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ECB de Cos: We plan to continue increasing interest rates significantly in the next meetings

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    ActionForex.com
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    ECB Governing Council member Pablo Hernandez De Cos said yesterday, “we plan to continue increasing interest rates significantly in the next meetings.” Also, tightening will continue “until reaching sufficiently restrictive levels to ensure that the inflation returns to the 2% target over the medium term.”

    “Keeping interest rates at tight levels will reduce inflation by dampening demand and will also protect against the risk of a persistent upward shift in inflation expectations”, he explained.

    De Cos also noted that Since last meeting, markets have raised the expected terminal rate by 30bps to 3.4%. However, market rates incorporated a positive premium, and “the market’s genuine expectation of what the maximum level of the deposit facility rate would be is somewhat below that figure.”

    BoJ minutes: Few members saw positive signs towards price target

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      ActionForex.com
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      Minutes of BoJ’s meeting on March 9 and 10 show a continued commitment to monetary easing, with the aim of achieving price stability in a sustainable and stable manner, accompanied by wage increases. Neverthelesse, a few members noted emerging “positive signs” toward reaching the price stability target, indicating a changing price environment.

      With respect to yield curve control, some members emphasized the need to examine the effects of various implemented measures aimed at improving market functioning. They acknowledged that JGB yield curve appeared smoother than before. One member explained that if observed CPI inflation declined and market projections of interest rates calmed down, distortions in the yield curve would likely be corrected.

      In terms of the 2% price stability target, several members underscored the importance of maintaining its commitment. One member added that the central bank should anchor inflation expectations to 2% by committing to achieve the target.

      Meanwhile, another member expressed concern that discussing the target might lead to “unnecessary speculation” on monetary policy conduct, especially given the growing possibility of achieving the price stability target. This member also argued against revising the joint statement of the government and BoJ.

      Full minutes of BoJ March meeting here.

      US consumer confidence rose to 109.7, highest in a year

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        ActionForex.com
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        US Conference Board Consumer Confidence jumped to 109.7 in March, up from 90.4, well above expectation of 96.0. That’s the highest level since the onset of the pandemic in March 2020. Present Situation Index rose form 89.6 to 110.0. Expectations index rose from 90.9 to 109.6.

        Lynn Franco, Senior Director of Economic Indicators at The Conference Board: “Consumers’ assessment of current conditions and their short-term outlook improved significantly, an indication that economic growth is likely to strengthen further in the coming months. Consumers’ renewed optimism boosted their purchasing intentions for homes, autos and several big-ticket items. However, concerns of inflation in the short-term rose, most likely due to rising prices at the pump, and may temper spending intentions in the months ahead.”

        Full release here.

        BoE Vlieghe: Probably take until Q1 to see when a rate hike is appropriate

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          ActionForex.com
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          BoE policymaker Gertjan Vlieghe said in a speech that, his central scenario for the economy sees “somewhat more slack” that the MPC’s central projection. He worried that “the transition out of furlough does involve a modest rise in the unemployment rate”. But even in that case, “the first rise in Bank Rate is likely to become appropriate only well into next year, with some modest further tightening thereafter.”

          On the upside, “the transition out of furlough happen more smoothly” with unemployment at or at little below current levels by year end, and with associated signs of upward inflation and wage pressure beyond the temporary and base effect. Then, “a somewhat earlier rise in Bank Rate would be appropriate”.

          Still, “It would probably take until the first quarter of next year to have a clear view of the post-furlough unemployment and wage dynamics, so a rise in Bank Rate could be appropriate soon after, along a slightly steeper path than in my central case.”

          Full speech here.

          US ADP employment rises 140k in Feb, gains remain solid

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            ActionForex.com
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            US ADP private employment rose 140k in February, below expectation of 140k. By sector, goods-producing jobs rose 30k while service-providing jobs rose 110k. By establishment size, small companies added 13k jobs, medium companies added 69k, large companies added 61k.

            Annual pay for job-stayers rose 5.1% yoy, lowest since August 2021. Annual pay for job-changers rose 7.6% yoy, faster than the prior month for the first time since November 2022.

            “Job gains remain solid. Pay gains are trending lower but are still above inflation,” said Nela Richardson, chief economist, ADP. “In short, the labor market is dynamic, but doesn’t tip the scales in terms of a Fed rate decision this year.”

            Full US ADP release here.

