Japan didn’t confirm intervention after unusually USD/JPY volatility

    There was some unusual volatility in USD/JPY overnight at it approached 1998 high at 147.68. The pair was knocked down but there was no sustained selling. Japan Ministry of Finance declined to confirm whether that was caused by intervention.

    Meanwhile, Finance Minister Shunichi Suzuki just reiterated that government’s readiness to take “appropriate action” against “excessive volatility” in the markets. He said, “we cannot tolerate excessive volatility driven by speculative moves. We’re watching market developments with a strong sense of urgency.”

    Separately, BoJ Governor Haruhiko Kuroda maintained that “raising rates now is inappropriate in light of Japan’s economic, price conditions.” He added that “pace of Japan’s economic recovery still slow so BoJ must continue supporting economy.”

    No reversal yet after DOW’s 1500 historic U-turn

      US stocks staged a historic U-turn overnight, after initial post-CPI selloff. DOW had a jaw-dropping swing of more than 1500 pts, falling to as low as 28660.94, then rebounded to close at 30038.72, after hitting intraday high at 30168.54. There is no convincing explanation to the reversal. Some said investors saw the set of data as a “last gasp” for rising inflation. But after all, Fed is set to continue with aggressive tightening and there is no clear sign on where interest rate would really peak.

      Anyways, immediate focus is now on 30454.46 resistance in DOW. Firm break there will complete a double bottom pattern, and bring stronger rebound through 55 day EMA (now at 30914.85) in the near term. Rejection by 30454.46 should set the stage for resuming the down trend through 28660.94 later in the month.

      In either case, there is no clear sign of trend reversal for now, and the whole pattern from 36965.83 should still extend to 100% projection of 36965.83 to 29653.29 from 34281.36 at 26982.00 before completion.

      US initial jobless claims rose to 228k, slightly above expectations

        US initial jobless claims rose 9k to 228k in the week ending October 8, slightly above expectation of 225k. Four-week moving average of initial claims rose 5k to 212k.

        Continuing claims rose 3k to 1368k in the week ending October 1. Four-week moving average of continuing claims dropped -8k to 1364k.

        Full release here.

        US CPI slowed to 8.2% yoy in Sep, but core CPI rose to 6.6% yoy

          US CPI rose 0.4% mom in September, above expectation of 0.2% mom. Core CPI (all item less food and energy) rose 0.6% mom, above expectation of 0.5% mom. Energy index dropped -2.1% mom, with gasoline down 4.9%. Food index rose 0.8% mom.

          For the 12 months ending September, CPI slowed from 8.3% yoy to 8.2% yoy, above expectation of 8.1% yoy. Core CPI, on the other hand, accelerated from 6.3% yoy to 6.6% yoy, above expectation of 6.5% yoy. Energy index slowed from 23.8% yoy to 19.8% yoy. Food index was up 11.2% yoy.

          Full release here.

          Fed Bowman: Sizable hike on the table if inflation not moving down

            Fed Governor Michelle Bowman said a speech, “if we do not see signs that inflation is moving down, my view continues to be that sizable increases in the target range for the federal funds rate should remain on the table.”

            Nevertheless, “if inflation starts to decline, I believe a slower pace of rate increases would be appropriate.” Even so, “to bring inflation down in a consistent and lasting way, the federal funds rate will need to move up to a restrictive level and remain there for some time.”

            “However, it is not yet clear how high we will need to raise the federal funds rate and how much time will pass before we begin to see inflation moving back down in a consistent and lasting way,” she added.

            Full speech here.

            FOMC minutes: Many emphasized cost of doing too little

              In the minutes of September 20-21 FOMC meeting, it’s noted that with “broad-based and unacceptably high level of inflation” and the “upside risks”, participants remarked that “purposefully moving to a restrictive policy stance in the near term was consistent with risk-management considerations”.

              Further than that, “many participants emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action.”

              Also, “several participants underlined the need to maintain a restrictive stance for as long as necessary”.

              Full minutes here.

              ECB Knot: Inflation problem won’t go away with a little of slowdown in economy

                ECB Governing Council member Klass Knot said, “we need at least two more significant hikes before we enter the range of plausible estimates for neutral… That’ll take us into next year.”

                “This problem will not go away with a little of slowdown in the economy — it will require continued effort from our side, and the Council is unanimous on that,” he said.

