BoE’s Pill cautions against overemphasis on June rate cut

    BoE Chief Economist Huw Pill today advised against fixating on the possibility of an interest rate cut in the upcoming June meeting, describing such expectations as “probably a little bit ill-advised.”

    Pill clarified that a rate reduction next month is not a “fait accompli,” tempering expectations that have been building around BoE’s short-term monetary policy trajectory.

    Pill elaborated that the MPC has indeed signaled that the bank rate could be reduced, but only upon receiving sufficient evidence that the persistent components of inflation are on a clear downward path.

     

    June rate cut plausible, ECB accounts indicate

      In the accounts from their April monetary policy meeting, ECB confirmed that it is “plausible” to be in a position to start cutting interest rates as early as June, contingent upon incoming evidence supporting the medium-term inflation forecasts established in March.

      ECB members collectively noted that recent data largely upheld the projections made by staff in March, bolstering their “confidence that the disinflationary process was continuing”.

      Looking forward, ECB highlighted the importance of upcoming data releases and new staff projections, which are expected before the June meeting. These forthcoming insights will provide a more “comprehensive” basis for decision-making, enabling a fuller assessment of the economic environment and potentially justifying a shift in policy.

      Full ECB accounts here.

      UK GDP grows 0.4% mom in Mar, 0.6% qoq in Apr, above expectations

        UK GDP grew 0.4% mom in March, well above expectation of 0.1% mom. Services output rose 0.5% mom. Production output rose 0.2% mom while construction output fell -0.4% mom.

        For Q1, GDP grew 0.6% qoq, above expectation of 0.4% qoq. Compared with the same quarter a year ago, GDP is estimated to have increased by 0.2% yoy. In output terms, services grew by 0.7% on the quarter with widespread growth across the sector; elsewhere the production sector grew by 0.8% while the construction sector fell by -0.9%.

        Full UK monthly and quarterly GDP releases.

        NZ BNZ manufacturing rises to 48.9, signs of life despite prolonged contraction

          New Zealand BusinessNZ Performance of Manufacturing Index rose from 46.8 to 48.9 in April. Despite this improvement, the sector remains in contraction for the 14th consecutive month.

          Breaking down the components of the index, there were some positive developments in April. Production notably increased to 50.8 from 46.0, and employment also rose to 50.8 from 46.8, both crossing into expansion territory. However, new orders still lagged behind, albeit with a slight improvement to 45.3 from 44.6, indicating that demand continues to be tepid. Additionally, finished stocks and deliveries edged closer to a neutral stance, registering at 50.4 and 48.4, respectively.

          Catherine Beard, BusinessNZ’s Director of Advocacy, , noted slight improvement in April but also increase in negative sentiment among businesses. She highlighted that “the proportion of negative comments again increased to 69%, compared with 65% in March and 62% in February,” with lack of sales and orders being a recurrent concern alongside the broader struggles of the economy.

          BNZ Senior Economist Doug Steel provided further insights, stating that “the PMI this year to date is consistent with manufacturing GDP trailing year earlier levels.” He also noted that the details for April were “a bit more mixed,” and they presented a less uniformly weak picture than in recent months.

          Full NZ BNZ PMI release here.

          Fed’s Daly discusses dual scenarios for interest rate amid inflation uncertainty

            San Francisco Fed President Mary Daly articulated the challenges surrounding US inflation, describing it as likely to be a “bumpy ride” going forward. In her comments yesterday, Daly highlighted there is “uncertainly about what the next few months of inflation will look like”.

            Daly presented two potential scenarios that could influence Fed’s interest rate decisions. In the first scenario, if inflation continues on its recent downward trend alongside a cooling job market, Daly noted that lowering interest rates would be appropriate.

            Conversely, Daly outlined a second scenario where inflation does not decline as expected but instead remains stagnant, as observed in the first quarter of this year. In such a situation, Daly stated that it would not be appropriate to cut interest rates, unless there is a concurrent weakening in the job market.

             

            BoE’s Pill signals rate cut discussions in upcoming meetings

              BoE Chief Economist Huw Pill expressed growing confidence in the possibility of lowering interest rates and stated that the committee would start discussing it “over the next few meetings”.

              “We’re growing more and more confident that we can begin to reduce the restriction that monetary policy is putting in the economy and start to cut interest rate,” Pill said at a Q&A session organized by the central bank yesterday.

