Japan PMI services dropped to 33.8, GDP contracting at 8% annualized rate

    Japan PMI Services dropped to 33.8 in March, down from 46.8. The index was close to record low seen in February 2009 (33.7). PMI Composite dropped to 36.2, down from 47.0. Markit said that output fell at near record pace as coronavirus pandemic hits demand. Employment declined as operating requirements slumped. Also, business activity was expected to fall sharply over the coming 12 months.

    Joe Hayes, Economist at IHS Markit, said, latest data showed that the economic impact from coronavirus pandemic “has become widespread”. The sharp fall signals “how aggressive and sudden the drop in activity has been”. The combined manufacturing and services PMI already point to “GDP contracting at an annual of around 8%”. If the outbreak were to escalate in Japan, Q2 GDP could be “poised for an annual decline in excess of 10%”.

    Full release here.

    ECB Cœuré: “Winding back globalisation is the wrong solution”

      ECB Executive Board member Benoît Cœuré warned of “consequence of protectionism” in a speech at a workshop today.

      A few from the speech to note:

      • “Greater global economic integration has boosted living standards worldwide and lifted millions out of poverty.”
      • “Winding back globalisation is the wrong solution.” And, “a retreat from openness will only fuel more inequality as import prices rise, goods become dearer and real incomes fall.”
      • “The distributional and social effects of greater economic integration should rather be addressed by targeted policies that achieve fairer outcomes.”
      • “By allowing Member States to recover some of the state functions that have been eroded by globalisation, the European Union is a vehicle that brings the benefits of economic openness to the greatest number of its citizens while protecting them against untrammelled global forces. It represents the most progressive model we have for taking back control of globalisation by addressing people’s concerns over open markets and fair competition – doubts that individual countries on their own cannot dispel.”

      Here is the full speech.

      WTO: Global trade to fall by 13-32% this year on coronavirus pandemic

        WTO said that world trade is expected fall by between -13% and -32% in 2020 as coronavirus pandemic disrupts normal economic activity and life. While the ere “wide range of possibilities”, the decline will “likely exceed” the trade slump on the 2008-09 global financial crisis.

        Nearly all regions will suffer double-digit declines in trade volumes in 2020, with exports from North America and Asia hit hardest. Under the optimistic scenario, the recovery will be strong enough to bring trade close to its pre-pandemic trend. The pessimistic scenario only envisages a partial recovery.

        Full release here.

        Ifo: Germany inflation to hit 3% this year, fall back to 2-2.5% next

          Ifo said inflation in Germany could hit as high as 3% this year. That could be explained by “accelerated increase in prices over the course of 2021” in apparent in energy, food, and some service industries.

          Inflation is expected to slow to 2.0-2.5% next year. But Head of Forecasts Timo Wollmershäuser said: “At the beginning of 2022, the special factors that have been driving inflation will peter out: it will be a year since the reduction in VAT was reversed and energy prices reached their pre-crisis levels,”

          Separately, ECB Governing Council member Pablo Hernandez de Cos said, “ECB is monitoring the inflation performance closely but we are not seeing any second-round impacts.”

          BoJ stands pat, maintains dovish bias

            BoJ left monetary policy unchanged as widely expected, by 8-1 vote, with dove Goushi Kataoka dissented again. Under the yield curve control framework, short-term policy interest rate is held at -0.10%. 10-year JGB yield target is kept at around 0%, without upper limit on JGB purchases. BoJ also clarified that it will offer to purchase 10-year JGBs at 0.25% every business day through fixed-rate purchase operations.

            The central bank also reiterated that it will “expanding the monetary base until the year-on-year rate of increase in the observed consumer price index (CPI, all items less fresh food) exceeds 2 percent and stays above the target in a stable manner.”

            It also pledged that it “will not hesitate to take additional easing measures if necessary; it also expects short- and long-term policy interest rates to remain at their present or lower levels.”

            In the new economic projections, GDP is forecast to grow:

            • 2.9% in fiscal 2022 (revised down from 3.8%)
            • 1.9% in fiscal 2023 (revised up from 1.1%)
            • 1.1% in fiscal 2024 (new).

            CPI (all items less fresh food) is expected to be at:

            • 1.9% in fiscal 2022 (revised up from 1.1%).
            • 1.1% in fiscal 2023 (unchanged).
            • 1.1% in fiscal 2024 (new).

