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BoJ summary of opinions at March meeting: Need to explain the difference between normalization and tightening

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    BoJ summary of opinions at March 8-9 policy meeting showed no change in the board’s stance on monetary policy. Generally speaking “powerful monetary easing” will be maintained as it’s “still a long way” to meet 2% inflation target. There were concerns of Yen’s appreciation and stocks’ decline as they would “constrain wages and prices” and risk delaying of meeting price target. the board also saw the need to explain the difference between “normalization” and “tightening” even though it’s not in the phase to consider normalization. So we’ll likely hear more rhetorics from BoJ Governor Haruhiko Kuroda ahead regarding exit. Yet he’ll repeat and repeat that it’s not there for exit yet.

    Some quote highlights:-

    • If the current trends of the appreciation of the yen and the decline in stock prices become prolonged, business fixed investment and consumption will be restrained due to negative wealth effects and a deterioration of households’ and firms’ balance sheets, and the profits of export industries will decrease due to the adverse effects on exports. As these will constrain wages and prices, there will be a risk of a delay in achieving the price stability target.
    • The year-on-year rate of change in the consumer price index (CPI) is likely to continue on an uptrend and increase toward 2 percent, mainly on the back of an improvement in the output gap and a rise in medium- to long-term inflation expectations.
    • In terms of projecting price developments, the key is to what extent wage developments after the annual spring labor-management wage negotiations will improve individual firms’ price-setting stance and consumers’ acceptance of price rises.
    • Considering that there is still a long way to go to achieve the price stability target of 2 percent, it is appropriate to pursue powerful monetary easing with persistence under the current guideline for market operations in order to firmly maintain the momentum toward achieving the price stability target
    • This is not the phase in which the Bank should consider “normalization” — that is, gradually reducing the degree of monetary accommodation — in a concrete manner. However, the Bank needs to explain to market participants so that they can fully understand that “normalization” is still in the process of monetary accommodation and completely different from monetary tightening, which aims at reducing the positive output gap. Such explanation will also be beneficial in smoothly proceeding with “normalization” in the future.
    • If there is a heightened risk that achieving the price stability target will be delayed, additional monetary easing will be needed

    Full release here

    EU Hogan warned devil is in the detail in US-China trade deal

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      EU Trade Commissioner Phil Hogan sounded skeptical regarding US-China trade deal as he spoke in a press conference. he noted that “the devil is in the detail”, and “we will have to assess whether it is WTO compliant”.

      Meanwhile, Hogan also sounded harsh against China as he complained that the EU is “very open” while China is not opening as promised. He added that China is looking for dominance, influence geopolitically through trade and investment. Also, EU cannot let Chinese dominance put EU companies out of business based on unfair subsidies.

      Eurozone PMI services finalized at 54.7, points to 0.5% Q3 GDP growth

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        Eurozone PMI services was finalized at 54.7 in September, unrevised, up from August’s 54.4. PMI composite was finalized at 54.1, down from August’s 54.4.

        Among the countries, German PMI services hit 2-month low at 55.0. France PMI services dropped to 21-month low at 54.0. Spain PMI services dropped to 58-month low t 52.5. But Italy PMI services improved slightly to 2-month high at 52.4.

        Chris Williamson, Chief Business Economist at IHS Markit said:

        “Context is everything: although running close to a two-year low, the disappointing September PMI remains at a relatively elevated level and signals solid growth. Comparisons with official data indicate that the survey data are equivalent to GDP rising by almost 0.5% in the third quarter.

        “Note that the PMI data also indicate that we can expect the official growth estimates for the first half of the year to eventually be revised higher.

        “However, the fourth quarter is unlikely to see such robust growth, as recent months have seen a clear loss of momentum in terms of both output and new order gains.

        “The most worrying signs come from exports. Trade flows have more or less stalled, which represents a marked contrast to the record rate of export growth seen at the end of last year. While service sector growth remained resilient in September, it would be unusual for this to be sustained in the absence of improved manufacturing growth.

        “Similarly, while employment gains remained historically high, a steady erosion in the rate of order book growth so far this year suggest the appetite to hire will soon wane without any notable upturn in new order inflows.

        “With business confidence about the outlook running at one of the lowest seen over the past two years, companies are clearly not expecting any such imminent turn-around in demand.”

        Full release here.

        RBNZ survey: Inflation, house price and GDP expectations dropped

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          RBNZ quarterly survey showed inflation expectation for a year ahead dropped from 2.09% to 1.82%. One-year house price expectations dropped sharply from 2.86% to 1.91%. One-year rolling annual GDP expectation dropped slightly from 2.44% to 2.38%. Regarding RBNZ monetary policy, a net 75.6% of respondents believe monetary conditions in one year’s time will be easier than neutral.