              Pill emphasized that the Bank is not quite ready to make these adjustments, stating, “We’re not quite there yet, and we need more evidence.”

              Yet, he also mentioned, “In the absence of big new disturbances in the economy, we’re going to be thinking about moving interest rates over the next few meetings.”

              This commentary came after the Bank’s decision to maintain the interest rate at 5.25%, a decision supported by an 8-2 vote. Deputy Governor Dave Ramsden joined Swati Dhingra, the usual dove, in voting for a rate cut, signaling a slight shift towards a more dovish stance within policy-setting committee.

              US initial jobless claims rises to 231k, vs exp 210k

                US initial jobless claims rose 22k to 231k in the week ending May 4, above expectation of 210k. That’s also the highest level since late August 2023. Four-week moving average on initial claims rose 4.75k to 215k.

                Continuing claims rose 17k to 1785k in the week ending April 27. Four-week moving average of continuing claims fell -6.25k to 1781k.

                Full US jobless claims release here.

                BoE holds rate at 5.25%, Ramsden joins dove camp

                  BoE maintained Bank Rate at 5.25%, as widely expected. The announcement revealed a subtle dovish shift as evidenced by the voting and adjustments in the accompanying statement. Although these changes are not strong enough to warrant an immediate rate cut in June, they suggest that the central bank is inching closer to easing monetary policy.

                  The meeting concluded with a 7-2 voting split, with Deputy Governor Dave Ramsden joining the typically dovish Swati Dhingra in advocating for a rate cut. Additionally, BoE has explicitly stated its intent to monitor incoming data to assess whether risks from “inflation persistence are receding”, to determine the duration for which current Bank Rate is maintained.

                  Furthermore, in its updated economic forecasts, BoE revised GDP growth projections upwards across the board and lowered CPI expectations for the coming years.

                  Four-quarter GDP growth is projected to be at 0.2% in Q2 2024 (revised up from 0.1%), 0.9% in Q2 2025 (up from 0.6%), 1.2% in Q2 2026 (up from 1%) , and then 1.6% in Q2 2027.

                  CPI inflation is projected to be at 2% in Q2 2024 (unchanged), 2.6% in Q2 2025 (down from 2.7%), 1.9% in Q2 2026 (down from 2.2%, and then 1.6) in Q2 2027.

                  Full BoE statement and Monetary Policy Report.

                  Record high for FTSE as markets eye BoE for rate cut clues

                    As BoE meets today, expectations are set for interest rate to remain unchanged at 5.25%. The focal point for investors, however, is any signal from regarding rate cuts. Financial markets have already fully priced in a first 25bps by August, with a 40% probability assigned to such a move occurring as soon as June. Additional reductions are expected later in November or December, lowering the Bank Rate to 4.75% by year-end, with further cuts anticipated in 2025.

                    The likelihood of BoE providing clear indication today about the timing of these rate cuts remains low. Any hints will be subtly embedded within the voting outcomes and the newly updated economic forecasts. Market predictions suggest an 8-1 voting split, with Swati Dhingra expected to maintain her stance for a rate cut. Meanwhile, hawks like Catherine Mann and Jonathan Haskel are not predicted to shift their positions drastically and return to vote for hike. A significant variable in this equation is whether Deputy Governor Dave Ramsden will align with Dhingra, adding weight to the dovish side.

                    FTSE surged to new record high yesterday, partly supported by a weaker Pound, and more importantly as the UK economy is clear out of last year’s shallow recession, with strong momentum in the services sector. Technically, near term outlook in FTSE will stay bullish as long as 8111.37 support holds. Next target is 100% projection of 6707.62 to 8047.06 from 7404.08 at 8743.52.

                    China’s exports rises 1.5% yoy in Apr, imports surges 8.% yoy

                      China’s trade figures for April showcased significant recovery, with exports increasing by 1.5% yoy to USD 292.5 B, exceeding the expected 1.0% yoy growth. This rebound is particularly noteworthy given the -7.5% yoy decline observed in March.

                      On the import side, there was a notable surge of 8.4% yoy to USD 210.1B, substantially higher than the forecasted 5.4% yoy. This rise marks a recovery from the -1.9% decline in March. The significant increase in imports, driven partly by a weaker comparison base from the previous year, also reflects an uptick in economic activity as domestic conditions improve.

                      Trade surplus for April stood at USD 72.4B, smaller than the expected USD 81.4B but still an improvement from USD 58.6B recorded in March.

