Germany Gfk consumer sentiment rose to -33.9, positive trend consolidating

    Germany Gfk consumer sentiment for February rose 3.7 pts to -33.9, below expectation of -33.0. In January, Economic expectations improved from -10.3 to -0.6. Income expectations rose from -43.4 to -32.2. Propensity to buy dropped from -16.3 to -18.7.

    “With the fourth increase in a row, the positive trend in consumer sentiment is consolidating. Even though the level is still very low, pessimism has eased recently”, explains GfK consumer expert Rolf Bürkl.

    “Falling energy prices, such as for gasoline and heating oil, have ensured that consumer sentiment is less gloomy. Nevertheless, 2023 will remain difficult for the domestic economy. Private consumption will not be able to positively contribute to overall economic development this year. This is also signaled by the still very low level of the indicator.”

    Full release here.

    Japan PMI manufacturing unchanged at 48.9, services rose to 52.4

      Japan PMI Manufacturing was unchanged at 48.9 in January, below expectation of 49.4. PMI Services rose from 51.5 to 52.4. PMI Composite rose form 49.7 to 50.8.

      Laura Denman, Economist at S&P Global Market Intelligence, said: “Japan’s private sector kicked off 2023 on a more positive note, as signalled by activity returning to growth territory in January. However, similar to trends recorded over much of the past six months, a divergence between the manufacturing and services sectors has remained.

      Full release here.

      Australia NAB business conditions fell to 12, confidence improved to -1

        Australia NAB Business Conditions fell from 20 to 12 in December. Trading conditions fell from 27 to 18. Profitability conditions fell from 19 to 12. Employment conditions also declined from 13 to 8. Business Confidence improved from -4 to -1.

        NAB Chief Economist Alan Oster said: “The main message from the December monthly survey is that the growth momentum has slowed significantly in late 2022 while price and purchase cost pressures have probably peaked”.

        “The gap between current business conditions and business confidence remains wider than usual though has narrowed. Ultimately while on average business reports still healthy activity at present, they don’t necessarily expect that to last.”

        Full release here.

        Australia PMI composite rose to 48.2, economy is not slowing sufficiently for RBA

          Australia PMI Manufacturing fell from 50.2 to 49.8 in January, a 32-month low. PMI Services rose from 47.3 to 48.3. PMI Composite rose from 47.5 to 48.2.

          Warren Hogan, Chief Economic Advisor at Judo Bank said:

          “Following eight consecutive rate hikes in 2022, the RBA Board will be meeting for the first time on 7 February. The latest PMI readings may raise the concern that the economy is not slowing sufficiently to bring inflation back to target in a timely manner…

          “Inflation pressures may abate somewhat but the risk for the RBA is that inflation remains stubbornly high well into 2023. This could maintain upward pressure on inflation expectations and wages growth. On this basis it seems premature for the RBA to pause the current tightening cycle….

          “We expect the RBA to hike the cash rate by 25bp in each of February and March before an extended pause. Further rate hikes may be required later in 2023 if the economy and inflation prove more resilient than current consensus forecasts suggest.”

          Full release here.

          NZ BusinessNZ services dropped to 52.1, marked a significant slowdown

            New Zealand BusinessNZ Performance of Services Index dropped from 53.8 to 52.1 in December. Looking at some details, activity/sales dropped notably from 58.2 to 52.1. Employment fell from 51.8 to 47.1. New orders/business rose from 57.4 to 58.4. Stocks/inventories declined from 54.6 to 51.7. Supplier deliveries increased from 46.8 to 53.4.

            BNZ Senior Economist Craig Ebert said that “December marked a significant slowdown in a short space of time for the PSI, although the maintained loftiness in New Orders/Business suggested there was still a lot of demand-side pressure at play”.

            Full release here.

            ECB Lagarde: Rates still have to rise significantly at a steady pace

              ECB President Christine Lagarde said in a speech that the “high inflation environment” is a big challenge facing Europe. And, that’s “the challenge that concerns me the most”.

              “We must bring inflation down. And we will deliver on this goal,” she emphasized. “We have made it clear that ECB interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive, and stay at those levels for as long as necessary.”

              “In other words, we will stay the course to ensure the timely return of inflation to our target.”

              Another challenge Lagarde named is to “best protect Europe’s critical interests… as the next chapter in the globalisation story is being written”. Europe must be “prepared for a future in which the global economy could fragment”, and “develop more our own sources of growth.”

