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BoE Bailey: It’s important not to over-react to temporarily strong growth and inflation

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    BoE Governor Andrew Bailey urged in a speech that, “it is important not to over-react to temporarily strong growth and inflation, to ensure that the recovery is not undermined by a premature tightening in monetary conditions.”

    Though, he admitted, “it is also important that we watch the outlook for inflation very carefully, which of course we do at all times, particularly for signs of more persistent pressure and for a move of medium term inflation expectations to a higher level.”

    “And if we see those signs, we are prepared to respond with the tools of monetary policy,” he pledged.

    Full speech here.

    Bundesbank Weidmann told Cabinet: As political risks increase, the government should be prepared to tackle the next crisis

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      According to a report by Handelsblatt, Bundesbank head Jens Weidmann warned the German Federal Cabinet last week that that even though growth is still “intact”, political risks would “increase”. More importantly, Weidmann pointed to the slow down in momentum and the downward revision in 2018 growth forecasts from 2.5% to 2.0%. The drop in momentum, according to Weidmann, is a prove that “good economic development could not go on forever”. The risks include US protectionist trade policy, Brexit and new geopolitical conflicts.

      Weidmann urged the government to prepare for worse times. It takes some time to normalize monetary policy. And for now, ECB “could not react in the next downturn”. And because of that, fiscal policy must take on the task should there be a new crisis. But due to their high debt levels, many Eurozone countries would also have limited ability to “cushion” a down turn.

      Eurozone GDP contracted -12.1% in Q2, EU down -11.7%

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        GDP contracted -12.1% in Eurozone in Q2, -11.7% qoq in EU. Both were sharpest declines since the series began in 1995. Annually, GDP contracted -15.0% yoy in Eurozone, -14.1% in EU, also worst on record. Employment in Eurozone dropped record -2.8% qoq, and -2.6% in EU.

        Also released, Eurozone trade surplus widened to EUR 17.1B in June, up from EUR 8.0B, but smaller than expectation of EUR 18.0B.

        Mnuchin: US-China trade deal 90% done, hopeful to complete by year end

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          US Treasury Secretary Steven Mnuchin told CNBC that US-China trade agreement is 90% done. And he’s hopeful to move forward with a plan to complete the deal by the end of the year.

          He said “We were about 90% of the way there (with a deal) and I think there’s a path to complete this”. And, “the message we want to hear is that they want to come back to the table and continue because I think there is a good outcome for their economy and the U.S. economy to get balanced trade and to continue to build on this relationship.”

          Mnuchin also aid “I’m hopeful that we can move forward with a plan … President Trump and President Xi have a very close working relationship. We had a productive meeting at the last G-20.” He’s hopeful a deal could be struck by the end of the year but said “there needs to be the right efforts in place.”

          ECB Holzmann favors first hike in summer, second by year end

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            ECB Governing Council member Robert Holzmann told Swiss newspaper NZZ, “When it comes to the interest rate outlook, the ECB has always signalled that an interest rate hike should not take place until shortly after the bond purchases have ended.”

            “But it would also be possible to take a first interest rate step in the summer before the end of the purchases and a second at the end of the year. I would favour that.”

            Also, Holzmann said and exit from negative interest rate would be an “important signal” to the society and markets. He would likely to see two rate hikes by the end of this year or early 2023. But, “some of my colleagues would perhaps be even more progressive here, while others would be more cautious,” he added.

            “I think that a key interest rate of very roughly 1.5% in 2024 could be realistic, although that may well shift forward or backward somewhat,” he said, adding that 1.5% would be a benchmark for neutral monetary policy.

            US 10-year yield reclaims 2.5, strong resistance ahead

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              Both US and German bond yield enjoy solid rally today despite poor economic data. Sentiments are generally lifted by optimism on US-China trade negotiations despite lack of concrete news on the progresses. Nevertheless, German 10-year yield turns positive for the first time since late March, and that’s significant. Meanwhile, US 10-year yield also breaks 2.5% handle.

              10-year yield (TNX) hits as high as 2.524 so far today. The extended rebound is not too much of a surprise considering that it was supported just above 61.8% projection of 3.248 to 2.554 from 2.759 at 2.330. For now, we’d maintain that sustained break of 2.554 support turned resistance is needed to be the first sign of trend reversal. Otherwise, the currently rebound is nothing more than a corrective recovery.

