US retail sales rose 1.0% mom to USD 709.7B in July, above expectation of 0.3% mom. Ex-auto sales rose 0.4% mom to USD 576.1B, above expectation of 0.1% mom. Ex-gasoline sales rose 1.0% mom to USD 657.1B. Ex-auto& gasoline sales rose 0.4% mom to USD 523.4B.
Total sales for the May through July period rose 2.4% from the same period a year ago.
BoE Chief Economist Andy Haldane told the Daily Mail newspaper that as people’s incomes held up and spending was restrained by the coronavirus restrictions, “they have amassed around £100billion of excess savings.” People are using their “involuntarily-accumulated savings” on a new house or a new car, and there are “plenty of those savings still to be used.”
Households have shown “unbelievable resilience” and consumer spending has “come back at real pace”. People are also flexible as “they are not going to the pubs and restaurants, but they have switched to takeaways and patio heaters.”
Haldane believed that the roll out of the Pfizer/BioNTech COVID-19 vaccine could deliver a boost to the economy. “There is plenty of scope there for the vaccine to release more of that pent-up demand.”
According to the Spring 2023 economic forecast released by Germany’s Ifo, the country’s economy is expected to contract by -0.1% in 2023 before growing 1.7% in 2024. Headline inflation is projected to slow slightly to 6.2% in 2023 before dropping to 2.2% in 2024. However, core inflation, which excludes energy prices, is expected to rise further to 6.3% in 2023 and then decline to 2.8% in 2024.
Ifo stated that the “subdued performance of the global economy is dampening German exports,” while high inflation rates are “depressing consumer spending and construction activity through declining purchasing power and significantly increased financing costs.” The report also noted that inflation has become increasingly broad-based over the past year, remaining at historic highs for several months. While the direct contribution of energy prices has weakened, inflation in all other goods and services has increased steadily, reaching 7.6% in February.
The report added, “In addition to higher production costs passed on by companies to consumers, a noticeable widening of profit margins in some, particularly consumer-related, areas of the economy also contributed to this.”
Germany Q1 GDP contraction was finalized at -1.8% qoq. It’s down -3.4% yoy on price-adjusted bases, down -3.1% yoy on price- and calendar-adjusted bases. Comparing prepandemic level in Q4 2019, GDP was still down -5.0%.
Looking at some details, household final consumption expenditure was down -9.1% yoy. Gross fixed capital formation did not contribute to year-on-year growth. Fixed capital formation in machinery and equipment dropped -0.7% yoy, and in construction by -1.6% yoy. Government final consumption rose 2.5% yoy. Exports of goods and services dropped -0.6% yoy. Total imports dropped -3.0% yoy.
All sectors were down on a year earlier. In particular, services dropped -13.9% yoy. Gross value of manufacturing was still down -1.2% yoy despite improvement in the second half. Information and communications was the only sector that saw noticeable growth of 0.7% yoy.
Germany retail sales rose 3.5% mom in June, well above expectation of 0.5% mom. Over the year, retail sales dropped -1.9% yoy. Compared with the previous year, turnover in retail trade was in the first six months of 2019 in real terms 2.2% higher than in the corresponding period of the previous year.
Also from Germany, unemployment rose 1k in July versus expectation of 2k. Unemployment claims rate was unchanged at 5.0%, matched expectations.
Canada CPI rose 1.4% mom in March, above expectation of 0.9% mom. That’s the largest monthly increase since January 1991. For the 12-month period, CPI accelerated from 5.7% yoy to 6.7% yoy, well above expectation of 6.1% yoy. That’s also the largest annual rise since January 1991.
CPI common rose from 2.7% yoy to 2.8% yoy, above expectation of 2.7% yoy. CPI median rose from 3.5% yoy to 3.8% yoy, above expectation of 3.5% yoy. CPI trimmed rose from 4.4% yoy to 4.7% yoy, above expectation of 4.3% yoy.
Statistics Canada said: “Inflationary pressure remained widespread in March, as prices rose across all eight major components. Prices increased against the backdrop of sustained price pressure in Canadian housing markets, substantial supply constraints and geopolitical conflict, which has affected energy, commodity, and agriculture markets.”
China’s CPI turned positive to 0.2% yoy in December, up from -0.50% yoy, above expectation of 0.1% yoy. Core CPI, excluding food and energy, stood at 0.4% yoy, down from 0.5% yoy.
“Ahead of New Year’s Day and the Spring Festival, consumer demand increased, and feed costs also rose,” said Dong Lijuan, a senior statistician at the NBS. “At the same time, affected by unusual weather and rising costs, the CPI turned from a decline into an increase.”
