Governing Council Member Olli Rehn said there is still “plenty of economic slack” in Eurozone and inflation is “still mostly transitory”.
He added that “evidence speaking for transitory inflation is quite convincing” while core inflation was still “subdued”. Also, there is “no major evidence of second round effects”. Hence, ECB “leans on the side of not overreacting”.
ECB Governing Council member, Bank of France Chairman Francois Villeroy de Galhau said he expected the French economy to be back to pre-pandemic level by year-end. He acknowledged that the auto sector was underperforming, but “areas of the economy are doing well.”
He also emphasized “there is still big difference in terms of rising energy prices and overall total inflation.” He expected inflation to get back to below 2% level by the end of next year.
“So today there is no reason, for example, for the European Central Bank to raise interest rates next year.” Though, “we remain very vigilant on inflation,” he added.
Regarding the risk of China’s Evergrande turning into a Lehman Brothers, Villeroy said “history is not in the process of being repeated”. “I think that Evergrande is mainly a Chinese problem,” he added.
New Zealand Dollar is leading commodity currencies higher again this today. It’s additionally backed by expectation of more RBNZ rate hike ahead, after report of decade high consumption inflation earlier this week.
NZD/USD is extending the rebound from 0.6858 and further rise should be seen to 0.7169 resistance. Decisive break there will resume the rise from 0.6804 and target 100% projection of 0.6804 to 0.7169 from 0.6858 at 0.7223. Sustained break there would firstly indicate upside acceleration. Secondly, it will reaffirm the case that correction form 0.7463 has completed with three waves down to 0.6804. Stronger rally would then be seen to 161.8% projection at 0.7449, which is close to 0.7463 high. This will be the favored case as long as 0.7048 minor support holds.
In the minutes of October 5 meeting, RBA reiterated that economic recovery was interrupted by the outbreak of Delta. Economy is expected to return to growth in Q4, after contraction in Q3, and then back to pre-Delta path in H2 of 2022. Economy recovery was “likely to be slower than in late 2020/early 2021” and “much would depend on health outcomes and the nature and timing of the easing of restrictions on activity.”
RBA also noted, “while disruptions to global supply chains were affecting the prices of some goods, the effect of this on the overall rate of inflation in Australia was limited”. Wages growth and underlying inflation were “expected to pick up only gradually as the economy recovers.
It acknowledged that house prices and credit growth had continued to rise strongly. “while less accommodative monetary policy would, all else equal, see lower housing prices and credit growth, it would result in fewer jobs and lower wages growth, which would in turn create further distance from the goals of monetary policy – namely, full employment and inflation sustainably within the target range.”
Overall, the conditions for rate hike “will not be met before 2020”. “Meeting this condition will require the labour market to be tight enough to generate materially higher wages growth than at the time of the meeting.”
Governing Council member Ignazio Visco said even if the inflation pressures in Eurozone “may last for some months and well during the next year”, it’s still “largely transitory”. He added that market expectations for rate hike in late 2022 were “not that consistent” with ECB’s forward guidance.
Visco also said “flexibility should remain” after the emergency PEPP program as. “We certainly have to discuss how to adjust our purchase programs,” he said. “It will help against unexpected shocks, and it will help to avoid fragmentation that may rise again.”
BoE Governor Andrew Bailey warned that rising energy prices means inflation will “last longer” and “get into the annual numbers for longer as a consequence.” The development raised the “fear and concern of embedded expectations.”
“Monetary policy cannot solve supply-side problems,” he noted. “But it will have to act and must do so if we see a risk, particularly to medium-term inflation and to medium-term inflation expectations”
“That’s why we, at the Bank of England have signaled, and this is another signal, that we will have to act”, he said. “But of course that action comes in our monetary policy meetings.”
ECB President Christine Lagarde repeated on Saturday that “inflation is largely transitory”. “Monetary policy will continue supporting the economy in order to durably stabilize inflation at our 2% inflation target over the medium term,” she said. “The ECB is committed to preserving favorable financing conditions for all sectors of the economy over the pandemic period.”
“Once the pandemic emergency comes to an end — which is drawing closer — our forward guidance on rates as well as asset purchases will ensure that monetary policy remains supportive of the timely attainment of our target,” Lagarde said.
Separately, Governing Council member Klaas Knot also said the current inflation is “mostly temporary”. “It is highly relevant to determine whether this is a temporary phenomenon and goes away or not, and whether this becomes a risk and has secondary effects through higher wages and costs, and that is not the case now,” Knot said. “At this moment, we see it as mostly temporary as our economy is reopening after the corona shock and the supply of products is not keeping up with demand.”
China GDP grew 4.9% yoy in Q3, below expectation of 5.2% yoy. On a quarterly basis, GDP grew only 0.2% qoq, slowed from Q2’s 1.2% qoq, and missed expectation of 0.5% qoq. In September, retail sales rose 4.4% yoy, above expectation of 3.3% yoy. Industrial production rose 3.1% yoy, below expectation of 4.5% yoy. Fixed asset investment rose 7.3% ytd yoy, below expectation of 7.9%.
“The overall national economy maintained the recovery momentum in the first three quarters … however, we must note that the current uncertainties in the international environment are mounting and the domestic economic recovery is still unstable and uneven,” said NBS spokesman Fu Linghui.
New Zealand CPI rose 2.2% qoq in Q3, well above expectation of 1.4% qoq. That’s the largest quarterly increase in over a decade since 2010. For the 12-month period, CPI accelerated to 4.9% yoy, up from Q2’s 3.3% yoy, well above expectation of 4.1% yoy too. The annual rise is also the highest since 2011. The strong inflation reading prompted more expectations of more RBNZ rate hikes ahead, following the 25bps increase earlier this month.
