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Bundesbank foresees difficult recovery for Germany, despite ended recession in Spring

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    ActionForex.com
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    In its latest monthly report, Bundesbank projected a somewhat gloomy economic outlook for Germany. The central bank expects the country’s GDP to shrink by a calendar-adjusted -0.3% for 2023, with subsequent growth projected at 1.2% in 2024 and 1.3% in 2025.

    Characterizing the economic recovery as a laborious process, the Bundesbank pointed to the lingering impacts of the crises Germany has endured over the past three years. The nation’s recession, however, is anticipated to conclude in the spring quarter, with a slight increase in GDP predicted for April to June period.

    Bundesbank anticipates that private consumption, a crucial component of economic health, will hit its lowest point and then begin to rebound. It highlighted that “Thanks to strongly rising wages, the real disposable incomes of private households are stabilizing despite inflation remaining very high.”

    Germany Ifo down to 88.5, manufacturing weakness steering economy into turbulent waters

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      ActionForex.com
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      Germany Ifo Business Climate fell from 91.5 to 88.5 in June, below expectation of 91.2. Current Assessment Index dropped form 94.8 to 93.7, slightly above expectation of 93.5. Expectations Index tumbled further from 88.3 to 83.6, below expectation of 88.0.

      By sector, manufacturing fell sharply from -0.1 to -6.6, lowest since November. Services dropped from 6.8 to 2.7. Trade edged down from -19.1 to -20.2. Construction decreased from -18.5 to -20.1.

      Ifo said: “Sentiment in the German economy has clouded over considerably… Above all, the weakness in the manufacturing sector is steering the German economy into turbulent waters.”

      Full Germany ifo release here.

      Japan’s top officials voice concern over ‘rapid and one-sided’ yen moves

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        ActionForex.com
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        In the face of Yen’s swift depreciation, top Japanese currency diplomat Masato Kanda expressed concern on Monday, describing the recent changes as “rapid and one-sided. He added that “We have all options available and we are not ruling out any options.”

        Kanda, Vice Finance Minister for International Affairs, however, refrained from using the phrase “decisive action,” a term he used before Japan intervened in the currency market last year. This careful choice of words suggests that while officials are monitoring the situation, they may not be ready to step in just yet.

        Adding to this sentiment, Finance Minister Shunichi Suzuki highlighted the ongoing vigilance of the government, stating that “we will continue to watch the forex market with a sense of urgency.”

        In keeping with this sense of readiness, Suzuki assured that authorities would respond “appropriately” to any excessive currency swings, indicating that the government is primed to intervene if necessary.

        BoJ opinions: Persistent monetary easing stance upheld, first call YCC Debate

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          ActionForex.com
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          Summary of opinions from BoJ Monetary Policy Meeting on June 15-16 shed light on the prevailing sentiment among policymakers regarding the nation’s current monetary easing stance.

          Among the opinions expressed, there was an evident call for maintaining the current monetary easing policy to support rising wage growth, which was described as “the highest in around 30 years.”

          Board members noted, “In order to achieve the price stability target of 2 percent in a sustainable and stable manner, price rises accompanied by wage increases, rather than those caused by cost-push factors, are necessary.”

          The Bank was thus urged to “keep supporting such momentum for wage hikes through continuation of the current monetary easing.”

          Significantly, there was a focus on the potential risks associated with premature policy revisions. It was stated, “It would be premature to revise monetary policy if it would hinder such developments,” referring to increasing wage and investment willingness among small and medium-sized firms.

          Policymakers also warned against a “hasty policy change” that could miss the chance to achieve the price stability target.

          However, one board member signaled a notable dissent, explicitly calling for an early discussion about tweaking the BoJ’s yield curve control (YCC) – a tool for monetary easing.

          This marked the first time a BOJ summary displayed a member’s open expression for an early debate on modifying the YCC, hinting at possible future shifts in the Bank’s policy discussions.

          Full BoJ Summary of Opinions here.