PPI dropped to -0.4% yoy in December, up from November’s -1.5% yoy, higher than expectation of -0.8% yoy. That’s also the slowest factory gate deflation since last February.
BoJ Governor Haruhiko Kuroda said in a speech that the economy is “still on its way to recovery from the pandemic and has been under downward pressure from the income side due to rising commodity prices”. In this situation, “monetary tightening is not at all a suitable measure”.
He added that the top priority is to “persistently continue with the current aggressive monetary easing centered on yield curve control”. And, unlike other central banks, BoJ has noted faced the “the trade-off between economic stability and price stability”. Hence, it’s “certainly possible for the Bank to continue stimulating aggregate demand from the financial side.”
He concluded that BoJ “will take a strong stance on continuing with monetary easing, in that it will provide a macroeconomic environment where wages are likely to increase so that the rise in inflation expectations and changes in the tolerance of price rises — which have started to be seen recently — will lead to sustained inflation.”
WTI crude oil extends near term rally in Asians session and breaches 75 handle. Oil price has been lifted since late August, on improving demand as well as supply tightness. On the one hand, demand is set to picking up with easing of pandemic restrictions, and more importantly, border restrictions. Additionally, surging gas prices are also driving oil higher. On the other hand, OPEC+ seems to be lagging behind the demand rebound, due to under-investment during the pandemic as well as maintenance delays. The question is whether WTI could power through 76.38 high made back in July, and that remains to be seen.
Riding on last week’s rally in oil prices and resilient risk appetite, CAD/JPY is also extending the rebound from 84.88. 87.87 resistance is now an immediate focus. Sustained break there will argue that whole correction from 91.16 has completed at 84.65 already. Break of 88.44 resistance will affirm this case and pave the way to retest 91.16 high. More importantly, with 38.2% retracement of 73.80 to 91.16 at 84.52 well defended, the medium term up trend from 73.80 could be ready to resume in this bullish scenario.
Fed keeps interest rates unchanged at 5.25-5.50% as widely expected, by unanimous vote.
Full statement below:
Recent indicators suggest that economic activity expanded at a strong pace in the third quarter. Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation remains elevated.
The U.S. banking system is sound and resilient. Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. The Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Adriana D. Kugler; Lorie K. Logan; and Christopher J. Waller.
US stocks stage a very strong rebound today with DOW trading up over 400 pts at the time of writing. Fed Chair Jerome Powell’s short comments on current outlook and policy seemed to be the trigger. Markets believed that Powell signaled his openness to rate cut.
This is the exact quote from the remarks: “I’d like first to say a word about recent developments involving trade negotiations and other matters. We do not know how or when these issues will be resolved. We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective. My comments today, like this conference, will focus on longer-run issues that will remain even as the issues of the moment evolve.
It’s firstly seen as acknowledgement on risks from “trade negotiations and other markets” And Fed will “act as appropriate” after monitoring the implications on economic outlook. That is, some saw that as a node to cutting rates if the economy worsen due to Trump’s trade wars.
Technically, it now looks like DOW has drawn strong support from 38.2% retracement of 21712.53 to 26695.96 at 24792.28. The gap resistance at 25342.28 will likely be taken out this week to confirm short term bottoming at 2480.57. The real test is on 55 day EMA (now at 25736). Before sustained trading above this EMA, we’d still favor another decline to 61.8% retracement at 23616.20 and below.
Japan machine orders rose 17.1% mom in October, well above expectation of 2.8% mom. That’s also the largest month-on-month rise on record since 2005. By sectors, manufacturing orders rose 11.4% mom while non-manufacturing rose 13.4% mom.
The data affirmed the improving trend in capital expenditure. Investments could be further boosted ahead by the government’s Fresh JPY 40T stimulus. Yet, the volatile series is up for revision while the exporters might continue to struggle to gain momentum due to global weakness.
Japan’s latest PMI data for June presents a mixed economic outlook. Manufacturing PMI slipped slightly from 50.4 to 50.1, falling short of expectations of 50.6. However, manufacturing output showed a positive shift, rising from 49.9 to 50.5, marking the first expansion in over a year. Conversely, Services PMI dropped sharply from 53.8 to 49.8, indicating fractional contraction for the first time since August 2022. As a result, Composite PMI fell from 52.6 to 50.0.
Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence, commented that the private sector expansion has stalled midway through the year. The return of manufacturing output growth was overshadowed by a decline in services activity, partially due to labor constraints.
A notable concern is the “pressure on margins,” with average input costs rising at the fastest pace in over a year while output price inflation softened, particularly in the service sector. Anecdotal evidence pointed to the weak yen and increasing labor costs as significant factors driving up cost inflation.