            EU formally rejects Italy budget, Italian yield jumps above 3.55%

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              ActionForex.com
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              European Commission formally rejects Italy’s budget after its regular meeting. Vice President For the Euro Valdis Dombrovskis said in a press conference that “today, for the first time, the Commission is obliged to request a euro area country to revise its draft budget plan.”

              He added, “we see no alternative than to request the Italian government to do so. We have adopted an opinion giving Italy a maximum of three weeks to provide a revised Draft Budgetary Plan for 2019,”

              Regarding Italy’s letter to the Commission yesterday, Dombrovskis said “Unfortunately, the clarifications received yesterday were not convincing to change our earlier conclusions of a particularly serious non-compliance with the recommendation addressed to Italy by the Council on the 13th of July.” And, “the Italian Government is openly and consciously going against the commitments it made.”

              The Commission now requests Italy to amend the draft buget in the next three weeks for resubmission. And, the Commission is ready to open a disciplinary process called the excessive deficit procedure against Italy.

              Italian 10 year yield jumps notably after the news as it’s now back at 3.556, after dipping to 3.42 earlier today.

              EUR/USD is steady in range. But EUR/JPY dips further towards 128.32 also on broad based risk aversion.

              EU Barnier: There could be Brexit extension, but what for?

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                ActionForex.com
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                EU chief Brexit negotiator Michel Barnier said today that the March 29 exit date could be extended. But that should be for a reason. He said “If it is asked, European leaders will say ‘What for?’ and the duration of this potential extension will be linked to ‘What for?'”.

                He added that a “technical” extension could last until European parliament election in May. And, longer than that, there will be issues regarding Britons voting in the European election.

                US initial claims dropped to 216k, but Dec durable goods missed

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                  ActionForex.com
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                  US headline durable goods orders rose 1.2% in December, below expectation of 1.8%. Ex-transport orders rose 0.1%, below expectation of 0.3% . Philadelphia Fed Business Outlook dropped to -4.1 in February, down from 17 and missed expectation of 14.8.

                  Initial jobless claims dropped -23k to 216k in the week ending February 16, between than expectation of 230k. Four-week moving average of initial claims rose 4k to 237.75k, highest since January 20, 2018. Continuing claims dropped -55k to 1.725M. Four-week moving average of continuing claims rose 2.75k to 1.755M.

                  EU: Should be fully and permanently exempted by US steel tariffs

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                    ActionForex.com
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                    Some responses from Europe regarding US extension of temporary exemptions on steel and aluminum tariffs.

                    European Commission criticized that the extension prolongs market uncertainty, which is already having an impact of business decisions. It also reiterated in a statement that “the EU should be fully and permanently exempted from these measures, as they cannot be justified on the grounds of national security.”

                    UK Department for International Trade spokesman welcomed the “positive decision”. And the government said in a statement that “We will continue to work closely with our EU partners and the US government to achieve a permanent exemption, ensuring our important steel and aluminum industries are safeguarded.” But, “we remain concerned about the impact of these tariffs on global trade and will continue to work with the EU on a multilateral solution to the global problem of overcapacity, as well as to manage the impact on domestic markets.”

                    New Zealand’s Q2 GDP outperforms expectations with 0.9% qoq growth

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                      ActionForex.com
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                      New Zealand’s GDP surged by 0.90% qoq in Q2, doubling the expected growth rate of 0.4%. This notable growth is significantly attributed to substantial boost in the business services sector, specifically within the realm of computer system design.

                      Despite a setback in the primary industries, which contracted by 1.9%, goods-producing industries and service sectors pulled their weight, recording a growth of 0.7% and 1.0% respectively. The service sector emerged as a strong pillar of economic advancement.

                      The quarter also saw manufacturing sector shake off its lethargy, reversing a trend of decline sustained over five consecutive quarters to contribute positively to the economic pie.

                      Full NZ GDP release here.

                      Markets pricing in negative rate for Fed but policymakers reject

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                        ActionForex.com
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                        Dollar was sold off notably overnight, as stays pressured in Asian session, on talks that Fed might go into negative rates next year, despite objections by some policymakers. Fed fund futures are seeing a one-in-three chance of negative rates next year. Eurodollar options also cover rate at as low as -45bps by mid-2021. At the same time, two-year yield dropped to a record low below 0.14%.

                        Richmond Fed President Thomas Barkin told CNBC, “I think negative interest rates have been tried in other places and I haven’t seen anything personally that makes me think they are worth a try here.” He also said the US is probably right at the trough down the economic down turn already.

