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Bundesbank urges prudence: further rate reductions must be judiciously evaluated

    By
    ActionForex.com
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    Bundesbank’s latest monthly report indicates that while some factors are bolstering the economy, they are simultaneously complicating efforts to bring inflation down to target.

    “The labor markets are still operating at high capacity, wage growth is brisk, and prices are rising strongly, particularly in the service sector,” the report stated.

    Bundesbank highlighted that “inflationary risks also predominate on the supply side.” Services inflation is expected to decline only modestly in the coming months, with the overall price index likely to fluctuate around current levels.

    Given these conditions, the Bundesbank advised that “possible further interest rate cuts should therefore be carefully considered in light of current data.”

    Bundesbank anticipates the economy to “strengthen somewhat” in the Q3. Private consumption is expected to “pick up a little more speed” driven by strongly rising wages, falling inflation, and a robust labor market, which should continue to support consumer spending.

    However, the report also cautioned that industrial activity is likely to improve “only hesitantly” due to weak demand, which could result in GDP growth for Q3 falling slightly short of the expectations from June forecast.

    ECB’s Kazimir: Two more rate cuts this year not guaranteed

      By
      ActionForex.com
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      In an op-ed published today, ECB Governing Council member Peter Kazimir addressed market expectations for two additional rate cuts before the end of the year. He stated that while these market bets are “not entirely misplaced,” they should not be considered a “given or a baseline scenario.”

      Kazimir highlighted that inflation is “on track” to return to the target but cautioned, “we are clearly not there yet.” He emphasized the persistent risks of inflationary pressures due to various domestic and global factors. “There is still a non-negligible risk of inflationary pressures re-emerging,” he noted.

      “There is no need to rush our decisions,” Kazimir added, advising a measured approach. “Enjoy the summer lull and wait for the much-anticipated September ‘health check.’ The upcoming data, combined with fresh forecasts, will set the stage for any necessary decisions.”

      China’s surprise rate cut lifts USD/CNH

        By
        ActionForex.com
        -

        In a surprised move, China’s PBoC today announced its first reduction in a key short-term policy rate in nearly a year, following weaker-than-expected economic growth in Q2. The economy expanded at its slowest pace in over a year, prompting the central bank to lower the seven-day reverse repo rate from 1.8% to 1.7%. PBOC emphasized that these rate cuts are part of its strategy to “strengthen counter-cyclical adjustments to better support the real economy.”

        Following closely on PBOC’s announcement, Chinese banks adjusted their main benchmark lending rates, marking the first such adjustment since August 2023. The one-year loan prime rate was reduced to 3.35% from 3.45%. The five-year rate, which is crucial for mortgages, dropped to 3.85% from 3.95%.

        In response to these developments, USD/CHN extends the recovery from 7.2597 following the news. Technically, current development suggests that pull back from 7.3111 has already completed, and larger rise from 7.0870 is probably ready to resume. Break of 7.3111 will target 100% projection of 7.0870 to 7.2827 from 7.1648 at 7.3605, which is slightly below 7.3745 (2023 high). This will remain the favored case as long as 7.2597 support holds.

        New Zealand’s goods exports falls -0.1% yoy, imports down significantly by -13% yoy

          By
          ActionForex.com
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          In June, New Zealand’s overall goods exports slightly declining by -0.1% yoy, a reduction of NZD 7.4m, totaling NZD 6.2B. Conversely, goods imports experienced a more significant decrease, falling -13% yoy or NZD 821m, resulting in total imports of NZD 5.5B. This led to a trade surplus of NZD 699m, surpassing expectations of NZD 294m.

          Examining trade movements by country, exports to major partners showed mixed results. China saw a decrease of NZD 142m in exports, a -9.1% yoy drop, while exports to Australia also fell by NZD 74m or -9.2% yoy. In contrast, exports to the US and the EU increased by NZD 91m (12% yoy) and NZD 129m (34% yoy) respectively. Japan’s exports marginally decreased by NZD 4.1m or -1.1% yoy.

          On the import front, China and the EU recorded increases of NZD 11m (0.9% yoy) and NZD 33m (3.3% yoy) respectively. However, imports from Australia, the US, and South Korea saw significant declines, with reductions of NZD 69m (-10% yoy), NZD 49m (-8.4% yoy), and NZD 54m (-14% yoy) respectively.

