BoJ Kuroda: We are not debating an interest rate hike

    In the post meeting press conference, BoJ Governor Haruhiko Kuroda said, “consumer inflation is likely to stay around 1% through the end of the BoJ’s projection period. As such, there is no need to modify the BoJ’s monetary easing.”

    “We are not debating an interest rate hike … As shown in the report, we’re not yet in a situation where inflation is steadily accelerating toward the BoJ’s goal. The median forecast of board members is for inflation around 1%. Under such conditions, we are absolutely not thinking about raising rates or modifying our easy monetary policy,” he said.

    “If achievement of 2% inflation comes into sight, the BoJ’s board will likely debate an exit strategy and communicate its intention to markets. That in itself won’t be that difficult. The problem is that unfortunately, we haven’t see inflation hit 2%. It’s premature to debate an exit strategy,” he added.

    German Ifo export expectations dropped to -19.8, lowest since 2009

      Germany Ifo export expectations dropped sharply from -1.1 to -19.8 in March. That is the sharpest decline since reunification, and the lowest level since May 2009.

      Ifo President Clemens Fuest warned, “The corona pandemic is slowing global trade. Cross-border logistics is becoming more difficult. Germany as an export nation is particularly affected.”

      Export expectation dropped in almost all industrial sectors, with auto industry particular hard hit. Outlook is also “bleak” in mechanical engineering, textile and clothing. A “comparatively moderate decline” was see among electrical equipment and chemicals.

      Full release here.

      Into US session: Sterling extends rally, Swiss Franc strong on Pakistan/India tensions

        Entering US session, Sterling is back in the driving seat again and is extending this week’s rally on fading chance of no-deal Brexit. Swiss Franc follows as the second strongest, lifted by escalating Pakistan/India tensions after both shot down each others’ fighter jets. Canadian Dollar is now the third strongest, as oil price rebound. WTI is back above 56.7 as the impact of Trump’s tweet fades. Meanwhile, Aussie and Kiwi are the weakest ones.

        Focus will now turn to Canadian CPI first. US will also release trade balance pending home sales and factory orders. Fed chair Jerome Powell will have the second day of Congressional testimony. But testimony of USTR Robert Lighthizer’s testimony will catch more attention. Lighthizer might reveal some of the little known substantial progress in trade talks with China.

        In Europe, currently:

        • FTSE is down -0.70%.
        • DAX is down -0.37%.
        • CAC is down -0.15%.
        • German 10-year yield is down -0.0127 at 0.107.

        Earlier in Asia:

        • Nikkei closed up 0.50%.
        • Hong Kong HSI dropped -0.05%.
        • China Shanghai SSE rose 0.42%.
        • Singapore Strait Times dropped -0.36%.
        • Japan 10-year JGB yield rose 0.0019 to -0.024.

        Yen mildly higher as Trump-Kim summit cut short, no agreement reached

          Yen is given a mild lift on news that Trump-Kim summit in Vietnam is cut short, for unknown reason. Trump will pull ahead his scheduled media conference to 0700 GMT. And, for now, it’s unknown whether the scheduled “join agreement signing ceremony” would still be held.

          White House spokeswoman Sarah Sanders confirmed that “the two leaders discussed various ways to advance denuclearization and economic driven concepts,”  but  “no agreement was reached at this time, but their respective teams look forward to meeting in the future.”

          Earlier, both sides indicated progresses in denuclearization of the Korean Peninsula. Kim told reports that “If I’m not willing to do that, I won’t be here right now”. Trump responded by saying “that might be the best answer you’ve ever heard.”

          NIESR: 25% chance UK in technical recession already, 40% chance of no-deal Brexit

            According to the latest “prospect for the UK economy”, NIESR said there is around a one-in-four chance that the country is already in a “technical recession”. The outlook beyond the October 31 Brexit date is “very murky indeed” with possibility of a “severe downturn” in case of a disorderly no-deal Brexit.