                        Philadelphia Fed President Patrick Harker said there would be a “high bar” for using negative interest rates as stimulus to the economic. Though, he also warned of re-opening the economy too quickly and “see a significant second wave of the virus”. There would be a “painful economic contraction of GDP in 2021 as shutdowns are reintroduced.”

                        US ADP jobs rose 324k, slowdown in pay growth without broad-based job loss

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                          ActionForex.com
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                          US ADP private employment grew 324k in July, well above expectation of 195k. By sector, goods-producing jobs rose 21k while service-providing jobs rose 303k. By establishment size, small companies added 237k jobs, medium added 138k, large lost -67k.

                          Job-stayers annual pay growth fell to 6.2% yoy, slowest pace since November. Job-changers annual pay growth also fell to 10.2% yoy.

                          Nela Richardson Chief Economist, ADP, said: “The economy is doing better than expected and a healthy labor market continues to support household spending. We continue to see a slowdown in pay growth without broad-based job loss.”

                          Full US ADP job report here.

                          Gold reclaiming 1850 after strong rebound

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                            ActionForex.com
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                            Gold drew support from 1821.96 support earlier this week, despite dipping to 1819.09. Subsequent rebound retains near term bullishness. Breach of 1850.11 resistance suggests that stronger rise could be seen back to retest 1875.27 resistance first. Break will resume the rally from 1764.31 for 61.8% projection of 1764.31 to 1875.27 from 1819.05 at 1887.62 next. We’ll see if that would happen.

                             

                            Fed George: We have got to get to neutral really fast

                              By
                              ActionForex.com
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                              In a WSJ interview, Kansas City Fed Esther George said that with inflation at at 7.5% in January, and the benchmark interest a rate near zero, Fed’s policy is “out of sync”. But she said it’s too soon to say if Fed should hike by 50bps in March. She also hasn’t form a view on how much interest rate has to go up this year.

                              “What we have to do is be systematic,” George said. “It is always preferable to go gradual…Given where we are, the uncertainties around the pandemic effects and other things, I’d be hard-pressed to say we have got to get to neutral really fast.”

                              “If we get to March and the data says we should be talking about that [a half-point rate increase], I’m sure that will be in play, but I’m not sure that is the answer, per se, to how we get there,” George added.

                              She also dismissed the idea of holding an emergency FOMC meeting to raise interest rate. “I don’t know that I’d call the markets reacting to data an emergency here, because frankly, in my own forecast of looking where inflation was moving, the print was not a surprise,” she said.

                              New Zealand’s goods exports down -8.7% yoy in Dec, imports fall -13% yoy

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                                ActionForex.com
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                                The New Zealand economy had a significant downturn in international trade during December, with goods exports dropping by -8.7% yoy, amounting to a decrease of NZD 568B, resulting in exports totaling NZD 5.9B. Concurrently, goods imports saw a more pronounced fall of -13%yoy, which translates to a reduction of NZD 896m, culminating in imports of NZD 6.3B. This overall downturn in trade activities led to a monthly trade deficit of NZD 323m, which, while substantial, was less severe than the anticipated deficit of NZD 975m.

                                A notable aspect of this trade activity is the geographical distribution of these declines. Among New Zealand’s key trading partners, China marked the most significant decrease in exports, with a reduction of NZD 295m, indicating a -16% drop. This was followed by declines in exports to EU (-20% drop, NZD 75m), Japan (-17% drop, NZD 54m), US (-4.6% drop, NZD 38m), and Australia (-0.8% drop, NZD 6m).

                                On the import side, US led the fall with a dramatic -40% reduction, amounting to NZD 390m less in imports. Other significant decreases in imports were observed from China (-12% drop, NZD 185m), the European Union (-14% drop, NZD 152m), and Australia (-9.8% drop, NZD 79m). However, South Korea bucked this trend with a striking 113% increase in imports to New Zealand, totaling an additional NZD 356m.

                                Full New Zealand trade balance release here.

                                German Ifo dropped to 102, points to 0.3% Q4 GDP growth at most

                                  By
                                  ActionForex.com
                                  -

                                  German Ifo business climate dropped to 102.0 in November, down from 102.9 and missed expectation of 102.3. Current assessment gauge dropped to 105.4, down from 106.1 and missed expectation of 105.6. Expectations gauge dropped to 98.7, down from 99.7, missed consensus of 99.3.

                                  Ifo President Clemens Fuest noted in the release that “Together with other indicators, these results point to 0.3 percent economic growth in the fourth quarter at most. The German economy is cooling down. ”

                                  Full release here.