            Full statement here.

            Full Outlook for Economic Activity and Prices 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.

              US initial jobless claims rose 7k to 225k

                US initial jobless claims rose 7k to 225k in the week ending November 5. Four-week moving average of initial claims rose 250 to 218.75k.

                Continuing claims rose 6k to 1493k in the week ending October 29. Four-week moving average of continuing claims rose 32k to 1450k.

                Full release here.

                New Zealand’s trade deficit narrows to NZD -1.2B, led by decreased trade with china

                  New Zealand’s goods trade deficit narrowed from NZD 1.7B to NZD 1.2B in November, aligning largely with market expectations. Exports fell by NZD 337m, representing -5.3% yoy decline, settling at NZD 6.0B. Meanwhile, imports saw a more substantial reduction of NZD 1.3B, -15% yoy decrease, totaling NZD 7.2B.

                  A key factor in these changes is reduced trade volume with China, which led contraction in both imports and exports. Exports to China decreased by NZD 183m, -9.7% yoy fall. Imports from China also saw a substantial reduction of NZD 347m, marking -17% yoy decrease.

                  Other key trading partners also showed varied trends. Exports to Australia and EU declined by NZD 35m (-4.5% yoy) and NZD 27m (-9.1% yoy), respectively. Conversely, exports to US increased by NZD 110m, a significant 18% yoy rise. Exports to Japan experienced a sharp decline of NZD 99m, -27% yoy drop.

                  In the realm of imports, alongside China, EU, Australia, US, and South Korea all registered declines. Imports from the EU decreased by NZD 164m (-14% yoy), from Australia by NZD 219m (-23% yoy), from the US by NZD 68m (-11% yoy), and from South Korea by NZD 231m (-32% yoy).

                  Full NZ goods trade balance release here.

                  Gold dipped in Asia, but holds above 1800 handle

                    Gold breached 1817.05 support, and dipped to 1810.07 earlier today but quickly recovered. Bias stays neutral for some more consolidations first. In case of another recovery, we’d expect upside to be limited by 1863.51 resistance to bring fall resumption.

                    Current decline from 1959.16 is seen as the third leg of the pattern from 2075.18. Decisive break of 1817.05 should target 1764.31 support and below.

                    Into US session: Dollar rebounds on strong jobless claims, Euro enduring string of negative news

                      Entering into US session, Dollar and Yen are both regaining some grounds as financial markets turned mixed. There are positive reports on US-China trade negotiation, which should be in its final stage. Trump scheduled to meet Chinese Vice Premier Liu He at 2030 GMT and a summit with Xi could be finally announced. Yet, that provides little lift to market sentiments in general. The greenback is somewhat supported additionally by strong initial jobless claims, that fell to lowest since 1969. But the real critical one is tomorrow’s no-farm payrolls.

                      Meanwhile, news out of Europe are generally negative. Germany factory orders contracted sharply by -4.2% mom in March. Germany’s leading economic institutes lowered economic growth forecasts for the country in 2019 sharply to 0.8%, down from 1.9%. Italy is said to revise down growth forecasts to as low as 0.1% in 2019, thus raising budget deficit target to 2.3-2.4%. ECB accounts revealed that some policymakers considered pushing timing of first hike to after Q1 2020. There is no special progress in Brexit in UK even though April 12 cliff edge is approaching. Nevertheless, Euro isn’t too weak at all. The worst performing ones for now are New Zealand Dollar and Sterling.

                      In Europe, currently:

                      • FTSE is down -0.41%.
                      • DAX is up 0.24%.
                      • CAC is down -0.18%.
                      • Germany 10-year yield is down -0.012 at -0.01, back in negative territory.

                      Earlier in Asia:

                      • Nikkei rose 0.05%.
                      • Hong Kong HSI dropped -0.17%.
                      • China Shanghai SSE rose 0.94%.
                      • Singapore Strait Times rose 0.15%.
                      • Japan 10-year JGB yield rose 0.0108 to -0.04.

                      BoC stands pat, keeps hawkish bias

                        As anticipated, BoC keeps its overnight rate unchanged at 5.00%, alongside the Bank Rate at 5.25% and the deposit rate at 5.00%. Despite the steady rates, the tone of the announcement underscored ongoing concerns about inflation, coupled with a softer outlook on economic growth.

