US initial jobless claims rose 29k to 219k in the week ending October 1, above expectation of 205k. Four-week moving average of initial claims rose 250 to 206.5k.
Continuing claims rose 15k to 1361k in the week ending September 24. Four-week moving average of continuing claims dropped 10k to 1371k.
The accounts of ECB’s September 7-8 monetary policy meeting showed that a “very large number” of committee members expressed a preference for a 75bps hike, which was “a proportionate response” to upward revisions to inflation outlook and an important signal of the determination to bring inflation back to target in a “timely manner”.
But “some members” preferred a 50bps hike as that would be “large enough to signal determination in proceeding with the interest rate normalization”. With the “looming risk of a recession”, a 50bps hike as part of a “sustained path towards more neutral rate levels” might prove “sufficient” to return inflation to target. “What needed to be addressed was the risk of the sharp rise in inflation, exacerbated by the war, destabilizing inflation expectations,” the account noted.
But add the end, all members joined a consensus for the 75bps hike, while maintain that policy should “not follow a pre-set path”, and be set on a “meeting-by-meeting basis.
Eurozone retail sales volume dropped -0.3% mom in August, matched expectations. Retail trade volume decreased by -0.8% for food, drinks and tobacco, while it increased by 0.2% for non-food products and by 3.2% for automotive fuels.
EU retail sales volume dropped -0.2% mom. Among Member States for which data are available, the largest monthly decreases in the total retail trade volume were registered in the Netherlands (-2.2%), Germany (-1.3%) and Malta (-1.1%). The highest increases were observed in Slovenia (+7.0%), Luxembourg (+3.8%) and Ireland (+3.5%).
UK PMI construction rose from 49.2 to 52.3 in September, above expectation of 48.1. S&P Global said total industry activity rose for the first time three months. Output growth was linked to work on delayed projects. Business optimism was the lowest since July 2020 as new orders stalled.
Tim Moore, Economics Director at S&P Global Market Intelligence, said: “Forward-looking survey indicators took another turn for the worse in September, with new business volumes stalling and output growth expectations for the year ahead now the lowest since July 2020. This reflected deepening concerns across the construction sector that rising interest rates, the energy crisis and UK recession risks are all set to dampen client demand in the coming months.”
New Zealand Deputy Prime Minister Grant Robertson said today that it’s going to be a “challenging year” with “global slowdown”. New Zealand would see “less demand and some slowdown”. But, “that doesn’t mean, to me, a recession. There is balance to struck here.”
“Monetary and fiscal policies need to be coordinated, to work together,” he said. “As interest rates rise they’ll restrict demand.” He also said that he’s “not concerned on the long-term outlook for the New Zealand dollar.”
NZD/USD is extending the recovery from 0.5563, but after all, that’s seen as a corrective move in a down trend. Upside should be limited by 38.2% retracement of 0.6467 to 0.5563 at 0.5908. Larger down trend is still expected to resume at a later stage to 2020 low at 0.5467.
Atlanta Fed president Raphael Bostic said yesterday, “I would like to reach a point where policy is moderately restrictive –between 4 and 4 1/2 percent by the end of this year — and then hold at that level and see how the economy and prices react,”
There is “considerable speculation already that the Fed could begin lowering rates in 2023 if economic activity slows and the rate of inflation starts to fall,” Bostic said. “I would say: not so fast.”
“We should not let the emergence of (economic) weakness deter our push to lower inflation,” he added. “We must remain vigilant because this inflation battle is likely still in early days.”
US ISM Services PMI dropped slightly from 56.9 to 56.7 in September, above expectation of 56.0. Looking at some details, business activity/production dropped from 60.9 to 59.1. New orders dropped from 61.8 to 60.6. Employment rose from 50.2 to 53.0. Prices dropped from 71.5 to 68.7.
ISM said: “The services sector had a slight pullback in growth for the month of September due to decreases in business activity and new orders. Employment improved and supplier deliveries slowed at a slightly slower rate.