                                  BoJ: GDP to contract -5% to -3% in fiscal 2020, return to deflation

                                    By
                                    ActionForex.com
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                                    In the Outlook for Economic Activity and Prices, BoJ said the economy is “likely to remain in severe situation for the time being” due to the impact of the coronavirus pandemic. GDP could shrink as much as -5.0% to -3.0% in fiscal 2020. Japan could also return to deflation with core CPI down -0.7 to -0.4%. BoJ added that “future developments are extremely unclear” and risks to both economic activity and prices are “skewed to the downside”.

                                    GDP growth forecast:

                                    • Fiscal 2019 at -0.4% to -0.1% (down from 0.8% to 0.9%).
                                    • Fiscal 2020 at -5.0 to -3.0% (down from (0.8 % to 1.1%).
                                    • Fiscal 2021 at 2.8% to 3.9% (up from 1.0% to 1.3%).
                                    • Fiscal 2020 at 0.8% to 1.6%.

                                    Core CPI forecast (excluding sales tax hike effects):

                                    • Fiscal 2019 at 0.4% (vs 0.4% to 0.5%).
                                    • Fiscal 2020 at -0.7% to -0.4% (down from 0.9% to 1.0%).
                                    • Fiscal 2021 at 0.0% to 0.7% (down from 1.2% to 1.6%).
                                    • Fiscal 2022 at 0.4% to 1.0%.

                                    Full release here.

                                    Over half of US companies in China delay or reduce investment due to trade war

                                      By
                                      ActionForex.com
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                                      The American Chamber of Commerce in Shanghai warned that with no sign of a trade agreement between US and China, “2019 will be a difficult year” and “2020 may be worse”. It said that “revenue growth projections have lowered, optimism about the future has waned, and many companies are redirecting investment originally planned for China”.

                                      In the 2019 China Business Report, AmCham noted that the survey results are “decidedly mixed”. In particular, revenue growth estimates for 2019 are weak. Only 50.5% of companies expect revenues to beat their 2018 numbers. 27.1% of companies anticipate lower revenues, markedly up from the 6.1% that projected lower revenues for 2018. 47.6% of automotive companies anticipate lower revenues.

                                      Five-year optimism dropped by one fifth to 61.4%, against historical rates of 80-90%, while pessimism about the future rose by 14.0 percentage points. The most downbeat industries included non-consumer electronics and chemicals.

                                      35.6% of survey respondents see the U.S.-China trade tensions continuing for 1-3 years, and 12.7% expect them to continue for 3-5 years. 16.9% believe the trade tensions will continue indefinitely. 53.4% of companies say that they are either delaying or reducing investment as a direct result of the U.S.-China trade tensions, with only 4.5% increasing investment in response.

                                      Full report here.

                                      NZD rebounds after RBNZ’s hawkish hold

                                        By
                                        ActionForex.com
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                                        RBNZ left the Official Cash Rate unchanged at 1.00% as widely expected. In the accompanying statement, its noted “soft momentum” has continued in 2020″. But “growth is expected to accelerate over the second half of 2020 driven by monetary and fiscal stimulus, and the high terms of trade.” Impact of outbreak of China’s coronavirus will be “of a short duration” only.

                                        The statement is seen as slightly more hawkish than November’s. Employment is seen by RBNZ as “at or slightly above its maximum sustainable level”, somewhat upgraded from “around” the level. Consumer inflation is “close to” the 2% mid-point of target range too. While low interest remain necessary, the overall statement suggests that RBNZ is more likely to be on hold for the rest of the year than not.

                                        NZD/USD rebounds strongly after the release. The development suggest short term bottoming a 0.6378, on bullish convergence condition in 4 hour MACD. Stronger recovery would be seen to 38.2% retracement of 0.6755 to 0.6378 at 0.6522. That would be close to 55 day EMA (now at 0.6528). We’d expect strong resistance from there to limit upside, at least on first attempt. For now, fall from from 0.6755 is expected resume later after consolidation from 0.6378 finishes.

                                        US GDP grew 6.4% annualized in Q1

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                                          ActionForex.com
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                                          US GDP grew 6.4% annualized in Q1, slightly below expectation of 6.5%. BEA said: “The increase in real GDP in the first quarter reflected increases in personal consumption expenditures (PCE), nonresidential fixed investment, federal government spending, residential fixed investment, and state and local government spending that were partly offset by decreases in private inventory investment and exports. Imports, which are a subtraction in the calculation of GDP, increased.”

                                          Full release here.

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