          SNB: Monetary policy isn’t tight enough to anchor price stability

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            ActionForex.com
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            In a radio interview with public broadcaster SRF aired on Saturday, SNB President Thomas Jordan subtly hinted at the potential need for a tighter monetary policy. This comes on the heels of the Swiss central bank’s recent interest rate hike, which saw an increase of 25 basis points to 1.75% last Thursday.

            Interpreting SNB’s inflation forecasts, Jordan said, “If you look at our inflation forecasts and interpret them correctly, then you’ll see that from today’s perspective monetary policy possibly isn’t tight enough to anchor price stability.”

            Acknowledging the inevitable, Jordan added, “We can’t completely prevent second-round effects — that would be an illusion — but we have to fight them.” These second-round effects typically refer to changes in wages and prices in response to initial inflationary shocks, underlining the broader impact of inflation on the economy.

            US PMI composite fell to 53.0, Q2 GDP growth in region of 2%

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              ActionForex.com
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              US PMI Manufacturing fell from 48.4 to 46.3 in June, a 6-month low. PMI Services fell from 54.9 to 54.1, a 2-month low. PMI Composite fell from 54.3 to 53.0, a 3-month low.

              Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:

              “The overall rate of expansion of business activity in the US remained robust in June, consistent with GDP rising at a rate of 1.7% to put second quarter growth in the region of 2%.

              “Growth remains dependent on service sector spending, however, with manufacturing slipping back into decline after three months of growth. While improving supply conditions had helped boost manufacturing production in prior months, an increasingly severe downturn in new orders mean factories are running out of work.

              “The situation is brighter in the service sector, where demand is proving resilient and the recent pause in rate hikes appears to have helped boost business optimism for the year ahead.

              “The question remains as to how resilient service sector growth can be in the face of the manufacturing decline and the lagged effect of prior rate hikes. Any further rate hikes will of course have a further dampening effect on this sector which is especially susceptible to changes in borrowing costs.

              “The tightness of the labor market remains a concern, and upward wage pressure remains a key driver of higher costs in the service sector. However, it is encouraging to see the overall rate of selling price inflation for goods and services drop to the lowest since late 2020 in a sign that the Fed is winning its fight against inflation.”

              Full US PMI release here.

              ECB de Cos: Not appropriate to forecast rates after July hike

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                ActionForex.com
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                ECB Governing Council member Pablo Hernandez de Cos conveyed his anticipation of another interest rate hike. He underscored that ECB’s decisions would continue to rely on key data and inflation outlook.

                He stated today, “If the central scenario of our forecasts published by the ECB last week materialises, we will also have to raise 25 basis points again in July.” However, “beyond that it is not appropriate to make any forecasts.”

                De Cos highlighted the essential role of key data and inflation dynamics in shaping ECB’s decisions. He added, “we will continue to take our decisions depending on the data and, in particular, on the aggregate assessment of the inflation outlook, the dynamics of underlying inflation.”

                Japanese Finance Minister speaks out amid rapid Yen depreciation

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                  ActionForex.com
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                  As Yen continues to face intense selling pressure, Japanese Finance Minister Shunichi Suzuki reiterated the importance of market-determined exchange rates and the undesirability of abrupt currency movements.

                  Suzuki stated, “Currency rates should be set by the market, reflecting fundamentals.” He also emphasized the need for stability, saying, “Sharp moves are undesirable, currencies should move stably reflecting fundamentals. With that in mind, we will continue to keep firm watch on market moves.”

                  His comments come as the USD/JPY surged past the 143 handle, marking a significant acceleration in Yen’s recent depreciation. The slide began last week following BoJ’s decision to maintain its ultra-loose monetary policy stance. Today’s strong inflation data, rather than tempering Yen’s decline, seemed to have had little impact in averting its downtrend.

                  The verbal intervention from Suzuki underscores the growing concern over the pace and extent of Yen’s depreciation. It also signals the government’s readiness to monitor market trends closely, and possibly intervene should the currency’s movements threaten to undermine the economic fundamentals.