          Full survey report here.

          Swiss KOF recovered all 2019 losses, but outlook still subdued

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            ActionForex.com
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            Swiss KOF Economic Barometer rose to 96.4 in December, up from 92.6, beat expectation of 94.5. The indicator has now fully recovered the decline this year, back to the closing level in 2018. Nevertheless it’s still below it’s long run average. And KOF said “the outlook for the Swiss economy at the beginning of 2020 is brightening somewhat, but remains subdued.

            KOF added: “The distinct increase is primarily due to bundles of indicators from the manufacturing sector. Positive signals also result from indicators covering other services and foreign demand. Indicators concerning private consumption as well as hotel and catering activities show a moderate increase.”

            Full release here.

            Germany Altmaier expects growth from October or November

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              Germany Economy Minister Peter Altmaier said he expected the economy to start growing again from October or November. Also, he noted that the European Commission has given its approval for the country’s Economic Stabilization Fund.

              With the fund’s key framework approved, the would has capital of up to EUR 600B for offsetting the coronavirus pandemic’s impact on German economy. The ministry is already in information talks with some 50 firms about tapping assistance from the fund.

              BoC members divided on rate cut timing, united on gradual easing approach

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                BoC’s April meeting summary revealed a “diversity of views” among its members concerning the timing of the first interest rate cut. Despite differing opinions, there was a unanimous agreement that any adjustment to monetary policy would “probably be gradual” once initiated.

                Key concerns highlighted by some board members included the need for “more reassurance” regarding the diminishing risks associated with stalling of progress on slowing core inflation. These members observed that the Canadian economy is “performing well”, mitigating the risk that the current restrictive monetary policy could excessively decelerate economic activity. However, they cautioned that stronger domestic demand, alongside robust economic growth in the US, “keep core inflation from slowing further” or might even cause it to “pick up again in the event of new surprises”.

                Conversely, other members argued that there is a tangible risk of maintaining a monetary policy that is “more restrictive than needed.” This group emphasized the significant progress already achieved in reducing inflation, noting that the rates of inflation across most goods and services had “come down significantly,” and the distribution of inflation rates among the CPI components had begun to “approach normal.”

                Despite these differing perspectives, the consensus was clear that any forthcoming policy easing would be implemented cautiously. “While there was a diversity of views about when conditions would likely warrant cutting the policy rate, they agreed that monetary policy easing would probably be gradual, given risks to the outlook and the slow path for returning inflation to target,” the summary stated.

                Full BoC summary of deliberations here.

                Fed Rosengren: Premature to focus on tapering

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                  ActionForex.com
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                  Boston Fed President Eric Rosengren said on Wednesday that “significant slack remains in the economy”. “Substantial improvement” is needed to Fed to begin tapering. “It is quite possible that we’ll see those conditions as we get to the latter half of the year,” he said.

                  “But right now what we have is one really strong employment report, one quarterly strong GDP report,” Rosengren added. “And so I think it’s premature right now to focus on the tapering.” He emphasized, “the Fed has no desire to surprise markets.”

                  Separately, Vice Chair Richard Clarida told CNBC, “we’re still a long way from our goals, and in our new framework, we want to see actual progress and not just forecast progress.” Asked about when the Fed should start talking about tapering, he said, “we don’t think so right now.”

                  UK announces modest liberalization of tariffs in case of no-deal Brexit

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                    ActionForex.com
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                    The UK government announce its temporary tariff regime for no-deal Brexit, designed to minimise costs to business and consumers while protecting vulnerable industries. The temporary regime would apply for up to 12 months as a full consultation and review on a permanent approach to tariffs is undertaken. Under the regime, 87% of imports to the UK by value would be eligible for tariff free access, up from current 80%. Tariffs would still apply to 13% of imports including some agricultural, dairy, auto and some other products.

                    Trade Policy Minister George Hollingbery said in the release that

                    • Our priority is securing a deal with the European Union as this will avoid disruption to our global trading relationships. However, we must prepare for all eventualities.
                    • If we leave without a deal, we will set the majority of our import tariffs to zero, whilst maintaining tariffs for the most sensitive industries.
                    • This balanced approach will help to support British jobs and avoid potential price spikes that would hit the poorest households the hardest.
                    • It represents a modest liberalisation of tariffs and we will be monitoring the economy closely, as well as consulting with businesses, to decide what our tariffs should be after this transitional period.

