US initial jobless claims dropped slightly by 98k to 1006k in the week ending August 22. Four-week moving average of initial claims dropped 107k to 1068k.
Continuing claims dropped -223k to 14535k in the week ending August 15. Four-week moving average of continuing claims dropped -604k to 15216k.
In February, New Zealand’s goods exports leaped by 16% yoy to NZD 5.9B. This surge contrasts with a more modest 3.3% yoy increase in goods imports, totaling NZD 6.1B. Consequently, monthly trade deficit narrowed significantly to NZD -218m, far exceeding market expectations of a shortfall of NZD -825m.
Exports to China, New Zealand’s largest trading partner, increased by 10% yoy, contributing an additional NZD 154m. US saw a remarkable 52% yoy jump in exports, adding NZD 305m, while EU and Australia also recorded increases in New Zealand exports by 7.9% yoy and 5.9% yoy, respectively. However, trade with Japan contracted, with exports declining by -10% yoy.
On the import front, China and South Korea marked significant increases of 7.1% yoy and 42% yoy, respectively, indicating robust demand for goods from these economies. Conversely, imports from US and EU saw downturns, declining by 20% yoy and 7% yoy.
US Commerce Secretary Wilbur Ross said yesterday that the timeline for auto tariffs investigation is postponed. Ross originally said the report will be published some time in August. But he told WSJ that it’s “not clear the report will be out at the end of the month”. He went further by refusing to set a new time line. Ross said the report was delayed because of ongoing negotiations with Mexico, Canada and the European Union.
It’s surprising to link the reports to negotiation given that the investigations are technical, fact-finding. Results of such investigations won’t be altered by the negotiations. The implementations of the actions as suggested by the investigations will be subject to negotiations. It’s typical for authoritarian governments to make a decision first and the make up so-called reports to support it’s own decision. Strange for the US to do so!
Separately, Trump said at a campaign rally in West Virginia that he told European Commission President Jean-Claude Juncker that “it’s all about cars” during their meeting last month. And Trump added “we’re going to put a 25% tax on every car that comes into the United States from the European Union.”
China Shanghai SSE rose 0.92% to 2806.81, closed above 2800 psychological level. The main trigger was news that MSCI is considering to significantly increase weighting of A shares in its indexes.
The firm break of 55 day EMA and medium term channel resistance indicates medium term bottoming at 2644.29. That is, SSE should have successfully defended 2638.30 key support (2016 low). Further rebound is now in favor in near term. Nonetheless, we’re still seeing no reason for a break through 3000 handle, which is close to 38.2% retracement of 3587.03 to 2644.29 at 3004.41.
BoE Governor Andrew Bailey said in a webinar yesterday that the central isn’t ready for implementation of negative interest rate yet. “Given the shock we’ve had, there are good reasons to say we shouldn’t rule them out and therefore they’re in the toolbox,” he said. “We haven’t addressed the question of should we use them.”
Earlier, Governor Sam Woods has sent a letter banks asking for their readiness on negative interest. “We are requesting specific information about your firm’s current readiness to deal with a zero Bank Rate, a negative Bank Rate, or a tiered system of reserves remuneration – and the steps that you would need to take to prepare for the implementation of these,” Woods said in a letter. “We are also seeking to understand whether there may be potential for short-term solutions or workarounds, as well as permanent systems changes.”
ECB Governing Council member Martins Kazaks told BloombergTV today that if the central bank hikes by 25bps in July, then a 50bps hike might be needed in September. He argued that ECB might need to considering a 50bps hike in July instead.
“If we see that the situation has worsened, that inflation is high and we see negative news in terms of inflation expectations, then in my view front-loading the increase would be a reasonable choice,” he said.
In January, UK payrolled employees rose 0.3% mom or 102k. Comparing with the same month a year ago, payrolled employees rose 2.6% yoy or 768k. Median monthly pay rose 6.8% yoy. Claimant count dropped -12.9k, versus expectation of 9k rise.
In the three months to December, unemployment rate came in at 3.7%, 0.1% higher than the three-month period. Employment rate was at 75.6%, 0.2% higher than the previous three-month period. Economic inactivity rate was at 21.4%, 0.3% lower than the previous three-month period. Average earnings excluding bonus was up 6.7% 3moy, above expectation of 6.5%. Average earnings including bonus was up 5.9% 3moy, below expectation of 6.2%.
St. Louis Fed President James Bullard said “with respect to the (monetary policy) normalization, we have already reached a point when policy rates are in a good position.” And he suggested that Fed policymakers “don’t need to do much more to normalize policy.”
Separately, he also welcomed the USMCA North America trade agreement. He said “this is very good news, because it shows that despite the ups and down of negotiations, you can reach a conclusion …on trade relations.” And he hope the US “can get deals like this elsewhere and we might get the uncertainty down on this issue.”
US initial jobless claims rose 6k to 211k in the week ending January 18, below expectation of 214k. Four-week moving average of initial claims dropped -3.25k to 213.25k.