                      BoJ meeting summary indicates hawkish shift

                        Summary of Opinions from BoJ’s April meeting revealed a notable hawkish tilt among its board members, with significant dialogue concerning further rate hikes. This development reflects a growing concern over inflationary pressures and the impact of a weaker yen, which could hasten monetary policy normalization.

                        One board member highlighted that if the economic activity and price forecasts from April are realized, future policy interest rates might be “higher than the path that is factored in by the market.”

                        Further discussions emphasized the necessity of managing transitions carefully to mitigate shocks from sudden and substantial policy changes once price stability target is achieved. One approach proposed involves “moderate policy interest rate hikes”.

                        Another critical point raised was the impact of a weakening yen on inflation. A board member warned that if underlying inflation continues to rise above the baseline scenario due to the currency’s depreciation, “it is quite possible that the pace of monetary policy normalization will increase”.

                        Full BoJ Summary of Opinions here.

                        Japan’s real wages fall -2.5% yoy, declining for 24th consecutive month

                          In Japan, real wages fell notably by -2.5% yoy in March, marking a worsening trend from the previous month’s -1.8% yoy. It also extended the streak of declines to 24 consecutive months—the longest since such data was first recorded in 1991.

                          Nominal wages, which include total cash earnings, grew modestly by 0.6% yoy in March, a deceleration from February’s 1.4% yoy increase. Although regular pay saw a rise of 1.7% yoy , this was offset by -1.5% yoy decline in overtime pay, which has fallen for four consecutive months. Furthermore, special payments, which encompass bonuses and other benefits, saw a sharp decrease of -9.4% yoy.

                          The persistence of wage declines occurs despite a seemingly favorable outcome from Japan’s annual labor-management wage talks this spring, which were described as the most beneficial for workers at major companies in three decades.

                          However, a labor ministry official noted that the results of the “shunto” wage negotiations were not reflected in the March data. With these results expected to influence the figures from April onwards, there is a focus on whether real wages will show an improvement and turn positive for the first time in two years.

                          Fed’s Collins: Bringing down inflation will require more time

                            Boston Fed President Susan Collins described current monetary policy as “well positioned” to adapt based on new economic data and the evolving economic outlook. She is “optimistic” that Fed can achieve 2% inflation target in a “reasonable amount of time” while maintaining a robust labor market. However, she now anticipates that reaching this goal will “take more time than previously thought.”

                            Collins highlighted “recent upward surprises to activity and inflation”. This has led her to suggest that maintaining the current policy level might be necessary for a longer period than initially expected. She emphasized the importance of ensuring that inflation moves “sustainably toward 2%” before considering any policy adjustments.

                            ECB’s Holzmann decisively against quick and strong interest rate cuts

                              In an interview published today, ECB Governing Council member Robert Holzmann indicated that while he is open to rate cut in June, “I see absolutely no reason for us to cut key interest rates too quickly, too strongly,” he said.

                              Holzmann also acknowledged the significant influence of Fed on ECB decision-making. He described the Fed as “the gorilla in the room,” emphasizing how ECB policies are, to some extent, shaped by actions taken by the US central bank, particularly due to the dollar’s pivotal role in the global economy.

                              ECB’s Wunsch sees path to start rate cut, but not preset course of action

                                Speaking in Frankfurt, ECB Governing Council member Pierre Wunsch indicated the even though the outlook remains “foggy”, he saw a “path for initiating rate cuts this year.” He added that the upcoming June meeting would provide clearer insights into wage and service sector dynamics for making the decision.

                                Wunsch further explained that there is “no sign of de-anchoring” regarding longer-term inflation expectations, which supports the argument the costs of remaining “tight for too long” seem to outweigh those of a “premature loosening”.

                                However, Wunsch also noted “significant risks” related to the path of wage growth and inflation in sectors with high labor costs. Therefore “now is not the time to commit to a preset course of action” he added.

                                WTI crude trends downward amid revised EIA supply and demand forecasts

                                  WTI crude oil is extending its near term decline today on expectation of higher production and lower demand ahead. If WTI cannot reclaim 80 mark in short term, there is prospect of downside acceleration through 70 next.

                                  In its latest report, the US Energy Information Administration revised its expectations for this year’s global oil and liquid fuels output upwards while reducing its demand forecasts.

                                  Notably, it now anticipates that global oil and liquid fuels consumption will increase by 920k bpd to 102.84m bpd, a slight reduction from the previously forecasted growth of 950k bpd.

