US retail sales rose 0.3% mom to USD 705.7B in November, better than expectation of -0.1% mom decline. Ex-auto sales rose 0.2% mom to USD 571.2B, above expectation of -0.1% mom. Ex-gasoline sales rose 0.6% mom to USD 651.2B. Ex-auto, gasoline sales rose 0.6% mom to USD 516.7B.
For the 12 months period, retail sales was up 4.1% yoy. Total sales for September through November period were up 3.4% yoy.
ECB President Christine Lagarde said in a conference today, “we have to return inflation to 2% in the medium term, and we will do what we have to do, which is to continue hiking interest rates in the next several meetings.”
“Our primary goal is not to create a recession. Our primary objective is price stability and we have to deliver on that. If we were not delivering, it would hurt the economy far more,” she said, adding that the “first destination” of rate hikes will be to reach neutral rate.
Separately, Governing Council member Peter Kazimir indicated that ECB may need to hike again by 75bps next month as inflation remains unacceptably high.
UK CPI slowed sharply from 3.2% yoy to 2.3% yoy in April, but above expectation of 2.1% yoy. Core CPI (excluding energy, food, alcohol and tobacco) slowed from 4.2% yoy to 3.9% yoy, above expectation of 3.6% yoy.
CPI goods annual rate turned negative from 0.8% yoy to -0.8% yoy. But CPI services annual rate eased just slightly from 6.0% yoy to 5.9% yoy.
UK PMI Services was finalized at 50.0 in September, down from August’s 50.9, weakest reading since February 2021. PMI Composite was finalized at 49.1, down from prior month’s 49.6, lowest since January 2021.
Tim Moore, Economics Director at S&P Global Market Intelligence: “September data highlighted an absence of growth in the UK service sector for the first time in 19 months as the energy crisis continued to hit business and consumer spending…. Service sector businesses trimmed their growth expectations to the lowest seen for nearly two-and-a-half years in September, which survey respondents linked to concerns about falling disposable income and the unfavourable global economic outlook.”
US Q2 GDP growth was finalized at 6.7% annualized, revised up from 6.6%. Upward revisions to personal consumption expenditures (PCE), exports, and private inventory investment were partly offset by an upward revision to imports, which are a subtraction in the calculation of GDP.
US initial jobless claims dropped another week, by -195k to 2981k in the week ending May 9. Four-week moving average of initial claims dropped -564k to 3616.5k.
Continuing claims rose 456k to 22833k in the week ending May 2. Four-week moving average of continuing claims rose 2730k to 19760k.
Some comments from ECB officials.
Klaas Knot, ECB Governing Council member and President of the Dutch central bank, said “Inflation has been fairly stable so that provides me with a high degree confidence that actually inflation will pick up and will at some point approach the definition of price stability.”
Francois Villeroy de Galhau, ECB Governing Council member and Bank of France Governor, said “we are making progress on the inflation front… although a bit slower than we had expected.” And, “our policy is on a path to normalization.”
ECB Governing Council member and Bundesbank President Jens Weidmann said in a German newspaper interview that “I personally think that the good economic developments and the inflation forecast would allow a rapid end to the bond purchases.
BoC Senior Deputy Governor Carolyn Wilkins reiterated the central bank’s view that ” the slowdown in late 2018 and early 2019 was temporary.” However, “global trade risks have increased”. Thus, the current accommodation provided by BoC remains “appropriate”. And upcoming rate decisions will remain data dependent, with attention to “household spending, oil markets and the global trade environment.”
She described trade war as the “wild card” on global and domestic outlook. “How costly are trade wars for the global economy? In April, we said tariffs over the past two years and trade policy uncertainty would chop 0.4 per cent from global GDP by the end of 2021—that’s about US$350 billion. While this can only be a rough estimate, we know it matters more for trade-dependent economies like Canada’s.”
Wilkins noted the positive development that US has dropped steel and aluminum tariffs recently, increasing chance of ratification of USMCA. But “other developments are discouraging”, with US and China escalated their dispute and Canada “caught in the crossfire”. She also noted the “potential for more friction between the United States and European Union.”
