Fed Rosengren: CARES Act a good start but we have to do more

    Boston Fed President Eric Rosengren said yesterday that Fed has “acted quickly to address spillovers from the economic disruption” caused by coronavirus pandemic. But “we are probably going to have to do more than what was jut in the CARES Act, but I think it was a very good start in trying to mitigate some of the costs”. He referred to the recently passed USD 2T Coronavirus Aid, Relief and Economic Security (CARES) Act.

    Rosengren also added “we’re witnessing the pandemic’s stark effects on public health. Meanwhile, the necessary response – social distancing – has stilled our strong economy, disrupting countless lives and livelihoods.” Social distancing practices are also “distorting the credit and liquidity flows that underpin our economy, threatening the greater pain of a full‐blown financial crisis.”

    Gold recovered ahead of 1275/6 support zone, maintains bullishness

      Gold drew support from rising channel line and recovered after hitting 1280.85. So far, it’s held above 1276.76 cluster support (38.1% retracement of 1160.17 to 1346.17 at 1275.45). Thus, there is no indication of trend reversal yet. Rise from 1160.17 could extend further. Break of 1346.71 will target key fibonacci level of 38.2% retracement of 192.070 to 1046.37 at 1380.36. For now, we don’t see enough momentum to break through this 1380.36 key fibonacci level yet.

      On the downside, decisive break of 1275.45/1276.76 should confirm completion of whole rise from 1160.17. In that case, gold should have started another falling leg inside the long term range pattern. Deeper fall should then be seen back towards 1160.17 support.

      ECB Rehn: Policy rates will still have to rise significantly

        ECB Governing Council member Olli Rehn said, “Policy rates will still have to rise significantly… This means significant rate hikes at this winter’s remaining meetings.”

        Though he also admitted that it’s a fair argument that it takes time to reverse the a decade of stimulus.

        “With the benefit of hindsight, there may be some truth in this argument, at least from the standpoint that we could thus have created more policy space to react if the euro zone economy falls into recession,” Rehn said.

        Japan tankan large manufacturing dropped to -34, worst since 2009

          BoJ’s Tankan large manufacturing index dropped to -34 in Q2, down from -8, hitting the lowest level since 2009. That’s also worse than expectation of -31. Manufacturing outlook for September dropped to -27. Large non-manufacturing index dropped to -17, slightly better than expectation of -18. Non-manufacturing outlook also dropped to -14, but beat expectation of -15. On the positive side, all large industry capex rose 3.2%, versus expectation of 2.1%.

          Full release here.

          ECB Makhlouf: I’m open to acting forcefully to bring inflation down

            ECB Governing Council member Gabriel Makhlouf told WSJ, “I’m open to acting forcefully to get inflation down to our target.” He noted that interest rate could rise to above 3.5% and stay there.

            Regarding speculations that ECB would cut interest this year, Makhlouf said, “I think that really is going too far… We’ll reach a point where we’re going to, then plateau.”

            “I see the ECB as putting up interest rates after the March meeting…Even though inflation is coming down it’s still way above our target,” Makhlouf added.

            ECB Villeroy: Takes 2 to 3 years to bring inflation back to target

              ECB Governing Council member Francois Villeroy de Galhau said the central bank is engaged in bringing down inflation to 2% target in “two to three years” time. “It is a very strong signal the central bank sends to all economic players that we will bring down inflation to the target”, he said.

              Another Governing Council member Mario Centeno said, “normalization of monetary policy is absolutely necessary and desired.” But he added, that “policy normalization must be gradual… A policymaker cannot become a factor of instability”.

              Australia employment grew 32.6k, but demand met by people working more hours

                Australian’s June employment data showed persistent tightness in the job markets. The 32.6k growth in employment significantly surpassed expectations of 15.0k. Employment-population ratio remained at record high. Monthly hours worked outpaced employment growth, suggesting that labor demand was met by people working more hours.

                Among the 32.6k job growth, rise of 39.3k full-time employment was offset by a decrease of -6.7k in part-time roles. Unemployment rate remained steady at 3.5%, below expectation of 3.6%. Participation rate dipped slightly from 66.9% to 66.8%. Monthly hours worked rose 0.3% mom, faster than growth in employment at 0.2% mom.

