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Eurozone economic sentiment ticked up to 105 in May, EU down to 104.1

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    Eurozone Economic Sentiment Indicator ticked up from 104.9 to 105.0 in May. Employment Expectations Indicator rose from 112.6 to 112.9. Industrial confidence dropped from 7.7 to 6.3. Services confidence rose from 13.6 to 14.0. Consumer confidence rose from -22.0 to -21.1. Retail trade confidence dropped from -3.9 to -4.0. Construction confidence rose from 7.0 to 7.2.

    EU Economic Sentiment dropped from 104.6 to 104.1. Amongst the largest EU economies, the ESI rose markedly in Spain (+4.1) and, to a lesser extent, in France (+1.5) and Italy (+0.8), while it remained

    Full release here.

    Canadian Dollar recovers as Trudeau said tension with Saudi just diplomatic difference of opinion

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      Selling pressure on Canadian appears to have eased after Canadian Prime Minister Justin Trudeau tried to tone down the tension with Saudi Arabia. Trudeau referred to recent events as a matter of “diplomatic difference of opinion” only. And he emphasized that “we don’t want to have poor relations with Saudi Arabia.” Trudeau went further and hailed that Saudi Arabia is a “country that has great significance in the world, that is making progress in the area of human rights.”

      Nonetheless, Trudeau also stood firm on Canada’s position. He noted that “Canadians have always expected our government to speak strongly, firmly, clearly and politely about the need to respect human rights at home and around the world. We will continue to do that, we will continue to stand up for Canadian values and indeed for universal values and human rights at any occasion,”

      The tension started last Friday when Canada expressed concerns over arrests of women rights activist in Saudi Arabia. The latter responded to the criticism by freezing new trade with Canada and expelled Canadian ambassador. It’s reported yesterday by the Financial Times that Saudi central bank and state pensions ordered their overseas asset managers to sell their Canadian assets, including equities, bonds and cash holdings “no matter the cost”. Saudi Arabia’s foreign minister also said there is “nothing to mediate” with Canada.

      USD/CAD spiked higher to 1.3119 yesterday but it’s now back pressing 1.3000.

      BoJ Kataoka: Coronavirus outbreak may weaken consumption and capital expenditure

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        BoJ known dove Goushi Kataoka warned today coronavirus out break could hurt consumption and poses uncertainty to the economy. He called by stronger actions by the central bank. He said, “we need to be mindful that consumption may weaken further as a trend”, and, “worsening sentiment among automakers and retailers could also affect the outlook for capital expenditure.”

        In his view, BoJ should deepen the negative interest rate further. Additionally, it’s “very important” for government and the central bank to coordinate their policies. He added, “I believe there’s room for the BOJ to review its policy framework and re-examine its effect including how it interacts with fiscal and pro-growth policies.”

        Separately, Deputy Governor Masayoshi Amamiya said that with digital currencies, central banks could stifle private-sector financial innovation and draw money away from deposits at commercial banks. However, central banks must also conduct a “comprehensive study” on how digital currencies would affect their settlement and financial systems.

        Japan national CPI core rose to 0.8%, but core-core slowed

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          Japan national CPI core (all items ex-fresh food), rose to 0.8% yoy in January, up from 0.7% yoy, matched expectations. But it remains well below BoJ’s 2% target. Headline CPI slowed to 0.7% yoy, down form 0.8% yoy. CPI core-core (all items ex-fresh food, energy slowed to 0.8% yoy, down fro 0.9% yoy.

          BoJ Governor Haruhiko Kuroda told the parliament today that he saw the economy to continue with moderate recovery. The central bank won’t hesitate to take additional easing measures if necessary. But he didn’t believe it’s needed now.

          Kuroda added that uncertainty regarding China’s coronavirus outbreak is high, because of the impact on exports, production, and tourism. He’d watching the effects with “grave concern.” Also, the coronavirus will be the “biggest topic on the agenda” at this week’s G20 meeting.

          Fed Bullard: Continuing to see interest rate near zero through 2023

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            St. Louis Fed President James Bullard said yesterday that right now “it is looking good” as “we are coming to the end of the war here” with the pandemic. He forecast US GDP to grow 6.5% this year, while unemployment rate will fall to 4.5%. He also expects inflation to climb to 2.5%.