                “The way the Fed is dealing with QT — that’s clearly also going to be an example for us, they managed to move it into the background very quickly,” Knot said. “A process like QT — it should be predictable, it should be gradual, it should be even a little bit boring.”

                BoJ Kuroda: Yen depreciation may have good impact on economy, but speculation is bad

                  BoJ Governor Haruhiko Kuroda said, “yen depreciation may have a good impact on macro-economy as a whole, but there are some sectors which are suffering from weak yen.” He added that “we have to carefully watch, and analyze the impact of currency movements on the economy.”

                  Kuroda also qualified that “if currency movement is so fast and uni-direction, probably caused by speculation, that would be bad for the economy.”

                  Meanwhile, he reiterated, “we will continue our monetary easing to achieve the 2% inflation target in a stable and sustainable manner.”

                  BoE Pill: A significant monetary policy response required in Nov

                    BoE Chief Economist Huw Pill said in a speech, “Given the uncertain world and volatile markets we face, November can seem a long time away. At present, I am still inclined to believe that a significant monetary policy response will be required to the significant macro and market news of the past few weeks.”

                    “But I will see when we get to November how events have evolved in the meantime. As always, my policy choices will be driven by the data and guided by pursuit of the inflation target,” he added.

                    Full speech here.

                    UK NIESR: Energy price guarantees to drive GDP growth higher in Q4

                      NIESR said the -0.3% contraction in UK GDP in August “possibly signalling the beginning of an economic recession”. Given that September PMI pointed to further decrease in the manufacturing sector, it’s likely to continue to drag on the economy in Q3.

                      However, it expects “the energy price guarantees for households and firms announced in September’s fiscal event to drive GDP growth higher in the fourth quarter. The extent to which the measures in the mini-budget will counter the dampening effects of plummeting confidence and increased interest rates will become clearer over the coming months.”

                      Full release here.

                      US PPI up 0.4% mom, 8.5% yoy in Sep

                        US PPI for final demand rose 0.4% mom in September, above expectation of 0.2% mom. Two-thirds can be traced to a 0.4% mom prices for services. The index for goods rose 0.4%. Prices less food, energy, and trade services rose 0.4% mom.

                        For the 12 months ended in the period, PPI slowed from 8.7% yoy to 8.5% yoy. PPI ex food, energy and trade was unchanged at 5.6% yoy.

                        Full release here.

                        Eurozone industrial production up 1.5% mom in Aug, EU up 1.1% mom

                          Eurozone industrial production rose 1.5% mom in August, above expectation of 0.5% mom. Production of capital goods rose by 2.8% mom, durable consumer goods by 0.9% mom and non-durable consumer goods by 0.7% mom, while production of intermediate goods fell by -0.5% mom and energy by 2.1% mom.

                          EU industrial production rose 1.1% mom. Among Member States for which data are available, the highest monthly increases were registered in Ireland (+16.6%), Estonia (+5.0%) and Denmark (+4.3%). The largest decreases were observed in Sweden (-7.0%), Belgium (-6.1%) and the Netherlands (-1.5%).

                          Full release here.

                          UK GDP contracted -0.3% mom in Aug, driven by production

                            UK GDP contracted -0.3% mom in August, worst than expectation of 0.1% mom expansion. In the three months to August, compared with the three months, GDP contracted by -0.3%, with -1.5% fall in production, -0.1% fall in services and flat growth in construction.

                            Production fell by -1.8% mom, and was the main contributor to the decline in GDP. Growth was negative in three of the four sectors. Services dropped -0.1% mom. Construction rose 0.4% mom.

                            Also released, industrial production came in at -1.8% mom, -5.2% yoy, versus expectation of -0.2% mom, 0.6% yoy. Manufacturing production came in at -1.6% mom, -6.7% yoy, versus expectation of 0.0% mom, 0.7% yoy. Goods trade deficit widened to GBP -19.3B, but smaller than expectation of GBP -20.5B.

                            Full GDP release here.

                            USD/JPY breaks to new 24-yr high as Japan just closely watching

                              USD/JPY finally breaks through 145.89 resistance to resume up trend to new 24-year high. It’s on track towards 1998 high at 147.68. But there is not clear sign of imminent intervention by Japan yet.

                              Finance Minister Shunichi Suzuki just repeated that what was important was the speed of forex moves. Japan will closely watch forex moves with a sense of urgency.