Continuing claims dropped -37k to 1.731m in the week ending January 11. Four-week moving average of continuing claims rose 2k to 1.758m.
Westpac-MI Consumer Sentiment Index in Australia witnessed a modest 2.7% mom increase in July, rising to 81.3. However, the index remains entrenched the deeply pessimistic territory, a condition that has prevailed for over a year now.
According to Westpac, the main driving force behind this month’s uplift is easing in monthly inflation, which dipped from 6.8% in April to 5.6% in May.
RBA decision to pause in July, however, failed to instill confidence. In fact, the sentiment was considerably more buoyant before the decision, with an index reading of 88, marking an 11.2% rise from June. Post-RBA responses, on the other hand, presented a combined index reading of 77.9, a dip of -11.6% from the pre-RBA sample and a -1.6% fall from June’s reading.
Westpac’s key message is clear: “Sentiment is probably not going to stage a sustained lift from current deeply pessimistic levels until inflation is much lower and interest rates are firmly on hold.”
Looking ahead to the RBA’s next meeting on August 1, Westpac expects that if annual underlying inflation prints around 6.1% for the June quarter, and if the unemployment rate continues to hold well below full employment, the case for higher rates will be clear.
As such, Westpac anticipates that RBA Board will raise cash rate by 0.25% at both August and September Board meetings, followed by a prolonged pause. The first rate cut in the subsequent easing cycle is expected next May.
US initial jobless claims dropped -24k to 400k in the week ending July 24, above expectation of 365k. Four-week moving average of initial claims rose 8k to 394.5k.
Continuing claims rose 7k to 3269k in the week ending July 17. Four-week moving average of continuing claims dropped -54k to 3291k, lowest since March 21, 2020.
US PMI Manufacturing rose to 60.6 in April, up from 59.1. PMI Services rose to 63.1, up from 60.4. PMI Composite Rose to 62.2, up from 59.7. All three indices were at their record highs.
Chris Williamson, Chief Business Economist at IHS Markit, said:
“The US economy is enjoying a strong start to the second quarter, firing on all cylinders as loosening virus restrictions, an impressive vaccine roll-out, a brighter outlook and stimulus measures all helped boost demand.
“The upturn is broad-based: the service sector is growing at the fastest rate recorded in almost 12 years of survey history, and manufacturers reported one of the strongest expansions seen over the past seven years. The latter was all the more impressive, as factories continued to be throttled by unprecedented supply chain delays, a consequence of which was a further steep rise in prices.
“The worsening supply situation is a concern for the outlook, especially in relation to prices. Supply needs to improve to come into line with demand. But with record supply chain delays driving a rise in backlogs of uncompleted work of a magnitude not surpassed for over seven years, firms appear to be struggling to boost operating capacity in the near-term.”
RBA Governor Michele Bullock voiced concerns over stickiness in services inflation, rising house prices and tight labor market at an Australian Financial Security Authority event.
“We’re seeing a slowdown in consumption,” Bullock said, pointing out a decline in per capita consumption. This can be attributed to the central bank’s policy measures, as indicated by her remark, “monetary policy is starting to bite.” She elaborated that businesses were starting to find it hard to pass on cost increases as demand begins to taper.
However, the stickiness of inflation remains a significant concern. Bullock highlighted a stubborn rise in services inflation, which encompasses various sectors, from restaurants to hairdressers. “That inflation is running at a bit over 4 per cent,” she noted, acknowledging it exceeds RBA’s target and mirrors inflationary trends observed globally.
Additionally, housing prices are on the rise again, coupled with a tight employment market, contributing to inflationary pressures. These economic elements, combined with external factors such as the Israel-Gaza conflict escalating fuel costs, suggest that inflation might remain a persistent issue.
Canadian Prime Minister Justin Trudeau said he will unveil the legislation on January 29 to ratify the USMCA. He noted, “we are going to make sure we move forward in the right way and that means ratifying this new NAFTA as quickly as possible”. “Passing the new NAFTA is our priority,” said Trudeau. “There are too many businesses relying on access to the U.S. market … it’s extremely important that we move forward with ratification and it’s our intention to move forward with this.”
However, the move by Trudeau’s minority Liberal government could be slowed down by main opposition. The Conservative Party spokesman Randy Hoback, “we definitely want to give it the proper due diligence to shine a light on some of the unique.” “I don’t think anybody has any intention of dragging anything out. We just want to make sure we do our job … there are some things in this deal that I think the business community isn’t aware of that we need to shine a light on.”
Sterling dives broadly after BoE rate decision. CPI is now projected to fall back to below 2% target in the medium term, based on conditioned forecasts with interst rate peaking at 4.50% in mid-2023. That is, with Bank Rate at 4.00% after today’s 50bps hike, BoE is now close to the end of the tightening cycle.