UK retail sales (quantity bought) dropped -0.3% mom in February, below expectation of 0.0% mom. Retail sales ex-fuel dropped -0.5% mom, also worse than expectation of -0.2% mom.
Rolling three months, quantity bought in retail sales dropped for the fourth consecutive month by -0.6% 3mo3m. Excluding fuel, sales dropped -0.6% 3mo3m.
ISM non-manufacturing composite rose to 58.6 in May, up from 56.8 and beat expectation of 57.4. Business activity index rose 2.2 to 61.3. New orders rose 0.5 to 60.5. Employment index rose 0.5 to 54.1.
Dollar responses positive to the upside surprise. In particular USD/CAD finally takes out 1.3046 resistance to resume recent rally.
ISM noted in the release that “the majority of respondents are optimistic about business conditions and the overall economy.” But “there continue to be concerns about the uncertainty surrounding tariffs, trade agreements and the impact on cost of goods sold.”
Some quotes from respondents:
“Material prices have been difficult to predict this year, and suppliers have struggled to hold prices for any extended period on quotes, specifically on lumber and lumber-related products. The instability has proven frustrating, but a larger problem is that we are starting to see longer lead times in many of the same areas that could start impacting timelines if they continue to get worse as we get into the main building season.” (Construction)
“The trade discussions with NAFTA, Korea and the European Union will have critical impacts on our spend relating to steel products. Also, the potential of the U.S. pulling out of the Iran nuclear deal could push crude prices higher.” (Mining)
“Oil price stabilization in the (US) $60 to $70 per barrel [is] having a positive impact on hiring, both contract labor and direct employees, in the oil and gas industry and supporting industries.” (Professional, Scientific & Technical Services)
Full release here.
Risk aversion continues to dominate the markets as there is little sign of slowdown in the outbreak of coronavirus in China. According to Chinese state television, confirmed infections rose to 2835, up from 2744 reported at the start of the day. Death tolls remains unchanged at 81.
Commodity currencies are trading deeply lower today, as led by Aussie. Yen and Swiss Franc are the strongest on risk aversion naturally. Dollar is following as third strongest.
In Europe, FTSE, DAX and CAC are all down more than -2.0%. German 10-year yield is down -0.0292 at -0.362. DOW future is currently down -400 pts. Gold hit as high as 1588.51 in initial trading but there is no follow through buying so far. WTI crude oil hit as low as 52.01 but turned sideway since then.
Eurozone Economic Sentiment Indicator rose slightly from 117.6 to 117.8 in September, above expectation of 116.9. Employment Expectation Indicator rose 0.8 pts to 113.6, highest since 2018. Industrial confidence rose from 13.8 to 14.1. Services confidence dropped from 16.8 to 15.1. Consumer confidence rose from -5.3 to -4.0. Retail trade confidence dropped from 4.6 to 1.3. Construction confidence rose from 5.5 to 7.5.
EU ESI was unchanged at 116.6 while EEI rose 1 pt to 113.6 (highest since 2018). Amongst the largest EU economies, the ESI rose in Spain (+1.7), Germany (+0.8), the Netherlands and Poland (both +0.6), while it worsened in France (-1.3) and Italy (-0.9).
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.
BoE policymaker Michael Saunders warned the markets that their the central bank’s tightening path could be faster then they expected. Saunders is known hawk that started voting for a hike since March meeting. He refers to market pricing of a little bit more than one hike over the next twelve months, and said “if the economy plays out as I expect, it may be that rates need to go up a little faster than that.”
He also laid out his expectations for the developments in UK. On the condition that “Brexit unfolding in sort of a smooth and gradual way”, “the economy will continue to grow at around the pace we have seen over the last couple of years … (I) expect the jobless rate to fall a little further; and pay growth will pick up a bit.”
Against that background, Saunders believed that “rates might need to rise a little faster”. Still he emphasized that “the general picture is still limited and gradual, not too far and not too fast.”
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Eurozone exports rose 28.9% yoy in May, imports rose 52% yoy
Eurozone exports of goods to the rest of the world rose 28.9% yoy to EUR 248.5B in May. Imports of goods rose 52.0% yoy to EUR 274.8B. Trade deficit came in at EUR -26.3B. Intra-eurozone trade rose 33.0% yoy to EUR 231.6B.
In seasonally adjusted term, exports rose 4.8% mom to EUR 241.8B. Imports rose 2.0% mom to EUR 267.8B. Trade deficit narrowed from April’s EUR -31.8B to EUR -26.0B, slightly smaller than expectation of EUR -26.3B. Intra-eurozone trade rose from EUR 217.2B to EUR 221.4B.
Full release here.