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ECB Rehn: Weakening outlook justifies significant and impactful stimulus in Sep

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    ECB Governing Council member Olli Rehn said, “there is a certain weakening of the economic outlook for Europe in the last couple of months”. And, the backdrop “justifies taking further action in monetary policy, as we intend to do in September.”

    He added, “it’s important that we come up with a significant and impactful policy package in September” monetary policy meeting. He added, “when you’re working with financial markets, it’s often better to overshoot than undershoot, and better to have a very strong package of policy measures than to tinker.”.

    On the composition of the stimulus, Rehn said A package of several measures “has a stronger impact than sequencing various measures over time,” due to synergies between different policy tools. Currently, markets are expected a -10bps cut to the key interest rate from current -0.4%. Also, ECB could restart asset purchase program with fresh EUR 50B per month buying.

    BoE Bailey: Market’s rate cut outlook not unreasonable, yet unendorsed

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      In a session with the Treasury Select Committee today, BoE Governor Andrew Bailey acknowledged that It’s “not unreasonable” for the market to think about reductions in interest rates this year

      However, he was quick to qualify this by stating that MPC “do not endorse the market curve” forecasting such cuts, adding that “we are not making a prediction of when or by how much” BoE cuts interest rates.

      Bailey pointed to “encouraging signs” in key economic indicators, but stressed the importance of “sustained progress” in tackling inflation.

      Addressing recent data indicating the UK’s entry into a technical recession in the latter half of the previous year, Bailey downplayed its impact, describing the downturn as “very weak” and pointing to “distinct signs of an upturn.”

      US Yellen: Higher interest rate environment is a plus for society and Fed

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        ActionForex.com
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        US Treasury Janet Yellen said in a Bloomberg interview that the USD 4T spending plan would be good even if it results in higher inflation and interest rates. “If we ended up with a slightly higher interest rate environment it would actually be a plus for society’s point of view and the Fed’s point of view,” she added.

        “We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade,” the former Federal Reserve chair said, adding that “we want them to go back to” a normal interest rate environment, “and if this helps a little bit to alleviate things then that’s not a bad thing — that’s a good thing.”

        RBA Lowe: Inflation not to sustain unless feeding through to wages

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          ActionForex.com
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          RBA Governor Philip Lowe at Universidad de Chile’s Conference that he didn’t expect the current rise in inflation to sustain, unless it led to higher wages growth.

          “Is it going to reset expectations about what type of wage growth people should get, or will the spike dissipate and we will go back to the type of labour market outcomes we’ve seen before the pandemic?” Lowe said. “So there is quite a lot of uncertainty around that issue, but we are watching very carefully.”

          RBNZ stresses vigilance on inflation, prepared to raise rates if necessary

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            In an interview today, RBNZ Assistant Governor Karen Silk highlighted the central bank’s readiness emphasized that there are “risks still to the upside in the near term” regarding inflation. She stated that RBNZ is “absolutely” prepared to raise interest rates if necessary, adding, “Right now we are saying that the level of restrictiveness is there, but we are awake at the wheel.”

            Silk pointed out that the central bank’s primary concern is domestic inflation, particularly noting the significant miss last quarter when non-tradables inflation hit 5.8%, compared to RBNZ’s forecast of 5.3%. “Our concern is in that near term, around what are we really seeing in terms of domestic aligned inflation,” she explained.

            Separately, Deputy Governor Christian Hawkesby reinforced the cautious stance, stating that “cutting interest rates is not part of near-term discussion.” He acknowledged the near-term inflation risks are to the upside but expressed confidence that medium-term inflation is returning to target.

            Hawkesby emphasized that no single data point will trigger a rate hike, but the bank is closely watching domestic inflation pressures and expectations. He also noted the significant uncertainty surrounding tradable inflation moving forward.

            RBNZ’s central projection is for headline inflation to fall back into its 1-3% target band by the fourth quarter of this year. However, the bank now projects that it won’t achieve its 2% goal until mid-2026.

