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Italian President Mattarella called meeting of political leaders after getting Prime Minster nomination

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    ActionForex.com
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    Italian President Sergio Mattarella called the leaders of the lower and upper houses of the parliament for a meeting today. That came after meeting with anti-establishment 5-Star Movement and far-right League, who have agreed on a deal to form a coalition government.

    5-Star leader Luigi Di Maio said after meeting with Mattarella that Giuseppe Conte, a law professor but a political novice, “will be the prime minister of a political government”. Maio hailed that Conte is “a person that can carry out the government contract” and he’s “proud” of this choice. Leader of the League Matto Salvini also confirmed the name.

    For now, it’s uncertain whether Mattarella will appoint Conte as the Prime Minister, or he’d prefer a more high-profile figure.

    ECB’s Lagarde sets conditions for June rate cut

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      ActionForex.com
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      ECB President Christine Lagarde provided clarity in a speech on the conditions that would lead to a rate cut in June, highlighting reliance on “two important pieces of evidence” as pivotal to the central bank’s confidence on dialing back monetary restrictions. .

      Firstly, ECB anticipates receiving data on negotiated wage growth for Q1 by the end of May. Secondly, by June, ECB will have access to a new set of economic projections, enabling it to verify the validity of the inflation path forecasted in its March projection.

      After the first move, Lagarde emphasized to “confirm on an ongoing basis” that incoming data aligns with its inflation outlook. This approach underscores a commitment to data-driven policy decisions, maintaining a “meeting-by-meeting” stance that eschews any pre-commitment to a fixed rate path.

      Furthermore, Lagarde noted the enduring significance of ECB’s policy framework in processing incoming data and determining the appropriate policy stance. However, she also mentioned that the relative importance of the three criteria guiding these decisions would require regular reassessment.

      Full speech of ECB’s Lagarde here.

      EUR/USD and GBP/USD upside breakout on PMIs and Brexit progress

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        ActionForex.com
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        Sterling and Euro rise broadly today, partly based on progress in Brexit negotiations, and partly on stronger than expected PMIs. Strong risk-on market in Europe also pressures the green back.

        In particular EUR/USD has taken out 1.2177 resistance to resume the whole up trend from 1.0635. Next target will be 61.8% projection of 1.0635 to 1.2011 from 1.1602 at 1.2452.

        GBP/USD also breaches 1.3539 resistance, suggesting resumption of whole rise from 1.1409. Sustained trading above 1.3539 will pave the way to 61.8% projection of 1.1409 to 1.3482 from 1.2675 at 1.3956.

        Australian Q2 CPI records slowest quarterly rate since Q3 2021, annual inflation eases again

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          ActionForex.com
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          In Q2, Australia’s CPI decelerated from 1.4% qoq to 0.8% qoq, coming in below the expected 1.0% qoq. This marked the lowest quarterly rate since Q3 2021. Year-on-year, CPI eased from 7.0% to 6.0%, falling short of anticipated 6.2% yoy. Annual inflation rate has been on a downtrend for two consecutive quarters since peaking at 7.8% in Q4 2022.

          RBA’s trimmed mean CPI registered at 0.9% qoq and 5.9% yoy, which were below forecast of 1.1% qoq and 6.0% yoy respectively. While CPI for goods slowed from 7.6% yoy to 5.8% yoy, CPI for services rose from 6.1% yoy to 6.3% yoy, hitting its highest level since 2001.

          Michelle Marquardt, ABS head of prices statistics, noted the shift in inflationary drivers, stating, “This is the first time since September 2021 that services inflation has been higher than goods, highlighting the change from 12 months ago when goods like new dwellings and automotive fuel were driving inflation. Now price increases for a range of services like rents, restaurant meals, child-care and insurance are keeping inflation high.”

          In June, monthly CPI slipped from 5.5% yoy to 5.4% yoy, in line with expectations. CPI excluding volatile items and holiday travel eased from 6.4% yoy to 6.1% yoy, and trimmed mean CPI fell from 6.1% yoy to 6.0% yoy.

          Full Australia CPI release here.

          BoC expected to stand pat, Fed expected to cut

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            ActionForex.com
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            USD/CAD recovers mildly ahead of 1.3016 today, as markets await BoC and FOMC rate decisions. BoC is widely expected to keep policy rate unchanged at 1.75%. Upside surprise in GDP growth and solid inflation offered BoC much room to stand on the sideline. Additionally, the newly-elected government’s fiscal stimulus is expected to support the economy in the coming year. There is no imminent need for the central bank to act in either direction. Ongoing trade war uncertainty and global economic slowdown would be the main focuses of policy makers ahead, and that could determine whether BoC needs to do anything next year.