GBP/CHF ‘s fall from 1.1433 accelerates lower after the announcement. At this point, such decline is still viewed as the fifith leg of the triangle pattern from 1.1574, Hence, while breach of 1.1094 couldn’t be ruled out, strong support should be seen at 1.1045 cluster (38.2% retracement of 1.0183 to 1.1574 at 1.1043) to contain downside and bring rebound.
However, decisive break of 1.1043/5 will argue that priace actions from 1.1574 are indeed a triple top reversal pattern. Deeper decline would then be seen to 61.8% retracement at 1.0714 and below.
Australia CPI rose 1.8% qoq in Q3, above expectation of 1.5% qoq. Annual rate accelerated from 6.1% yoy to 7.3% yoy, above expectation of 6.9% yoy. That’s the highest annual rise since 1990. Trimmed mean CPI, which excludes large price rises and falls, accelerated from 4.9% yoy to 6.1% yoy, highest since the data first published in 2003.
For the quarter, the most significant contributors to the rise were new dwellings (+3.7%), gas (+10.9%) and furniture (+6.6%). Annually, new dwellings (+20.7%) and automotive fuel (+18.0%) were the most significant contributors.
RBNZ is currently commencing Central Bank Digital Currency (CBDC) proof-of-concept design work, which is a “multi-stage and multi-year effort”. The consultation on an issues paper Future of Money – Cash System Redesign, which closes on March 7, received 190 submissions so far.
Governor Adrian Orr said in a speech, “we must decide how best to use of digital technology to modernize central bank money, while we continue to ensure cash remains an option for those who need it. An innovative approach is needed to support a more efficient and resilient cash system, and the changes required are potentially far reaching”.
“The technology exists now to implement a CBDC, but it needs to be well designed. At a basic hygiene level, a CBDC must be user-friendly, resilient to cyber and other operational risks, and enable privacy. These features promote widespread trust and use.”
Eurozone Economic Sentiment Indicator fell from 96.1 to 95.4 in February. Employment Expectations Indicator rose from 102.3 to 102.5. Economic Uncertainty Indicator fell from 21.3 to 20.1.
Eurozone industry confidence fell from -9.3 to -9.5. Services confidence fell from 8.4 to 6.0. Consumer confidence rose from -16.1 to -15.5 Retail trade confidence fell from -5.6 to -6.7. Construction confidence fell from -4.6 to -5.4.
EU Economic Sentiment Indicator fell from 95.8 to 95.4. Amongst the largest EU economies, the ESI deteriorated markedly in Italy (-1.6) and slightly in Germany (-0.6) and Poland (-0.5), while it improved strongly in the Netherlands (+1.7) and remained broadly stable in France (-0.3) and Spain (-0.2).
Subdued wage growth data in Japan is raising eyebrows, particularly at BoJ. An essential element for the central bank’s policy normalization is the establishment of a harmonious cycle between wage growth and prices. The recent figures, however, indicate that this equilibrium remains elusive.
In August, labor cash earnings in Japan rose by a meager 1.1% yoy. This increase, while consistent with the prior month, fell short of the anticipated 1.5% growth. Furthermore, base salary growth, although increasing to 1.6% yoy from the preceding month’s 1.4%, has yet to manifest signals of a robust and sustainable upward momentum.
The bright spot, perhaps, is the increase in overtime pay, which is often used as an indicator of business vibrancy, as 1.0% yoy ascent was observed, rebounding from July’s flat growth.
However, inflation-adjusted real wages continued their downward spiral for the 17th consecutive month. August’s real wages declined by -2.5% yoy, surpassing the projected -2.1% yoy dip. This trend starkly reveals that despite any increments, wages are struggling to keep up with the consistent price surges, placing added strain on the average consumer’s pocket.
Also released, household spending, a critical driver of economic activity, contracted by -2.5% yoy, a figure that, while better than the anticipated -4.3% yoy decline and an improvement from July’s -5.0% yoy reduction, still underscores constrained consumer expenditure.
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Bundesbank upgrades German GDP forecast, at beginning of strong upswing
Bundesbank upgraded Germany GDP growth forecast to 3.7% (from 3.0%) in 2021, 5.2% in 2022 (from 4.5%). Growth is expected to slow to 1.7% in 2023. It said that “the German economy is overcoming the pandemic-related crisis and is at the beginning of a strong upswing”. The economy is expected to reach pre crisis level again “this summer”.
Inflation to also projected to accelerate to 2.6% yoy this year (upgraded from 1.8%). For 2022, inflation forecast is upgraded to 1.8% (from 1.3%), and for 2023 at 1.7% (from 1.6%). It added, “the exceptionally high inflation rates, by German standards, projected for the second half of 2021 could ultimately shift economic agents’ inflation perceptions and expectations,”
“As a result, wage and price-setting behavior could change and exert further inflationary pressure. This would especially be the case if headline price inflation in the near future were to be even higher than estimated here”, the report added.
Full release here.