             

            Eurozone exports rose 10.0% yoy in Sep, imports rose 21.6% yoy

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              Eurozone exports of goods to the rest of the world rose 10.0% yoy to EUR 209.3B in September. Imports rose 21.6% yoy to EUR 202.0B. As a result, Eurozone recorded a EUR 7.3B surplus. Intra-Eurozone trade rose 16.4% yoy to EUR 191.5B.

              In seasonally adjusted term, Eurozone exports dropped -0.4% mom to EUR 201.4B. Imports rose 1.5% mom to EUR 195.3%. Trade surplus narrowed to EUR 6.1B. Intra-Eurozone trade rose EUR 0.8B to EUR 182.9B.

              Full release here.

              Japan didn’t confirm intervention after unusually USD/JPY volatility

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                There was some unusual volatility in USD/JPY overnight at it approached 1998 high at 147.68. The pair was knocked down but there was no sustained selling. Japan Ministry of Finance declined to confirm whether that was caused by intervention.

                Meanwhile, Finance Minister Shunichi Suzuki just reiterated that government’s readiness to take “appropriate action” against “excessive volatility” in the markets. He said, “we cannot tolerate excessive volatility driven by speculative moves. We’re watching market developments with a strong sense of urgency.”

                Separately, BoJ Governor Haruhiko Kuroda maintained that “raising rates now is inappropriate in light of Japan’s economic, price conditions.” He added that “pace of Japan’s economic recovery still slow so BoJ must continue supporting economy.”

                US PCE price index unchanged at 6.2% yoy, core CPI rose to 5.1% yoy

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                  ActionForex.com
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                  US personal income rose 0.4% mom or USD 78.9B in September, above expectation of 0.3% mom. Spending rose 0.6% or USD 113.0B, above expectation of 0.4% mom.

                  Headline PCE price index rose 0.3% mom, while core PCE price index rose 0.5% mom. Prices for goods dropped -0.1% mom while prices for services rose 0.6% mom. Food prices increased 0.6% mom and energy prices dropped -2.4% mom.

                  From the same month a year ago, PCE price index was unchanged at 6.2% yoy, above expectation of 5.8% yoy. Core PCE price index rose to 5.1% yoy, up from 4.9% yoy, below expectation of 5.2% yoy. Prices for goods rose 8.1% yoy while prices for services rose 5.3% yoy. Food prices rose 11.9% yoy and energy prices rose 20.3% yoy.

                  Full release here.

                  New Zealand goods export rose 22% yoy in Feb, imports rose 37% yoy

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                    ActionForex.com
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                    New Zealand goods exports rose 22% yoy to NZD 5.5B in February. Goods imports rose 37% yoy to NZD 5.9B. Trade deficit came in at NZD -385m, smaller than expectation of NZD -808m.

                    Exports to all top destinations increased, including China (up NZD 80m or 5.4%), Australia (up NZD 119m or 22.0%), US (up NZD 37m or 7.4%), EU (up NZD 62m or 25%), and Japan (up NZD 71m or 34%).

                    Imports from all top partners also rose, including China (up NZD 490m or 45%), EUR (up NZD 209m or 32%), Australia (up NZD 137m or 26%), US (up NZD 105m or 29%), and Japan (up NZD 167m or 60%).

                    Full release here.

                    NIESR expects 0.9% UK GDP growth in June, 1.9% in Q3

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                      ActionForex.com
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                      NIESR said UK’s 0.8% GDP growth in May “disappointed”. It expected GDP growth of 0.9% in June, and 4.8% in Q2 overall. Nevertheless, “with catch-up potential still evident in hospitality, transport, business support and the arts, we forecast growth of 1.9 per cent in the third quarter, still notably above historical trend growth rates.” But, “much will depend on the roll-out and efficacy of the vaccines in the context of the Delta variant.”