                        BoC explicitly stated that it remains “concerned about the persistence of underlying inflationary pressures,” signaling a continued tightening bias. In its words, the central bank is “prepared to increase the policy interest rate further if needed,” highlighting its willingness to act if inflation doesn’t abate.

                        Full BoC statement here.

                        BoE’s Haskel: Important to lean against risks of inflation momentum

                          In an article penned for The Scotsman newspaper, BoE Monetary Policy Committee member Jonathan Haskel signaled the potential for further increases in interest rates, citing persistent inflation concerns.

                          Haskel highlighted an improvement in UK’s inflation outlook, observing, “Things look better than a few months ago. Since October last year, inflation has fallen from 11.1 per cent to 8.7 per cent, and we expect it to be around 5 per cent by the end of this year.”

                          However, he expressed concern that “inflation remains much too high,” reaffirming the MPC’s commitment to achieving its 2% target. “Our tool for doing this is interest rates,” he added.

                          “My own view is that it’s important we continue to lean against the risks of inflation momentum, and therefore that further increases in interest rates cannot be ruled out,” he said.

                          Haskel addressed the often-asked question of how increasing interest rates can help when inflation is driven by the prices of essential goods like energy and food, largely determined at a global level.

                          He clarified, “The aim of higher interest rates is not to affect the prices of these goods directly. Instead, it is to ensure the resulting inflation does not become embedded in the economy and prices do not continue to increase at the rates we’ve seen recently.”

                          Full article of BoE Haskel here.

                          ECB: Global recovery projected to be shallow

                            ECB said in its monthly economic bulletin that more recent information “points to a stabilisation in global growth”. In particular, survey-based data like PMI point to a “moderate recovery in manufacturing output growth and some moderation in services output growth”. Nevertheless, global recovery is projected to be “shallow”, reflecting moderation of growth in advanced economies and sluggishness in some emerging markets.

                            For Eurozone, however, ongoing weakness of international trade continues to weigh on manufacturing sector and is dampening investment growth. Survey-based data, while remaining weak overall, point to some stabilization of slowdown too.

                            Measures of underlying inflation in Eurozone “generally remained muted”. ECB added, that “market-based indicators of longer-term inflation expectations have remained at very low levels, while survey-based expectations also stand at historical lows.

                            Full ECB Monthly Bulletin here.

                            UK GDP grew 0.8% mom in Jan, all sectors were up

                              UK GDP grew 0.8% mom in January, well above expectation of 0.2% mom. All sectors grew in the month, with services up 0.8% mom, production up 0.7% mom, and construction up 1.1% mom.

                              GDP is now 0.8% above pre-conronavirus level in February 2020. Services is 1.3% above the pre-coronavirus level, construction 1.4% above. But production remains -2.0% below the level.

                              Also released, industrial production rose 0.7% mom, 2.3% yoy in January, versus expectation of 0.3% mom, 1.9% yoy. Manufacturing production rose 0.8% mom, 3.6% yoy, versus expectation of 0.2% mom, 3.1% yoy. Goods trade deficit widened to GBP -26.5B, versus expectation of GBP -12.6B.

                              Full UK GDP release here.

                              Johnson: Ports, banks, factories, businesses ready for no-deal Brexit

                                New UK Prime Minister Boris Johnson executed a “brutal”, as some described, cabinet reshuffle after taking the top job. 18 of 29 ministers were dumped out. Instead, some Brexit hardliners are brought into the cabinet. New cabinet include Sajid Javid as chancellor of the exchequer, Dominic Raab as foreign secretary and first secretary of state, Priti Patel as home secretary, Michael Gove as chancellor of the Duchy of Lancaster, Liz Truss as international trade secretary, etc.

                                Johnson also said, “the doubters, the doomsters, the gloomsters — they are going to get it wrong again. We are going to fulfill the repeated promises of Parliament to the people and come out of the EU on Oct. 31, no ifs or buts, and we will do a new deal, a better deal.”

                                He added, “We can do a deal without checks at the Irish border. It is of course vital at the same time that we prepare for the remote possibility that Brussels refuses any further to negotiate and we are forced to come out with no deal.”

                                He also insisted the economy is ready for no-deal. “The ports will be ready, the banks will be ready, the factories will be ready, business will be ready,” he said. “The British people have had enough of waiting.

