US initial claims was unchanged at 212k in April 13, slightly below expectation of 214k. Four-week moving average of initial claims was also unchanged at 214.5k.
Continuing claims rose 2k to 1812k in the week ending April 6. Four-week moving average of continuing claims rose 4k to 1805k.
Bundesbank, in its latest monthly report, suggested some improvement in the German economy though underlying weaknesses remain. The report notes, “Germany’s economic situation has brightened somewhat, but it remains weak at its core,” signaling uncertainty about the sustainability of economic growth into the second quarter.
Despite these challenges, there has been a noticeable rise in optimism among consumers, businesses, and investors, potentially setting the stage for a stronger economic recovery than previously anticipated. The Bundesbank highlights, “If this improvement continues, the economy could also pick up more significantly than was expected a month ago.”
However, the report also points out several areas of concern. Industry continues to struggle, and the construction sector might see a downturn following a temporary boost from a mild winter. Furthermore, high interest rates are suppressing investment activities, and while export demand shows weakness, consumer spending remains restrained despite favorable conditions in the labor market, such as rising wages and slowing inflation.
During a European Parliament hearing today, ECB Vice President Luis de Guindos stated that ECB has been “crystal clear” on its conditional guidance regarding interest rate cut.
“If things continue as they have been evolving lately, in June we’ll be ready to reduce the restriction of our monetary policy stance,” he said.
While financial markets anticipate a total of 75bps in rate cuts for the year, de Guindos remained non-committal about specific future rate levels.
He pointed out several risks to inflation outlook, including wage dynamics, productivity, unit labor costs, profit margins, and geopolitical tensions.
BoJ Board Member Asahi Noguchi highlighted in a speech today the unique economic conditions facing Japan compared to other major economies. He pointed out that any changes to the policy rate are expected to occur at a slower pace than those seen in recent actions by other major central banks.
“With regard to the pace of policy rate adjustment, it is expected to be slow, at a pace that cannot be compared to that of other major central banks in recent years,” Noguchi stated. This approach reflects the central bank’s assessment that it will take considerable time for Japan to consistently achieve its price stability target of 2% inflation.
Noguchi also noted the recent significant wage increases in Japan, describing them as unprecedented. However, he cautioned that these wage hikes alone are not yet sufficient to drive up prices to the level needed for trend inflation to stabilize at the 2% target.
“It is essential for the BoJ to maintain its ultra-loose monetary policy to seek an appropriate balance in the labour supply-demand,” he added.
Australia NAB Quarterly Business Confidence rose from -6 to -2 in Q1. Business Conditions was unchanged at 10. In terms of forward-looking expectations, businesses anticipate a slight downturn in conditions over the next three months, with expectations dipping from 14 to 12. However, the outlook for the next 12 months improved, rising from 16 to 17.
According to NAB Chief Economist Alan Oster, “Consistent with our monthly business survey, today’s release shows business conditions remained resilient at above-average levels through the start of the year. Confidence remained weak but showed some improvement relative to the tail end of 2023.”
The report also highlighted easing cost pressures, although the reduction was minimal. Labor costs grew at a slightly reduced rate of 1.2%, down from 1.3% in the previous quarter, and purchase costs increased by 1.1%, down from 1.2%. Meanwhile, final product price growth remained steady at 0.7%, and retail price growth decreased marginally to 0.8% from 0.9%.
Oster noted, “There continue to be some positive signs of easing cost pressures for businesses but progress was more incremental through Q1. Importantly, forward-looking indicators of firms’ expectations for price growth suggest firms expect some further moderation.”
Full Australia NAB Quarterly Business Confidence release here.
Australia’s employment figures for March revealed a slight contraction of -6.6k, worse than expectation of 7.2k growth. This downturn was primarily due to drop in part-time employment by -34.5k, partially offset by rise in full-time by 27.9k.
Unemployment rate rose from 3.7% to 3.8%, below expectation of 3.9%. Participation rate fell from 66.7% to 66.6%. Monthly hours worked rose 0.9% mom.
Bjorn Jarvis, Head of Labour Statistics at ABS, noted, “The labour market remained relatively tight in March, with an employment-to-population ratio and participation rate still close to their record highs in November 2023.” He pointed out that although there has been a modest decline of 0.4 percentage points since the highs of last November, the metrics remain substantially above pre-pandemic levels.
Fed Governor Michelle Bowman, speaking at an International Institute of Finance conference, remarked that progress on inflation has “slowed” and may have “even stalled at this point”.
Bowman elaborated that the existing levels of growth and market activity might indicate that the current policy stance may not be restrictive enough. “There is a lot of financial market activity and a lot of continued growth that we wouldn’t have expected if policy was sufficiently tight,” she commented, adding, “I think it is restrictive. I think time will tell whether it is sufficiently restrictive.”
