Eurozone unemployment rate dropped to 7.3% in February, down from 7.4%, beat expectation of 7.4%. That’s the lowest level since March 2008. EU unemployment was unchanged at 6.5%, lowest since the start of the series in 2000.
Among the Member States, the lowest unemployment rates in February 2020 were recorded in Czechia (2.0%), the Netherlands and Poland (both 2.9%). The highest unemployment rates were observed in Greece (16.3% in December 2019) and Spain (13.6%).
BoJ Governor Kazuo Ueda, in a speech today, delineated the two forces in play regarding Japan’s inflationary pressures: “The first force, led by import prices, has seen its year-on-year rate of increase decelerate,” and he anticipates this force will “gradually wane.”
As for the second force, Ueda suggested it is tied to changes in firms’ wage and price-setting behaviors, with the potential to strengthen as “wage growth accelerates owing to economic improvement, leading to moderate inflation.”
However, he cautioned that the spread and permanence of these behaviors are uncertain, adding, “Changes have started to be seen in some aspects of firms’ wage- and price-setting behavior, but there are extremely high uncertainties as to whether these changes will become widespread.”
Addressing Japan’s broader economic outlook, Ueda described the nation as being in a “critical phase” concerning the interplay between wages and prices. Stressing the importance of fostering nascent economic shifts, he emphasized the need “to carefully nurture the buds of change in the economy.”
Ueda reiterated BoJ’s stance on monetary policy, stating the need “to patiently continue with monetary easing under the framework of yield curve control.”
In the Financial Stability Report, BoE warned that “increased Brexit uncertainties have put additional downward pressure on UK forward interest rates and led to a decline in the sterling exchange rate and an underperformance of UK-focused equities.” However, “the UK banking system remains strong enough to continue to lend through the wide range of UK economic and financial shocks that could be associated with Brexit.”
Governor Mark Carney also noted that that material risks of economic disruption remain from no-deal Brexit. And, major financial institutions have done what’s necessary for Brexit. However, he warned that “we can’t fully insulate ourselves from spillovers from Europe where there still are some things to be done.”
Globally, risks to outlook have increased during the first half of the year. BoE said “rising trade tensions have resulted in declining business confidence and pose material downside risks to global output growth.” And, “the impact of these risks would be amplified by continued material underlying vulnerabilities.”
In non-seasonally adjusted term, Japan’s expected dropped -14.8% yoy to JPY 5232B in August. That’s the 8th straight month of double-digit decline, as well as the 21st month of contraction. It’s the worst run since the 23-month contraction through July 1987. Exports are generally expected to stay weak and might not reach pre-pandemic level until a least early 2022. Imports dropped -20.8% yoy to JPY 4984B. Trade surplus came in at JPY 248B.
In seasonally adjusted term, exports rose 5.9% mom to JPY 5580B. Imports rose 0.1% mom to JPY 5230B. Trade surplus widened to JPY 350B.
BoE Chief Economist Andy Haldane said current tougher lockdown restrictions are threatening to bring the UK economy into a double-dip recession. That next slump could be “shorter, sharper shock” than the last one in 2007. Though, unemployment could be capped as long as Chancellor of the Exchequer Rishi Sunak maintains the furlough wage subsidies until the economy has recovered to with 5-10% of pre-pandemic level. Current tighter
Also, “if we get that recovery that I expect to start coming on stream, probably at the rate of knots from the second quarter, that will hopefully then eat away and improve the prospects of reemploying those million people who have lost their jobs”, Haldane added. “Ultimately there’s a timing question — timing the end of the furlough scheme in such a way that the economy is recovered sufficiently to prevent any losses of jobs.”
UK CPI rose 0.5% mom in September, above expectation of 0.4% mom. In the 12 months to September, CPI accelerated from 9.9% yoy to 10.1% yoy, above expectation of 10.0% yoy. That’s the highest level since around 1982 based on modelled estimates. CPI core also rose from 6.3% yoy to 6.5% yoy, above expectation of 6.4% yoy.
ONS said: “Rising food prices made the largest upward contribution to the change in both the CPIH and CPI annual inflation rates between August and September 2022. The continued fall in the price of motor fuels made the largest, partially offsetting, downward contribution to the change in the rates.”
