phase demands precise calibration and transmission of monetary policy, focusing on curbing “second-round effects” to prevent inflation from becoming entrenched.

                        “Recent incoming data do not allay my concerns that the last mile may be the most difficult one,” Schnabel remarked, pointing to persistent issues such as “sticky services inflation” and a “resilient labour market” that complicate ECB’s policy decisions.

                        Additionally, she noted “notable loosening of financial conditions” driven by market anticipation of a central bank pivot, which could undermine efforts to stabilize prices.

                        Furthermore, Schnabel expressed concern over potential new supply chain disruptions, spurred by recent developments in the Red Sea, adding another layer of complexity to the inflation outlook.

                        “This cautions against adjusting the policy stance soon,” she stated. “We must be patient and cautious because we know, also from historical experience, that inflation can flare up again.”

                        Full interview of ECB’s Schnabel here.

                        RBNZ McDermott: We’re entering the next stage of evolution

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                          ActionForex.com
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                          RBNZ Assistant Governor and Head of Economics John McDermott discussed “evolution in inflation targeting” in a speech  delivered to the RBA conference on central bank frameworks in Sydney today. He noted that the New Zealand “framework has changed significantly over thirty years, reflecting lessons learned and the changing economic and political environment” And, the central bank is ” about to enter the next stage of that evolution.”

                          A key recent change to RBNZ’s framework is duel mandates of inflation and employment. The exact wordings to be put on the Reserve Bank Act are not finalized yet. But putting a qualitative target like “maximum sustainable employment” would be a better choice rather than a numerical target. He pointed out that “focusing too narrowly on one indicator, such as the unemployment rate, can be misleading. For example, a fall in the unemployment rate could be the result of an increased demand for labour – typically reflecting a strong economy – or the result of people dropping out of the labour force altogether because they are unable to find a job and have become discouraged.”

                          Full speech here. An interesting read for understanding how the RBNZ framework evolved in the past decades.

                          UK CPI rose to 9% yoy in Apr, core CPI up to 6.2% yoy

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                            UK CPI accelerated sharply from 7.0% yoy to 9.0% yoy in April, but missed expectation of 9.1% yoy. CPI core rose from 5.7% yoy to 6.2% yoy, matched expectations. RPI accelerated form 9.0% to 11.1% yoy, matched expectations.

                            Headline CPI was another record high since the National Statistics series began in 1997. It’s also the highest record rate in the constructed historical series which began in 1989.

                            Based on the recently published modelled consumer price inflation data by the ONS, CPI was last higher sometime around 1982, where estimates range between approximately 6.5 % in December to nearly 11% in January.

                            Full CPI release here.

                            In response to the release, Chancellor of the Exchequer Rishi Sunak said: “Today’s inflation numbers are driven by the energy price cap rise in April, which in turn is driven by higher global energy prices.

                            “We cannot protect people completely from these global challenges but are providing significant support where we can, and stand ready to take further action.”

                            Also released, PPI input came in at 1.1% mom, 18.6%, versus expectation of 2.6% mom, 20.7% yoy. PPI output was at 2.3% mom, 14.0% yoy, versus expectation of 1.6% mom, 12.5% yoy. PPI output core was at 1.6% mom, 13.0% yoy, versus expectation of 1.6% mom, 12.6% yoy.

                            RBA Lowe: Interest rate to stay at current level for years

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                              ActionForex.com
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                              RBA Governor Philip Lowe said today that “it’s likely we’re going to see interest rates at their current level for years”. “We do face a world where there’ll be a shadow from the virus for quite a few years,” he added”. “People will be more risk-averse, they won’t want to borrow, in Australia we’re going to have lower population dynamics.”

                              He also said the 7.1% unemployment in Australia was a “misleading indicator” because many people had already given up looking for jobs. Work hours were also lower than they would want. “We just don’t know what constitutes full employment in terms of an unemployment rate,” he said. “We should be seeking to get to full employment however we define that in terms of unemployment, underemployment and hours worked.”

                              Regarding the Australian Dollar, he’d “like a lower” one, with “lower unemployment and slightly higher inflation”.

                              US Chamber: A sigh of relief with China trade deal

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                                US Chamber of Commerce Executive Vice President Myron Brilliant welcomed the phase one US-China trade deal. He said there is “clearly a sigh of relief from both sides” with the agreement. Also, “implementation of Phase 1 will be important to building trust and certainty, building off the success of the negotiation”.

                                Nevertheless, he emphasized it’s important that the two sides demonstrate a commitment to moving forward on the Phase 2 negotiations”. “Significant challenges” remain regarding the core structural issues.

                                RBNZ hikes by 50bps to 1.50%, path of least regret

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                                  RBNZ raises Official Cash Rate by 50bps to 1.50%, larger than expectation of a 25bps hike. That’s also the biggest rate increase in 22 years.