                              Chief Cabinet Secretary Matsuno Hirokazu said echoed that the government is “closely watching FX moves with a high sense of urgency” and will ” take appropriate steps on excess FX moves”.

                              The message has been consistent that Japan is mindful of fast, one-sided depreciation of yen, rather than the actual rate.

                              RBA Ellis: Neutral is not a destination we necessarily reach

                                RBA Assistant Governor Luci Ellis said in a speech that “don’t think of this as a mechanistic approach of ‘we have to get back to neutral’, or above neutral” interest rate.

                                “The neutral rate is an important guide rail for thinking about the effect policy might be having. It is not necessarily a prescription for what policy should do,” he said.

                                “‘Neutral’, then, is not a destination we necessarily reach, but more a pole-star to guide us. And even then, its location is sufficiently uncertain that we are perhaps better served by paying more attention to the ground as it shifts beneath our feet than to that faraway pole-star,” he added.

                                Full speech here.

                                ECB Villeroy: Interest rate should be at neutral by year end

                                  ECB Governing Council member Francois Villeroy de Galhau said it’s still too early to decide whether the central bank should hike by 50bps or 75bps at October 27 meeting. But he noted interest rate should be at neutral level, or “a bit less than 2%” by year end.

                                  Then, ECB could start shrinking its balance sheet. “It would not be consistent to keep a very large balance sheet for too long in order to compress the term premium, whilst at the same time contemplating tightening policy rates above neutral,” he added.

                                  “The reimbursement of TLTROs comes first, and we should avoid any unintended incentives to delay repayments by banks,” he said. “Here we could start earlier than 2024, maintaining partial reinvestments but at a gradually reduced pace.”

                                  Fed Mester: There has been no progress on inflation

                                    Cleveland Fed President Loretta Mester said, “Unacceptably high and persistent inflation remains the key challenge facing the U.S. economy. Despite some moderation on the demand side of the economy and nascent signs of improvement in supply side conditions, there has been no progress on inflation.”

                                    “Monetary policy is moving into restrictive territory and will need to be there for some time in order to put inflation on a sustained downward path to our 2 percent goal,” she said, adding “I do not anticipate any cuts in the fed funds target range next year.”

                                    “With growth well below trend over the next couple of years, it is possible that a shock could push the U.S. economy into recession for a time,” Mester said, adding “none of this is painless,” but it is necessary, as high inflation exerts heavy costs on the economy.

                                    IMF global growth at 3.2% in 2022, 2.7% in 2023

                                      In the latest World Economic Outlook Report, IMF keeps global economic growth forecasts unchanged at 3.2% in 2022, but downgrade 2023 by -0.2% to 2.7%.

                                      It said: “Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades. The cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook.”

                                      Global inflation is forecast to rise from 4.7% in 2021, to 8.8% in 2022, but to decline to 6.5% in 2023, and then 4.1% in 2024.

                                      IMF said, “Monetary policy should stay the course to restore price stability, and fiscal policy should aim to alleviate the cost-of-living pressures while maintaining a sufficiently tight stance aligned with monetary policy. ”

                                      Full report here.

                                      ECB Lane: Monetary policy is to ensure residual inflation dynamic returns to target in timely manner

                                        In a speech, ECB Chief Economist Philip Lane said that monetary is “always decided under conditions on uncertainty”, both about “inflation dynamics” and the “channels connecting medium-term inflation to our monetary policy instruments”. This uncertainty is “mitigated to some extent by taking a meeting-by-meeting”.

                                        The “considerable lags” between monetary policy actions and their impact on inflation outcomes imply that much of the near-term attention in assessing monetary policy actions focuses on the transmission to financial conditions.

                                        Also, “in the absence of further shocks, the profile of euro area inflation over the next 12 to 18 months will be primarily driven by the fading impact of past supply shocks and the deceleration in demand that is signalled by the latest confidence indicators.” The role of monetary policy is to ensure that the “residual” inflation dynamic returns to target in a timely manner.

                                        Full speech here.

                                        Japan foreign currency deposits up 8.3% since start of the year

                                          Accord to latest BoJ data, foreign currency deposits at domestic banks rose the JPY 26.58T at the end of August, up 8.3% since the start of 2022. The increase in despoits in the eight month period was also the highest since 2015.

                                          The surge could partly be explained by Yen’s depreciation. Yet, the flow into foreign currencies could also be seen as a factor contributing to the persistent decline in Yen’s exchange rate.