                      “Like April, May’s GDP growth was faster than usual but almost entirely driven by the lifting of Covid-19 restrictions, with the hospitality sector accounting for 0.7 percentage points of May’s 0.8 per cent growth. Underlying growth is moderate outside the sectors being unlocked, with supply constraints contributing to the continuing recent stagnation in manufacturing. It remains to be seen whether the lifting of further restrictions in July contributes to a continuation of strong growth in the third quarter or – if cases of Covid-19 continue to rise – increased caution among consumers and even another national lockdown.”

                      Rory Macqueen Principal Economist – Macroeconomic Modelling and Forecasting

                      Full release here.

                      Eurozone economic sentiment dropped to 103.3, largest decline in industrial confidence in eight years

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                        ActionForex.com
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                        Eurozone Economic Sentiment Indicator dropped -1.9 to 103.3 in June, below expectation of 104.7. The deterioration was driven by lower confidence in industrial (-2.7 to -5.6) and services (-1.1 to 11.0). The fall in industrial confidence was largest in eight years. Also, it’s below long-term average for the first time since 2013. On the other hand, Confidence improved in retail trade (+1 to 0.1) and construction (+3.6 to 7.7).

                        Also, the ESI decreased in all of the largest euro-area economies, most so in Germany (-2.9), followed by Italy, the Netherlands (both -1.5), France (-1.0) and Spain (-0.6).

                        Business Climate Indicator dropped -0.13 to 0.17, below expectation of 0.28. Managers’ production expectations, as well as their views on overall and export order books and the level of stocks deteriorated. Only the assessments of past production improved.

                        Eurozone PMI composite back in contraction, diverging sectors and countries

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                          ActionForex.com
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                          Eurozone PMI Manufacturing rose to 54.4 in October, up from 53.7, beat expectation of 53.1. That’s also the highest level in 26 months. PMI Services dropped to 46.2, down from 48.0, missed expectation of 47.0. PMI Composite dropped to a 4-month low at 49.4, down from 50.4.

                          Chris Williamson, Chief Business Economist at IHS Markit said:

                          “The eurozone is at increased risk of falling into a double-dip downturn as a second wave of virus infections led to a renewed fall in business activity in October. The survey revealed a tale of two economies, with manufacturers enjoying the fastest growth since early-2018 as orders surged higher amid rising global demand, but intensifying COVID-19 restrictions took an increasing toll on the services sector, led by weakening demand in the hard-hit hospitality industry.

                          “The divergence is even starker by country. While Germany is buoyed by its manufacturing sector booming to a degree exceeded only twice in almost 25 years of survey history, the rest of the region has sunk into a deepening downturn.

                          “While the overall downturn remains only modest, and far slighter than seen during the second quarter, the prospect of a slide back into recession will exert greater pressure on the ECB to add more stimulus and for national governments to help cushion the impact of COVID-19 containment measures, which not only tightened across the region in October but look set to be stepped up further in November.”

                          Full release here.

                          BoE stands pat, three hawks vote for another hike

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                            ActionForex.com
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                            BoE kept Bank Rate unchanged at 5.25%, aligning with market expectations. The decision was not unanimous, with a 6-3 vote where Megan Greene, Jonathan Haskel, and Catherine Mann favored a 25 bps hike to 5.50%. This split decision reflects that the hawks remained persistent in their push more tighter monetary policy.

                            The central bank reiterated its stance that "monetary policy is likely to need to be restrictive for an extended period of time." This suggests continued cautious approach towards easing monetary conditions, likely due to persistent inflationary pressures. The Bank further emphasized that "Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures," indicating readiness to adjust policy should inflation not moderate as expected.

                            Regarding inflation, BoE forecasts that CPI inflation rate will hover near its current rate around the turn of the year, before gradually declining thereafter. On the growth front, BoE anticipates that GDP growth will be "broadly flat in Q4 and over the coming quarters."

                            Full BoE statement here.

                            Canada GDP grew 6.5% mom in Jun, highest on record since 1961

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                              ActionForex.com
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                              Canada GDP grew 6.5% mom in June, above expectation of 5.2% mom. That’s the largest monthly increase since the series started in 1961. Still, economic activity remained about -9% below February’s pre-pandemic level. Both goods-producing (+7.5%) and services-producing (+6.1%) industries were up as 19 of 20 industrial sectors posted increases in June.

