US CPI rose 0.5% mom in July, matched expectations. Over the last 12 months, CPI rose 5.4% yoy, unchanged from June’s reading, above expectation of 5.3% yoy.
Core CPI, excluding food and energy, rose 0.3% mom, below expectation of 0.4% mom. Over the past 12 months, CPI core slowed to 4.3% yoy, down from 4.5% yoy, matched expectation.
Australia Westpac-MI consumer sentiment dropped -4.4% to 104.1 in August, down from July’s 108.8. It’s now at the lowest point in a year, but was well above the pandemic trough, and even above the levels over the twelve months prior to the pandemic.
Westpac said: “The virus situation locally is clearly troubling, but consumers appear reasonably confident that it will come back under control, and that once it does, the economy will see a return to robust growth.”
Westpac expects RBA to leave policy unchanged at next meeting on September 7. It added, “given its decision to sit pat in August despite a sharp deterioration to the near-term outlook, the hurdle for RBA action looks to be very high”. It also maintain the forecast that RBA would start raising the case rate in Q1 of 2023.
Chicago Fed President Charles Evans sounded more cautious than some of his FOMC colleagues in the topic of tapering. He acknowledged that the US is “making progress” and “well on our way” to substantial further progress. But, “I’d like to see a few more employment reports,” before making the decision.
“Everybody is wondering about September, November, December, January,” as possible dates to start scaling back asset purchases, Evans said. “I don’t think that one meeting on either side is going to have an important effect.”
“We should not preemptively end a strong improvement in the labor market because somebody is getting nervous about inflation,” he said. “I am going to be very regretful if we sort of claim victory on averaging 2% and then find ourselves in 2023 with about a 1.8% inflation rate … That would be a challenge for our long run framework.”
Germany ZEW Economic Sentiment dropped sharply from 63.3 to 40.4 in August, well below expectation of 57.0. Germany Current Situation rose from 21.9 to 29.3, below expectation of 30.0. Eurozone ZEW Economic Sentiment dropped sharply from 61.2 to 42.7, well below expectation of 72.0. Eurozone Current Situation rose 8.6 pts to 14.6.
“Expectations have declined for the third time in a row. This points to increasing risks for the German economy, such as from a possible fourth COVID-19 wave starting in autumn or a slowdown in growth in China. The clear improvement in the assessment of the economic situation, which has been ongoing for months, shows that expectations are also weakening due to the higher growth already achieved,” comments ZEW President Professor Achim Wambach on current expectations.
Australia NAB business confidence dropped sharply from 11 to -8 in July. Business conditions dropped form 25 to 11. Looking at some details, trading conditions dropped form 32 to 12. Profitability conditions dropped from 25 to 6. Employment conditions dropped from 18 to 10.
NAB said: “The continuing lockdown in NSW and the briefer periods of disruption across a number of other states saw a further deterioration in activity in the business sector in July… Confidence took a big hit in the month with optimism collapsing on the back of ongoing restrictions.”
“It is now widely expected that we will see a negative print for GDP in Q3. However, we know that once restrictions are removed that the economy has tended to rebound relatively quickly. We will continue to track the survey very closely for an indication of just how quickly that happens – particularly forward orders and capacity utilisation as we assess how the disruption has fed into expansion plans as conditions bounce back”
Atlanta Fed President Raphael Bostic said yesterday, “we are well on the road to substantial progress toward our goal”, and July’s 943k job growth was “definitely quite encouraging in that regard.”
“My sense is if we are able to continue this for the next month or two I think we would have made the ‘substantial progress’ toward the goal and should be thinking about what our new policy position should be,” he said.
“Right now I’m thinking in the October-to-December range, but if the number comes back big” as with the last report “or maybe even a little bigger, I’d be open to moving it forward,” Bostic said. “If the number really explodes, I think we would have to consider that.”
Also, he said he favored a “balanced” approach on tapering both the MBS and treasuries purchases at the same fate, and “going relatively fast”. “The economy is in a much different place today” and “I am pretty confident these markets are going to continue to function even with a more rapid withdrawal, and I would be willing to lean into that to try to get us to complete the taper in a shorter period than what we have done in previous rounds.”
