ECB Chief Economist Peter Praet echoed on monetary policy and said it’s too soon to declare “mission accomplished” regarding inflation. Meanwhile, “with the passage of time, the indication that policy rates will remain at their present levels well past the end of net asset purchases will gradually cease to provide sufficient guidance”. He added that “our forward guidance on the path of our policy rates will have to be further specified and calibrated.”
ECB Draghi emphasized predictability in monetary policy adjustments
ECB President Mario Draghi emphasized in a conference in Frankfurt yesterday that any monetary policy adjustments must be “predictable” and carried out “at a measured pace”. For now, he said ECB “still need to see further evidence that inflation dynamics are moving in the right direction”. Therefore, “monetary policy will remain patient, persistent and prudent.” Draghi also added that “sharp repricing” in the financial markets must be carefully monitored.
Regarding the steel and aluminum tariffs of the US, Draghi expected the initial impact to be small. However, he warned that “there are potential second-round effects that could have much more serious consequences.” And, risks include “retaliation across other goods and an escalation of trade tensions, and the potential for negative confidence effects which would weigh on business investment in particular.”
Asian markets down on conerns of US-China trade war, Dollar down
Asian markets are broadly lower on concerns of full-blown trade war between US and China. At the time of writing:
- Nikkei down -0.7%
- HK HSI down -1.3%
- China SSE down -0.5%
- AU all ordinaries down -0.57%
- KOSPI down -0.51%
Another globalist Rex Tillerson is now gone, just short after Gary Cohn. There are reports that Trump is considering a USD 60b taiff package for China.
Dollar is trading under broad based selling today.
BoJ Kuroda – Same message, long way from hitting inflation target
BoJ Governor Haruhiko Kuroda repeated his rhetorics that Japan is still long way from meeting the 2% inflation target. Therefore, it’s too early to talk about stimulus exit. But he assured the parliament that the central bank has the tools to smoothly exit from the ultra-loose monetary policy when needed. Kuroda added that “by combining various tools, it’s possible to shrink the BoJ’s balance sheet at an appropriate pace while keeping markets stable.” Meanwhile, he also hailed that while keeping long term yield low with the policy, BoJ also managed to maintain markets’ trust in JGBs. He noted “If market trust over Japan’s debt is eroded, it will be difficult for us to keep interest rates low with our yield curve control policy.”
Release earlier, minutes of BoJ January meeting showed that some board members were concerned with the impact of the loose monetary policy, especially on banks. The minutes showed “some members said it was important to continue to monitor and assess the positive impacts and side-effects of the current monetary easing policy, including its effects on Japan’s banking system.” Some member suggested to raised the yield target as economy improves. But another member (obviously Goushi Kataoka), called for ramping up the stimulus.
Asian session data wrap up: China posted solid Feb data
Asian session data wrap up:-
New Zealand
- Current account Q4: NZD -2.77b vs exp -2.45b vs prior -4.83b
Australia
- Westpac consumer confidence Mar: 0.2% vs prior -2.3%
Japan
- Machine orders Jan: 8.2% mom vs exp 5.2% mom vs prior -9.3% mom
China
- Retail sales Feb: 9.7% yoy vs exp 10.0% yoy vs prior 9.4% yoy
- Industrial production Feb: 7.2% yoy vs exp 6.3% yoy vs prior 6.2% yoy
- Fixed assets investment Feb: 7.9% yoy vs exp 7.0% yoy vs prior 7.2% yoy
Upcoming
- German CPI
- Eurozone industrial production
- Eurozone employment
- US retail sales
- US PPI
- US business inventories
BoC Poloz: Canadian labour force could expand by another half million
BoC Governor Stephen Poloz:-
- There are utapped potential in the economy, including workforce by youth, women, indigenous peoples, Canadians with disabilities and recent immigrants to Canada
- It is not much of a stretch to imagine that Canada’s labour force could expand by another half a million workers,”
- If the economy builds more supply than usual, that will put downside risk on inflation; if less, that will create upside risk to inflation, and it is our job to balance those risks,”
- “We cannot know in advance how far the capacity-building process can go, but we have an obligation to allow it to occur.”