Food and non-alcoholic beverage prices accelerated from 13.1% yoy to 14.6% yoy. After 14 consecutive months of acceleration, current rate is estimated to be the highest since 1980.
Also released, RPI came in at 0.7% mom, 12.6% yoy versus expectation of 0.5% mom, 12.4% yoy. PPI input was at 0.4% mom, 20.0% yoy. PPI output was at 0.2% mom, 15.9% yoy. PPI output core was at 0.7% mom, 14.0% yoy.
Oil price surged to highest level since 2014 on concern of supply disruptions related to Russia invasion of Ukraine. The International Energy Agency’s 31 member countries have just agreed to release 60 million barrels of oil from their strategic reserves . But that’s apparently not enough to calm the markets.
WTI crude oil accelerated sharply to as high as 110.69 so far. Technically, further rise is expected as long as 102.19 resistance turned support holds. Next target is 100% projection of 33.50 to 85.92 from 62.90 at 115.32.
It’s still early to say. But is should be noted that fear driven moves in commodity markets could be extremely powerful. Just remember oil price was negative less than two years ago. So, decisive break of 115.32 could easily prompt more acceleration to 161.8% projection at 147.71, in rather quick manner.
Sentiments are given a strong boost as it now appears that US and China are ready for a trade agreement. US President Donald Trump tweeted: “Getting VERY close to a BIG DEAL with China. They want it, and so do we!”
WSJ also reported: “U.S. negotiators have offered to slash existing tariffs by as much as half on roughly $360 billion of Chinese-made goods as well as to cancel a new round of levies set to take effect on Sunday, according to people briefed on the matter”.
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DOW hit news record higher at 18203.30 so far and is currently up 0.96%.
In the currency markets, Yen and Swiss Franc are broadly under pressure while Dollar and Aussie are the strongest.
BoE MPC member Silvana Tenreyro said yesterday that “much of the downside Q1 GDP news is likely to be erratic”. However, that still increased the “possibility of some underlying weakness in demand”.
Back in the May meeting, Tenreyo said the costs of waiting-and-see for a short period were relatively slow. And BoE will likely get a “significantly clearer picture of the underlying strength of domestic demand quite soon”. Therefore, there were “to leaving policy unchanged.”
Overall, Tenreyo said “while I anticipate that a few rate rises will be needed, the timing of those rate rises is an open question.”
Tenreyro’s messages were consistent with BoE’s own forecast in the inflation report that there would be a rate hike in August. That is, BoE opted to wait a little while more in May till August to make a decision. And, that is data dependent.
BoE left Bank Rate unchanged at 0.75% and kept asset purchase target at GBP 435B, on unanimous vote, as widely expected. New economic projections were released with the Quarterly Inflation Report too. One important point to note is that new forecasts are based on slower projected rate path. That is, Bank Rate is projected to rise to 0.9% in 2021 Q2, down from February’s projection of 1.1%. In 2022, Q2, Bank Rate is forecast at 1.0%
On growth, BoE forecast annual GDP growth to be:
On Inflation, BoE forecast CPI to be at:
Again, BoE reiterated: “The economic outlook will continue to depend significantly on the nature and timing of EU withdrawal, in particular: the new trading arrangements between the European Union and the United Kingdom; whether the transition to them is abrupt or smooth; and how households, businesses and financial markets respond. The appropriate path of monetary policy will depend on the balance of these effects on demand, supply and the exchange rate. The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction.”
EU leaders formally approved the guidelines for the negotiation of future relations with the UK after Brexit in the EU summit today. Only a few minutes were taken for the approval. While symbolic, the approval now clears the way to move one to the next phase of Brexit negotiation. And the process will likely gain momentum from now on. Brexit negotiator Michel Barnier will now talk directly to the US about future relationship. The target is to reach a broad political agreement by October.
The 7-page document can be found here.
UK Prime Minister Theresa May said that “I believe we are approaching this with a spirit of cooperation, a spirit of opportunity for the future as well, and we will now be sitting down and determining those workable solutions for Northern Ireland, but also for our future security partnership and economic partnership.” And, she added that “the best interest of both the UK and the EU that we get a deal that actually is in the interests of both.”