            But, “I’d like to see actual data come in that verifies this forecast and verifies the idea that it’s going to be a very strong year for the U.S. economy,” he added. “We are still in a crisis. It could go the wrong way. So we really want to get the pandemic behind us before we start contemplating changes.”

            ‘I am continuing to see us near zero (on interest rate) through 2023,” Bullard said.

            BoJ stands pat, upgrades 2022, 2023 inflation forecasts

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              BoJ left monetary policy unchanged. Under the yield curve control, short-term policy interest rate is held unchanged at -0.1%. BoJ will also buy a “necessary amount” of JGB bonds to keep 10-year yield at around 0%.

              BoJ maintained the pledge to continue with QQE with yield curve control, “aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner”. It will also continue expanding the monetary base “until the year-on-year rate of increase in the observed consumer price index (CPI, all items less fresh food) exceeds 2 percent and stays above the target in a stable manner.”

              In the new economic projections, comparing to October forecasts:

              • Fiscal 2021 real GDP growth downgraded from 3.4% to 2.8%.
              • Fiscal 2022 real GDP growth upgraded from 2.9% to 3.8%
              • Fiscal 2023 real GDP growth downgraded from 1.3% to 1.1%.
              • Fiscal 2021 core CPI unchanged at 0.0%.
              • Fiscal 2022 core CPI upgraded from 0.9% to 1.1%.
              • Fiscal 2023 core CPI upgraded from 1.0% to 1.1%.

              Full statement here.

              Full Outlook for Economic Activity and Prices here.

              UK PMI composite ticked up to 48.3, downturn will deepen into new year

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                UK PMI Manufacturing was unchanged at 46.2 in November. PMI services was also unchanged at 48.8. PMI Composite ticked up from 48.2 to 48.3.

                Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:

                “A further steep fall in business activity in November adds to growing signs that the UK is in recession, with GDP likely to fall for a second consecutive quarter in the closing months of 2022.

                “If pandemic lockdown months are excluded, the PMI for the fourth quarter so far is signalling the steepest economic contraction since the height of the global financial crisis in the first quarter of 2009, consistent with the economy contracting at a quarterly rate of 0.4%. ”

                Forward-looking indicators, notably an increasingly steep drop in demand for goods and services, suggest the downturn will deepen as we head into the new year.”

                Full release here.

                AUD/JPY and NZD/JPY extending rebound, to retest recent highs

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                  AUD/JPY powers through 84.39/46 minor resistance today, as rise from 83.02 resumes. Further rally is now expected as long as 83.73 support holds. At this point, it’s unsure whether consolidation pattern from 85.43 has completed already. Hence, we’d pay attention to topping at around 85.43. Though, eventually, the whole up trend from 59.89 is expected to resume sooner or later. It’s just a matter of time. Next medium term target is 61.8% projection of 73.13 to 85.43 from 83.02 at 90.62.

                  Similarly, NZD/JPY is also resuming rise from 75.61 today, and hits as high as 78.36 so far. Further rally is expected as long as 77.38 minor support holds, for retesting 79.19 high. We’d also be cautious on topping around there. But eventually upside breakout is anticipated. Next medium term target is 61.8% projection of 68.86 to 79.19 from 75.61 at 81.99.

                  NZ BNZ manufacturing dropped to 48.1, sector faces headwinds

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                    New Zealand’s BusinessNZ Performance of Manufacturing Index fell from 51.7 in February to 48.1 in March, slipping back into negative territory after briefly reaching positive levels in January and February. The decline in the index signals challenges for the manufacturing sector.

                    A closer look at the data reveals that production dropped from 48.7 to 43.3, its lowest level since August 2021. Employment shrank from 55.2 to 47.1, while new orders dipped from 51.5 to 46.7, matching November 2022 levels. Finished stocks decreased from 55.1 to 48.4, and deliveries rose slightly from 52.2 to 53.8.

                    Catherine Beard, BusinessNZ’s Director of Advocacy, pointed out that the numbers behind the main March result indicate the manufacturing sector is facing significant headwinds. BNZ Senior Economist Craig Ebert added that although New Zealand’s March PMI was disappointing, it was “not especially negative in the longer-term context” and was in line with global manufacturing readings.