              Full speech here.

              ECB Stournaras: Adjustment of interest rates needs to be more gradual

                ECB Governing Council member Yannis Stournaras said “in my opinion, the adjustment of interest rates needs to be more gradual, taking into account the slowdown in growth of the euro area economy.”

                “Given the high uncertainty, ongoing geopolitical and macroeconomic turmoil, and volatility in the markets, it is very difficult to accurately predict the level at which interest rates need to be set,” he added.

                ECB Kazimir: We need to deliver two more hikes by 50bps

                  ECB Governing Council member Peter Kazimir said, “An inflation drop in two consecutive months is good news. But it is not a reason to slow the tempo of raising interest rates… I am convinced that we need to deliver two more hikes by 50 basis points.”

                  “For me, the most important is core inflation trend,” Kazimir said. “We are halfway through. If it were up to me, I would enter summer holidays with the tightening cycle completed. But don’t ask me today, how high we will go with the rates, and how long will they need to stay there to tame inflation as needed.”

                  Bundesbank: Germany GDP likely to have roughly stagnated in Q4

                    Bundesbank said in the monthly report that real GDP was “likely to have roughly stagnated in the final quarter of 2022, exceeding earlier expectations”. Real GDP grew 1.9% in 2022 as a whole, comparing to 2021. “It thus slightly exceeded the pre-pandemic level again.”

                    Consumer price momentum “continued to weaken” in December, due to “significantly lower energy prices”. However, “non-energy components such as food, industrial goods and services continued to rise sharply”.

                    Full report here.

                    BoJ Minutes: Meeting suspended at government’s request

                      BoJ published minutes of the December 19-20 meeting today, where the 10-year JGB yield cap was raised from 0.25% to 0.50%.

                      “Many members noted that there was a distortion in the price formation of 10-year bonds, and that the functioning of bond markets had deteriorated, particularly in terms of relative relationships among interest rates of bonds with different maturities and arbitrage relationships between spot and futures markets,” the minutes said.

                      “Members concurred that, with regard to the conduct of yield curve control, the measure to expand the range of 10-year JGB yield fluctuations to between around plus and minus 0.5 percentage points from the target level, while significantly increasing the amount of JGB purchases, was appropriate.”

                      Meanwhile, government representatives requested to adjourn the meeting after the discussions. They’re probably surprised by the agreed adjustment to YCC. The meeting was adjourned from 10:51 a.m. to 11:28 a.m. before concluding at 11:54 a.m.

                      Full minutes here.

                      ECB Rehn: There are grounds for significant increases in interest rates

                        ECB Governing Council member Olli Rehn said “there are grounds for significant increases” in the key interest rate in the winter and early spring.

                        Rehn declined to estimate the terminal rate. “It’s certain that the rate hikes that we’ve already made and the forward guidance on upcoming hikes have the effect that markets are pricing in a lot of it into the Euribor rates,” he said.

                        ECB Knot: Expect 50bps in Feb and Mar, and more in May and June

                          ECB Governing Council member Klaas Knot said in a WNL interview, “expect us to raise rates by 0.5% in February and March and expect us to not be done by then and that more steps will follow in May and June.”

                          “In the December data, we saw a first decline in headline inflation, but that was entirely due to base effects and lower energy inflation,” Knot said. “We focus on core inflation where, unfortunately, there is no good news. Because it is still on the rise. Underlying inflationary pressures show no signs of abating yet.”

                          In a separate interview with La Stampa, Knot said, “At some point, of course, the risks surrounding the inflation outlook will become more balanced… That would also be a time in which we could make a further step down from 50 to 25 basis points, for instance. But we are still far away from that.”

                          Canada retail sales down -0.1% mom in Nov

                            Canada retail sales decreased -0.1% mom to CAD 61.8B in November, better than expectation of -0.5% mom. Core retail sales, excluding gasoline stations and motor vehicle and parts dealers, decreased -1.1% mom, largest decline in 11 months.

                            Sales declines in 6 of 11 subsectors, representing 47.4% of retail trade. The decrease was led by lower sales at food and beverage stores (-1.6%) and building material and garden equipment and supplies dealers (-3.8%).

                            Advance estimate indicates that sales rose 0.5% mom in December.

                            Full release here.

                            BoJ Kuroda defends extremely accommodative monetary policy

                              BoJ Governor Haruhiko Kuroda defended this week decision to maintain by the -0.1% interest rate and the 0.5% 10-year JGB yield cap.