          Full New Zealand trade balance release here.

          Canada retail sales falls -0.8% mom in May, down further -0.3% mom in Jun

            By
            ActionForex.com
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            Canada’s retail sales fell -0.8% mom to CAD 66.1B in May, worse than expectation of -0.5% mom. Sales were down in eight of nine subsectors, led by decreases at food and beverage retailers. Core retail sales—which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers—were down -1.4% mom in May.

            Advance estimate indicates that sales decreased further by -0.3% mom in June.

            Full Canada retail sales release here.

            ECB’s Simkus: Interest rates are getting lower, quite significantly

              By
              ActionForex.com
              -

              ECB Governing Council member Gediminas Simkus shared his views with reporters today, indicating that his outlook aligns with current market expectations, which anticipate two rate cuts this year.

              Simkus commented, “Interest rates are getting lower and, I think, will keep getting lower, and quite significantly.”

              ECB’s Villeroy: Market rate cut expectations “rather reasonable”

                By
                ActionForex.com
                -

                ECB Governing Council member Francois Villeroy de Galhau spoke on French radio BFM Business today, expressing that current market expectations for interest rate cuts seem “rather reasonable.”

                Markets are currently pricing in nearly two ECB rate cuts for the remainder of the year, likely occurring in September and December, with around five cuts anticipated by the end of next year.

                Villeroy de Galhau affirmed ECB’s stance on inflation, stating, “Overall, we are ‘on track’ with our inflation target and forecast of 2% next year.” He further emphasized the commitment to this target, noting, “Barring any shocks, this is more than a forecast, it’s a commitment.”

                 

                UK retail sales falls -1.2% mom in Jun, down -0.2% yoy in Q2

                  By
                  ActionForex.com
                  -

                  UK retail sales volume fell -1.2% mom in June, worse than expectation of -0.6% mom. Sales volumes fell across most sectors, with department stores and clothing retailers broadly returning to their Q1 levels. It’s -1.3% below their pre-pandemic levels in February 2020.

                  Looking at the quarter, sales volumes fell by -0.1% qoq and -0.2% yoy in Q2.

                  Full UK retail sales data here.

                  Japan downgrades fiscal 2024 growth forecast amid consumption struggles

                    By
                    ActionForex.com
                    -

                    Japan’s government has downgraded its growth forecast for the current fiscal year 2024 from 1.3% to 0.9%.

                    This adjustment comes as inflation continues to impact private consumption, which accounts for over half of the economy. Private consumption growth is now expected to be just 0.5%, a significant drop from the January forecast of 1.2%.

                    Various one-off factors, including safety test scandals in the auto industry, have also contributed to this downgrade.

                    However, the economy is expected to rebound in fiscal 2025 with a growth rate of 1.2%.

                    Consumer prices are now forecast to rise by 2.8% in fiscal 2024, an increase from the earlier expectation of 2.5%.

                    The government has also adjusted its assumption for Yen, now expecting it to remain around 158.8 per Dollar for the current fiscal year, weaker than the previous estimate of 149.8 Yen.

                    Fed’s Daly advocates for patience as “we’re not there yet”

                      By
                      ActionForex.com
                      -

                      San Francisco Fed President Mary Daly commented at an event overnight, emphasizing that the US has not yet achieved price stability. While acknowledging recent positive inflation data, Daly noted, “We’re not there yet.”

                      Daly highlighted the delicate balancing act facing monetary policy. She called for patience, urging policymakers to “balance the costs of acting fast and being wrong.”

                      “It’s a risk to act too soon to normalize interest rates and then have inflation stuck below or above our target, and it’s a risk to hold on too long and make the labor market falter,” Daly elaborated.

                      Japan’s CPI core rises to 2.6%, above target for 27th month

                        By
                        ActionForex.com
                        -

                        Japan’s core CPI, which excludes food prices, rose from 2.5% yoy to 2.6% yoy in June, slightly missing expectations of 2.7% yoy. This nonetheless marks the 27th consecutive month that inflation has been at or above BoJ’s 2% target. Core-core CPI, which excludes both food and energy, increased from 2.1% yoy to 2.2% yoy, while headline CPI as unchanged at 2.8% yoy.

                        Services inflation saw a modest increase from 1.6% yoy to 1.7% yoy. A reduction in government subsidies aimed at curbing utility bills resulted in a 7.7% yoy rise in energy costs, up from 7.2% increase seen in May.