Separately, Cleveland Fed President Loretta Mester also echoed the need for caution before making further policy adjustments. While she remains hopeful that inflation will decrease, Mester emphasized the importance of further data analysis before proceeding with any monetary policy changes. “I still am expecting inflation to come down but I do think that we need to be watching and gathering more information before we take an action,” Mester commented.
ECB officials have indicated a growing likelihood of a rate cut as soon as June, though decisions hinge on forthcoming economic projections and persistent inflation concerns.
Bundesbank President and ECB Governing Council member Joachim Nagel voiced cautious optimism to CNBC about the possibility of easing monetary policy, noting, “the probability is increasing” for a rate reduction, albeit with “some caveats” due to still-high core and service inflation rates.
Nagel emphasized that ECB’s upcoming projections in June will be crucial. “For the June meeting, we will get our projections, so we will get our new forecasts and if there is a confirmation that inflation is really going down and we will achieve our target in 2025,” he explained.
In tandem, Mario Centeno, Governor of the Bank of Portugal and fellow ECB Governing Council member, described a rate cut in June as “very likely,” asserting that even with a reduction of 25 or 50 basis the ECB’s monetary policy would remain tight.
Slovenia’s central bank governor Bostjan Vasle projected that interest rates should be “much closer to 3% towards the end of the year if everything goes according to plan.” However, he also expressed concern over recent geopolitical tensions in the Middle East.
BoE Governor Andrew Bailey, speaking at an International Institute of Finance conference, projected a “quite a strong drop” in next month’s inflation figures. This expectation is largely due to the unique household energy pricing system in the UK, which is set to impact the overall inflation calculations differently compared to other sectors.
However, he was quick to temper this optimistic forecast with a note of caution regarding the broader inflationary landscape. According to Bailey, underlying components of the inflation measure continue to show disparities that could complicate monetary policy response.
The Governor pointed out that while energy price inflation is currently running at minus 20%, the inflation in services remains high, around 6%. This stark contrast in inflation rates across different sectors presents an “unbalanced” picture.
“We don’t have to have every component actually at target, but you do have to have a better balance,” Bailey remarked.
During a conference today, ECB Executive Board member Piero Cipollone emphasized the importance of incoming data in the months of June and July in shaping ECB’s approach to ease its current restrictive measures.
“If we see that the incoming data…will confirm our confidence that inflation is really (moving) to target, it will be appropriate to remove some of the restriction that we put in place,” he stated.
However, Cipollone also expressed concerns regarding the volatility in the commodity markets, particularly the price of oil, which poses a significant risk to inflation. As Eurozone is a large, open economy with substantial dependence on energy imports, fluctuations in oil prices remain a major concern for ECB.
BoE MPC member Megan Greene expressed concerns today during a seminar about the economic repercussions of ongoing tensions in the Middle East. Highlighting the region’s significance, Greene pointed out the risks associated with an energy price shock and other supply side disruptions, which could complicate the inflationary landscape further.
“I do think that what’s going on in the Middle East does pose a risk,” Greene remarked. “I’m worried about the sort of an energy price shock and other supply side shock, which obviously follow a number of supply side shocks we’ve seen over the past couple of years, and what that might do to inflation expectations.”
Greene also addressed the challenges involved in reducing inflation to the Bank’s target of 2%, noting that the final steps in this process are particularly challenging. “The ‘last mile’ of the journey towards hitting the 2% inflation target was the hardest part,” she stated.
Eurozone CPI was finalized at 2.4% yoy in March, down from February’s 2.6% yoy. CPI core (energy, food, alcohol & tobacco) was finalized at 2.9% yoy, down from prior month’s 3.1% yoy.
The highest contribution to annual Eurozone inflation rate came from services (+1.76 percentage points, pp), followed by food, alcohol & tobacco (+0.53 pp), non-energy industrial goods (+0.30 pp) and energy (-0.16 pp).
EU CPI was finalized at 2.6% yoy, down from prior month’s 2.8% yoy. The lowest annual rates were registered in Lithuania (0.4%), Finland (0.6%) and Denmark (0.8%). The highest annual rates were recorded in Romania (6.7%), Croatia (4.9%), Estonia and Austria (both 4.1%). Compared with February, annual inflation fell in thirteen Member States, remained stable in four and rose in ten.
UK CPI slowed from 3.4% yoy to 3.2% yoy in March, above expectation of 3.1% yoy. CPI core (excluding energy, food, alcohol and tobacco) decelerated from 4.5% yoy to 4.2% yoy, above expectation of 4.1% yoy. CPI goods slowed from 1.1% yoy to 0.8% yoy. CPI serviced eased marginally from 6.1% yoy to 6.0% yoy. For the month, CPI rose 0.6% mom.