                              “We expect, probably from February this year, inflation rates start to decline and fiscal year 2023 as a whole, inflation rate will be less than 2%. So, we decided to maintain the current extremely accommodative monetary policy for the time being,” he said.

                              “Our hope is that wages start to rise and that could make 2% inflation target to be met in a stable and sustainable manner, but we have to wait for some time,” he added.

                              Asked whether he had any regrets during reign, he said, “All in all, the government’s policy, coupled with the BoJ’s extremely accommodative policy, have been successful in changing Japan’s economic structure and growth prospects”.

                              “But our 2% inflation target has not been achieved in a sustainable, stable manner,” he said. “That is the only regret I have”.

                              ECB Lagarde: Stay the course is my mantra for monetary-policy purposes

                                ECB President Christine Lagarde said, “We have to also stay that course of resilience that we observed in 2022. Stay the course is my mantra for monetary-policy purposes.”

                                “I hope that in 2023 fiscal policy will not work in a counter-cyclical way to monetary policy,” she said. “We don’t need to be pushed to do more than is necessary.”

                                Lagarde also noted that China’s reopening “will have inflationary pressure on many of us, simply because the level of energy that was consumed by China last year was certainly less than what they will consume this year, the amount of LNG that [they] will be buying from the rest of the world will be higher than what we have seen and there is not so much spare capacity in terms of oil and gas.”

                                “So there will be constraints, there will be more inflationary pressure coming out of that added demand,” she added.

                                SNB Jordan: Focus on price stability absolutely essential

                                  SNB Chairman Thomas Jordan said,”inflation is far too high. It is negative not only for the functioning of the economy, it is very negative especially for lower income classes.”

                                  “The population doesn’t like inflation, so … the focus on price stability for central banks is absolutely essential.”

                                  Businesses “don’t hesitate any more to increase their prices,” the said. “That is different to two or three years ago, and that is also a signal it is not that easy to bring inflation back to 2%.”

                                  “Once inflation is high, the pressure coming from wages is here and it is proof it will not be that easy everywhere to bring inflation down quickly,” he said.

                                  UK retail sales volume down -1.0% mom in Dec, value down -1.2% mom

                                    UK retail sales volume declined -1.0% mom in December, much worse than expectation of 0.4% mom. Ex-fuel sales dropped -1.1% mom, below expectation of 0.4% mom. Sales value decreased -1.2% mom while ex-fuel sales value declined -1.0% mom.

                                    Between 2021 and 2022, retail sales volume fell by -3.0%, “as the lifting of restrictions on hospitality led to a return to eating out, and rising prices and the cost of living affected sales volumes.”

                                    Full release here.

                                    Japan CPI core rose to 4% yoy in Dec, highest since 1981

                                      Japan CPI core (all items ex-fresh food) accelerated from 3.7% yoy to 4.0% yoy in December, matched expectations. That’s also the highest level in four decades since 1981. CPI core-core (all items ex-food and energy) also accelerated from 2.8% yoy to 3.0% yoy, hitting the highest level since 1991. Headline inflation rose from 3.8% yoy to 4.0% yoy.

                                      Food prices jumped 7.4% while energy prices rose 15.2%. “The impact on CPI from higher energy prices was large in 2022 but contributions from food prices are now bigger,” a government official said.

                                      NZ BusinessNZ manufacturing unchanged at 47.2, further slippage expected in Q1

                                        New Zealand BusinessNZ Performance of Manufacturing Index was unchanged at 47.2 in December. Looking at some details, production ticked up from 49.5 to 49.7. Employment rose from 46.9 to 48.8. New orders rose from 42.2 to 46.1. Finished stocks dropped from 55.5 to 50.1. Deliveries dropped from 49.6 to 48.4.

                                        BNZ Senior Economist, Doug Steel stated that the latest PMI result “broadly fits with the clear decline we already expect for manufacturing GDP in Q4 with further slippage expected in Q1”.

                                        Full release here.

                                        Fed Williams: Monetary policy still has more work to do

                                          New York Fed President John Williams said overnight, “with inflation still high and indications of continued supply-demand imbalances, it is clear that monetary policy still has more work to do to bring inflation down to our 2% goal on a sustained basis.”

                                          “Bringing inflation down is likely to require a period of below-trend growth and some softening of labor market conditions,” he added. “Restoring price stability is essential to achieving maximum employment and stable prices over the longer term, and it is critical that we stay the course until the job is done.”