Full speech Today’s Labour Market and the Future of Work
More turmoil for USD, Rex Tillerson fired by Trump
More selling is seen in Dollar on news that US Secretary of State Rex Tillerson is fired by Trump.
Trump also tweeted:-
“Mike Pompeo, Director of the CIA, will become our new Secretary of State. He will do a fantastic job! Thank you to Rex Tillerson for his service! Gina Haspel will become the new Director of the CIA, and the first woman so chosen. Congratulations to all!”
Dollar selling starts as bears relieved by CPI data
US CPI met market expectation. Dollar bears seem to be “relieved” and fresh selling seen after the release
US CPI Jan: 0.2% mom vs exp 0.2% mom vs prior 0.5% mom
US CPI Jan: 2.2% yoy vs exp 2.2% yoy vs prior 2.1% yoy
US CPI core Jan: 0.2% mom vs exp 0.2% mom vs prior 0.3% mom
US CPI core Jan: 1.8% yoy vs exp 1.8% yoy vs prior 1.8% yoy
Into US session, Yen selling stays, Euro buying emerges
Yen is staying as the weakest currency for today and selling intensifies entering into European. Meanwhile, Euro is also showing much resilience. And buying also emerges at during the 4 hour period.
ECB Lane: Confidence on inflation improves
ECB Governing Council member Philip Lane:
“There’s no concern about the current level,”
- “But if it moves a lot within a short time interval then you have to think about the implications.”
- “As these factors convert into higher inflation readings, our confidence that inflation will converge to the target over the medium term improves,”
- “Whenever net asset purchases come to an end, there will still remain considerable monetary accommodation baked into the system,”
EU Barnier hopes to seal a transition Brexit deal this month
EU Chief Brexit negotiator Michel Barnier warned UK:-
- The EU and Britain are hoping to seal a deal this month on a transition period after Brexit, and start talks on the future relationship this spring.
- “One cannot have at the same time the status of a third country and demand at the same time the advantages of the (European) Union,”
- “It is time to face up to the hard facts,”
Earlier today, European Commission President Jean-Claude Juncker in European Parliament on Brexit:-
- “There is increasing urgency to negotiate this orderly withdrawal.”
- “As the clock counts down, with one year to go, it is now time to translate speeches into treaties, to turn commitments into agreements.”
- “It is obvious that we need further clarity from the UK if we are to reach an understanding on our future relationship.”
OECD: Global growth to strengthen in 2018, 2019
OECD Interim Economic Outlook: GETTING STRONGER, BUT TENSIONS ARE RISING
The world economy will continue to strengthen in 2018 and 2019, with global GDP growth projected to rise to about 4%, from 3.7% in 2017.
Stronger investment, the rebound in global trade and higher employment are helping to make the recovery increasingly broad-based.
New tax reductions and spending increases in the United States and additional fiscal stimulus in Germany are key factors behind the upward revision to global growth prospects in 2018 and 2019.
Inflation remains low, but is likely to rise modestly.
Still-elevated risk-taking and high debt levels in many countries raise financial vulnerabilities. Monetary policy normalisation could also result in greater volatility of exchange rates and capital flows, particularly in emerging market economies.
Medium-term growth prospects remain much weaker than prior to the financial crisis, reflecting less favourable demographic trends and a decade of sub-par investment and productivity.
Economic policies face several challenges:
- A gradual normalisation of monetary policy is needed, but to a varying degree across the major economies. Continued clear communication about the path to normalisation is essential to minimise the risk of financial market disruptions.
- Fiscal policy choices should avoid being excessively pro-cyclical and be clearly focused on measures that strengthen the prospects for sustainable and more inclusive medium-term growth.
- Structural reform efforts should be revived, seizing the opportunity of the stronger economy to help secure a more robust recovery of productivity, investment and living standards.
Safeguarding the rules-based international trading system will help to support growth and jobs. Governments should avoid escalation and rely on global solutions to resolve excess capacity in the global steel industry.
