US CPI rose 0.3% mom in April, matched expectations. CPI core (ex food and energy) rose 0.3% mom, matched expectations. Energy index rose 1.1% mom while food index was unchanged.
Over the 12-months, CPI slowed from 3.5% yoy to 3.4% yoy , matched expectations. CPI core slowed from 3.8% yoy to 3.6% yoy, matched expectations. Energy index rose 2.6% yoy while good index rose 2.2% yoy.
ECB Governing Council member Olli Rehn reiterated that a June interest rate cut is on the table, depending on the progress of inflation.
Rehn referred to the April meeting where the ECB gave a “conditional signal” about rate reductions. He elaborated, “If we gain more confidence that inflation is moving sustainably towards our target, we can reduce the restrictiveness of our monetary policy – in other words, we can lower interest rates.”
Eurozone industrial production rose 0.6% mom in March, above expectation of 0.5% mom. Industrial production decreased by -0.5% mom for intermediate goods, -0.9% mom for energy, -1.1% mom for durable consumer goods, and -2.7% mom for non-durable consumer goods. Production increased by 1.0% mom for capital goods.
EU industrial production rose 0.2% mom. The highest monthly increases were recorded in Ireland (+12.8%), Belgium (+6.8%) and Luxembourg (+4.5%). The largest decreases were observed in Slovenia (-5.9%), Poland (-5.1%) and Denmark (-4.3%).
Australia wage price index rose 0.8% qoq, below expectation of 0.9% qoq. The private sector rose 0.8% qoq and the public sector rose 0.5% qoq. Over the year, WPI slowed from 4.2% yoy to 4.1% yoy, below expectation of 4.2% yoy.
Michelle Marquardt, ABS head of prices statistics, said: “The WPI annual all sectors wage growth has remained at or above 4 per cent since September quarter 2023. The last time wages growth was at this level for three consecutive quarters was March quarter 2009.”
Kansas City Fed President Jeffrey Schmid expressed confidence that inflation will gradually return to Fed’s 2% target “over time”. But he also emphasized the importance of patience, saying, “I am prepared to be patient as this process plays out.”
Schmid highlighted the necessity of curbing demand growth to allow supply to catch up, which is essential for closing the imbalance driving inflation.
Regarding Fed’s balance sheet, “I didn’t really think we should have slowed the runoff,” Schmid said. “I think there was room to continue to run off like we were doing.”
Cleveland Fed President Loretta Mester, in an interview with WSJ, expressed a cautious stance on interest rate hikes, stating, “I am not eager to consider interest rate hikes.” Mester emphasized that Fed is in a “really good place” to study the economy before deciding on the next steps for interest rates.
Mester highlighted that it’s too early to determine whether the disinflation has stalled or if inflation is set to reverse. She noted that there are clear indications that the real side of the economy is “moderating”, which is contributing to a better balance within the economy.
Fed Chair Jerome Powell, speaking at an event in Amsterdam, characterized the recent US economic data as presenting a “good picture.” He noted that the labor market is showing signs of “gradual cooling” and moving toward “better balance.” However, he pointed out that disinflation in the first quarter was marked by a “lack of further progress.”
Addressing today’s US PPI data, Powell described it as more “mixed” than “hot,” explaining that while the April figures were higher than expected, previous data had been revised lower.
Powell reiterated that he does not anticipate the central bank’s next move on interest rates to be an increase.
ECB Governing Council member Pierre Wunsch has indicated that the first 50bps rate cut in the upcoming easing cycle is “close to a no brainer”. However, he emphasized that any policy easing should proceed “gradually and not too quickly.”
Wunsch advised against committing to a second rate cut in July after the first in June, explaining that consecutive cuts could signal a series of rate reductions, which might heighten market expectations prematurely. He stressed the need for caution due to the uncertainty surrounding the future path of interest rates.
Wunsch also commented on the potential impact of Fed’s actions on ECB’s policy decisions. He noted that a delay in rate cuts by Fed could slow the pace of ECB rate reductions. However, he reassured that this would not derail the Eurozone’s disinflation.
“Higher U.S. interest rates could lead to a strong dollar and thus to imported inflation, i.e., higher prices here,” Wunsch explained. “That might lead to a slower pace at which we cut rates. However, it is unlikely that it will take us off the inflation path towards 2%.”