She warned “if the disputes were to worsen and become long lasting, the outlook would be quite different. Not only would we see weaker economic demand, but the supply side of the economy would also take a hit as companies deal with disruptions to their supply chains. Obviously, this remains a major preoccupation for us.”
UK Prime Minister Boris Johnson’s spokesman said he would hold election before EU summit on October 17, if decided to do so. And he denied that Johnson would push election beyond October 31 Brexit date.
The spokesman said, “the idea that polling day could be moved after the event and parliament has been dissolved is simply wrong, it’s not possible.” “We were clear that the election would have to be concluded before the European Council.”
Separately, European Commission spokeswoman Mina Andreeva said “Our working assumption is that there will be Brexit on Oct. 31”. And, “the best outcome would be a Brexit on the basis of the negotiated withdrawal agreement.” However, no-deal Brexit is a “very distinct possibility”.
Eurozone PMI Manufacturing dropped to 33.6 in April, down from 44.5, a 134-month low. PMI Services dropped to 11.7, down from 26.4, a record low. PMI Composite dropped to 13.5, down from 29.7, also a record low.
Chris Williamson, Chief Business Economist at IHS Markit said: “April saw unprecedented damage to the eurozone economy amid virus lockdown measures coupled with slumping global demand and shortages of both staff and inputs. The extent to which the PMI survey has shown business to have collapsed across the eurozone greatly exceeds anything ever seen before in over 20 years of data collection. The ferocity of the slump has also surpassed that thought imaginable by most economists, the headline index falling far below consensus estimates.
“Our model which compares the PMI with GDP suggests that the April survey is indicative of the eurozone economy contracting at a quarterly rate of approximately 7.5%. With large swathes of the economy likely to remain locked down to contain the spread of COVID-19 in coming weeks, the second quarter looks set to record the fiercest downturn the region has seen in recent history.
“Hopes are pinned on containment measures being slowly lifted to help ease the paralysis that businesses have reported in April. However, progress looks set to be painfully slow to prevent a second wave of infections. In the face of such a prolonged slump in demand, job losses could intensify from the current record pace and new fears will be raised as to the economic cost of containing the virus.”
ECB said the Governing Council in an ad hoc meeting today to “exchange views on the current market situation” and reiterated the pledged to “act against resurgent fragmentation risks”.
The council decided to “apply flexibility in reinvesting redemptions coming due in the PEPP portfolio, with a view to preserving the functioning of the monetary policy transmission mechanism”.
Also, it decided to “mandate the relevant Eurosystem Committees together with the ECB services to accelerate the completion of the design of a new anti-fragmentation instrument”.
US initial jobless claims dropped -8k to 221k in the week ending June 29, slightly above expectation of 220k. Four-week moving average of initial claims rose 0.5k to 222.25k. Continuing claims dropped -8k to 1.686m in the week ending June 22. Four-week moving average of continuing claims dropped -1.75k to 1.687m.
UK GDP grew 0.3% mom in December, above expectation of 0.2% mom. For Q4, GDP growth was flat at 0.0% qoq, matched expectations. Services rose 0.1% in the quarter while construction grew 0.5%. But production contracted -0.8%, offsetting the contributions of the other two sectors.
Head of GDP Rob Kent-Smith: “There was no growth in the last quarter of 2019 as increases in the services and construction sectors were offset by another poor showing from manufacturing, particularly the motor industry. The underlying trade deficit widened, as exports of services fell, partially offset by a fall in goods imports.”
For December, industrial production rose 0.1% mom, dropped -1.8% yoy, versus expectation of 0.3% mom, -0.8% yoy. Manufacturing rose 0.3% mom, dropped -2.5% yoy, versus expectation of 0.5% mom, -3.7% yoy. Goods trade balance turned into GBP 0.85B surplus, better than expectation of GBP -10.0B deficit.
US commercial crude oil inventories dropped -1.7m barrels in the week ending May 21, versus expectation of -1.0m barrels. At 484.3m barrels, crude oil inventories are about 2% below the five year average for this time of year. Gasoline inventories dropped -1.7m barrels. Distillate dropped -3.0m barrels. Propane/propylene dropped -0.4m barrels. Total commercial petroleum inventories dropped -7.7m barrels.