            The think thank also assign a 40% chance of no-deal Brexit, versus 60% for deal/delay. Even if a no-deal Brexit is avoided, the economy is forecast to growth at around only 1% in 2019 and 2020, as “uncertainty continues to hold back investment and productivity growth remains weak”.

            BoE’s Tenreyro foresees need for looser monetary policy

              BoE Monetary Policy Committee member Silvana Tenreyro, a known dove, remarked in a speech that the data sinve November has evolved most like her downside scenario, noting a sharp decline in high-frequency private-sector regular pay growth.

              She explained that with the Bank Rate at 4.25%, the restrictive policy is likely to “drag demand well below its potential, loosening the labour market and pulling down on inflation.” As a result, she believes that “inflation is likely to fall well below target.”

              Tenreyro voted for no change in the Bank Rate in recent months, instead of further tightening, as she believes a looser stance is necessary to achieve the inflation target in the medium term.

              She expressed her expectation that the current high level of the Bank Rate “will require an earlier and faster reversal, to avoid a significant inflation undershoot.”

              Full speech of Silvana Tenreyro here.

               

              EU and China reaffirms comprehensive strategic partnership with post summit joint statement

                The EU-China Summit in Brussels, with European Commission President Jean-Claude Juncker, European Council President Donald Tusk, and Chinese Premier Li Keqiang, concludes with a seven-page joint statement today.

                EU said that both sides reaffirm the strength of their Comprehensive Strategic Partnership, their resolve to work together for peace, prosperity and sustainable development and their commitment to multilateralism, and respect for international law and for fundamental norms governing international relations, with the United Nations (UN) at its core. The two sides commit to uphold the UN Charter and international law, and all three pillars of the UN system, namely peace and security, development and human rights.”

                In short, the two sides pledged their joint commitment to uphold and update rule based orders, including WTO reform. Also bilateral talks will be setup for industrial subsidies. Both promised to have no forced transfer of technologies as price for investment. And both commit to create a level playing field.

                Full statement here.

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                France PMI manufacturing finalized at 55.9 in Nov, tentative signs of stabilization

                  France PMI Manufacturing was finalized at 55.9 in November, up from October’s 53.6. That’s the first increase since May. Markit noted that output volumes were broadly unchanged during the month. Demand improved, but remained subdued amid supply-related constraints. Output price inflation reached new high.

                  Joe Hayes, Senior Economist at IHS Markit, said: “Tentative signs of stabilisation were seen in the French Manufacturing PMI during November, with the growth slowdown seen since post-pandemic growth peaked back in May finally coming to a halt. The headline PMI posted its first increase for six months as trends improved in output, new orders and employment.

                  “That said, beyond this positive direction change, the latest data continued to show intense supply-related constraints impeding manufacturing production, denting order book volumes and adding further pressure on margins. As a result, output prices were raised to the greatest extent since this data were first published back in 2002. While demand conditions have slowed, anecdotal evidence has thus far suggested this to be a symptom on component shortages, causing firms to postpone and cancel orders until supplies improve. We’re not seeing much evidence that higher prices are a factor in causing demand to soften, which means elevated rates of inflation may not prove so transitory as many anticipate.”

                  Full release here.

                  Sterling recovers mildly as UK PM May starts quick EU tour

                    Sterling recovers mildly today as UK Prime Minister Theresa May starts her quick EU tour. May will meet Dutch Prime Minister Mark Rutte, German Chancellor Angela Merkel and then European Council President Donald Tusk and European Commission President Jean-Claude Juncker, to seek last minute changes to the Brexit agreement, to get it through her own parliament. May will meet Tusk and Juncker at 1600GMT.

                    Andrea Leadsom, leader of Commons, said in a radio interview that “the EU is always in a position where it negotiates at the last possible moment.” And she emphasized that “if we want to avoid a no-deal Brexit next March we need to go back to the drawing board to ensure that the UK parliament has that democratic capability that it is demanding.”