                  UK PMI manufacturing down to 46.2, Services down to 53.7

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                    ActionForex.com
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                    UK PMI Manufacturing fell from 47.1 to 46.2 in June, a 6-month low. PMI Services dropped from 55.2 to 53.7, a 3-month low. PMI Composite lowered from 54.0 to 52.8, a 3-month low.

                    Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:

                    “June’s flash PMI survey indicates that the UK economy has lost momentum again after a brief growth spurt in the spring, and looks set to weaken further in the months ahead.

                    “Most notably, consumer spending on services, which was a core growth driver in the spring, is now showing signs of faltering… The manufacturing sector meanwhile continues to report recessionary conditions.

                    “One notable area of resilience in the economy is the labour market…While falling backlogs of work suggest this hiring trend could also fade in the coming months as the economy weakens.

                    “The survey’s price gauges point to consumer price inflation remaining well above the Bank of England’s target into 2024, which will add to the case for further interest rate hikes…

                    “Stubbornly elevated price growth in the service sector suggests the Bank of England will consider its fight against inflation as still a work in progress.

                    Full UK PMI release here.

                    Eurozone PMI manufacturing down to 43.6, services down to 52.4

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                      ActionForex.com
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                      Eurozone PMI Manufacturing fell from 44.8 to 43.6 in June, a 37-month low. PMI Services dropped from 52.4 to 55.1, a 5-month low. PMI Composite tumbled from 52.8 to 50.3, a 5-month low.

                      HCBO Bank noted in the release that there are diverging trends in the manufacturing and service sectors. Despite falling prices in manufacturing that would typically herald rate cuts, persistent price hikes in the larger service sector continue to slow down core inflation’s decline.

                      Adding to the complexity are regional differences: France’s service sector contracted in June while Germany’s continues to expand. With Eurozone GDP potentially falling for a third consecutive quarter, the Composite PMI predicts a challenging second half of the year for businesses.

                      In France, PMI Manufacturing ticked down from 45.7 to 45.5 in June, a 37-month low. PMI Services dropped sharply from 52.5 to 48.0, a 28-month low. PMI Composite fell from 51.2 to 47.3, a 28-month low.

                      In Germany, PMI Manufacturing fell from 43.2 to 41.0, a 27-month low. PMI Services dropped from 57.2 to 54.1, a 3-month low. PMI Composite declined from 53.9 to 50.8, a 4-month low.

                      Full Eurozone PMI release here.

                      Japan CPI core eased to 3.2% in May, but core-core surged to 42-yr high

                        By
                        ActionForex.com
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                        Japan CPI core eased from 3.5% yoy to 4.2% yoy in in May. CPI core (ex-fresh food) fell from 3.4% yoy to 3.2% yoy. CPI core has now stayed above BoJ’s 2% target for the 14th consecutive month. Meanwhile, CPI core-core (ex-fresh food and energy), jumped from 4.1% yoy to 4.3% yoy, the highest level in 42 years since 1981.

                        Energy costs fell -8.2% yoy, thanks to government subsidies. Food prices accelerated from 9.0% yoy to 9.2% yoy, highest since 1975. Durable goods prices rose 9.0% yoy. Goods prices were up 4.7% yoy while services prices rose 1.7% yoy.

                         

                        Japan PMI manufacturing fell to 49.8, services down to 54.2

                          By
                          ActionForex.com
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                          Japan PMI Manufacturing declined from 50.6 to 49.8 in June, below expectation of 50.2. PMI Manufacturing Output fell from 50.9 to 48.3. PMI Services dropped from 55.9 to 54.2. PMI Composite decreased from 54.3 to 52.3.

                          Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence, said:

                          “A fresh fall in manufacturing output coincided with a softer rise in services activity, leading to the weakest expansion of overall output for four months….

                          “The softening of growth momentum fed through to reduced optimism around the outlook, with business confidence slipping to a five-month low…

                          “However, there was some better news in terms of inflationary pressures, which showed further signs of easing. Notably, input price inflation softened to a 22-month low in June, while output charges increased at the softest pace since January.”