WTI crude dropped to 61.51 last week, but drew support from 55 day EMA and rebounded strongly. Nevertheless, WTI lost momentum ahead just ahead of 66.98/67.83 resistance zone. Consolidation pattern from 67.83 could still extend with another falling leg. Break of 61.51 will target 57.31 support and below. But even in that case, downside should be contained by 38.2% retracement of 33.80 to 67.83 at 54.83. Nevertheless, break of 67.83 will resume larger up trend for 70 handle next.
UK Prime Minister Theresa May’s spokesman said that “Chequers is the only plan on the table which will deliver on the will of the British people while avoiding a hard border in Northern Ireland. The prime minister is working hard to secure a deal and hopes all MPs (members of parliament) will be able to support it.”
And, May will hold a cabinet meeting on Thursday to discuss preparation on “no-deal” Brexit.
German Ifo business climate dropped to 102.1 in April, below expectation of 102.8. Expectations dropped to 98.7, below consensus of 99.5. Current assessment also dropped to 105.7, below expectation of 106.5.
Ifo President Clemens Fuest commented that “high spirits among German businesses have evaporated,” and, “the German economy is slowing down.” Ifo economist Klaus Wohlrabe noted that the 5th drop in a row in the Ifo reading is merely a sign of normalization, and Germany is far from a recession. GDP growth is seen as slowed to 0.4% in Q1 versus Q4’s 0.6%.
EUR/USD dips to day low after the release and is on course for 1.2154 support.
Eurozone industrial production dropped -0.5% mom in October, below expectation of -0.3% mom. Production of capital goods fell by -2.0% mom and energy by -0.7% mom, while production of non-durable consumer goods rose by 0.4% mom, intermediate goods by 0.6% mom, and durable consumer goods by 1.9% mom.
EU 28 industrial production dropped -0.4% mom. Among Member States for which data are available, the largest decreases in industrial production were registered in Denmark and Greece (both -2.6% mom), and in Latvia and Lithuania (both -2.3% mom). The highest increases were observed in Portugal (+3.1% mom), Slovenia (+2.0% mom) and Poland (+1.1% mom).
In the nomination hearing for Fed Vice Chair position, Lael Brainard said, “we are seeing the strongest rebound in growth and decline in unemployment of any recovery in the past five decades.”
“But inflation is too high, and working people around the country are concerned about how far their paychecks will go,” she added. “Our monetary policy is focused on getting inflation back down to 2% while sustaining a recovery that includes everyone. This is our most important task.”
Gold dropped sharply overnight following broad based Dollar strength. The development now raises the chance that rebound from 1752.32 has completed with three waves up to 1853.70 Immediate focus is now on 1805.59 support. Firm break there should add more credence to this bearish case and send Gold through 1782.48 to 1752.32 support.
More importantly, rejection by medium term trend line resistance, together with the corrective structure of the rise from 1752.32 to 1853.70, suggests that medium term sideway pattern is extending with another falling leg. Break of 1782.48 support will open up the case for deeper decline to 100% projection of 1877.05 to 1752.32 from 1853.70 at 1728.97 eventually.
ActionForex.com was set up back in 2004 with the aim to provide insightful analysis to forex traders, serving the trading community for over a decade. Empowering the individual traders was, is, and will always be our motto going forward.
Contact us: contact@actionforex.com
© ActionForex.com © 2024 All rights reserved.
Fed Daly: It’s time to tighten policy in the US
San Francisco Fed President Mary Daly said in a virtual event yesterday, “even though we have these uncertainties around Ukraine, and we have the uncertainties around the pandemic, it’s still time to tighten policy in the United States.”
“Inflation has persisted for long enough that people are starting to wonder how long it will persist,” she said. “I’m already focused on let’s make sure this doesn’t get embedded and we see those longer-term inflation expectations drift up.”
“In addition to pushing up wage inflation, which could ultimately push up price inflation, putting us in sort of a vicious cycle,” she said, “it’s just not a very sustainable way to manage the economy.”