                    Irish Foreign Minister Simon Coveney said the the wording of the withdrawal agreement would not change “at all”. But he hoped that EU could provide the assurance May needs regarding the backstop. But at the same time, he added that “we are now actively, not only preparing for that, but taking actions to ensure that if necessary we will be ready on March 29 for Britain to leave the EU without a deal.”

                    UK unemployment rate unchanged at 3.8%, wage growth slowed

                      UK unemployment rate was unchanged at 3.8% in the three months to December, matched expectations, staying at a four-decade low. A estimated 1.29m people were unemployed. Employment rate was estimated at record high of 76.5%, up 0.4% from the previous quarter.

                      Average weekly earnings (including bonus) slowed to 2.9% 3moy, down from 3.2%, missed expectation of 3.1%. Average weekly earnings (excluding bonus) slowed to 3.2% 3moy, down from 3.4%, missed expectation of 3.3%.

                      Full release here.

                      Swiss tells US it’s not engaging in currency manipulation

                        In the US Treasury Department’s semiannual foreign-exchange report to Congress, Switzerland was added to the monitoring list regarding currency manipulation, along with China, Japan, Korea, Germany, Italy, Ireland, Singapore, Malaysia, Vietnam. The Treasury urged Swiss officials to publish intervention data more frequently.

                        In response, Swiss Finance Ministry said in a statement, “it should be stressed that Switzerland does not in any way engage in manipulation of its currency to prevent adjustments to the balance of payments or gain unjustified competitive advantage.”

                        NZDUSD and NZDJPY spike lower after RBNZ cut, more downside ahead

                          Both NZD/USD and NZD/JPY spike lower after RBNZ rate cut even though they quickly pare back some losses. For NZD/USD, breach of 0.6551 support further affirms a bearish case. That is, consolidation pattern from 0.6422 has complete with three waves to 0.6938. And, larger down trend from 0.7558 (2017 high) might be ready to resume. For now, near term outlook in NZD/USD will stay bearish as long as 0.6629 resistance holds. 0.6422 low is next target.

                          NZD/JPY’s sharp fall solidifies that case that corrective rebound from 69.18 has completed at 76.78 already. Near term outlook will stay bearish as long as 0.7340 resistance holds. Deeper decline should be seen back to retest 69.18 low. However, this level is close to a key long term fibonacci level. That is 50% retracement of 44.19 (2009 low) to 94.01 (2014 high) at 69.18. We’ll pay attention to bottoming signal there.

                           

                          RBNZ cautions on persistent inflation risks and financial market volatility

                            RBNZ the decline in global inflation from previously elevated levels. At the same time, financial markets are currently anticipating lower policy rates over the next year.

                            However, “there remains a risk that new or persistent inflation pressures could mean global interest rates remain restrictive for longer, placing continued pressure on households, businesses and the financial system,” RBNZ warned in its semi-annual Financial Stability Report.

                            The report also observed that expectations for monetary policy easing have spurred rallies in equity markets across major economies. Yet, RBNZ cautioned that these gains could be vulnerable to a swift reversal.

                            “An abrupt reversal in sentiment arising from weaker-than-expected earnings or inflation remaining elevated could drag stock prices down, which would generate economic and financial risks from a market-driven tightening in financial conditions,” it warned.

                            Full RBNZ Financial Stability Report May 2024.

                            Into US session: Dollar extends post FOMC rally, Euro just mixed despite Italy jitters

                              Entering into US session, Dollar is trading as the strongest one today as post FOMC rally continues. As noted in our report, there were hawkish elements in Fed’s projections and overall announcement should be Dollar positive. Yen follows as the second strongest one for now, and then Sterling. Swiss Franc is suffering another day of selling and remains overwhelmingly weak for the week. Australian Dollar is the second weakest.