                Bjorn Jarvis, ABS head of labour statistics, stated: “The rise in employment in June saw the employment-to-population ratio remain at a record high 64.5 per cent, reflecting a tight labour market in which employment has recently increased in line with population growth.”

                He further emphasized that the current labour market is stronger than it was prior to the pandemic. Jarvis elaborated, “In addition to there being over a million more employed people than before the pandemic, a much higher share of the population is employed. In June 2023, 64.5 per cent of people 15 years or older were employed, an increase of 2.1 percentage points since March 2020.”

                Jarvis also highlighted the ongoing demand for labour, saying: “The strength in hours worked since late 2022, relative to employment growth, shows the demand for labour is continuing to be met, to some extent, by people working more hours.”

                 

                Full Australia employment release here.

                Germany Gfk consumer climate dropped to 2.7, lowest since 2009

                  Germany Gfk consumer climate for April dropped to 2.7, down from March’s 8.3. The index is at its lowest level since May 2009, when consumer climate was at 2.6 during the global financial crisis. Economic expectations dropped by -20.4pts to -19.2, lowest since August 2012. Income expectations dropped -13.4 pts to 27.8, lowest in 7 years.

                  “In light of the current development, we are withdrawing our consumer forecast of one percent growth for 2020. Retailers, manufacturers and service providers must prepare for a recession,” explains Rolf Bürkl, GfK Consumer Expert. “How severe this recession will be will ultimately depend on when the economy finds its way back to normality. A reliable forecast regarding consumption can only be made once we can predict how long the protective measures to combat corona will remain in place.”

                  Full release here.

                  Australia Westpac leading index signals sustained weak growth next year

                    Australia Westpac Leading Index dropped from -1.09% to -1.19% in October, a new post-pandemic low. Westpac said the is consistent with “sustained weak growth” in 2023. It expects GDP growth to slow from around 3.4% in 2022 to just 1% next year.

                    It added, “key drivers of the slowdown are: monetary policy tightening; falling commodity prices; and softness in jobs growth as capacity constraints bite.”

                    Regarding RBA policy, Westpac expects another 25bps rate hike at the December 6 meeting. And, “a mooted pause in the tightening is unlikely to occur in 2022 or the early months of 2023 as the Bank continues to underperform its inflation objectives.”

                    Full release here.

                    RBA Bullock: We meet more frequently than most of our peers

                      RBA Deputy Governor Michele  Bullock acknowledged in a speech that some commentators contracted the 24bps hike in October with those of other central banks that have been hiking by larger increments.

                      “In part, this reflects our particular economic circumstances,” she said. “But it is also relevant that the Board meets more frequently than most of our peer central banks.”

                      RBA is “making monetary policy decisions 11 times a year so it is discussing regularly the evidence on the economy and has more flexibility on the size and timing of rate increases… The incremental change in the policy rate at recent meetings has been smaller than some other major central banks. However, our policy rate trajectory has been as steep, or steeper, than other central banks”.

                      Both Fed and ECB hold monetary policy meetings 8 times a year.

                      Full speech here.

                      Fed’s Cook: Risks of meeting dual manage more balanced

                        Fed Governor Lisa Cook pointed out in a speech that risks associated with meeting the dual mandate goals of inflation and employment are “moving into better balance”.

                        She explained that prematurely easing monetary policy might “allow above-target inflation to become entrenched” and eventually require a tighter monetary stance, risking significant employment setbacks. Conversely, delaying policy easing could unnecessarily restrict economic expansion and curtail job opportunities.

                        Full speech of Fed’s Cook here.

                        ECB to stand pat, await Lagarde’s take on rate cut and economic outlook

                          ECB is widely expected to keep monetary policy unchanged today. Main refinancing rate will be held at 4.50%, and deposit rate at 4.00%. Given the lack of significant new data since the December meeting, it’s improbable that ECB will offer fresh policy directions. Instead, it’s expected that the market will have to await March meeting, which will include new economic projections, for any substantial updates.