US retail sales rose 0.7% mom to USD 625.4B in September, much better than expectation of -0.2% mom decline. Ex-auto sales rose 0.8% mom, above expectation of 0.4% mom. Ex-gasoline sales rose 0.6% mom. Ex-auto, ex-gasoline sales rose 0.7% mom.
Eurozone exports of goods to the rest of the world rose 18.2% yoy to EUR 184.3B in August. Imports rose 26.6% to EUR 179.5B. Trade surplus came in at EUR 4.8B. Intra-Eurozone trade also rose 21.2% yoy to EUR 155.5B.
In seasonally adjusted term, Eurozone exports rose 0.3% mom to EUR 200.6B. Imports rose 1.6% mom to EUR 189.4B. Trade surplus narrowed to EUR 11.1B. Intra-Eurozone trade rose from 179.4B to 181.2B.
BoJ Deputy Governor Masayoshi Amamiya reiterated that the economy is “picking up as a trend”, which will become clearer as pandemic impact subsides. He added that the price trends remains “solid” and the financial systems is “stable” as a whole.
But he also acknowledged that consumptions continues to “stagnate”. Exports and outputs are being affected by “supply constraints”. Ad emphasized that the central bank must be vigilant to the impact that of supply chain disruptions in Asia.
ECB Governing Council member Pierre Wunsch told Bloomberg TV that the economy is ” on the right path. But medium term inflation goal is not met yet. “It seems that we are at some kind of inflection point,” Wunsch said. “We are below our objective, so we could afford some second-round effects, but not too much.”
Wunsch also said the central bank will maintain a “very supportive monetary policy,” even after the end of its emergency bond-buying program in March.
New Zealand BusinessNZ Performance of Manufacturing rebounded strongly from 39.7 to 51.4 in September. Looking at some more details, production rose from 27.2 to 49.9. Employment ticked up from 54.3 to 54.5. New orders rose from 44.1 to 54.3. Finished stocks rose from 45.9 to 50.1. Deliveries also jumped from 33.1 to 47.8.
BNZ Senior Economist, Craig Ebert stated that “the rebound the PMI experienced in September was encouraging, although the survey is not without some still‐frayed parts. Credit where it’s due though, as the NZ PMI traced much less of a contraction, and quicker stabilisation, compared to what it went through during the initial outbreak of COVID‐19.”
In the October Monthly Economic Report, Japan’s Cabinet Office downgraded assessment on exports to “increasing at a slower pace”, from “continue to increase moderate”. That’s the first downgrade in seven months.
Overall, the economy is “picking up although the pace has weakened in a severe situation due to the Novel Coronavirus.” Private consumption “shows weakness further”. Business investment is “picking up”. Industrial production is “picking up”. Corporate profits are “picking up”. Employment situation “shows steady movements in some components”. Consumer prices show “steady movements”.
As the government lifted state emergency, it will “develop a new economic stimulus package” to address the issues of reopening. It expects BoJ to “pay careful attention to the economic impact of the infections and conduct appropriate monetary policy management”.
BoC Governor Tiff Macklem said yesterday that supply bottlenecks are “not easing as quickly as expected”. Global inflation is “probably going to take a little longer to come back down”.
But he also added, the central bank’s job is “to make sure that these one-off price increases don’t become ongoing inflation.” He maintained, “there’s good reasons to believe that these are one-off price increases. They won’t create ongoing inflation.”
On the job market, Macklem said returning to the prepandemic employment level “is an important milestone, but it’s not the destination”. He added, “it is still the case though that low-wage workers are well below their prepandemic level, whereas other workers have slowly recovered. So there still is some space there.”
Philadelphia Fed President Patrick Harker said yesterday he’s in the camp that believes it will “soon be time” to start tapering asset purchases “begin slowly and methodically — frankly, boringly”.
He added that FOMC can then evaluate interest rates after tapering is complete. “I wouldn’t expect any hikes to interest rates until late next year or early 2023, unless the inflation picture changes dramatically,” he said.
Harker expects the economy to grow by 5.5% this year and 3.5% next. Inflation is expected to be around 4% for 2021, “a bit over” 2% in 2022, and “right at” 2% in 2023.
US PPI for final demand rose 0.5% mom in September, matched expectations. For the 12-month, PPI accelerated to 8.6% yoy, up from 8.3% yoy, below expectation of 8.8% yoy. But that’s still the largest 12-month advance on record since 2010. PPI core rose 0.2% mom, 6.8% yoy, versus expectation of 0.4% mom, 7.1% yoy.
US initial jobless claims dropped -36k to 293k in the week ending October 9, much better than expectation of 325k. That’s the lowest level since March 14, 2020. Four-week moving average of initial claims dropped -10.5k to 334k, lowest since March 14, 2020.
Continuing claims dropped -134k to 2593k, lowest since March 14, 2020. Four-week moving average of continuing claims dropped -30.5k to 2738k, lowest since March 21, 2020.
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ECB Vasle: We should be very careful about second round effects
ECB Governing Council member Bostjan Vasle warned that “there are early signs that in parts of the economy and certain regions, the risk regarding the labour market could become more material.”
“In some parts of the economy, labour is in short supply and if this trend will continue, or spread to other sectors, it could pose a risk to inflation,” he said said. “That’s why I think we should be very careful about second round effects.”
He also said if the trends of economic recovery continue, ” then in next March it will be appropriate to end PEPP, as announced when the programme was implemented.” But he emphasized, “even when we decide to end it, we’ll continue to provide plenty of liquidity to the economy with our other instruments.”