                              Full release here.

                              Eurozone PPI at -0.5% mom, 13.2% yoy in Feb

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                                ActionForex.com
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                                Eurozone PPI came in at -0.5% mom, 13.2% yoy in February below expectation of -0.3% mom, 13.2% yoy. For the month, industrial producer prices decreased by -1.6% in the energy sector and by 0.1% for intermediate goods, while prices increased by 0.3% for capital goods, by 0.4% for durable consumer goods and by 0.6% for non-durable consumer goods. Prices in total industry excluding energy increased by 0.2%.

                                EU PPI stood at -0.6% mom, 14.5% yoy. The largest monthly decreases in industrial producer prices were recorded in Bulgaria (-7.9%), Greece (-3.3%) and Belgium (-3.2%), while the highest increases were observed in Slovakia (+11.5%), Slovenia (+2.7%) and Portugal (+2.5%).

                                Full Eurozone PPI release here

                                St. Louis Fed Bullard downplays rise in core CPI

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                                  ActionForex.com
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                                  St. Louis Fed President James Bullard tried to down play recent rise in core inflation, where core CPI rose above 2% to 2.1% in March. Bullard said “year-over-year core CPI is now above 2 percent but it was also above 2 percent all during 2016, and so it’s really only come back to the level that it was in that earlier period when interest rates were much lower.” And to him, “those developments so far have been unsurprising.”

                                  Regarding trade tensions, Bullard said there is too much uncertainty around the tariffs to assess the impact for now. But he hoped that US and China will get a good outcome on trade.

                                  Regarding exchange rates, Bullard said growth growth has been surprising, in particular in Europe. Such strength wasn’t priced in and thus, led to dollar weakness.

                                  Fed Bostic: Recent weaker data suggests a chance for some play on tapering

                                    By
                                    ActionForex.com
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                                    Atlanta President Raphael Bostic “as strong as the data was coming in the early part of the summer, I was really very much leaning into advocating for an earlier start than what many may have expected”.

                                    However, “the weaker data that we’ve seen more recently suggests to me that maybe there’s a chance for some play on this, but I still think that sometime this year is going to be appropriate” to taper.

                                    US retail sales rose 3.8% mom in Jan, ex-auto sales up 3.3% mom

                                      By
                                      ActionForex.com
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                                      US retail sales rose 3.8% mom to USD 649.8B in January above expectation of 1.8% mom. Ex-auto sales rose 3.3% mom, above expectation of 1.0% mom. Ex-gasoline sales rose 4.2% mom. Ex-auto, ex-gasoline sales rose 3.8% mom. Retail trade rose 4.4% mom.

                                      Total sales for November 21 through January 2022 period were up 16.1% from the same period a year ago.

                                      Full release here.

                                      Swiss KOF dropped to 105 in Feb, primarily on manufacturing

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                                        ActionForex.com
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                                        Swiss KOF Economic Barometer dropped from 107.2 to 105 in February, below expectation of 108.5. KOF said, “the indicators from the manufacturing sector are primarily responsible for the decline, followed by those from the financial sector. The signals for the Swiss exporters are somewhat more favourable than before. ”

                                        Full release here.

                                        Australia employment dropped -30.6k, but not clear JobKeeper impact

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                                          ActionForex.com
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                                          Australia employment dropped -30.6k in April worse than expectation of 15k rise. Full-time jobs rose 33.8k while part-time jobs dropped -64.4k. Total employment was 45.9k, or 0.4%, higher than March 2020 level. But unemployment rate dropped to 5.5%, down from 5.7%, better than expectation of 5.5%. Participation rate dropped -0.3% to 66.0%.

                                          “We have not seen large changes in the indicators that would suggest a clear JobKeeper impact, such as an increase in people working reduced or zero hours for economic reasons or because they were leaving their job. We also haven’t seen large net flows out of employment across many population groups,” Bjorn Jarvis, head of labour statistics at the ABS said.

                                          Full release here.

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