              To put it into longer term perspective, TNX is actually still limited well below long term channel support. Current development suggests that fall from 3.248 is at least corrective whole up trend from 1.336. And, further decline is in favor to 2.034 cluster support before bottoming. So, it’s too early to be optimistic.

               

              Australia Westpac consumer confidence dropped -5.2% on concerns around Melbourne lockdown

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                Australia Westpac consumer confidence dropped -5.2% to 107.2 in June. The index has now fallen by -9.7% over the last two months. Westpac said the latest fall is “almost certainly due to concerns around the two-week lockdown in Melbourne.” There was a fall of -7.5% in Victoria, -4% in Queensland, -9% in Western Australia, and -10.9% in South Australia. New South Wales dropped only -1.1%.

                Westpac expects RBA to decide against extending the Yield Curve Targeting from April 2024 bond to November 2024 bond. Also, RBA could announce a more flexible approach to QE, with a weekly target of AUD 5B.

                Full release here.

                US PCE prices slows to 2.4% yoy in Jan, core PCE down to 2.8% yoy

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                  ActionForex.com
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                  US personal income rose USD 233.7B or 1.0% mom in January, well above expectation of 0.5% mom. Personal spending rose USD 43.9B or 0.2% mom, matched expectations.

                  Headline PCE price index rose 0.3% mom, matched expectations. Core PCE price index (excluding food and energy) rose 0.4% mom, matched expectations. Services prices rose 0.6% mom while goods prices decreased -0.2% mom. Food prices rose 0.5% mom and energy prices fell -1.4% mom.

                  From the same month a year ago, headline PCE price index slowed from 2.6% yoy to 2.4% yoy. Core PCE price index slowed from 2.9% yoy to 2.8% yoy. Both matched expectations. Services prices were up 3.9% yoy while goods prices fell -0.5% yoy. Food prices rose 1.4% yoy and energy prices fell -4.9% yoy.

                  Full US Personal Income and Outlays release here.

                  Fed Rosengren wouldn’t want to wait any later than December on tapering

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                    ActionForex.com
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                    Boston Fed President Eric Rosengren said the US had over 900k jobs growth for two months in a row and unemployment rate dropped by half a percent to 5.4%. He added, “if we get another strong labor market report, I think that I would be supportive of announcing in September that we are ready to start the taper program.”

                    “I think it’s appropriate to start in the fall. That would be October or November,” Rosengren told CNBC. “I certainly wouldn’t want to wait any later than December. My preference would be probably for sooner rather than later.” He also said that “there’s no reason to drag it out as long as the economy continues to progress as we expect.”

                    On the other hand, he’d prefer to see more progress before moving on to raising interest rate. “The criteria for starting to raise rates is that we see outcomes that are consistent with sustainable inflation at a little bit above 2%,” he reiterated Fed’s general position.

                    US initial jobless claims unchanged at 884k, continuing claims rose back o 13.4m

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                      ActionForex.com
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                      US initial jobless claims was unchanged at 884k in the week ending September 5, above expectation of 838k. Four-week moving average of initial claims dropped -21.8k to 970.8k.

                      Continuing claims rose 93k to 13385k in the week ending August 29. Four-week moving average of continuing claims dropped -523.8k to 13982k.

                      Full release here.

                      New Zealand BusinessNZ PMI recovered to 39.7, negative tone remains evident

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                        ActionForex.com
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                        New Zealand BusinessNZ Performance of Manufacturing Index rose to 39.7 in May, up from April’s 25.9. Looking at some details, productions improved notably from 19.1 to 38.4. New orders rose from 16.9 to 40.0. Finalized stocks rose from 37.7 to 41.3. Deliveries rose form 25.2 to 41.1. However, employment edged down from 41.1. to 39.4. Also, all components, including the headline index, remains below 50.

                        BNZ Senior Economist, Craig Ebert said that “still, a negative tone remains evident in the fact that, even with its bounce in May, the NZ PMI merely got back to the sort of levels in sank to during the 2008/09 recession.”

                        Full release here.