“Based on comments from Business Survey Committee respondents, there have been improvements regarding supply chain efficiency, operating capacity and materials availability; however, performance remains less than ideal. Employment continued to improve despite the restricted labor market.”
US ADP private sector employment grew 208k in September, slightly above expectation of 200k. BY sector, goods-producing jobs dropped -29k. But service-providing jobs rose 237k. By company size, small establishments added 58k, medium added 90k, large added 60k. Annual pay was up 7.8% yoy.
“We are continuing to see steady job gains,” said Nela Richardson, chief economist, ADP. “While job stayers saw a pay increase, annual pay growth for job changers in September is down from August.”
According to an Ifo survey, price expectations of German businesses rose from 48.1 to 53.5. The balance is obtained by subtracting the percentage of companies that want to lower their prices from the percentage of those that want to raise their prices.
For food industry, the indicator rose further from 96.9 to 100, meaning that a 100% of food companies are expecting to raise prices.
“Unfortunately, this probably means the wave of inflation isn’t about to subside,” says Timo Wollmershäuser, Head of Forecasts at ifo. “Especially when it comes to gas and electricity, the price pipeline is not yet exhausted.”
UK PMI Services was finalized at 50.0 in September, down from August’s 50.9, weakest reading since February 2021. PMI Composite was finalized at 49.1, down from prior month’s 49.6, lowest since January 2021.
Tim Moore, Economics Director at S&P Global Market Intelligence: “September data highlighted an absence of growth in the UK service sector for the first time in 19 months as the energy crisis continued to hit business and consumer spending…. Service sector businesses trimmed their growth expectations to the lowest seen for nearly two-and-a-half years in September, which survey respondents linked to concerns about falling disposable income and the unfavourable global economic outlook.”
Eurozone PMI Services was finalized at 48.8 in September, down from August’s 49.8, a 19-month low. PMI Composite was finalized at 48.1, down from prior month’s 48.9, a 20-month low.
Looking at some member state, Ireland PMI Composite rose to 52.2 while France rose to 51.2. But Spain dropped to 48.4 (8-month low). Italy dropped to 47.6 (20-month low). Germany dropped to 45.7 (28-month low).
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: “Any hopes of the eurozone avoiding recession are further dashed by the steepening drop in business activity signalled by the PMI. Not only is the survey pointing to a worsening economic downturn, but the inflation picture has also deteriorated, meaning policymakers face an increasing risk of a hard landing as they seek to rein in accelerating inflation.
AUD/NZD spikes lower after RBNZ’s 50bps rate hike. The development also came with the background that RBA disappointed the markets with a 25bps hike yesterday.
Technically, a short term top was in place at 1.1489 after AUD/NZD hit medium term channel resistance. But it’s still early to call for a medium term correction. As long as 55 day EMA (now at 1.1211) holds, the consolidation from 1.1489 should be relatively brief, and larger up trend should resume sooner rather than later.
However, firm break of the 55 day EMA will open up deeper correction through channel support to 1.0987, before having some support for a bounce.
RBNZ raises Official Cash Rate by 50bps 3.50% as widely expected. In the summary of record it’s noted that the Committee considered whether to hike by 50bps or 75bps, but decided that 50bps was appropriate at this meeting.
In the statement, RBNZ noted that domestic spending has remained “resilient”. Employment levels are “high” while productivity capacity is “constrained” by labor shortages. wage pressures are “heightened”. Also, “spending continues to outstrip the capacity to supply goods and services, with a range of indicators continuing to highlight broad-based pricing pressures.”
San Francisco Fed President Mary Daly said Fed needs to raise interest further and hold restrictive policies in place until it’s “truly done” on bring back inflation to 2% target.
“Those interest rate increases slow the economy and they do have spillover effects on currencies in other countries,” Daly said, of the Fed’s interest-rate rises. “But central banks, no matter where you are, are meant to create policy for the nation that they serve, and then we have to be aware of how this affects the global economy because that’s part of the puzzle.”