                    In addition, in case of no-deal Brexit, a temporary approach will be taken to “avoid new checks and controls on goods at the Northern Ireland land border”. The temporary tariffs will also not apply to goods crossing from Ireland to Northern Ireland.

                    The tariffs will also apply equally to all other trading partners expect those who were in free trade agreement with the UK. And around 70 developing countries will benefit from preferential access to the UK markets.

                    Full statement here.

                    NZD/USD surges after RBNZ, targeting 0.7131 next

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                      ActionForex.com
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                      NZD jumps even though RBNZ maintained a dovish tone. Some analysts noted that the FLP could be enough to stimulate the economy as recovery remains on track. Additionally, if a vaccine becomes available early next year, RBNZ might not need to cut rates into negative territory. An RBA style cut to 0.10% might be enough for RBNZ in February.

                      NZD/USD took out 0.6797 resistance early this week to resume whole rebound from 0.5469 low. Next near term target is 61.8% projection of 0.5920 to 0.6797 from 0.6589 at 0.7131.

                      More importantly, NZD/USD is now sitting comfortably above 55 week EMA, indicating continuing medium term bullishness. The rise from 0.5469, be it a corrective move or the start of new trend, would target 0.7557 cluster resistance (61.8% retracement of 0.8840 to 0.5469 at 0.7552), in medium term.

                      Ethereum’s momentum wanes, Bitcoin’s consolidation due soon

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                        ActionForex.com
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                        Ethereum’s rally appears to be losing momentum as seen in D MACD, after accelerating to as high as 4092.5. Overbought consolidation in D RSI is probably limiting it at 161.8% projection of 1519.1 to 2715.0 from 2164.0 at 4098.6. Break of 3726.8 support will confirm short term topping, and bring correction to 38.2% retracement of 2164.0 to 4092.5 at 3355.8, and then set the range for sideway consolidations.

                        As for Bitcoin, there might still be room to extend the record run, but upside potential is limited for the near term, as some consolidations should be due after the strong rally. Upside should be limited by 161.8% projection of 24896 to 49020 from 38496 at 77528. Meanwhile, break of 67095 support will indicate that a short term top is already formed, and deeper pull back could be seen next to start a consolidation phase.

                        ISM manufacturing rises to 49.1, nears expansion threshold, with rising prices and stronger orders

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                          ActionForex.com
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                          US manufacturing sector, as indicated by ISM Manufacturing PMI, showed signs of resilience in January 2024, slightly missing the mark of expansion. The index climbed from 47.1 to 49.1, surpassing market expectations of 47.7, yet marking the 15th consecutive month of contraction.

                          A significant highlight was the jump in new orders, which soared to 52.5, reaching its highest level since May 2022. Production also showed modest improvement, ticking up from 49.9 to 50.5. However, employment index continued its downward trajectory, recording a fourth consecutive month of contraction at 47.1, down from 47.5.

                          A notable surge was observed in the prices index, which escalated sharply from 45.2 to 52.9. This marks the highest point since April 2023, signaling increasing cost pressures within the sector.

                          Overall, the current ISM Manufacturing PMI level is historically aligned with a 1.9% annualized growth in real GDP.

                          Full US ISM manufacturing release here.

                          St. Louis Fed Bullard hearing full-throated angst about trade disputes

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                            St. Louis Fed President James Bullard said he’s “hearing full-throated angst” regarding escalating trade disputes across his district. He added that “all aspects of the economy are affected, but agriculture is certainly” being hit.

                            He pointed to some suppliers using threat of new tariffs to raise prices, even though their businesses are not directly targeted. And to Bullard, “that shows you how uncertainty over trade policy can feed back” into business decision-making.”

                            UK Q2 GDP finalized at 0.4% qoq, unrevised

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                              UK Q2 GDP was finalized at 0.4% qoq, unrevised. Growth were driven by services sector, which increased by 0.6%, partly on retail sales. Household spending grew 0.4% but business investment dropped notably by -0.7%. ONS noted that “the recent narrative on UK GDP remains unchanged – the underlying trend is still one of slowing real GDP growth.” Also from UK, current account deficit widened to GBP -20.3B in Q2.

                              Full GDP release here.

                              Moody’s downgrades Australia house price forecasts, nationwide to fall -7.7% in 2019

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                                ActionForex.com
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                                Rating agency Moody’s dramatically downgrades Australia house prices forecasts. Weak household consumption, compounded by low wages growth were among the factors. Even though house prices are expected to bottom in Q3, further credit tightening and changes to negative gearing could extend and deepen the decline.

                                For the whole nation through 2019, house prices are forecast to drop -7.7%, down from January projection of -3.0%. For Sydney, house prices could drop -9.3%, down from January projection of -3.3%. For Melbourne, how price could drop -11.4%, down from January forecast of -5.0%.