                          Full Japan PMI release here.

                          Australia PMI composite fell to 50.5, RBA has time on their side

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                            ActionForex.com
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                            Australia PMI Manufacturing ticked up from 48.4 to 48.6 in June. PMI Services fell from 52.1 to 50.7. PMI Composite declined from 51.6 to 50.5.

                            Warren Hogan, Chief Economic Advisor at Judo Bank said:

                            “The loss of momentum in recent months will probably give the RBA some comfort that economic activity is slowing down across the economy in 2023, following their consecutive rate hikes in May and June…

                            “The survey suggests that the RBA has time on their side and does not necessarily need to hike rates again in July. The slowdown taking place across the economy provides further evidence that the point at which the RBA can undertake a genuine pause in their tightening cycle is getting closer.

                            “We cannot rule out a further hike in the next few months, but we are close to a level of interest rates whereby the RBA can sit back for 4-6 months and observe the effects of past interest rate increases.”

                            Full Australia PMI release here.

                            Fed Bowman: Additional policy rate increases necessary

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                              ActionForex.com
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                              In a speech today, Fed Michelle Bowman underscored that more action would be necessary to bring inflation under control.

                              She noted, “I believe that additional policy rate increases will be necessary to bring inflation down to our target over time.”

                              While acknowledging the influence of the current tighter monetary policy on both economic activity and inflation, she pointed out that “core inflation essentially plateau since the fall of 2022.”

                              She suggested Fed would need to raise interest rate to a “sufficiently restrictive stance of monetary policy to meaningfully and durably bring inflation down.”

                              Full speech of Fed Bowman here.

                              BoE Bailey: Raising interest rate is the best way to get inflation down

                                By
                                ActionForex.com
                                -

                                In a video release after today’s 50bps rate hike, BoE Governor Andrew Bailey said, “inflation is still too high”, and “recent data has shown us that further decisive action is needed”.

                                “If we don’t raise rates now, high inflation could stay with us for longer and inflation hits all of us, particularly those who can least afford it,” he warned.”

                                “Raising interest rates is the best way we have of getting inflation back down to the 2% target.”

                                https://twitter.com/bankofengland/status/1671862096831627264

                                 

                                 

                                US initial jobless claims unchanged at 264k

                                  By
                                  ActionForex.com
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                                  US initial jobless claims was unchanged at 264k in the week ending June 17, above expectation of 256k. Four-week moving average of initial claims rose 8.5k to 256k highest since November 13, 2021.

                                  Continuing claims dropped -13k to 1759k in the week ending June 10. Four-week moving average of continuing claims dropped -7.5k to 1770.

                                  Full US jobless claims release here.

                                  BoE hikes 50bps by 7-2 vote, further tightening could be required

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                                    ActionForex.com
                                    -

                                    BoE raises Bank Rate by 50bps to 5.00%, larger than consensus of 25bps. The decision was made by 7-2 vote, with only known dove Swati Dhingra and Silvana Tenreyro voted for no change again.

                                    Tightening bias is maintained as the central bank noted, “if there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.”

                                    BoE continues to expect CPI to “fall significantly further during the course of the year”. Services CPI is projected to “remain broadly unchanged in the near term”. Meanwhile, core goods CPI is expected to “decline later this year”.

                                    Second-round effects in domestic price and wage developments are “likely to take longer to unwind than they did to emerge”. There has been “significant upside news in recent data that indicates more persistence in the inflation process.”

                                    Full BoE statement here.

                                    SNB Jordan: We cannot rule out further tightening

                                      By
                                      ActionForex.com
                                      -

                                      In the post-meeting press conference, SNB Chair Thomas Jordan affirmed that “We cannot rule out further monetary policy tightening,” following a decision to increase interest rates by 25bos to 1.75% today.

                                      “Without a more restrictive monetary policy, there would be a danger of inflation becoming entrenched and much stronger rate increases would be needed in the future,” Jordan warned.