Boston Fed President Eric Rosengren said yesterday if the US continues to have job growth like the last two months, with “very substantial payroll employment gains”, then by September meeting, the “substantial further progress” criteria should be met. That would “imply starting to taper sometime this fall”.
“If you continue to purchase assets, the reaction primarily is in pricing, not so much in employment,” he added. “I don’t think asset purchases are having the desired impact on really promoting employment.”
According to the July Survey of Consumer Expectations by the New York Fed, median one-year-ahead inflation expectations were unchanged at record 4.8%. Also, 3-year inflation expectation rose further from 3.6% to 3.7%, hitting the highest level since August 2013.
Eurozone Sentix Economic Sentiment dropped from 29.8 to 22.2 in August, below expectation of 29.0. Current Situation index rose from 29.8 to 30.8, highest since October 2018. However, Expectations index dropped sharply from 29.5 to 15.0, lowest since May 2020 and the third decline in a row.
Sentix said: “Economists traditionally recognise a trend reversal in a threefold decline. Accordingly, this decline should not be dis-missed as a mere loss of momentum, but should be understood as a warning sign. As the “first mover” among the leading indicators, these developments herald significant declines in other leading indicators. The development is therefore likely to contribute to increased market volatility in the coming weeks. In 2006 and 2010, when we went through similar phases, interim stock market corrections of around 10% followed.”
Silver tumbled along with Gold in ultra thin Asian open, and hit as low as 22.36. While it quickly rebounded, near term outlook will stay bearish as long as 25.99 resistance holds. Prior rejection by 55 day EMA also affirmed near term bearishness. Fall from 30.07 is seen as corrective whole up trend from 11.67 low.
There are various interpretations on the price actions. One way to see them is that a head and shoulder top was formed (ls: 29.84; head: 30.07; rs: 28.73). But in any case, firm break of 100% projection of 30.07 to 23.76 from 28.73 at 22.42 will pave the way to 161.8% projection at 18.52. That is close to 61.8% retracement of 11.67 to 30.07 at 18.69. That’s probably the level where Silver would complete the correction.
China’s PPI accelerated to 9.0% yoy in July, up from 8.8% yoy, above expectation of 8.8% yoy. “The price increase of industrial products expanded slightly in July as prices of crude oil, coal and related products rose sharply,” said senior NBS economist Dong Lijuan.
CPI slowed to 1.0% yoy, down from 1.1% yoy, above expectation of 0.8% yoy. Core CPI, excluding food and energy prices, rose 1.3% yoy. Pork prices dropped -43.5% yoy, dragging down food prices down -3.7%. Non-food prices, on the other hand, rose 2.1% yoy.
Bundesbank President Jens Weidmann told the Welt am Sonntag newspaper, “I do not rule out higher inflation rates.” He added, “In any case, I will insist on keeping a close eye on the risk of an excessively high inflation rate and not only on the risk of an excessively low inflation rate.”
He also said that the emergency asset purchase program, known as PEPP, must end when the Covid-19 crisis is over. “The first P stands for pandemic and not for permanent. It’s a question of credibility,” he added.
On the plan of stimulus exit, “the sequence would then be: first we end the PEPP, then the APP is scaled back, and then we can raise interest rates,” he said.
Canada employment grew 0.5% mom or 94k in July, below expectation of 148.5k.gains were concentrated in full-time work (83; +0.5%). Unemployment rate dropped -0.3% to 7.5%, below expectation of 7.7%.
US non-farm payroll employment grew 943k in July, above expectation of 900k. Prior month’s figure was also revised up from 850k to 938k. Notable job gains occurred in leisure and hospitality, in local government education, and in professional and business services. Total employment was still down -3.7% from its pre-pandemic level in February 2020.
Unemployment rate dropped sharply by -0.5% to 5.4%, versus expectation of 5.7%. Number of unemployed person fell by -782k to 8.7m. Labor force participation rate was little changed at 61.7%, within a narrow range of 61.4% to 61.7% since June 2020.
Deputy Governor Ben Broadbent said BoE will pay attention to second-round effects of inflation on wages. He added, “the judgements about labour market frictions dissipating are probably more uncertain than those on the trade and goods side of things”.