                        ECB de Cos: Future policy dependent on various sources of risks

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                          ActionForex.com
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                          ECB Governing Council member Pablo Hernandez de Cos has emphasized that the central bank’s future monetary policy decisions will be highly dependent on the development of various risk sources, including recent financial market turmoil.

                          De Cos also noted that the intensity of monetary policy transmission will be taken into account in policy decisions. He observed that the ongoing tensions in financial markets have led to a further tightening of financial conditions, impacting the outlook for economic activity and inflation.

                          As the ECB prepares for its next meetings, De Cos highlighted that all these factors must be considered.

                          Reagrading inflation, he wared, “over the medium term, the main risk for inflation comes from a persistent rise in price expectations above our inflation target.”

                          Howveer, “the disinflation process could be accelerated further if the high tensions in financial markets were to be prolonged,”he added.

                          ECB Nowotny: Brexit uncertainty is a psychological problem for banks, not technical

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                            ActionForex.com
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                            ECB Governing Council member Ewald Nowotny warned that “nothing is as damaging as this long, prolonged uncertainty,” regarding Brexit. However, he added that “from the point of view of the banking side perhaps it’s not so much a technical problem because I think here we are pretty well prepared for whatever outcome there might be”.

                            Nowotny said “it could be a psychological problem … So if that is something that could create some kind of self-fulfilling negative perspectives, that is something that might be really dangerous.”

                            NIESR: UK on course to zero growth in Q4

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                              ActionForex.com
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                              The NIESR said UK is on course to post zero growth in Q4, with 1.4% growth in 2019 as a whole. Recent surveys suggest that economic activity was little changed in December, though there is some evidence of an improvement in business sentiment after the election.

                              Dr Garry Young, Director of Macroeconomic Modelling and Forecasting, said: “The latest data confirm that economic growth in the United Kingdom had petered out at the end of last year. GDP was virtually flat in the three months to November and the latest surveys point to further stagnation in December.  While there is some evidence of an improvement in business optimism following the general election, it is doubtful that this will do much to change the short-term economic outlook of further lacklustre growth.”

                              Full release here.

                              ECB Mersch noted increasing confidence, Vasiliauskas said it’s time to transit from asset purchase

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                                ActionForex.com
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                                Articles by ECB Executive Board member Yves Mersch and Governing Council member Vitas Vasiliauskas were published Wednesday by Eurofi today. While Mersch’s article was submitted back on March 21 and Vasiliauskas on March 15, there’re worth a quick read.

                                Mersch’s article was on the topic of “Monetary policy in the euro area: solid expansion with timid price pressure”. He noted that:

                                • “Confidence has recently risen and convergence is being confirmed — partly because the temporary decline in the inflation rate has been weaker than our internal calculations had predicted,”
                                • “More resilience will follow eventually. Still, patience and persistence with respect to our monetary policy is required.”

                                Vasiliauskas article was on the topic of “The time is approaching to seriously consider a smooth transition from the APP”. He noted:

                                • “We have witnessed the strengthening of broad-based growth and steadily declining unemployment, providing conditions for inflation convergence to our objective.”
                                • “This has increased my confidence that it is time to transition from the asset purchase program. However, the closure of the program should not be abrupt.”

                                Here are the articles.

                                France PMI composite rose to 30-month high, confirming recovery phase following lockdown

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                                  ActionForex.com
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                                  France PMI Manufacturing rose dropped to 52.0 in June, down from 52.3, missed expectation of 53.2. PMI Services rose to 57.8, up from 50.7, well above expectation of 52.3. That’s also the highest level in 30 months. PMI Composite rose to 57.6, up from 51.7, also a 30-month high.

                                  Eliot Kerr, Economist at IHS Markit said: “The July PMI figures pointed to strong growth in French private sector business activity, confirming that the economy has entered its recovery phase following the COVID-19 lockdown. The results for new orders suggest that domestic demand is finally beginning to recover with more and more businesses reopening and consumers starting to adopt some of their former spending habits. Going forward, a steady rebuilding of demand should give businesses the confidence to start hiring more staff and this will further aid the economy in returning to pre-coronavirus levels of output.”

                                  Full release here.