                        Attention is now shifting to BoJ’s upcoming meeting on July 30-31. There is divided opinion on whether BoJ will decide to hike the policy rate from the current 0.00-0.10% range to 0.15-0.25%. The central bank is also expected to unveil a roadmap for reducing its bond purchases and release its economic outlook report, which will publish new economic forecasts.

                        US initial jobless claims rises to 243k vs exp 225k

                          By
                          ActionForex.com
                          -

                          US initial jobless claims rose 20k to 243k in the week ending July 13, above expectation of 225k. Four-week moving average of initial claims rose 1k to 235k.

                          Continuing claims rose 20k to 1867k in the week ending July 6, highest since November 27, 2021. Four-week moving average of continuing claims rose 12k to 1851k, highest since December 4, 2021.

                          Full US jobless claims release here.

                          ECB stands pat, headline inflation to stay above target well into next year

                            By
                            ActionForex.com
                            -

                            ECB left interest rates unchanged as wildly expected. Interest rates on the marginal lending facility and the deposit facility are held at 4.25%, 4.50% and 3.75% respectively.

                            In the accompanying statement, ECB noted that incoming information broadly support the Governing Council’s medium-term inflation outlook. Most measures of underlying inflation were “either stable or edged down” in June. Impact of high wage growth has been “buffered by profits”.

                            Nevertheless, domestic price pressures are “still high” while services inflation is “elevated”. Headline inflation is “likely to remain above the target well into next year”.

                            ECB also pledge to keep policy rates “sufficiently restrictive for as long as necessary”, and will continue to follow a “date-dependent and meeting-by-meeting” approach, while “not pre-committing” to a particular rate path.

                            Full ECB statement here.

                            UK payrolled employment rises 16k in Jun, unemployment rate steady at 4.4% in May

                              By
                              ActionForex.com
                              -

                              In June, UK payrolled employment rose 16k or 0.1% mom. Median monthly pay increased 3.6%, sharply lower than prior month’s 6.0% yoy. This sharper than usual slow down in pay growth is partly because of the comparison with June 2023, which figure was inflated by pay settlements made in the health sector. Claimant count rose 32.3k versus expectation of 23.4k.

                              In the three months to May, unemployment rate was unchanged at 4.4%, matched expectations. Growth of average earnings including bonus slowed from 5.9% yoy to 5.7% yoy. Growth of average earnings excluding bonus slowed from 6.0% yoy to 5.7% yoy. Both earnings growth matched expectations.

                              Full UK labor market release here.

                              Australia’s NAB business confidence ticks up to -1 in Q2, conditions tumbles to 5

                                By
                                ActionForex.com
                                -

                                Australia’s NAB Quarterly Business Confidence improved marginally, rising from -2 to -1 in Q2. However, business conditions overall weakened, with the index falling from 10 to 5. Trading conditions dropped from 15 to 9, profitability conditions fell from 8 to 2, and employment conditions decreased from 7 to 5.

                                Cost pressures persisted, with labor costs growing at 1.2%, unchanged from the previous quarter, and purchase costs growing at 0.9%, down from 1.1%. Price growth measures showed some relief, with final product price growth at 0.6% quarter-on-quarter, down from 0.8%. Retail price growth eased to 0.7% from 0.9%, and recreation and personal services price growth slowed to 0.6% from 0.8%.

                                NAB Chief Economist Alan Oster noted that the survey shows mixed results on cost pressures and prices. While materials cost growth is improving, labor costs remain high. He highlighted that 30% of firms are facing significant challenges with labor availability, and wage costs continue to be a major concern.

                                Full Australia NAB quarterly business confidence release here.

                                Australia’s employment grows 50.2k, labor market remains relatively tight

                                  By
                                  ActionForex.com
                                  -

                                  Australia’s employment figures for June showed a strong increase, with employment rising by 50.2k, well above the expected 20.0k. This growth included 43.3k full-time jobs and 6.8k part-time jobs.

                                  Unemployment rate edged up from 4.0% to 4.1%, in line with expectations. Participation rate also increased from 66.8% to 66.9%, just 0.1% below the historical high of 67.0% set in November 2023. Additionally, the employment-to-population ratio rose by 0.1% to 64.2%, close to its historical peak of 64.4% from November 2023. Monthly hours worked increased by 0.8% mom.