Japan’s exports marked the fourth consecutive month of growth with a 7.3% yoy increase to JPY 9470B in March, slightly surpassing expected 7.0%. This growth was largely fueled by robust performances in automotive and semiconductor & electronic parts, which reported gains of 7.1% yoy and 11.3% yoy respectively.
Regionally, exports to China accelerated to 12.6% yoy, from just 2.5% yoy in the previous month. However, exports to the US and Europe saw a slowdown, growing at 8.5% and 3.0% respectively.
Import contracted -4.9% yoy to JPY 9103B, which was slightly better anticipated -5.1% yoy. Overall trade balance for March showed a surplus of JPY 366.5B.
In seasonally adjusted term, exports rose 2.6% mom to JPY 8768B. Imports rose 3.9% mom to JPY 9470B. Trade balance came in at JPY -701B.
Australia’s economic outlook appears subdued for the remainder of 2024, according to the latest data from Westpac’s leading index, which fell from -0.03% to -0.23% in March. This decline signals continuation of “sub-trend” growth, as characterized by Westpac, suggesting that the economic performance may not reach the usual growth standards expected within the country.
Westpac projected that Australia’s GDP growth will remain modest at of 1.6% for 2024. This follows a similarly soft performance in 2023, where GDP grew only by 1.5%. Such figures are notably below the typical “trend” growth rate of around 2.5%.
Looking ahead, the focus shifts to the upcoming Q1 CPI data, set to be released on April 24. Westpac anticipates that this report will show deceleration in inflation to 3.5%, a development that could reinforce RBA confidence that inflation is on path back to target range of 2-3%.
However, the decision for RBA to shift to a more definitively “on hold” stance regarding interest rates will hinge on the specifics of the price updates and a broader assessment of risks.
New Zealand CPI rose 0.6% qoq in Q1, while annual inflation rate decelerated from 4.7% yoy to 4.0% yoy. This marks the lowest annual inflation rate since Q2 2021 but still remains above RBNZ’s target band of 1-3%.
The most significant pressure on the annual inflation rate came from the housing and household utilities sector. Record increases in rent, which rose by 4.7% yoy, along with 3.3% yoy rise in the construction costs of new houses and 9.8% yoy hike in rates, were the primary drivers behind the sustained inflationary pressures.
In terms of inflation categories, there was a notable divergence between non-tradeable and tradeable inflation. Non-tradeable inflation, which includes goods and services that do not face foreign competition and thus reflect domestic supply and demand conditions, slightly decreased from 5.9% yoy to 5.8% yoy.
In contrast, tradeable inflation, which is influenced by foreign markets and includes goods and services that compete with foreign imports, experienced a more significant slowdown from 3.0% yoy to 1.6% yoy.
Fed Chair Jerome Powell acknowledged that recent economic data have not bolstered confidence in disinflation. He signaled the readiness to keep rates elevated for an extended period if inflationary pressure persists.
“Recent data have clearly not given us greater confidence that inflation is coming fully under control. Instead, they indicate that it’s likely to take longer than expected to achieve that confidence,” Powell said at a conference overnight. .
“Given the strength of the labor market and progress on inflation so far, it is appropriate to allow restrictive policy further time to work,” he added.
“If higher inflation does persist, we can maintain the current level of interest rates for as long as needed,” Powell noted.
BoE Governor Andrew Bailey pointed to “strong evidence” that disinflation process is “working its way” through the UK economy, suggesting that the previous monetary tightening is having the intended effects.
“Our judgement with interest rates is how much do we need to see now to be confident of the process,” Bailey stated at an IMF conference overnight, indicating that BoE is looking for further signs of sustained disinflation before considering any reductions in interest rates.
Bailey also drew distinctions between the inflation dynamics in the UK and those observed in the US. The UK is still navigating the aftermath of “big supply shocks”, including those stemming from the global pandemic and geopolitical tensions, notably the war impacts. He contrasted this with the US, where there is a greater element of “demand-led inflation pressure”.
In an interview with CNBC today, ECB President Christine Lagarde expressed cautious optimism about the ongoing disinflationary trends, noting that disinflation is aligning with ECB’s forecasts.
Lagarde emphasized the need for ECB to gain “a bit more confidence” in the sustainability of these disinflationary trends before making any significant changes to its policy framework.
Looking ahead, Lagarde pointed out that barring any “major shock” in developments, ECB is poised to “moderate the restrictive monetary policy.”
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Fed’s Williams: No urgency to cut interest rates
At the Semafor World Economy Summit today, New York Fed President John Williams there is no urgency in current monetary policy stance.
“We’ve got interest rates in a place that is moving us gradually to our goals. So I definitely don’t feel urgency to cut interest rates. I think monetary policy is doing exactly what we would like to see,” he said.
Williams underscored that while an increase in rates is not the expected course, it remains a possibility should the economic indicators necessitate such action to achieve Fed’s inflation objectives.