                                Australia AiG services dropped to 56.2, intensifying price and wage pressures

                                  Australia AiG Performance of Services Index dropped -3.8 pts to 56.2 in March. Sales dropped sharply by -14.9 to 53.7. Employment dropped -0.3 to 54.4. But new orders rose 2.4 to 63.5. Input prices jumped 11.5 to 77.5. Selling prices also rose 4.2 to 64.5. Average wages surged 11.8 to 67.7.

                                  Innes Willox, Chief Executive of the national employer association Ai Group, said: “Australia’s services sector continued its positive run in March although the pace of growth slowed in the face of intensifying input price pressures, difficulties in finding staff and further wage pressures.”

                                  Full release here.

                                  ECB consumer survey: Inflation expectations up, growth expectations down

                                    In ECB’s Consumer Expectations Survey, consumers’ mean perceived inflation over the past 12 months increased markedly from May’s 8.2% to June’s 8.6%. Median inflation perceptions over the previous 12 months rose from 6.6% to 7.2%.

                                    Mean inflation expectations for 12 month ahead rose from 6.3% to 6.6%. Median inflation expectations for 12 months ahead rose from 4.9% to 5.0%.

                                    Mean economic growth expectations for the next 12 months dropped from -1.0% to -1.3%. Median economic growth expectations was unchanged at 0%.

                                    Full release here.

                                    Australia AiG services fell to 45.6, deepening contraction

                                      Australia AiG Performance of Services dropped -2.1 pts to 45.6 in November, signaling contraction for a third month. Sales rose 1.5 to 42.8. Employment dropped -6.1 to 47.8. New orders dropped -4.8 to 49.7. Input prices dropped -3.6 to 74.0. Selling prices rose 2.2 to 64.4. Average wages rose 3.8 to 68.6.

                                      Innes Willox, Chief Executive of the national employer association Ai Group, said: “The deteriorating economic outlook is clearly weighing on Australia’s services sector. The Australian PSI indicated a deepening contraction in the services sector, with three months of declining results. Steep falls in indicators for employment and new orders in November reveal weakening demand for services, while ongoing labour shortages continue to constrain the supply side.”

                                      Full release here.

                                      Rees-Mogg and Fabricant agree May’s Brexit deal is better than no leaving at all

                                        Brexit hardliner Jacob Rees-Mogg reiterated his backing to Prime Minister Theresa May’s deal as it’s better than no Brexit. He tweeted that “The choice seems to be Mrs May’s deal or no Brexit.” Also, Rees-Mogg explained in the Monday Moggcast podcast that “I’ve always thought that no deal is better than Mrs. May’s deal, but that Mrs. May’s deal is better than not leaving at all.” While May’s deal is “in no way a good deal, Rees-Mogg said: “against that there are the threats of a long delay, and many people in Parliament who want to frustrate the result of the referendum.”

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                                        Conservative MP Michael Fabricant echoed as that it’s the “dreadful conclusion” he came to too. And “a new PM can then negotiate a better and more distanced relationship with the EU after Brexit. (Of course this is the least worst option but the only practical way forward for now.)”

                                        Fabricant also said: “The practical alternatives are far worse that the Withdrawal Agreement including keeping us in the Customs Union and Single Market indefinitely so no control of immigration or having to obey EU directives.”

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                                        RBA Preview – Westpac: RBA to hold

                                          RBA will announce rate decision tomorrow.

                                          Exerpts from the Westpac report:

                                          • The Reserve Bank Board meets next week on March 6. Of course we expect there will be no change in the overnight cash rate.
                                          • We also do not expect to see any significant change in the Governor’s rhetoric from last month.
                                          • Overall, we are expecting a cumulative fall (in USD’s) in Australia’s Commodity Price Index of around 25% between June 2018 and December 2019.
                                          • Readers will be aware that Westpac expects a considerable widening in the negative Australia/US interest rate differential as the FEDERAL RESERVE continues to raise rates and the RBA remains on hold.
                                          • Readers should be aware that Westpac has reviewed its currency forecasts and, while continuing to see an AUD low of USD 0.70 in 2019, has pushed out the timing to September 2019 from March.

                                          Details in Australia & New Zealand Weekly: RBA on Hold, AUD to Weaken through 2018 and 2019