                                  Bjorn Jarvis, head of labour statistics at ABS, observed that both the employment-to-population ratio and the participation rate are still near their 2023 highs. He added that together the persistently high level of job vacancies indicates the labor market “remains relatively tight”, even though unemployment rate has been above 4.0% since April.

                                  Full Australia employment release here.

                                  Japan’s exports rise 5.4% yoy in June, but volume down -6.2% yoy

                                    By
                                    ActionForex.com
                                    -

                                    In June, Japan’s exports grew by 5.4% yoy to JPY 9209B, falling short of 6.4% yoy expected. This marks the seventh consecutive monthly increase in export value. However, export volume fell by -6.2% yoy, indicating that the rise in export value was driven primarily by higher prices and falling Yen rather than increased demand.

                                    By destination, shipments to the US increased by 11% yoy. Exports to China grew by 7.2% yoy, marking the seventh consecutive month of growth. Overall, exports to Asia rose by 7.7% yoy, but exports to the EU declined by -13.4% yoy.

                                    Imports increased by 3.2% yoy to JPY 8985B, below the expected 9.3% yoy. Import volume also decreased by -8.9% yoy. For June, Japan recorded a trade surplus of JPY 224B.

                                    In seasonally adjusted terms, exports declined by -0.2% mom h to JPY 8961B, while imports rose by 1.6% mom to JPY 9778B, leading to a trade deficit of JPY -817B.

                                    Fed’s Waller suggests rate cuts may be nearing

                                      By
                                      ActionForex.com
                                      -

                                      In a speech today, Fed Governor Christopher Waller stated that Fed is “getting closer” to the time when a cut in the policy rate is warranted. He noted that Q2 data on inflation and the labor market has moderated, suggesting that “progress toward price stability has resumed.” Waller believes the current data align with the goal of achieving a soft landing and will be watching for further data in the coming months to support this view.

                                      Waller outlined three scenarios for the future. The first, and most optimistic, scenario is that Fed continues to receive “very favorable” inflation data, leading to a “nice run” that began in May. In this case, Waller could “envision a rate cut in the not-too-distant future.”

                                      The second scenario, which Waller considers “more likely to occur,” involves inflation data coming in “uneven” but still indicating overall progress in disinflation. Under this scenario, a rate cut in the near future is “more uncertain.”

                                      The third scenario involves a “significant resurgence in inflation” in the second half of the year, but Waller assigns a “low probability” to this outcome.

                                      Given his belief that the first two scenarios are the most probable, Waller concludes that the “time to lower the policy rate is drawing closer.”

                                      Full speech of Fed’s Waller here.

                                      Fed’s Williams sees positive signs in inflation trend, awaiting more data

                                        By
                                        ActionForex.com
                                        -

                                        New York Fed President John Williams, in an interview with the Wall Street Journal, indicated that recent inflation readings over the past three months are “getting us closer to a disinflationary trend that we’re looking for,” noting these as “positive signs.”

                                        However, Williams emphasized the need for “more data to gain further confidence” that inflation is moving sustainably toward the Fed’s 2% goal. He expressed satisfaction with the current policy stance, stating, “I feel like the stance of policy right now is working well.”

                                        Williams suggested that if the favorable data trend continues, he would gain “greater confidence that inflation is moving sustainably to 2%.”

                                         

                                        Eurozone CPI finalized at 2.5% in Jun, core at 2.9%

                                          By
                                          ActionForex.com
                                          -

                                          Eurozone CPI was finalized at 2.5% yoy in June, down from May’s 2.6% yoy. CPI core (ex-energy, food, alcohol & tobacco) was finalized at 2.9% yoy, unchanged from prior month’s reading. The highest contribution to annual inflation rate came from services (+1.84 percentage points, pp), followed by food, alcohol & tobacco (+0.48 pp), non-energy industrial goods (+0.17 pp) and energy (+0.02 pp).

                                          EU CPI was finalized at 2.6% yoy, down from May’s 2.7% yoy. The lowest annual rates were registered in Finland (0.5%), Italy (0.9%) and Lithuania (1.0%). The highest annual rates were recorded in Belgium (5.4%), Romania (5.3%), Spain and Hungary (both 3.6%). Compared with May 2024, annual inflation fell in seventeen Member States, remained stable in one and rose in nine.

                                          Full Eurozone CPI final release here.

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