US PPI for final demand rose 0.5% mom in April, above expectation of 0.2% mom. Nearly three-quarters of the April advance in final demand prices is attributable to a 0.6% mom increase in the index for final demand services. Prices for final demand goods moved up 0.4% mom. PPI less foods, energy and trade services rose 0.4% mom.
For the 12 months period, PPI rose 2.2% yoy, highest since April 2023. Prices for final demand less foods, energy, and trade services increased 3.1% yoy, the largest advance since April 2023.
German ZEW Economic Sentiment jumped from 42.9 to 47.1 in May, above expectation of 44.9. Current Situation Index also rose from -79.2 to -72.3, above expectation of -75.0.
Eurozone ZEW Economic Sentiment rose from 43.9 to 47.0, above expectation of 46.1. Current Situation Index jumped by 10.2 pts to -38.6.
ZEW President Professor Achim Wambach said: ” Signs of an economic recovery are growing, bolstered by better assessments of the overall eurozone and of China as a key export market. The increased optimism is reflected in particular in the sharp rise in expectations for domestic consumption, followed by the construction and machinery sectors.”
BoE’s Chief Economist Huw Pill suggested today that it is “not unreasonable” for central bank to consider rate cuts over the summer. However, he emphasized the critical need for to maintain a “restrictive stance” on monetary policy to address persistent domestic inflation pressures.
Pill’s comments come against the backdrop of newly released data, which he referenced in his remarks. “We actually got some additional data this morning that would be consistent with a small additional decline in the first quarter,” he said, pointing to the latest figures on private sector regular pay growth.
This data indicates a slight cooling in the labor market, although Pill noted that it “still remains pretty tight by historical standards.” He emphasized that “rates of pay growth remain quite well above what would be consistent for meeting the 2% inflation target sustainably.”
UK payrolled employment fell -85k or -0.3% mom in April. This is a rise of 129,000 people over the 12-month period. Median monthly pay growth was 6.9% yoy, accelerated from March’s 6.4% yoy. Claimant count rose 8.9k, below expectation of 13.9k.
In the three months to March, unemployment rate rose from 4.2% to 4.3%, matched expectations. Average earnings including bonus rose 5.7% yoy. Average earnings excluding bonus rose 6.0% yoy. Both were unchanged from February’s figures.
IMF projects Japan’s economic growth to continue, with a noticeable increase in consumption anticipated later this year. According to a report, Japan’s growth rate is expected to decelerate to 0.9% in 2024, largely due to the fading impact of one-off factors that boosted growth in 2023.
The report highlights that consumption will pick up in the latter half of 2024 and into 2025, driven by rising nominal wages following a strong Shunto settlement in 2024 and a decrease in headline inflation that will boost real wages.
IMF foresees core inflation gradually declining as the impact of higher import prices diminishes. However, core inflation is expected to remain above BoJ’s 2% target until the second half of 2025.
In light of these developments, IMF suggests that further increases in BoJ’s short-term policy rate should “proceed at a gradual pace” and be “datadependent”, considering the balanced risks to inflation and the mixed signals from recent economic data.
IMF emphasizes the importance of Japan’s adherence to a “flexible exchange rate regime”, which will play a crucial role in absorbing economic shocks and supporting the central bank’s focus on maintaining price stability.
Fed Vice Chair Philip Jefferson indicated that with the economy showing robust job growth, Fed can focus “even more so” on ensuring that inflation returns to its 2% target. Jefferson acknowledged the slow progress in reducing inflation, asserting that it justifies keeping the policy rate elevated.
“In light of the attenuation in progress, in terms of getting inflation down to our target, it is appropriate that we maintain the policy rate in restrictive territory,” Jefferson noted.
He reiterated that the Fed is vigilant in seeking clear evidence of inflation decreasing to the desired level before considering any policy rate adjustments.
Fed’s approach is influenced by the varied perspectives among policymakers, which Jefferson believes enriches policy discussions. However, he cautioned that increased communication from Fed might sometimes lead to greater uncertainty about its policies, rather than clarity.
China’s Ministry of Finance announced it will commence the sale of the first batch of a significant issuance of ultra-long special sovereign bonds this week, with plans to distribute CNY 1T across various tenors ranging from 20 to 50 years.
The ministry detailed that 30-year bonds would be issued in twelve tranches stretching from May 17 to November 15. Additionally, 20-year bonds will begin selling in seven phases starting May 24. 50-year bonds are scheduled for issuance in three parts, also commencing on May 17.