                    Full NZ BNZ PMI release here.

                    BoE Mark Carney press conference live stream

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                      Fed’s Bostic reiterates importance to staying on path to 2% inflation

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                        Atlanta Fed President Raphael Bostic, in a moderated discussion yesterday, reiterated his expectation of two rate cuts by the Fed this year. He anticipates the first rate cut to occur in the third quarter.

                        For now, he’s “comfortable” with Fed’s “restrictive stance”. “I just want to see the economy continue to evolve with us in that stance and hopefully see inflation continue to get to our 2% level,” he added.

                        The US is “on a path to 2%” inflation and “the goal is to make sure we stay on the path,” he said.

                        New Zealand BusinessNZ PMI: Weak spot in production

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                          New Zealand BusinessNZ Performance of Manufacturing Index (PMI) dropped -1.1 to 52.2 in March. That’s also the second consecutive decline in 2018 even though it still signaled expansion.

                          BusinessNZ’s executive director for manufacturing Catherine Beard:

                          • “On a positive note, the proportion of positive comments in March (55.1%) picked up from both February (51.4%) and January (50.7%).  Those who provided negative comments typically noted a lack of finding the right staff, reduced orders (both domestically and offshore) and general uncertainty in the market.”

                          BNZ Senior Economist, Craig Ebert:

                          • “The weak spot in March’s PMI was its production index.  With a seasonally adjusted outcome of 50.8 this was close to stalling. Compare this to February’s 53.7 and the exceptionally high reading of 61.0 back in November and a sense of sharp deceleration arises”.

                          ECB Knot and Visco doubt if inflation falls below 2% after 2022

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                            ECB Governing Council member Klaas Knot said he had a “different view” to ECB’s projection that inflation will fall back to 1.8% after 2022. He said, “I think the chance we remain stuck above 2% is just as big. Not far above 2%, but still.”

                            Separately, another governing council member Ignazio Visco said, “(Inflation) forecasts below 2% in 2023-24 are of course subject to both downside and upside risks.”

                            New Zealand terms of trade rose 3.3% in Q2 as export prices surged

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                              New Zealand merchandise terms of trade rose 3.3% in Q2, well above expectation of 0.3%. Export prices for goods rose 8.3% while import prices rose 4.8%. Export volume for goods rose 2.9% while import volumes rose 4.4%. Export values rose 9.2% and import values rose 4.6%. Services terms of trade dropped -8.5%. Services export prices fell -1.6% while import prices rose 7.7%.

                              Terms of trade measures New Zealand’s purchasing power for import goods, based on the prices it receives for exports. An increase in terms of trade means that New Zealand can buy more import goods for the same quantity of exports.

                              Full release here.

                              ECB Lane: There’s still a lot of momentum in the system

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                                In an interview with El País, ECB chief economic Philip Lane said “we don’t think the recovery process is over”, and “growth will be pretty strong in 2022”. Tourist season will be “better next year” and bottlenecks “ultimately will be resolved.” Also, other factors include savings accumulated during the pandemic, the Next Generation EU fund, and the high vaccination rates.

                                The headaches about bottlenecks and higher energy prices are “not going to wipe out the underlying momentum of the recovery”. He added, “it is not only about getting back to where we were before the pandemic – it’s also about catching up to the growth that we should have had in 2020 and 2021. So there is still a lot of momentum in the system.”

                                “Inflation is unexpectedly high at the moment, but we do think it is going to fall next year,” he said. “we did talk about ‘inflation, inflation, inflation’, but this period of inflation is very unusual and temporary, and not a sign of a chronic situation. The situation we are in now is very different from the 1970s and 1980s.”

                                Full interview here.

                                China Caixin PMI services recovered to 43, situation requires policymakers to cut GDP growth target

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                                  China Caixin PMI Services recovered to 43.0 in March, up from 26.5. PMI Composite rose from 27.5 to 46.7, second lowest reading in 11 years. Caixin said that business activity and new work both declined at slower rates, but employment fell at quickest pace on record. Output charges also cut at fastest rate since April 2009.