                                      Jordan acknowledged the recent marked decline in inflation as a welcome result of SNB’s more restrictive monetary policy in place for the past year. However, he cautioned that underlying inflationary pressure continued to intensify. “We are therefore observing persistent second-round effects in many domestic goods and services,” Jordan said.

                                      Despite today’s rate increase, SNB’s new forecasts for inflation from 2024 onwards are higher than their March predictions. Jordan attributed this upward revision to ongoing second-round effects, increased electricity prices and rents, and sustained inflationary pressure from overseas.

                                      SNB’s updated inflation projections show 2.2% in 2023 and 2024, and 2.1% in 2025, compared to previous forecasts of 2.6% for this year and 2% for the next two years.

                                      SNB hikes 25bps, inflation to fall to 1.7% in Q3 then bounce

                                        By
                                        ActionForex.com
                                        -

                                        SNB raises policy rate by 25bps to 1.75%, for “countering inflationary pressure, which has increased again over the medium term”. The central bank also leaves the door open for more tightening, as “it cannot be ruled out that additional rises in the SNB policy rate will be necessary”. SNB also maintains the willingness to intervene in the currency markets, with focus on “selling foreign currency”.

                                        In the new conditional forecast, 2023 inflation projection is lowered from 2.6% to 2.2%, down in from Q2 through Q4, with trough at 1.7% in Q3. However, 2024 and 2025 inflation projections are raised from 2.0% (both) to 2.2% and 2.1% respectively. Inflation is estimated to stay above 2% target from the tart of 2024 through Q1 2026, with a peak at 2.3% in Q3 2023.

                                        Regarding the economy, SNB expects “modest growth” for the rest of the year. Overall GDP is to growth by 1.0% in 2023 and unemployment rise will “probably rise slightly”. “Subdued demand from abroad, the loss of purchasing power due to inflation, and more restrictive financial conditions are having a dampening effect.”

                                        Full SNB statement here.

                                        BoE and SNB to hike for sure, but… by how much?

                                          By
                                          ActionForex.com
                                          -

                                          As BoE gears up for its monetary policy decision today, market observers find themselves divided on the scale of the expected rate hike. This indecision comes in the wake of a consumer inflation report released yesterday that muddied the waters. Headline CPI for May remained static at 8.7%, exceeding BoE’s own forecasts, while core CPI climbed to 7.1%, reaching its highest level since 1992.

                                          Market participants are currently betting on a 40% probability of a more substantial 50bps increase to 5.00%, and a 60% chance of a modest 25bps hike. The critical shift also lies in elevated projections for the terminal rate, which has shot up to 6.00%, a marked rise from below 5% merely a month ago.

                                          The verdict for today’s decision will also pivot significantly on the voting breakdown, which will serve as a bellwether for BoE’s future steps. Known doves Silvana Tenreyro and Swati Dhingra are more likely to vote against any changes. The real wildcard, however, is how many of the remaining seven members will advocate for a 50bps hike, even if a 25bps increase is ultimately implemented.

                                          SNB is also expected to announce its own rate hike from the current 1.50%. Chairman Thomas Jordan has signalled that interest rates may need to ascend above 2% threshold – a restrictive level – to reel inflation back below 2% mark. The quotes lies in timing of the attainment of this peak rate. Presently, the likelihood of either a 25bps or a 50bps hike today seems evenly split, making it a nail-biter.

                                          Some previews on BoE and SNB:

                                          GBP/CHF’s rally was choked after hitting 1.1502 earlier in the week, kept below 1.1574 resistance. For now, the favored case is still that triangle consolidation pattern from 1.1574 has completed at 1.1024. Rise from 1.1024 is seen as resuming the whole rally from 1.0183. Decisive break of 1.1574 will confirm this bullish case and target 61.8% projection of 1.0183 to 1.1574 from 1.1024 at 1.1884. However, firm break of 1.1347 support will dampen this view, and extend the pattern from 1.1574 with another fall.

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