At the same event, Governor Andrew Bailey also said labor shortages is the biggest topic in his discussions with businesses recently.
S&P 500 and NASDAQ jumped to close at record highs overnight as focuses now turn to non-farm payroll report. Markets are expecting 900k jobs growth in July while unemployment rate would fall from 5.9% to 5.7%.
Looking at related data, ISM manufacturing employment rose 3 pts to 52.9. ISM services employment also rose 4.5 pts to 53.8. Four-week moving average of initial claims was relatively unchanged at 394k. However, ADP private job growth was a big miss at 330k growth only. There is risk of a big surprise in the NFP print.
S&P 500 is losing some upside momentum as seen in daily MACD. But there is little to worry about the medium term up trend. It’s staying well above rising 55 day EMA, inside the rising channel. Some jitters might be seen in response to today’s NFP. But SPX should still be on track to 100% projection of 2191.86 to 3588.11 from 3233.94 at 4625.94, as long as 55 day EMA holds.
RBA Governor Philip Lowe said in a testimony that he didn’t rule out a recession due to restrictions, but still expecting a return to strong growth next year. “Any additional bond purchases would have their maximum effect at that time and only a very small effect right now when the extra support is needed most,” he added. For now, fiscal policy is “the more appropriate instrument for providing support in response to a temporary and localised hit to income.”
Regarding inflation, Lowe said much of this discussion has come out of the US, which was in a “substantially different position to the one we’re in.” In Australia, “the fact that wages growth is likely to remain below 3 per cent for the next couple of years means it’s very difficult for me to see us having an inflation problem.”
In the Statement on Monetary Policy, RBA downgraded 2021 year-average GDP growth forecast from 5.25% to 4.75%, but upgraded 2022 from 4% to 5%. GDP growth would then slow to 2.75% in 2023. Inflation is projected to be at 2.25% in December 2021 (upgraded from 1.75%), 1.75% in December 2022 (up from 1.50%), and then 2.25% in 2023 year-end. Unemployment rate is projected to be at 5% by 2021 year end, then gradually fall to 4% by 2023 year-end.
Australia AiG Performance of Services dropped sharply by -6.1 pts to 51.7 in July. That’s the largest monthly decline since April 2020. Looking at some details, sales dropped -12.9 to 53.2. Employment dropped -3.2 to 51.0. New orders rose 0.1 to 56.7. Supplier deliveries dropped -9.6 to 45.3. Input prices rose 8.7 to 74.1. Selling prices rose 13.2 to 66.7. Average wages rose 2.0 to 68.0.
Ai Group Chief Executive, Innes Willox, said: “The substantial easing in the performance of the Australian services sector in July was mainly driven by the COVID-19 outbreaks and associated restrictions…. There were some encouraging signs with employment and sales holding up and new orders coming in at a faster pace than in June. This provides some grounds to expect the services sector could bounce back quickly if restrictions were able to be lifted. However, with COVID-19 infections and restricted areas on the rise in the early days of August, the chances of an early rebound appear to be fading.”
Minneapolis Fed President Neel Kashkari said yesterday, “if we see a very strong labor market this fall, the way I’ve been expecting, then I think we could say we probably have made ‘substantial further progress.'”
However, the “wrinkle, now, is Delta”. He added, “if Delta causes the labor market to heal much more slowly, then that’s going cause me to step back”
“It’s so frustrating for all of us that the Delta variant is surging the way that it is,” Kashkari said. “I was cautiously optimistic a month ago that it seemed like we had the light at the end of the tunnel … and could return to normal.”
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Fed Barkin: We’ll get there to taper in the next few months
Richmond Fed President Thomas Barkin said “we’re closing in” and he’s “very support of tapering and moving back toward a normal environment”. However, it’s credible to think “we will get there in the next few months” and he didn’t want to commit to a timetable yet.
“I would like to be at a normal level of participation in the asset markets and a normal level of rates,” Barkin said. But “I also think that as a committee, when you put out forward guidance you think about it carefully and then do your best to live to that.”
“On the employment side you have a hypothesis that you are going to bring a lot more back in. On inflation you have a hypothesis that these things are transitory,” he said. “I need to test both of these.”