RBNZ Hawkesby: Negative rate is not a game of bluff

    RBNZ Assistant Governor Christian Hawkesby said the central bank is still “very much in the mindset of ‘have we provided enough stimulus, and if we need to provide more what is the best way to do that?'” And that is what “motivated our work around active preparation of a package of further tools.”

    He emphasized that negative interest rate is “not a game of bluff” to talk down the New Zealand Dollar exchange rate. Though, “the biggest challenge about having a negative policy rate is the communication challenge,” he said. “How to explain it to the general public, how to explain it as a policy, how to win the argument, how to retain hearts and minds that you’re doing the right thing for the right reasons.”

    Fed Daly: Remains to be seen if more monetary stimulus needed

      San Francisco Fed President Mary Daly said overnight that policymakers “got the economy and the policy in a good position right now.” Fed is “well positioned to weather this storm we are in”. Though, she also acknowledged that “it remains to be seen if more will be needed”. She’ll “continue to watch the data and see if adjustments will be necessary” on monetary policies.

      Daly also said in a speech that Fed has a “critical role to play” in building a society of “equal opportunity and inclusive success”. “We’ve committed to finding full employment experientially, by seeing it in wages and prices. When we’ve achieved 2 percent inflation on average, we will know that we have approached our maximum and that the economy is firmly on its sustainable path.” She added.

      “In other words, in the absence of sustained 2 percent inflation or emerging risks, such as to financial stability, we will not take the punch bowl away while so many remain on the economic sidelines.”

      IMF expects less severe global GDP contraction at -4.4% this year

        In the World Economic Outlook Update, IMF revised 2020 global GDP contraction to -4.4%, revised up by 0.8% from June’s update. The less severe than expected contraction reflects better-than-anticipated Q2 GDP outturns as lockdowns were scaled back in May and June, as well as indicators of a stronger recovery in Q3.

        For medium-term outlook after rebound in 2021, “global growth is expected to gradually slow to about 3.5 percent into the medium term”. This implies “only limited progress toward catching up to the path of economic activity for 2020-2025 projected before the pandemic”.

        IMF also noted that “the uncertainty surrounding the baseline projection is unusually large” resting on public health and economic factors that are “inherently difficult to predict”.

        Looking at some details:

        • World output in 2020 revised up by 0.8% to -4.4%.
        • World output in 2021 revised down by -0.2% to 5.2%.
        • US output in 2020 revised up by 3.7% to -4.3%.
        • US output in 2021 revised down by -1.4% to 3.1%.
        • Eurozone output in 2020 revised up by 1.9% to -8.3%.
        • Eurozone output in 2021 revised down by -0.8% to 5.2%.
        • Japan output in 2020 revised up by 0.5% to -5.3%.
        • Japan output in 2021 revised down by -0.1% to 2.3%.
        • UK output in 2020 revised up by 0.4% to -9.8%
        • UK output in 2021 revised down by -0.4% to 5.9%.
        • China output in 2020 revised up by 0.9% to -1.7%.
        • China output in 2021 left unchanged at 8.2%.

        Full report here.

        US CPI ticked up to 1.4% yoy in Sep, core CPI unchanged at 1.7% yoy

          US CPI rose 0.2% mom in September, matched expectation. Core CPI rose 0.2%, also matched expectations. Annually, headline CPI accelerated to 1.4% yoy, up from 1.3% yoy, matched expectations. CPI core was unchanged at 1.7% yoy, matched expectations.

          Full release here.

          ECB Knot: Second wave pandemic will have a less dramatic impact

            ECB Governing Council member Klaas Knot said the second wave of coronavirus pandemic “will have a less dramatic impact than the first, for which we were totally unprepared”.

            “We know a bit more about the virus now, and businesses have learned to adapt where possible, for instance through online retail,” he added. “Early indicators point at slowing growth. It is clear the second wave will dent the recovery, but it is too early to say by how much.”

            Regarding ECB’s measures, Knot said, “the costs of ending measures too soon are higher than the costs of maintaining them longer than necessary. And we must avoid ending them all at once. When the time comes, the exit must be gradual and predictable.”