ADP report shows private sector employment grew 102k in June, below expectation of 140k. Though, it’s already a strong rebound from May’s 41k (revised from 27k).
“Job growth started to show signs of a slowdown,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “While large businesses continue to do well, small businesses are struggling as they compete with the ongoing tight labor market. The goods producing sector continues to show weakness. Among services, leisure and hospitality’s weakness could be a reflection of consumer confidence.”
Mark Zandi, chief economist of Moody’s Analytics, said, “The job market continues to throttle back. Job growth has slowed sharply in recent months, as businesses have turned more cautious in their hiring. Small businesses are the most nervous, especially in the construction sector and at bricks-and-mortar retailers.”
Eurozone PMI Services was finalized at 51.1 in January, down from December’s 53.1. PMI Composite was finalized at 52.3, down from prior month’s 53.3. Looking at some member states, Ireland PMI Composite was unchanged at 56.5, Germany dropped to 4-month low at 53.8, France dropped to 9-month low at 52.7, Italy dropped to 12-month low at 50.1, and Spain dropped to 11-month low at 47.9.
Chris Williamson, Chief Business Economist at IHS Markit said:
“The eurozone economy has slowed further in January after seeing growth weaken in the final quarter of 2021…. Spain has been the hardest hit, falling back into contraction, while Italy has seen business activity stall, in both cases linked to declining service sector output. France is meanwhile recording the weakest expansion since last April. Germany is bucking the slowdown trend, however, providing a welcome ray of light to suggest that the impact of Omicron will be both shorter and less severe than prior virus waves….
“A key concern is that inflationary pressures continue to build, with soaring energy prices likely to add further to upward price pressures in coming months. Households are already being squeezed and firms face further cost rises. Tensions in Ukraine also pose a further downside risk to the outlook, with any escalation of the situation likely to further dampen business confidence.”
Chicago Fed President Charles Evans said he wouldn’t describe inflation as “hair on fire”. But he admitted, high inflation is “gone on longer”, and things are “not quite as clean as I was hoping for”.
Evans also tried to solidify the expectation that Fed won’t raise interesting rate before completing tapering. Also, there won’t be adjustment in the tapering pace, “state-contingent, we see a big change in the data.”
US Treasury Secretary Steven Mnuchin said the US is “very focused on the EU” on strengthening the trade relationship. He said that after Meeting of Trump and Juncker, there is an agreement in principal and the officials planned to move forward to “turn it into real agreement”.
Both sides would immediately focus on steel and aluminum tariffs first “so that there can be no tariffs in either direction”. The issue is expected to be resolved “very quickly”. Mnuchin also said there is an outline already, “in agriculture, in chemicals, in medical devices, in industrial LNG” and so “we’re going to make a lot of progress.
Regarding China, Mnuchin said “if they’re willing to make serious changes just as the EU did yesterday, we’ll negotiate with China any time.”
And on NAFTA, he said “hopeful that we’ll have an agreement in principal in the near future.” He also noted that “whether it’s one deal or two deals, so long as we get the right agreement, we’re indifferent.”
US Trade Representative Robert Lighthizer said that the US was close to reaching a broad agreement on NAFTA renegotiations. And he added that “we are in the finishing stages of achieving an agreement in principle that will benefit American workers, farmers, ranchers, and businesses.” And talks were being done at an “unprecedented speed”.
US durable goods orders rose 0.2% mom to USD 284.7B in August, much better than expectation of -0.4% mom decline.Ex-transport orders dropped rose 0.4% mom to USD 187.0B, above expectation of 0.2% mom. Ex-defense orders dropped -0.7% mom to USD 267.2B. Machinery rose 0.5% mom to USD 37.8B.
BoE left the Bank Rate unchanged at 5.25% as widely expected. However, two MPC hawks (Jonathan Haskel and Catherine Mann) voted for another 25bps to 5.50%. Meanwhile, one dove (Swati Dhingra) voted for a 25bps cut to 5.00%. That resulted in a 6-3 vote for the decision.
Nevertheless, the central bank dropped tightening bias by omitting the language that "Further tightening in monetary policy would be required…." Instead, it’s now "prepared to adjust monetary policy as warranted by economic data".