            On the other hand, markets are generally expecting Fed to cut interest rate again by -25bps to 1.50-1.75% today. Fed fund futures are pricing in 97.8% chance for that. The main question is whether chair Jerome Powell will signal that it’s the end of the so called “mid-cycle adjustment”. Such message could also be reflected in changes in the forward guidance too. There is prospect of a Dollar rebound should Fed affirm this message.

            Here are some suggested readings on Fed and BoC:

            RBNZ hikes by 50bps to 1.50%, path of least regret

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              ActionForex.com
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              RBNZ raises Official Cash Rate by 50bps to 1.50%, larger than expectation of a 25bps hike. That’s also the biggest rate increase in 22 years.

              It said in the statement that “moving the OCR to a more neutral stance sooner will reduce the risks of rising inflation expectations.  A larger move now also provides more policy flexibility ahead in light of the highly uncertain global economic environment.”

              Also, “the Committee agreed that their policy ‘path of least regret’ is to increase the OCR by more now, rather than later, to head off rising inflation expectations and minimise any unnecessary volatility in output, interest rates, and the exchange rate in the future.”

              Full statement here.

              Swiss GDP contracted -8.2% in Q2, relatively limited in international comparison

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                ActionForex.com
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                Swiss GDP contracted -8.2% qoq in Q2, slightly better than expectation of -8.7% qoq. That’s the biggest decline since records of quarterly data began in 1980. Comparing to Q4 2019, before the pandemic, GDP slumped by a total of -10.5% in H1 2020. SEO said, “domestic economic activity was severely restricted in the wake of the pandemic and the measures taken to contain it”. But Swiss GDP decline remains “limited” in an international comparison.

                Full release here.

                Fed Bostic: Finishing tapering before end of Q1 is in our interest

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                  ActionForex.com
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                  Atlanta Fed President Raphael Bostic said yesterday that with robust growth, an improving job market and inflation more than twice Fed target, having tapering finished “some time before the end of the first quarter” would be “in our interest”.

                  Bostic also referred to OECD’s projection that inflation in the US could be above 4% for the year of 2022. He said, “if it is at that kind of level, I think there is going to be a good case to be made that we should be pulling forward more interest-rate increases and perhaps do even more than the one I have penciled in.”

                  AUD/NZD rebound gains traction ahead of RBA minutes

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                    ActionForex.com
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                    AUD/NZD continues to extend its rebound from 1.0585 short-term bottom, prompting traders to further close their short positions as the previous selloff failed to push the cross through 1.0469 low. Market participants are awaiting the release of RBA minutes in the upcoming Asian session, along with Australian PMIs and New Zealand CPI data this week.

                    Expectations on New Zealand’s CPI remain divided, with some anticipating a slowdown from 7.2% yoy level. If realized, this would fall below RBNZ’s forecast of 7.3%, potentially sparking speculation of a less aggressive rate hike path. Conversely, improvements in Australia’s PMI could bolster RBA’s confidence in resuming tightening with another rate hike in May.

                    Technically, break of 1.0789 resistance now argues that fall from 1.1085 has completed at 1.0585. Rise from there could be seen as the third leg of the pattern from 1.0469. Further rally could be seen back to 1.1085 resistance next. However, on the downside, break of 1.0732 support will bring retest of 1.0585 low instead.

                    Italian eurosceptic Savona urged to be ready for all eventualities on Euro membership

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                      ActionForex.com
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                      Italian European Affairs Minister Paolo Savona warned today that the country had to be ready for “all eventualities” on its Eurozone membership. He told a panel in the Senate that “we may find ourselves in a position where it’s not we who decide but others.” Hence, “my position regarding a Plan B … is that we have to be ready for all eventualities.”

                      Savona is a known eurosceptic who’s nomination as Economy Minister was veto by President President Sergio Mattarella earlier this year. That led to academic Giovanni Tria taking up that post to solve the political and constitutional crisis.

                      Bank of Italy Governor Ignazio Visco warned today that the country is now much more vulnerable than 10 years ago should another financial crisis hit. Visco urged “prudence and far-sightedness are needed to avoid (market) tensions and to avoid leaving Italians with a higher debt and lower income in the future.” Visco added that “there is certainly a need for public investments, to be chosen and implemented with maximum efficiency, just as there is a need for a broad and balanced tax reform.”

                      Fed Rosengren concerned of the likely second wave of coronavirus infections

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                        ActionForex.com
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                        Boston Fed President Eric Rosengren warned that “the economy remains fragile”. He’s concerned that a second wave of coronavirus infections this fall and winter is “likely” which could cause some states to “impose new restrictions on mobility and face-to-face interactions”. Additionally, additional fiscal support “seems unlikely to materialize any time soon”.

                        “It would have been fine if the pandemic lasted three months, but the pandemic isn’t lasting three months,” Rosengren said. “It’s lasting much longer than that and so there’s definitely a need for more targeted spending.”