                                  It said in the statement that “moving the OCR to a more neutral stance sooner will reduce the risks of rising inflation expectations.  A larger move now also provides more policy flexibility ahead in light of the highly uncertain global economic environment.”

                                  Also, “the Committee agreed that their policy ‘path of least regret’ is to increase the OCR by more now, rather than later, to head off rising inflation expectations and minimise any unnecessary volatility in output, interest rates, and the exchange rate in the future.”

                                  Full statement here.

                                  New Zealand BNZ manufacturing slumps to Post-GFC low in July

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                                    New Zealand’s BusinessNZ Performance of Manufacturing Index has experienced a drop in July, declining from 47.4 to 46.3. Digging into the details, there was a notable dip in Production, which plummeted from 47.3 to 42.9, and Employment wasn’t far behind, decreasing from 46.8 to 44.3. On a slightly brighter note, New Orders saw a modest increase, moving from 43.8 to 45.0, and Finished Stocks slightly ticked up from 52.3 to 52.6. However, Deliveries took a sharp hit, falling from 49.9 to 42.3.

                                    Feedback from the manufacturing sector portrayed a gloomy picture. Negative comments in July stood at 72%, a slight decrease from June’s 74.5%, but higher than May’s 66.7% and April’s 70.3%. The core concerns cited by manufacturers revolved around general market uncertainty, escalating costs, and inclement weather affecting demand, particularly during July.

                                    Catherine Beard, BusinessNZ’s Director of Advocacy, remarked on the PMI’s July figures, indicating that they “showed very little signs of potential improvements for the sector as a whole.” Echoing this sentiment, BNZ Senior Economist, Doug Steel, highlighted the gravity of the situation, noting that “the July result was the fifth consecutive monthly sub-50 reading and, outside of Covid lockdown periods, the lowest reading since the GFC days back in June 2009.”

                                    Full NZ BNZ PMI release here.

                                    Eurozone PPI down -1.0% mom, -5.7% yoy in Apr

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                                      Eurozone PPI fell -1.0% mom in April, below expectation of -0.5% mom. Over the 12-month period, PPI fell -5.7% yoy, below expectation -5.1% yoy. For the month, industrial producer prices increased by 0.3% for intermediate goods, 0.2% for capital goods, 0.2% for durable consumer goods, 0.1% for non-durable consumer goods. PPI decreased by -3.6% for energy.

                                      EU PPI fell -0.1% mom, -5.5% yoy. The largest monthly decreases in industrial producer prices were recorded in France (-3.6%), Croatia (-1.9%) and Greece (-1.8%). The highest increases were observed in Denmark (+2.8%), Ireland (+0.8%) and Finland (+0.3%).

                                      Full Eurozone PPI release here.

                                      Australia CPI accelerated to 1.6% on automotive fuel prices

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                                        Australia CPI rose 0.6% qoq in Q2, above expectation of 0.5% qoq. Annually, headline CPI accelerated to 1.6% yoy, up from 1.3% yoy ane beat expectation of 1.5% yoy. RBA trimmed mean CPI was unchanged at 1.6% yoy versus expectation of 1.5% yoy. RBA weighted median CPI slowed to 1.2% yoy, down from 1.4% yoy, matched expectations.

                                        ABS Chief Economist, Bruce Hockman said: “automotive fuel prices rose 10.2 per cent in the June quarter 2019. This rise had a significant impact on the CPI, contributing half of the 0.6 per cent rise this quarter. Automotive fuel prices returned to levels recorded in late 2018 after falling 8.7 per cent in the March quarter 2019.”

                                        And, “annual growth in the CPI continues to be subdued due to falls in a number of administered prices. Through the year, utility prices have fallen 0.2 per cent and child care has fallen 7.9 per cent following the introduction of the Child Care Subsidy package in July 2018.”

                                        Full release here.

                                        RBNZ Orr: Get ahead of the curve with this week’s rate cut

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                                          RBNZ Governor Adrian Orr toned down the chance of another rate cut after yesterday’s, as he addressed a parliamentary committee today. He noted that “at the moment we see in the outlook for interest rates as…balanced”. Regarding yesterday’s cut, Orr pointed out that “the reason for the cut is global economic growth has slowed.” “Growth has come off rapidly in Europe, in China, though that’s stabilized more recently, and Australia … so key trading partners.”

                                          Separately, Orr also told the Morning Report that the cut was “sensible” as our “forward projection [showed] a lower rate. And the question for the committee was “do we wait or do we move now”. Orr said “Moving now is the best choice for us as far as we consider because it means we get ahead of the curve – we aren’t chasing the economy in cycles, we’re actually getting ahead and removing the cycles.”

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