            Germany ZEW dropped sharply to 56.1, great euphoria evaporated

              Germany ZEW Economic Sentiment dropped sharply to 56.1 in October, down from 77.4, missed expectation of 74.0. Germany Current Situation Index improved to -59.5, up from -66.0, slightly better than expectation of -60. Eurozone ZEW Economist Sentiment dropped to 52.3, down from 7.39, well below expectation of 70.5. Eurozone Current Situation rose 4.3 pts to -76.6.

              “The ZEW Indicator of Economic Sentiment is still very clearly in positive territory. However, the great euphoria witnessed in August and September seems to have evaporated. The recent sharp rise in the number of COVID-19 cases has increased uncertainty about future economic development, as has the prospect of the UK leaving the EU without a trade deal. The current situation in the run-up to the presidential election in the United States further fuels uncertainty,” comments ZEW President Achim Wambach.

              Full release here.

              UK unemployment rate rose to 4.5% in Aug, claimant counts added 2.7m in Sep

                UK unemployment rose to 4.5% in the three months to August, up from 4.3%, above expectation of 4.3% too. That;s also 0.6% higher than a year ago. Though, total actually weekly hours worked rebounded with a record increase of 20.0m over the quarter, or 2.3%, to 891m hours. Average weekly hours worked rose 0.7 hours to 27.3 hours. Average earnings including bonus rose 0.0% 3m/y in August. Average earnings excluding bonus rose 0.8% 3omy.

                Claimant counts rose 2.7m in September represents a monthly increase of 1.0%. That’s 120.3% higher than the figure in March.

                Full release here.

                China’s imports and exports surged in Sep, trade surplus shrank

                  In September, in USD terms, China’s total trade rose 11.4% yoy to USD 442.5B. exports rose 9.9% yoy to USD 239.8B. Imports rose 13.2% yoy to USD 202.8B Trade surplus came in at USD 37.0B, down from August’s USD 58.9B and missed expectation of USD 59.3B.

                  Year-to-date, total trade dropped -1.8% yoy to USD 3298B. Imports dropped -0.8% yoy to USD 1811B. Exports dropped -3.1% yoy to USD 1485B. Trade surplus was at USD 326B.

                  With the EU, year-to-date, total trade rose 0.4% yoy to USD 461.2B. Exports rose 3.1% yoy to USD 279.5B. Imports dropped -3.6% yoy to USD 181.7B. Trade surplus was at USD 97.9B

                  With the US, year-to-date, total trade dropped -0.6% to USD 401.5B. Exports dropped -0.8% yoy to USD 310.0B. Imports rose 0.2% yoy to USD 91.4B. Trade surplus was at USD USD 218.6B.

                  UK BRC retail sales reported strongest growth since Dec 09

                    UK BRC Retail Sales Monitor rose 6.1% yoy in September. That’s the strongest like-for-like retail sales growth since December 2009.

                    Paul Martin, Partner, UK Head of Retail, KPMG: “The resilience of British retailers has been nothing shy of remarkable in recent months, with 6.1% like-for-like growth in September serving to reinforce that. That said, this month’s uptick is against the woeful performance recorded in September 2019 and so caution remains vital. Last year, the prospect of a no-deal Brexit loomed over purchasing decisions dampening demand, but now that same prospect is accompanied by the recent resurgence of COVID-19 numbers. Combined, these factors could have a significant impact on retail growth over the next months.

                    Full release here.

                    BoE Bailey: We haven’t addressed the question of using negative rates

                      BoE Governor Andrew Bailey said in a webinar yesterday that the central isn’t ready for implementation of negative interest rate yet. “Given the shock we’ve had, there are good reasons to say we shouldn’t rule them out and therefore they’re in the toolbox,” he said. “We haven’t addressed the question of should we use them.”