                                  On the production side, total world crude oil and liquid fuels production is expected to rise by 970k bpd to 102.76m bpd, up from the earlier estimate of 850k bpd increase.

                                  Technically, the break of 100% projection of 87.84 to 81.20 from 84.88 at 78.24 suggests WTI is probably ready for downside acceleration. Near term outlook will stay bearish as long as 80.20 resistance holds. Next target is 161.8% projection at 74.13.

                                  More importantly, the fall from 87.84 is seen as the third leg of the pattern from 95.50. There is prospects of deeper decline through 67.79 towards 63.67 (2023 low) in the medium term.

                                  BoJ Ueda signals shift in focus to exchange rate impacts

                                    In comments made to the parliament today, BoJ Governor Kazuo Ueda underlined growing focus on the effects of currency movements rather than solely on wages, signaling a broadening perspective on economic influences.

                                    Ueda pointed out that as recent behavior in wage- and price-setting has become “somewhat more active,” BoJ has to be “mindful of the risk that the impact of currency volatility on inflation is becoming bigger than in the past.”.

                                    “Foreign exchange rates make a significant impact on the economy and inflation. Depending on those moves, a monetary policy response might be needed,” Ueda said.

                                    Similarly, Finance Minister Suzuki expressed significant concern about the negative aspects of a weaker yen, particularly the pressure it places on import prices.

                                    “Since Japan relies on overseas markets for food and energy, and a large portion of its transactions are denominated in dollars, a weaker yen could raise prices of imported goods,” Suzuki said.

                                     

                                    Fed’s Kashkari: Interest rates likely to stay here for an extended period of time

                                      Minneapolis Fed President Neel Kashkari highlighted at a conference overnight that the current interest rates are likely to be maintained “for an extended period of time” to ensure that inflation steadily returns to the target level.

                                      Kashkari elaborated on circumstances that might prompt a shift in this policy. If inflation metrics “start to tick back down” or if there is a “marked weakening in the labor market,” Fed might consider lowering interest rates. Conversely, he warned that if inflation seems “embedded or entrenched now at 3%,” an increase in rates could be necessary to control inflationary pressures.

                                      Further exploring the complexities of current economic conditions, Kashkari, in an essay, suggested that misjudgments regarding the tightness of existing policies might explain the “constellation of data we are observing.” He questioned whether the disinflationary trend is just slower than expected or if inflation is settling around 3%, indicating that “more work” might be required to meet Fed’s dual mandate objectives.

                                      ECB’s Nagel warns of persistent inflationary pressures

                                        Bundesbank President Joachim Nagel, a member of ECB Governing Council, cautioned about enduring inflationary challenges during a speech overnight. Nagel noted the confluence of factors, including supply chain resilience, impending labor shortages due to demographic shifts, and the green transition, all of which could exert upward pressure on prices.

                                        “To improve resilience, some form of de-risking seems reasonable, especially in the case of strategically important goods,” Nagel said in a speech. “We should keep in mind that greater security for supply chains is likely to come with some additional price pressures.” These structural changes in the eurozone economy, Nagel argued, could sustain inflationary tendencies for an extended period.

                                        Highlighting demographic trends, Nagel projected a significant annual decline of 80,000 individuals in the potential labor force starting from 2026. This demographic shift, he emphasized, could drive wage growth, thereby fueling inflationary pressures further.

                                        Nagel reiterated the ECB’s commitment to price stability, emphasizing its mandate to curb inflationary pressures. “One thing is clear: Our mandate is price stability!” he said. “If there is more price pressure in the medium-term, we must take action against it… price stability is a prerequisite for an efficient adjustment process.”

                                        Eurozone retail sales rises 0.8% mom in Mar, EU up 1.2% mom

                                          Eurozone retail sales volume grew 0.8% mom in March, above expectation of 0.6% mom. Volume of retail trade increased for food, drinks, tobacco by 1.2%, for automotive fuel in specialised stores by 2.0%. Volume was stable for non-food products (except automotive fuel).

                                          EU retail sales grew 1.2% mom. Among Member States for which data are available, the highest monthly increases in the total retail trade volume were recorded in Poland (+7.3%), Cyprus (+4.8%) and Hungary (+2.0%). The largest decreases were observed in Sweden (-1.8%), Malta (-1.0%) and Austria (-0.8%).

                                          Full Eurozone retail sales release here.