                                Separately, Australian number of of owner occupier housing finance approvals ex-refi rose 0.8% mom in February, above expectation of 0.5% mom.

                                New Italian government sworn in with pro-EU democrat as economy minister

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                                  ActionForex.com
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                                  The new coalition government of 5-Star Movement and Democratic Party (PD) finally sworn into office today, ending recent political turmoil. Giuseppe Conte remains as Prime Minister that leads a cabinet with 7 women and 14 men. The government will now face confidence votes in the lower and upper houses next Monday and Tuesday. Conte is expected to win both votes.

                                  The important role of economy minister is taken up by Roberto Gualtieri, a Democrat, and the chairman of the European Parliament’s Committee on Economic and Monetary Affairs. His appointment is seen as sending a clear signal Rome wanted to reset its relations with Brussels.

                                  US CPI slowed to 4.0% yoy in May, core CPI down to 5.3% yoy

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                                    ActionForex.com
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                                    US CPI rose 0.1% mom in May, below expectation of 0.3% mom. CPI core, all items less food and energy, rose 0.4% mom, matched expectations. Food index rose 0.2% while energy index declined -0.3% mom.

                                    For the 12 months, CPI slowed from 4.9% yoy to 4.0% yoy, below expectation of 4.2% yoy. That’s also the lowest reading since March 2021. CPI core slowed from 5.5% yoy to 5.3% yoy, matched expectations. Energy index dropped -11.7% yoy while food index rose 6.7% yoy.

                                    Full US CPI release here.

                                    UK public anticipates elevated inflation and ascending interest rates, BoE survey reveals

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                                      ActionForex.com
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                                      Bank of England/Ipsos Inflation Attitudes Survey for August has shed light on how the public perceives inflation trends and the likely moves by the central bank.

                                      Interestingly, public’s perception of current inflation rate seems to have moderated, with a median estimate of 8.6%. This is a full percentage point decline from 9.6% recorded in May. This suggests that the public may feel the worst of inflationary surge has passed.

                                      However, expectations for inflation over the short to medium term are slightly more elevated. The median expectation for inflation over the next year stood at 3.6%, a modest uptick from 3.5% three months ago. Looking a bit further out, the 12-month period after next, expectations rose to 2.8% from 2.6% in the prior survey.

                                      Regarding BoE’s policy path, a significant 63% anticipate interest rate hike over the next year, marking an increase from 57% in May. Meanwhile, those expecting rates to remain stable accounted for 19%, a slight decrease from prior reading of 20%.

                                      Full Bank of England/Ipsos Inflation Attitudes Survey release here.

                                      Eurozone industrial production rises 0.6% mom in Mar, EU up 0.2% mom

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                                        ActionForex.com
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                                        Eurozone industrial production rose 0.6% mom in March, above expectation of 0.5% mom. Industrial production decreased by -0.5% mom for intermediate goods, -0.9% mom for energy, -1.1% mom for durable consumer goods, and -2.7% mom for non-durable consumer goods. Production increased by 1.0% mom for capital goods.

                                        EU industrial production rose 0.2% mom. The highest monthly increases were recorded in Ireland (+12.8%), Belgium (+6.8%) and Luxembourg (+4.5%). The largest decreases were observed in Slovenia (-5.9%), Poland (-5.1%) and Denmark (-4.3%).

                                        Full Eurozone industrial production release here.

                                        Eurozone PMI manufacturing finalized at 58.2 in Feb, a largely positive month

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                                          ActionForex.com
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                                          Eurozone PMI Manufacturing was finalized at 58.2 in February, down slightly from January’s 58.7. Markit said demand for Eurozone goods rose at fastest rate since last August. Supplier delivery times lengthened to weakest extent for over a year, but inflation remained steep.

                                          Looking at some member states, the Netherlands rose to 3-month high at 60.6. Germany dropped to 58.4 while Austria dropped to 58.4. Italy was unchanged at 58.3. Ireland dropped to 11-month low at 57.8. Greece dropped to 7-month low at 57.8. France rose to 6-month high at 57.2. Spain rose to 3-month high at 56.9.

                                          Joe Hayes, Senior Economist at IHS Markit said: “Don’t let the drop in the headline PMI distract from what should be viewed as a largely positive month for the euro area manufacturing sector in February. Demand for goods is trending higher, with the rate of expansion accelerating to a six-month high. Underlying sales conditions are clearly strengthening as Europe overcomes the Omicron wave of COVID-19 and businesses step up their recovery efforts.”

                                          Full release here.

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