                      Earlier, Governor Sam Woods has sent a letter banks asking for their readiness on negative interest. “We are requesting specific information about your firm’s current readiness to deal with a zero Bank Rate, a negative Bank Rate, or a tiered system of reserves remuneration – and the steps that you would need to take to prepare for the implementation of these,” Woods said in a letter. “We are also seeking to understand whether there may be potential for short-term solutions or workarounds, as well as permanent systems changes.”

                      BoE Woods asking banks’ readiness for negative rates

                        BoE Deputy Governor Sam Woods sent as letter to banks asking for their readiness on negative interest, as it could be an option to take based on current situation.

                        “We are requesting specific information about your firm’s current readiness to deal with a zero Bank Rate, a negative Bank Rate, or a tiered system of reserves remuneration – and the steps that you would need to take to prepare for the implementation of these,” Woods said in a letter.

                        “We are also seeking to understand whether there may be potential for short-term solutions or workarounds, as well as permanent systems changes,” he said.

                        BoJ Kuroda: We are flexible, innovative when considering measures to take

                          BoJ Governor Haruhiko Kuroda reiterated that policymakers will “closely monitor the impact of COVID-19 and not hesitate to take additional easing measures as necessary”. “The BOJ hasn’t run out of policy tools. We have a lot of policy tools to counter,” he added. “We are flexible, innovative when considering measures to take.”

                          Regarding fiscal policy, Kuroda said, “I don’t think we need a so-called negative income tax or basic income system because we already have a fairly well-established, well-developed, medical insurance and pension system.”

                          Swiss government sees smaller GDP contraction this year, further upward pressure on Franc remains high

                            Swiss Government’s Export Group said prospects for 2020 are “less negative than feared in the middle of the year”. But “momentum is likely to weaken as time goes on”. The group expects GDP to fall by -3.8% this year. That’s much better than June forecast of -6.2%. That’s the biggest GDP contraction since 1975. Unemployment is to average 3.2% over the year as a whole, versus June forecasts of 3.8%.

                            For 2021, the Export Group expects GDP to grow by 3.8%, revised down from June’s 4.9%. Economic output would return to pre-crisis level “only towards the end of 2021”, assuming no further widespread lockdown in “Switzerland or in key trading partner countries”. Any improvement in the labor market is “expected to be slow at best”. Unemployment rise forecast to average 3.4% in 2021, revised down from June’s 4.1%.

                            SECO also said most significant economic crisis are still linked to the coronavirus pandemic. International trade conflicts poses further risks to global economy, as well as hard Brexit. “The risk of upheaval on the financial markets and further upward pressure on the Swiss Franc also remains high”.

                            Full release here.

                            Japan’s corporate goods price deflation worsens

                              Japan’s corporate goods price index dropped further to -0.8% yoy in September, down from -0.6% yoy, missed expectation of -0.5% yoy. Wholesales prices also dropped -0.1% mom, indicating risk of upstream deflation. “With the global economy still reeling from the pandemic’s pain, the pace of its recovery remains modest. That will weigh on Japan’s wholesale inflation,” a BOJ official told a briefing.

                              Also from Japan, bank lending rose 6.4% yoy in September, below expectation of 7.5% yoy. Machinery orders rose 0.2% mom in August, well above expectation of -1.0% mom decline.

                              ECB Visco: Monetary policy must remain expansive for a long time

                                ECB Governor Council member Ignazio Visco told Il Corriere della Sera newspaper, “price changes tend to be very low, if not negative, and a gap has been created with our goal of price stability, with effects that can be dangerous”. Because of this, monetary policy “monetary policy must be expansive and remain so for a long time”.

                                Currently, ECB is adopting a price target of “below of close to 2%”. Visco said it’s “vague and difficult to understand.” He’s in favor of a change to a medium term symmetrical 2% target.

                                Visco, also the governor of the Bank of Italy, expects the Italian economy to recovery with around 5% growth next year. But he warned of a prolonged decline in demand and policymakers must “do everything to reduce uncertainty.

                                Separately, Italian Health Minister Roberto Speranza said on Sunday that the country is preparing for fresh restrictions as new coronavirus cases surged again. Though, he added, “now we need a change of pace, and to intervene with measures, not comparable to those adopted in the past, which could allow us to put the contagion under control and avoid tougher measures later on.”