                              There are a lot of headlines flying around regarding Italy’s 2019 budget, be it 2% of GDP or 2.4% or something else. Or whether Economy Minister Tria will resign or not. Euro, is just mixed, today, and it’s up against Swiss Franc, Australian Dollar at the time of writing.

                              European stocks opened lower earlier today but quickly pared losses. FTSE is up 0.29%. DAX is down just -0.05% and CAC down -0.03% at the time of writing. German 10 year bund yield also dipped blow 0.5 handle earlier today but it’s now by at 0.511, down just -0.016. Earlier in Asia, major indices all closed in red. Nikkei was down -0.99%, Hong Hong HSI down -0.36%, China Shanghai SSE down -0.36%, Singapore Strait Times also down -0.09%.

                              US CBO: Labor market to materially improve after Q3

                                US Congressional Budget Office said in a report yesterday the economy is expected to “begin recovery during the second half of 2020”. Labor market is projected to “materially improve after the third quarter”. Though, “the persistence of social distancing will keep economic activity and labor market conditions suppressed for some time.”

                                In the new projections, GDP would contract by an annualized rate of -37.7% in Q2. Though, the economy is expected to pick up during H2 and rebound by averaged annualized rate of 15.8%. For 2020 as a whole, GDP could contract by -5.6% in 2020, followed by 4.2% growth in 2021.

                                Unemployment rate is projected to peak at an average of 15.8% in Q3. At the mean time, participation rate, has already dropped by -3.2% to 60.2% in April. It’s expected to recovery slightly to 61.1% in Q3 only, and edge further higher to 61.5% in 2021.

                                Full report here.

                                Fed George: Appropriate to move earlier on the balance sheet

                                  Kansas City Fed President Esther George said Fed’s policy normalization approach could be more aggressive on balance sheet reduction, rather than faster rate hikes.

                                  “What we do on the balance sheet is likely to affect the path of policy rates and vice versa,” George said during an event “For example, if we took more aggressive action on lowering, pulling down that balance sheet, it might allow for fewer interest rate increases.”

                                  He added that raising short-term interest rate while maintaining a large balance sheet “could flatten the yield curve”, and lead to “reach-for-yield behavior from long-duration investors.”

                                  “All in all, it could be appropriate to move earlier on the balance sheet relative to the last tightening cycle,” she said.

                                  France Le Maire: Strike has very limited impact on GDP

                                    France Economy Minister Bruno Le Maire said the economic impact of strike, which is in its 46th day, will be limited. But still, it could cut Q3 GDP growth by -0.1%.

                                    He told LCI television: “There will be an impact but it will be, I think, limited. Today estimates available show that the impact would be of a 0.1 points on growth on a quarter. On the whole year, it is a very limited impact.”

                                    Fed Chair Powell’s testimony live stream

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                                      US person income dropped -7.1% in Feb, spending down -1.0%

                                        US personal income dropped -7.1% in February, or USD -1517B, close to expectation of -7.2%. Spending dropped -1.0%, or USD -149B, below expectation of -0.8%.

                                        Headline PCE price index accelerated to 1.6% yoy, up from 1.4% yoy, matched expectation of 1.6% yoy. Core PCE price index slowed to 1.4% yoy, down from 1.5% yoy, missed expectation of 1.5% yoy.

                                        Full release here.

                                        Fed Barkin: Economic numbers strong, but business sentiment weakened considerably

                                          In a prepared speech, Richmond Fed President Thomas Barkin said ” as we enter 2019, I hear a lot of concern” regarding growth. Such concerns were driven by “trade, international economies or politics.” And some were “market driven, as volatility has increased and the yield curve has narrowed.”

                                          Also, he noted that “some companies are still feeling hungover from the Great Recession” and that’s a real issue. That is, “as the economy’s numbers look strong but business sentiment has weakened considerably.”

                                          Barking concluded that “the United States faces a slower growth trend that isn’t in any of our interests. Changing the slope is doable via initiatives to expand the workforce and boost productivity growth.”

                                          Full speech here.