                                  Zhengsheng Zhong, Chairman and Chief Economist at CEBM Group said: “The recovery of economic activity remained limited in March, although the domestic epidemic was contained. In the first two months this year, China’s value-added industrial output and services output dropped 13.5% and 13% year-on-year, respectively.

                                  “Estimates suggest their declines haven’t been as steep in March and the country’s first-quarter GDP is likely to have dropped significantly. Such a situation requires policymakers to cut this year’s GDP growth target and step up countercyclical efforts to support areas like consumption and infrastructure, particularly given the accelerated contraction in the service sector job market.”

                                  Full release here.

                                  IMF: Global growth to bottom at 2.8% this year

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                                    The IMF released its World Economic Outlook, projecting global growth to slow from 3.4% in 2022 to 2.8% in 2023 and bottom there, and then rise to 3.0% in 2024. Global inflation is expected to decelerate from 8.7% in 2022 to 7% in 2023 and further to 4.9% in 2024.

                                    Pierre-Olivier Gourinchas, Economic Counsellor and Director of Research at IMF, said in a blog post, “The global economy’s gradual recovery from both the pandemic and Russia’s invasion of Ukraine remains on track. China’s reopened economy is rebounding strongly. Supply chain disruptions are unwinding, while dislocations to energy and food markets caused by the war are receding. Simultaneously, the massive and synchronized tightening of monetary policy by most central banks should start to bear fruit, with inflation moving back towards targets.”

                                    For 2023, global growth projections were reduced by 0.1% compared to January’s forecast. US growth was revised up by 0.2% to 1.6%, Eurozone growth by 0.1% to 0.8%, and UK growth by 0.3% to -0.3%. However, Japan’s growth projection was revised down sharply by 0.5% to 1.3%. Canada and China’s growth forecasts remained unchanged at 1.5% and 5.2%, respectively.

                                    Regarding interest rates, the IMF believes recent increases in real interest rates are likely temporary. Once inflation is under control, advanced economies’ central banks are expected to ease monetary policy and bring real interest rates back towards pre-pandemic levels.

                                    Full IMF Worl Economic Outlook here.

                                    Fed Jefferson: A pause in June doesn’t mean rates have peaked

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                                      Comments from top officials from Fed suggested a pause in interest rate hikes in June while possible, shouldn’t be misinterpreted as a sign that peak rates for the cycle have been reached.

                                      Fed Governor, Philip Jefferson, clarified, “A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle.”

                                      Jefferson, suggested that skipping a rate hike at an upcoming meeting would provide an opportunity for the committee to review more data before deciding on the extent of any further policy tightening.

                                      Philadelphia Fed President, Patrick Harker, echoed this sentiment, albeit with a more forceful argument for the need to ‘skip’ rather than ‘pause’. “I am in a camp increasingly coming into this meeting of thinking that we really should skip, not pause,” he remarked.

                                      Harker believes the current policy is nearing, if not already at, a restrictive level and suggests a period of careful reflection before further action is taken.

                                      Harker added, “I think we have to be ready that we might have to do more and I’m fully aware we have to do that and willing to do that, but I want to give it a little bit of time.”

                                      UK PMI construction recovered to 49.2, but further weakness ahead

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                                        UK PMI Construction recovered from 48.9 to 49.2 in August, above expectation of 48.0. S&P Global noted that activity was down for the second month running. New orders and employment had softer rises. But supply-chain disruption and inflationary pressures eased.

                                        Andrew Harker, Economics Director at S&P Global Market Intelligence, said: “The UK construction sector looks set to be in for a challenging period, according to the latest PMI data. Not only did construction activity fall for the second month running, but a range of indicators from the survey pointed to further weakness ahead.”

                                        Full release here.

                                        US ISM non-manufacturing rose to 45.4, corresponds to -1.1% annualized fall in GDP

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                                          ISM non-manufacturing index rose to 45.4 in May, up from 41.8, slightly above expectation of 43.0. Production improved notably from 26.0 to 41.0, so was new orders, from 32.9 to 41.0. Employment edged up from 30.0 to 31.8. But these three components remained well below 50 handle.

                                          ISM also noted: “The past relationship between the NMI® and the overall economy indicates that the NMI® for May (45.4 percent) corresponds to a 1.1-percent decrease in real gross domestic product (GDP) on an annualized basis.”

                                          Full release here.

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