EU Juncker: Increasing urgency on Brexit negotiation
European Commission President Jean-Claude Juncker in European Parliament on Brexit:-
- “There is increasing urgency to negotiate this orderly withdrawal.”
- “As the clock counts down, with one year to go, it is now time to translate speeches into treaties, to turn commitments into agreements.”
- “It is obvious that we need further clarity from the UK if we are to reach an understanding on our future relationship.”
JPY broad downside bias, NZD broad upside bias in hourly chart
Yen is building up broad biased downside bias in hourly chart.
NZD is building up broad based upside bias in hourly chart.
Net effect is: NZD/JPY jumping sharply to as high as 78.26 so far. 38.2% retracement of 81.55 to 75.92 is finally firmly taken out. 78.07. We’d now looking at 61.8% retracement at 79.39.
RBA Key Economic Indicators Snapshot
RBA Key Economic Indicators Snapshot
As at March 12, 2018
- Cash rate: 1.5%
- Economic growth: 2.4%
- Inflation: 1.9%
- Unemployment rate: 5.5%
- Employment growth: 3.3%
- Wage growth 2.1%
- Average weekly earnings: AUD 1192
- Household saving ratio: 2.7%
- Net foreign liabilities: 55% of GDP
- AUD 1 = USD 0.79
- China GDP growth: 6.8%
- G7 GDP growth: 2.3%
Canada PM Trudeau: No link between NAFTA and tariff exemptions
Canadian Prime Minister Justin Trudeau said that the exemptions on Trump’s steel and aluminum tariffs were not a “magical favor being done”. He pointed out that “millions of jobs on both sides of the border depend on continued smooth flow of trades.” And the tariffs would hurt both sides. He also expressed the willingness to work with the on NAFTA. But, he also emphasized that “we don’t link together the tariffs and the negotiations for NAFTA.”
Australia NAB business condition rose to record 21
Australia NAB business condition jumped 3 pts to 21 in February, hitting a record high. However, business confidence dropped 3 pts to 9.
Quote from the release:
- “The record level for the NAB Monthly Business Survey business conditions index indicates that business activity in Australia is robust. Moreover, the strength in conditions is broad based across industry groups.”
- “The fall in confidence may reflect the turbulence seen in international financial markets in early February, but confidence remains above average suggesting that the impact was relatively limited”.
- “Forward orders have been on a rising trend for several years now signalling an improved outlook for the non-mining economy.”
- “Capacity utilisation is trending higher which is a positive for both future investment and employment”
- “We expect by late 2018 the RBA will feel relaxed enough about the domestic fundamentals to cautiously start withdrawing the stimulatory policy stance it is currently running. However, it will depend heavily on the data flow and the risk is that the RBA will delay rate rises until early 2019”
RBNZ Spencer hailed macroprudential policy
RBNZ Governor Grant Spencer hailed the success of macroprudential tools in a speech to finance industry professional today. The policy infrastructure including the LVRs (loan to value restrictions). helped limit the risks of surge hour prices. It also helped keep interest low to boost inflation. And, after adopting the policy for five years, Spencer suggested a review would be run with the Treasury to consider ways to expand it. He also suggested to introduce a new committee on macroprudential policy alongside the monetary policy committee.
NZD Strong, CAD Weak, But… GBP is picking up.
Entering into US session, NZD/CAD is the biggest mover for today. However, it seems to be losing momentum. On the other hand, GBP/CAD is clearly picking up strength.
In particular that’s help by selloff and EUR/GBP which could now be finally heading heading to 0.88 handle.
Always look deeper!
ECB Constancio: Technical factors can greatly amplify initial market movements
ECB Vice President Vitor Constancio commented on financial stability at the conference. He noted that “the sharp movements that took place in the U.S. equity market in February 2018 demonstrated how sentiment can change very quickly — and market participants should be well aware of this risk.” And, “in an environment characterized by search for yield and depressed volatility, technical factors can greatly amplify initial market movements.”