                          President Christine Lagarde is likely to continue her stance against the speculation of imminent rate cuts. It is anticipated that she will emphasize the persistence of underlying price pressures, especially in the services sector, and highlight the various risks still in play. These risks range from impending wage negotiations to geopolitical tensions, such as the ongoing Red Sea blockade.

                          However, the tone adopted by Lagarde regarding the Eurozone’s economic condition will be scrutinized closely. Recent economic data, including this week’s PMIs suggests that Eurozone might be already in a recession in the last quarter and is witnessing a sluggish start to the new year. Should President Lagarde express heightened concern over the economic situation, it could potentially trigger market participants to increase their bets on an earlier rate cut.

                          EUR/CHF’s deep retreat this week suggests initial rejection by 55 D EMA (now at 0.9447). Deeper pull back is now mildly in favor as long as 0.9471 holds, towards 0.9252 low. But a break there is not envisaged at this point. Meanwhile, break of 0.9471 will resume the rebound, as a correction to whole down trend from 1.0095, to 38.2% retracement of 1.0095 to 0.9252 at 0.9574.

                          Italy might lower 2019 deficit target, Euro lifted, German-Italian spread drops below 300

                            Euro is given a lift on reports that the Italian coalition is considering adjustment on its 2019 budget plan. Il Messaggero newspaper quoted Armando Siri, a Transport Ministry undersecretary saying that “In order to save the budget and avoid an increase in market turbulence … a small fine-tuning (of the deficit target) could be considered.”

                            Separately, it’s reported that Deputy Prime Minister, leader of Five-Star Movement, Luigi Di Maio also said deficit target reduction is not a problem as long as budget measures remain the same. On Sunday, another Deputy Prime Minister, leader of the League, Matteo Salvini also said “no one is stuck” to the deficit target, hinting at some flexibility for adjustment.

                            The cabinet is expected to meet today in the evening to discuss reduction of the 2.4% deficit target of 2019. And that could open up the door for constructive dialogue with the European Commission to avoid Excessive Deficit Procedure.

                            Italian 10 year yield dips notably today and is down -0.191 at 3.223. German 10 year yield is currently up 0.028 at 0.372. That is, spread is now below 300 alarming level.

                            Australia employment grows a mere 6.7%, unemployment rate ticks down

                              Australia’s job market portrayed a mixed picture in September, with a significant undershoot in employment growth countered by a lower-than-expected unemployment rate.

                              The country added a mere 6.7k jobs in the month, a far cry from the anticipated 20.3k. Delving deeper into the data, full-time employment took a hit, shrinking by -39.9k. However, this was partly offset by increase in part-time roles, which swelled by 46.5k.

                              Unemployment rate showed slight improvement, ticking down to 3.6% from previous 3.7%, despite expectations that it would remain steady. Yet, this decline could be attributed to a drop in participation rate, which receded from 67.0% to 66.7%. Meanwhile, total monthly hours worked contracted by -0.4% mom, equivalent to a reduction of 8 million hours.

                              Kate Lamb, ABS’s head of labour statistics, highlighted that, when considering the last two months, the average monthly employment growth stood at 35k, in line with the yearly average growth. However, Lamb also drew attention to the declining unemployment rate in September, indicating it primarily resulted from a shift of people from the unemployed category to being outside the labor force altogether.

                              Furthermore, she noted, “The recent softening in hours worked, relative to employment growth, may suggest an easing in labour market strength.”

                              Full Australia employment release here.

                              RBA to continue to look at both sides of the rate cut equation

                                In an address to the National Press Club today, RBA Governor Philip Lowe said the rate hold yesterday “reflects a judgement about the benefits from a further reduction in interest rates against some of the costs and risks associated with very low interest rates.”

                                He added, a further cut would help households balance sheet adjustment and “bring forward the day that consumption strengthens”. It would also have a further effect on the exchange rate which would ” boost demand for our exports and therefore support jobs growth.” However, there were global concerns on the “resource allocation” and “confidence” on very low interest rates. It could also encourage more borrowing for house purchases and increase risk of problems down the track.