                        Canada-US trade deal (NAFTA?) on track for conclusion by Friday

                          By
                          ActionForex.com
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                          Canadian Dollar softens mildly in Asian session but remains the third strongest for the week, just behind Sterling and Swiss Franc.

                          Progress in Canada-US trade talks appears to be positive. Comments from Trump and Canadian Prime Minister Justin Trudeau suggested that the negotiations are on track to complete by the end of the week.

                          Trump told reporters that “they (Canada) want to be part of the deal, and we gave until Friday and I think we’re probably on track. We’ll see what happens, but in any event, things are working out very well.” That’s an about turn from his recent hostile comments on Canada.

                          Trudeau also said “there is a possibility of getting there by Friday”. But he also emphasized that it is only a possibility, because it will hinge on whether or not there is ultimately a good deal for Canada.” He reiterated that “no NAFTA deal is better than a bad NAFTA deal.”

                          Canadian Foreign Minister Chrystia Freeland, staying in Washington, said “our officials are meeting now and will be meeting until very late tonight. Possibly they’ll be meeting all night long”. And, “this is a very intense moment in the negotiations and we’re trying to get a lot of things done very quickly.”

                          Mexico’s President Enrique Pena Nieto also said in a local radio interview that “I am optimistic that a trilateral deal can be reached… we have from now until Friday for a deal in principle to be announced,”

                          ECB Kazaks: Core inflation currently a key gauge for inflation persistence

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                            ActionForex.com
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                            ECB Governing Council member Martins Kazaks pushed back on talks that the central bank would cut interest rates by the end of this year. He said he failed to see a “rationale” for that.

                            “It would take a deep recession with a sizeable jump in unemployment for inflation to sink and thus push for rate cuts,” the Latvian central bank governor said. “But that is not likely, given the current macro outlook.”

                            “It is possible for core inflation to continue trending up even as headline inflation is coming down, for instance, due to swings in energy prices,” he said. “In my view, core inflation currently is a key gauge for inflation persistence and policy decisions.”

                            He expects interest rate to rise “well into restrictive territory” but declined to estimate the terminal rate. “Uncertainty is too high, and we shall find it step-by-step,” he said.

                            Japan’s exports to China tumble further, trade with US flourishes

                              By
                              ActionForex.com
                              -

                              Japan’s economic data shows a dwindling momentum in the country’s export sector, registering a decline of -0.8% yoy to JPY 7994B in August, with a particularly notable decrease in its trading activities with China.

                              The continued dip in exports is largely attributed to diminishing overseas demand and the trade restrictions imposed by China, which have significantly impacted Japan’s trade balance.

                              A striking example is seen in the sharp -11.0% yoy decline in exports to China, to a total of JPY 1.44T. This downturn marks the third consecutive month of double-digit drops in export activities to China, severely affected by the -41.2% yoy plunge in food exports due to China’s ban on Japanese seafood.

                              However, a beacon of positivity trading rapport with US, which saw a growth spurt of 5.1% yoy, aggregating to a record JPY 1.62T for the month of August. This surge has been primarily fueled by a heightened demand for Japanese cars, mining, and construction machinery.

                              On the import front, Japan noted a considerable -17.8% yoy reduction to JPY 8925B, with imports from China dipping -12.1% to JPY 1.93T, and those from US falling -9.5% yoy to JPY 967.39B. The nation’s trade balance has consequently been reported at a deficit of JPY -930.5B.

                              When analyzed in seasonally adjusted terms, both exports and imports showcase a month-on-month decrease, registering -1.7% mom to JPY 8267.8B and -2.1% mom to JPY 8823.6B, respectively. Thankfully, there is a silver lining as the trade deficit has slightly narrowed compared to the previous month, standing at JPY -555.7B.

                              Full Japan trade release here.

                              New Zealand BNZ services dropped to 51.4, disappointing in context of easing restrictions

                                By
                                ActionForex.com
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                                New Zealand BNZ Performance of Services Index ticked down from 51.5 to 51.4 in April. Looking at some details, activity/sales dropped from 53.5 to 52.7. Employment rose from 49.2 to 51.2. New orders/business dropped from 59.0 to 53.6. Stocks/inventories rose from 52.8 to 54.8. Supplier deliveries dropped from 40.5 to 40.1.

                                BNZ Senior Economist Doug Steel said that “for large parts of the service sector that have been through the ringer over recent times, we suspect any result above breakeven would be welcomed. But, on the other hand, April’s result also looks somewhat disappointing in the context of easing COVID restrictions (from Red to Orange) halfway through the month.”

                                Full release here.