ECB Governing Council member Francois Villeroy de Galhau said in a Dutch newspaper NRC interview, “we will raise interest rates as much as necessary to bring core inflation down.”
Villeroy added that ECB should continue raising interest rates, “without hesitation”, to neutral “by the end of the year”. He estimates that neutral a somewhere “below or close to 2%”.
“I don’t say that rate hikes will stop there, but we will have to comprehensively assess the inflation and economic outlook,” he added.
Eurozone PPI rose 5.0% mom 43.3% yoy in August. For the month,industrial producer prices increased by 11.8% in the energy sector, by 0.8% for non-durable consumer goods, by 0.4% for capital goods, by 0.3% for durable consumer goods and by 0.1% for intermediate goods. Prices in total industry excluding energy increased by 0.3%.
EU PPI rose 4.9% mom, 43.0% yoy. The highest monthly increases in industrial producer prices were recorded in Ireland (+28.4%), Bulgaria (+12.5%) and Hungary (+10.6%), while the only decreases were observed in Luxembourg (-1.8%), Portugal (-0.6%) and Czechia (-0.1%).
New York Fed President John Williams said yesterday, “Clearly, inflation is far too high, and persistently high inflation undermines the ability of our economy to perform at its full potential. Tighter monetary policy has begun to cool demand and reduce inflationary pressures, but our job is not yet done.”
He expects inflation to ease to 3% next year, and move “close to our 2% goal in the next few years”. “To help rein in demand to levels consistent with supply—and therefore bring inflation down—monetary policy needs to do its job,” Williams said. “The FOMC is taking strong actions toward that end.”
BoE MPC member Catherine Mann said yesterday that it’s “premature” to judge the extent of UK Prime Minister Liz Truss’s budget is going to affect “monetary policy trajectory decisions”.
“I people don’t have to spend their money on heating their apartments, or homes, they are now we’re in a position to redirect some of that spending on to other goods and services,” she added. “So it’s that ability to redirect expenditures on goods and services, that becomes an important consideration for the monetary policy trajectory.”
Mann also expressed her concern that inflation expectations are “drifting” away from BoE’s anchor. “I do see increasingly embedded inflation, I do see inflation expectations drifting, I do see a sterling depreciation spillover and I do see daylight between real incomes and real consumption possibilities,” she said.
RBA raises the cash rate target by only 25bps to 2.60%, smaller than expectation of a 50bps hike. Tightening bias is maintained as the board “expects to increase interest rates further over the period ahead”. The size and timing of future hikes will continued to be determined by incoming data and the board’s assessment of inflation and labor market outlook.
In the accompanying statement, RBA said inflation is expected to “further increase” over the coming months. CPI would be around 7.75% over 2022, a little above 4% over 2023, and around 3% over 2024. The economy is “continuing to grow solidly” with national income boosted by a “record level of the terms of trade”. Labor markets is “very tight”. Wages growth is “continuing to pick up” but “remains lower than in other advanced economies” with high inflation.
AUD/USD dips slightly after the smaller than expected rate hike, but there is no follow through selling. Consolidation pattern from 0.6362 is still in progress with bearish bias for downside breakout at a later stage.
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Fed Kashkari: We’re quite a ways away from a pause
Minneapolis Fed President Neel Kashkari said, “Until I see some evidence that underlying inflation has solidly peaked and is hopefully headed back down, I’m not ready to declare a pause. I think we’re quite a ways away from a pause.”
“I fully expect that there are going to be some losses and there are going to be some failures around the global economy as we transition to a higher-interest rate environment, and that’s the nature of capitalism,” Kashkari said.
“We need to keep our eyes open for risks that could be destabilizing for the American economy as a whole. But to me, the bar to actually shifting our stance on policy is very high,” he said. “It should not be up to the Federal Reserve or the American taxpayer to bail people out.”