                                   

                                  US oil inventories dropped -6.6m barrels, WTI rally lost momentum but further rise still in favor

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                                    ActionForex.com
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                                    US commercial crude oil inventories dropped -6.6m barrels in the week ending February 5, smaller than expectation of -0.9m barrels. At 469.0m barrels, oil inventories are just about 2% above the five year average for this time of year. Gasoline inventories rose 4.3m barrels. Distillate inventories dropped -1.7m barrels. Propane/propylene inventories dropped -4.5m barrels. Commercial petroleum inventories dropped -11.2m barrels.

                                    WTI oil price rally continued this week and met 100% projection of 47.24 to 53.92 from 51.58 at 58.26 already. Though, upside momentum diminished mildly since then, as seen in 4 hour MACD. For now, further rise is still expected as long as 57.18 minor support holds. Sustained break of 58.26 will confirm underlying momentum. Some upside acceleration could then be seen to 161.8% projection at 62.38. However, break of 57.18 will indicate short term topping and bring deeper pull back.

                                    NZ BNZ manufacturing rises to 47.3, still someway off to expansion

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                                      ActionForex.com
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                                      New Zealand BusinessNZ Performance of Manufacturing Index rose from 43.4 to 47.3 in January, hitting the highest level since June last year. Despite this uptick, it’s important to note that the manufacturing sector remained in contraction for eleven straight months.

                                      BusinessNZ’s Director of Advocacy, Catherine Beard noted that while there are signs of improvement, “the sector is still someway off returning to expansion.”

                                      Looking at some details, production rose from 40.5 to 42.1. Employment rose from 47.0 to 51.3. New orders rose from 44.0 to 47.7. Finished stocks rose from 45.9 to 47.3. Deliveries rose from 43.7 to 49.3.

                                      However, the persistence of negative sentiment among businesses cannot be overlooked. The proportion of negative comments in January rose to 63.2%, up from 61% in December and 58.7% in November, reflecting concerns over seasonal factors such as holiday disruptions and a sustained lack of demand or orders.

                                      Full NZ BNZ PMI release here.

                                      Trump requesting down payment for border wall, and preparing declaration of national emergency

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                                        ActionForex.com
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                                        Both Trump’s and Democrat’s proposal to end the historical shutdown in the US were blocked in the Senate yesterday. White House spokeswoman Sarah Huckabee Sanders said afterwards that “the three-week CR would only work if there is a large down payment on the wall.” That is, Trump is offering to reopen the government temporarily for three weeks, with certain down-payment for the USD 5.7B border wall.

                                        Senate Minority Leader Chuck Schumer said after meting Senate Majority Leader Mitch McConnell that “Senate Democrats have made clear to Leader McConnell and Republicans that they will not support funding for the wall, prorated or otherwise.” House Speaker Nancy Pelosi  also criticized that Trump demand for down payment is “not a reasonable agreement”. The House Democrats plan to offer a proposal today on border security, without the wall.

                                        Separately, CNN reported that Trump is preparing a draft to declare national emergency And more than USD 7B in potential funds is already identified for the border wall. According to CNN, in the draft, it’s said “the massive amount of aliens who unlawfully enter the United States each day is a direct threat to the safety and security of our nation and constitutes a national emergency.” And, “Now, therefore, I, Donald J. Trump, by the authority vested in me by the Constitution and the laws of the United States of America, including the National Emergencies Act (50 U.S.C 1601, et seq.), hereby declare that a national emergency exists at the southern border of the United States.”

                                        Fed’s Goolsbee optimistic on walking the golden path

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                                          ActionForex.com
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                                          Chicago Fed President Austan Goolsbee shared his upbeat sentiments on the US economy’s direction in an interview with CNBC. He emphasized that the nation is walking the “golden path,” capable of curbing inflation while concurrently staving off a recession.

                                          Goolsbee voiced confidence in the US’s capacity to sidestep a recession, even as Fed contemplates interest rate hikes to bring inflation down. In his words, “I’ve been calling that the golden path and I think it’s possible, but there are a lot of risks and the path is long and winding.”

                                          Highlighting the job market’s resilience, Goolsbee mentioned the latest unemployment rate, which stood at 3.8% last month. This figure is strikingly close to last year’s unemployment rate during a period when inflation was notably higher.

                                          On the topic of interest rates, Goolsbee noted that Fed is getting close to questions about how long to hold , rather than how high.

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