                                Japan’s Tokyo CPI slows sharply to 1.6%, raises questions on BoJ’s negative rates exit

                                  By
                                  ActionForex.com
                                  -

                                  Japan’s Tokyo CPI core (ex-food) slowed significantly from 2.1% yoy to 1.6% yoy in January, below expectation of 1.9% yoy. That’s also the lowest rate since March 2022. Additionally, core-core CPI (ex-food and energy) declined from 3.5% yoy to 3.1% yoy, marking a fifth consecutive month of decline. Headline CPI mirrored this trend, falling from 2.4% yoy to 1.6% yoy.

                                  The latest Tokyo CPI data has sparked a debate among economists regarding its influence on BoJ strategy to phase out negative interest rates. While some analysts believe this data won’t significantly impact BoJ’s plan, anticipating the first rate hike since 2007 in April, others are more cautious. They suggest that the surprising drop in Tokyo inflation might lead BoJ to reconsider or delay the decision.

                                  In parallel, December’s corporate services price index remained steady at 2.4% yoy, aligning with the near nine-year high recorded in November.

                                  Eurozone Sentix dropped to -13.7, spectre of recession is going around

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                                    ActionForex.com
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                                    Eurozone Sentix Investor Confidence dropped to -13.7 in August, down from -5.8 and missed expectation of -7.0. That’s also the lowest level since October 2015. Current Situation Index dropped from 1.8 to -7.3, lowest sine January 2015. Expectations Index de August 2012.

                                    Sentix warned that “the spectre of recession is going around.” It also said number of economists merely dismissed the deterioration as a “mood correction”. The current “manufacturing deterioration” is referred to as a “recession in the manufacturing sector” only, with “service sectors excluded. And it’s a “big mistake” from Sentix’s view.

                                    For Germany, Overall Index dropped from -4.8 to -13.7, lowest since August 2009. Current Situation Index dropped from 7.0 to -5.5, lowest since March 2010. Expectations Index dropped from -16.0 to -21.5, lowest since July 2012.

                                    Sentix said, “the former world champion exporter is feeling the effects of the backward roll of globalisation.” It also complained that the “entire political spectrum in Germany is discusses climate issues but “completely overlooks the fact that the economic climate is fading”.

                                    Full release here.

                                    Australia PMI composite dropped to record low 48.6, softness spilled over to 2020

                                      By
                                      ActionForex.com
                                      -

                                      Australia PMI Manufacturing dropped to 49.1 in January, down from 49.2. PMI Services dropped to 48.9, down from 49.8. PMI Composite dropped to 48.6, down from 49.6. That’s the record worst contraction reading since the survey started in May 2016.

                                      Commenting on the Commonwealth Bank Flash PMI data, CBA Chief Economist, Michael Blythe said:

                                      “The January “flash” results show the softness in the Australian economy at the end of 2019 has spilled over into the early part of 2020. There is some fundamental weakness in the Australian economy associated with consumer constraint, the residential construction downturn and the reluctance of business to invest. But the PMI results are also being influenced by the terrible bushfires around Sydney and elsewhere. At this stage the impact seems to be mainly through disruption to supply chains. Supplier delivery times have increased sharply”.

                                      “The gloom should not be overdone. Key leading indicators like new orders and employment are showing a notably stronger result than the “headline” PMI readings. And expectations about future business remain at encouraging levels”.

                                      Full release here.

                                      BoE Tenreyro stood pat in may to wait a little more

                                        By
                                        ActionForex.com
                                        -

                                        BoE MPC member Silvana Tenreyro said yesterday that “much of the downside Q1 GDP news is likely to be erratic”. However, that still increased the “possibility of some underlying weakness in demand”.

                                        Back in the May meeting, Tenreyo said the costs of waiting-and-see for a short period were relatively slow. And BoE will likely get a “significantly clearer picture of the underlying strength of domestic demand quite soon”. Therefore, there were “to leaving policy unchanged.”

                                        Overall, Tenreyo said “while I anticipate that a few rate rises will be needed, the timing of those rate rises is an open question.”

                                        Tenreyro’s messages were consistent with BoE’s own forecast in the inflation report that there would be a rate hike in August. That is, BoE opted to wait a little while more in May till August to make a decision. And, that is data dependent.

                                        US CPI at 0.6% mom, 3.7% yoy; CPI core at 0.3% mom, 4.3% yoy

                                          By
                                          ActionForex.com
                                          -

                                          US CPI rose 0.6% mom in August, matched expectations. CPI core (ex food and energy) rose 0.3% mom, above expectation of 0.2% mom. Energy index was up 5.6% mom. Food index was up 0.2% mom. Gasoline was the largest contributor to monthly CPI rise, accounting for over half of the increase. Another contributor was shelter index, which rose for the 40th consecutive month.

                                          For the 12 months period, headline CPI rose from 3.2% yoy to 3.7% yoy above expectation of 3.6% yoy. CPI core slowed from 4.7% yoy to 4.3% yoy, matched expectations. Energy index decreased -3.6% yoy. Food index rose 4.3% yoy.

                                          Full US CPI release here.

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