                                ECB Lane: It’s not a satisfactory inflation outlook

                                  ECB Chief Economist Philip Lane said in a WSJ interview that inflation outlook not satisfactory and the central bank would decide on the next move on a “meeting by meeting” basis. Even if inflation does climb to 1.3% in 2022 as in ECB’s projections, it would stay well below the 2% target. There ares speculations that ECB could expand the PEPP program by year end.

                                  “The current inflation level remains far away from our goal,” Lane said . “We don’t think that is a satisfactory inflation outlook.” “I wouldn’t focus on any one meeting… It’s not the case that we only look at the formal projection rounds.”

                                  Lane also noted that the next phase of the economy is “going to be tougher”. “The big question, and this is why there is so much uncertainty, is: how quickly can the current dynamic, with rising cases, be stabilized.””Some of that uncertainty will be resolved this autumn,” he added. “We will know the fiscal plans, we will know more about the pandemic.”

                                  NIESR expects UK GDP growth to stall in Sep, slow to 1.3% in Q4

                                    NIESR expects UK GDP growth to “stop” in September, bringing total Q3 growth to 15%. For Q4, with the background of a likely widening of lockdown restrictions, a winding down of government support schemes, and return of extensive Brexit related uncertainty, pace of recovery will be even slower, forecast to be at just 1.3%.

                                    “Today’s ONS estimates suggest that GDP grew by 8 per cent in the three months to August. Although the latest estimates also signal a fourth consecutive monthly increase, with growth of 2.1 per cent in August itself, output is still about 9 per cent below the levels seen in February. These numbers would suggest that the UK could grow by about 15 per cent in the third quarter of 2020. However, there is further cause for concern ahead with the likely re-imposition of lockdown measures, the winding down of government support measures, and Brexit uncertainty. We expect the economy at the end of this year to be some 8.5 per cent below its level at the end of 2019.” Dr Kemar Whyte Senior Economist – Macroeconomic Modelling and Forecasting.

                                    Full release here.

                                    Canada employment grew 378k, unemployment rate dropped to 9%

                                      Canada employment grew 378k in September, well above expectation of 230k. The majority came from full-time jobs which grew 334k. Services producing jobs grew 2.1% while good-producing jobs rose 2.0%.

                                      Unemployment rate dropped for the fourth straight month to 9.0%, also better than expectation of 10.1%. 1.8m people Canadians were unemployed, down -214k from August.

                                      Full release here.

                                      UK GDP grew 2.1% mom in August, still -9.2% below pre-pandemic level

                                        UK GDP grew only 2.1% mom in August, well below expectation of 5.7% mom. While that was the fourth consecutive month of increase, GDP remains -9.2% below pre-pandemic level in February. Looking at some details, services grew 2.4% mom (-9.6% below Feb. level), production grew 0.3% mom (-6.0% below Feb level), manufacturing grew 0.7% mom (-8.5% Feb level), construction rose 3.0% mom (-10.8% below Feb level).

                                        Rolling three months growth in GDP from June to August was at 8.0% 3mo3m. Services rose 7.1% 3mo3m. Production rose 9.3% 3mo3m. Manufacturing rose 11.3% 3mo3m. Construction rose 18.5% 3mo3m.

                                        Also from UK, trade deficit widened to GBP -9.0B in August, slightly better than expectation of GBP -9.1B.

                                        China Caixin PMI composite dropped to 54.5, economy remained in recovery phase

                                          China Caixin PMI Services rose to 54.8 in September, up fro August’s 54.0, above expectation of 54.5. PMI Composite dropped to 54.5, down from 55.1.

                                          Wang Zhe, Senior Economist at Caixin Insight Group said: “Overall, the economy remained in a post-epidemic recovery phase and improved at a faster pace. Supply and demand both expanded in the manufacturing and services sectors…. In the near term, there will still be uncertainties from Covid-19 overseas and the U.S. election, and the development of “dual circulation” in the domestic and international markets will continue to face challenges.”

                                          Full release here.