China’s Premier Li Qiang has emphasized the importance of these bonds in supporting the execution of major national strategies and enhancing security capabilities in critical sectors, as reported by state media.
USD/CNH resumed the rebound from 7.1648 today, and the break of 55 D EMA argues that pull back from 7.2827 has completed already. Retest of 7.2827 will resume whole rise from 7.0870, as the second leg of the corrective pattern from 7.3679.
According to RBNZ Business Expectations Survey for Q2, respondents have lowered their expectations for CPI inflation in both the short-term and medium-term, while their long-term CPI inflation expectations have remained stable.
Specifically, one-year-ahead annual inflation expectations have notably decreased by 49 bps, moving from 3.22% to 2.73%. Two-year-ahead inflation expectations also saw a decline from 2.50% to 2.33%. Five-year-ahead inflation expectations are holding steady at 2.25%. Ten-year-ahead expectations edged up slightly by 3bps, from 2.16% to 2.19%.
Regarding the Official Cash Rate, survey respondents anticipate that it to 5.46% by the end Q2, similar to current rate at 5.50%. Looking further ahead, they forecast a reduction in OCR to 4.79% by the end of Q1 2025, marking a slight increase from last quarter’s prediction of 4.74%. These expectations align with anticipation of approximately three rate cuts by the end of Q1 next year.
Australia’s NAB Business Confidence held steady at 1 in April. Business Conditions index fell from from 9 to 7. Notably, trading conditions declined from 15 to 12, while profitability was unchanged at 6. A significant reduction was observed in employment conditions, which dropped from 6 to 2.
NAB Chief Economist Alan Oster reflected on these figures: “All three components of business conditions were back at their long-run averages in April.” He described this as a milestone, marking a normalization after the unusually high levels of 2022, “reflecting slowing economic growth.”
Labour cost growth decreased to 1.5% from 1.7%, and purchase cost growth slowed to 1.2% from 1.5%. Meanwhile, product price growth rose slightly to 0.9% from 0.7%. Retail price growth moderated significantly to 0.9% from 1.4%.
Oster noted, “There was some further improvement in the pace of cost growth in April, and a step down in the pace of retail price growth.” He suggested these changes could indicate easing in inflation in the second quarter, though further observation is needed to confirm this trend.
New Zealand’s BusinessNZ Performance of Services Index ticked down from 47.2 to 47.1 in April, marking the lowest level since January 2022.
Breaking down the components of the index reveals mixed signals: Activity and sales saw a modest improvement, rising from 44.8 to 46.5. However, employment took a downturn, dropping from 49.9 to 47.1, recording its lowest level since February 2022. New orders and business also declined slightly to 47.1, from 47.9. Stocks and inventories remained unchanged at 46.6, while supplier deliveries worsened, falling from 48.6 to 47.6—the lowest since November 2022.
The feedback from businesses has increasingly skewed negative, with 66.3% of comments in April being pessimistic, up from 63.0% in March and 57.3% in February. Many respondents highlighted the difficult economic environment and persistent inflationary pressures as significant concerns.
Doug Steel, a senior economist at BNZ, commented on the broader implications of these figures, stating, “combining today’s weak PSI with last week’s PMI yields a composite reading that would be consistent with GDP tracking below year earlier levels into the middle of this year.” He further noted that the combined index suggests there could be “some downside risk” to their current economic forecasts.
Canada’s employment grew strongly by 90.4k in April, well above expectation of 17.5k.
Unemployment rate was unchanged at 6.1%, below expectation of 6.2%. Employment rate was unchanged at 61.4%. Total hours worked rose 0.8% mom.
Average hourly wages rose 4.7% yoy, slowed from March’s 5.1% yoy.
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Fed’s Kashkari: Current rates might be one foot on the brake, not two
Minneapolis Fed President Neel Kashkari stated overnight that Fed likely needs to keep interest rates at the current level for “a while longer,” raising questions about how much they are restraining the US economy.
He highlighted that the “biggest uncertainty” is understanding the exact amount of “downward pressure” monetary policy is putting on the economy. This uncertainty means Fed “probably need[s] to sit here for a while longer” until there is more clarity on where “underlying inflation is headed” before drawing any conclusions.
He remarked on the surprising “resilience” of the economy, suggesting that current interest rates might mean “we’re putting one foot on the brake and not two.”