                                But the board will continue to look at “both sides of the equation”. “If the unemployment rate were to be trending in the wrong direction and there was no further progress being made towards the inflation target, the balance of arguments would change.” There would be a “strong case for further monetary easing” in those circumstances.

                                Lowe’s full speech here.

                                Asian business sentiment swung from decade low to 18-month high

                                  Thomson Reuters/INSEAD Asian Business Sentiment jumped to 71 in Q4. That was a large swing from Q3’s 58, which was close a decade low, to the highest since June last year. The change was also a noticeable shift from neutral to optimistic even though majority of firms are not yet confident enough to plan hiring.

                                  Antonio Fatas, economics professor at INSEAD, said, “conditions, expectations and some of the uncertainty has improved over the last quarter. But I don’t see this uncertainty disappearing, I think some of these tensions are going to stay with us maybe for years or decades.”

                                  Full report here.

                                  China Caixin PMI services rose to 57.8, highest since Nov 2020

                                    China’s Caixin PMI Services index exceeded expectations in March, rising from 55.0 to 57.8, marking the highest level since November 2020. The data revealed sharp increases in activity, sales, and employment, with the services sector showing stronger expansion compared to the manufacturing sector. Business confidence remained historically strong, while input price inflation reached a seven-month high. The PMI Composite also experienced a slight increase from 54.2 to 54.5, reaching its highest point since June 2022.

                                    Wang Zhe, Senior Economist at Caixin Insight Group said: “Production, demand and employment all grew, with the services sector showing a stronger expansion, whereas manufacturing activity turned comparatively sluggish. Input costs and prices charged remained stable, and businesses were highly optimistic.”

                                    Full China Caixin PMI services release here.

                                    IMF raises US growth forecasts to 2.6% in 2019, agrees to Fed pausing rate hikes

                                      IMF Managing Director Christine Lagarde said economic forecasts for US for 2019 will be raised by 0.3% to 2.6%. For 2020, growth is expected to slow to 1.9%. IMF is “seeing a lot of positives in the macroeconomic outcomes” and “there is a lot for Americans to be proud of”.

                                      Meanwhile, IMF “full agree” with Fed’s approach in “pausing its process of raising interest rates”. That will “give policymakers time to gauge the balance of risks to both inflation and employment outcomes and to build a clearer picture of whether further adjustments in the federal funds rate are warranted.”

                                      On trade, however, Lagarde emphasized “it will be essential that the U.S. and its trading partners work constructively together to better address distortions in the trading system”. And, “it is especially important that the trade tensions between the U.S. and its trading partners including China and Mexico… are quickly resolved through a comprehensive agreement that results in a stronger and more integrated international trading system.”

                                      Lagarde’s full speech here.

                                      BoE Bailey: We’re walking a very tight line between inflation and recession

                                        BoE Governor Andrew Bailey said yesterday that the UK is “walking a very tight line between tackling inflation and the output effects of the real income shock, and the risk that that could create a recession and pushes too far down in terms of inflation.”

                                        “We are now in a period of unprecedentedly large shocks,” he said, referring to both the pandemic and the war in Ukraine.

                                         

                                        Australia AiG services rose to 60 in Feb, grew strongly

                                          Australia AiG Performance of Services Index rose 3.8 pts to 60.0 in February. Looking at some details, sales rose 9.7 pts to 68.6. Employment dropped -2.0 to 54.7. New orders rose 3.2 to 61.1. Supplier deliveries rose 7.6 to 59.0. Input prices dropped -0.1 to 66.0. Selling prices dropped -1.9 to 60.3. Average wages dropped -1.0 to 55.9.

                                          Innes Willox, Chief Executive of Ai Group, said: “Australian service sector businesses grew strongly in February with sales, employment and new orders all adding to the gains in the December-January period. Prices of inputs and wages were up but not as dramatically as in the manufacturing and construction sectors. Selling prices remained at a level that suggests a capacity to recover a proportion of cost increases in the market.”

                                          Full release here.