BoE will continue monitor a range of measures of "the underlying tightness of labour market conditions, wage growth and services price inflation."
CPI is projected to fall temporarily to 2% in Q2 2024, before rising again in Q3 and Q4. BoE sees CPI to be at to be at 2.8% in Q1 2025 (up from prior 2.5%), then 2.3% in Q1 2026 ( up from 1.9%), then 1.9% in Q1 2027 (new).
Four-quarter GDP growth is seen at 0.5% in Q1 2025 (up from 0.0%), the 0.8% in Q1 2026 (up from 0.6%), and 1.5% in Q1 2027 (new).
These are conditioned on a lowered market-implied path for Bank Rate that declines from 5.1% in Q1 2024 (prior 5.3%), then falls to 3.9% in Q1 2025 (down from 5.0%), and then 3.3% in Q1 2026 (down from 4.4%), and 3.2% in Q1 2027 (new).
Bitcoin is extending last week’s decline and it’s now close to making a new low for the year. The move is part of the broad based risk-off selling, which sees Nikkei down over -2.2% in Asia.
Immediate focus is now on 33000 low in bitcoin. Firm break there will resume whole down trend from 68986. In this case, there might be further downside acceleration through 30k handle to 61.8% projection of 68986 to 33000 from 48226 at 25986. Nevertheless, break of 36118 resistance will be a sign of stabilization and bring recovery first.
Ethereum also follows by breaking 2390 support today. The development should confirm that corrective recovery from 2157 has completed with three waves up to 3577. Deeper fall should be seen through 2157 to 38.2% projection of 4863 to 2157 from 3577 at 1904.
Sterling jumps notably as positive response to UK job data. Unemployment rate dropped to 4.3%, down from 4.4%, and beat expectation of 4.4%. Average weekly earnings exclude bonus rose 2.6% 3moy, accelerated from 2.5% 3moy. More surprisingly, Average weekly earnings include bonus rose 2.8% 3moy, accelerated from 2.7% 3moy and beat expectation of of 2.6% 3moy. Claimant count, on the other hand, rose 9.2k versus expectation of -5k.
The set of data overall should be more than welcomed by BoE hawks. In particular, wage growth is picking up pace and would add to their argument of a May hike. Be ready and we might see a hawk or two vote for a hike in the announcement tomorrow. In particular, UK has the Brexit transition deal in pocket already.
EUR/GBP is leading the way down as fall from 0.8976 resumes. It’s on course for a test on 0.8686 key support level. As this is a strong, important support zone, EUR/GBP could face some support there at initial attempt.
GBP/USD’s also jumps sharply after the release, indicating that retreat from 1.4087 is likely finished. The pair is also supported well above 4 hour 55 EMA. A test on 1.4087 would likely be seen soon.
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UK GDP contracted -0.2% in Q2, first contraction since 2012
UK GDP surprisingly contracted by -0.2% qoq in Q2, worse than expectation of 0.0% qoq. That’s also the first quarterly contraction since 2012. Over the year, GDP grew 1.2% yoy, slowed from Q1’s 1.8% yoy and missed expectation of 1.4% yoy. Looking at some details, services sector provided the only positive contribution to GDP growth, with 0.1% qoq growth. Production sector contracted sharply by -1.4% qoq, driving by sharp decline in manufacturing output. In June, GDP rose 0.0% mom, below expectation of 0.1% mom.
Chancellor of the Exchequer Sajid Javid said, “this is a challenging period across the global economy, with growth slowing in many countries. But the fundamentals of the British economy are strong – wages are growing, employment is at a record high and we’re forecast to grow faster than Germany, Italy and Japan this year.” And, “the government is determined to provide certainty to people and businesses on Brexit – that’s why we are clear that the UK is leaving the EU on October 31.”
Also released from UK, industrial production dropped -0.1% mom, -0.6% yoy in June, versus expectation of -0.2% mom, -0.3% yoy. Manufacturing production dropped -0.2% mom, -1.4% yoy, versus expectation of -0.2% mom, -1.1% yoy. Visible trade deficit narrowed to GBP -7.0B in June versus expectation of GBP -11.3B.